U.S. Securities and Exchange Commission
Washington, D.C. 2054
FORM 10-QSB/A
(Amendment No. 1)
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1998
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-25828
Electropharmacology, Inc.
-------------------------
Exact name of small business issuer as specified in its charter
Delaware 95-4315412
-------- ----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
1109 N.W. 13th Street, Gainesville, FL 32601
--------------------------------------------
(Address of principal executive offices)
(352) 367-9088
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No ___
---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Number of Shares Outstanding
Class On September 30, 1998
----- ---------------------
Common Stock, $ .01 par value 12,505,485
Transitional Small Business Disclosure Format:
Yes____ No X
---
<PAGE>
ELECTROPHARMACOLOGY, INC.
INDEX TO 10-QSB/A
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Balance Sheets as of September 30, 1998 and December 31, 1997 2
Statements of Operations for the three months ended September 30,
1998 and 1997 3
Statements of Operations for the nine months ended September 30,
1998 and 1997 4
Statements of Cash Flows for the nine months ended September 30,
1998 and 1997 5
Notes to Financial Statements 7
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations for the nine months ended September 30,
1998 and 1997 18
PART II OTHER INFORMATION 28
ITEM 1. Legal Proceedings 28
ITEM 6. Exhibits and Reports on Form 8-K 29
Signatures 32
</TABLE>
The following information is hereby amended:
1. Balance Sheet as of September 30, 1998, contained in Part I, Item 1.
2. Statement of Operations for the three months ended September 30,
1998, contained in Part I, Item 1.
3. Statement of Operations for the nine months ended September 30, 1998,
contained in Part I, Item 1.
4. Statement of Cash Flows for the nine months ended September 30, 1998,
contained in Part I, Item 1.
5. Notes to Financial Statements, contained in Part I, Item 1.
6. Management's Discussion and Analysis of Financial Condition and
Results of Operations, contained in Part I, Item 2.
7. Legal Proceedings, contained in Part II, Item 1.
8. Exhibits and Reports on Form 8-K, contained in Part II, Item 2.
1
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ELECTROPHARMACOLOGY, INC.
Balance Sheets
(Unaudited with respect to September 30, 1998)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
- -------- 1998 1997
--------------------------------------
<S> <C> <C>
Current assets :
Cash $ 236,068 $ 111,496
Trade accounts receivable, net of allowance for doubtful accounts
of $26,367 at September 30, 1998 and $26,000 at December 31, 1997. 127,954 169,404
Inventory 152,233 7,171
Prepaid expenses 157,065 166,693
Other assets 6,519 32,748
--------------------------------------
Total current assets 544,405 622,946
Property, plant and equipment, net 337,219 713,466
Patents and organizational costs, net of accumulated amortization
of $18,786 at September 30, 1998 and $14,226 at December 31, 1997. 84,568 89,129
Deposits - 18,001
Investment in securities 922,896 -
--------------------------------------
Total Assets $ 1,889,088 $ 1,443,542
======================================
LIABILITIES AND NET CAPITAL DEFICIENCY
- ----------------------------------------
Current liabilities:
Notes payable $ 1,316,287 $ 804,179
Accounts payable 379,272 380,313
Accrued expenses 456,945 260,060
Capitalized lease obligations 53,164 -
Notes payable to related parties 129,580 73,926
--------------------------------------
Total Current liabilities 2,335,248 1,518,478
Long-term liabilities:
Notes payable 25,274 -
-------------------------------------
Total Liabilities 2,360,522 1,518,478
Commitments and contingencies
Minority interest in limited partnership 1,763,651 -
Redeemable Convertible Preferred Stock 7,100,000 -
Net capital deficiency:
Convertible preferred stock, $0.01 par value - 10,000,000 shares
authorized; -0- shares and 242,500 shares issued and outstanding at
September 30, 1998 and December 31, 1997, respectively. - 2,430
Common stock, $0.01 par value - 30,000,000 shares authorized;
12,505,480 shares and 4,071,194 shares issued and outstanding at
September 30, 1998 and December 31, 1997, respectively. 125,055 40,711
Additional paid-in capital 19,787,549 15,254,912
Unrealized gain 381,916 -
Deferred compensation (42,249) (67,678)
Dividend distribution (627,571) -
Deficit (28,959,785) (15,305,311)
--------------------------------------
Net capital deficiency (471,434) (74,936)
--------------------------------------
Total liabilities and net capital deficiency $ 1,889,088 $ 1,443,542
======================================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
Electropharmacology, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
September 30,
-------------------------------------
1998 1997
------------------ --------------
<S> <C> <C>
Revenue:
Rentals $ - $ 327,862
Sales 62,283 143,050
-------------------------------------
Total revenue 62,283 470,912
Operating expenses:
Cost of revenue 66,548 128,204
Selling, general and administrative 570,371 604,805
Impairment loss on intangible assets 7,812,038 -
Research and development 7,663,576 37,809
-------------------------------------
Total operating expenses 16,112,533 770,818
-------------------------------------
Loss from operations (16,050,250) (299,906)
Other income (expense)
Interest expense (18,072) (3,266)
Interest and other income 3,111 2,473
Gain(Loss) on disposal of equipment, net 662,985 (29,161)
-------------------------------------
Total other income (expense) 648,024 (29,954)
-------------------------------------
Net loss before minority interest $ (15,402,226) $ -
Minority interest 2,307,778 -
Net loss (13,094,448) (329,860)
=====================================
Net loss per share - basic and diluted $ (1.83) $ (0.09)
=====================================
Weighted average number of common shares outstanding -
basic and diluted 7,501,125 3,747,971
=====================================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
Electropharmacology, Inc.
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
-------------------------------------
1998 1997
------------------ ---------------
<S> <C> <C>
Revenue:
Rentals $ 359,143 $ 1,555,613
Sales 138,143 430,050
-------------------------------------
Total revenue 497,286 1,985,663
Operating expenses:
Cost of revenue 205,147 330,853
Selling, general and administrative 1,353,920 2,454,805
Impairment loss on intangible assets 7,812,038 -
Research and development 7,701,538 220,982
-------------------------------------
Total operating expenses 17,072,643 3,006,640
-------------------------------------
Loss from operations (16,575,357) (1,020,977)
Other income (expense)
Interest expense (54,721) (8,848)
Interest and other income 5,706 9,625
Gain(Loss) on disposal of equipment, net 662,120 (29,161)
-------------------------------------
Total other income (expense) 613,105 (28,384)
-------------------------------------
Net loss before minority interest $ (15,962,252) $ -
Minority interest 2,307,778 -
Net loss (13,654,474) (1,049,361)
=====================================
Net loss per share - basic and diluted $ (2.72) $ (0.31)
=====================================
Weighted average number of common shares outstanding -
basic and diluted 5,254,905 3,368,128
=====================================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
Electropharmacology, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
--------------------------------
1998 1997
---- ----
<S> <C> <C>
Operating activities
Net loss $ (13,654,474) (1,049,361)
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization 258,280 217,071
(Gain)Loss on disposal of equipment, net (662,120) 29,161
Decrease in provision for doubtful accounts - (79,000)
Liability incurred for severance agreement - 128,700
Issuance of common stock and warrants for services 141,750 159,536
Amortization of deferred compensation 25,429 -
Compensation expense for related party stock options 63,654 -
Write-off of in-process research and development 7,663,576 -
Write-off of purchased intangible assets 7,812,038 -
Loss attributable to minority interest (2,307,778)
Changes in operating assets and liabilities :
Decrease in accounts receivable 138,005 345,806
Decrease in other current assets 50,349 133,759
Decrease(Increase) in inventory 152,233 (334,299)
Decrease in prepaid expenses 75,094 19,128
Decrease in customer deposits (7,561) -
Increase in accounts payable and accrued expenses 95,934 341,537
--------------------------------
Net cash (used in) operating activities (155,591) (87,962)
--------------------------------
Investing activities
Proceeds from sale of equipment 164,420 7,300
Purchase of technology (7,500,000)
Purchases of property and equipment (98) (504)
Cash acquired in acquisition 238,133
--------------------------------
Net cash provided by (used in) investing activities (7,097,545) 6,796
--------------------------------
Financing activities
Proceeds from issuance of common stock and warrants - 11,293
Proceeds from issuance of redeemable convertible preferred stock 7,500,000
Repayment of notes payable to related parties ( 8,000) (120,700)
Repayment of notes payable (114,292) -
Repayment of capital lease obligations - ( 20,429)
--------------------------------
Net cash provided by (used in) financing activities 7,377,708 (129,836)
--------------------------------
Net increase (decrease) in cash 124,572 ( 211,002)
Cash at beginning of period 111,496 223,523
--------------------------------
Cash at end of period $236,068 $ 12,521
================================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, net $ 21,867 $ 8,848
================================
5
<PAGE>
Supplemental disclosure of non-cash investing and financing activities:
Issuance of common stock for services, net of unearned compensation - 159,536
Asset recognized and liability incurred for the financing of the
directors and officers liability insurance premiums 78,400 169,472
Asset recognized and liability incurred for the financing of the
product liability insurance premiums 6,322 -
Liability incurred for execution of severance agreement with
related party - 128,700
Details of settlement with outside counsel:
Disposal of investment in securities 650,000 -
Issuance of common stock 128,166 -
Details of disposal of SofPulse business:
Investment in securities 1,190,980 -
Net assets disposed 615,998 -
Details of acquisition of HealthTech Development, Inc.:
Fair value of assets acquired 7,245 -
Liabilities assumed 48,707 -
Issuance of common stock 3,315,297 -
Details of acquisition of Gemini Biotech, Ltd.:
Fair value of assets acquired 770,060 -
Liabilities assumed 1,316,207 -
Conversion of preferred stock for common stock 630,000 -
Conversion of warrants for common stock 118,800 -
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
ELECTROPHARMACOLOGY, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Notes to Financial Statements (Unaudited)
Summary of Significant Accounting Policies
(1) Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete audited financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three- and nine-month periods ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1997.
Certain 1997 balances have been reclassified to conform with the
presentation used in 1998.
(2) Cash
As of September 30, 1998, the Company had restricted cash of $143,942
related to an outstanding loan obligation of the Company's majority owned
subsidiary, Gemini Biotech, Ltd. ("Gemini"), acquired on August 24, 1998. Under
the terms of the obligation, these restricted funds were to be used for future
leasehold improvements and certain machinery and equipment. However, as of
December 22, 1998, Gemini obtained a modification of the loan eliminating these
restrictions and accordingly, these amounts are classified on the Balance Sheet
as unrestricted for the period ended September 30, 1998.
(3) Inventory
Inventory, which as of September 30, 1998, consists primarily of raw
materials used in custom synthesis services, and as of December 31, 1997,
consisted primarily of raw materials related to the manufacturing of the
SofPulse device, is valued at the lower of cost (average cost method) or market.
(4) Net Loss per Share
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128 ("SFAS No. 128"), EARNINGS PER SHARE, which established new standards
for computing and presenting earnings per share. SFAS No. 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share.
All loss per share amounts have been presented to conform to the SFAS
No. 128 presentation. For the nine months ended September 30, 1998 and 1997,
options and warrants were excluded from the computation of net loss per share
because the
7
<PAGE>
effect of inclusion would be antidilutive due to the Company's net operating
losses. During the third quarter of 1998, the Company recognized a dividend of
$627,571 related to the induced conversion of convertible preferred stock into
common stock. This amount has been added to the Company's net loss in the
computation of net loss per common share. For the three months ended September
30, 1998 net loss per share is calculated as $(13,094,448) plus the dividend of
$627,571, resulting in net loss allocated to common shares of $(13,722,019).
This amount divided by the weighted average common shares outstanding of
7,501,125 computes to net loss per share of $(1.83). For the nine months ended
September 30, 1998 net loss per share is calculated as $(13,654,474) plus the
dividend of $627,571, resulting in net loss allocated to common shares of
$(14,282,045). This amount divided by weighted average common shares outstanding
of 5,254,905 computes to net loss per share of $(2.72).
(5) Use of Estimates and Concentration of Credit Risk
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ significantly from those estimates.
Until May 27, 1998, the Company sold and/or rented its SofPulse product
to healthcare providers such as nursing homes, hospitals and physician practice
groups with no specific geographic concentration and extended credit based on an
evaluation of the customer's financial condition, generally without requiring
collateral. Exposure to losses on receivables was principally dependent on each
customer's financial condition. The Company monitors its exposure for credit
losses and maintains an allowance for anticipated losses.
(6) Liquidity and Basis of Presentation
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business.
The Company reported a net loss of $(13,654,474) for the nine months
ended September 30, 1998 and incurred cumulative net operating losses
aggregating $(28,959,785) through September 30, 1998. In addition, at September
30, 1998, the Company had a deficiency in working capital of $1,790,843 and a
net capital deficiency of $471,434.
As more fully described in Note 7, on August 24, 1998, the Company
consummated a corporate reorganization, the purpose of which is to better enable
the Company to focus its efforts on research and development activities. Also
described in Note 7, in August 1998, the Company sold substantially all of its
assets and certain liabilities related to the manufacturing, sales and marketing
activities of its SofPulse device for its currently approved label indications
while retaining rights to the underlying therapeutic eletromagnetic signal
technology for other medical applications such as drug delivery and tissue
repair. This transaction immediately resulted in cash proceeds of $150,000 and
the satisfaction of $650,000 of notes payable. Also, as more fully described in
Note 12, on September 30, 1998, the Company received a commitment from Elan
International Services, Ltd. to invest $2,000,000 in shares of the Company's
common stock. As of March 31, 1999, $1,500,000 of the commitment has been
received. In addition, the Company's 1998 operating plan contemplates stringent
cost controls and a staged commitment to product development and clinical
studies until additional funds are obtained from increased revenues from
Gemini's custom DNA and peptide synthesis or Federal research grants, or a
contemplated financing. There can be no assurance that either of these measures
will be successful.
8
<PAGE>
The Company cannot predict whether the operating and financing plans
described above will be successful. If the Company is unable to successfully
obtain additional financing, it may not be able to continue as a going concern
and may be unable to meet its obligations, making it necessary to undertake such
other actions as may be appropriate to preserve the value of certain
technologies.
(7) Recent Corporate Reorganization
Overview
The Company consummated a corporate reorganization, consisting of five
steps, on August 24, 1998. First, the Company contributed all its assets and
liabilities (other than those assets and liabilities related to its business of
manufacturing and distributing the SofPulse device (the "SofPulse Business")) to
its wholly-owned subsidiary, EPI HealthTech Inc., a Delaware corporation ("EPI
Sub") in exchange for 100 shares of EPI Sub common stock. Second, HealthTech
Development Inc. ("HTD"), a privately held company, was merged into EPI Sub,
with the shareholders of HTD receiving an aggregate of 6,172,095 shares of the
Company's common stock (such number of shares being substantially equivalent to
the number of shares of the Company's common stock outstanding at such time, or
6,333,385 shares). Third, EPI Sub contributed all its assets and liabilities
(including both the assets and liabilities contributed to it by the Company and
the assets and liabilities of HTD) to Gemini Health Technologies L.P., a newly
formed Delaware limited partnership (the "Partnership") in exchange for
12,505,480 partnership units of the Partnership (such number of partnership
units corresponding to the number of shares of the Company's common stock issued
and outstanding following the issuance of shares of the Company's common stock
to the shareholders of HTD). Simultaneously with the contribution of EPI Sub's
assets and liabilities to the Partnership, Krishna and Shashikala Jayaraman
("the Jayaramans") transferred all the limited partnership interests in Gemini
Biotech Ltd. ("Gemini"), a privately held Texas limited partnership and all the
stock of Gemini's general partner, Gemini Biotech, Inc. ("GBI"), to the
Partnership in exchange for 6,000,000 partnership units in the Partnership,
which partnership units are exchangeable, subject to certain restrictions, for
shares of the Company's common stock, on the basis of one share of the Company's
common stock for each partnership unit (subject to adjustment in the case of
certain events concerning the Company and/or the Partnership). Fourth, the
Company issued 1,872,000 shares of its common stock to the holders of certain
warrants and all outstanding preferred stock of the Company in exchange for such
warrants and preferred stock. Fifth, the Company sold substantially all its
assets and specified liabilities relating to the SofPulse Business to a
wholly-owned subsidiary of ADM Tronics Unlimited, Inc. ("ADMT"), a publicly
traded company, in exchange for a combination of $150,000 in cash, 1,400,000
shares of ADMT common stock issued to the Company, an additional 1,525,000
shares of ADMT common Stock issued to pay approximately $650,000 of a Company
note payable (as disclosed in the details of settlement with outside counsel in
the non-cash investing and financing activities of the Statements of Cash
Flows), and a warrant to purchase up to 1,500,000 additional shares of ADMT
common Stock if ADMT achieves certain sales objectives with respect to its
conduct of the SofPulse Business.
The effect of the corporate reorganization is the businesses previously
conducted by the Company (other than the SofPulse Business), HTD and Gemini are
now being conducted by the Partnership and Gemini. EPI Sub is the general
partner of the Partnership and the Jayaramans are the limited partner of the
Partnership. The Partnership is the limited partner of Gemini and GBI remains as
the general partner of Gemini. At such time as the Jayaramans exchange all of
their partnership units in the Partnership for shares of the Company's common
stock, it is expected the Partnership and Gemini will be dissolved, EPI Sub will
be dissolved and all of such businesses will be conducted by the Company. In
connection with the corporate reorganization, the Company also will change its
name to Gemini Health Technologies Inc.
9
<PAGE>
(8) Determination of Purchase Price for HTD and Gemini
The purchase price for HTD and Gemini was determined by the Company's
management in accordance with APB 16 and was based upon a number of objective
and subjective factors including but not limited to (a) reference to the market
price of the Company's common stock during the negotiation period and leading up
to the execution of the merger and acquisition agreements; (b) management's
estimation that the outstanding liabilities, transaction costs and ongoing
operation costs of HTD through the closing of its merger into EPI Sub would
generally offset the realizable value of HTD's tangible assets, such that the
only material assets of HTD remaining as of the effective time of the merger
would be intangible assets consisting of technology rights and license
agreements; (c) management's assessment of the realizable fair market value of
Gemini's inventory of molecular biology reagents, the small molecule drug design
technology and the customer list for Gemini's custom DNA and peptide synthesis
services; and (d) assessment of the synergistic value of (i) HTD's various
technologies (ii) Gemini's various technologies (iii) the technologies licensed
through an agreement with Elan Pharma International and (iv) the investment by
Elan International Services, Ltd. in common stock of the Company in combination
with the Company's own drug delivery technologies in attracting corporate
sponsors, facilitating technology licenses and other fund raising activities,
and providing a greater balance to the Company's stockholders.
APB 16 states the cost of an acquired company is measured by the fair
value of the consideration received. The consideration paid was in the form of
the Company's common stock (with lock-up provisions) and was derived by
multiplying the number of shares issued by the share price. This was used in
accordance with EITF 95-19, Determination of the Measurement Date of the Market
Price of Securities Issued in a Purchase Business Combination.
For the HTD acquisition, the two companies reached an agreement on the
purchase price on June 11, 1998. Therefore, the Company used the average closing
price for 3 days before, after and including June 11, 1998 ($0.537 per share) to
value the transaction, resulting in a valuation of $3,315,297 ($0.537 x
6,172,095 shares).
For the Gemini acquisition, the two companies reached an agreement on
the purchase price on June 18, 1998. Therefore, the Company used the average
closing price for 3 days before, after and including June 18, 1998 ($0.679 per
share) to value the transaction, resulting in a valuation of $4,071,429 ($0.679
x 6,000,000 partnership units exchangeable for 6,000,000 shares). These
partnership units are exchangeable into shares of the Company's common stock,
one year from the acquisition date. Since no market value exists for the
partnership units, the Company has elected to utilize the Company's share price
for valuation purposes.
(9) Accounting for Acquisitions and Allocation of Purchase Price
The HTD and Gemini acquisitions have been accounted for as purchase
transactions with the Company as the acquiring company. The total estimated
purchase price of $3,315,297 for HTD and $4,071,429 for Gemini has been
allocated to the fair market values of the assets acquired and the liabilities
assumed. The allocation of the purchase price is based upon information that was
available at the date of preparation of the September 30, 1998 financial
statements and is subject to change, although this preliminary allocation is not
expected to materially differ from the final allocation.
In accordance with the provisions of APB Nos. 16 and 17, all
identifiable assets acquired, including identifiable intangible assets, were
assigned a portion of the purchase price on the basis of their fair values. To
this end, the Company performed a detailed analysis to determine the fair values
of the identifiable assets in allocating the purchase price among the acquired
assets.
10
<PAGE>
The stock valuation and comparable market approaches were used to value
the acquired assets. Standard valuation procedures indicate these are
appropriate methodologies for valuing intangible assets such as patents and
patent applications, licenses, employment agreements, noncompete agreements,
small molecule drug compounds, genetic databases, and various other intellectual
properties.
In the case of HTD, the acquired technologies have various
ascertainable development timelines with additional personnel and financial
resources still required for further development in order to realize economic
benefits. The acquired technologies include intellectual property in the design
of cancer drugs, new drug targets, and immune system booster technologies. Since
the technologies are not well defined, management of the Company has determined
that a combination of the various valuation methodologies would provide the most
reliable valuation. Other intangibles considered included license agreements,
patents and patent applications, reputation and associated goodwill, as well as
the commercial potential for research and development projects in progress. A
review of the assets and liabilities carried on HTD's balance sheet as of the
acquisition date indicated the carrying value of such assets and liabilities did
not approximate their fair values at that date and, accordingly, various
intangible assets of $2,364,875 were recorded. As a result of the development
timeline, substantial development costs, uncertainty regarding technological
feasibility, and various other uncertainties involved related to the
commercialization of the acquired technologies, the Company also recorded at the
time of acquisition a one-time charge of $994,589 related to in-process research
and development.
The calculation of the estimated purchase price is as follows:
<TABLE>
<CAPTION>
<S> <C>
EQUITY:
Common stock issued (6,172,000 shares valued
At $0.537 per share)........................ $ 3,315,297
------------
Estimated Total Purchase Price....................... $ 3,315,297
The estimated allocation of the purchase price was as follows:
In-Process Research and Development charged to expense........ $ 994,589
Liabilities assumed $ (44,167)
Intangibles................................................... $2,364,875
------------
Total Purchase Price........................ $3,315,297
</TABLE>
Subsequent to its valuation, respective allocation of the purchase
price and the recording of intangible assets, and in accordance with FAS 121,
Accounting for the Impairment of Long-lived Assets, management evaluated the
various intangible assets in the amount of $2,364,875 recorded in the HTD
acquisition and determined that such assets are permanently impaired due to the
Company's current period operating loss combined with a history of operating
losses. Therefore, an impairment loss for the total amount of the various
intangibles has been recognized in the current period income statement.
As a condition to the HTD merger agreement, up to an additional
1,650,000 shares of common stock of the Company may be issued to the former
shareholders of HTD based on the achievement of certain minimum revenues and net
pretax profit percentages from services based on HTD's technologies, and/or
certain development milestones.
In the case of Gemini, the acquired technologies have various
ascertainable
11
<PAGE>
development timelines with additional personnel and financial resources still
required to be expended for further development in order to realize economic
benefits. The acquired technologies include intellectual property in the design
of cancer and inflammation drugs. Since the technologies are not well defined,
management of the Company has determined a combination of the various valuation
methodologies would provide the most reliable valuation. Other intangibles
considered include license agreements, patents and patent applications,
reputation and associated goodwill, as well as the commercial potential for
research and development projects in progress. A review of the assets and
liabilities carried on Gemini's balance sheet as of the acquisition date
indicated the carrying value of such assets and liabilities did not approximate
their fair values and accordingly, various intangible assets of $3,947,163 were
recorded. As a result of the development timeline, substantial development
costs, uncertainty regarding technological feasibility, and various other
uncertainties involved related to the commercialization of the acquired
technologies, the Company recorded at the time of acquisition a one-time charge
of $668,987 related to in-process research and development.
The calculation of the estimated purchase price is as follows:
<TABLE>
<CAPTION>
<S> <C>
EQUITY:
Partnership Units issued (6,000,000 units convertible into
6,000,000 shares of common stock of the Company after 12
months, valued at $0.679 per unit)...................... $4,071,429
--------------
Estimated Total Purchase Price........................... $4,071,429
The estimated allocation of the purchase price was as follows:
In-Process Research and Development charged to expense........... $ 668,987
Liabilities assumed.............................................. $ (544,721)
Intangibles...................................................... $ 3,947,163
--------------
Total Purchase Price............................................. $ 4,071,429
</TABLE>
Subsequent to its valuation, respective allocation of the purchase
price and the recording of intangible assets, and in accordance with FAS 121,
Accounting for the Impairment of Long-lived Assets, management evaluated the
various intangible assets in the amount of $3,947,163 recorded in the Gemini
acquisition and determined that such assets are permanently impaired due to the
Company's current period operating loss combined with a history of operating
losses. Therefore, an impairment loss for the total amount of the various
intangibles has been recognized in the current period income statement.
As a condition to the Gemini merger agreement, up to 2,050,000
additional partnership units (convertible into 2,050,000 shares of common stock
of the Company) may be issued to the former partners of Gemini based on the
achievement of certain revenues and pretax profit percentages from Gemini's
custom DNA and peptide synthesis services and/or certain development milestones.
Gemini has been consolidated as of September 30, 1998 and accordingly
the Company has recorded a Minority Interest in Limited Partnership of
$1,763,651.
(10) Divestiture of the Company's SofPulse Business and Settlement of
Certain Liabilities
On August 18, 1998, the Company sold substantially all the assets of
its SofPulse medical device business to a wholly-owned subsidiary of ADM Tronics
12
<PAGE>
Unlimited, Inc. ("ADMT"), a publicly traded company, in exchange for a
combination of $150,000 in cash, 1,400,000 shares of ADMT common stock issued to
the Company, and an additional 1,525,000 shares of ADMT common stock issued to
pay approximately $650,000 of a secured note payable to the Company's previous
corporate counsel for previously incurred legal fees. In additional, ADMT issued
the Company a warrant to purchase 1,500,000 additional shares of ADMT common
stock if ADMT achieves certain sales objectives with respect to its conduct of
the SofPulse business. The value of the 2,925,000 total shares of ADMT stock
received equaled $1,190,980. The Company disposed of net assets totaling
$615,998 and received cash of $150,000, resulting in a net gain of approximately
$725,000. These non-cash items have been reflected in the supplemental
disclosures of non-cash investing and financing activities. On December 16,
1998, ADMT common stock was delisted by Nasdaq from Nasdaq SmallCap and these
shares currently trade on Over the Counter Bulletin Board.
On August 24, 1998, in conjunction with the merger of HTD, the Company
issued 322,581 common shares at a price of $0.397 per share in settlement of the
remaining portion of a secured note payable and other unsecured payables owed to
the Company's previous corporate counsel for legal expenses totaling
approximately $128,000. These non-cash items have been reflected in the
supplemental disclosures of non-cash investing and financing activities.
(11) Conversion of Preferred Stock and Exchange of Warrants
On August 24, 1998, in conjunction with the merger of HTD, the Company
issued 1,575,000 common shares, valued at $630,000, for the conversion of the
outstanding preferred stock and issued 297,000 common shares, valued at
$118,800, in exchange for certain outstanding warrants, as disclosed in the
supplemental disclosures of non-cash investing and financing activities in the
Statements of Cash Flows. As a result of these issuances the Company recorded a
dividend of $627,571 and additional consulting expense of approximately
$119,000.
(12) Elan License Agreement and Investment in the Company
On September 30, 1998, the Company acquired a worldwide license to the
flexible iontophoretic patch technology for non-cosmetic dermatology and wound
care applications from Elan Pharma International ("Elan Pharma"). The Company
made a cumulative payment of $7,500,000 to Elan Pharma for various intangible
assets (including licenses to pending patent applications, product design and
know-how related to approval by the regulatory authorities), and certain
in-process research and development. The Company will pay prescribed royalties
and license fees to Elan Pharma based on the Company's future revenues from the
commercialization of the licensed technology.
The Company's management has determined the licensed technology has
various ascertainable development timelines with additional human or financial
resources still required to be expended for further development in order to
realize economic benefits. As a result of the long development timeline,
substantial development costs, and uncertainties related to the technological
feasibility and commercialization of the licensed technology, the Company
classified $1,500,000 as an intangible asset and recorded a one-time charge of
$6,000,000 to in-process research and development.
In addition, in accordance with FAS 121, Accounting for the Impairment
of Long-lived Assets, management has evaluated the various intangible assets in
the amount of $1,500,000 recorded in the acquisition of licensed technology and
determined that such assets are permanently impaired due to the Company's
current period operating loss combined with a history of operating losses.
Therefore, an impairment loss for the total amount of the various intangibles
has been recognized in the current period income statement.
13
<PAGE>
Separately, Elan International Services, Ltd. ("Elan International")
invested $7,500,000 in the Company to acquire 7,500 shares of Redeemable
Convertible Preferred Stock at a conversion price of $1.20 per share and
warrants to acquire up to 1,000,000 shares of common stock of the Company at an
exercise price of $2.50 per share. Elan International has also committed to
invest an additional $2,000,000 to acquire shares of the Company's common stock
at the election of the Company at the 20-day average closing price preceding
such close, at a maximum purchase price of $1.375 per share.
Using the Black Scholes options pricing model, the warrants have a fair
market value of $400,000. Accordingly, the Company has recorded this amount as
additional paid in capital, leaving the balance allocated to redeemable
convertible preferred stock of $7,100,000 ($7,500,000 less $400,000).
On October 30, 1998, Elan International acquired 777,202 shares of
common stock of the Company at $0.772 per share, or an aggregate of $600,000. On
January 4, 1999, Elan International acquired 2,057,143 shares of common stock of
the Company at $0.4375 per share, or an aggregate of $900,000. Elan
International has agreed to acquire additional equity or another form of
securities of the Company for an aggregate of $500,000 subsequent to March 31,
1999. This will complete the $2,000,000 committed investment.
(13) Notes Payable
Notes payable at December 31, 1997 and September 30, 1998 consists of
the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------ ------------
<S> <C> <C>
8% note payable to outside counsel $672,751 --
7.99% note payable to finance
directors and officer's insurance 120,311 121,483
9.75% notes payable to finance
commercial general liability insurance 11,117 5,649
Variable rate note payable to Benefit
Life Insurance Company, due July 1,
2006 -- 1,214,429
------------- --------------
804,179 1,341,561
Less: Current portion 804,179 1,316,287
------------- --------------
$ -- $ 25,274
============= ==============
</TABLE>
The note payable to outside counsel as of December 31, 1997 was due on
December 31, 1998, was collateralized by a security agreement on 55 SofPulse
units, and was satisfied as part of the sale of the SofPulse business to ADMT
and merger with HTD.
The note payable to finance directors and officers' insurance as of
December 31, 1997 was due on December 15, 1998; however, this note was
refinanced on April 17, 1998 and the due date was extended to December 15, 1999
for an additional premium of $78,400, as disclosed in the supplemental
disclosures of non-cash investing and financing activities in the Statements of
Cash Flows.
The note payable to finance commercial general liability insurance as
of December 31, 1997 was paid off April 21, 1998. A new note was entered into on
August 18, 1998 with a due date of June 3, 1999 for a premium of $6,322 as
14
<PAGE>
disclosed in the supplemental disclosures of non-cash investing and financing
activities in the Statements of Cash Flows.
On June 27, 1997, Gemini entered into loan and note agreements (the
"Loan Agreement") with an insurance company in the amount of $1,315,000. The
loan amortizes over 101 payments ending July 1, 2006. Interest is at two points
over prime. At September 30, 1998 the rate was 9.75%. The collateral for the
note is Gemini's assets, including accounts receivable, inventory, property and
equipment owned by Gemini and to be acquired in the future. In addition,
repayment of the loan is guaranteed in part by the Rural Biological Science
Department of the U.S. Department of Agriculture. The Chief Executive Officer
and President of the Company's Gemini Biotech Division, a majority owned
subsidiary of the Company, and his wife, have personally guaranteed the
repayment of this indebtedness.
As of September 30, 1998, Gemini had been advanced approximately
$1,171,000 of the total loan. The insurance company had recorded the transaction
as though Gemini borrowed the entire $1,315,000 at the inception of the loan.
The insurance company had retained the balance as of September 30, 1998, of
$143,942 in a bank. This amount was restricted as of September 30, 1998;
however, as of December 22, 1998, Gemini obtained a modification of the loan
eliminating these restrictions and adding EPI's corporate guarantee and 55
SofPulse machines as collateral. Accordingly, this entire loan amount has been
received and recorded as unrestricted as of September 30, 1998.
The Loan Agreement states Gemini must maintain certain financial
covenants principally relating to working capital, fixed charge ratios and net
worth. The covenants also include a limitation on compensation and
distributions. All of the amounts outstanding under the Agreement will become
due and payable if an event of default occurs. As of September 30, 1998, Gemini
was not in compliance with certain ratios relating to net worth and working
capital. Accordingly, the entire amount has been shown as current. The insurance
company currently has the right to accelerate payment of the note.
(14) Notes Payable to Related Parties
In October 1997, the Company issued three notes payable to its Chief
Financial Officer, Chief Executive Officer and a member of the board of
directors totaling $65,926 in exchange for cash advances of $45,000 and
non-payment of salaries of $20,926. These notes bear interest at prime (7.75% at
September 30, 1998) plus 1% and are due on demand. The balances due under the
agreements at December 31, 1997 and September 30, 1998 were $65,926.
Effective as of August 24, 1998, as a result of the merger with HTD and
the acquisition of Gemini in conjunction with certain change of control
provisions in the employment contract with the Company's Chief Executive
Officer, the Company recorded a related party payable to the Chief Executive
Officer for $63,654 related to the exercise of 244,823 options to purchase
common stock at $.26 per share. The balance due under this agreement at
September 30, 1998 was $63,654.
On April 12, 1997, the Company and a former Chief Executive Officer,
Mr. Joseph Mooibroek, entered into a severance agreement that provides for,
among other things, a cash payment by the Company of $128,700 in settlement of
all rights under his employment agreement with the Company. The loan and accrued
interest was paid in installments through January 1998. The balance due under
this agreement at December 31, 1997 and September 30, 1998 was $8,000 and $-0-,
respectively.
(15) Employment Agreements
As of December 31, 1997, the Company had employment agreements with
certain executive officers, the terms of which expire at various times through
December
15
<PAGE>
31, 2001. In the recent corporate reorganization of the Company, these
agreements were terminated and replaced by memorandums by the Board of Directors
to the executive officers outlining, in general, the revised terms of employment
of these officers. In addition, on August 19, 1998, a new employment agreement
was entered into with the President of the Gemini Biotech Division, a majority
owned subsidiary of the Company, the term of which expires August 18, 2001.
On August 25, 1998, the Board of Directors issued a memorandum to Arup
Sen, outlining, in general, the terms of employment of Dr. Sen as Chief
Executive Officer of the Company, effective as of September 1, 1998. The
memorandum provides for an initial base salary of $130,000, which has increased
to $150,000 and may increase up to $200,000 in a series of stepped increments
upon the achievement of specified milestones. The memorandum also provides the
Company will grant to Dr. Sen a ten-year option to purchase 500,000 shares of
the Company's common stock at the stock price at the close of trading on the
date of grant (August 25, 1998), 150,000 of which have vested based on the
achievement of specific milestones set by the Board of Directors, with the
remainder to vest subject to the achievement of other such milestones. In the
event that Dr. Sen's employment is terminated without "cause" before three
years, Dr. Sen is entitled to a severance of six months' base salary, subject to
his mitigation of such payment by seeking other employment. All of his stock
options will vest immediately and will remain exercisable for the original term
of the option in the event his employment is terminated due to an acquisition by
or merger with a third party not recommended and/or approved by Dr. Sen. Dr. Sen
is also subject to a non-compete agreement as part of his employment.
On August 25, 1998, the Board of Directors issued a memorandum to David
Saloff, outlining, in general, the terms of employment of Mr. Saloff as
Executive Vice President- Sales and Marketing of the Company, effective as of
September 1, 1998. The memorandum provides for an initial base salary of
$80,000, which may increase up to $110,000 upon certain events, including the
achievement of certain annual revenues to be calculated by annualizing the prior
six months' revenues. The memorandum also provides that Mr. Saloff will be
entitled to an override on sales revenue at specified percentages of the
annualized revenue calculated based on the previous month's revenues. Once Mr.
Saloff's aggregate annual compensation equals or exceeds $200,000, the Company
and Mr. Saloff will negotiate a new mutually acceptable compensation
arrangement. The memorandum also provides that the Company will grant to Mr.
Saloff on August 25, 1998, a ten-year option to purchase 200,000 shares of the
Company's common stock at the stock price at close of trading on the date of
grant, with 20% of the shares covered thereby vesting upon the first anniversary
date, and an additional 20% each succeeding anniversary date, with vesting to
accelerate based on meeting certain sales revenue growth targets and other
events related to PEMS technologies and products relating to the Company's
previous SofPulse device. Mr. Saloff is also subject to a non-compete agreement
as part of his employment.
As part of the reorganization transactions, the Company entered into an
employment agreement with Dr. Krishna Jayaraman dated August 19, 1998, for a
term expiring on August 19, 2001 for Dr. Jayaraman's services as President and
Chief Executive Officer of the Gemini Biotech Division, a majority owned
subsidiary of the Company. This agreement provides for a base salary of $120,000
which has increased to $150,000 and may increase further to $200,000 based on
certain corporate milestones and revenues of the Gemini Biotech Division. He is
also entitled to benefits, a term life insurance contract, an automobile
allowance and four weeks' vacation per year. The agreement also provides that
the Company will grant to Dr. Jayaraman on the date of the agreement an option
to purchase 250,000 shares of common stock, with 50,000 of the shares covered
thereby vesting immediately, 62,500 of the shares covered thereby vesting on
each of the first and second anniversaries of the agreement and an additional
75,000 of the shares covered thereby vesting on the third anniversary of the
date of the agreement. The agreement also provides that if Dr. Jayaraman's
employment is terminated by him by permitted resignation or by the Company other
than for "cause", Dr. Jayaraman will receive an amount equal to 85% of the
remaining portion of the base salary due him under the term of the agreement,
unless there is a permitted
16
<PAGE>
resignation following a relocation of Dr. Jayaraman due to a change in control
not proposed or recommended by Dr. Jayaraman. In such case, Dr. Jayaraman would
receive the sum of his annual base salary and the average annual bonus received
by him during the previous two-year period. In the event of termination without
"cause" or by permitted resignation, Dr. Jayaraman will continue to receive
benefits pursuant to the Company's welfare programs and perquisite plans until
the earliest of one year after his termination, the end of the term of the
agreement, or until Dr. Jayaraman is re-employed. In addition, all of Dr.
Jayaraman's options will immediately vest and be exercisable for the full term
of the option. Dr. Jayaraman is also subject to a non-compete agreement as part
of his employment.
(16) Contingencies and Litigation
In August 1994, a competitor of the Company filed a lawsuit against the
Company and certain of its present and former directors and officers alleging
the defendants had engaged in deceptive acts and practices, false advertising,
unfair competition, breach of contracts of fiduciary duties between the
plaintiff and certain Company employees, and the Company's involvement in
facilitating or participating in the breach of contracts. The plaintiff is
seeking an injunction to rectify the effects of the misconduct, an unspecified
amount of compensatory damages, disgorgement of profits, treble damages,
punitive damages and attorney's fees. The plaintiff also seeks unspecified
injunctive relief prohibiting the Company from engaging in the alleged acts and
ordering the defendants to take remedial action to rectify the effects on
consumers and the plaintiff caused by the alleged acts. The Company believes it
has meritorious defenses, which it will pursue vigorously and has filed a
counterclaim against the plaintiff and its President, Dr. Jesse Ross. The
Company's future product development, including the development of the
technology underlying the SofPulse product, is not likely to be adversely
affected by the outcome of the litigation. However, management is unable to make
a meaningful estimate of the likelihood or amount or range of loss that could
result from an unfavorable outcome of the pending litigation. It is possible the
Company's results of operations or cash flows in a particular quarter or annual
period or its financial position could be materially affected by an unfavorable
outcome.
On August 28, 1997, a former employee of a distributor of the SofPulse
device, filed a complaint against the Company and the distributor alleging
failure to pay commissions owed. In May 1998, the former employee dismissed the
complaint against the Company whereupon the distributor immediately filed a
cross-complaint against the Company for breach of the agreement between the
Company and the distributor for failing to pay commissions owed in excess of
$30,000. This matter was settled on January 27, 1999, whereby the Company agreed
to pay $9,500 to the distributor. The Company's balance sheets at September 30,
1998 and December 31, 1997 included an accrual for this matter.
On July 14, 1998, a former employee of the Company, filed a complaint
alleging the failure by the Company to make payments of $20,000 due to the
former employee under an agreement pursuant to which the former employee and the
Company had agreed to the terms of the termination of their employer-employee
relationship. In December 1998, the former employee and the Company entered into
a settlement agreement under which the Company is obligated to pay $16,500 in
monthly installments of $1,500 beginning on December 1, 1998. The Company's
balance sheets at September 30, 1998 and December 31, 1997 included an accrual
for this matter.
(17) Pro Forma
The following Pro Forma Condensed Combined Statement of Operations for
the third quarter and nine months ended September 30, 1998 reflects adjustments
for: (i) the acquisitions by the Company of HTD and Gemini; (ii) the sale of
substantially all assets related to the Company's SofPulse device to AA
Northvale
17
<PAGE>
Medical Associates, Inc., a subsidiary of ADMT; and (iii) the acquisition of a
worldwide license to Elan's flexible iontophoretic patch technology for
non-cosmetic dermatology and wound care application.
The pro forma adjustments assume these transactions have occurred as of
January 1, 1998.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Total Revenue $ 150,905 $ 567,818
=============== ===============
Pro Forma Net Losses Applicable to Common
Share Owners (16,228,165) (17,097,600)
=============== ===============
Pro Forma Basic and Diluted Net Losses Per
Share Applicable to Common Share Owners $ (2.25) $ (3.38)
=============== ===============
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements about
the plans and business of the Company after the completion of its corporate
reorganization and consummation of the transactions with Elan, plc. Actual
events and results may differ materially from those anticipated in these forward
looking statements. The Company'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 the
Company 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 the company's
technologies and potential products developed therefrom. Accordingly, there can
be no assurances the Company will achieve its business objectives.
General
The Company recently completed restructuring its business through a
series of transactions. Our new business is a biotechnology company developing
proprietary products for complex diseases such as cancer, chronic tissue damage
and inflammation that are not effectively treated by available drugs or
treatment methods. Our current business is to develop: (i) drug delivery
technologies to better deliver pharmaceutical drugs to diseased tissues and (ii)
drug design technologies to create new drugs aimed at the genes and proteins
being discovered by scientists as the underlying causes of complex diseases.
Our two drug delivery technologies take advantage of the ability of
mild electrical currents to travel across and through the skin and of pulsed
radiofrequency electromagnetic signals (PREMS) to be broadcast through
superficial soft tissues:
o We acquired a worldwide license for non-cosmetic dermatology and wound
care to a flexible iontophoresis patch technology developed by Elan,
plc., a world leader in the development of drug delivery products.
Iontophoresis is a technology that is used to increase the local
delivery of drugs across the skin by the application of a mild
electrical current. This technology has promising applications in
improving the effects of drugs in a wide range of skin disorders and
wounds.
o During the past six years, we developed and demonstrated the use of
PREMS technology that is based on broadcasting pulses of
electromagnetic signals in the radio frequency range to increase the
local blood flow in
18
<PAGE>
superficial tissues. This technology holds significant potential in
increasing the delivery of diagnostic agents or therapeutic drugs,
taken by injection or orally, carried by the bloodstream to superficial
organs such as the breast, brain and prostate.
Our drug delivery product development programs will focus on clinical
studies of iontophoresis for dermatology drugs (such as for psoriasis) and PREMS
for agents to treat or image breast or brain cancers. We expect these studies
will also help us quantify the extent of improvement in the delivery of topical
drugs by iontophoresis and injectable drugs by PREMS. We intend to use this
information to form licensing and joint development agreements with companies
developing biopharmaceutical drugs. In our partnership with Elan, plc., we
intend to combine iontophoresis with PREMS in a flexible patch system. This
novel product will be used to enhance the delivery and the activity of drugs in
wound care and the healing of tissues such as arthritis-damaged cartilage.
For long-term applications of our drug delivery technologies, our
scientists are researching the molecular changes associated with the various
clinical effects reported with PREMS and electrical fields. The results are
expected to lead to applications of PREMS and iontophoresis in "drug
enhancement", which is increasing the sensitivity of treated tissues to drugs.
Drug enhancement should be synergistic with the initial applications of PREMS
and iontophoresis in improving the delivery of drugs.
Our drug design technology, acquired from Gemini and HTD, focuses on
creating a library of proprietary small molecule drugs targeted at proteins
encoded by genes implicated in complex diseases such as cancer, inflammation and
chronic degenerative diseases of tissues. We have licensed a family of small
molecule drugs and related design technology from Aronex Pharmaceutical
("Aronex"), a biotechnology company in Texas, that is developing novel
formulations of drugs to treat cancer and infection. Our drug design program has
been funded in part by three Small Business Innovations Research ("SBIR") grants
from the National Institutes of Health. We also have used our drug design
capabilities to generate revenues from custom DNA and peptide synthesis services
to academic researchers and biopharmaceutical companies. These revenues have
provided additional resources to grow our small molecule drug library.
We have two primary objectives in our drug design program:
o Continue to grow our small molecule drug library and collaborations
with researchers that identify protein or gene targets for these drugs
through additional grants or other funding; and upon identifying
potential targets, form licensing and co-development agreements with
corporate partners to screen our library for various clinical market
applications in different territories of the world.
o Grow our custom DNA and peptide synthesis service business to leverage
the growing needs in gene sequencing and other genetic research, novel
genetic diagnostics and new drug discovery and evaluation programs.
Our initial focus in drug design is on two small molecule drugs from
our library that target proteins implicated in malignant cancers and
inflammation. We intend to expand our small molecule drug library to target
clinically relevant proteins or genes for which we can establish high throughput
screening methods that can determine the potential clinical value of drugs. Our
corporate partnerships will focus on larger companies so we can exploit the
market potential for our small molecule drugs in degenerative diseases (such as
arthritis, Alzheimer's disease and osteoporosis), inflammation, metabolic
diseases (such as obesity and diabetes) and chronic infection-associated
complications. We will focus on growing our service business by capitalizing on
the following trends: (i) the rapid growth in gene sequencing needs in the Human
Genome Project; (ii) product development programs for new chips and microarrays
19
<PAGE>
in the growing gene diagnostics industry; and (iii) the increasing need for
molecular reagents in research on genetic mechanisms of complex diseases. We may
expand our service business to include analyses of genetically engineered
animals, especially mice, that are emerging as models to study the genetics of
human diseases as well as to predict the safety and efficacy of pharmaceutical
products ("pharmacogenomics"). We intend to use the growing revenues from these
services to fund the growth of our small molecule drug library and acquire
know-how to be used by our scientists to identify new clinical market
applications of our drugs.
We have invested more than $16 million in conducting pre-clinical and
initial clinical evaluations. Unlike early development stage biotechnology
companies, we have functioning operations as well as academic collaborations
that we believe to be a cost-effective means to create value through the
translation of emerging technologies into product prototypes for defined unmet
clinical needs. We believe our strength is in rapidly converting new technical
ideas into product prototypes or new methods of treatment or diagnosis. Once we
prove the clinical use and define the patients for whom our products or methods
will have real benefit, we intend to form partnerships with larger companies for
the future development, large scale manufacturing and worldwide marketing and
sales of the final products. Our drug delivery technology can be used with many
different drugs and our small molecule drug design technology can create drugs
to target many different proteins and genes. Therefore, our strategy is to form
partnerships with many companies and achieve broad penetration in both the
diagnostic and the therapeutic product markets.
We are a development stage company and all of our technologies are
under development and not commercially marketed. Our Company was originally
incorporated under the laws of the State of California in August 1990 under the
name Magnetic Resonance Therapeutics, Inc. We reorganized through a merger with
and into Electropharmacology, Inc., a Delaware corporation, in February 1995.
Our executive offices are located at 1109 NW 13th Street, Gainesville, Florida
32601 and our telephone number is (352) 367-9088.
Recent Change of Business
A series of divestitures, acquisitions and a private financing has
transformed Electropharmacology, Inc. (the "Company") into a firm focused not
only on drug delivery, but on novel cancer therapeutics and functional genomics
as well. The Company has embarked as a development-stage biotechnology company,
and pending shareholder approval, intends to change its name to Gemini Health
Technologies Inc.
Background
From 1992 to August 1998, the Company operated primarily as a medical
device company that sold and rented its manufactured SofPulse device to the
nursing home and rehab market. SofPulse delivers a pulsed radiofrequency
electromagnetic signal (PREMS) that reduces swelling and pain in superficial
soft tissues. Because the electromagnetic pulses cause enhanced vascular flow in
tissues, the Company's management believes that PREMS also has the potential to
offer physicians a non-invasive means to direct drugs to specific tumors. The
Company's management also believes the use of PREMS could eventually be an
attractive adjunct to drug treatment, because it doesn't change the formulation,
but only adds a non-invasive modality.
While the SofPulse device brought in modest revenues, the Company's
expenses have always exceeded its revenues, resulting in an accumulated deficit
of $15.3 million at December 31, 1997. The SofPulse sales and rental business
was severely curtailed in July 1997, when the Health Care Financing
Administration ("HCFA") announced a national policy of non-reimbursement by
Medicare for devices such as SofPulse. Even though HCFA was later enjoined from
implementing this policy, the SofPulse business never recovered to its previous
levels and the Company continued to incur substantial operating losses. It
20
<PAGE>
became apparent to management the SofPulse sales and rental business could never
generate enough cash to complete the clinical studies necessary to evaluate the
effect of PEMS on pain and swelling or to develop the proprietary PEMS
technology into a drug delivery device.
Asset Sale to ADM
After concluding it could not create shareholder value by pursuing both
the SofPulse device and PEMS technology businesses, the Company's management
implemented a strategy to create value from each of the two businesses and pay
down its substantial debt while generating future liquidity for the Company. In
order to focus on the Company's technology development, management decided to
sell the SofPulse assets, manufacturing and marketing rights to ADM Tronics
Unlimited ("ADMT") of Northvale, NJ, a medical device company traded on the
Nasdaq SmallCap Market. ADMT paid the Company with approximately 2.9 million
shares of ADMT stock and $150,000 in cash, with the Company keeping 1.4 million
shares and using approximately l.5 million shares to satisfy a $650,000
liability. The sale was completed in August 1998. ADMT also agreed to register
the stock it issued the Company so the Company could sell the ADMT stock with
certain restrictions. ADMT also granted the Company a warrant to purchase up to
1.5 million additional shares of ADMT common stock if revenue from the SofPulse
business over the next twelve months reached specified levels.
Equity Restructuring
In August 1998, the Company issued approximately 1.9 million new shares
of common stock to the holders of most of its outstanding warrants and all of
its outstanding preferred stock in exchange for these warrants and preferred
stock in order to simplify the Company's equity structure. This restructuring
resulted in an approximate 45% increase in the number of shares of outstanding
common stock.
HealthTech Development Acquisition
In August 1998, the Company also acquired two privately held companies
engaged in the design and the development of small molecule drugs as part of its
strategy to pursue and grow its core technology. The Company first acquired
HealthTech Development, Inc. ("HTD"), a development stage biotech company
researching molecules to block cancer metastasis without toxic side effects.
Because several lines of evidence link a tumor's ability to metastasize to a
protein found in a rare mycoplasma, the Company is searching for ways to block
that protein. HTD already has some initial molecules designed which the Company
would like to quickly follow up in clinical trials.
In addition to its cancer program, HTD research includes a proprietary
genetic database to identify nutritionally regulated genes that are implicated
in complex diseases such as cancer, obesity and cardiovascular diseases. The
ability to identify new protein and gene targets has applications in the
development of small molecule drugs for complex diseases such as cancer,
arthritis and heart disease. The Company acquired HTD in a stock swap and merger
that gave approximately 6.2 million shares of the Company's common stock to HTD
shareholders, resulting in an approximate 100% increase in the number of the
Company's outstanding common stock, to approximately 12.5 million shares. HTD
shareholders also have the right to earn up to approximately 1.7 million
additional shares of the Company's common stock upon the achievement of certain
milestones.
Gemini Biotech, Ltd. Purchase
In its second acquisition, the Company bought Gemini, a privately held
biotechnology limited partnership with special expertise in small molecule
drugs. The purchase was a complex transaction in which 6 million shares of the
Company common stock will be issued to the Gemini partners in June 1999. Once
the Company stock is issued to the Gemini partners, the Company will have
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approximately 18.5 million shares of common stock outstanding, an additional
approximate 50% increase from its outstanding shares after HTD acquisition. The
Gemini partners also have the right to earn up to an additional 2.05 million
shares of the Company common stock upon their achievement of certain milestones.
Gemini's core technology consists of designing and synthesizing
therapeutic drugs and diagnostic agents created from "nucleobases," the building
blocks of genes. In addition, Gemini has a library of proprietary and
exclusively licensed small molecule drugs designed to combat cancer and
rheumatoid arthritis.
Recent Elan Transactions
Soon after the closing of our corporate reorganization, on September
30, 1998, the Company entered into agreements with two different subsidiaries of
Elan, plc ("Elan"). Elan is an international leader in the development of novel
drug delivery technologies for pharmaceutical and biotechnology drugs. Elan is
publicly traded on the New York Stock Exchange (NYSE: ELN).
Elan License Acquisition
The Company acquired from one Elan subsidiary a worldwide license to a
new flexible iontophoresis patch technology. Elan scientists have been engaged
in developing product prototypes to increase drug delivery by the application of
a mild electrical current - a method called iontophoresis that has been
recognized for three decades. One outcome of Elan's efforts over the past decade
has been the development of a flexible patch for iontophoresis. The patch system
is uniquely suitable for the topical application of dermatology drugs locally at
sites of skin disorders regardless of the location, shape or size of the
diseased skin site. The Company acquired a license to use this flexible patch
technology for non-cosmetic skin diseases and wound care. Elan also agreed to
collaborate with the Company to develop a flexible patch system for our PEMS
technology as well as a patch system that combines our PEMS and their
iontophoresis technologies. We intend to pursue the application of iontophoresis
and PEMS in enhancing the delivery of drugs and biologics to diseased tissues
and promoting the regeneration of cells in tissues damaged by trauma or chronic
diseases. We made a total payment of $7.5 million for the acquisition of the
Elan technology and product prototype design. We will make future payments of
prescribed license fees and royalties payable from the revenues from product
sales and/or sublicensing to future corporate partners.
Elan Securities Transaction
Another subsidiary of Elan, Elan International Services, purchased $7.5
million of preferred stock and warrants in our Company. The preferred stock is
convertible into our common stock at a conversion ratio of one share of common
stock for each $1.20 of preferred stock investment, currently 6.25 million
shares. The warrants can be exercised to purchase one million shares of our
common stock at an exercise price of $2.50 per share for a seven year period.
The preferred stock accrues dividends at a rate of 10% per year and dividends
are paid semi-annually in cash or in kind, at the Company's option, and must be
redeemed after seven years, unless the Company has insufficient funds. In that
case, Elan International must either elect to extend the redemption date to a
date acceptable to the Company or accept common stock in lieu of redemption.
Elan International also has the right to nominate one member to the
Company's Board of Directors. Elan International also has agreed to invest an
additional $2 million to buy our common stock at the average share price for
twenty trading days prior to the date of sale of our shares to Elan
International. By March 31, 1999, we had issued approximately 2.8 million shares
to Elan International for $1.5 million. Subsequent to March 31, 1999, Elan
International will acquire additional common stock or another form of securities
of the Company for $500,000, which will complete their $2 million commitment.
Under the agreement with Elan, a portion of the proceeds from Elan's investment
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<PAGE>
must be used by the Company to fund further development of iontophoresis
products.
Resulting Equity Structure
Before the above transactions, the Company had approximately 4.1
million shares of common stock outstanding, approximately 2 million warrants,
and 250,000 shares of preferred stock issued. After these transactions and the
issuance of the stock to the Gemini partners, the Company will have outstanding
redeemable preferred stock convertible into approximately 6.25 million shares of
common stock, approximately 21.3 million shares of common stock and
approximately 1.3 million warrants to purchase common stock outstanding.
Results of Operations
Three Months Ended September 30, 1998 Compared to the Three Months Ended
September 30, 1997
Revenue for the three months ended September 30, 1998 decreased to
$62,283, as compared to $470,912 for the three months ended September 30, 1997,
or a decrease of $408,629 or 86.8%. This decrease was primarily attributable to
the absence of rental or sales revenue from the SofPulse device in the third
quarter of 1998 due to the transfer of such devices and related revenues to ADMT
on May 27, 1998. Revenues of $62,283 during the three months ended September 30,
1998 consisted of revenues from custom synthesis of gene probes and research
grants during the period from August 24, 1998, the date of Gemini's acquisition
by the Company, to September 30, 1998. The Company has no assurance, however,
any additional grant funds will be received or there will be any significant
increase in revenues from the business.
Cost of revenue for the three months ended September 30, 1998 decreased
to $66,548, as compared to $128,204 for the three months ended September 30,
1997, or a decrease of $61,656 or 48%. The Company had no cost of revenue
associated with its SofPulse device during the third quarter of 1998 due to the
transfer of most of its SofPulse devices to ADMT in the second quarter of 1998.
All cost of revenue incurred in the quarter ended September 30, 1998 relates to
the cost of materials associated with the recently acquired custom synthesis
services. Cost of revenue during the quarter ended September 30, 1997,
represented primarily depreciation on the rental fleet of SofPulse devices and
cost of the 17 devices sold during the quarter.
Impairment loss on intangible assets increased to $7,812,038 for the
three months ended September 30, 1998, as compared to -0- for the three months
ended September 30, 1997. The increase is attributable to the permanent
impairment of intangibles acquired in the acquisition of Gemini, HTD and the
Elan licensing technology.
The Company incurred $7,663,575 in research and development expenses
for the three months ended September 30, 1998, as compared to $37,809 for the
three months ended September 30, 1997. The significant increase in this expense
is attributable to one time write-offs of purchased research and development in
connection with the acquisitions of HTD ($994,588), Gemini ($668,987), and the
cost of licensing of Elan's flexible iontophoresis patch technology ($6,000,000)
totaling $7,663,575.
The Company expects operating expenses will increase as a result of (i)
the expected additional research and development expenses related to the small
molecule drugs for cancer and inflammation, (ii) the increased cost of growing
the custom DNA and peptide synthesis and related service business, and (iii)
research and development programs planned for the Company's PREMS and Elan's
iontophoresis drug delivery technologies. The Company does not expect
significant savings from the elimination of duplicative expenses. There also can
be no assurance that future expenses will be consistent with historical expenses
23
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for either the technology development business of the Company, including the
development of Elan technology or the businesses of HTD and Gemini.
Interest and other income (expense) for the three months ended
September 30, 1998, increased by $677,978 to $648,024, as compared to $(29,954)
for the three months ended September 30, 1997, primarily due to an approximate
$725,000 gain on sale of the SofPulse assets to ADMT, offset in part by an
approximate $65,000 loss on the disposal of office equipment during the third
quarter of 1998, and a $14,805 increase in interest expense due to interest
expense on Gemini's note payable in the principal amount of $1,214,429 at
September 30, 1998. The Company incurred a $29,161 loss on the disposal of
equipment in the quarter ended September 30, 1997.
Minority interest of $2,307,778 was recorded as a reduction to the
Company's net loss and relates to the minority shareholders' 32% interest in
Gemini Health Technologies LP, the newly formed partnership in connection with
the Gemini acquisition.
The above resulted in a net loss of $(13,094,448) for the three months
ended September 30, 1998, compared to a net loss of $(329,860) for the three
months ended September 30, 1997.
Nine Months Ended September 30, 1998 Compared to the Nine Months Ended September
30, 1997
The Company's revenue for the nine months ended September 30, 1998 was
$497,286, as compared to $1,985,663 for the nine months ended September 30,
1997, or a decrease of $1,488,377. This 75.0% decrease was primarily
attributable to a $1,196,470, or 77.0 %, decrease in SofPulse rental and sales
revenues in the nine months ended September 30, 1998, as compared to the same
period in 1997. The Company's rental revenues were materially adversely affected
due to the issuance in July 1997 by the Health Care Financing Administration
("HCFA") of a national policy of non-reimbursement by Medicare for all forms of
electrotherapy for wound healing. HCFA was enjoined from implementing this
national policy under a ruling by a U.S. District Court in Massachusetts in
November 1997; however, rental revenues did not increase significantly following
the injunction. At May 27, 1998, the effective date of the transfer of the
SofPulse rental and sales revenue to a wholly owned subsidiary of ADMT, there
were 98 units under rental contracts or monthly fixed fee arrangements, as
compared to 391 units at May 1, 1997. Accordingly, rental revenues in May 1998
were $68,418, as compared to $259,437 in May 1997. In addition, the Company had
no SofPulse rental or sale revenues in the last four months of the nine-month
period ended September 30, 1998 due to the ADMT transfer. Revenue from the sales
of units and other sales also decreased from $430,050 in the nine months ended
September 30, 1997 to $138,143 in the comparable period in 1998. During the nine
months ended September 30, 1998, the Company sold 12 used SofPulse devices as
compared to 43 new and used devices in the first nine months of 1997, most of
which had been sold to National Patient Care Systems ("NPCS") to fulfill NPCS'
obligation to purchase specific minimum monthly quotas under an agreement with
the Company. This decrease in sale of units was partially offset by revenues of
$62,283 during the nine months ended September 30, 1998 attributable to revenues
from custom synthesis of gene probes and research grants during the period from
August 24, 1998, the date of Gemini's acquisition by the Company, to September
30, 1998.
Cost of revenue for the nine months ended September 30, 1998 was
$205,147, as compared to $330,853 for the nine months ended September 30, 1997,
a decrease of $125,706. This 38.0% decrease reflects the decreased number of
SofPulse devices sold during the nine months ended September 30, 1998, as
compared to the same period in the prior year and the reduction in depreciation
expense on the SofPulse units due to the transfer of the SofPulse assets and
revenues to ADMT in May 1998.
Selling, general and administrative expenses were $1,353,920 for the
nine months ended September 30, 1998, compared to $2,454,805 for the nine months
ended
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September 30, 1997, a decrease of $1,100,885, or 44.9%. This cost decrease is
primarily due to a $424,000 reduction in the salaries and related benefits
associated with personnel reductions in the sales and marketing, clinical
support services and manufacturing departments, a $340,000 reduction in outside
legal, accounting and consulting expenses, and a $242,000 reduction in sales
commissions, as well as reductions in public relations, travel and marketing
expenses. As a consequence of the Company's deteriorating cash position and its
sale to ADMT of most of its SofPulse devices and certain related manufacturing
and marketing assets, the Company underwent a reduction in personnel from 27
employees in March 1997 to six employees by June 30, 1998. The Company currently
has 17 full-time employees.
Impairment loss on intangible assets increased to $7,812,038 for the
nine months ended September 30, 1998, as compared to -0- for the nine months
ended September 30, 1997. The increase is attributable to the permanent
impairment of intangibles acquired in the acquisition of Gemini, HTD and the
Elan licensing technology.
Research and development expenses increased to $7,701,538 for the nine
months ended September 30, 1998, compared to $220,982 for the nine months ended
September 30, 1997, an increase of $7,480,556. The significant increase in this
expense is attributable to one time write-offs of purchased research and
development in connection with the acquisitions of HTD ($994,588), Gemini
($668,987), and certain licensing of Elan's flexible iontophoresis technology
($6,000,000) totaling $7,663,575, offset in part by a reduction in 1998 of basic
scientific research involving PREMS technologies during the restructuring of the
Company's business.
Interest expense for the nine months ended September 30, 1998,
increased to $54,721 compared to $8,848 for the nine months ended September 30,
1997, primarily due to an increase in the amount of outstanding debt. With the
exception of obligations under capital equipment leases, the Company had
outstanding at September 30, 1997 two notes payable in the aggregate amount of
$169,472 to finance the Company's directors and officers' and general liability
policies. On September 30, 1998, due to its cash flow deficit, the Company had
debt outstanding to directors of the Company in the aggregate amount of $129,580
representing advances and foregone salary and two notes payable in the aggregate
amount of $127,132 to finance the Company's insurance policies. The Company also
had outstanding a $1,214,429 note payable to finance Gemini's operations and a
financing lease in the amount of $53,164 for laboratory equipment.
In the nine months ended September 30, 1998, the Company recognized a
one-time $724,981 gain on sale of the SofPulse devices and certain related
assets to ADMT, offset in part by an approximate $65,000 loss on disposal of
office equipment during the third quarter of 1998. In comparison, in the
comparable period in 1997, the Company recorded a loss on the disposal of
equipment of $29,161.
Interest income for the nine months ended September 30, 1998 increased
to $5,706 compared to $2,473 for the nine months ended September 30, 1997 due to
the increase in funds of the Company available for short term investment in the
nine months ended September 30, 1998 as compared to the same period in 1997.
Minority interest of $2,307,778 was recorded as a reduction to the
Company's net loss and relates to the minority shareholders' 32% interest in
Gemini Health Technologies LP, the newly formed partnership in connection with
Gemini acquisition.
The above resulted in a net loss of $(13,654,474) for the nine months
ended September 30, 1998, compared to a net loss of $(1,049,361) for the nine
months ended September 30, 1997.
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Liquidity and Capital Resources
The Company's cash requirements have been and will continue to be
significant. Since its inception, the Company has satisfied its operating
requirements primarily through the issuance of equity and debt securities, loans
from stockholders and from limited revenues from rental and sale of SofPulse
devices. At December 31, 1997, the Company had a working capital deficit of
($899,573) and a deficiency in capital of ($74,938). At September 30, 1998, the
Company had a working capital deficiency of $(1,790,843) and a deficiency in
capital of $(471,434). Net cash used in operating activities for the nine months
ended September 30, 1998 was $(155,591), as compared to $(87,962) for the nine
months ended September 30, 1997. Net cash was used primarily to fund the losses
from operations. Net cash used in investing activities for the nine months ended
September 30, 1998 was $(7,097,545) versus $6,796 received for the same period
in 1997 primarily due to the purchase of a worldwide license from Elan Pharma in
the amount of $7,500,000, partially offset by a $150,000 cash payment received
from ADMT from the sale of the SofPulse division and the acqusition of cash of
approximately $238,000. Net cash provided by financing activities was $7,377,708
for the nine months ended September 30, 1998, as compared to net cash used of
$(129,836) for the nine months ended September 30, 1997. This increase was
primarily due to the $7,500,000 investment in redeemable convertible preferred
stock by Elan. Subsequent to September 30, 1998, Elan International has invested
$1.5 million in the Company's common stock and is committed to invest an
additional $500,000. Under the licensing agreement with Elan Pharma, a portion
of the proceeds from Elan International's investment must be used by the Company
to fund further development of products.
The Company in November 1998, filed with the Securities and Exchange
Commission a registration statement to register for public sale approximately
5,000,000 shares of its common stock in order to raise approximately $4,000,000,
including the Company's common stock sold to Elan International. The funds will
supplement the Company's current grant funds and revenues from custom DNA and
peptide synthesis and related services using the Company's drug design
expertise. The funds will be used to advance the Company's PREMS and licensed
Elan technologies through validation in the initial fields of certain
applications. The Company intends to seek additional Small Business Innovations
Research grants, including Phase II grants (common average funding at about
$500,000 for each grant), and Federal Advanced Technology Program grants. The
Company believes that with a successful implementation of its strategic plan,
additional capital may become available through a combination of larger federal
grants, corporate strategic alliances and additional public financing. The
proceeds from the sale of common stock will be used by the Company to pursue the
development of the technologies acquired from HTD and Gemini in large
therapeutic markets such as cancer and inflammation, and for development of the
drug delivery technologies in tissue repair/regeneration. However, there can be
no assurance the Company will be able to conclude the contemplated financing or
obtain sufficient funds to pursue all of its intended product development
programs.
At December 31, 1997, the Company had a net operating loss carry
forward of $10,719,000 available to offset future taxable income, if any,
through the year 2012. During 1993 and 1995, changes in ownership of greater
than 50% occurred as a result of the Company issuing equity securities.
Accordingly, a substantial limitation will be imposed upon the future
utilization of approximately $2,450,000 of its net operating loss carry
forwards.
The Company expects its cash needs will continue to increase in the
future periods, primarily because it will incur additional expenses related to
the development of small molecule drugs and the iontophoresis flexible patch
technology licensed from Elan, in addition to its efforts to develop novel
medical applications for its core PREMS technology. The Company will need to
raise substantial additional funds to continue the development and
commercialization of its technologies and products. The future cash needs of the
Company will depend significantly on many factors that relate to the development
of drug delivery and small molecule drug products, including but not limited to,
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continued scientific progress in the research and development programs; the
results of research and development; preclinical studies and clinical trials;
acquisition of products and technologies, if any; relationships with corporate
partners, if any; competing technological and market developments; the time and
costs involved in obtaining regulatory approvals; the costs involved in filing,
prosecuting and enforcing patent claims; the time and costs of manufacturing
scale-up and commercialization activities and other factors.
Under the present circumstances, the Company's ability to continue as a
going concern depends on its ability to restructure, improve its operations, and
ultimately, to obtain additional financing. Other than the sale of $2,000,000 of
the Company's common stock to Elan International, no definitive sources of
additional financing have been identified at this time, nor can there be any
assurance additional financing will be obtained on favorable terms. The
Company's ability to obtain financing through the issuance of its common stock
was materially adversely affected when Nasdaq notified the Company in September
1997 the Company's stock would be delisted from the Nasdaq SmallCap Market as of
the close of business on September 23, 1997 due to noncompliance with the
requirements related to minimum working capital, minimum surplus and minimum
value of the Company's public market float. The Company is now quoted on the OTC
Bulletin Board, but there can be no assurance a public trading market for the
Company's common stock will continue to exist.
The Company cannot predict whether the operating and financing
strategies described above will be successful. If the Company is unable to
restructure, improve its operations, and ultimately obtain additional financing,
it may not be able to continue as a going concern.
Year 2000 Compliance.
The inability of computers, software and other equipment utilizing
microprocessing to organize and properly address certain fields containing a
two-digit year is commonly referred to as the Year 2000 problem. As the year
2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Company has implemented a Year 2000 program to ensure its computer
systems and applications will function properly beyond 1999. The Company is in
the process of identifying vendor and business partner software with which it
electronically interacts, or from which it purchases supplies, and is in the
process of requesting Year 2000 compliance certifications. To date, the Company
has received verbal assurances from those vendors and business partners they and
their respective suppliers are Year 2000 compliant. Although the Company
believes all of its systems are and will be Year 2000 compliant, there can be no
assurances all of its vendors and business partners' systems will be Year 2000
compliant. The Company's cost to comply with the Year 2000 initiative is not
expected to be material.
In addition, the Company is communicating with its external service
providers to ensure such service providers are taking appropriate action to
address Year 2000 issues. However, there can be no assurance the systems of
third parties on which the Company's systems rely will not have an adverse
effect on the Company.
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee issued
AICPA Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). This statement provides
guidance on accounting for the costs of computer software developed or obtained
for internal use and identifies characteristics of internal use software as well
as assists in determining when computer software is for internal use. SOP 98-1
is effective for fiscal years beginning after December 15, 1998, with earlier
application permitted. The Company has not determined the impact of the adoption
of SOP 98-1 as this is highly dependent upon the nature, timing and extent of
future internal use software development.
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In March 1998, the Accounting Standards Executive Committee issued
AICPA Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities." This Statement of Position provides guidance on the financial
reporting of start-up costs and organization costs. It requires the cost of
start-up activities and organization costs be expensed as incurred. The SOP is
effective for financial statements for fiscal years beginning after December 15,
1998. The Company does not expect adoption of this SOP to have a material impact
on its financial statements.
The Company will be required to adopt Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information." Statement 131 superseded SFAS No. 14, "Financial Reporting
for Segments of a Business Enterprise" and is effective for years beginning
after December 31, 1997. Statement 131 establishes standards for the way public
business enterprises report selected information about operating segments in
financial reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The addition of Statement 131 will not affect the Company's results of
operations or financial position, but may affect the disclosure of the segment
information in the future.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement changes the previous accounting definition of derivative--which
focused on freestanding contracts such as options and forwards (including
futures and swaps)-expanding it to include embedded derivatives and many
commodity contracts. Under the Statement, every derivative is recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999. Earlier
application is allowed as of the beginning of any quarter beginning after
issuance. The Company does not anticipate the adoption of SFAS 133 will have a
material impact on its financial position or results of operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In August 1994, a competitor of the Company filed a lawsuit against the
Company and certain of its present and former directors and officers alleging
the defendants had engaged in deceptive acts and practices, false advertising,
unfair competition, breach of contracts of fiduciary duties between the
plaintiff and certain Company employees, and the Company's involvement in
facilitating or participating in the breach of contracts. The plaintiff is
seeking an injunction to rectify the effects of the misconduct, an unspecified
amount of compensatory damages, disgorgement of profits, treble damages,
punitive damages and attorney's fees. The plaintiff also seeks unspecified
injunctive relief prohibiting the Company from engaging in the alleged acts and
ordering the defendants to take remedial action to rectify the effects on
consumers and the plaintiff caused by the alleged acts. The Company believes it
has meritorious defenses which it will pursue vigorously and has filed a
counterclaim against the plaintiff and its president, Dr. Jesse Ross. The
Company's future product development, including the development of the
technology underlying the SofPulse product is not likely to be adversely
affected by the outcome. However, there can be no assurance the ultimate outcome
of such action will not have a material adverse effect on the Company's
liquidity, financial condition and results of operations. Management is unable
to make a meaningful estimate of the likelihood or amount or range of loss that
could result from an unfavorable outcome of the pending litigation.
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It is possible the Company's results of operations or cash flows in a particular
quarter or annual period or its financial position could be materially affected
by an unfavorable outcome.
On August 28, 1997, a former employee of a distributor of the SofPulse
device, filed a complaint against the Company and the distributor alleging
failure to pay commissions owed. In May 1998, the former employee dismissed the
complaint against the Company whereupon the distributor immediately filed a
cross-complaint against the Company for breach of the agreement between the
Company and the distributor for failing to pay commissions owed in excess of
$30,000. This matter was settled on January 27, 1999, whereby the Company agreed
to pay $9,500 to the distributor. The Company's balance sheets at June 30, 1998
and December 31, 1997 included an accrual for this matter.
On July 14, 1998, a former employee of the Company, filed a complaint
alleging the failure by the Company to make payments of $20,000 due to the
former employee under an agreement pursuant to which the former employee and the
Company had agreed to the terms of the termination of their employer-employee
relationship. In December 1998, the former employee and the Company entered into
a settlement agreement under which the Company is obligated to pay $16,500 in
monthly installments of $1,500 beginning on December 1, 1998. The Company's
balance sheets at June 30, 1998 and December 31, 1997 included an accrual for
this matter.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this Quarterly
Report on form 10-Q:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
<S> <C>
2.1 Asset Purchase Agreement among Electropharmacology, Inc. and ADM
Tronics Unlimited, Inc. ("ADM") and AA Northvale Medical Associates,
Inc. dated May 27, 1998 ("ADM Agreement") (1)
2.1.1 Letter Amendment to ADM Agreement dated August 18, 1998 (2)
2.1.2 Warrant to EPI to purchase up to 1,500,000 shares of ADM
Common Stock dated August 18, 1998 (2)
2.1.3 Voting Trust Agreement between Jones, Day, Reavis & Pogue,
Andre DeMino and EPi dated August 18, 1998 (2)
2.1.4 Letter Agreement between Jones, Day, Reavis & Pogue and EPI dated
June 2, 1998 (2)
2.2 Agreement of Merger and Plan of Reorganization among Electro-
pharmacology, Inc., EPi Sub., Inc. and HealthTech Development, Inc.
("HTD") dated June 11, 1998 ("HTD Agreement") (3)
2.3 Capital Contribution Agreement between EPi HealthTech, Inc. ("EPi
Sub"), Gemini Biotech, Ltd. ("Gemini"), Krishna and Shaskikala
Jayaraman and Gemini Biotech, Inc., dated June 18, 1998 (4)
2.4 Master Agreement dated as of June 28, 1998 among HTD, Gemini,
EPi, EPi Sub, and each of David Saloff, George Levine, Paragon
Capital at Spear, Leeds & Kellogg, Norton Herrick, Murray
Feldman and 20th Century Associates ("the Pre-Closing EPi
Stockholders"); Arup Sen, Richard Kneipper, James Kaput ("the
HTD Stockholders"); Krishna Jayaraman, Shaskikala Jayaraman,
and Gemini Biotech, Inc. ("the Gemini Partners") and other EPi
stockholders (6)
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2.4.2 First Amendment to Master Agreement dated August 3, 1998 between EPi,
EPi Sub, Gemini and the Gemini Partners (2)
2.4.3 Letter Agreement dated as of July 27, 1998 by and between Messrs.
Herrick and Feldman (2)
2.5 Registration Rights Agreement dated as of June 28, 1998 among
EPi, certain of the Pre-Closing EPi Stockholders, the HTD
Stockholders and the Gemini Partners (4)
2.6 Agreement of Limited Partnership of Gemini Health Technologies L.P.
dated June 18, 1998 by and between Krishna and Shaskikala Jayaraman
and EPi HealthTech Inc.(2)
2.7 Unit Exchange Agreement by and between EPi, Krishna and Shaskikala
Jayaraman, and Gemini Health Technologies L.P. dated June 18, 1998
(4)
2.8 Contribution Agreement between EPi Sub and EPi dated August 18, 1998
(2)
3.2 Amendment to Bylaws dated June 24, 1997 (2)
3.2.1 Amended and Restated Bylaws of EPi (2)
3.3 Letter Agreement dated August 27, 1998 between Elan International
Services, Ltd., Elan Pharma International Limited ("EPIL") and
Electropharmacology, Inc. (6)
3.4 Securities Purchase Agreement between EPi and Elan International
Services, Ltd. dated September 30, 1998 [redacted](2)
3.5 License Agreement between EPi and EPIL dated September 30, 1998
[redacted](2)
4.2 Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock (2)
4.3 Warrant to Elan International Services, Ltd. to purchase up to
1,000,000 shares of EPi Common Stock (2)
4.4 Registration Rights Agreement between EPi and EPIL dated September
30, 1998(2)
10.1 Employment Agreement between EPI and Krishna Jayaraman dated August
18,1998 (2)
10.2 Memorandum to Arup Sen from EPi Board of Directors regarding
terms of employment dated August 25, 1998 [redacted] (2)
10.2.1 Employment Agreement, dated November 11, 1996 between EPi and Arup
Sen ("Sen Employment Agreement") (7)
10.2.2 First Amendment, dated June 15, 1997 to Sen Employment Agreement (8)
10.2.3 Revised and Restated Second Amendment, dated April 21, 1998, to Sen
Employment Agreement (2)
10.3 Memorandum to David Saloff from EPi Board of Directors, dated
August 25, 1998 regarding terms of employment [redacted](2)
10.3.1 First Amendment to David Saloff's employment agreement dated February
1, 1998 (8)
30
<PAGE>
10.4 Employee Nondisclosure, Confidentiality and Noncompetition
Agreement, dated August 24, 1998 between EPi and Arup Sen (2)
10.5 Form of Consulting Advisory and Non-Competition Agreement
between EPi and each of James Kaput and Richard Kneipper (2)
10.5.1 Form of Consulting Advisor Confidentiality Agreement between
EPi and each of James Kaput and Richard Kneipper (2)
10.6 Benefit Life Insurance Loan Agreement between Delargen Corp.dba
Gemini Biotech, Ltd. and Benefit Life Insurance Company dated June
25, 1997 (2)
10.6.1 Modification of Benefit Life Insurance Company Loan Agreement, Note
(Adjustable Rate Note) and Other Loan Documents dated January 6, 1999
(2)
27.1 Financial Data Schedule (2)
</TABLE>
- -----------------
(1) Previously filed as an Exhibit to the Company's current Report on Form
8-K dated June 15, 1998 and incorporated by reference herein.
(2) Filed herewith.
(3) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated June 28, 1998 and incorporated by reference herein.
(4) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated July 6, 1998 and incorporated by reference herein.
(5) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated September 3, 1998 and incorporated by reference herein.
(6) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated September 4, 1998 and incorporated by reference herein.
(7) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1996 and incorporate by
reference herein.
(8) Previously filed as an Exhibit to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997 and incorporated by
reference herein.
(b) The following reports on Form 8-K were filed during the quarter ended
September 30, 1998:
*Form 8-K dated July 6, 1998 - Item 2 - regarding the
execution of an agreement to acquire Gemini Biotech, Ltd.
*Form 8-K dated September 3, 1998 - Item 1 -
regarding the change in control of the Company due to the
reorganization of the Company and the acquisition of Gemini
Biotech, Ltd.
And HealthTech Development, Inc.
*Form 8-K dated September 4, 1998 - Item 5 -
regarding the execution of a binding Letter of Intent with
subsidiaries of Elan, plc.
31
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto authorized.
ELECTROPHARMACOLOGY, INC.
Registrant
Dated March 31, 1999 /s/ Arup Sen
--------------------------------------
Arup Sen
President and Chief Executive Officer
Dated March 31, 1999 /s/ David Saloff
--------------------------------------
David Saloff
Chief Financial Officer
32
August 18, 1998
ADM TRONICS UNLIMITED, INC.
AA NORTHVALE MEDICAL ASSOCIATES, INC.
224-S Pegasus Avenue
Northvale, NJ 07647
Re: Asset Purchase Agreement dated as of May 27, 1998 among
Electropharmacology, Inc., ADM Tronics Unlimited, Inc. and
AA Northvale Medical Associates, Inc. (the "Agreement")
Dear Andre:
This letter is to set forth our agreements concerning the amendment
of the Agreement. Terms used in this letter shall have the same meaning ascribed
to them in the Agreement. We have agreed to amend the Agreement as follows:
1. Seller hereby waives the condition to Closing set forth in Section
6.1(e).
2. Purchaser and ADM hereby waive the condition to Closing set forth in
Section 6.2(a) solely to the extent that EPi has not received
confirmation from the filing authorities that 14 of the termination
statements of the UCC liens in connection with the bridge financing
described in Schedule 2.7 of the Agreement delivered to said
authorities for filing on August 12, 1998 have been accepted for
filing: Notwithstanding the foregoing, EPi hereby represents and
warrants that the instruments giving rise to the security interests
have been satisfied and termination statements were properly executed
and delivered to the appropriate authorities for filing on August 12,
1998. Epi agrees to use its best efforts to obtain confirmation as
soon as reasonably practicable after the Closing that said
termination statements have been filed.
3. ADM agrees to file the Registration Statement with the SEC as soon as
possible, and in no event later than September 4, 1998.
4. Seller waives its right to terminate the Agreement pursuant to
Section 8.1(ii) and Purchaser and ADM each waives its right to
terminate the Agreement pursuant to Section 8.2(ii). Seller,
Purchaser and ADM agree that the Seller Legal Opinion and the
Purchaser Legal Opinion shall be in the form of Exhibit A and Exhibit
B, respectively.
5. Subject to satisfaction or waiver of the conditions set forth in
Sections 6.1 and 6.2 of the Agreement (other than those conditions
waived pursuant to this letter) and the right to terminate the
Agreement pursuant to Article 8 of the Agreement (other than those
rights waived pursuant to this letter), the Closing shall take place
on the date designated by Seller upon two (2) days' telephone notice
to ADM.
1
<PAGE>
6. In Section 6.2(e) of the Agreement, the words "provides Purchaser and
ADM with an opinion of counsel, reasonably acceptable to Purchaser,
that such shareholder approval is not required" shall be replaced
with the words "notifies Purchaser and ADM in writing that such
shareholder approval is not required".
7. In Section 1.6(e) of the Agreement, the words "the Chief Executive
Officer of ADM" shall be replaced with the words "Andre DeMino".
8. In Sections 8.1 and 8.2 of the Agreement, the date "September 30,
1998" shall be replaced with the date "December 31, 1998".
9. ADM has duly requested and tendered payment for a good standing
certificate from the Secretary of the State of Delware and will
furnish to Epi said certificate upon receipt.
10. Section 1.10 of the Agreement is amended to replace subsection (a)
with the following: "a) ADM's written instructions to its transfer
agent to issue immediately and no later than August 21, 1998, the
Shares registered as provided in section 1.5(a)(i)."
11. Except as set forth in this letter, the Agreement shall remain in full
force and effect.
If you agree that the forgoing sets forth our amendments to the
Agreement, please so indicate by signing a copy of this letter in
the space provided below and returning it to the undersigned.
Sincerely,
Electropharmacology, Inc.
By: /s/ Arup Sen
---------------------------------
Agreed to and accepted ADM TRONICS UNLIMITED, INC.
By: ____/s/ Andre Di Mino _______
AA NORTHVALE MEDICAL ASSOCIATES, INC.
By: ___/s/ Andre Di Mino ________
2
THIS WARRANT AS WELL AS THE SECURITIES ISSUABLE UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
(THE ACT"), AND MAY NOT BE OFFERED OR SOLD UNLESS REGISTERED UNDER THE
ACT OR AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE.
Void after 5:00 P.M., New York City Time, on the third anniversary of the
Commencement Date, as that term is hereinafter defined (the "Termination Date")
WARRANT TO PURCHASE SHARES OF THE COMMON STOCK OF
ADM TRONICS UNLIMITED, INC.
This is to Certify That, FOR VALUE RECEIVED, Electropharmacology, Inc.
(collectively with any successors, assignees or transferees, the "Holder"), is
entitled to purchase, subject to the provisions of this Warrant, from ADM
TRONICS UNLIMITED, INC., a Delaware corporation (the "Company"), shares of the
Common Stock of the Company, $.0005 par value (the "Common Stock") at any time
or from time to time from the Commencement Date, as that term is hereinafter
defined, until 5:00 P.M., New York City Time on the Termination Date. The
purchase price per share shall be the Fair Market Value on the original issue
date hereof. The number of shares to be received upon the exercise of this
Warrant and the price to be paid for each such share may be adjusted from time
to time as hereinafter set forth. The shares deliverable upon such exercise, and
as adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares" and the exercise price of this Warrant as in effect at any time as
adjusted from time to time is hereinafter sometimes referred to as the "Exercise
Price." For purposes of this Warrant, the Fair Market Value shall be determined
as follows: If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange or listed for trading
on the NASDAQ system, Fair Market Value shall be the average of the last
reported sale prices of the Common Stock on such exchange or system for the five
trading days for which such prices are available immediately preceding the day
for which the determination is being made; or if the Common Stock is not so
listed or admitted to unlisted trading privileges, Fair Market Value shall be
the average of the means of the last reported high bid and low asked prices
reported by the National Quotation Bureau, Inc. for the five trading days for
which such prices are available immediately preceding the day for which the
determination is being made; or if the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are not so reported, the
Fair Market Value shall be the book value per share as at the end of the most
recent fiscal quarter of the Company ending prior to the date for which the
determination is being made, as adjusted for any additional shares of Common
Stock which may have been issued since the end of such quarter and determined in
accordance with generally accepted accounting principles applied consistently.
-1-
<PAGE>
EXCEPT AS PROVIDED IN CLAUSE (iii) OF THE PROVISO TO THE FIRST SENTENCE OF
SECTION 1 HEREOF, (A) UNLESS THE COMPANY REALIZES CONSOLIDATED CUMULATIVE GROSS
REVENUES FROM RENTALS AND SALES OF SOFPULSES, LESS RETURNS AND ALLOWANCES
(WITHOUT DEDUCTION FOR UNCOLLECTABLE RECEIVABLES), DURING THE TWELVE MONTH
PERIOD COMMENCING ON THE ORIGINAL ISSUE DATE HEREOF ("SOFPULSE TWELVE MONTH
REVENUES") OF AT LEAST $1,650,000, THIS WARRANT SHALL BE VOID AND OF NO FORCE
AND EFFECT, (B) IF THE SOFPULSE TWELVE MONTH REVENUES ARE AT LEAST $1,650,000
BUT LESS THAN $2,640,000, THIS WARRANT SHALL ONLY ENTITLE THE HOLDER TO PURCHASE
UP TO 750,000 SHARES OF THE COMMON STOCK, LESS ANY SHARES THERETOFORE PURCHASED
UPON EXERCISE HEREOF, AND (C) IF THE SOFPULSE TWELVE MONTH REVENUES ARE AT LEAST
$2,640,000, THIS WARRANT SHALL ENTITLE THE HOLDER TO PURCHASE UP TO 1,500,000
SHARES OF THE COMMON STOCK, LESS ANY SHARES THERETOFORE PURCHASED UPON EXERCISE
HEREOF. As used herein, SofPulse shall mean the pulsed electromagnetic
stimulation device designed, developed, manufactured and marketed by
Electropharmacology, Inc. ("EI")under the name MRT-SofPulse or SofPulse and
related models including electrical and mechanical design modifications that are
deemed substantially equivalent for use in the label indication specified in the
Section 510(k) premarket notification pursuant to which Magnetic Resonance
Therapeutics, Inc., the predecessor of EI, received clearance for commercial
marketing of the MRT 100 SofPulse pulsed electromagnetic stimulation device from
the United States Food and Drug Administration in January 1991. The Company
shall be deemed to have realized revenues
upon the earlier of (i) the date the Company accepts a purchase order for a
SofPulse, or (ii) the date a SofPulse is shipped to a customer, or (iii) the
date a customer is invoiced in the ordinary course of business.
The Commencement Date, as that term is defined in this Warrant, shall be the
date that is thirteen months after the original issue date hereof.
SECTION 1. EXERCISE OF WARRANT.
This Warrant may be exercised in whole or in part at any time
or from time to time during the period commencing on Commencement Date and
terminating at 5:00 P.M., New York City Time, on the Termination Date (the
"Exercise Period") provided, however, that (I) if the Termination Date is a day
on which banking institutions in the State of New York are authorized by law to
close, then on the next succeeding day which shall not be such a day, and (ii)
in the event of any merger, consolidation or sale of substantially all the
assets of the Company resulting in any distribution to the Company's
stockholders occurring not later than the Termination Date, upon exercise of
this Warrant the Holder shall receive, in lieu of Warrant Shares, the kind and
amount of securities and property (including cash) receivable by a holder of the
number of shares of Warrant Shares into which this Warrant might have been
exercisable immediately prior thereto and (iii) if during the twelve month
period commencing on the original issue date hereof, the Company sells or agrees
to sell all or substantially all of the assets constituting its SofPulse
business, in a single transaction or in a series of related transactions, other
than in the ordinary course of business, this
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<PAGE>
Warrant shall become exercisable to the same extent as if SofPulse Twelve Month
Revenues exceeded $2,640,000. For purposes of this Warrant, the term "Warrant
Shares" shall include such securities and property. This Warrant may be
exercised by presentation and surrender hereof to the Company at its principal
office, or at the office of its stock transfer agent, if any, with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price for the number of Warrant Shares specified in such form. Such payment may
be made, at the option of the Holder, by check or wire transfer. As soon as
practicable after each such exercise of the Warrant, but not later than two
business days from the date of such exercise, the Company shall issue and
deliver to the Holder a certificate or certificates representing the Warrant
Shares issuable upon such exercise, registered in the name of the Holder or the
Holder's designee. If this Warrant should be exercised in part only, the Company
shall, upon surrender of this Warrant for cancellation, execute and deliver a
new Warrant evidencing the rights of the Holder thereof to purchase the balance
of the Warrant Shares purchasable thereunder. Upon receipt by the Company of
this Warrant at its office, or by the stock transfer agent of the Company at its
office, in proper form for exercise, the Holder shall be deemed to be the holder
of record of the Warrant Shares issuable upon such exercise, notwithstanding
that the stock transfer books of the Company shall then be closed or that
certificates representing such shares shall not then be physically delivered to
the Holder.
SECTION 2. RESERVATION OF SHARES.
The Company shall at all times reserve for issuance and/or delivery
upon exercise of this Warrant such number of Warrant Shares as shall be required
for issuance and delivery upon exercise of this Warrant.
SECTION 3. FRACTIONAL SHARES.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon any exercise hereof, the Company shall pay to the Holder
an amount in cash equal to such fraction multiplied by the Fair Market Value of
a share, determined as set forth above.
SECTION 4. RIGHTS AND LIABILITIES OF THE HOLDER.
The Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder in the Company, either at law or equity, and the rights of the
Holder are limited to those expressed in the Warrant and are not enforceable
against the Company except to the extent set forth herein. No provision of this
Warrant, in the absence of affirmative action by the Holder to purchase the
Warrant Shares, and no mere enumeration herein of the rights or privileges of
the Holder, shall give rise to any liability of the Holder for the Exercise
Price or as a shareholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
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<PAGE>
SECTION 5. ADJUSTMENTS, NOTICE PROVISIONS AND RESTRICTIONS ON
ISSUANCE OF ADDITIONAL SECURITIES.
SECTION 5.1 Adjustment of Exercise Price. The Exercise Price in effect from time
to time shall be subject to adjustment, as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on the outstanding shares of its capital stock that is payable in
shares of its Common Stock, (ii) subdivide, split or reclassify the outstanding
shares of its Common Stock into a greater number of shares, or (iii) combine or
reclassify the outstanding shares of its Common Stock into a smaller number of
shares, the Exercise Price in effect immediately after the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be adjusted so that it shall equal the price
determined by multiplying the Exercise Price in effect immediately prior thereto
by a fraction, of which the numerator shall be the number of shares of Common
Stock outstanding immediately before such dividend, distribution, split,
subdivision, combination or reclassification, and of which the denominator shall
be the number of shares of Common Stock outstanding immediately after such
dividend, distribution, split, subdivision, combination or reclassification. Any
shares of Common Stock issuable in payment of a dividend shall be deemed to have
been issued immediately prior to the record date for such dividend for purposes
of calculating the number of outstanding shares of Common Stock of the Company
under this Section. Such adjustment shall be made successively upon the
occurrence of each event specified above.
(b) In case the Company fixes a record date for the issuance to holders
of its Common Stock of rights, options, warrants or convertible or exchangeable
securities generally entitling such holders to subscribe for or purchase shares
of Common Stock at a price per share less than the Current Market Price (as such
term is defined in Subsection 5.1(d) hereof) per share of Common Stock on such
record date, the Exercise Price shall be adjusted immediately thereafter so that
it shall equal the price determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of shares of Common Stock which the aggregate offering price of the total number
of shares of Common Stock so offered would purchase at the Current Market Price
per share, and of which the denominator shall be the number of shares of Common
Stock outstanding on such Record Date plus the number of additional shares of
Common Stock offered for subscription or purchase. Such adjustment shall be made
successively on each date whenever a record date is fixed.
(c) In case the Company fixes a record date for the making of a
distribution to all holders of shares of its Common Stock (i) of shares of any
class of capital stock other than its Common Stock or (ii) of evidences of its
indebtedness or (iii) of assets (other than dividends or distributions referred
to in Subsection 5.1(a) hereof) or (iv) of rights, options, warrant or
convertible or exchangeable securities (excluding those rights, options,
warrants or convertible or exchangeable securities referred to in Subsection
5.1(b) hereof), then in each such case the Exercise Price in effect immediately
thereafter shall be determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
total number of shares of Common
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<PAGE>
Stock outstanding on such record date multiplied by the Current Market Price (as
such term is defined in Subsection 5.1(d) hereof) per share on such record date,
less the aggregate fair value as determined in good faith by the Board of
Directors of the Company of said shares or evidences of indebtedness or assets
or rights, options, warrants or convertible or exchangeable securities so
distributed, and of which the denominator shall be the total number of shares of
Common Stock outstanding on such record date multiplied by such Current Market
Price per share on such record date. Such adjustment shall be made successively
each time such a record date is fixed. In the event that such distribution is
not so made, the Exercise Price then in effect shall be readjusted to the
Exercise Price which would then be in effect if such record date had not been
fixed.
(d) For the purpose of any computation under Subsection 5.1(a), 5.1(b)
or 5.1(c) hereof, the "Current Market Price" per share at any date (the
"Computation Date") shall be deemed to be the Fair Market Value except that the
respective five day periods referred to in the definition of such term shall be
twenty day periods, provided, however, upon the occurrence, prior to the
Computation Date, of any event described in Subsections 5.1(a), 5.1(b) or 5.1(c)
which shall have become effective with respect to market transactions at any
time (the "Market-Effect Date") on or after the beginning of any such applicable
20-day period, the Current Market Price, for each trading day preceding the
Market-Effect Date shall be adjusted, for purposes of calculating such average,
by multiplying such price by a fraction the numerator of which is the Exercise
Price as in effect immediately after the Market-Effect Date and the denominator
of which is the Exercise Price immediately prior to the Market-Effect Date, it
being understood that the purpose of this proviso is to ensure that the effect
of such event on the market price of the Common Stock shall, as nearly as
possible, be eliminated in order that the distortion in the calculation of the
Current Market Price may be minimized.
(e) All calculations under this Section 5.1 shall be made to the
nearest cent.
SECTION 5.2 Adjustment of Number of Shares. Upon each adjustment of the Exercise
Price pursuant to Subsection 5.1 hereof, this Warrant shall thereupon evidence
the right to purchase, in addition to any other securities to which the Holder
is entitled to purchase, that number of Warrant Shares (calculated to the
nearest one-hundred thousandth of a share) obtained by multiplying the number of
shares of Common Stock purchasable upon exercise of the Warrant immediately
prior to such adjustment by the Exercise Price in effect immediately prior to
such adjustment and dividing the product so obtained by the Exercise Price in
effect immediately after such adjustment.
SECTION 5.3 Verification of Computations. The Company shall select a firm of
independent public accountants, which may be the Company's independent auditors,
and which selection may be changed from time to time, to verify the computations
made in accordance with this Section 5. The certificate, report of other written
statement of any such firm shall be conclusive evidence of the correctness of
any computation made under this Section 5 in the absence of manifest error.
Promptly upon its receipt of such certificate, report or statement from such
firm of independent public accountants, the Company shall deliver a copy thereof
to the Holder.
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<PAGE>
SECTION 5.4 Warrant Certificate Amendments. Irrespective of any adjustments
pursuant to this Section 5, Warrant Certificates theretofore or thereafter
issued need not be amended or replaced, but Warrant Certificates thereafter
issued shall bear an appropriate legend or other notice of any adjustments and
which legend and/or notice has been provided by the Company to the Holder,
provided the Company may, at its option, issue new Warrant Certificates
evidencing Warrants in the form attached hereto to reflect any adjustment in the
Exercise Price and the number of Warrant Shares evidenced by such Warrant
Certificates and deliver the same to the Holder in substitution for existing
Warrant Certificates.
SECTION 6. OFFICER'S CERTIFICATE.
Whenever the Exercise Price, the number of Warrant Shares underlying
this Warrant or either of them shall be adjusted as required by the provisions
of the foregoing Section, the Company shall forthwith file in the custody of its
Secretary or an Assistant Secretary at its principal office and with its stock
transfer agent, if any, an officer's certificate showing the adjusted Exercise
Price and number of Warrant Shares determined as herein provided, setting forth
in reasonable detail the facts requiring such adjustment, including a statement
of the number of additional shares of Common Stock, if any, and such other facts
as shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the Holder or any holder of a Warrant
executed and delivered pursuant to Section 1 hereof and the Company shall,
forthwith after each such adjustment, mail a copy by certified mail of such
certificate to the Holder or any such holder.
SECTION 7. NOTICES TO WARRANT HOLDERS.
So long as this Warrant shall be outstanding, (i) if the Company shall
pay any dividend or make any distribution upon the Common Stock, (ii) if the
Company shall offer to the holders of its Common Stock rights to subscribe for,
purchase, or exchange property for any shares of any class of stock, or any
other rights or options or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be sent by overnight mail or courier service to the Holder, at least fifteen
days prior to the date specified in (x) or (y) below, as the case may be, a
notice containing a brief description of the proposed action and stating the
date on which (x) a record date is to be set for the purpose of such dividend,
distribution or subscription rights, or (y) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any is to be fixed,
as of which the holders of Common Stock or other securities shall receive cash
or other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
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<PAGE>
SECTION 8. RECLASSIFICATION, REORGANIZATION OR MERGER.
In case of any reclassification, capital reorganization or other change
of outstanding shares of Common Stock of the Company, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
class issuable upon exercise of this Warrant) or in case of any sale, lease or
conveyance to another corporation of the property of the Company as an entirety
(collectively such actions being hereinafter referred to as "Reorganizations"),
the Company shall, as a condition precedent to such Reorganization transaction,
cause effective provisions to be made so that the Holder shall have the right
thereafter by exercising this Warrant at any time prior to the expiration of the
Warrant, to receive in lieu of the amount of securities otherwise deliverable,
the kind and amount of shares of stock and other securities and property
receivable upon such Reorganization by a holder of the number of shares of
Common Stock which might have been purchased upon exercise of this Warrant and
the warrants included in the Shares immediately prior to such Reorganization.
Any such provision shall include provision for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section 8 shall similarly apply to
successive Reorganizations.
SECTION 9. ISSUE TAX.
The issuance of certificates representing the Warrant Shares upon the
exercise of this Warrant as well as securities underlying the Share Warrants
shall be made without charge to the Holder for any issuance tax in respect
thereof.
SECTION 10. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company or at the office
of its stock transfer agent, if any, for other warrants of different
denominations entitling the holder thereof to purchase in the aggregate the same
number of shares of Common Stock purchasable hereunder. The term "Warrant" as
used herein includes any Warrants into which this Warrant may be divided or
exchanged. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor and date. Any such new Warrant
executed and delivered shall constitute an additional contractual obligation on
the part of the Company, whether or not this Warrant so lost, stolen, destroyed,
or mutilated shall be at any time enforceable by anyone.
This Warrant may be assigned by the Holder provided that such
assignment, in the opinion of counsel to the Company, does not violate the
registration provisions of the Act or any other applicable securities laws,
rules or regulations.
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<PAGE>
SECTION 11. GOVERNING LAW, JURISDICTION AND VENUE.
This Warrant shall be governed by and construed and enforced in
accordance with the laws of the State of New Jersey. The Company hereby consents
to the exclusive jurisdiction and venue of the courts of the State of New Jersey
located in Bergen County, New Jersey or the United States District Court having
original jurisdiction over matters arising in such county with respect to any
matter relating to this Warrant and the performance of the Company's obligations
hereunder and the Company hereto hereby further consents to the personal
jurisdiction of such courts. Any action suit or proceeding brought by or on
behalf of the Company relating to such matters shall be commenced, pursued,
defended and resolved only in such courts and any appropriate appellate court
having jurisdiction to hear an appeal from any judgment entered in such courts.
ADM TRONICS UNLIMITED, INC.
By: /s/ Andre Di Mino
------------------------
[SEAL]
Dated: August 18, 1998
Attest:
/s/
- ---------------------------
Secretary
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<PAGE>
PURCHASE FORM
-------------
Dated _____________, 19__
The undersigned hereby irrevocably elects to exercise the
within Warrant to the extent of purchasing ____ Warrant Shares and hereby makes
payment of in payment of ____ the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
--------------------------------------
Name_________________________________________________________________________
(Please typewrite or print in block letters)
Address______________________________________________________________________
Signature____________________________________________________________________
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VOTING TRUST AGREEMENT
THIS VOTING TRUST AGREEMENT (the "Agreement") is made this 18th day of
August, 1998 between those shareholders of ADM TRONICS UNLIMITED, INC., a
Delaware corporation (the "Company"), whose names are hereunto subscribed and
any other shareholders of the Company who shall join in and become parties to
this Agreement as hereinafter provided (each, a Shareholder and, collectively,
the "Shareholders") and ANDRE' DI MINO, having offices at 224-S Pegasus Avenue,
Northvale, NJ 07647 (the "Trustee").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Asset Purchase Agreement among
Electropharmacology, Inc., the Company and AA Northvale Medical Associates, Inc.
(the "Asset Purchase Agreement"), the Shareholders have acquired the shares of
common stock of the Company in the amounts set forth opposite their respective
names on Exhibit A attached hereto (the "Purchase Shares"); and
WHEREAS, with a view to safe and competent management of the Company in
the interests of all shareholders thereof, the Shareholders desire to create a
trust in the manner as set forth herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Transfer of Shares. Upon the execution hereof, the Shareholders
shall deliver to the Trustee the certificate or certificates, if issued,
representing the Purchase Shares. In addition, the Shareholders shall deliver to
the Trustee the certificate or certificates representing any shares of common
stock of the Company subsequently acquired upon exercise of Warrants issued
pursuant to the Asset Purchase Agreement. Such shares and the Purchase Shares
are hereinafter collectively referred to as the "Shares." All such certificates
shall be endorsed in blank or accompanied by proper stock transfer powers. The
Shares shall be held by the Trustee for the Term (as hereinafter defined)
subject to the terms hereof.
2. Delivery to the Company. A counterpart of this Agreement and of
every agreement supplemental hereto shall be filed at the Company's principal
office.
3. Other Shareholders May Join. Any shareholder of the Company may
become a party to this Agreement by executing a copy hereof and delivering the
certificates representing their respective Shares to the Trustee in a manner as
set forth in paragraph 1 hereof.
4. Voting Trust Certificates. Upon delivery to the Trustee of the
certificates representing the Shares, the Trustee shall cause the Shares to be
transferred on the books of the Company to the Trustee, as trustee, and will
deliver to each of the Shareholders a trust certificate for the number of Shares
delivered to the Trustee, substantially in the form of the certificate attached
hereto as Exhibit B (a "Voting Trust Certificate"). The Trustee shall keep a
record of the holders of the Voting Trust
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Certificates, including the names and addresses of the holders and the
number and class of Shares in respect of which the respective Voting Trust
Certificates are issued (the "Voting Trust Record"). A copy of the Voting Trust
Record shall be deposited by the Trustee with the Company at its principal
office.
5. Transfer of Voting Trust Certificates. The provisions of the Asset
Purchase Agreement relating to the transfer or other disposition of any or all
of the Shares (the "Restrictions") shall be deemed to apply to the Voting Trust
Certificates. Subject to the foregoing and the other provisions of this
Agreement, the Voting Trust Certificates may be transferred by endorsement by
the person to whom such Voting Trust Certificate was issued, or by such person's
attorney-in-fact, guardian or personal representative of such person's estate,
and delivery to the Trustee. A transfer shall not be evidence to or binding upon
the Trustee until the Voting Trust Certificate is surrendered to the Trustee and
the transfer is so entered upon the Voting Trust Record reflecting the names of
the parties by whom and to whom transferred, the numbers of the Voting Trust
Certificates, the number of Shares and the date transferred. No new Voting Trust
Certificate shall be issued until the former Voting Trust Certificate for the
Shares represented shall have been surrendered to and canceled by the Trustee.
In the event that any Voting Trust Certificate shall be claimed to be lost or
destroyed, a new Voting Trust Certificate may be issued upon such proof of loss
and delivery of such security as may be required by the Trustee acting
reasonably.
6. Disposition of Shares. Subject to the provisions of Section 5
hereof, in the event that a Shareholder (a "Disposing Shareholder") desires to
transfer or otherwise dispose of any or all of its Shares, the Disposing
Shareholder shall first deliver to the Voting Trustee notice thereof (a
"Disposition Notice") and the Disposing Shareholder's Voting Trust Certificate,
duly endorsed for transfer. If such Shares are not then the subject of a current
and effective registration statement under the Securities Act of 1933 (the
"Act"), the Disposing Shareholder shall also deliver to the Voting Trustee an
opinion of the Disposing Shareholder's counsel which opinion must be reasonably
acceptable to the Company's counsel, at the Disposing Shareholder's sole cost
and expense, to the effect that the disposition of the Shares will be exempt
from the registration requirements of the Act and such written representations
of the proposed recipient of such Shares as shall be reasonably be required by
the Company's counsel. The Voting Trustee shall then take such steps as are
reasonably required to issue the requisite number of Shares in accordance with
the instructions in the Designation Notice and issue a new Voting Trust
Certificate to the Disposing Shareholder with respect to any remaining Shares.
If the Shares being disposed of are the subject of a current and effective
registration statement under the Act or such Shares are being sold pursuant to
Rule 144 thereunder, not later than 5:00 p.m. (New Jersey time) on the business
day following the delivery of the Disposition Notice (and if required the
opinion of counsel with respect thereto) the Voting Trustee shall send the
certificate representing such Shares to the Company's Transfer Agent by means of
an overnight courier service, such as Federal Express, with instructions to
immediately reissue a certificate representing the Shares being sold and deliver
such certificate as directed by the Disposing Shareholder and, if less than all
the Shares of the Disposing Shareholder are being sold, reissue a Voting Trust
Certificate to the Disposing Shareholder. The Voting Trustee acknowledges that
time is of the essence with respect to such delivery of the Shares so that the
Disposing Shareholder can meet its delivery obligations with respect to the
delivery of the certificate representing such Shares. If the Shares are not
being disposed
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of pursuant to a current and effective registration statement under the Act or
pursuant to Rule 144, the Voting Trustee shall deliver such Shares and such new
Voting Trust Certificate as promptly as possible, and in no event later than the
close of business on the fifth business day following delivery of the
Disposition Notice (and the opinion of counsel with respect thereto) and the
Voting Trust Certificate to the Voting Trustee. Notwithstanding the foregoing,
the Disposition Notice shall not be deemed to have been duly delivered unless it
contains such information as shall be reasonably requested by the Company's
counsel, provided, however, that if the Voting Trustee does not object to the
Disposition Notice before 5:00 p.m. (New Jersey Time) on the business day
following the actual delivery to the Voting Trustee of the Disposition Notice,
the Disposition Notice shall be deemed to have been duly delivered. Except as
provided in the immediately preceding sentence, Delivery Notices and Voting
Trust Certificates shall be deemed to be delivered on the date actually received
at the address set forth in the preamble hereto (or such other address as may be
subsequently provided to the Shareholders) and addressed to the Voting Trustee
or, if such delivery is rejected, on the date such delivery is rejected.
7. Voting of Shares. Upon the execution hereof, the Trustee shall have
the duty and the sole and exclusive power and authority to vote the
Shareholders' Shares, in person or by proxy, as in the judgement of the Trustee
may be in the best interests of the Company, at all regular and special meetings
of the shareholders of the Company, upon any action by written consent of
shareholders, in the election of directors and upon any matter or question that
may be brought before the shareholders of the Company, as fully as any
Shareholder might do if personally present, including but not limited to the
right to vote the Shares to increase or decrease the authorized capital stock of
the Company or divide or subdivide the outstanding equity securities of the
Company.
8. Liability of Trustee. The Trustee shall use the Trustee's best
judgement in voting the Shares subject to this Agreement, but shall not be
liable for any act or omission, any vote or consent given, in good faith and in
the absence of gross negligence or wilful misconduct. The Trustee shall use its
best judgement in voting the Shares held by the Trustee, but the Trustee shall
assume no responsibility for the consequence of any vote cast, or consent given
by the Trustee, in good faith and in the absence of gross negligence or wilful
misconduct.
9. Power to Construe Agreement. The Trustee is hereby empowered to
construe this Agreement, and the Trustee's reasonable and good faith
construction of this Agreement shall be final, conclusive and binding upon all
holders of the Voting Trust Certificates and all other interested parties.
10. Successor Trustee. In the event of the incapacity of the Trustee to
act as such, the Board of Directors of the Company shall appoint a successor
trustee.
11. Term. Unless sooner terminated by the parties hereto, the term of
this Agreement and the voting trust contained herein (the "Term") shall be for a
period of ten (10) years from the date hereof (the "Term"). Notwithstanding the
foregoing the Term shall expire with respect to any of the Shares sold without
violating the Restrictions pursuant to a then effective and current Registration
Statement under the Act or Rule 144 thereunder. Upon expiration of the Term, the
Shares then held by the Trustee shall be assigned to the respective Shareholders
then entitled to such Shares upon
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surrender of the Shareholders' Voting Trust Certificates. Thereafter, the
Trustee shall be relieved and discharged from any further obligation hereunder.
12. Dividends and Distributions. In the event that any dividend or
distribution is declared by the Company, the portion of such dividend or
distribution payable to the holders of the Voting Trust Certificates shall be
paid to the Trustee for the benefit of the holders of the Voting Trust
Certificates. The Trustee shall divide all dividends and distributions among the
holders of the Voting Trust Certificate in proportion to the number of Shares
respectively represented by such Voting Trust Certificate to the number of
Shares represented by all Voting Trust Certificates. If any dividend or
distribution shall be paid in the form of securities of the Company, the Trustee
shall receive such securities and the holders of the Voting Trust Certificates
shall be entitled to the delivery of new or additional Voting Trust Certificates
representing such holder's proportional amount of the securities so received by
the Trustee.
13. Notice. All notices, demands, requests, or other communications
that may be or are required to be given, served or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be mailed
by first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery, telegram, facsimile, or telex,
addressed as follows
If to Electropharmacology, Inc.:
Electropharmacology, Inc.
2301 NW 33rd Court, Suite 102
Pompano Beach, FL 33069
Attn: Arup Sen Facsimile: (954) 975-4021
If to Jones, Day, Reavis & Pogue:
Jones, Day, Reavis & Pogue
2300 Trammel Crow Center
200 Ross Avenue
Dallas, TX
Attn.: Stephen L. Fluckiger, Esq.
Facsimile. (214) 969-5100
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If to the Voting Trustee
Andre' Di Mino
c/o ADM Tronics Unlimited, Inc.
224-S Pegasus Avenue
Northvale, NJ 07647
Facsimile: (201) 784-0620
Each party may designate by notice in writing a new address to which any notice,
demand, request or communication may thereafter be so given, served or sent.
Except as otherwise set forth herein, each notice, demand, request or
communication that is mailed, delivered or transmitted in the manner described
above shall be deemed sufficiently given, served, sent and received for all
purposes at such time as it is delivered to the addressee, with the return
receipt, the delivery receipt, the affidavit of messenger, or (with respect to a
telecopy or telex) the answerback or confirmation of receipt being deemed
conclusive evidence of such delivery, or at such time as delivery is refused by
the addressee upon presentation.
14. Counterparts. This Agreement may be executed in counterparts and
all executed counterparts shall be deemed an original, bind upon all parties.
15. Facsimile Signatures. Facsimile signatures on counterparts of this
Agreement are hereby authorized and shall be acknowledged as if such facsimile
signatures were an original execution, and this agreement shall be deemed as
executed when an executed facsimile hereof is transmitted by a party to any
other party.
16. Governing Law. This agreement shall be construed and interpreted in
accordance with and shall be governed by the laws of the State of Delaware
without regard to principals of conflict of law and irrespective of the fact
that one or more parties hereto is now or may hereafter be a resident of a
different state, jurisdiction or country.
17. Venue/Jurisdiction. Each of the parties hereto hereby consents to
the exclusive jurisdiction and venue in the state and federal courts in the
State of New Jersey with respect to any matter relating to this Agreement and
the performance of the parties' obligations hereunder and each of the parties
hereto hereby further consents to the personal jurisdiction of such courts. Any
action suit or proceeding brought by or on behalf of any of the parties hereto
relating to such matters shall be commenced, pursued, defended and resolved only
in such courts and any appropriate appellate court having jurisdiction to hear
an appeal from any judgment entered in such courts. The parties hereby agree
that service of process may be made in any manner permitted by the rules of such
courts and the laws of the State of New Jersey.
IN WITNESS WHEREOF, the Shareholders have set their hands and seals and
set opposite their signatures the number of Shares held by them respectively,
and the Trustee has executed this Agreement on the day and date first above
written.
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ELECTROPHARMACOLOGY, INC
By: /s/ Arup Sen
--------------------------------
JONES, DAY, REAVIS & POGUE
By: Steve Fluckiger
--------------------------------
ANDRE' DI MINO
/s/
--------------------------------
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EXHIBIT A
================================================================================
Shareholder Name Number of Shares
- --------------------------------------------------------------------------------
ELECTROPHARMACOLOGY, INC.,. 1,400,000
- --------------------------------------------------------------------------------
JONES, DAY, REAVIS & POGUE 1,525,000
================================================================================
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EXHIBIT B
VOTING TRUST CERTIFICATE
THIS SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
DISPOSED OF (A) UNLESS REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL
FOR ADM TRONICS UNLIMITED, INC., AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE AND (B) SUCH DISPOSITION IS IN ACCORDANCE WITH THE PROVISIONS OF THE
VOTING TRUST AGREEMENT DESCRIBED BELOW.
This is to certify that the undersigned Trustee has received a
certificate or certificates issued in the name___________________________ of
evidencing the ownership of ________________ shares of common stock of ADM
TRONICS UNLIMITED, INC. a Delaware corporation, and that the shares are held
subject to all of the terms and conditions of that certain Voting Trust
Agreement dated August ______, 1998 by and between ADM Tronics Unlimited, Inc.
and certain shareholders thereof (the "Voting Trust Agreement"). During the Term
of the Voting Trust Agreement as that term is defined therein, the Trustee or
the Trustee's successors or assigns as provided in the Voting Trust Agreement,
shall possess and shall be entitled to exercise the right to vote and otherwise
represent all of the shares for all purposes, it being agreed that no voting
right shall pass to the holder hereof by virtue of the ownership of this Voting
Trust Certificate.
This Voting Trust Certificate is assignable with the right of issuance
of a new Voting Trust Certificate of like tenor only upon the surrender to the
undersigned or its successors of this Voting Trust Certificate properly
endorsed. Upon termination of the Voting Trust Agreement, this Voting Trust
Certificate shall be surrendered to the Trustee by the holder upon delivery to
such holder of a stock certificate representing a like number of shares.
IS IN WITNESS WHEREOF, the undersigned Trustee has executed this Voting
Trust Certificate this _________ day of August 1998.
/s/Andre Di Mino
------------------
Andre' Di Mino
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For value received, the undersigned hereby sells, assigns and transfers
to________________ , whose address is___________________________________________
the within Voting Trust Certificate and all the property rights and interests
represented thereby or arising therefrom, subject to all the terms, provisions
and conditions of the Voting Trust Agreement referenced in the Voting Trust
Certificate, and hereby authorizes the Trustee named in the Voting Trust
Certificate, or its successor, to transfer the Voting Trust Certificate on its
books and records and to issue in lieu thereof a new Voting Trust Certificate(s)
to the transferee(s) in accordance therewith and with the Voting Trust
Agreement.
Witness the hand and seal of the undersigned the ______ day of _______,
________.
Witnesses:
/s/
- -------------------------
Print Name:
/s/
- -------------------------
Print Name:
9
June 2, 1998
Electropharmacology, Inc.
2301 NW 33rd Court, Suite 102
Pompano Beach, Florida 33069
Attention: Dr. Arup Sen
Re: Asset Purchase Agreement dated as of May 27, 1998
("Purchase Agreement") between Electropharmacology,
Inc., a Delaware corporation, as seller ("EPi"), and
ADM Tronics Unlimited, Inc., a New Jersey
corporation, and AA Northvale Medical Associates,
Inc., its wholly owned subsidiary, as purchaser
(collectively "ADM")
Gentlemen:
Reference is made to (i) the Purchase Agreement and (ii) that certain
Secured Promissory Note of EPi, dated December 15, 1997 (the "Note"), in the
original principal amount of $672,750.89, which is held by Jones, Day, Reavis &
Pogue ("JDRP"). Capitalized terms not otherwise defined herein shall have the
meanings assigned to such terms in the Purchase Agreement. The Note is secured
by a security agreement and UCC-1 Financing Statement No.980000037102, filed
February 19, 1998 in the office of the Secretary of State of the State of
Florida (the "Financing Statement"). The security agreement and Financing
Statement grant JDRP a security interest in a number of the Devices that EPi is
selling to ADM pursuant to the Purchase Agreement. The parties to this letter
agreement ("Agreement") intend hereby to set forth their agreement, subject to
the conditions and upon the terms set forth herein, to provide for the issuance
by EPi of the number of its shares of common stock, par value $.01 per share
("EPi Shares"), to JDRP as set forth herein in exchange for JDRP's cancellation
of the Note.
The parties accordingly agree as follows:
1. Transactions at the Closing of the Purchase Agreement.
(a) Upon the terms and subject to the conditions set forth
herein, at the Closing EPi shall deliver to JDRP the number of EPi Shares
determined by dividing $100,000 by the average of the closing sales prices of
the EPi Shares as reported on the NASDAQ OTC Bulletin Board for the twenty
trading days immediately preceding the Effective Date. The EPi Shares shall be
issued in the name of JDRP.
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(b) Upon the terms and subject to the conditions set forth
herein, and in reliance upon the representations and warranties contained
herein, at the Closing JDRP shall deliver to EPi (A) the Note, marked
"canceled," (B) a receipt ("Receipt") acknowledging payment in full of JDRP
invoices (commencing with the oldest outstanding invoice) in an amount equal to
$750,000 less the accrued and unpaid interest on the Note through the Closing
Date and (C) a fully-executed release of the Financing Statement on State of
Florida form UCC-3.
2. Representations and Warranties of EPi. EPi hereby represents and
warrants to JDRP as of the date hereof (except as otherwise provided) and as of
the Closing Date as follows:
(a) EPi is a corporation duly organized and validly existing
under the laws of the State of Delaware. EPi has full corporate power and
authority to carry on its business as it is currently being conducted and to
own, lease and use the properties owned, leased and used by it. EPi is duly
qualified or licensed to do business in each jurisdiction where the nature of
its business requires such qualification.
(b) As of the Closing Date, the EPi Shares will (i) have been
duly authorized, (ii) be validly issued and registered in the name of JDRP, and
(iii) upon delivery of the Receipt and the canceled EPi Note, be fully paid and
non-assessable.
(c) Each document filed by EPi with the SEC since January 1,
1996 pursuant to (i) the Act or (ii) the Securities Exchange Act of 1934
("Exchange Act") (x) complied in all material respects with the applicable
requirements of the Act or Exchange Act, as applicable, and (y) did not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(d) The execution and delivery of this Agreement and the
Purchase Agreement has been duly authorized by all necessary corporate action on
the part of EPi. No other approval on the part of EPi is necessary to authorize
the execution or delivery of this Agreement or the Purchase Agreement. Except as
set forth in the Purchase Agreement, no other approvals are necessary to
authorize the performance by EPi of its obligations under this Agreement or the
Purchase Agreement. EPi has full corporate power and authority to enter into
this Agreement and to perform its obligations hereunder and under the Purchase
Agreement, and this Agreement and the Purchase Agreement constitute the valid
and legally binding obligations of EPi enforceable in accordance with their
respective terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, rearrangement, reorganization or similar debtor relief legislation
affecting the rights of creditors generally.
3. Representations and Warranties of JDRP. JDRP hereby represents and
warrants to EPi as of the date hereof and as of the Closing Date as follows:
(a) The EPi Shares are being acquired by JDRP for its own
account and not with a view to or for sale or other disposition in connection
with any distribution of all of the EPi Shares, or any part thereof, in any
transaction that would be in violation of the Act or the securities laws of
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any state, without prejudice, however, to the rights of JDRP at all times to
sell or otherwise dispose of all or any part of the EPi Shares under an
effective registration statement under the Act or under an exemption from such
registration available under the Act.
(b) JDRP represents that it is capable of evaluating the
merits and risks of an investment in the EPi Shares and has such knowledge,
experience and skill in financial and business matters that it is capable of
evaluating the merits and risks of the investment in EPi and the suitability of
the EPi Shares as an investment and can bear the economic risk of an investment
in the EPi Shares. No guarantees have been made or can be made with respect to
the future value, if any, of the EPi Shares, or the profitability or success of
the business of EPi.
(c) JDRP understands that the EPi Shares will not have been
registered pursuant to the Act or any applicable state securities laws, that the
EPi Shares will be characterized as "restricted securities" under federal
securities laws, and that under such laws and applicable regulations the EPi
Shares cannot be sold or otherwise disposed of without registration under the
Act or an exemption therefrom. In this connection, JDRP represents that it is
familiar with Rule 144 promulgated under the Act, as currently in effect, and
understands the resale limitations imposed thereby and by the Act. Stop transfer
instructions may be issued to the transfer agent for securities of EPi (or a
notation may be made in the appropriate records of EPi) in connection with the
EPi Shares, but only to the extent customary for securities which are
"restricted securities."
4. Registration of EPi Shares.
(a) As soon as practicable following the date hereof, EPi
shall use its reasonable best efforts to effect a registration under the Act of
all the EPi Shares by means of a "shelf" registration statement pursuant to Rule
415 under the Act if EPi is eligible therefore (as well as necessary amendments
or supplements thereto) or any other effective registration statement ("EPi
Registration Statement"). As expeditiously as possible after the date hereof,
EPi shall prepare and file with the SEC the EPi Registration Statement and use
all reasonable efforts to have the EPi Registration Statement declared effective
under the Act as promptly as practicable after such filing.
(b) EPi agrees, with respect to the EPi Registration
Statement, to: (i) furnish to JDRP, promptly after filing, copies of the
Registration Statement and any amendments or supplements thereto and any
prospectus forming a part thereof; (ii) notify JDRP promptly, after receipt of
notice thereof, of the time when the Registration Statement becomes effective or
when any amendment or supplement or any prospectus forming a part of the
Registration Statement has been filed; (iii) notify JDRP promptly of any request
by the SEC for the amending or supplementing of the Registration Statement or
prospectus or for additional information and promptly deliver to JDRP copies of
any comments received from the SEC; (iv) notify JDRP at any time when a
prospectus relating thereto is required to be delivered under the Act of the
happening of any event as a result of which the Registration Statement would
contain an untrue statement of a material fact or omit to state any material
fact required to be stated herein or necessary to make the statements therein
not misleading; (v) take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified) required to be taken under any
applicable state securities laws in connection
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with the issuance of EPi Shares to JDRP and JDRP shall furnish all information
concerning JDRP as may be reasonably requested in connection with any such
action; and (vi) prepare and file with the SEC such amendments and supplements
to the Registration Statement and each prospectus forming a part thereof as may
be necessary to keep the Registration Statement continuously effective for the
period of time necessary to permit JDRP to dispose of all its EPi Shares,
provided, however, that EPi shall not be required to keep its Registration
Statements effective if all of the EPi Shares held by JDRP could be sold without
restriction pursuant to the provisions of Rule 144(k) under the Act. EPi shall
pay all registration, filing and NASD fees and all fees and expenses of
complying with securities or "blue sky" laws and shall be responsible for the
fees and disbursements of its counsel and independent public accountants in
connection with the registration of the EPi Shares. JDRP shall pay for
underwriting discounts and commissions customarily paid by sellers of
securities.
5. Conditions to Closing. The obligations of JDRP to cancel the Note,
release the Financing Statement and issue the Receipt are subject to the
satisfaction on or prior to the Closing of the following conditions:
(a) all representations and warranties of EPi contained in
this Agreement shall be true and correct as of the Closing Date as though made
anew as of the Closing Date;
(b) EPi shall have delivered the EPi Shares to JDRP; and
(c) JDRP shall have received the Shares of ADM to which it is
entitled pursuant to Section 1.5(a)(i) of the Purchase Agreement (the "ADM
Shares") and the conditions to the Closing set forth in Section 6.1(e) of the
Purchase Agreement shall have been satisfied.
6. Limitation on Amount of ADM Shares Sold. EPi covenants and agrees
with JDRP that it will not sell any of the Shares of ADM received by it pursuant
to the terms of the Purchase Agreement until the earlier of (a) the date after
which JDRP has sold all of the Shares received by it pursuant to the terms of
the Purchase Agreement or (b) any date after which the selling restrictions set
forth in Section 1.6 of the Purchase Agreement are no longer in effect.
7. Survival and Indemnification Provisions. All representations and
warranties contained in this Agreement shall be deemed to be material and to
have been relied upon by the parties hereto, and shall survive the Closing
subject to the limitations set forth below.
(a) EPi shall indemnify and hold harmless JDRP, each of its
partners and employees, from and against any and all losses, claims, damages or
liabilities related to, caused by or arising from the untruthfulness or
inaccuracy of any representation or warranty of EPi or the breach of any
covenant or agreement of EPi contained in this Agreement.
(b) EPi shall indemnify and hold harmless JDRP, each of its
partners and employees, from and against any and all losses, claims, damages or
liabilities to which JDRP or any such partner or employee may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of
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any material fact contained in any registration statement under which the EPi
Shares were registered under the Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not misleading,
and EPi shall reimburse JDRP, and each partner and employee thereof, 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; provided, however, that EPi shall not be liable in any such case to
the extent that any such loss, claim, damage, liability (or action or proceeding
in respect thereof) or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement in reliance upon and in conformity with
written information furnished to EPi through an instrument duly executed by or
on behalf of JDRP, specifically stating that it is for use in the preparation
thereof.
(c) Claims for indemnification under this paragraph 7 may be
brought at any time within the applicable statute of limitations.
8. Releases of Claims. In consideration of the transactions
contemplated by this Agreement, EPi, on its own behalf, and on behalf of its
respective affiliates, hereby gives a general release and discharge of JDRP and
all of its partners, employees, agents, heirs, successors, and assigns, from any
and all claims, duties, causes of action, liabilities, damages, expenses, or
injuries, which EPi has had, now has or may ever have in any way relating to,
arising from, caused by, or connected with acts, omissions, facts or events
occurring from the beginning of time through and including the Closing Date.
9. Further Assurances. EPi shall execute and deliver such additional
documents and take such additional actions as JDRP may reasonably deem to be
advisable or necessary in order to consummate the transactions contemplated by
this Agreement and the Purchase Agreement and to vest more fully in JDRP the
ownership of and rights to the Shares and the EPi Shares and the other rights
granted to JDRP hereunder and under the Purchase Agreement.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF TEXAS WITHOUT
REGARD TO CONFLICT OF LAW PRINCIPLES.
11. ENTIRE AGREEMENT. THIS AGREEMENT AND THE PURCHASE AGREEMENT SET
FORTH THE ENTIRE AGREEMENT OF THE PARTIES HERETO RELATED TO THE SUBJECT MATTERS
HEREOF.
5
<PAGE>
This Agreement may be executed in any number of counterparts,
each of which shall be an original, and together these counterparts shall
constitute one instrument.
Very truly yours,
Jones, Day, Reavis & Pogue
By: /s/ Stephen L. Fluckiger
------------------------
Agreed and accepted:
ELECTROPHARMACOLOGY, INC.
By: /s/ Arup Sen
------------------------
Name: Arup Sen
------------------------
Title: Chairman & CEO
6
FIRST AMENDMENT TO MASTER AGREEMENT
THIS FIRST AMENDMENT TO THE MASTER AGREEMENT ("Master Agreement") made
as of June __, 1998, among HEALTHTECH DEVELOPMENT, INC., a Texas corporation
("HTD"), GEMINI BIOTECH L.P., a Texas limited partnership ("Gemini"),
ELECTROPHARMACOLOGY, INC., a Delaware corporation ("EPi"), EPI HEALTHTECH INC.,
a Delaware corporation ("EPi Sub"), certain stockholders of EPi, certain
stockholders of HTD and the partners of Gemini (the "Gemini Partners") is made
as of August 3, 1998, among EPi, EPI Sub, Gemini and the Gemini Partners.
Recitals
--------
A. EPi, EPi Sub, Gemini, and the Gemini Partners have agreed that it is
in the best interests of the parties hereto that the Gemini Health Technologies
Contribution Agreement be modified to provide that in lieu of Gemini agreeing to
contribute all its assets and liabilities to the Partnership in exchange for
Partnership Units in the Partnership, Krishna and Shashikala Jayaraman
(collectively, the "Jayaramans") have agreed to contribute all of their
partnership interests in Gemini and 100% of the stock of Gemini Biotech, Inc.
("GBI") to the Partnership in exchange for Partnership Units in the Partnership.
B. EPi, EPi Sub, Gemini and the Gemini Partners have also agreed that
the it is in the best interests of the parties hereto that the Unit Exchange
Agreement entered into among EPI, Gemini and the Partnership be modified so that
the Jayaramans, in lieu of Gemini, shall have certain rights to exchange their
Partnership Units for shares of EPI Common Stock.
C. This First Amendment to the Master Agreement (the "Amendment")
amends certain agreements of EPi, EPi Sub, Gemini and the Gemini Partners
concerning the election of directors ofEPi following the Reorganization
Transactions to provide for the nomination of the two Gemini Nominees by the
Jayaramans in lieu of Gemini.
IT IS HEREBY AGREED:
1. Section 2. Agreements to Vote Regarding Board of Directors of the
Master Agreement is hereby amended in subsection (a) thereof to replace
the phrase "two directors (the "Gemini Nominees") shall be nominated by
Gemini (the "Gemini Representative")" with the phrase "two directors
(the "Gemini Nominees") shall be nominated by Krishna Jayaraman and
Shashikala Jayaraman (the "Gemini Representatives")."
2. In Section 2(f), the word "Gemini" shall be replaced with the words
"Gemini Representatives".
3. Whenever the words "Gemini Representative" appear in the agreement,
they shall be replaced with the words "Gemini Representatives"."
4. Terms used in thisAmendment shall have the same meaning ascribed to
them in the Master Agreement. Other than the specific changes noted
herein, all other terms and conditions of the Master Agreement still
remain in force and effect.
1
<PAGE>
All IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
day and year first above written.
ELECTROPHARMACOLOGY, INC. EPI HEALTHTECH INC.
By: /s/ Arup Sen By: /s/ Arup Sen
--------------------- -----------------------
Its: President & CEO Its: President & CEO
--------------------- -----------------------
GEMINI BIOTECH L.P.
By: /s/ Krishna Jayaraman
---------------------
Its: General Partner
---------------------
GEMINI PARTNERS
/s/ Krishna Jayaraman
---------------------
Krishna Jayaraman (49% Partnership Interest)
/s/ Shashikala Jayaraman
---------------------
Shashikala Jayaraman (49% Partnership Interest)
Gemini Biotech Inc. (2% Partnership Interest)
By: /s/ Krishna Jayaraman
---------------------
Its: President & CEO
---------------------
2
July 27, 1998
Mr. Murray Feldman
8 Pilgrim Run
East Brunswick, NJ 08816
Dear Mr. Feldman:
Reference is made to the Master Agreement dated as of June 1998 (the
"Master Agreement") among HealthTech Development, Inc., Gemini Biotech L.P.,
Electropharmacology, Inc. ("EPi"), EPi Sub, Inc. and certain stockholders and
partners of such entities named therein. Capitalized terms used herein and not
defined have the meanings ascribed to them in the Master Agreement.
Pursuant to Section 2 of the Master Agreement, the EPi Representatives
have the right to nominate two directors to the Board of Directors of EPi. In
the selection of such nominees pursuant to Section 2 of the Master Agreement,
Norton Herrick hereby agrees to support the nomination of, and to vote his
shares of EPi in favor of, a person nominated by Murray Feldman, and Murray
Feldman hereby agrees to support the nominations of, and to vote his shares of
EPi in favor of, a person nominated by Norton Herrick.
Please acknowledge your agreement with the foregoing by signing in the
space provided below and returning a copy to me by fax and overnight courier.
Best regards,
/s/ Norton Herrick
Norton Herrick
Agreed and Accepted
/s/ Murray Feldman
Murray Feldman
AGREEMENT OF LIMITED PARTNERSHIP OF
Gemini Health Technologies L.P.
A DELAWARE LIMITED PARTNERSHIP
------------------------------
<PAGE>
THIS AGREEMENT OF LIMITED PARTNERSHIP (this "Agreement") of Gemini Health
Technologies L.P. (the "Partnership") dated as of the 18th day of June, 1998 is
entered into by and between EPi Health Technologies, Inc., a Delaware
corporation, as general partner (the "Company" or the "General Partner") and
Krishna and Shaskikala Jayaraman, as limited partners (collectively the
"Jayaramans" or the "Limited Partners" and collectively with the General
Partner, the "Partners").
RECITALS
--------
WHEREAS, the Partners desire to form a limited partnership under the
Act for the purposes and on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises of the parties
hereto, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
---------
1
DEFINITIONS AND INTERPRETATION
------------------------------
1.1 Definitions: For purposes of this Agreement, the following capitalized
terms are defined as follows:
1.1.1 "Act" shall mean the Revised Limited Partnership Act of the
State of Delaware, as amended, replaced, modified or
supplemented from time to time.
1.1.2 "Adjusted Capital Account Deficit" shall mean, with respect
to any Partner, the deficit balance, if any, in such
Partner's Capital Account as of the end of the relevant
Fiscal Year, after giving effect to the following
adjustments:
(i) Credit to such Capital Account any amounts which such
Partner is obligated to restore or is deemed to be
obligated to restore pursuant to Regulation Section
1.704- 1(b)(2)(ii)(C); and
(ii) Debit to such Capital Account the items described in
Regulation Section 1.704- 1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit
is intended to comply with the provisions of Regulation
Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently.
1.1.3 "Affiliate" of a Person shall mean any other Person that
directly or indirectly, through one or more intermediaries,
has control of, is controlled by or is under common control
with, such first Person. For the purpose of this definition,
"control" (including with correlative meanings, the terms
"controlling", "controlled by", and "under common control
with") as applied to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person,
whether through ownership of voting securities or by
contract or otherwise.
1
<PAGE>
1.1.4 "Agreement" shall mean this Agreement of the Limited
Partnership of the Partnership, as it may be amended from
time to time.
1.1.5 "Book Basis" of a Partnership asset shall mean the asset's
adjusted tax basis, as determined for federal income tax
purposes; provided, however, that (i) if Property is
contributed to the Partnership the initial Book Basis of
such Property shall be its fair market value on the date of
contribution; (ii) if the Capital Accounts of the
Partnership are adjusted pursuant to Regulation Section
1.704-1(b)(2)(iv)(f) to reflect the fair market value of the
Partnership's assets, the Book Basis of each such asset
shall be adjusted to equal its fair market value as of the
time of such adjustment in accordance with such Regulation;
and (iii) the Book Basis of all assets shall be adjusted
thereafter by depreciation and amortization as provided in
Regulation Section 1.704-1(b)(2)(iv)(g).
1.1.6 "Business Day" shall mean a day other than a Saturday,
Sunday or day on which banks in the State of Florida are
required or authorized to close.
1.1.7 "Capital Account" for any Partner shall mean such Partner's
capital account determined in accordance with Section 4.1.
1.1.8 "Capital Contributions" for any Partner shall mean the
contribution(s) by such Partner of Property to the capital
of the Partnership.
1.1.9 "Certificate of Limited Partnership" shall mean the
Certificate of Limited Partnership of the Partnership in the
form attached hereto as Exhibit A.
1.1.10 "Code" shall mean the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated
thereunder.
1.1.11 "Commission" shall mean the United States Securities and
Exchange Commission.
1.1.12 "Common Stock" has the meaning set forth in the Exchange
Agreement.
1.1.13 "Contribution Agreement" shall mean the Contribution
Agreement dated as of the Effective Date between the
Partnership, the Limited Partners and the Company in the
form attached hereto as Exhibit B.
1.1.14 "Deemed Value" shall mean as of any date, the total number
of share of Common Stock issued and outstanding as of the
close of business on such date (excluding any treasury
shares) multiplied by the Fair Market Value of a share of
Common Stock on such date divided by the Percentage Interest
of the Company on such date.
1.1.15 "Earn-Outs" shall mean the additional shares of Common Stock
that may be issued pursuant to (i) Section 3.6 of the
Agreement of Merger and Plan of Reorganization among
Electropharmacology, Inc., EPi Sub Inc. and HealthTech
Development Inc. and (ii) Section 4.1 of the Contribution
Agreement.
1.1.16 "Effective Date" shall mean the date of this Agreement.
2
<PAGE>
1.1.17 "Exchange Agreement" shall mean the Unit Exchange Agreement
dated as of the Effective Date among the Partnership, the
Company and Gemini in the form attached hereto as Exhibit C.
1.1.18 "Fair Market Value" shall mean, with respect to a share of
Common Stock, the average of the daily market price for the
ten (10) consecutive trading days immediately preceding the
valuation date. The market price for each such trading day
shall be: (i) if the Common Stock is listed or admitted to
trading on any securities exchange or the National Market
System of The Nasdaq Stock Market, the closing price,
regular way, on such day, or if no such sale takes place on
such day, the average of the closing bid and asked prices on
such day, (ii) if the Common Stock is not listed or admitted
to trading on any securities exchange or the National Market
System of The Nasdaq Stock Market, the last reported sale
price on such day or, if no sale takes place on such day,
the average of the closing bid and asked prices on such day,
as reported by a reliable quotation source designated by the
Committee, or (iii) if the Common Stock is not listed or
admitted to trading on any securities exchange or the
National Market System of The Nasdaq Stock Market and no
such last reported sale price or closing bid and asked
prices are available, the average of the reported high bid
and low asked prices on such day, as reported by a reliable
quotation source designated by the Company, or if there
shall be no bid and asked prices on such day, the average of
the high bid and low asked prices, as so reported, on the
most recent day (not more than 10 days prior to the date in
question) for which prices have been so reported; provided
that if there are no bid and asked prices reported during
the 10 days prior to the date in question, the Fair Market
Value of the Common Stock shall be determined by the Company
acting in good faith on the basis of such quotations and
other information as it considers, in its reasonable
judgment, appropriate and provided further that, in
connection with determining the Deemed Value of the
Partnership Units for purposes of determining the number of
additional Partnership Units issuable upon a Capital
Contribution funded by an offering of Common Stock, then the
Fair Market Value of the Common Stock shall be the offering
price per share of the Common Stock sold.
1.1.19 "Fiscal Year" shall mean the year end of the Partnership as
determined pursuant to Section 9.4.
1.1.19a "Gemini" shall mean Gemini Biotech L.P., a Texas limited
partnership.
1.1.20 "Gemini Non-Competition Agreement" shall mean the
Non-Competition Agreement dated as of the Effective Date
between the Partnership, Gemini and certain Affiliates of
Gemini in the form attached hereto as Exhibit D.
1.1.21 "General Partner" shall mean EPi HealthTech Inc., a Delaware
corporation, and any other Person permitted to act as a
general partner from time to time pursuant to the provisions
of this Agreement, for so long as such Person is a General
Partner hereunder.
1.1.22 "IRS" shall mean the U.S. Internal Revenue Service.
1.1.23 "Limited Partners" shall mean Krishna Jayarmanan and
Shashikala Jayaraman.
3
<PAGE>
1.1.24 "Net Profits" or "Net Loss" shall mean for each Fiscal Year
or other period, the taxable income or loss of the
Partnership determined in accordance with the accounting
methods used by the Partnership for U.S. federal income tax
purposes with the following adjustments:
(i) all items of income gain, loss or deduction
allocated pursuant to Section 4.4 shall not be taken
into account in computing taxable income or loss;
(ii) any income of the Partnership that is exempt
from U.S. federal income taxation and not otherwise
taken into account in computing Net Profits and Net
Losses shall be added to such taxable income or loss;
(iii) if the book value for Capital Account purposes
of any asset differs from its adjusted basis for U.S.
federal income tax purposes, any gain or loss
resulting from a disposition of such asset shall be
calculated with reference to such book value;
(iv) upon an adjustment to the book value for Capital
Account purposes of any asset, the amount of the
adjustment shall be included as gain or loss in
computing such taxable income or loss;
(v) if the book value for Capital Account purposes of
any asset differs from its adjusted basis for U.S.
federal income tax purposes the amount of
depreciation, amortization or other cost recovery
deductions with respect to such asset shall for
purposes of determining Net Profits and Net Losses be
an amount that bears the same ratio to such book
value for Capital Account purposes as the U.S.
federal income tax depreciation, amortization or
other cost recovery deductions bears to such adjusted
basis; and
(vi) except for items in (i) above, any expenditures
of the Partnership not deductible in computing
taxable income or loss, not properly capitalizable
and not otherwise taken into account in computing Net
Profits and Net Losses pursuant to this definition
shall be treated as deductible items.
1.1.25 "Nonrecourse Deductions" has the meaning given in Regulation
Section 1.704-2(b)(1).
1.1.26 "Nonrecourse Liability" has the meaning given in Regulation
Section 1.752-1(a)(2).
1.1.27 "Option Plan" shall mean the 1993 Stock Option Plan of the
Company, as amended December 13, 1996.
1.1.28 "Partner Minimum Gain" shall mean an amount, with respect to
each Partner Nonrecourse Debt, equal to Partnership Minimum
Gain that would result if such Partner Nonrecourse Debt were
treated as a Nonrecourse Liability, determined in accordance
with Regulations Section 1.740-2(i)(3).
1.1.29 "Partner Nonrecourse Debt" has the meaning given in
Regulation Section 1.704-2(b)(4).
4
<PAGE>
1.1.30 "Partner Nonrecourse Debt Minimum Gain" shall mean an
amount, with respect to each Partner Nonrecourse Debt, equal
to the Partnership Minimum Gain that would result if such
Partner Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Regulation Section
1.704-2(i)(3).
1.1.31 "Partner Nonrecourse Deductions" shall mean the partner
nonrecourse deductions as defined in Regulations Section
1.704-(2)(i)(2).
1.1.32 "Partners" shall mean the General Partner and the Limited
Partners.
1.1.33 "Partnership" shall mean Gemini Health Technologies L.P., a
Delaware limited partnership.
1.1.34 "Partnership Units" shall mean the interest in the
Partnership of a Partner. A Partner's ownership equity
interest in the Partnership is represented by the number of
Partnership Units such Partner holds, as set forth on
Exhibit E of this Agreement, which may be modified from time
to time when additional Partnership Units are issued or
Partnership Units are exchanged or assigned.
1.1.35 "Partnership Minimum Gain" has the meaning given in
Regulation Section 1.704-2(b)(2) and 1.704-2(d).
1.1.36 "Percentage Interest" shall mean the ratio, expressed as a
percentage, that the number of Partnership Units held by a
Partner bears to the total number of Partnership Units
outstanding.
1.1.37 "Permitted Transferee" shall mean, (i) in the case of the
Company, any Affiliate of the Company and (ii) in the case
of Gemini, Krishna Jayaraman and Shashikala Jayaraman.
1.1.38 "Person" shall mean an individual, proprietorship, trust,
estate, partnership, joint venture, association, company,
limited liability company, corporation or other entity.
1.1.39 "Property" shall mean all assets and properties of every
kind, nature, character and description (whether real,
personal or mixed, whether tangible or intangible, whether
absolute, accrued, contingent, fixed or otherwise and
wherever situated), including cash, cash equivalents,
general intangibles, real estate, equipment, inventory,
goods and intellectual property.
1.1.40 "Regulations" shall mean the Income Tax Regulations,
including Temporary Regulations, promulgated under the Code,
as such regulations may be amended from time to time
(including corresponding provisions of succeeding
regulations).
1.1.41 "Securities Act" shall mean the Securities Act of 1933, as
amended and the rules and regulations promulgated
thereunder.
5
<PAGE>
1.1.42 "Technology" shall mean all technologies, patented or
unpatented, patentable or unpatentable, developed by or on
behalf of, or assigned or assignable to Company or Gemini.
1.1.43 "Transfer" shall mean any transfer, alienation, sale,
assignment, pledge or other disposition or encumbrance,
whether voluntarily or involuntarily, and shall include any
direct or indirect change in control of a Person.
1.2 Interpretation: The following provisions shall govern the
interpretation of this Agreement:
1.2.1 The singular form of any word used herein, including the
terms defined in Section 1.1., include the plural, and vice
versa, unless the context otherwise requires. The use herein
of a pronoun of any gender shall include correlative words
of the other gender.
1.2.2 Unless otherwise expressly indicated, all references herein
to "Articles", "Sections" and other subdivisions hereof are
to the corresponding Articles, Sections or subdivisions of
this Agreement; and the words "herein", "hereof",
"hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular Article,
Section or subdivision hereof.
1.2.3 The headings or titles of the several Articles and Sections
hereof, and any table of contents appended to copies hereof,
shall be solely for convenience of reference and shall not
affect the meaning, construction or effect of this
Agreement.
1.2.4 Each reference herein to any agreement, instrument or other
document shall mean such agreement, instrument or document
as from time to time amended, modified or supplemented in
accordance with the terms hereof and thereof. The term
"including" shall be construed to mean "including but not
limited to."
ARTICLE 2
---------
ORGANIZATION AND PURPOSE
------------------------
2.1 Formation: Subject to the provisions of this Agreement, the Partnership
shall be a limited partnership pursuant to the provisions of the Act.
The rights and obligations of the Partners and the administration and
termination of the Partnership shall be governed by this Agreement and
the Act.
2.2 Name: The name of the Partnership shall be, and the business of the
Partnership shall be conducted under the name of, "Gemini Health
Technologies L.P." The Partnership's business may be conducted under
any other name or names deemed advisable by the General Partner,
including the name of the General Partner or any Affiliate of the
General Partner.
2.3 Purpose: The purpose and business of the Partnership shall be to,
directly or indirectly:
2.3.1 develop and exploit the Technology in such manner as the
General Partner deems appropriate;
6
<PAGE>
2.3.2 acquire, hold, own, operate, lease, manage, maintain,
improve, repair, replace, reconstruct, sell or otherwise
dispose of and use the Property of the Partnership; and
2.3.3 enter into any lawful transaction and engage in any lawful
activity incidental to or in furtherance of the foregoing
purposes.
2.4 Registered Office and Principal Place of Business: The registered
office of the Partnership in the State of Delaware shall be located at
c/o Corporation Service Company, 1013 Center Road, Wilmington,
Delaware, 19801, and the registered agent for service of process on the
Partnership at such registered office shall be Corporation Service
Company. The principal office of the Partnership shall be 2301 N.W.
33rd Court, Suite 102, Pompano Beach, Florida 33069 or such other place
as the General Partner may from time to time designate.
2.5 Term: The Partnership's term shall commence on the filing of the
Certificate of Limited Partnership with the Secretary of State of the
State of Delaware and shall terminate on December 31, 2047 or as
otherwise provided by this Agreement or by law.
2.6 Documents: The Partnership shall file the documents necessary to comply
with the requirements of the laws of the State of Delaware for the
formation, continuation and operation of a limited partnership. The
General Partner agrees to execute all documents and to undertake all
other acts, as reasonably may be deemed necessary, in order to comply
with the requirements of the laws of the State of Delaware for the
continuation and operation of limited partnerships.
2.7 Title to Partnership Property: All Property owned by the Partnership,
whether real or personal, tangible or intangible, shall be owned by the
Partnership as an entity, and no Partner, individually, shall have any
ownership interest in any such Property.
2.8 Qualifications: The General Partner shall cause the Partnership to
comply with the laws of any jurisdiction where the Partnership engages
in business for the operation of a foreign limited partnership. The
General Partner agrees to execute and deliver all documents and to
undertake all other acts, as reasonably may be deemed necessary, in
order to comply with the requirements of the laws of any other
jurisdiction where the Partnership engages in business for the
formation, continuation and operation of a foreign limited partnership.
ARTICLE 3
---------
CAPITAL CONTRIBUTIONS AND
-------------------------
FINANCIAL OBLIGATIONS OF PARTNERS
---------------------------------
3.1 Initial Capital Contributions.: On the Effective Date, (i) the Company
shall make an initial Capital Contribution to the Partnership of the
Company Contributed Property (as defined in the Contribution Agreement)
and (ii) Jayaramans shall make an initial Capital Contribution to the
Partnership of the Jayaramans Contributed Property (as defined in the
Jayarmans Contribution Agreement). On the Effective Date, the Company
and Gemini shall each own the number of Partnership Units set forth on
Exhibit E.
7
<PAGE>
3.2 Additional Capital Contributions: No Partner is required to make any
additional Capital Contribution to the Partnership beyond its initial
Capital Contribution, provided that if the Company (i) makes a primary
offering of Common Stock, it shall invest the net proceeds of such
offering in the Partnership in exchange for a number of Partnership
Units determined as set forth below and (ii) if the Company issues any
shares of Common Stock in exchange for Property, it shall contribute
such Property to the Partnership in exchange for a number of
Partnership Units determined as set forth below. The number of
Partnership Units to be issued pursuant to clauses (i) and (ii) shall
be calculated as follows:
APU = (CC/DV) x TPU
where
APU = number of additional Partnership Units to be issued
CC = in the ease of a contribution of Property other
than cash, the fair value of the Capital
Contribution; in the case of a contribution of cash,
the amount of such cash, provided, however, that in
the case of a contribution by the Company of cash
proceeds from a public or private Common Stock
offering, the amount of cash for this purpose shall
be determined without reduction for expenses of such
offering
DV = Deemed Value of the Partnership Units as of the date
of such Capital Contribution
TPU = total number of Partnership Units outstanding
immediately prior to the Capital Contribution
3.3 Issuance of Common Stock Pursuant to Options: If at any time the
Company issue shares of Common Stock pursuant to the Option Plan, it
will contribute the proceeds therefrom (if any) to the Partnership as
an additional Capital Contribution.
3.4 Issuance of Common Stock Pursuant to Earn-Outs: If at any time the
Company issue shares of Common Stock pursuant to the Earn-Outs, the
Partnership shall issue to the Company additional Partnership Units
equal to the number of shares of Common Stock so issued, it being
agreed that such Partnership Units shall be issued notwithstanding that
no proceeds are received by the Company with respect to such issuance.
The number of shares of Common Stock to be issued pursuant to this
Section 3.4, shall be adjusted in accordance with the provisions of
Article III of the Exchange Agreement, if applicable.
3.5 No Interest on Contributions or Capital Accounts: No Partner shall be
entitled to interest on its Capital Contributions or on balances in its
Capital Account..
3.6 Return of Capital Contributions and Capital Accounts: No Partner shall
be entitled to withdraw any part of its Capital Contribution or its
Capital Account or receive any distribution from the Partnership,
except as specifically provided in this Agreement. Except as otherwise
provided herein, there shall be no obligation to return to any Partner
or withdrawn Partner any part of such Partner's Capital Contribution or
its Capital Account for so long as the Partnership continues in
existence.
8
<PAGE>
3.7 Liability of Limited Partners: Except to the extent provided by
applicable law, no Limited Partner shall be liable for any of the
debts, liabilities, contracts or other obligations of the Partnership.
Except to the extent provided herein and by applicable law, a Limited
Partner shall have no liability in excess of the amount of its Capital
Contributions and its share of the Partnership's Property and
undistributed profits and shall not be required to repay to the
Partnership, to any Partner or to any creditor of the Partnership any
portion or all of any negative balance of its Capital Account.
3.8 Liability of General Partner: The General Partner is not personally
liable to the Limited Partners for repayment of the Limited Partners'
Capital Contribution. The General Partner shall have unlimited
liability for the debts, liabilities, obligations and losses of the
Partnership.
ARTICLE 4
---------
CAPITAL ACCOUNTS
----------------
ALLOCATIONS OF NET PROFITS AND NET LOSSES AND TAX MATTERS
---------------------------------------------------------
4.1 Capital Accounts: A separate capital account (a "Capital Account")
shall be established and maintained for each Partner. The Capital
Account of each Partner shall be credited with such Partner's Capital
Contributions, all Net Profits allocated to such Partner pursuant to
Section 4.2 including any items of income or gain specially allocated
pursuant to Section 4.3 and the amount of any Partnership liabilities
assumed by such Partner or which are secured by any Property
distributed to such Partner; and shall be debited with all Net Losses
allocated to such Partner pursuant to Section 4.2 including any items
of loss or deduction of the Partnership specially allocated to such
Partner pursuant to Section 4.3, all cash and the fair market value of
any Property (net of liabilities assumed by such Partner and the
liabilities to which such Property is subject) distributed by the
Partnership and the amount of any liabilities of such Partner assumed
by the Partnership or which are secured by any Property contributed by
such Partner to the Partnership. To the extent not provided for in the
preceding sentence, the Capital Accounts of the Partners shall be
adjusted and maintained in accordance with the rules of Regulation
Section 1.704-1(b)(2)(iv), as the same may be amended or revised. Any
references in any Section of this Agreement to the Capital Account of a
Partner shall be deemed to refer to such Capital Account as the same
may be credited or debited from time to time as set forth above. In the
event of any transfer of any Partnership Interest in accordance with
the terms of the Agreement, the transferee shall succeed to the Capital
Account of the transferor to the extent it relates to the transferred
Interest.
4.2 Allocations of Net Profits and Net Losses: Except as otherwise provided
in this Agreement, Net Profits and Net Losses of the Partnership shall
be allocated among the Partners in accordance with their Percentage
Interests.
4.3 Mandatory Allocations:
4.3.1 Minimum Gain Chargeback: Except as otherwise provided in
Regulation Section 1.704- 2(f), notwithstanding any other
provisions of this Article 4, if there is a net decrease in
Partnership Minimum Gain for any Fiscal Year, each Partner
shall be specially allocated items of Partnership income and
gain for such year (and, if necessary, subsequent years) in
an amount equal to the such Partner's share of the net
decrease in Partnership Minimum Gain, as determined under
Regulation Section 1.704-2(g). Allocations pursuant to the
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previous sentence shall be made in proportion to the
respective amounts required to allocated to each Partner
pursuant thereto. The items to be so allocated shall be
determined in accordance with Regulation Sections
1.704-2(f)(6) and 1.704-2(j)(2). This Section 4.3.1 is
intended to comply with the minimum gain chargeback
requirement in such sections of the Regulations and shall be
interpreted consistently therewith.
4.3.2 Partner Minimum Gain Chargeback: Except as otherwise
provided in Section 1.704- 2(i)(4) of the Regulations,
notwithstanding any other provision of this Article 4, if
there is a net decrease in Partner Minimum Gain attributable
to a Partner Nonrecourse Debt for any Fiscal Year, each
Partner who has a share of the Partner Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in
accordance with Regulation Section 1.704- 2(i)(5), shall be
specially allocated items of Partnership income and gain for
such year (and, if necessary, subsequent years) in an amount
equal to the such Partner's share of the net decrease in
Partner Minimum Gain attributable to such Partner
Nonrecourse Debt, determined in accordance with Regulation
Section 1.704-2(i)(4). Allocations pursuant to the previous
sentence shall be made in proportion to the respective
amounts required to allocated to each Partner pursuant
thereto. The items to be so allocated shall be determined in
accordance with Regulation Section 1.704-2(i)(4) and
1.704-2(j)(2). This Section 4.3.2 is intended to comply with
the partner minimum gain chargeback requirement in such
Section of the Regulations and shall be interpreted
consistently therewith.
4.3.3 Qualified Income Offset: In the event any Limited Partner
unexpectedly receives any adjustments, allocations or
distributions described in Regulation Sections 1.704-
1(b)(2)(ii)(d)(4), (5) or (6) that cause or increase an
Adjusted Capital Account Deficit of such Partner, items of
income and gain shall be specially allocated to such Partner
in an amount and manner sufficient to eliminate, to the
extent required by the Regulations, the Adjusted Capital
Account Deficit of such Partner as quickly as possible. This
Section 4.3.3 is intended to constitute a "Qualified Income
Offset" within the meaning of Regulation Section
1.704-1(b)(2)(ii) and shall be interpreted consistently
therewith.
4.3.4 No Excess Deficit: To the extent that any Partner has or
would have, as a result of any allocation of Partnership
loss (or item thereof), an Adjusted Capital Account Deficit,
such amount of Partnership loss (or item thereof) shall be
allocated to the other Partners in accordance with Section
4.2, but in a manner which will not produce an Adjusted
Capital Account Deficit at to such Partners.
4.3.5 Gross Income Allocation: In the event any Partner has a
deficit Capital Account balance at the end of any Fiscal
Year or other period that is in excess of the Adjusted
Capital Account Deficit for such Partner, then such Partner
shall be specially allocated items of Partnership income and
gain in the amount of such excess as quickly as possible,
provided that an allocation pursuant to this Section 4.3.5
shall be made only if and to the extent that such Partner
would have an Adjusted Capital Account Deficit after all
other allocations provided for in this Agreement have been
tentatively made as if this Section 4.3.5 were not in this
Agreement.
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4.3.6 Nonrecourse Deductions: Nonrecourse Deductions for any
Fiscal Year shall be allocated to the Partners in accordance
with their Percentage Interest.
4.3.7 Partner Nonrecourse Deductions: Partner Nonrecourse
Deductions for any Fiscal Year shall be allocated to the
Partner who bears the economic risk of loss with respect to
the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable in accordance with
Regulation Section 1.704-2(i)(1).
4.4 Tax and Code Section 704(c) Allocations: For U.S. Federal income tax
purposes only, each item of income, gain, loss and deduction of the
Partnership shall be allocated among the Partners in the same manner as
the corresponding items of Net Profits and Net Losses and specially
allocated items are allocated for Capital Account purposes; provided
that with respect to any Property of the Partnership that has been
reflected in the Partners' Capital Accounts at a value that differs
from the adjusted basis for U.S. Federal income tax purposes of the
Property, items of depreciation, amortization, and gain or loss, as
computed for federal income tax purposes, shall be allocated between
the Partners so as to take account of the variation between the
adjusted basis, for U.S. Federal income tax purposes, of such Property
and the value at which such Property is reflected in the Partners'
Capital Accounts, in accordance with Code Section 704(c) and Regulation
Sections 1.704-1(b)(2)(iv)(g) and 1.704-1(b)(4)(i).
4.5 Reversal of Allocations: Any special allocations of items of income,
gains, losses or deductions pursuant to Section 4.3 shall, to the
extent possible, be reversed in computing subsequent allocations of Net
Profits and Net Loss pursuant to this Article 4, so that the net amount
of any item so allocated and the Net Profits and Net Loss and all other
items allocated to each Partner pursuant to this Article 4 shall, to
the extent possible, equal the net amount that would have been
allocated to each such Partner pursuant to the provisions of this
Article 4 had such special allocations pursuant to Section 4.3 not been
made.
4.6 Revaluation Adjustments: The General Partner, upon advice of the
Partnership's tax counsel that the Partnership is authorized pursuant
to the provisions of Regulation Section 1.704-1(b)(2)(iv)(f), and that
it is in the Partners' interest to do so, shall cause an increase or
decrease in the Partners' Capital Accounts to reflect a revaluation of
Partnership Property (including intangible assets such as goodwill) on
the Partnership books. Any such revaluation shall be made strictly in
compliance with the provisions of Regulation Section
1.704-1(b)(2)(iv)(f).
4.7 Required General Partner Allocation: Notwithstanding anything to the
contrary contained herein, unless otherwise required by Code Section
734(b) or 704(c) or the Regulations applicable thereto, the interest of
the General Partner in each material item of Partnership income, gain,
loss, deduction or credit shall be equal to at least one percent (1%)
at all times during the existence of the Partnership.
ARTICLE 5
---------
DISTRIBUTIONS
-------------
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5.1 Distributions: Subject to Section 8.3, the amount and timing of
distributions by the Partnership shall be determined in the discretion
of the General Partner. Subject to Section 8.3, all distributions to
the Partners shall be in proportion to their Partnership Units. For
purposes of this Section 5.1 the Partnership Units of the Partners
shall be determined as of the date of any such distribution.
5.2 Nature of Distributions: Distributions may be made in cash or other
Property, or both, in the discretion of the General Partner.
ARTICLE 6
---------
POWERS AND OBLIGATIONS OF THE PARTNERS
--------------------------------------
6.1 General Partner to Manage Business: The General Partner shall be
responsible for managing the affairs of the Partnership. The General
Partner shall have complete and exclusive discretion in the management
and control of the affairs and business of the Partnership and shall
possess all powers necessary, convenient or appropriate to carrying out
the purposes and business of the Partnership; provided however, that
the day to day activities of the Partnership shall be managed by the
Partnership's officers, chosen by and subject to the supervision of the
General Partner. The General Partner shall make all Partnership
decisions, and shall specifically have the authority to hire attorneys,
accountants, and any other consultants or employees. The Limited
Partners hereby consent to the exercise by the General Partner of the
powers conferred on it under this Agreement.
6.2 Powers of General Partner: The General Partner shall possess and enjoy,
without the need to obtain the consent of the Limited Partners, all the
rights and powers necessary or desirable to carry out the purposes and
business of the Partnership, and all of the power and authority as may
be specifically stated in this Agreement or as may be otherwise
provided by law, including, but not limited to, the power to:
6.2.1 make all decisions concerning the operational aspects of the
Partnership;
6.2.2 pay from Partnership assets all expenses of organizing and
conducting the business of the Partnership;
6.2.3 make and enter into such contracts and incur expenses on
behalf of the Partnership as the General Partner deems
necessary or appropriate for the efficient conduct and
operation of the Partnership's business;
6.2.4 open bank accounts, savings accounts and other accounts and
designate authorized signatories for such accounts;
6.2.5 compromise, submit to arbitration, sue on or defend all
claims in favor of or against the Partnership; commence or
defend litigation that pertains to the Partnership or any
Partnership Property, and arrange for the settlement of any
pending or threatened litigation, by or against the
Partnership, through compromise, arbitration or otherwise;
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6.2.6 do all acts the General Partner deems necessary or
appropriate for the protection and preservation of the
Partnership's Property;
6.2.7 make distributions and allocations to the Partners in
accordance with Article 5 hereof;
6.2.8 designate officers of the Partnership as authorized
signatories with the authority to execute on behalf of the
Partnership any documents or instruments of any kind that
the General Partner may deem appropriate or advisable to
carry out the purposes of the Partnership;
6.2.9 arrange for the preparation, execution and filing of
federal, state and local income tax returns and pay any
taxes on behalf of the Partnership, and contest any
determination by the Internal Revenue Service that the
General Partner deems to be adverse to the best interest of
the Partnership;
6.2.10 make all payments required of the Partnership under the
terms of this Agreement, including such payments, fees and
reimbursements as the General Partner, or any of its
Affiliates, may be entitled to receive under the terms of
this Agreement;
6.2.11 invest Partnership funds on a temporary basis pending
distribution, in such investments as the General Partner
determines appropriate;
6.2.12 employ Persons (including any Affiliate of a General
Partner) for the operation and management of the Partnership
and engage such other experts and advisers as the General
Partner may deem necessary or advisable, in each case, on
such terms and for such compensation (including bonuses and
benefits) as the General Partner may determine;
6.2.13 sell, license or otherwise dispose of any or all of the
Property of the Partnership;
6.2.14 enter into business asset or equity acquisitions, joint
ventures and other strategic alliances, including mergers
and consolidations;
6.2.15 enter into financing arrangements or borrow money on behalf
of the Partnership, and secure any such financings or
borrowings by granting security interests and other liens on
the Partnership's Property;
6.2.16 approve the annual business plan for the Partnership,
including the capital and operating budgets for the
Partnership;
6.2.17 take any action for the (A) commencement of a voluntary case
under applicable bankruptcy, insolvency or similar law now
or hereinafter in effect, (B) consent to the entry of any
order for relief in an involuntary case under any such law
to the extent that the giving or withholding of such consent
is within the Partnership's discretion, (C) consent to the
appointment or taking possession of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or similar
official) of the Partnership or of any substantial part of
the Partnership's Property or (D) making by the Partnership
of a general assignment for the benefit of creditors;
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6.2.18 enter into any transaction with an Affiliate of a General
Partner, provided that such transaction is on arms' length
terms and conditions; and
6.2.19 call a meeting of Partners from time to time as the General
Partner deems necessary or advisable.
6.3 Other Interests of Partners: The General Partner shall conduct all of
its business through the Partnership. The Limited Partners and their
Affiliates shall be prohibited from competing with the Partnership to
the extent set forth in the Gemini Non-Competition Agreement.
6.4 Limited Authority of Limited Partners: The Limited Partners shall not:
6.4.1 take part in the control of the business of the Partnership;
6.4.2 execute any document that binds or purports to bind the
Partnership;
6.4.3 hold itself out as having the power or authority to bind the
Partnership;
6.4.4 undertake any obligation or responsibility on behalf of the
Partnership;
6.4.5 bring any action for partition or sale in connection with
any Property of the Partnership, whether real or personal,
or register or permit any lien or charge in respect of such
Property; or
6.4.6 take any action that may jeopardize the status of the
Partnership as a limited partnership for U.S. Federal income
tax purposes.
6.5 Reliance by Third Parties: Notwithstanding any other provision of this
Agreement to the contrary, no lender or purchaser, including any
purchaser of Property from the Partnership or any other Person dealing
with the Partnership, shall be required to look to the application of
proceeds hereunder or to verify any representation by the General
Partner as to the extent of the interest in the Property of the
Partnership that the General Partner is entitled to encumber, sell or
otherwise use, and any such lender or purchaser shall be entitled to
rely exclusively on the representations of the General Partner as to
its authority to enter into such financing or sale arrangements and
shall be entitled to deal with the General Partner as if it was the
sole party in interest therein, both legally and beneficially. In no
event shall any Person dealing with the General Partner or the General
Partner's representatives with respect to any business or Property of
the Partnership be obligated to ascertain that the terms of this
Agreement have been complied with, or be obligated to enquire into the
necessity or expedience of any act or action of the General Partner or
the General Partner's representative; and every contract, agreement,
deed, mortgage, security agreement, promissory note or other instrument
or document executed by the General Partner or the General Partner's
representatives with respect to any business or Property of the
Partnership shall be conclusive evidence in favor of any and every
Person relying thereon or claiming thereunder that (a) at the time of
the execution and/or delivery thereof this Agreement was in full force
and effect, (b) such instrument or document was duly executed in
accordance with the terms and provisions of this Agreement and is
binding upon the Partnership, and (c) the General Partner or the
General Partner's representatives were duly
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authorized and empowered to execute and deliver any and every such
instrument or document for and on behalf of the Partnership.
6.6 Compensation, Expenses and Reimbursement of the General Partner: All
expenses incurred in connection with the organization of the
Partnership shall be borne by the Partnership. The General Partner
shall be reimbursed on a monthly basis for all fair and reasonable
expenses it incurs or makes on behalf of the Partnership (including
amounts paid to any Person to perform services for the Partnership or
the General Partner or who is an employee of the Partnership or the
General Partner). Such reimbursement shall be in addition to any
reimbursement to a General Partner as a result of indemnification
pursuant to Section 6.7 hereof.
6.7 Indemnification of Partners:
6.7.1 The Partnership shall indemnify and hold harmless the
Partners, their respective Affiliates, all of their
respective officers, directors, partners, stockholders,
employees, and agents and all of the officers, employees and
agents of the Partnership (individually, an "Indemnitee"),
from and against any and all losses, claims, demands, costs,
damages, liabilities, and expenses of any nature (including
attorneys' fees and disbursements), judgments, fines,
settlements, and other amounts arising from any and all
claims, demands, actions, suits, or proceedings, civil,
criminal, administrative or investigative, in which an
Indemnitee may be involved, or threatened to be involved, as
a party or otherwise ("Losses"), arising out of or
incidental to the business of the Partnership, regardless of
whether an Indemnitee continues to be a Partner, an
Affiliate, or an officer, director, partner, stockholder,
employee, or agent of a Partner or of an Affiliate at the
time any such Loss is paid or incurred, if the Indemnitee's
conduct did not constitute willful misconduct. The
termination of any action, suit, or proceeding by settlement
or upon a plea of nolo contendere, or its equivalent, shall
not, in and of itself, create a presumption or otherwise
constitute evidence that the Indemnitee's actions
constituted willful misconduct.
6.7.2 Expenses (including legal fees and expenses) incurred in
defending any proceeding subject to subsection (a) of this
Section 6.7 shall be paid by the Partnership in advance of
the final disposition of such proceeding upon receipt of an
undertaking (which need not be secured) by or on behalf of
the Indemnitee to repay such amount if it shall ultimately
be determined, by a court of competent jurisdiction or
otherwise, that the Indemnitee is not entitled to be
indemnified by the Partnership as authorized hereunder.
6.7.3 The indemnification provided by this Section 6.7 shall be in
addition to any other rights to which each Indemnitee may be
entitled under any agreement, as a matter of law or
otherwise, both as to action in the Indemnitee's capacity as
General Partner or as a partner, stockholder, officer,
director, employee or agent of a Partner, or as to action in
the Indemnitee's capacity as a Person serving at the request
of the Partnership as set forth above, and shall continue as
to an Indemnitee who has ceased to serve in such capacity
and shall inure to the benefit of the heirs, successors,
assigns, administrators and personal representatives of the
Indemnitee. Such indemnification, however, shall only apply
to Losses incurred by virtue of the Indemnitee's status as
General Partner, Affiliate or officer, director, partner,
stockholder, employee or agent thereof, and not as to Losses
15
<PAGE>
incurred in other capacities (for example, by virtue of
otherwise contracting with the Partnership).
6.7.4 The Partnership may purchase and maintain insurance on
behalf of any one or more Indemnitees and other such Persons
as the Partnership shall determine against any liability
that may be asserted against or expense that may be incurred
by such Person in connection with the Partnership's
activities, whether or not the Partnership would have the
power to indemnify such Person against such liability under
the provisions of this Agreement.
6.7.5 Any indemnification hereunder shall be satisfied only out of
the assets of the Partnership and no Partner shall be
subject to personal liability by reason of these
indemnification provisions.
6.7.6 An Indemnitee shall not be denied indemnification in whole
or in part under this Section 6.7 because the Indemnitee had
an interest in the transaction with respect to which the
indemnification applies if the transaction was otherwise
permitted by the terms of this Agreement.
6.7.7 The provisions of this Section 6.7 are for the benefit of
the Indemnitees and the heirs, successors, assigns,
administrators and personal representatives of the
Indemnitees and shall not be deemed to create any rights for
the benefit of any other Persons.
6.7.8 Any Person that proposes to assert the right to be
indemnified under this Section 6.7 shall, promptly after
receipt of notice of any action that is subject to
indemnification hereunder, notify the Partnership of the
commencement of such action, enclosing a copy of all papers
served. The failure so to notify the Partnership of any such
action shall not relieve it from any liability that it may
have to any Indemnitees hereunder, unless the Partnership is
prejudiced thereby. In case any such action shall be brought
and notice given to the Partnership of the commencement
thereof, the Partnership shall be entitled to participate
in, and to assume the defense thereof, with counsel
reasonably satisfactory to the Indemnitee, and after notice
from the Partnership to such Indemnitee of its election so
to assume the defense thereof, the Partnership shall not be
liable to such Indemnitee for any legal or other expenses,
except as provided below and except for the reasonable costs
of investigation subsequently incurred by such Indemnitee at
the request of the Partnership in connection with the
defense thereof. The Indemnitee shall have the right to
employ separate counsel and to participate in (but not
control) any such action,but the fees and expenses of such
counsel shall be the expense of such Indemnitee unless (i)
the employment of counsel by such Indemnitee has been
authorized by the Partnership, (ii) the employment of
separate counsel is necessitated by a conflicting interest
among the Indemnitees or (iii) the Partnership shall not in
fact have employed counsel to assume the defense of such
action. In each such case, the fees and expenses of counsel
shall be at the expense of the Partnership. The Partnership
shall not be liable for any settlement of any action or
claims affected without its written consent unless the
Partnership has failed to assume the defense of any such
action or claims.
6.8 Liability of the General Partner: The General Partner and its
Affiliates and all officers, directors, partners, stockholders,
employees and agents of the General Partner and its Affiliates shall
not be
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liable to the Partnership or to the Limited Partners for any losses
sustained or liabilities incurred as a result of any act or omission of
the General Partner, its Affiliates or any such officers, directors,
partners, stockholders, employees or agents if (i) the General Partner,
such Affiliate, or such officer, director, partner, stockholder,
employee or agent acted in good faith and in a manner it, he or she
reasonable believed to be in, or not opposed to, the best interests of
the Partnership, and (ii) the conduct of the General Partner, such
Affiliate or such officer, director, partner, stockholder, employee or
agent did not constitute willful misconduct. For purposes of this
Agreement, any act or omission, if done or omitted to be done in
reliance upon the advice of legal counsel or accountants selected with
reasonable care, shall be conclusively presumed to have been done or
omitted to be done in good faith and not to constitute willful
misconduct.
6.9 Reliance by General Partner: The General Partner may rely and shall be
protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
consent, order, bond, debenture, or other paper or document believed by
it to be genuine and to have been signed or presented by the proper
party or parties. The General Partner may consult with legal counsel,
and other consultants and advisers selected by it, and any advice of
such Person as to matters which the General Partner believes to be
within such Person's professional experience shall be full and complete
authorization and protection in respect of any action taken or suffered
or omitted by the General Partner hereunder in good faith and in
accordance with such advice.
6.10 Conversion to Corporate Form: If the General Partner shall determine
that it is desirable or helpful for the business of the Partnership to
be conducted in a corporate rather than in a partnership form, the
General Partner may incorporate the Partnership or take such other
action as it may deem advisable in light of such changed conditions,
including, without limitation, dissolving the Partnership, provided
that, the General Partner may not incorporate the Partnership within
two (2) years from the Effective Date without the consent of the
Limited Partners if to do so would have material adverse tax
consequences to the Limited Partners. In connection with any such
incorporation of the Partnership, the Partners shall receive, in
exchange for their Partnership Units, shares of capital stock of such
corporation having the same relative rights and preferences as to
dividends and distributions and the same voting and transfer rights,
subject in each case to any modifications required solely as a result
of the conversion to corporate form (all such rights and preferences
being referred to, collectively, as "Equity Rights"), as are set forth
in this Agreement as among the holders of interests in the Partnership.
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ARTICLE 7
---------
TRANSFERS OF PARTNERSHIP UNITS AND WITHDRAWALS OF PARTNERS
----------------------------------------------------------
7.1 General Restriction on Transfer of Partnership Units: Except as
specifically set forth in this Article 7, neither the General Partner
nor the Limited Partners may Transfer any Partnership Units.
7.2 Transfers Pursuant to Exchange Agreement: Subject to Section 7.4, the
Limited Partners shall be permitted to exchange Partnership Units for
shares of Common Stock pursuant to the terms and conditions set forth
in the Exchange Agreement.
7.3 Assignments to Permitted Transferee: Subject to Section 7.4, the
General Partner may at any time assign its Partnership Units to a
Permitted Transferee and the Limited Partners, with the consent of the
General Partner (such consent not to be unreasonably withheld) may
assign its Partnership Units to a Permitted Transferee; provided that
in all such cases such Partner and its Permitted Transferee complies
with Section 7.5.
7.4 Specific Restrictions on Transfer of Partnership Units:
7.4.1 No exchange or assignment of a Partnership Unit may be made
if such exchange or assignment (i) would violate the then
applicable federal or state securities laws or rules and
regulations of the Commission, state securities commission,
or rules and regulations of any other government agencies
with jurisdiction over such exchange or assignment or (ii)
would affect the Partnership's existence or qualification
under the Act. If an exchange or assignment of a Partnership
Unit is otherwise permitted hereunder, notwithstanding any
provision hereof, no Partner shall exchange or assign all or
any portion of such Partner's Partnership Units unless and
until such Partner, upon the request of the Partnership,
delivers to the Partnership an opinion of counsel, addressed
to the Partnership, reasonably satisfactory to the
Partnership, to the effect that (A) such Partnership Unit
has been registered under the Securities Act and any
applicable state securities laws, or that the proposed
transfer of such Partnership Unit is exempt from any
registration requirements imposed by such laws and that the
proposed exchange or assignment does not violate any other
applicable requirements of federal or state securities laws
and (B) that such exchange or assignment shall not adversely
affect the tax status of the Partnership. Such opinion shall
not be deemed delivered until the Partnership confirms to
such Partner that such opinion is acceptable.
7.4.2 Notwithstanding the other provisions of this Agreement, the
General Partner shall monitor the exchange or assignment of
Partnership Units to determine (i) if such Partnership Units
are being traded on an "established securities market" or a
"secondary market (or the substantial equivalent thereof)"
within the meaning of Section 7704 of the Code, and (ii)
whether additional exchanges or assignments of Partnership
Units would result in the Partnership being unable to
qualify for at least one of the "safe harbors" set forth in
Regulations Section 1.7704-1 (or such other
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guidance subsequently published by the Internal Revenue
Service setting forth safe harbors under which Partnership
Units shall not be treated as "readily tradable on a
secondary market (or the substantial equivalent thereof)"
within the meaning of section 7704 of the Code) (the "Safe
Harbors"). The General Partner shall take (and cause its
Affiliates to take) all steps reasonably necessary or
appropriate to prevent any trading of Partnership Units or
any recognition by the Partnership of exchanges or
assignments made on such markets and, except as otherwise
provided herein, to ensure that at least one of the Safe
Harbors is met.
7.5 Requirements for Transfers: Notwithstanding anything to the contrary
contained herein, in order for an assignment to take place pursuant to
Section 7.3:
7.5.1 the assignee must execute a counterpart of this Agreement or
otherwise agree in writing to be bound by its terms;
7.5.2 there shall have been compliance with relevant requirements
of the Act and all other applicable legislation, including
securities legislation;
7.5.3 in the case of an assignment to a Permitted Transferee,
evidence reasonably satisfactory to the General Partner must
have been produced to the effect that the assignor is a
Permitted Transferee and that such assignment will not
result in a lien or charge upon or against Partnership
assets; and
7.6 the General Partner, acting reasonably, must be satisfied
that (i) the assignment or the assignee will not impair the
ability of the Partnership to be taxed as a partnership for
federal income tax purposes and (ii) the assignment will not
cause the Partnership's tax year to close or the Partnership
to terminate for federal income tax purposes under Section
708 of the Code.
7.7 Documentation and Costs: Any assignee shall execute any and all
documents reasonably requested by the General Partner and shall pay all
reasonable expenses incurred by the Partnership in connection with the
assignment of Partnership Units, including the cost of the preparation,
filing and publishing of any amendment to this Agreement.
7.8 Withdrawal: No Partner may withdraw from the Partnership without the
prior written consent of the General Partner, which consent shall be
within the absolute discretion of the General Partner.
7.9 Invalid Transfer: Any Transfer of a partnership interest that does not
comply with the provisions of this Agreement shall be invalid and shall
not vest any interest in the assignee.
ARTICLE 8
---------
DISSOLUTION AND LIQUIDATION
---------------------------
8.1 Dissolution: The Partnership shall dissolve on the first to occur of the
following:
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8.1.1 The expiration of the term of the Partnership as provided in
Section 2.5;
8.1.2 The sale of all of the assets of the Partnership and the
collection and distribution of all proceeds (including
interest on deferred payments) from such sale;
8.1.3 The exchange pursuant to the Exchange Agreement of all of
the Partnership Units held by the Limited Partners;
8.1.4 At such time as required by the Act; or
8.1.5 The determination of the Partners to dissolve the
Partnership.
8.2 Continuation of Partnership: To the extent permitted by the Act, upon
dissolution of the Partnership in accordance with Section 8.1.4 the
remaining Partners may elect to reconstitute the Partnership and
continue its business on the same terms and conditions set forth in
this Agreement if on the affirmative vote of the holders of a majority
of Partnership Units. the Partners agree in writing (a) to continue the
business of the Partnership and (b) to the appointment, if necessary,
of a successor General Partner. Unless such an election is made within
90 days after dissolution, the Partnership shall conduct only
activities necessary to wind up its affairs. If such an election is
made within 90 days after dissolution, then (i) the reconstituted
Partnership shall continue until dissolved in accordance with this
Article 8 and (ii) all necessary steps shall be taken to cancel this
Agreement and the Certificate of Limited Partnership and to enter into
a new partnership agreement and certificate of limited partnership.
8.3 Winding Up Affairs and Liquidation: Upon the dissolution of the
Partnership, the General Partner or the Persons required or permitted
by law to carry out the winding up of the affairs of the Partnership
(the "Liquidator") shall promptly notify all Partners of such
dissolution, shall proceed to the liquidation of the assets of the
Partnership by converting such assets to cash insofar as deemed
practicable by the General Partner or the Liquidator, shall wind up the
affairs of the Partnership, and, after paying or providing for the
payment of all liabilities and obligations of the Partnership, shall
distribute the proceeds of liquidation and other assets of the
Partnership as provided by law and the terms of this Agreement.
8.4 Distribution on Dissolution: The proceeds of liquidation and other
assets of the Partnership shall be applied and distributed in the
following order of priority:
8.4.1 To the payment of debts and liabilities of the Partnership
(including any loans and advances that may have been made by
any of the Partners, or amounts owing to any of the
Partners) and the expenses of liquidation;
8.4.2 To the setting up of any reserves that the General Partner
or the Liquidator may deem reasonably necessary for any
contingent or unforeseen liabilities or obligations of the
Partnership, which reserves shall be paid over to an escrow
holder approved by the General Partner or the Liquidator to
be held for the purpose of disbursing such reserves in
payment of any of the aforementioned contingencies, and, at
the expiration of such period, as the General Partner or the
Liquidator shall deem advisable, to distribute the balance
thereafter remaining in the manner hereinafter provided; and
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8.4.3 Any balance then remaining shall be distributed to the
Partners in accordance with their Capital Accounts. Each
Partner shall look solely to the assets of the Partnership
for the return of its Capital Contribution and shall have no
right or power to demand or receive any specific Property
other than cash from the Partnership. No Partner shall have
priority over any other Partner as to the return of its
Capital Contributions, distributions or allocations.
8.5 Assets Other Than Cash: Assets of the Partnership, with the approval of
the General Partner, may be distributed in kind on the basis of their
then appraised value. For purposes of making such distribution only,
the unrealized profit or loss on any such asset (based on its fair
market value) shall be first allocated among the Partners and the
distribution of the asset shall be treated as a distribution of cash
equal to the fair market value of such asset.
ARTICLE 9
---------
FISCAL MATTERS
--------------
9.1 Books and Records: The Partnership shall keep complete and up to date
books and records at its office setting forth a true and accurate
account of all business transactions arising out of and in connection
with the conduct of the Partnership's business. The Partnership shall
also maintain at its office the following:
9.1.1 A current list of each Partner set forth in alphabetical
order, together with each Partner's Capital Contributions
and Partnership Units;
9.1.2 A copy of the certificate of limited partnership of the
Partnership and all certificates of amendment thereto,
together with executed copies of any powers of attorney
pursuant to which any certificate has been executed;
9.1.3 Copies of the Partnership's federal, state and local income
tax or information returns and reports, if any, for the six
(6) most recent Fiscal Years;
9.1.4 Copies of the original of this Agreement and all amendments
thereto;
9.1.5 Financial statements of the Partnership for the six (6) most
recent Fiscal Years; and
9.1.6 The Partnership's books and records for the then current
year and the past three (3) Fiscal Years.
The General Partner shall make available to the Partnership's auditors
or accountants or other duly authorized representatives of the
Partnership such information and material as may be required by such
auditors, accountants or authorized representatives and shall otherwise
give such cooperation as may be reasonably necessary for the auditors,
accountants or authorized representatives to carry out their duties to
the Partnership in accordance with the provisions hereof.
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9.2 Access to Books and Records: Upon the reasonable request of the Limited
Partners, the General Partner shall promptly deliver to the Limited
Partners, at the Limited Partners' expense, the current list of
Partners, a copy of the certificate of limited partnership of the
Partnership and all amendments thereto, copies of this Agreement and
all amendments thereto and a copy of any state filings by the
Partnership. A Limited Partner shall have the right on reasonable
request to inspect and copy during normal business hours any of the
Partnership's records required to be maintained pursuant to Section 9.1
(other than those deemed by the General Partner to be confidential) and
to obtain from the General Partner promptly after becoming available, a
copy of the Partnership's federal, state and local income tax or
information returns and reports for each Fiscal Year. The General
Partner shall promptly furnish to a Limited Partner a copy of any
amendment to this Agreement executed by the General Partner pursuant to
a power of attorney from a Limited Partner.
9.3 Tax Returns: The General Partner shall cause the Partnership to file
when due all federal, state and local income tax or information returns
due under laws in force in the United States and to withhold and remit
to the appropriate governmental agencies any amounts required to be
paid under applicable laws.
9.4 Fiscal Year: The "Fiscal Year" of the Partnership shall mean the year
as determined under Code Section 706(b).
9.5 Accounting and Tax Elections: All decisions as to accounting matters
and all elections required or permitted to be made by the Partnership
under the Code, including elections pursuant to Code Sections 732(d)
and 754 (or corresponding provisions of succeeding law or state law)
shall be made by the General Partner.
9.6 Information for the General Partner: The Partnership shall prepare all
such records and information as may be necessary for the General
Partner to use for the proper filing of all documents required to be
filed by the General Partner with the Commission.
ARTICLE 10
----------
MISCELLANEOUS PROVISIONS
------------------------
10.1 Notices: Except as otherwise provided herein, any notice, consent,
waiver, offer, request, or vote, required hereunder shall be in
writing, and shall be deemed to have been validly served, given or
delivered (i) upon delivery thereof if delivered by messenger or
courier service to the Partner to be notified, or (ii) upon
acknowledgment of receipt thereof if transmitted to a valid telecopier
number for the Partner to be notified; in each case the Partner is to
be notified at the address and telecopier numbers on Exhibit E.
10.2 Limited Power of Attorney: The Limited Partners, by the Limited
Partners' execution of this Agreement, irrevocably constitute and
appoint the General Partner as the Limited Partners' true and lawful
attorney and agent, with full power and authority in the Limited
Partners' name, place
22
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and stead to execute, acknowledge and deliver and to file or record in
any appropriate public office:
10.2.1 this Agreement and counterparts thereof;
10.2.2 all instruments that the General Partner deems appropriate
to reflect any amendment, change or modification to the
Partnership or to this Agreement in accordance with the
terms hereof; including, without limitation, any amendment
to this Agreement and/or to any certificate or other
instrument that may be necessary, desirable or appropriate
to reflect or comply with the provisions of Sections 2.1 and
2.8;
10.2.3 all certificates and instruments and amendments thereto that
the General Partner deems necessary or appropriate to form,
qualify or continue the qualification of the Partnership in
or otherwise comply with the laws of any jurisdiction where
the Partnership may do business or own or lease Property in
order to maintain the limited liability of the Limited
Partners and to comply with all applicable laws of such
jurisdiction;
10.2.4 all conveyances and instruments that the General Partner
deems appropriate or necessary to reflect the dissolution
and termination of the Partnership pursuant to the terms of
this Agreement;
10.2.5 any and all other certificates and instruments that may be
required to be filed by the Partnership under the laws of
the United States or in any jurisdiction therein; and
10.2.6 all transfers, certificates and other documents and to make
all such statements as may, in the opinion of the General
Partner, be necessary or desirable in order to carry through
to completion any exchange or assignment of a Partnership
Unit pursuant to the terms of this Agreement.
This power of attorney shall be deemed to be coupled with an interest
and shall survive the exchange or assignment by the Limited Partners of
their Partnership Units. Notwithstanding the existence of this power of
attorney, each Limited Partner agrees to join in the execution,
acknowledgement and delivery of the instruments referred to above if
requested to do so by the General Partner. The power of attorney
granted to the General Partner is a limited power of attorney that does
not authorize the General Partner to act on behalf of the Limited
Partners except to execute the documents described in this Section
10.2.
10.3 Integration: This Agreement, the agreements referred to herein and the
agreements referred to therein set forth the entire agreement between
the parties with regard to the subject matter hereof. No other
agreements, covenants, representations or warranties, express or
implied, oral or written, have been made by any party to the other with
respect to the subject matter of this Agreement. All prior and
contemporaneous conversations, negotiations, possible and alleged
agreements and representations, covenants, and warranties with respect
to the subject matter hereof are waived, merged herein and therein and
superseded hereby and thereby.
23
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10.4 Applicable Law: This Agreement shall be governed by, construed and
enforced in accordance with the internal laws of the State of Delaware.
10.5 Counterparts: This Agreement may be executed in counterparts and all
counterparts so executed shall constitute one Agreement binding on all
the parties. It shall not be necessary for each party to execute the
same counterparts.
10.6 Severability: In case any one or more of the provisions contained in
this Agreement or any application of the provisions shall be invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions or the remaining
applications shall not in any way be affected or impaired.
10.7 Captions: The captions and headings in this Agreement are for
convenience only and shall not be considered in interpreting any
provision of this Agreement.
10.8 Binding Effect: Except as otherwise provided to the contrary, this
Agreement shall be binding upon, and inure to the benefit of, the
Partners and their respective heirs, executors, administrators,
successors and assigns.
10.9 Gender and Number: Whenever required by the context, the singular shall
be deemed to include the plural, and the plural shall be deemed to
include the singular, and the masculine, feminine and neuter genders
shall each be deemed to include the other.
10.10 Amendment: Except as otherwise provided, this Agreement may be amended
in whole or in part only by an agreement in writing signed by the
General Partner and all the Limited Partners.
10.11 Exhibits: Exhibits referred to in this Agreement are incorporated by
reference into this Agreement.
10.12 Partnership Tax Audits: The General Partner is designated as the
Partnership's "Tax Matters Partner" (the "TMP") in accordance with the
provisions of Code Section 6231(a)(7). The TMP shall receive no
compensation for its services as the TMP.
10.13 Arbitration: Any controversy or claim arising out of or relating to any
interpretation, breach or dispute concerning any of the terms or
provisions of this Agreement, which is settled in writing within thirty
(30) days after it arises, shall be settled by arbitration in Delaware
or such other jurisdiction as the parties may agree upon, in accordance
with the laws of the State of Delaware and under the rules then
obtaining of the American Arbitration Association (or any successor
thereto), and judgment upon the award rendered in said arbitration
shall be final and may be entered in any court in the State of Texas or
Florida or elsewhere having jurisdiction thereof. Any party hereto may
apply for such arbitration.
24
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
EPi HealthTech Inc.
By: s/ Arup Sen
-------------------------------------
Arup Sen, President
s/ Krishna Jayaraman
-------------------------------------
Krishna Jayaraman
s/ Shashikala Jayaraman
-------------------------------------
Shashikala Jayaraman
25
CONTRIBUTION AGREEMENT
----------------------
AGREEMENT dated as of August 18 , 1998 by and between Epi Sub Inc.
("Epi Sub"), a Delaware corporation and Electropharmacology, Inc., a Delaware
corporation (hereinafter referred to as "Epi").
BACKGROUND
----------
WHEREAS, EPi Sub is a wholly-owned subsidiary of EPI;
WHEREAS, EPi desires to contribute to the capital of Epi Sub, and Epi
desires to accept as a capital contribution from EPi, all of EPi's right, title
and interest in, to and under all of the Contributed Assets (as hereinafter
defined), all on the terms and subject to the conditions herein set forth (the
"Capital Contribution");
WHEREAS, in connection with the Capital Contribution, EPi Sub will
assume all of the Assumed Liabilities (as hereinafter defined); and
WHEREAS it is intended that the transfer of the Contributed Assets will
qualify as a Section 351 transfer under the Internal Revenue Code of 1986, as
amended.
NOW THEREFORE, in consideration of the mutual promises herein set forth
the parties hereto, desiring legally to be bound, hereby agree as follows:
1. Contribution of Assets:
----------------------
1.1 EPi hereby contributes to the capital of EPi Sub and EPi
Sub hereby accepts as a contribution to its capital, all of
EPi's right, title and interest, in, to and under all of EPi's
Assets other than the Excluded Assets (collectively, the
"Contributed Assets"), including, without limitation:
1.1.1 all of the accounts receivable of EPi as at the Effective
Time, which accounts receivable are set forth on Schedule
1.1.1.
1.1.2 all of the inventory of finished goods, work in process, raw
materials and supplies of EPi at the Effective Time, which
inventory is set forth in Schedule 1.1.2;
1.1.3 all machinery, equipment, furniture, fixtures, tools, computer
hardware and software, leasehold improvements and other fixed
assets of EPi as at the Effective Time, which machinery,
equipment, furniture, fixtures, tools, computer hardware and
software, leasehold improvements and other fixed assets is set
forth on Schedule 1.1.3.
1.1.4 all of the Proprietary Rights owned or licensed by EPi as at
the Effective Time, which Proprietary Rights are set forth on
Schedule 1.1.4.
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1.1.5 all customer orders to which EPi is a party as at the
Effective Time (the "Customer Orders");
1.1.6 all orders for supplies and services to which EPi is a party
as the Effective Time (the "Purchase Orders");
1.1.7 all Permits of EPi (the "Assigned Permits"), a list of which
is set forth on Schedule 1.1.7;
1.1.8 all files, books, records, customer and supplier lists, price
lists and other business documents of EPi (the "Books and
Records");
1.1.9 all deposits and prepaid items of EPi, which deposits and
prepaid items are set forth on Schedule 1.1.9;
1.1.10 all contracts to which EPi is a party as at the Effective
Time, which contracts are set forth on Schedule 1.1.10
(collectively, the "Assigned Contracts");
1.1.11 all real property leased by EPi as at the Effective Time (the
"Real Property");
1.1.12 Intentionally Omitted
1.1.13 the cash in the bank accounts set forth on Schedule 1.1.13
(the "Contributed Cash"); and
1.1.14 all other assets of any kind of EPi and not otherwise set
forth in this Section 1.1, other than the Excluded Assets,
including without limitation, the name "EPi", goodwill,
telephone numbers and telecopy numbers.
1.2 The Contributed Assets are conveyed to EPi Sub free and clear
of all Liabilities and Liens such that after such conveyance,
EPi Sub shall have good and marketable title thereto, free and
clear of all Liabilities and Liens except to the extent of the
Assumed Liabilities.
1.3 The Assets set forth on the Schedules are not an exclusive
list of the Contributed Assets and the fact that any Assets
that otherwise are within the definition of Contributed Assets
are not set forth on a Schedule to this Agreement shall not
prevent such Assets from being deemed to be Contributed Assets
hereunder.
1.4 Notwithstanding anything in this Agreement to the contrary,
the following Assets of EPi shall be excluded from and shall
not constitute Contributed Assets (the "Excluded Assets"):
1.4.1 all assets of EPi being sold to AA Northvale Medical
Associates, Inc. ("AA Northvale") pursuant to that Asset
Purchase Agreement dated May 27, 1998, by and among EPi, AA
Northvale and ADM Tronics Unlimited, Inc. (the "ADM
Agreement");
2
<PAGE>
1.4.2 EPi's minute books, seals, stock record books, stock
certificates and other similar corporate documents; and
1.4.3 The Assets set forth on Schedule 1.4.3.
1.5 To the extent that any Customer Orders, Purchase Orders, Assigned
Permits or Assigned Contracts are not assignable or transferable
without the consent or waiver of the issuer thereof or the other party
thereto or any third party (including any governmental authority) or if
such assignment or transfer or attempted assignment or transfer would
constitute a breach thereof or a violation of any Law, EPi shall use
its reasonable efforts, and EPi Sub shall reasonably cooperate
therewith, to obtain the consents and waivers referred to in this
Section 1.5. To the extent that any consent or waiver referred to in
this Section 1.5 is not obtained by EPi, EPi shall (A) provide to EPi
Sub the benefits of any such Customer Orders, Purchase Orders, Assigned
Permits or Assigned Contracts; (B) cooperate in any reasonable and
lawful arrangement requested by EPi Sub designed to provide such
benefits to EPi Sub; and (C) at the request of EPi Sub, enforce for the
account of EPi Sub any right of EPi arising from any such Customer
Orders, Purchase Orders, Assigned Permits or Assigned Contracts against
such issuer or the other party or parties thereto (including the right
to elect to terminate in accordance with the terms thereof on the
advice of EPi Sub). To the extent that EPi Sub is provided the benefits
pursuant to this Section 1.5 of any such Customer Orders, Purchase
Orders, Assigned Permits or Assigned Contracts, EPi Sub shall perform
for the benefit of the issuer thereof or the other party or parties
thereto, the obligations of EPi thereunder or in connection therewith,
but only to the extent that (I) such performance would not result in
any default thereunder or in connection therewith and (ii) such
obligations would have been Assumed Liabilities, but for the
non-assignability or non-transferability thereof.
1.6 To further evidence the contribution of the Contributed Assets by EPi
to EPi Sub, EPi shall deliver to EPi Sub:
1.6.1 a bill of sale, duly executed by EPi, transferring all of
EPi's right, title and interest in, to and under the
Contributed Assets to EPi Sub, free and clear of all
Liabilities and Liens other than the Assumed Liabilities;
1.6.2 Intentionally Omitted
1.6.3 a patent assignment, duly executed by EPi, transferring all of
EPi's right, title and interest in, to and under the patents
set forth on Schedule 1.1.4 to EPi Sub, free and clear of all
Liabilities and Liens;
1.6.4 the Books and Records, which shall be delivered
constructively;
1.6.5 Intentionally Omitted
1.6.6 assignments of the Assigned Contracts, duly executed by EPi
and the other parties thereto;
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<PAGE>
1.6.7 such other good and sufficient instruments of conveyance,
assignment and transfer, in form and substance satisfactory to
EPi Sub's counsel, as shall be required to vest in EPi Sub
good title to the Contributed Assets free and clear of all
Liabilities and Liens other than the Assumed Liabilities; and
1.6.8 All other documents required to be delivered to EPi Sub under
the provisions of this Agreement.
1.7 At any time and from time to time, at EPi Sub's request and without
further consideration, EPi will execute and deliver such other
instruments of sale, transfer, conveyance, assignment and confirmation
and take such other actions as EPi Sub may reasonably deem necessary or
desirable in order to more effectively transfer, convey and assign to
EPi Sub, and to confirm EPi Sub's title to, all of the Contributed
Assets, to put EPi Sub in actual possession and operating control
thereof and to assist EPi Sub in exercising all rights with respect
thereto.
1.8 The contribution of the Contributed Assets shall be deemed to be
effective as of the Effective Time, notwithstanding that any of the
instruments referred to in Section 1.6 are not executed and/or
delivered and/or filed until after the Effective Date.
2. Assumption of Liabilities
-------------------------
2.1 Subject to and upon the terms and conditions set forth in this
Agreement, EPi Sub hereby assumes all of the Liabilities of
EPi other than the Excluded Liabilities (collectively, the
"Assumed Liabilities"), including, without limitation:
2.1.1 all of the trade accounts payable of EPi as at the Effective
Time, which trade accounts payable are set forth on Schedule
2.1.1 (the "Accounts Payable");
2.1.2 all of EPi Sub's Liabilities under the Customer Orders and the
Purchase Orders; and
2.1.3 all of the EPi Sub's Liabilities under the Assigned Permits
and the Assigned Contracts.
2.2 The fact that any Liabilities that otherwise are within the definition
of Assumed Liabilities are not set forth on a Schedule to this
Agreement shall not prevent such liabilities from being deemed to be
Assumed Liabilities hereunder.
2.3 Notwithstanding anything in this Agreement to the contrary, the
following liabilities shall be excluded from and shall constitute
Assumed Liabilities (the "Excluded Liabilities"):
2.3.1 all Liabilities of EPi being assumed by AA Northvale pursuant
to the ADM Agreement; and
2.3.2 those Liabilities set forth on Schedule 2.3.2.
4
<PAGE>
3. Employees
---------
3.1 EPi hereby transfers to EPi Sub all of the Employees of EPi
(the "Transferred Employees"). The Transferred Employees shall
include, without limitation, the persons set forth on Schedule
3.1. EPi Sub shall assume all of the Liabilities of EPi with
respect to the Transferred Employees with effect as of the
Effective Time, provided however, that EPi Sub shall not
assume any Liabilities of EPi with respect to any employee
stock option plans.
3.2 Until EPi Sub establishes its own employee benefit plans, and
at the request of EPi Sub, EPi, to the extent it can
reasonably do so, shall provide benefit coverage to the
Transferred Employees and any new employees EPi Sub may hire
and EPi Sub shall reimburse EPi for all costs incurred by EPi
in connection therewith.
4. Transfer of Contributed Assets and Assumed Liabilities
------------------------------------------------------
EPi acknowledges that pursuant to a Capital Contribution Agreement
dated as of June 18, 1998, among EPi, EPi Sub, Gemini Biotech L.P.,
Krishna Jayaraman, Shashikala Jayaraman and Gemini Biotech Inc. (the
"Capital Contribution Agreement") EPi Sub will be contributing the
Contributed Assets to Health Technologies L.P. (the "Partnership") and
the Partnership will be assuming the Assumed Liabilities. EPi consents
to such contribution and assumption. Furthermore, EPi hereby represents
and warrants to EPi Sub that the representations and warranties made by
EPi and EPi Sub pursuant to Section 5.2 of the Capital Contribution
Agreement are true and correct.
5. Definitions
-----------
As used in this Agreement, the following terms shall have the following
meanings unless the context otherwise requires:
5.1 "Assets" means all assets, properties and business, real, personal or
mixed, tangible or intangible, moveable or immovable, including the
goodwill of a person or entity;
5.2 "Contract" means all contracts, agreements, indentures, guarantees,
notes, bonds, leases, mortgages, deeds of trust, licenses, franchises,
commitments, arrangements, sales orders, purchase orders, warranties to
third persons, plans or understandings, whether oral or written,
express or implied;
5.3 "Effective Time" means the opening of business on August 18, 1998;
5.4 "Laws" means all laws, statutes, codes, rules, regulations and
ordinances of any jurisdiction;
5.5 "Liabilities" means all liabilities, debts and obligations, whether
direct or indirect, whether absolute, accrued, contingent or otherwise
and whether due or to become due;
5
<PAGE>
5.6 "Lien" means any lien, pledge, license, mortgage, security interest,
claim, lease, charge , condition, restriction, assessment, conditional
sales agreement, title retention agreement, hypothec, option, right of
first refusal, preemptive right, easement or any other encumbrance
whatsoever, whether direct or indirect, contingent, accrued, absolute
or otherwise;
5.7 "Permits" means and includes all permits, licenses, concessions,
franchises, governmental authorizations and similar rights and
privileges; and
5.8 "Proprietary Rights" means all patents, patent applications, patent
licenses, trademarks, trademark registrations and applications
therefor, service marks, service names, trade names, copyrights,
copyright registrations and applications therefor, trade secrets and
any other proprietary rights or intellectual property rights, whether
domestic or foreign;
6. Miscellaneous
-------------
6.1 Governing Law. This Agreement shall be governed by and
interpreted under the laws of the State of Florida applicable
to contracts made and to be performed therein without giving
effect to the principles of conflict of laws thereof.
6.2 Captions. Captions herein are inserted for reference purposes
only and shall not affect the interpretation or construction
of this Agreement.
6.3 Counterparts. This Agreement may be executed in one or more
counterparts each of which shall be deemed an original, but
all of which together shall constitute one and the same
agreement.
6.4 Amendments. This Agreement may be amended or varied only by a
document, in writing, of even or subsequent date hereto,
executed by EPi and EPi Sub.
6.5 Further Assurances. Each party hereto, at their own expense,
shall deliver all such further instruments and documents as
may reasonably be requested by the other party in order to
fully carry out the intent and accomplish the purposes of the
transactions referred to therein.
6.6 Successors and Assigns. The rights and obligations of the
parties hereunder shall inure to the benefit of, and be
binding and enforceable upon, the respective successors,
assigns and transferees of either party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
EPi SUB ELECTROPHARMACOLOGY, INC.
By: s/ Arup Sen By: s/ Arup Sen
---------------------- -------------------------------
Arup Sen, President Arup Sen, Chief Executive
Officer and President
6
AMENDMENT TO THE BY-LAWS
EFFECTIVE JUNE 24, 1997
Article XVII is deleted and replaced in its entirety by new Article XVII,,
reading in its entirety as follows:
To the full extent permitted by the General Corporation Law of the State of
Delaware or any other applicable laws presently or hereafter in effect, no
director of the Corporation shall be personally liable to the Corporation or its
stockholders for or with respect to any acts or omissions in the performance of
his or her duties as s director of the Corporation. Any repeal or modification
of this Article XVII shall not adversely affect any right or protection of a
director of the Corporation existing immediately prior to such repeal or
modification.
Each person who is or was or had agreed to become a director or officer of the
Corporation, or each such person who is or was serving or who had agreed to
serve at the request of the Board of Directors or an officer of the Corporation
as an employee or agent of the Corporation or as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise (including the heirs, executors, administrators or estate of such
person), shall be indemnified by the Corporation to the full extent permitted by
the General Corporation Law of the State of Delaware or any other applicable
laws as presently or hereafter in effect. Without limiting the generality or the
effect of the foregoing, the Corporation may enter into one or more agreements
with any person which provide for indemnification greater or different than the
provided in this Article. Any repeal or modification of this Article XVII shall
not adversely affect any right or protection existing hereunder immediately
prior to such repeal or modification.
ELECTROPHARMACOLOGY, INC.
REVISED AND RESTATED BY-LAWS
ARTICLE I
OFFICES
The location of the registered office of the Corporation in the State of
Delaware is 32 Loockerman Square, Suite L-100, in the City of Dover, County of
Kent, and the name of its registered agent at such address is The Prentice-Hall
Corporation Systems, Inc. The Corporation shall in addition to its registered
office in the State of Delaware establish and maintain an office or offices at
such place or places as the Board of Directors may from time to time find
necessary or desirable.
ARTICLE II
CORPORATE SEAL
The corporate seal of the Corporation shall have inscribed thereon the name of
the Corporation and may be in such form as the Board of Directors may determine.
Such seal may be used by causing it or a facsimile thereof to be impressed,
affixed or otherwise reproduced.
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ARTICLE III
MEETINGS OF STOCKHOLDERS
All meetings of the stockholders shall be held at the registered office of the
Corporation in the State of Delaware or at such other place as shall be
determined from time to time by the Board of Directors. The annual meeting of
stockholders shall be held on such day and at such time as may be determined
from time to time by resolution of the Board of Directors, when they shall elect
by plurality vote, a Board of Directors to hold office until the annual meeting
of stockholders held next after their election and their successors are
respectively elected and qualified or until their earlier resignation or
removal. Any other proper business may be transacted at the annual meeting.
The holders of a majority of the stock issued and outstanding and entitled to
vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business,
except as otherwise expressly provided by statute, by the Certificate of
Incorporation or by these By-laws. If, however, such majority shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting (except as otherwise provided by statute). At such adjourned meeting
at which the requisite amount of voting stock shall be represented any business
may be transacted which might have been transacted at the meeting as originally
notified.
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At all meetings of the stockholders each stockholder having the right to vote
shall be entitled to vote in person, or by proxy appointed by an instrument in
writing subscribed by such stockholder and bearing a date not more than three
years prior to said meeting, unless such instrument provides for a longer
period.
At each meeting of the stockholders each stockholder shall have one vote for
each share of capital stock having voting power, registered in his name on the
books of the Corporation at the record date fixed in accordance with these
By-laws, or otherwise determined, with respect to such meetings. Except as
otherwise expressly provided by statute, by the Certificate of Incorporation or
by these By-laws, all matters coming before any meeting of the stockholders
shall be decided by the vote of a majority of the number of shares of stock
present in person or represented by proxy at such meeting and entitled to vote
thereat, a quorum being present.
Notice of each meeting of the stockholders shall be mailed to each stockholder
entitled to vote thereat not less than 10 nor more than 60 days before the date
of the meeting. Such notice shall state the place, date and hour of the meeting
and, in the case of a special meeting, the purposes for which the meeting is
called.
Special meetings of the stockholders, for any purpose or purposes, unless
otherwise prescribed by statute, may be called by the President or by the Board
of Directors, and shall be called by the Secretary at the request in writing of
stockholders owning a majority of the amount of the entire capital stock of the
Corporation issued and outstanding and entitled to vote. Such request by
stockholders shall state the purpose or purposes of the proposed meeting.
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Business transacted at each special meeting shall be confined to the purpose or
purposes stated in the notice of such meeting. The order of business at each
meeting of stockholders shall be determined by the presiding officer.
ARTICLE IV
DIRECTORS
The business and affairs of the Corporation shall be managed under the direction
of a Board of Directors, which may exercise all such powers and authority for
and on behalf of the Corporation as shall be permitted by law, the Certificate
of Incorporation or these By-laws. Each of the directors shall hold office until
the next annual meeting of stockholders and until his successor has been elected
and qualified or until his earlier resignation or removal. The Board of
Directors may hold their meetings within or outside of the State of Delaware, at
such place or places as it may from time to time determine.
The number of directors comprising the Board of Directors shall be such number
as may be from time to time fixed by resolution of the Board of Directors. In
case of any increase, the Board shall have power to elect each additional
director to hold office until the next annual meeting of stockholders and until
his successor is elected and qualified or his earlier resignation or removal.
Any decrease in the number of directors shall take effect at the time of such
action by the Board only to the extent that vacancies then exist; to the extent
that such decrease exceeds the number of such vacancies, the decrease shall not
become effective, except as further vacancies may thereafter occur, until the
time of and in connection with the
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election of directors at the next succeeding annual meeting of the stockholders.
If the office of any director becomes vacant, by reason of death, resignation,
disqualification or otherwise, a majority of the directors then in office,
although less than a quorum, may fill the vacancy by electing a successor who
shall hold office until the next annual meeting of stockholders and until his
successor is elected and qualified or his earlier resignation or removal.
Any director may resign at any time by giving written notice of his resignation
to the Board of Directors. Any such resignation shall take effect upon receipt
thereof by the Board, or at such later date as may be specified therein. Any
such notice to the Board shall be addressed to it in care of the Secretary.
ARTICLE V
COMMITTEES OF DIRECTORS
By resolutions adopted by a majority of the whole Board of Directors, the Board
may designate an Executive Committee and one or more other committees, each such
committee to consist of one or more directors of the Corporation. The Executive
Committee shall have and may exercise all the powers and authority of the Board
in the management of the business and affairs of the Corporation (except as
otherwise expressly limited by statute), including the power and authority to
declare dividends and to authorize the issuance of stock, and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall have such of the powers and authority of the Board as may
be provided from time to time in resolutions adopted by a majority of the whole
Board.
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The requirements with respect to the manner in which the Executive Committee and
each such other committee shall hold meetings and take actions shall be set
forth in the resolutions of the Board of Directors designating the Executive
Committee or such other committee.
ARTICLE VI
COMPENSATION OF DIRECTORS
The directors shall receive such compensation for their services as may be
authorized by resolution of the Board of Directors, which compensation may
include an annual fee and a fixed sum for expense of attendance at regular or
special meetings of the Board or any committee thereof. Nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
ARTICLE VII
MEETINGS OF DIRECTORS; ACTION WITHOUT A MEETING
Regular meetings of the Board of Directors may be held without notice at such
time and place, either within or without the State of Delaware, as may be
determined from time to time by resolution of the Board.
Special meetings of the Board of Directors shall be held whenever called by the
President of the Corporation or the Board of Directors on at least 24 hours'
notice to each director. Except as may be otherwise specially provided by
statute, by the Certificate of Incorporation or by these By-laws, the purpose or
purposes of any such special meeting need not be stated in such notice, although
the time and place of the meeting shall be stated.
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At all meetings of the Board of Directors, the presence in person of a majority
of the members of the Board of Directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and, except as otherwise
provided by statute, by the Certificate of Incorporation or by these By-laws, if
a quorum shall be present the act of a majority of the directors present shall
be the act of the Board.
Any action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all the
members of the Board or such committee, as the case may be, consent thereof in
writing and the writing or writings are filed with the minutes of proceedings of
the Board of committee. Any director may participate in a meeting of the Board,
or any committee designated by the Board, by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
sentence shall constitute presence in person at such meeting.
ARTICLE VIII
OFFICERS
The officers of the Corporation shall be chosen by the Board of Directors and
shall be a President, one or more Vice Presidents, a Secretary and a Treasurer.
The Board may also choose one or more Assistant Secretaries and Assistant
Treasurers, and such other officers as it shall deem necessary. Any number of
offices may be held by the same person. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors, or in such manner as the
Board may prescribe.
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The officers of the Corporation shall hold office until their successors are
elected and qualified, or until their earlier resignation or removal. Any
officer may be at any time removed from office by the Board of Directors, with
or without cause. Any Vice President may be at anytime removed from office by
management, with or without cause. If the office of any officer becomes vacant
for any reason, the vacancy may be filled by the Board of Directors.
Any officer may resign at any time by giving written notice of his resignation
to the Board of Directors. Any such resignation shall take effect upon receipt
thereof by the Board or at such later date as may be specified therein. Any such
notice to the Board shall be addressed to it in care of the Secretary.
ARTICLE IX
PRESIDENT
The President shall be the chief executive officer of the Corporation. Subject
to the supervision and direction of the Board of Directors, he shall be
responsible managing the affairs of the Corporation. He shall have supervision
and direction of all of the other officers of the Corporation and shall have the
powers and duties usually and customarily associated with the office of the
President. He shall preside at meetings of the stockholders and of the Board of
Directors.
ARTICLE X
VICE PRESIDENTS
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The Vice Presidents shall have such powers and duties as may be delegated to
them by the President.
ARTICLE XI
SECRETARY AND ASSISTANT SECRETARY
The Secretary shall attend all meetings of the Board of Directors and of the
stockholders, and shall record the minutes of all proceedings in a book to be
kept for that purpose. He shall perform like duties for the committees of the
Board when required.
The Secretary shall give, or cause to be given, notice of meetings of the
stockholders, of the Board of Directors and of the committees of the Board. He
shall keep in safe custody the seal of the Corporation, and when authorized by
the President, an Executive Vice President or a Vice President, shall affix the
same to any instrument requiring it, and when so affixed it shall be attested by
his signature or by the signature of an Assistant Secretary. He shall have such
other powers and duties as may be delegated to him by the President.
The Assistant Secretary shall, in case of the absence of the Secretary, perform
the duties and exercise the powers of the Secretary, and shall have such other
powers and duties as may be delegated to them by the President.
ARTICLE XII
TREASURER AND ASSISTANT TREASURER
The treasurer shall have the custody of the corporate funds and securities, and
shall deposit or cause to be deposited under his direction all moneys and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board
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of Directors or pursuant to authority granted by it. He shall render to the
President and the Board whenever they may require it an account of all his
transactions as Treasurer and of the financial condition of the Corporation. He
shall have such other powers and duties as may be delegated to him by the
President.
The Assistant Treasurer shall, in case of the absence of the Treasurer, perform
the duties and exercise the powers of the Treasurer, and shall have such other
powers and duties as may be delegated to them by the President.
ARTICLE XII
CERTIFICATES OF STOCK
The certificates of stock of the Corporation shall be numbered and shall be
entered in the books of the Corporation as they are issued. They shall exhibit
the holder's name and number of shares and shall be signed by the President or
an Executive Vice President or Vice President, and by the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary.
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ARTICLE XIV
CHECKS
All checks, drafts and other orders for the payment of money and all promissory
notes and other evidences of indebtedness of the Corporation shall be signed by
such officer or officers or such other person as may be designated by the Board
of Directors or pursuant to authority granted by it.
ARTICLE XV
FISCAL YEAR
The fiscal year of the Corporation shall be as determined from time to time by
resolution duly adopted by the Board of Directors.
ARTICLE XVI
NOTICES AND WAIVERS
Whenever by statute, by the Certificate of Incorporation or by these By-laws it
is provided that notice shall be given to any director or stockholder, such
provision shall not be construed to require personal notice, but such notice may
be given in writing, by mail, by depositing the same in the United States mail,
postage prepaid, directed to such stockholder or director at his address as it
appears on the records of the Corporation, and such notice shall be deemed to be
given at the time when the same shall be thus deposited. Notice of regular or
special meetings of the Board of Directors may also be given to any director by
telephone or by telex, telegraph or cable, and in the latter event the notice
shall be deemed to be given
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at the time such notice, addressed to such director at the address hereinabove
provided, is transmitted by telex (with confirmed answerback), or delivered to
and accepted by an authorized telegraph or cable office.
Whenever by statute, by the Certificate of Incorporation or by these By-laws a
notice is required to be given, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of any stockholder or director at any
meeting thereof shall constitute a waiver of notice of such meeting by such
stockholder or director, as the case may be, except as otherwise provided by
statute.
ARTICLE XVII
INDEMNIFICATION
To the full extent permitted by the General Corporation Law of the State of
Delaware or any other applicable laws presently or hereafter in effect, no
director of the Corporation shall be personally liable to the Corporation or its
stockholders for or with respect to any acts or omissions in the performance of
his or her duties as s director of the Corporation. Any repeal or modification
of this Article XVII shall not adversely affect any right or protection of a
director of the Corporation existing immediately prior to such repeal or
modification.
Each person who is or was or had agreed to become a director or officer of the
Corporation, or each such person who is or was serving or who had agreed to
serve at the request of the Board of Directors or an officer of the Corporation
as an employee or agent of the Corporation or as a director, officer, employee
or agent of another corporation, partnership,
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joint venture, trust or other enterprise (including the heirs, executors,
administrators or estate of such person), shall be indemnified by the
Corporation to the full extent permitted by the General Corporation Law of the
State of Delaware or any other applicable laws as presently or hereafter in
effect. Without limiting the generality or the effect of the foregoing, the
Corporation may enter into one or more agreements with any person which provide
for indemnification greater or different than the provided in this Article. Any
repeal or modification of this Article XVII shall not adversely affect any right
or protection existing hereunder immediately prior to such repeal or
modification.
ARTICLE XVIII
ALTERATION OF BY-LAWS
The By-laws of the Corporation may be altered, amended or repealed, and new
By-laws may be adopted, by the stockholders or by the Board of Directors.
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For Execution
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of September 30, 1998, between
Elan International Services, Ltd., a Bermuda corporation ("EIS"), and
Electropharmacology, Inc., a Delaware corporation (together with all
subsidiaries thereof, the "Company").
R E C I T A L S:
A. The Company desires to issue and sell to EIS, and EIS
desires to purchase from the Company, as provided herein (i) 7,500 shares of
convertible preferred stock (the "Preferred Stock"), with the designations,
rights and preferences as set forth in the certificate of designations (the
"Certificate of Designations") in the form attached hereto as Exhibit A, and
(ii) a warrant to acquire up to 1,000,000 shares (subject to adjustment) of the
Company's common stock, par value $ .01 per share (the "Common Stock"), at an
exercise price of $2.50 per share, in the form attached hereto as Exhibit B (the
"Warrant"), for aggregate consideration of $7,500,000 (the "Initial Funding").
B. During the 60 day period immediately following the Initial
Closing Date (the "Placement Period"), the Company shall undertake to privately
place up to $4,000,000 of Common Stock (the "Third Party Placement"), and, in
addition, EIS shall purchase from the Company a certain number of shares of
Common Stock (the "Subsequent Common Stock"; together with the Preferred Stock
and the Warrant, the "Securities") for aggregate consideration of $2,000,000
(the "Subsequent Funding").
C. The Company and EIS are executing and delivering on the
date hereof a Registration Rights Agreement in the form attached hereto as
Exhibit C (the "Registration Rights Agreement"; together with this Agreement,
the Certificate of Designations, the Warrant, and each other document or
instrument executed and delivered in connection with the transactions
contemplated hereby, the "Transaction Documents") in respect of the shares of
Common Stock, if any, issuable upon conversion of the Preferred Stock or upon
exercise of the Warrant, and the Subsequent Common Stock, and any other Common
Stock that may at any time be acquired or owned by EIS or any of its affiliates.
A G R E E M E N T:
The parties agree as follows:
SECTION 1. Closings. (a) Initial Closing. The closing of
the Initial Funding (the "Initial Closing") shall occur on the date hereof (the
"Initial Closing Date"), at such place as
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the parties may agree.
(b) Subsequent Closing. The closing of the Subsequent Funding
(the "Subsequent Closing Date") shall occur, if at all, on the 60th day
following the Initial Closing Date, or if such date is not a business day, the
following business date, or on such other date as the parties may agree;
provided, that the Company shall have provided written notice of its intention
to issue and sell the Subsequent Common Stock to EIS, which notice shall be
delivered to EIS prior to the expiration of the Placement Period.
(c) Initial Issuance of Securities. At the Initial Closing,
subject to the terms and conditions herein, the Company shall issue and sell to
EIS, and EIS shall purchase from the Company, (i) the Preferred Stock and (ii)
the Warrant, for an aggregate purchase price of $7,500,000.
(d) Initial Delivery. At the Initial Closing, EIS shall pay
the purchase price for the Preferred Stock and the Warrant to an account
designated by the Company, and the parties hereto shall execute and deliver to
each other, as applicable, (i) certificates in respect of the shares of
Preferred Stock, (ii) the Warrant, (iii) certificates as to the incumbency of
the officers of the Company executing this Agreement and (iv) any other
documents or instruments executed in connection herewith. In addition, at the
Initial Closing, the Company shall cause to be delivered to EIS an opinion of
counsel in connection with the issuance of the Preferred Stock and the Warrant
in form attached hereto as Exhibit D.
(e) Subsequent Delivery. At the Subsequent Closing, if it
shall occur, EIS shall pay the purchase price for the Subsequent Common Stock to
an account designated by the Company, and the parties hereto shall execute and
deliver to each other, as applicable, (i) certificates in respect of the number
of shares of Subsequent Common Stock as determined in accordance with Section 2
hereof and (iii) any other documents or instruments to be executed in connection
therewith. In addition, the Company shall cause to be delivered to EIS an
opinion of counsel in connection with the issuance of the Subsequent Common
Stock in a form reasonably acceptable to EIS.
(f) Exemption from Registration. The Securities will be issued
under an exemption or exemptions from registration under the Securities Act of
1933, as amended (the "Securities Act"); accordingly, the certificates
evidencing any shares of Common Stock issuable hereunder or upon the exercise or
repayment of any of the Securities shall contain the following legend:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION. WITHOUT SUCH REGISTRATION, NO TRANSFER OF THESE SHARES OR
ANY INTEREST THEREIN MAY BE MADE UNLESS THE CORPORATION HAS RECEIVED AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION THAT SUCH
TRANSFER DOES NOT REQUIRE SUCH REGISTRATION.
(g) Registration Rights Agreement. On the date hereof, each of
the Company and EIS is executing and delivering the Registration Rights
Agreement, covering the resale by EIS of the Common Stock issuable hereunder
upon conversion of the Preferred Stock, exercise of the Warrant, issuance of the
Subsequent Common Stock and the issuance of any Common Stock hereinafter
acquired by EIS or any affiliate thereof.
SECTION 2. Subsequent Funding. (a) Subsequent Issuance of
Securities. On the Subsequent Closing Date, if the Subsequent Funding shall
occur, the Company shall issue and sell to EIS, and EIS shall purchase from the
Company, $2,000,000 of the Subsequent Common Stock, in accordance with Section
2(b) below, subject to the conditions contained herein.
(b) Subsequent Common Stock. (i) On the Subsequent Closing
Date, the Company shall issue and sell to EIS, and EIS shall purchase from the
Company, a number of shares of Common Stock equal to the quotient obtained by
dividing $2,000,000 by an amount equal to either (A) the price per share of
Common Stock to investors in the Third Party Placement, or (B) in the event that
the Third Party Placement shall not have been consummated on or before the last
day of the Placement Period, the average closing price of the Common Stock as
reported on its principal trading exchange for the 20 consecutive trading days
ending on the day which is two trading days prior to the Subsequent Closing Date
(the "Market Price").
(ii) In the event that the Company shall consummate
a private placement of Common Stock (or securities exchangeable,
exercisable or convertible into Common Stock) within six months
after the Subsequent Closing Date, at a price per share below
the price per share of Common Stock to EIS in respect of the Subsequent
Funding, the Company shall issue a number of additional shares of
Common Stock to EIS in an amount equal to the difference between (A) the number
of shares of Common Stock purchased by EIS in the Subsequent Funding (as
determined in accordance with subsection (b)(i) above), and (X) the quotient
obtained by dividing $2,000,000 by the price to a third party in such private
placement.
(iii) Notwithstanding anything contained herein,
whether or not the Third Party Placement has been consummated, in no event
shall the purchase price of Subsequent
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Common Stock referred to in clause (i) above exceed $1.375 per share.
(c) Conditions to the Subsequent Funding. It shall be a
condition to EIS's obligation to purchase securities in the Subsequent Funding
after receiving the Company's notice, issued pursuant to Section 1(b) hereof,
that (i) each of the representations and warranties set forth in Section 3(a),
(b)(iii), (c), (d), (e), (f), (g), (h), (i) and (l) hereof shall be true and
correct in all material respects on the Initial Closing Date and the Subsequent
Closing Date; provided, that each reference to the Quarterly Report in such
Sections shall refer to the most recent quarterly report on Form 10-Q and each
report filed pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), required to be filed by the Company under
applicable law immediately prior to such Subsequent Closing Date and date of
Notice and SEC Filings shall refer to all filings required to be made by the
Company under applicable law on or prior to such dates, (ii) there shall be no
default or breach in any material respect by the Company of a material
obligation under any of the Transaction Documents or any other agreement between
the Company, on the one hand, and EIS or any of its affiliates, on the other
hand and (iii) from the date hereof until the Subsequent Closing Date the
Company shall not have experienced a Material Adverse Effect (as defined below).
SECTION 3. Representations and Warranties of the Company. The
Company hereby represents and warrants to EIS as follows:
(a) Organization. (i) The Company is duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own and lease its properties, to
carry on its business as presently conducted and as proposed to be conducted by
description in the Company's draft Registration Statement on Form S-1, including
the pro forma financial statements attached thereto (collectively, the "S-1",
which is intended to be initially filed with the U.S. Securities and Exchange
Commission (the "SEC") on or about October 15, 1998 in the form attached hereto
as Exhibit E), and to consummate the transactions contemplated by the
Transaction Documents. The Company is qualified and in good standing to do
business in jurisdictions set forth on Schedule 3(a), which constitute all of
the jurisdictions in which the nature of the business conducted or the property
owned by it requires such qualification, except where the failure to so qualify
would not reasonably be expected to have a material adverse effect on the
business, prospects, properties or condition (financial or otherwise) of the
Company (a "Material Adverse Effect").
(ii) In the event that the S-1 as filed with, and declared
effective by, the SEC shall contain material differences from Exhibit E,
indicating a Material Adverse Effect or causing a breach of a representation,
warranty or covenant contained herein, which shall result in money damages to
EIS, then EIS shall submit a claim to the Company in the amount of such damages
pursuant to Section 6 hereof.
(b) Capitalization. (i) As of August 31, 1998, the authorized
capital stock of the Company consisted of (A) 30,000,000 shares of Common Stock,
par value $.01 per share, of
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which 12,750,303 were issued and outstanding and (B) 10,000,000 shares of
Preferred Stock, par value $.01 per share, none of which were issued and
outstanding.
(ii) Except as set forth in Schedule 3(b), as of the date
hereof there are no options, warrants or other rights outstanding to purchase or
otherwise acquire, or any securities exchangeable or convertible into or
exercisable for, any of the Company's authorized capital stock. Other than as
set forth on Schedule 3(b), there are no agreements, arrangements or
understandings concerning the voting, acquisition or disposition of any of the
Company's outstanding securities, and, other than as set forth in Schedule 3(b)
or in the Registration Rights Agreement, there are no agreements to register any
of the Company's outstanding securities under the U.S. federal securities acts
relating to securities that have not already been registered under the
Securities Act.
(iii) All of the outstanding shares of capital stock of the
Company have been issued in accordance with applicable state and federal laws
and regulations governing the issuance, sale and purchase of securities, all of
such shares of have duly and validly issued and are fully paid and
non-assessable, and none of such shares carries pre-emptive or similar rights.
(c) Authorization of Transaction Documents. The Company has
full corporate power and authority to execute and deliver this Agreement and
each of the other Transaction Documents, and to perform its obligations
hereunder and thereunder. The execution, delivery and performance by the Company
of the Transaction Documents (including the issuance and sale of the Securities)
have been authorized by all requisite corporate actions by the Company; and the
Transaction Documents, including the issuance and sale of the Securities, have
been duly executed and delivered by the Company and are the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms. The Securities, when issued, will be duly and validly
issued, not subject to any pre-emptive or similar rights. The transactions
contemplated hereby, to the best of the Company's knowledge, will vest in EIS
legal and valid title to the Securities.
(d) No Violation. The execution, delivery and performance by
the Company of the Transaction Documents, including the issuance and sale of the
Securities, and compliance with the provisions thereof, will not (i) violate any
provision of applicable law, statute, rule or regulation applicable to the
Company, or any ruling, writ, injunction, order, judgment or decree of any
court, arbitrator, administrative agency or other governmental body applicable
to the Company or any of its properties or assets or (ii) conflict with or
result in a breach of any of the terms, conditions or provisions of, or
constitute (with notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, or result in the
creation of, any Encumbrance (as defined below) upon any of the properties or
assets of the Company under its Certificate of Incorporation, as amended, or
By-laws, or any material contract to which the Company is a party, except where
such violation, conflict, breach or default would not, individually or in the
aggregate, have a Material Adverse Effect. As used herein, "Encumbrance" shall
mean any liens, charges, encumbrances, equities, claims, options, proxies,
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pledges, security interests, or other similar rights of any nature, except for
such violations, conflicts, breaches or defaults which would not, individually
or in the aggregate, have a Material Adverse Effect.
(e) Approvals. Except as set forth on Schedule 3(e), no
material permit, authorization, consent or approval of or by, or any
notification of or filing with, any person or entity (governmental or otherwise)
is required in connection with the execution, delivery or performance of the
Transaction Documents, including the issuance and sale of the Securities, by the
Company. There is no approval of the Company's stockholders required under
applicable laws in connection with the execution and delivery the Transaction
Documents or the consummation of the transactions contemplated thereby,
including the issuance of the Securities.
(f) Filings, Taxes and Financial Statements. (i) The Company
has filed its annual report on Form 10-K for the year ended December 31, 1997
(the "Annual Report"), its related proxy materials and the quarterly report on
Form 10-Q for the quarter ended June 30, 1998 (the "Quarterly Report," together
with the Annual Report, including all exhibits and schedules required to be
filed in connection therewith, the "SEC Filings") with the Securities and
Exchange Commission, and any other required person or entity (governmental or
otherwise) in a timely manner and as otherwise required by applicable laws and
regulations, including the federal securities acts. The audited financial
statements of the Company for the fiscal year ended December 31, 1997 included
in the Annual Report (the "Audited Financial Statements"), and the Company's
unaudited balance sheet for the period ended June 30, 1998, together with the
accompanying statements of operations and cash flows including the notes thereto
included in the Quarterly Report (the "June Financial Statements"; collectively,
with the Audited Financial Statements, the "Financial Statements") are accurate
and complete in all material respects and fairly present the financial condition
of the Company as of the dates thereof and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as may be otherwise indicated in such
financial statements or the notes thereto), subject, in the case of the June
Financial Statements, to normal year-end audit adjustments (which shall not be
material in the aggregate) and the absence of footnote disclosures.
(ii) The Company has filed in a timely manner all federal,
state, local and foreign tax returns, reports and filings (collectively,
"Returns"), including income, franchise, property and other taxes, and has paid
or accrued the appropriate amounts reflected on such Returns. None of the
Returns have been audited or challenged, nor has the Company received any notice
of challenge nor have any of the amounts or other data included in the Returns
been challenged or reviewed by any governmental authority.
(iii) Except as set forth on Schedule 3(f), which sets forth a
true and accurate list and description of any employee benefit plans maintained
or sponsored by the Company or to which the Company is required to make
contributions, the Company does not maintain or sponsor, and is not required to
make contributions to or otherwise have any liability with respect
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to, any pension, profit sharing, thrift or other retirement plan, employee stock
ownership plan, deferred compensation, stock ownership, stock purchase,
performance share, bonus or other incentive plan, severance plan, health or
group insurance plan, welfare plan, or other similar plan, agreement, policy or
understanding (whether written or oral), whether or not such plan is intended to
be qualified under Section 401(a) of the Code, within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended, which
plan covers any employee or former employee of the Company.
(g) Absence of Changes. Except as set forth on Schedule 3(g),
since June 30, 1998, there has not been (a) any material adverse change in the
business, properties, condition (financial or otherwise), operations or
prospects of the Company; (b) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the business,
properties, condition (financial or otherwise), operations or prospects of the
Company; (c) any declaration, setting aside or payment of any dividend or other
distribution or payment (whether in cash, stock or property) in respect of the
capital stock of the Company, or any redemption or other acquisition of such
stock by the Company; (d) any disposal or lapse of any trade secret, invention,
patent, trademark, trademark registration, service mark, service mark
registration, copyright, copyright registration, or any application therefor or
filing in respect thereof that had a Material Adverse Effect; (e) loss of the
services of any of the key officers or key employees of the Company that had a
Material Adverse Effect; (f) any incurrence of or entry into any liability,
mortgage, lien, commitment or transaction, including without limitation, any
borrowing (or assumption or guarantee thereof) or guarantee of a third party's
obligations, or capital expenditure (or lease in the nature of a conditional
purchase of capital equipment) in excess of $50,000; or (g) any material change
by the Company in accounting methods or principles or (h) any change in the
assets, liabilities, condition (financial or otherwise), results or operations
or prospects of the Company from those reflected on the Quarterly Report, except
changes in the ordinary course of business that have not, individually or in the
aggregate, had a Material Adverse Effect.
(h) No Liabilities. Except as set forth on Schedule 3(h),
since June 30, 1998 the Company has not incurred or suffered any liability or
obligation, matured or unmatured, contingent or otherwise, except in the
ordinary course of business that have not, individually or in the aggregate, had
a Material Adverse Effect.
(i) Properties and Assets; Etc. (i) The Company does not own
any interest in real property other than leasehold interests, and (ii) the
Company owns or has the right to use pursuant to license, sub-license, agreement
or permission all patents, trademarks, know-how and other intellectual property
(the "Proprietary Rights"), material to the business and operations of the
Company as presently conducted. Except as set forth on Schedule 3(i)(ii), or
where the absence of which would not have a Material Adverse Effect, (A) the
Company is the sole and exclusive owner of all right, title and interest in an
to all Proprietary Rights free and clear of all liens, claims, charges,
equities, rights of use, encumbrances and restrictions whatsoever, (B) the
Company does not have knowledge of any basis for any claim of infringement or
7
<PAGE>
misappropriation contesting the validity or Company's right to use any
Proprietary Rights; (C) all of such Proprietary Rights, whether foreign or
domestic, have been duly issued and have not been canceled, abandoned, or
otherwise terminated; and (D) all of the Company's patent applications,
trademark applications, service mark applications, trade name applications and
copyright applications have been duly filed.
(ii) Each of the Contracts listed as an exhibit to the
Company's Annual Report is a legal and valid agreement binding upon each of the
parties thereto and is in full force and effect except where the expiration or
termination has not, individually or in the aggregate, had a Material Adverse
Effect. To the best knowledge of the Company, there is no breach or default by
any party thereunder that had a Material Adverse Effect. Such Contracts
constitute all material agreements, arrangements or understandings required to
be included as an exhibit in such reports under Item 601 of the Securities and
Exchange Commission Regulations.
(iii) The Company has and maintains adequate and sufficient
insurance, including liability, casualty and products liability insurance,
covering risks associated with its business, properties and assets, including
insurance that is customary for companies similarly situated.
(iv) The Company, its business and properties and assets are
in compliance, in all material respects, with all applicable laws and
regulations, including without limitation, those relating to (a) health, safety
and employee relations, (b) environmental matters, including the discharge of
any hazardous or potentially hazardous materials into the environment, and (c)
the development, commercialization and sale of pharmaceutical and biotechnology
products, including all applicable regulations of the U.S. Food and Drug
Administration and comparable foreign regulatory authorities.
(j) Legal Proceedings, etc. Except as set forth on Schedule
3(j), there is no legal, administrative, arbitration or other action or
proceeding or governmental investigation pending or, to the best of the
Company's knowledge, threatened against the Company, or any director, officer or
employee of the Company, which is required to be described in the SEC Filings
and is not so described. The Company is not in violation of or default under,
any material laws, judgments, injunctions, orders or decrees of any court,
governmental department, commission, agency, instrumentality or arbitrator
applicable to its business.
(k) Disclosure. The Company's Annual Report and periodic
reports subsequently filed under Section 13 of the Exchange Act, the S-1 when
filed and the representations and warranties set forth herein and the other
Transaction Documents, when viewed collectively, do not, or will not, as
applicable, contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements contained herein and therein not
misleading in light of circumstances in which they were made.
(l) Reliance on Representations. The Company hereby
acknowledges that it is relying exclusively on the representations and
warranties of EIS contained herein and in the other
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<PAGE>
Transaction Documents, and on no other documents or assurances.
(m) Brokers or Finders. Except as set forth on Schedule 3(1),
the Company has not retained any investment banker, broker or finder in
connection with the transactions contemplated by the Transaction Documents.
SECTION 4. Representation and Warranties of EIS. EIS hereby
represents and warrants to the Company as follows:
(a) Organization. EIS is a corporation duly organized, validly
existing and in good standing under the laws of Bermuda and has all requisite
corporate power and authority to own and lease its properties, to carry on its
business as presently conducted and as proposed to be conducted and to
consummate the transactions contemplated hereby. EIS is qualified and in good
standing to do business in each jurisdiction in which the nature of the business
conducted or the property owned by it requires such qualification, except where
the failure to so qualify would not reasonably be expected to have a Material
Adverse Effect.
(b) Authorization of Agreement. EIS has full legal right,
power and authority to enter into this Agreement and purchase and accept the
Securities, and perform its obligations hereunder. The execution, delivery and
performance by EIS of this Agreement (including the purchase of Securities) have
been duly authorized by all requisite corporate action by EIS, and this
Agreement and the purchase of the Securities are the valid and binding
obligations of EIS, enforceable against it in accordance with their terms.
(c) No Conflicts. The execution, delivery and performance by
EIS of this Agreement, the purchase and acceptance of the Securities, and
compliance with provisions hereof by EIS, will not (i) violate any provisions of
applicable law, statute, rule or regulation applicable to EIS or any ruling,
writ, injunction, order, judgment or decree of any court, arbitrator,
administrative agency of other governmental body applicable to EIS or any of its
properties or assets or (ii) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute (with notice or lapse of time
or both) a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of, any Encumbrance upon any of
the properties or assets of EIS under the Articles of Association or by-laws of
EIS or any material contract to which EIS is a party, except where such
violation, conflict, breach or default would not, individually or in the
aggregate, have a Material Adverse Effect.
(d) Approvals. No permit, authorization, consents or approval
of or by, or any notification of or filing with, any person or entity
(governmental or otherwise) is required in connection with the execution,
delivery or performance of this Agreement by EIS (including the purchase of the
Securities).
(e) Investment Representations. (i) EIS has not been formed
solely for the
9
<PAGE>
purpose of entering into the transactions described herein and is acquiring the
Securities for investment for its own account, not as a nominee or agent, and
not with the view to, or for sale in connection with, any distribution of any
part thereof; provided, that EIS shall be permitted to exercise or transfer such
Securities as permitted herein and under applicable law.
(ii) Nothing contained in this Section 4(e) shall limit any of
the Company's representations or warranties or limit EIS's recourse in respect
thereof.
(iii) EIS has not retained any investment banker, broker or
finder in connection with the transactions contemplated by the Transaction
Documents.
SECTION 5. Covenants of the Company. (a) Non-disclosure. From
and after the date hereof, the Company shall not disclose to any person or
entity, (i) other than its directors, officers, accountants and agents who need
to know such information in connection with the transactions described herein in
and the other Transaction Documents, and (ii) investors and potential investors
in the Third Party Placement, each of whom shall be informed of this
confidentiality provision and in respect of whose breaches the Company shall be
responsible, the content of this Agreement or any of the other Transaction
Documents or the substance of the transactions described herein, without the
prior written consent of EIS (which consent shall not be unreasonably withheld
or delayed), except to the extent required by applicable laws, regulations or
administrative or judicial processes in respect of press releases, periodic
reports or other public disclosure prepared in good faith by the Company;
provided, that the Company shall provide EIS with a reasonable opportunity to
review such releases or reports prior to release. This Section 5 shall not be
construed to prohibit disclosure of any information which has not been
previously determined to be confidential by EIS, or which shall have become
publicly disclosed (other than by breach of the Company's obligations
hereunder).
(b) Board of Directors. (i) Upon the Initial Closing Date, the
Company shall take any and all actions necessary, including, without limitation,
amending its by-laws and certificate of incorporation, to increase the size of
its board of directors by one, and the vacancy thereby created shall be filled
by a designee of EIS (the "EIS Director"), who shall be reasonably satisfactory
to the Company in character and business experience.
(ii) For as long as EIS shall own [omitted] or more,
on a fully diluted basis (i.e., assuming conversion of the Preferred Stock, and
exercise of the Warrant, but not the conversion, exercise or exchange of any
other similar security), the Company shall cause the EIS Director to be included
on its management slate of directors presented to stockholders at any meeting
at which directors shall be elected.
(c) Fully-diluted Stock Ownership. Notwithstanding any other
provision of this Agreement, in the event that EIS shall determine, upon written
advice from its accounting and tax consultants which shall be confirmed in
writing to the Company, that at any time it (together with its affiliates, if
applicable) holds or has the right to receive Common Stock (or securities or
10
<PAGE>
rights, options or warrants exercisable, exchangeable or convertible for or into
Common Stock) representing in the aggregate in excess of 19.9% of the Company's
outstanding voting securities (assuming any such exercise, exchange or
conversion, but not the exercise, exchange or conversion of any other similar
securities), or otherwise be required to equity account for or consolidate its
investment in the Company, then EIS shall have the right, in its sole
discretion, to convert some amount of such holdings into non-voting securities,
such that EIS shall not be required to equity account for or consolidate its
investment in the Company. In the event that EIS shall undertake to exercise its
right as described in this Section 5(c), EIS shall retain the additional right
to exchange such new class of equity security for voting securities of the
Company, at its option.
(d) Use of Proceeds. The Company shall use the proceeds of the
Initial Funding for general working capital purposes. The Company shall use at
least [omitted] of the proceeds of the Subsequent Funding solely to fund
research and development activities relating to certain intellectual property
and products relating to a combined electromagnetic/iontophoretic patch.
SECTION 6. Survival and Indemnification. (a) Survival Period.
The representations and warranties of the Company contained herein shall survive
for a period of three years from and after the date hereof.
(b) Indemnification. In addition to all rights and remedies
available to each of the parties hereto hereunder at law or in equity, the
Company or EIS, as applicable (in such capacity, an "Indemnifying Party") shall
indemnify the other party hereto, any affiliate of such other party, and their
respective stockholders, officers, directors, employees, agents,
representatives, successors and assigns (collectively, the "Indemnified
Person"), and save and hold each Indemnified Person harmless from and against
and pay on behalf of or reimburse each such Indemnified Person, as and when
incurred, for any and all loss, liability, demand, claim, action, judgment,
cause of action, cost, damage, deficiency, tax, penalty, fine or expense,
whether or not arising out of any claims by or on behalf of such Indemnified
Person or any third party, including interest, penalties, reasonable attorneys'
fees and expenses and all reasonable amounts paid in investigation, defense or
settlement of any of the foregoing (collectively, "Losses"), that any such
Indemnified Person may suffer, sustain incur or become subject to, as a result
of, in connection with, relating or incidental to or by virtue of:
(i) any misrepresentation or breach of any warranty
on the part of the Indemnifying Party under Section 3 of this Agreement; or
(ii) any nonfulfillment, default or breach of any
covenant, condition or agreement on the part of the Indemnifying Party contained
in this Agreement.
(c) Procedure. (i) If an Indemnified Person shall assert that
the Indemnifying Party has become obligated to the Indemnified Person pursuant
to Section 6(b) hereof, or if any suit, action, investigation, claim or
proceeding (each, a "Proceeding") is begun, made or
11
<PAGE>
instituted by a third party as a result of which the Indemnifying Party may
become obligated to the Indemnified Person hereunder, the Indemnified Person
shall give written notice to the Indemnifying Party.
(ii) The Indemnifying Party shall defend, contest
or otherwise protect the Indemnified Person in connection with any Proceeding
at the Indemnifying Party's sole cost and expense. The Indemnifying Party
shall not enter into any compromise or settlement of any Proceeding without
the written consent of the Indemnified Person, except if (X) there is
no finding or admission of any violation of federal, state, local,
international or other administrative order, law or ordinance, regulation
or treaty, and there shall be no effect on any other claims that may be
made against the Indemnified Person, (Y) the sole relief provided
as a result of such compromise or settlement is monetary damages
that are paid in full by the Indemnifying Party, and (Z) the Indemnified Person
shall have no liability with respect to any compromise or settlement of a
Proceeding effected without its consent.
(iii) The Indemnified Person shall have the right,
but not the obligation, to participate at its own expense in the defense of
any Proceeding by counsel of its own choice, and shall make commercially
reasonable efforts to cooperate with and assist the Indemnifying Party in such
defense.
(iv) In the event that the Indemnifying Party shall
fail to timely defend, contest or otherwise protect the Indemnified Person
against a Proceeding within a reasonable period after receipt of
written notice pursuant to Section 6(c)(i) hereof, the Indemnified
Person shall have the right to do so, including without limitation,
the right to make any compromise or settlement in respect of a
Proceeding, and the Indemnified Person shall be entitled to recover the entire
cost thereof from the Indemnifying Party, including, without limitation,
reasonable attorney's fees and disbursements, and reasonable amounts paid by the
Indemnified Person as a result of a Proceeding, and the Indemnifying Party shall
be bound by any determination made in a Proceeding, or compromise or settlement
effected by the Indemnified Person.
(d) Maximum Recovery. Notwithstanding anything in this
Agreement to the contrary, in no event shall the Company be liable for
indemnification under this Section 6, in an amount in excess of the sum of
[omitted] and any accrued and unpaid dividends on the Preferred Stock, in the
aggregate. No Indemnified Party shall assert any such claim unless Losses in
respect thereof incurred by any Indemnified Party, when aggregated with all
previous Losses indemnifiable hereunder, equal or exceed $50,000; thereafter,
each Indemnified Person shall be entitled to be indemnified for the full amount
of all damages previously unclaimed.
(e) Exception. Notwithstanding the foregoing, upon judicial
determination that is final and no longer appealable that the act or omission
giving rise to the indemnification set forth above resulted primarily out of or
was based primarily upon the Indemnified Person's negligence (unless such
Indemnified Person's negligence was based upon the Indemnified Person's reliance
in good faith upon any of the representations, warranties, covenants or
12
<PAGE>
promises made by the Indemnifying Party herein) the Indemnifying Party shall not
be responsible for any Losses sought to be indemnified in connection therewith,
and the Indemnifying Party shall be entitled to recover from the Indemnified
Persons all amounts previously paid in full or partial satisfaction of such
indemnity, together with all costs and expenses (including reasonable attorney's
fees) of the Indemnifying Party reasonably incurred in connection with the
Indemnified Person's claim for indemnity, together with interest at the rate per
annum publicly announced by Morgan Guaranty Trust Company as its prime rate from
the time of payment of such amounts to the Indemnified Person until repayment to
the Indemnifying Party.
(f) Investigation. All indemnification rights hereunder shall
survive the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby to the extent provided in Section 6(a) above,
irrespective of any investigation, inquiry or examination made for or on behalf
of, or any knowledge of the Indemnified Persons or the acceptance of any
certificate or opinion.
(g) Contribution. If the indemnity provided for in this
Section 6 shall be, in whole or in part, unavailable to any Indemnified Person,
due to Section 6(b) being declared unenforceable by a court of competent
jurisdiction based upon reasons of public policy, so that Section 6(b) shall be
insufficient to hold each such Indemnified Person harmless from Losses which
would otherwise be indemnified hereunder, then the Indemnifying Party and the
Indemnified Person shall each contribute to the amount paid or payable for such
Loss in such proportion as is appropriate to reflect not only the relative
benefits received by the Indemnifying Party on the one hand and the Indemnified
Person on the other, but also the relative fault of the Indemnifying Party and
be in addition to any liability that the Indemnifying Party may otherwise have.
The indemnity, contribution and expense reimbursement obligations that the
Indemnifying Party has under this Section 6 shall survive the expiration of the
Transaction Documents. The parties hereto further agree that the indemnification
and reimbursement commitments set forth in this Agreement shall apply whether or
not the Indemnified Person is a formal part to any such lawsuit, claims or other
proceedings.
SECTION 7. Notices. All notices, demands and requests of any
kind to be delivered to any party in connection with this Agreement shall be in
writing and shall be deemed to have been duly given if personally or hand
delivered or if sent by an internationally- recognized overnight delivery or by
registered or certified airmail, return receipt requested and postage prepaid,
addressed as follows:
(i) if to the Company, to:
Electropharmacology, Inc.
1109 N.W. 13th Street
Gainesville, Florida 32601
Attention: Chief Executive Officer
13
<PAGE>
with a copy to:
Richard K. Kneipper
9030 Guernsey Lane
Dallas, Texas 75220
(ii) if to EIS, to:
Elan International Services, Ltd.
Flatts, Smiths Parish
Bermuda, FL04
Attention: Director
with a copy to:
Brock Silverstein McAuliffe LLC
153 East 53rd Street, 56th Floor
New York, New York 10022
Attention: David Robbins
or to such other address as the party to whom notice is to be given may have
furnished to the other party hereto in writing in accordance with provisions of
this Section 7. Any such notice or communication shall be deemed to have been
received (i) in the case of personal or hand delivery, on the date of such
delivery, (ii) in the case of an internationally-recognized overnight delivery
service, on the second business day after the date when sent and (iii) in the
case of mailing, on the fifth business day following that day on which the piece
of mail containing such communication is posted. Notice hereunder may be given
on behalf of the parties by their respective attorneys.
SECTION 8. Further Assurances. From and after the date hereof,
each of the parties hereto agree to do or cause to be done such further acts and
things and deliver or cause to be delivered to each other such additional
assignments, agreements, powers and instruments as each may reasonably require
or deem advisable to carry into effect the purposes of the Transaction Documents
or to better to assure and confirm unto each other their respective rights,
powers and remedies hereunder and thereunder.
SECTION 9. Entire Agreement. This Agreement and the other
Transaction Documents contain the entire understanding of the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto.
SECTION 10. Amendments. This Agreement may not be modified
or amended,
14
<PAGE>
or any of the provisions hereof waived, except by written agreement of the
Company and EIS.
SECTION 11. Counterparts and Facsimile. The Transaction
Documents may be executed in any number of counterparts, and each
such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute
one agreement. Each of the Transaction Documents may be signed and
delivered to the other party by facsimile transmission; such transmission shall
be deemed a valid signature.
SECTION 12. Headings. The section and paragraph headings
contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of the Agreement.
SECTION 13. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to principles of conflicts of laws. Each of the parties hereby
irrevocably submits to the jurisdiction of any New York State or United States
Federal court sitting in the county, city and state of New York over any action
or proceeding arising out of or relating to this Agreement or the other
Transaction Documents; and each hereby waives the defense of an inconvenient
forum for the maintenance of such an action.
SECTION 14. Expenses. Each of the parties shall be
responsible for its own costs and expenses incurred in connection
with the transactions contemplated hereby and by the other Transaction
Documents.
SECTION 15. Public Releases; Etc. The parties shall reasonably
agree upon the contents of any press release or releases and other public
disclosure in respect of the transactions contemplated hereby, and except as may
otherwise be required by applicable law or judicial or administrative process or
which the Company concludes in good faith is required by applicable securities
laws and regulations.
SECTION 16. Schedules, etc. All statements contained in any
exhibit or schedule delivered by or on behalf of the parties hereto, or in
connection with the transactions contemplated hereby, are an integral part of
this Agreement and shall be deemed representations and warranties hereunder.
SECTION 17. Assignments. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. This Agreement,
the other Transaction Documents, and the Securities may be transferred by EIS to
affiliates and subsidiaries.
[Signature page follows]
15
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has duly
executed this Securities Purchase Agreement as of the date first written above.
Electropharmacology, Inc.
By: /s/ Arup Sen
-------------------------------
Arup Sen
Chairman, President and Chief Executive
Officer
Elan International Services, Ltd.
By: /s/ Kevin Insley
--------------------------------
Name: Kevin Insley
Title: President & CFO
16
Dated September 30, 1998
ELAN PHARMA INTERNATIONAL LIMITED
AND
ELECTROPHARMACOLOGY, INC.
LICENSE AGREEMENT
<PAGE>
CONTENTS
CLAUSE 1 PRELIMINARY
CLAUSE 2 THE LICENSE
CLAUSE 3 INTELLECTUAL PROPERTY
CLAUSE 4 DEVELOPMENT OF THE PRODUCT
CLAUSE 5 REGISTRATION OF THE PRODUCT
CLAUSE 6 MARKETING AND PROMOTION OF THE PRODUCT
CLAUSE 7 FINANCIAL PROVISIONS
CLAUSE 8 PAYMENTS, REPORTS AND AUDITS
CLAUSE 9 DURATION AND TERMINATION
CLAUSE 10 CONSEQUENCES OF TERMINATION
CLAUSE 11 REPRESENTATION, Warranty and Indemnity
CLAUSE 12 CUTOMER COMPLAINTS AND PRODUCT RECALL
CLAUSE 13 MISCELLANEOUS PROVISIONS
SCHEDULE 1 ELAN PATENT RIGHTS
SCHEDULE 2 EXCLUDED TECHNOLOGY
SCHEDULE 3 TECHNOLOGICAL COMPETITORS
2
<PAGE>
THIS AGREEMENT is made on September 30, 1998.
BETWEEN:
- -------
(1) ElAN PHARMA INTERNATIONAL LIMITED, a company incorporated in Ireland
having its registered office at WIL House, Shannon Business Park,
Shannon, County Clare, Ireland ("ELAN"); and
(2) ELECTROPHARMACOLOGY, INC., a company organised and existing under the
laws of the State of Delaware, having an office at 2301 NW 33rd Court,
Suite 102, Pompano Beach, Florida 33069, United States of America
(which intends shortly to change its name to Gemini Health
Technologies, Inc., "GEMINI").
RECITALS:
- --------
A. ELAN is beneficially entitled to the use of various patents, included
in the ELAN TECHNOLOGY, which have been granted or are pending under
the International Convention in relation to the development and
production of iontophoretic transdermal devices, and
B. ELAN is knowledgeable in the development of iontophoretic transdermal
devices and has developed a unique range of device and delivery systems
designed to provide improved devices, and
C. GEMINI is desirous of entering into a licensing agreement with ELAN to
allow GEMINI develop, manufacture and have manufactured in accordance
with the terms of this Agreement and to market, sell and distribute
PRODUCTS in the TERRITORY without infringing any of the intellectual
property rights in the ELAN TECHNOLOGY held by ELAN, and
D. ELAN is prepared to license the ELAN TECHNOLOGY in the TERRITORY to
GEMINI for PHARMACEUTICAL USE in the FIELD.
NOW IT IS HEREBY AGREED AS FOLLOWS:
CLAUSE 1 - PRELIMINARY
1.1 Definitions: In this Agreement unless the context otherwise requires:
AFFILIATE shall mean any corporation or entity controlling or
controlled or under common control with ELAN or GEMINI, as the case may
be. For the purposes of
3
<PAGE>
this Agreement, "control" shall mean the direct or indirect
ownership of more than 50% of the issued voting shares or
other voting rights of the subject entity to elect directors, or if not
meeting the preceding criteria, any entity owned or controlled by or
owning or controlling at the maximum control or ownership right
permitted in the country where such entity exists.
CFR shall mean the US Code of Federal Regulations 21, as amended from
time to time.
cGP shall mean current Good Clinical Practice, current Good
Manufacturing Practice and current Good Laboratory Practice as defined
in the FFDCA, (or applicable foreign law).
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) GEMINI 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, offer for sale or sale of any such device,
or practice of any such method, in the absence of this Agreement, would
infringe the ELAN PATENTS, or constitute an unauthorised use of the
ELAN KNOW-HOW.
EFFECTIVE DATE shall mean 30th September, 1998.
ELAN shall mean Elan Pharma International Limited and any of its
AFFILIATES.
ELAN 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 2 which has been licensed by ELAN to
Iomed, Inc. ("IOMED") pursuant to agreements dated 14th April 1997
and/or developed pursuant to such agreements, (ii) ELAN's MEDIPAD(TM)
Drug Delivery System ambulatory pump infusion technology as described
in Schedule 2 and any improvements thereto, and (iii) the know-how as
set out in Schedule 2 which has been licensed by Asulab S.A. and/or SMH
Swiss Corporation for Microelectronics and Watchmaking Industries Ltd.
to ELAN pursuant to an agreement dated 7th March 1990.
ELAN IMPROVEMENTS shall mean any improvement or enhancement to the ELAN
TECHNOLOGY or DEVICE including its design, structure, manufacture and
use whether developed pursuant to this Agreement or otherwise.
ELAN KNOW-HOW shall mean all knowledge, information, trade secrets,
data and expertise relating to the DEVICE, and which is not generally
known to the public, and
4
<PAGE>
that are owned or licensed by ELAN as of the EFFECTIVE DATE
and which permit(s) disclosure of same to GEMINI, whether or
not covered by or subject to protection by any patent,
copyright, design patent, trademark, trade secret or other industrial
or any intellectual property rights.
ELAN PATENTS shall mean all patents and patent applications listed in
Schedule 1, including all continuations, continuations-in-part,
divisionals, and any patents issuing thereon, and re-issues or
re-examinations of such patents and extensions of any patents licensed
hereunder. ELAN PATENTS shall also include all patent applications
directed to ELAN IMPROVEMENTS and any patents issuing thereon. subject
to the terms of this Agreement. Extensions of patents shall include:
(a) extensions under the U.S. Patent Term Restoration Act;
(b) extension of patents under Japanese Patent Law;
(c) Supplementary Protection Certificates for members of the
European Patent Convention and other countries in the EEA and
Switzerland.
ELAN TECHNOLOGY shall mean the ELAN PATENTS, and ELAN KNOW-HOW 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 ELAN EXCLUDED TECHNOLOGY.
ELECTROMAGNETIC THERAPY shall mean the treatment of the body via
non-invasive delivery of electromagnetic pulses.
ENFORCEMENT PROCEEDINGS shall mean the proceedings referred to in
Clause 3.4.2.
EU shall mean the Member States of the European Union, as same may
change from time to time in terms of Member States.
FFDCA shall mean the US Federal Food, Drug and Cosmetic Act of 1934,
and the regulations promulgated thereunder, as may be amended from time
to time.
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;
5
<PAGE>
such costs to be calculated in accordance with the generally accepted
accounting principles applicable to such Party. GEMINI shall mean
Electropharmacology, Inc. and any of its AFFILIATES.
GEMINI IMPROVEMENTS shall mean any improvements which can be usefully
applied to the GEMINI TECHNOLOGY including its formulation, design,
structure, manufacture or use.
GEMINI TECHNOLOGY shall mean any (i) drug, (ii) marker, or (iii)
mechanism, instrumentality or feature relating exclusively to
electromagnetic technology, owned by or licensed to GEMINI from a third
party or which GEMINI may use without infringing any intellectual
property right of any third party.
GEMINI TRADEMARK shall mean the trademark(s) of GEMINI to be applied to
the PRODUCT.
INITIAL PERIOD shall mean the initial period of this Agreement, as more
fully described in Clause 9.
INDEPENDENT THIRD PARTY(IES) shall mean any party(ies) other than ELAN
or GEMINI and their AFFILIATES.
IN MARKET shall mean the sale of the PRODUCT by GEMINI or its
AFFILIATES, or where applicable by a permitted sub-licensee, to an
INDEPENDENT THIRD PARTY such as a wholesaler, distributor, managed care
organisation, hospital or pharmacy and shall exclude the transfer
pricing of the PRODUCT by GEMINI to an AFFILIATE or a permitted
sub-licensee.
JOINT IMPROVEMENTS shall mean any improvement in the area of
electromagnetic technology to the GEMINI TECHNOLOGY and the ELAN
TECHNOLOGY and which was developed, created, conceived or otherwise
invented during the TERM jointly by at least one ELAN employee or agent
and at least one GEMINI employee or agent pursuant to this Agreement.
MAJOR MARKETS shall mean the United States of America, the EU and Japan
and such additional countries as may be agreed in writing by the
Parties from time to time.
NET INCOME shall mean the monetary amount or non cash consideration
payable by an INDEPENDENT THIRD PARTY to GEMINI:-
(i) for the granting of rights, whether by license, sublicense or
otherwise, by GEMINI to any INDEPENDENT THIRD PARTY relating
to the development or commercialisation of one or more of the
PRODUCTS and/or to exploit the ELAN TECHNOLOGY within the
FIELD, including license fees, royalties on sales and other
ongoing fees, and
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(ii) where GEMINI is not selling a PRODUCT IN MARKET, the gross
amount billed for the supply of such PRODUCT to an INDEPENDENT
THIRD PARTY for IN MARKET sale, and
(iii) where GEMINI 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 GEMINI for the ELAN TECHNOLOGY and/or a
PRODUCT to an INDEPENDENT THIRD PARTY which is a sublicensee
of the ELAN TECHNOLOGY; and
(ii) the FULLY ALLOCATED COST of manufacturing, packaging and
supplying the PRODUCT.
NET SALES PRICE shall, subject to the provision of Clause 7.2.5 of this
Agreement, mean in the case of PRODUCT sold by GEMINI or an AFFILIATE,
that sum determined by deducting from the aggregate gross IN MARKET
sales proceeds billed for the PRODUCT by GEMINI or, its AFFILIATE, as
the case may be, in accordance with generally accepted accounting
principles, the following deductions:-
(a) customs duties or other taxes (excluding income or corporation
tax), directly related to the sale of PRODUCT which are paid
by GEMINI 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 GEMINI or its AFFILIATE, as the case
may be, in respect of transport, shipping insurance, returns
or discounts directly related to the sale of PRODUCT, subject
to a cap of [omitted] of the sum of the aggregate gross IN
MARKET sales proceeds less the deductible items at (a) above.
Party shall mean GEMINI or ELAN, as the case may be. Parties shall mean
ELAN and GEMINI.
PHARMACEUTICAL USE shall mean an application of the DEVICE which
requires regulatory approval to market either (a) the DEVICE (b) the
PRODUCT, or (c) GEMINI TECHNOLOGY, for such application in the
TERRITORY. For the avoidance of doubt, PHARMACEUTICAL USE shall not
include, and GEMINI shall have no rights to, any application of the
DEVICE and/or PRODUCT for COSMETIC USE.
PRODUCT shall mean the DEVICE either on its own, or in combination with
GEMINI TECHNOLOGY.
REGULATORY APPLICATION shall mean any regulatory application or any
other
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application for marketing approval, which a Party, or any
INDEPENDENT THIRD PARTY on behalf of such Party, will file, including
any supplements or amendments thereto, for a PRODUCT with the RHA.
REGULATORY APPROVAL shall mean the final approval to market a PRODUCT
in any country of the TERRITORY.
RHA shall mean any relevant government health authority (or successor
agency thereof) in any country of the TERRITORY whose approval is
necessary to market a PRODUCT in the relevant country of the TERRITORY.
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 3.
TERM shall mean the term of this Agreement, as set out in Clause 9.
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.
$ shall mean United States Dollars.
"US" or "USA" shall mean the United States of America.
1.2 Interpretation: In this Agreement:
--------------
1.2.1 the singular includes the plural and vice versa, the masculine
includes the feminine and vice versa and references to natural
persons include corporate bodies, partnerships and vice versa.
1.2.2 any reference to a Clause or Schedule, unless otherwise
specifically provided, shall be respectively to a Clause or
Schedule of this Agreement.
1.2.3 the headings of this Agreement are for ease of reference only
and shall not affect its construction or interpretation.
CLAUSE 2 - THE LICENSE
2.1 License to GEMINI:
-----------------
2.1.1 Subject to the terms of this Agreement, ELAN hereby grants to
GEMINI and GEMINI hereby accepts for the TERM, a non-exclusive
license to the ELAN
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TECHNOLOGY to develop, manufacture, use, offer for
sale and sell PRODUCTS for PHARMACEUTICAL USE in the
FIELD in the TERRITORY. For the avoidance of doubt, the
license granted herein for PHARMACEUTICAL USE shall only
entitle GEMINI to develop, manufacture, use, offer for sale
and sell PRODUCTS which require REGULATORY APPROVAL to be
marketed in the TERRITORY.
2.1.2 For the avoidance of doubt:-
(1) GEMINI shall have no rights to the ELAN 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 anaesthesia product
incorporating lidocaine or lidocaine analogues with
or without epinephrine; and
(2) it is agreed that ELAN shall not be obliged to
license technology acquired or licensed by ELAN after
the EFFECTIVE DATE to GEMINI except as provided in
Clause 3.2.3 of this Agreement.
2.1.3. ELAN agrees that it will from time to time discuss with GEMINI
other technology licensing opportunities in the FIELD and
otherwise, but only if and to the extent that ELAN decides, in
its sole discretion, that it is desirable and appropriate to
do so.
2.2 Sub-licensing by GEMINI:
-----------------------
2.2.1 GEMINI shall be entitled, subject to the prior written consent
of ELAN which shall not be unreasonably withheld or delayed,
to grant sub-licenses to package, import, use, offer for sale
and sell PRODUCTS in one or more countries of the TERRITORY,
provided that GEMINI shall grant one sub-license only per
country and GEMINI shall not grant a sub-license to a
TECHNOLOGICAL COMPETITOR of ELAN.
2.2.2 Any sub-license granted hereunder shall be in the same terms
mutatis mutandis as the terms of this Agreement insofar as
they are applicable, but excluding the right to grant a
sub-license.
2.2.3 GEMINI shall be liable to ELAN for all acts and omissions of
any sub-licensee as though such acts and omissions were by
GEMINI and GEMINI shall provide the indemnity to ELAN outlined
in Clause 11.7.
2.2.4 Where a sub-license has been granted under Clause 2.2.1, such
sub-license shall automatically terminate if this Agreement
terminates for the country or countries covered by the
sub-license.
2.2.5 GEMINI shall undertake to protect the confidentiality of the
ELAN
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TECHNOLOGY in its dealings with permitted sub-licensees.
2.2.6 For the avoidance of doubt:-
(1) the Parties agree that any sub-license granted
pursuant to this Clause 2.2 shall not be capable of
surviving the termination of this Agreement; and
(2) GEMINI shall pay a royalty on NET INCOME on sales of
PRODUCT by permitted sub-licensees in accordance with
Clause 7 of this Agreement.
CLAUSE 3 - INTELLECTUAL PROPERTY
3.1. Ownership of ELAN Patent Rights/Know-how:
----------------------------------------
3.1.1 ELAN shall remain the sole owner of the ELAN PATENTS and ELAN
KNOW-HOW.
3.1.2 ELAN shall be entitled to use the ELAN PATENTS, ELAN
IMPROVEMENTS, JOINT IMPROVEMENTS and ELAN KNOW-HOW, and all
technical and clinical data, generated by either Party
pursuant to this Agreement in connection with ELAN's
commercial arrangements outside of the FIELD or for COSMETIC
USE in the FIELD.
3.2 Ownership of ELAN IMPROVEMENTS, GEMINI IMPROVEMENTS and JOINT
-------------------------------------------------------------
IMPROVEMENTS:
------------
3.2.1 The Parties agree that:
(1) ELAN IMPROVEMENTS will be owned by ELAN.
(2) GEMINI IMPROVEMENTS will be owned by GEMINI.
3.2.2 If GEMINI shall develop, or have developed, any ELAN
IMPROVEMENTS during the TERM, ELAN shall grant GEMINI the
right to use any such ELAN IMPROVEMENTS for PHARMACEUTICAL USE
in the FIELD for the TERM.
3.2.3 If ELAN shall develop, or have developed, any ELAN
IMPROVEMENTS during the TERM, ELAN shall, subject to any
contractual restrictions, grant GEMINI the right to use any
such ELAN IMPROVEMENTS for PHARMACEUTICAL USE in the FIELD for
the TERM. In the event that ELAN is obliged to pay a royalty
or any other consideration to a third party in connection with
any such ELAN IMPROVEMENTS, any such cost to ELAN
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shall be discharged by GEMINI as a condition of use
thereof. If GEMINI is unwilling to pay any such royalty
or other consideration, GEMINI shall have no right to use any
such ELAN IMPROVEMENTS.
3.2.4 JOINT IMPROVEMENTS will be jointly owned by GEMINI and ELAN.
GEMINI shall obtain exclusive rights to exploit the JOINT
IMPROVEMENTS for PHARMACEUTICAL USE in the FIELD for the TERM.
ELAN reserves the right to exploit the JOINT IMPROVEMENTS
outside the FIELD or for COSMETIC USE within the FIELD.
3.3 Filing and maintenance of patents:
---------------------------------
3.3.1 ELAN will be entitled, at its own expense, to file and
prosecute ELAN PATENTS and ELAN IMPROVEMENTS; to determine the
patent filing strategy in relation to same at its sole
discretion; and upon grant of any letters patent of the ELAN
PATENTS or the ELAN IMPROVEMENTS, to maintain such letters
patent in force.
ELAN shall notify GEMINI in writing of any patent applications
filed by ELAN for any ELAN IMPROVEMENTS.
3.3.2 ELAN will be entitled, at GEMINI's reasonable expense, to file
and prosecute all patent applications directed to PRODUCTS or
JOINT IMPROVEMENTS; to determine the patent filing strategy in
relation to same subject to timely notice given to GEMINI for
its input on matters relating to GEMINI TECHNOLOGY; and upon
grant of any letters patent directed to PRODUCTS or JOINT
IMPROVEMENTS, to maintain such letters patent in force. Should
it however be reasonably doubtful whether a patent may be
obtained, then ELAN may at its sole discretion decide not to
apply for a patent in one or more countries of the TERRITORY.
ELAN shall promptly notify GEMINI in writing of any patent
applications filed by ELAN for PRODUCTS or JOINT IMPROVEMENTS.
3.3.3 GEMINI will be entitled, at its own expense, to file and
prosecute any patent applications for the GEMINI TECHNOLOGY
and GEMINI IMPROVEMENTS; to determine the patent filing
strategy in relation to same at its sole discretion; and upon
grant of any letters patent for the GEMINI TECHNOLOGY or the
GEMINI IMPROVEMENTS, to maintain such letters patent in force.
3.3.4 All patent prosecution to be performed by ELAN shall be
carried out in accordance with ELAN's standard practice.
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3.4 Enforcement
-----------
3.4.1 GEMINI and ELAN shall promptly inform the other in writing of
any alleged infringement of which it shall become aware by a
third party of any patents within the ELAN PATENTS and provide
such other with any available evidence of infringement.
3.4.2 ELAN, at its option, shall be entitled to institute
enforcement proceedings ("ENFORCEMENT PROCEEDINGS") in
respect of any infringement or unauthorised use of the
ELAN PATENTS, the ELAN KNOW-HOW, the ELAN IMPROVEMENTS,
the Joint IMPROVEMENTS or any patents for PRODUCTS. GEMINI
agrees to provide all reasonable co-operation and
assistance to ELAN in relation to any such ENFORCEMENT
PROCEEDINGS and agrees to be named as a party in any
ENFORCEMENT PROCEEDINGS instituted by ELAN hereunder.
GEMINI shall share equally in the costs of the
ENFORCEMENT PROCEEDINGS provided that ELAN 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 ENFORCEMENT PROCEEDINGS shall be shared
equally between ELAN and GEMINI.
3.4.3 GEMINI, at its option, shall be entitled to institute
ENFORCEMENT PROCEEDINGS in respect of any infringements of any
patents for the GEMINI TECHNOLOGY or the GEMINI IMPROVEMENTS
at its own expense and for its own benefit.
3.4.4 In the event that the intellectual property owner does
not want to institute ENFORCEMENT PROCEEDINGS, then the
other Party may enforce such rights at its own expense. The
intellectual property owner shall cooperate with the
enforcing Party and provide all reasonable assistance
in relation to any such ENFORCEMENT PROCEEDINGS. The
enforcing Party must seek written approval from the
intellectual property owner, which may not be unreasonably
withheld, prior to taking action and must keep
intellectual property owner informed of the action and may
not enter into any settlement agreement without the
intellectual property owner's consent, which may not be
unreasonably withheld. Any reasonable fees and costs
borne by the intellectual property owner shall be
reimbursed by the enforcing Party. In the event that GEMINI
decides to enforce ELAN PATENTS, the ELAN KNOW-HOW, the ELAN
IMPROVEMENTS, the Joint IMPROVEMENTS or any patents for
PRODUCTS in accordance with this paragraph, any recovery
remaining after the deduction of reasonable expenses
(including attorney's fees and expenses) incurred in relation
to such ENFORCEMENT PROCEEDINGS shall constitute NET INCOME
for the purpose of this Agreement.
3.4.5 GEMINI undertakes that during the TERM, GEMINI shall not cite
or otherwise rely upon the ELAN PATENTS, the ELAN KNOW-HOW,
the ELAN IMPROVEMENTS, the Joint IMPROVEMENTS or any patents
for
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PRODUCTS licensed by GEMINI from ELAN pursuant to this
Agreement, against the iontophoretic technology specified in
Schedule 2 which has been licensed by ELAN to IOMED.
3.5 Defence
-------
3.5.1 In the event that a claim or proceeding is brought against
GEMINI by a third party alleging that the sale, manufacture,
use or offer for sale of devices and or methods as
exclusively claimed in the ELAN PATENTS infringes the patent
rights of such a third party in the TERRITORY, GEMINI shall
promptly advise ELAN of such threat or suit.
3.5.2. ELAN shall indemnify GEMINI against such a claim to the
extent set out in Clause 3.5.4; provided that that ELAN
should have reasonably been aware of such third party
patent rights as a result of ELAN's efforts in the
preparation and prosecution of ELAN PATENTS as of the date
of execution of this Agreement. GEMINI shall not
acknowledge to the third party or to any other person the
validity of any claims of such a third party, and shall not
compromise or settle any claim or proceedings relating
thereto without the prior written consent of ELAN, not
to be unreasonably withheld or delayed. At its option,
ELAN may elect to take over the conduct of such proceedings
from GEMINI and ELAN shall indemnify GEMINI against the
third party claim subject to the provisions of this
paragraph. Both parties recognise that where ELAN should not
reasonably have had knowledge of such third party patent
rights as a result of ELAN's efforts in the preparation
and prosecution of ELAN PATENTS as of the date of
execution of the Agreement, ELAN shall not indemnify GEMINI
against any such claim.
3.5.3 In the event that a claim or proceeding is brought against
GEMINI by a third party alleging that the sale, manufacture,
offer for sale or use of any device or method as exclusively
claimed in the ELAN PATENTS infringes the patent rights of
such a third party and ELAN should not reasonably have had
knowledge of such third party intellectual property rights as
a result of ELAN's efforts in the preparation and prosecution
of ELAN PATENTS as of the date of the execution of the
Agreement, GEMINI and ELAN shall meet to discuss in what
manner the said proceedings should be defended.
3.5.4 ELAN's maximum liability pursuant to Clauses 3.5.2, and 11.8
for damages and costs in relation to all third party claims
shall be a reduction by up to [omitted] of the royalty payable
by GEMINI to ELAN pursuant to Clause 7.2 of this Agreement. In
accordance with its obligations pursuant to Clause 11.9.5,
GEMINI shall favourably consider taking such action as is
reasonable, such as to cease selling the PRODUCT, to
re-engineer or modify the applicable PRODUCT so as to avoid
infringing the patent rights of a third party, or entering
into a license agreement with such third party after due
consultation with ELAN.
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3.5.5 ELAN shall have no liability to GEMINI whatsoever or howsoever
arising for any losses incurred by GEMINI as a result of
having to cease selling PRODUCT or having to defer the launch
of selling PRODUCT, whether as a result of a court order or
otherwise.
3.5.6 Subject to Clause 3.5.2, GEMINI shall indemnify ELAN for any
claim brought against ELAN by a third party alleging that the
manufacture, use, sale or offer for sale of the DEVICE or
PRODUCT constitutes an infringement or unauthorised use of any
such third party intellectual property right.
3.5.7 In the event that a claim or proceeding is brought against
ELAN by a third party alleging that the manufacture,
offer for sale, sale, distribution or use of PRODUCTS
(excluding the DEVICE where same is marketed on its own
without any GEMINI TECHNOLOGY), JOINT IMPROVEMENTS, GEMINI
TECHNOLOGY or GEMINI IMPROVEMENTS in the TERRITORY
infringes any adversely held patent or involves the
unauthorised use of any other intellectual property, ELAN
shall promptly advise GEMINI of such threat or suit. Subject
to ELAN's obligations pursuant to the provisions of
Clause 11.8 and Clause 3.5.2, GEMINI shall indemnify ELAN
against such a claim; provided that ELAN shall not
acknowledge to the third party or to any other person the
validity of the patent rights of such a third party and
shall not compromise or settle any claim or proceedings
relating thereto without the written consent of GEMINI,
which shall not be unreasonably withheld or delayed. At
its option, GEMINI may elect to take over the conduct
of such proceedings from ELAN with counsel of GEMINI's
choice. In such event GEMINI shall keep ELAN advised of all
material developments in the said proceedings and shall not
settle or compromise such proceedings without the consent
of ELAN which shall not be unreasonably withheld or
delayed.
3.6 Trademarks
----------
3.6.1 GEMINI shall market the PRODUCT in the TERRITORY under the
GEMINI TRADEMARK.
3.6.2 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.
CLAUSE 4 - DEVELOPMENT OF PRODUCTS
4.1 GEMINI shall be responsible for all activities and costs associated
with the further research, development, manufacture, marketing and
commercialisation of PRODUCTS utilising the ELAN TECHNOLOGY.
4.2 ELAN agrees to provide, at no cost to GEMINI, up to [omitted] of
technical support and assistance to GEMINI in connection with
implementing the transfer of the ELAN
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TECHNOLOGY to GEMINI and commencing further development of the DEVICE.
The Parties shall each negotiate in good faith the extent, if any, to
which ELAN shall provide further research and development services to
GEMINI in addition to such 100 hours of technical support. In the event
that ELAN provides such additional services, ELAN's charges for this
work shall be on the basis set out in Clause 7.3.
4.3 GEMINI, alone or in partnership with a permitted sub-licensee, shall
commit to performing the following activities with regard to the
development and commercialisation of PRODUCTS utilising the ELAN
TECHNOLOGY:
4.3.1. [omitted];
4.3.2. [omitted].
4.3.3. [omitted];
4.3.4. [omitted];
4.3.5. [omitted];
4.3.6. [omitted].
4.3.7 [omitted].
4.4. Should GEMINI fail to submit any of the REGULATORY APPLICATIONS
in accordance with its obligations pursuant to Clause 4.3.
within the relevant time periods, ELAN shall be entitled, at its sole
discretion at any time thereafter, to terminate the Agreement on 30
days prior written notice to GEMINI; provided however, that ELAN
shall not be entitled to so terminate this Agreement if (i) GEMINI's
failure to file any such REGULATORY APPLICATIONS was due to regulatory
difficulties which could not have been reasonably foreseen and which
cannot be remedied without incurring expenditure which is
commercially unreasonable, and (ii) GEMINI has expended a minimum of
[omitted] in development costs on a FULLY ALLOCATED COST basis
during the relevant time period.
CLAUSE 5 - REGISTRATION OF THE PRODUCT
5.1 ELAN shall be responsible, at GEMINI's expense, for performing the
following regulatory activities:
5.1.1 compilation, filing and maintaining the REGULATORY
APPLICATIONS for the DEVICE with the RHA in the MAJOR MARKETS;
and
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5.1.2 providing regulatory support to ensure timely review of the
DEVICE dossier and resolution of questions by the RHA in the
MAJOR MARKETS.
5.2 ELAN shall perform the regulatory activities described in Clause 5.1
for GEMINI 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. ELAN's charges for this work shall be on the basis set out
in Clause 7.3.
5.3 In the event that GEMINI or any reputable third party (which is
acceptable to ELAN and which agrees to be bound by an obligation of
confidentiality), can perform the regulatory activities as described in
Clause 5.1 to the same quality standard as ELAN but at a cost which is
at least [omitted] less than ELAN's charges and which is supported by
documentary evidence from GEMINI or such third party, and provided that
ELAN is not agreeable to matching such reduced cost, GEMINI shall be
entitled to perform itself, or have said third party perform, such
regulatory activities at the reduced cost.
5.4 GEMINI shall be responsible, at GEMINI's expense, for performing the
following regulatory activities:
5.4.1 compilation, filing and maintaining the REGULATORY
APPLICATIONS with the RHA in the TERRITORY for the GEMINI
TECHNOLOGY;
5.4.2 compilation, filing and maintaining the REGULATORY
APPLICATIONS for the PRODUCTS with the RHA in the TERRITORY;
5.4.3 compilation, filing and maintaining the REGULATORY
APPLICATIONS for the DEVICE with the RHA in all of the
countries of the TERRITORY outside of the MAJOR MARKETS; and
5.4.4 providing regulatory support to ensure timely review of the
DEVICE dossier and resolution of all questions by the RHA
pursuant to this Agreement.
5.5 ELAN shall notify GEMINI of the date of submission of any REGULATORY
APPLICATION for the DEVICE in the MAJOR MARKETS and shall also notify
GEMINI of any REGULATORY APPROVAL of such applications as soon as is
reasonably possible following said REGULATORY APPROVAL. GEMINI shall
notify ELAN of the date of submission of any REGULATORY APPLICATION for
the DEVICE in any country of the TERRITORY outside of the MAJOR MARKETS
and of any REGULATORY APPLICATION for the PRODUCT in the TERRITORY and
shall also notify ELAN of any REGULATORY APPROVAL as soon as is
reasonably possible following said REGULATORY APPROVAL. GEMINI shall
notify ELAN as soon as possible of any notification received by GEMINI
from an RHA to conduct an inspection of its manufacturing or other
facilities used in the development, manufacturing, packaging, storage
or handling of a PRODUCT. Copies of all correspondence with the RHA
will be provided to ELAN.
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5.6 Upon request, ELAN shall submit to GEMINI a report outlining the
regulatory status of the DEVICE in the MAJOR MARKETS. Upon request,
GEMINI shall submit to ELAN a report fully outlining the regulatory
status of (i) the DEVICE in the countries of the TERRITORY outside of
the MAJOR MARKETS and (ii) PRODUCTS in each country of the TERRITORY.
5.7 ELAN will be the holder of the REGULATORY APPROVAL for the DEVICE in
the MAJOR MARKETS. GEMINI will be the holder of the REGULATORY APPROVAL
(a) for the DEVICE in all of the countries of the TERRITORY outside of
the MAJOR MARKETS, and (b) for PRODUCTS in the TERRITORY.
5.8 GEMINI will permit ELAN, or ELAN's licensees, without charge, to have
access to, to photocopy and to cross reference all REGULATORY APPROVALS
or REGULATORY APPLICATIONS for the DEVICE and/or PRODUCTS for the
purpose of obtaining REGULATORY APPROVALS for the DEVICE for use
outside of the FIELD.
5.9 GEMINI shall indemnify and hold harmless ELAN from and against all
claims, damages, losses, liabilities and expenses to which ELAN may
become liable relating to or arising out of GEMINI's bad faith,
negligence or intentional misconduct in connection with the filing or
maintenance of the REGULATORY APPLICATIONS and REGULATORY APPROVALS for
(a) the DEVICE in all of the countries of the TERRITORY outside of the
MAJOR MARKETS, and (b) for PRODUCTS in the TERRITORY.
5.10 It is hereby acknowledged that there are inherent uncertainties
involved in the registration of pharmaceutical products with an RHA in
relation to obtaining the REGULATORY APPROVAL and such uncertainties
form part of the business risk involved in undertaking the form of
commercial collaboration outlined in this Agreement. Accordingly, ELAN
and GEMINI shall have no liability to the other as a result of any
failure of a DEVICE and/or a PRODUCT to successfully achieve REGULATORY
APPROVAL of an RHA.
CLAUSE 6 - MARKETING AND PROMOTION OF THE PRODUCT
6.1 Within 90 days after the filing of the REGULATORY APPLICATION for a
PRODUCT in each country of the TERRITORY, GEMINI will outline to ELAN
the structure of the promotional activities to be carried out by GEMINI
for the period up to the first launch of such PRODUCT and for a period
of 1 year thereafter. GEMINI shall both prior to and subsequent to the
launch of a PRODUCT communicate with ELAN regarding its objectives for
and performance of such PRODUCT in each country of the TERRITORY.
6.2 GEMINI shall use all commercially reasonable efforts to market and
promote PRODUCTS throughout the TERRITORY and, in doing so, shall use
the same level of effort as with other similar products of similar
sales potential which it markets.
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6.3 If requested by ELAN and to the extent permitted by law, GEMINI's
promotional materials for a PRODUCT shall include due acknowledgement
that the ELAN TECHNOLOGY is licensed from ELAN and is included in the
PRODUCT.
6.4 GEMINI shall mark or have marked all patent number(s) in respect of the
ELAN PATENTS on all PRODUCTS, or otherwise reasonably communicate to
the trade the existence of any ELAN PATENTS for the countries within
the TERRITORY in such a manner as to ensure compliance with, and
enforceability under, applicable laws.
6.5 GEMINI shall effect the first full scale national commercial launch of
a PRODUCT in each country of the TERRITORY within 90 days of the
REGULATORY APPROVAL being granted for such PRODUCT in such country.
ELAN shall not unreasonably withhold its agreement to a request by
GEMINI for an extension of the said 90 day period if there are
legitimate commercial reasons for such an extension.
6.6 The Parties shall meet to discuss the sales performance of a PRODUCT on
a quarterly basis for the first year following the initial launch of
such PRODUCT, on a semi-annual basis for the second and third years and
on an annual basis thereafter. At such meetings, GEMINI shall report on
the ongoing sales performance of PRODUCTS in the TERRITORY, including
marketing approaches, educational campaigns, promotional and
advertising materials and campaigns, sales plans and results,
performance against competitors, its objectives for the PRODUCTS and
its plans for the next year of the Agreement.
CLAUSE 7 - FINANCIAL PROVISIONS
7.1 License Royalties:
-----------------
7.1.1 In consideration of the license of the ELAN PATENTS granted to
GEMINI under this Agreement, GEMINI shall pay to ELAN
(i) the sum of $7,500,000 in cash due upon execution of
this Agreement and payable within 2
business days of the EFFECTIVE DATE; and
(ii) a license royalty fee of [omitted] of NET INCOME
until the aggregate of such royalty fee equals
[omitted].
7.1.2 Payment of the license fee royalty pursuant to Clause
7.1.1(ii) shall be made once in each calendar quarter within
45 days after the expiry of the relevant calendar quarter.
7.1.3 All payments due hereunder shall be made in US Dollars.
7.1.4 For the avoidance of doubt, the Parties confirm that the
additional license fee
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payable by GEMINI to ELAN in accordance with Clause 7.2.1 (ii)
shall be payable in addition to the royalty payments to be
made by GEMINI in accordance with Clause 7.2.
7.2 Royalties:
---------
7.2.1 In consideration of the license of the ELAN PATENTS granted to
GEMINI under this Agreement, GEMINI shall make the following
royalty payments to ELAN:
(i) a royalty of [omitted] of the NET SALES PRICE of
PRODUCTS which are sold IN MARKET by GEMINI or its
AFFILIATES, and
(ii) a royalty of [omitted] of NET INCOME on PRODUCTS
which are sold IN MARKET by INDEPENDENT THIRD
PARTIES.
7.2.2 Within 45 days of the end of each calendar quarter of this
Agreement, GEMINI shall notify ELAN of the NET SALES PRICE of
PRODUCT for that previous calendar quarter. Payments shown by
each calendar quarter report to have accrued but which have
not yet been paid shall be included in calculating the NET
SALES PRICE for that quarter.
7.2.3 Payment of the royalties on NET SALES PRICE and NET INCOME
shall be made once in each calendar quarter within 45 days
after the expiry of the relevant calendar quarter.
7.2.4 All payments due hereunder shall be made in U.S. Dollars.
7.2.5 In the event that GEMINI or any AFFILIATE of GEMINI shall
sell a PRODUCT together with other products of GEMINI
to third parties (by the method commonly known in the
pharmaceutical industry as "bundling") and the price
attributable to such PRODUCT is less than the average price
of "arms length" sales to similar customers for the reporting
period in which sales occur (such sales to be excluded from
the calculation of the average price of "arms length"
sales), NET SALES PRICE for any such sales shall be the
average price of "arms length" sales by GEMINI or an
AFFILIATE of GEMINI or a permitted sub-licensee to similar
customers in the country where such bundling occurs during
the reporting period in which such sales occur.
7.3 Additional Assistance and Work:
------------------------------
In the event that work or technical assistance beyond that contemplated
in Clause 4.2 ("ADDITIONAL WORK") is requested by GEMINI, GEMINI shall
reimburse ELAN in respect of the cost of such ADDITIONAL WORK requested
by GEMINI or required pursuant to the terms of this Agreement provided
that:-
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7.3.1 ELAN's charges for such work shall be ELAN's FULLY ALLOCATED
COST plus [omitted]; and
7.3.2 payment for all ADDITIONAL WORK carried out by ELAN hereunder
shall be effected in U.S. Dollars within 30 days of the date
of receipt of the relevant invoice.
7.4 Method of calculation of royalties and fees:
-------------------------------------------
The Parties acknowledge and agree that the methods for calculating the
royalties and fees hereunder are for the purposes of the convenience of
the Parties, are freely chosen and not coerced.
CLAUSE 8 - PAYMENTS, REPORTS AND AUDITS
8.1 GEMINI shall keep true and accurate records of gross sales of each of
the PRODUCTS, the items deducted from the gross amount in calculating
the NET SALES PRICE and the NET INCOME, the NET SALES PRICE and the
royalties payable to ELAN under Clause 7. GEMINI shall deliver to ELAN
a written statement ("the STATEMENT") thereof within 45 days following
the end of each calendar quarter, (or any part thereof in the first or
last calendar quarter of this Agreement) for such calendar quarter. The
STATEMENT shall outline, on a country-by-country basis, the calculation
of the NET SALES PRICE and the NET INCOME from gross revenues during
that calendar quarter, the applicable percentage rate, and a
computation of the sums due to ELAN. The Parties' financial officers
shall agree upon the precise format of the STATEMENT.
8.2 Payments due on NET INCOME and NET SALES PRICE of the PRODUCT based on
sales amounts in a currency other than US Dollars shall first be
calculated in the foreign currency and then converted to US Dollars on
the basis of the exchange rate in effect for the purchase of US Dollars
with such foreign currency quoted in The Wall Street Journal (or
comparable publication if not quoted in The Wall Street Journal) with
respect to the sale of currency of the country of origin of such
payment for the day prior to the date on which the payment by GEMINI is
being made.
8.3 Any income or other taxes which GEMINI is required by law to pay or
withhold on behalf of ELAN with respect to royalties and any other
monies payable to ELAN under this Agreement shall be deducted from the
amount of such NET INCOME and/or NET SALES PRICE payments, royalties
and other monies due. GEMINI shall furnish ELAN with proof of such
payments. Any such tax required to be paid or withheld shall be an
expense of and borne solely by ELAN. GEMINI shall promptly provide ELAN
with a certificate or other documentary evidence to enable ELAN to
support a claim for a refund or a foreign tax credit with respect to
any such tax so withheld or deducted by GEMINI. The Parties will
reasonably cooperate in
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completing and filing documents required under the provisions of any
applicable tax treaty or under any other applicable law, in order to
enable GEMINI to make such payments to ELAN without any deduction or
withholding.
8.4 All payments due hereunder shall be made to the designated bank account
of ELAN in accordance with such timely written instructions as ELAN
shall from time to time provide to GEMINI.
8.5 GEMINI shall pay interest to ELAN at either the Prime Rate publicly
announced by Morgan Guaranty Trust Company of New York at its principal
office on the date (or next to occur business day, if such date is not
a business day) on which payment should have been made pursuant to the
applicable provisions of this Agreement plus 5%, or the highest
interest rate permissible under applicable law, on all late payments
under this Agreement applicable from the date on which payment should
have been made pursuant to the applicable provisions of this Agreement
until the date of payment.
8.6 Where ELAN so requests to supplement the information available to ELAN
at the meetings of the Parties under Clause 8.9, GEMINI shall provide
ELAN with annual sales reports outlining the status of each of the
PRODUCTS in the TERRITORY, including a report on the competitive
position of such PRODUCT in its relevant market segment(s).
8.7 At any time and from time to time, GEMINI shall permit ELAN or its duly
authorised representatives (reasonably acceptable to GEMINI) upon
reasonable notice and at any reasonable time during normal business
hours and subject to the confidentiality provisions as contained in
this Agreement, to have access to inspect and audit the accounts and
records of GEMINI and any other book, record, voucher, receipt or
invoice relating to the calculation of the royalty payments on NET
SALES PRICE and NET INCOME submitted to ELAN during the preceding 2
year period.
8.8 Not more than once per item of cost or expense, ELAN shall permit
GEMINI or its duly authorised representatives (reasonably acceptable to
ELAN) upon reasonable notice and at any reasonable time during normal
business hours and subject to the confidentiality provisions as
contained in this Agreement, to have access to inspect and audit the
accounts and records of ELAN, solely for the purpose of verifying the
accuracy and reasonable composition of the costs and expenses paid or
reimbursed by GEMINI to ELAN in accordance with the terms of this
Agreement during the preceding 2 year period.
8.9 In the event of a discovery of a discrepancy which exceeds 5% of the
amount due or charged by a Party for any period, the reasonable cost of
such discovery (including, without limitation, audit and accounting
cost) shall be borne by the audited Party; otherwise, such cost shall
be borne by the auditing Party.
CLAUSE 9 - DURATION AND TERMINATION
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9.1 This Agreement shall be deemed to have come into force on the EFFECTIVE
DATE and, subject to the rights of termination outlined in this Clauses
9, will expire on a PRODUCT by PRODUCT basis and on a country by
country basis:-
9.1.1 on the [omitted] anniversary of the date of the commercial
launch of the PRODUCT in the country concerned; or
9.1.2 in any country upon the expiration of the life of the last to
expire patent included in the ELAN PATENTS in such PRODUCT in
that country;
whichever date is later to occur ("the INITIAL PERIOD").
9.2 At the end of the INITIAL PERIOD, the Agreement shall continue
automatically for rolling [omitted] periods thereafter, unless the
Agreement has been terminated by either of the Parties by serving
[omitted] written notice on the other immediately prior to the end of
the INITIAL PERIOD or any additional 3 year period provided for herein.
9.3 In addition to the rights of termination provided for elsewhere in this
Agreement, either Party will be entitled forthwith to terminate this
Agreement by written notice to the other Party if:
9.3.1 that other Party commits any material breach of any of the
provisions of this Agreement, and in the case of a breach
capable of remedy, fails to remedy the same within 60 days
after receipt of a written notice giving full particulars of
the breach and requiring it to be remedied;
9.3.2 that other Party goes into liquidation (except for the
purposes of amalgamation or reconstruction and in such manner
that the company resulting therefrom effectively agrees to be
bound by or assume the obligations imposed on that other Party
under this Agreement);
9.3.3 an encumbrancer takes possession or a receiver is appointed
over any of the property or assets of that other Party; or
9.3.4 any proceedings are filed or commenced by that other Party
under bankruptcy, insolvency or debtor relief laws or anything
analogous to any of the foregoing under the laws of any
jurisdiction occurs in relation to that other Party;
9.4 For the purposes of Clause 9.3.1, a breach will be considered capable
of remedy if the Party in breach can comply with the provision in
question in all respects other than as to the time of performance
(provided that time of performance is not of the essence).
9.5 In further addition to the rights and termination provided for
elsewhere in this Agreement, ELAN shall be entitled to terminate (i)
the license granted to GEMINI under this Agreement on a PRODUCT by
PRODUCT basis for any country or
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countries of the TERRITORY in accordance with Clause 9.5.1 or 9.5.2 (in
which event the definition of TERRITORY shall be amended accordingly);
or (ii) this Agreement for the ELAN TECHNOLOGY for all of the TERRITORY
in accordance with Clause 9.5.3, 9.5.4, 9.5.5, 9.5.6 or 9.5.7; in the
event that:-
9.5.1 GEMINI fails to file a REGULATORY APPLICATION for a PRODUCT in
any country of the MAJOR MARKETS within [omitted] from filing
the REGULATORY APPLICATION for such PRODUCT in the first
country of the MAJOR MARKETS;
9.5.2 GEMINI fails to effect any one of the commercial launches
required by Clause 6 in accordance with the provisions
thereof; or
9.5.3 GEMINI fails to pay any monies due to ELAN in accordance with
this Agreement; or
9.5.4 GEMINI notifies ELAN that it does not wish to commercialise
the PRODUCT in any country of the TERRITORY; or
9.5.5 a TECHNOLOGICAL COMPETITOR of ELAN acquires more than
[omitted] of GEMINI's voting stock or where more than
[omitted] of such company's voting stock is acquired by
GEMINI; or
9.5.6 a FINANCIAL INVESTOR acquires ownership or control of more
than [omitted] of the voting rights in GEMINI 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 GEMINI; or
9.5.7 any company other than a TECHNOLOGICAL COMPETITOR or FINANCIAL
INVESTOR acquires ownership or control of more than [omitted]
of the voting rights in GEMINI in any one transaction or a
series of related transactions.
CLAUSE 10 - CONSEQUENCES OF TERMINATION
10.1 Upon exercise of those rights of termination specified in Clauses 9 or
elsewhere in this Agreement, this Agreement shall, subject to the
provisions of the Agreement which survive the termination of the
Agreement, automatically terminate forthwith and be of no further legal
force or effect.
10.2 Upon termination of the Agreement by either Party, or upon termination
by ELAN of a license for the TERRITORY, or for a particular country of
the TERRITORY, under Clause 9.5, the following shall be the
consequences relating to the termination of the Agreement or the
termination of the Agreement with respect to the TERRITORY or the
particular country, as applicable:-
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10.2.1 any sums that were due from GEMINI to ELAN under the
provisions of Clause 7 or otherwise howsoever prior to the
exercise of the right to terminate this Agreement as set forth
herein shall be paid in full within 30 days of termination of
this Agreement and ELAN shall not be liable to repay to
GEMINI any amount of money paid or payable by GEMINI to ELAN
up to the date of the termination of this Agreement except for
any monies that may be due from ELAN under any audit performed
pursuant to Section 8.8. within the time period specified in
Section 10.2.4;
10.2.2 all confidentiality provisions set out herein shall remain in
full force and effect for a period of 5 years from the date of
such termination;
10.2.3 all responsibilities and warranties shall insofar as are
appropriate remain in full force and effect;
10.2.4 the rights of inspection and audit shall continue in force for
a period of 12 months from the date of termination of this
Agreement;
10.2.5 ELAN shall be entitled to research, develop and commercialise
the ELAN TECHNOLOGY for its own benefit in the TERRITORY or in
the relevant country or countries of the TERRITORY;
10.2.6 each of the Parties shall be entitled to on a royalty free
basis to have access to and to separately exploit any JOINT
IMPROVEMENTS;
10.2.7 GEMINI shall transfer to ELAN or ELAN's designee without
charge, and/or permit ELAN or ELAN's designee without charge
to conduct sufficient cross-referencing to, and have
sufficient access to, any and all pending REGULATORY
APPLICATIONS or granted REGULATORY APPROVALS for the DEVICE or
any PRODUCTS for the relevant country or countries of the
TERRITORY.
10.2.8 GEMINI shall promptly make an accounting to ELAN of the
inventory of the PRODUCT which it has in the TERRITORY or
for such particular country or countries in the TERRITORY
(as the case may be), if any, as of the date of such
termination and GEMINI shall thereafter have the right for
a period of six (6) months after said expiration or
termination to sell such inventory of the PRODUCT in the
TERRITORY or in such particular country or countries in the
TERRITORY (as the case may be) or, if appropriate and legally
permissible, to transport such inventory of PRODUCT for sale
in another country or countries in the TERRITORY within
such six month period; provided that such sale shall be
subject to the royalty provisions of Clause 7 and the other
applicable terms of this Agreement. Thereafter, any
remaining inventory of PRODUCT shall be disposed of by
GEMINI, at GEMINI's cost, in accordance with regulatory
requirements.
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CLAUSE 11 - REPRESENTATIONS, WARRANTIES AND INDEMNITY
11.1 ELAN represents to GEMINI the following:
11.1.1 ELAN is duly and validly existing in the jurisdiction of its
incorporation and each other jurisdiction in which the conduct
of its business requires such qualification, and is in
compliance with all applicable laws, rules, regulations or
orders relating to its business and assets;
11.1.2 ELAN has full corporate authority to execute and deliver
this Agreement and to consummate the transactions
contemplated hereby; this Agreement has been duly executed
and delivered by ELAN and constitutes the legal and valid
obligations of ELAN and is enforceable against ELAN in
accordance with its terms; and the execution, delivery
and performance of this Agreement and the transactions
contemplated hereby will not violate or result in a default
under or creation of lien or encumbrance under ELAN's
memorandum and articles of association or other organic
documents, any material agreement or instrument binding
upon or affecting ELAN or its properties or assets or any
applicable laws, rules, regulations or orders affecting ELAN
or its properties or assets;
11.1.3 ELAN is not in material default of its memorandum and articles
of association or similar organic documents, any applicable
material laws or regulations or any material contract or
agreement binding upon or affecting it or its properties or
assets and the execution, delivery and performance of this
Agreement and the transactions contemplated hereby will not
result in any such violation;
11.1.4 ELAN represents and warrants that ELAN is the sole and
exclusive owner or licensee of, or controls all right, title
and interest to the ELAN PATENTS and, to the best of ELAN's
knowledge, as of the date of this Agreement, the sole and
exclusive owner of the ELAN KNOW-HOW; ELAN has the right to
grant the licenses granted herein, and the ELAN TECHNOLOGY is
free and clear of any lien, encumbrances, security interest or
restriction on the license granted herein; and
11.1.5 ELAN represents and warrants that the execution of this
Agreement and the full performance and enjoyment of the rights
of GEMINI under this Agreement will not breach or in any way
be inconsistent with the terms and conditions of any license,
contract, understanding or agreement, whether express,
implied, written or oral between ELAN and any third party.
11.2 GEMINI represents to ELAN the following:
11.2.1 GEMINI 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, and GEMINI is in compliance with all applicable
laws, rules, regulations or orders relating to its business
and assets;
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11.2.2 GEMINI has full corporate authority to execute and deliver
this Agreement and to consummate the transactions
contemplated hereby; this Agreement has been duly executed
and delivered by GEMINI and constitutes the legal and
valid obligations of GEMINI and is enforceable against
GEMINI in accordance with its terms; and the execution,
delivery and performance of this Agreement and the
transactions contemplated hereby will not violate or result
in a default under or creation of lien or encumbrance under
GEMINI's certificate of incorporation, by-laws or other
organic documents, any material agreement or instrument
binding upon or affecting GEMINI or its properties or
assets or any applicable laws, rules, regulations or orders
affecting GEMINI or its properties or assets;
11.2.3 GEMINI is not in material default of its charter or by-laws,
any applicable laws or regulations or any material 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
11.2.4 GEMINI represents and warrants that it has not granted any
option, license, right or interest to any third party which
would conflict with the terms of this Agreement.
11.3 GEMINI represents and warrants that the PRODUCTS shall be manufactured,
packaged, distributed and sold in accordance with all applicable
regulations and requirements of the RHAs in the TERRITORY, including,
without limitation, the cGP regulations which apply to the manufacture,
storage, packaging and supply of PRODUCT. GEMINI represents and
warrants that the PRODUCTS shall not be adulterated or mis-branded as
defined by the FFDCA (or applicable foreign law) and shall not be a
product which would violate any section of such Act if introduced in
interstate commerce.
11.4 GEMINI represents and warrants that it will fully comply with all
applicable statutes, ordinances and regulations in the TERRITORY with
respect to the manufacture of the PRODUCTS including, but not limited
to, the FFDCA and regulations thereunder and cGP. GEMINI shall
manufacture or procure the manufacture of the PRODUCTS in conformity
with the REGULATORY APPROVALS and in a manner which fully complies with
all applicable United States of America and foreign statutes,
ordinances, regulations and practices.
11.5 Each of the Parties shall indemnify, defend and hold harmless the other
Party and its officers, directors, employees and agents from all
actions, losses, claims, demands, damages, costs and liabilities
(including reasonable attorneys' fees) to which the other Party is or
may become liable insofar as they arise out of any breach by the first
Party of any of its obligations or warranties under this Agreement.
11.6 GEMINI shall indemnify, defend and hold harmless ELAN and its officers,
directors, employees and agents from all actions, losses, claims,
demands, damages, costs and liabilities (including reasonable
attorneys' fees) due to third party claims to which ELAN is or may
become subject insofar as they arise out of or are alleged or claimed
to arise out of activities conducted by GEMINI in the development,
manufacture,
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transport, packaging, storage, handling, distribution, promotion,
marketing, offer for sale or sale of the PRODUCT, including
any product liability claim or any claim relating to a recall of a
PRODUCT.
11.7 With reference to Clause 2.2.3, GEMINI shall indemnify and hold
harmless ELAN Party and its officers, directors, employees and agents
to the extent that any claims, damages, liabilities, claims, costs or
expenses arise out of any such acts or omissions of any sub-licensee.
11.8 ELAN represents and warrants that, as of the date of this Agreement, no
third party has filed any action against ELAN alleging that the
exploitation of the ELAN PATENTS infringes any INDEPENDENT THIRD PARTY
patent in the TERRITORY.
11.9 As a condition of obtaining an indemnity in the circumstances set out
in Clauses 11.5, 11.6 and 11.7, the Party seeking an indemnity shall:
11.9.1 fully and promptly notify the other Party of any claim or
proceedings, or threatened claim or proceedings for which an
indemnity will be sought;
11.9.2 permit the indemnifying Party to take full control of such
claim or proceedings;
11.9.3 assist in the investigation and defence of such claim or
proceedings;
11.9.4 not compromise or otherwise settle any such claim or
proceedings without the prior written consent of the other
Party, which consent shall not be unreasonably withheld; and
11.9.5 take all reasonable steps to mitigate any loss or liability in
respect of any such claim or proceedings.
11.10 Subject to the provisions of Clause 9.5(1), ELAN agrees that during the
TERM, ELAN shall not directly or indirectly, utilise itself, or licence
to any third party, the ELAN TECHNOLOGY for PHARMACEUTICAL USE in the
FIELD in the TERRITORY without the prior written consent of GEMINI.
11.11 Notwithstanding anything to the contrary in this Agreement, ELAN and
GEMINI shall not be liable to the other by reason of any representation
or warranty, condition or other term or any duty of common law, or
under the express terms of this Agreement, for any consequential or
incidental or punitive loss or damage (whether for loss of profits or
otherwise) and whether occasioned by the negligence of the respective
Parties, their employees or agents or otherwise.
CLAUSE 12 - CUSTOMER COMPLAINTS AND PRODUCT RECALL
12.1. GEMINI or its permitted sub-licensees shall have sole responsible for
the reporting and handling of any adverse events associated with
PRODUCTS with the RHA in
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each country of the TERRITORY. Furthermore, in the event of any recall
of any PRODUCT, as suggested or requested by any governmental
authority, GEMINI shall perform the recall and all
associated costs and liabilities shall be borne by GEMINI.
12.2. GEMINI shall notify ELAN promptly of any complaints from third parties
reported to GEMINI involving any serious and unexpected adverse
reactions resulting from the use any PRODUCT in the TERRITORY. ELAN
shall notify GEMINI promptly of any complaints from third parties
reported to ELAN involving any serious and unexpected adverse reactions
resulting from the use the DEVICE in the TERRITORY.
CLAUSE 13 - MISCELLANEOUS PROVISIONS
13.1 Secrecy:
-------
13.1.1 Any information, whether written or oral (oral information
shall be reduced to writing within one month by the Party
giving the oral information and the written form shall be
furnished to the other Party) pertaining to the PRODUCT that
has been or will be communicated or delivered by ELAN to
GEMINI or any of its AFFILIATES, or by GEMINI to ELAN or any
of its AFFILIATES, including, without limitation, trade
secrets, business methods, and cost, supplier, manufacturing
and customer information, shall be treated by GEMINI and ELAN,
respectively, as confidential information, and shall not be
disclosed or revealed to any INDEPENDENT THIRD PARTY
whatsoever or used in any manner except as expressly provided
for herein; provided, however, that such confidential
information shall not be subject to the restrictions and
prohibitions set forth herein to the extent that such
confidential information:-
(1) is available to the public in public literature or
otherwise, or after disclosure by one Party to the
other becomes public knowledge through no default of
the Party receiving such confidential information; or
(2) was known to the Party receiving such confidential
information prior to the receipt of such confidential
information by such Party, whether received before or
after the date of this Agreement; or
(3) is obtained by the Party receiving such confidential
information from a third party not subject to a
requirement of confidentiality with respect to such
confidential information; or
(4) is required to be disclosed pursuant to: (A) any
order of a court having jurisdiction and power to
order such information to be released or made public;
or (B) any lawful action of a governmental or
regulatory agency provided that each Party shall
notify the other in writing of any disclosure of
information required hereunder prior to such
disclosure.
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13.1.2 Each Party shall take in relation to the confidential
information of the other Party all such precautions as it
normally takes with its own confidential information to
prevent any improper disclosure of such confidential
information to any INDEPENDENT THIRD PARTY; provided, however,
that such confidential information may be disclosed within
the limits required to obtain any authorisation from the
applicable RHA or any governmental or regulatory agency
(including the patents and trademark office in any country of
the TERRITORY) or with the prior written consent of the other
Party, which shall not be unreasonably withheld, or as may
otherwise be required in connection with the purposes of this
Agreement.
13.1.3 Each of the Parties agrees that it will not use, directly or
indirectly, any know-how of the other Party (ELAN KNOW-HOW or
GEMINI KNOW-HOW, as the case may be), or other confidential
information disclosed to it by the other Party or obtained by
it from the other Party pursuant to this Agreement, other than
as expressly provided herein.
13.1.4 Neither Party will publicise the existence of this Agreement
in any way without the prior written consent of the other
Party, except as required pursuant to the disclosure
requirements of applicable laws and regulations. Excluding any
such required disclosures, in the event that either Party
wishes to make an announcement concerning the Agreement, that
Party will seek the consent of the other Party. The terms of
any such announcement shall be agreed in good faith.
13.2 Assignments/ Sub-contracting:
----------------------------
13.2.1 This Agreement may not be assigned by either Party without the prior
written consent of the other Party, save that either Party may assign
this Agreement in whole or in part and delegate its duties hereunder to
its AFFILIATE or AFFILIATES without such consent provided that such
assignment or delegation has no material adverse tax implications for
the other Party.
13.2.2 Either Party shall also have the right to subcontract all or any
portion of its development, manufacturing or regulatory work under this
Agreement to an INDEPENDENT THIRD PARTY; save that GEMINI may not
assign any such activities to a TECHNOLOGICAL COMPETITOR. Each Party
shall be liable to the other Party for all acts and omissions of any
sub-contractor as though such acts and omissions were by such Party.
13.3 Parties bound:
This Agreement shall be binding upon and enure for the benefit of
Parties hereto, their successors and permitted assigns.
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13.4 Severability:
------------
If any provision in this Agreement is agreed by the Parties to be, or
is deemed to be, or becomes invalid, illegal, void or unenforceable
under any law that is applicable hereto:-
13.4.1 such provision will be deemed amended to conform to applicable
laws so as to be valid and enforceable or, if it cannot be so
amended without materially altering the intention of the
Parties, it will be deleted, with effect from the date of such
agreement or deletion or such earlier date as the Parties may
agree; and
13.4.2 the validity, legality and enforceability of the remaining
provisions of this Agreement shall not be impaired or affected
in any way.
13.5 Force Majeure:
-------------
Neither Party to this Agreement shall be liable for delay in the
performance of any of its obligations hereunder if such delay results
from causes beyond its reasonable control, including, without
limitation, acts of God, fires, strikes, acts of war, intervention of a
government authority, or non-availability of raw materials, but any
such delay or failure shall be remedied by such Party as soon as
practicable.
13.6 Relationship of the Parties:
---------------------------
Nothing contained in this Agreement is intended or is to be construed
to constitute ELAN and GEMINI as partners or members of a joint venture
or either Party as an employee of the other. Neither Party hereto shall
have any express or implied right or authority to assume or create any
obligations on behalf of or in the name of the other Party or to bind
the other Party to any contract, agreement or undertaking with any
third party.
13.7 Amendments:
----------
No amendment, modification or addition hereto shall be effective or
binding on either Party unless set forth in writing and executed by a
duly authorised representative of both Parties.
13.8 Waiver:
------
No waiver of any right under this Agreement shall be deemed effective
unless contained in a written document signed by the Party charged with
such waiver, and no waiver of any breach or failure to perform shall be
deemed to be a waiver of any future breach or failure to perform or of
any other right arising under this Agreement.
13.9 No effect on other agreements:
-----------------------------
No provision of this Agreement shall be construed so as to negate,
modify or affect in any way the provisions of any other agreement
between the Parties unless specifically referred to, and solely to the
extent provided, in any such other agreement.
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13.10 Governing law and jurisdiction:
------------------------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to principles of
conflicts of laws. For the purposes of this Agreement the Parties
submit to the non-exclusive jurisdiction of the courts of the State of
New York.
13.11 Notice:
------
13.11.1 Any notice to be given under this Agreement shall be sent in
writing in English by registered airmail or telecopied to:
ELAN care of
Elan International Services, Ltd.
102 St. James's Court
Flatts
Smiths, FL04
Bermuda
Attention: President
Telephone: 1 441 292 9169
Telefax : 1 441 292 2224
GEMINI at
Electropharmacology, Inc.
2301 NW 33rd Court
Suite 102
Pompano Beach
Florida 33069
United States of America
Attention: Chairman, President and Chief Executive Officer
Telephone: 954 975 9818
Telefax: 954 975 4021
or to such other address(es) and telecopier numbers as may
from time to time be notified by either Party to the other
hereunder.
13.11.2 Any notice sent by mail shall be deemed to have been delivered
within 7 working days after despatch and any notice sent by
telex or telecopy shall be deemed to have been delivered
within 24 hours of the time of the despatch.
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Notice of change of address shall be effective upon receipt.
IN WITNESS of which the Parties have executed this Agreement.
32
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SCHEDULE 1
ELAN PATENTS
[omitted]
33
<PAGE>
SCHEDULE 2
EXCLUDED TECHNOLOGY
(i) See attached list of issued patents and pending patent applications.
(ii) 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.
(iii) See attached list of issued patents and pending patent applications.
34
<PAGE>
SCHEDULE 3
TECHNOLOGICAL COMPETITORS
[omitted]
35
<PAGE>
Executed by GEMINI on September 30, 1998
By : /s/ Arup Sen
--------------------
Name: Arup Sen
Title: Chairman & CEO
Executed by ELAN on September 30, 1998
By: /s/ Liam Daniel
---------------------
Name: Liam Daniel
Title: Director
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
ELECTROPHARMACOLOGY, INC.
The undersigned officers of Electropharmacology, Inc., a
corporation organized and existing under the General Corporation Law of the
State of Delaware (the "Corporation"), do hereby certify that, pursuant to
authority conferred by the Certificate of Incorporation of the Corporation, as
amended (the "Certificate of Incorporation"), and pursuant to the provisions of
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Corporation adopted a resolution adopting a Certificate of
Designations, Preferences and Rights of Series A Convertible Preferred Stock
(this "Certificate of Designations") providing for certain designations, powers,
number, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, of 14,700
shares of Series A Convertible Preferred Stock, $.01 par value per share, which
resolution is as follows:
RESOLVED: That pursuant to Article Fourth of the Certificate of
Incorporation, as amended, of this Corporation, the Board of Directors
hereby establishes the following series of Preferred Stock, $.01 par
value per share (the "Preferred Stock"), of the Corporation having the
designations, powers, number, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations
or restrictions thereof set forth below:
1. Designation. 14,700 shares of the Preferred Stock shall be
designated and known as the "Series A Convertible Preferred Stock." Such number
of shares may be increased or decreased by resolution of the Board of Directors
after obtaining the consent of a majority in interest of the then outstanding
shares of Series A Convertible Preferred Stock; provided, however, that no
decrease shall reduce the number of shares of Series A Convertible Preferred
Stock to a number less than the number of shares then outstanding plus the
number of shares issuable upon exercise of outstanding rights, options or
warrants or upon conversion of outstanding securities issued by the Corporation.
2. Dividend Provisions.
a. The Series A Convertible Preferred Stock shall
bear a mandatory dividend of 10% per annum, payable semi-annually in cash or, in
the Corporation's discretion, by the issuance of additional shares of Series A
Convertible Preferred Stock on the same terms and subject to the same conditions
as the Series A Convertible Preferred Stock originally issued hereby.
1
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b. When and if the Board of Directors shall declare a
dividend or distribution payable with respect to the then outstanding shares of
Common Stock of the Corporation, the holders of the Series A Convertible
Preferred Stock shall be entitled to the amount of dividends per share as would
be payable on the largest number of whole shares of Common Stock into which each
share of Series A Convertible Preferred Stock could then be converted pursuant
to Section 5 hereof (such number to be determined as of the record date for the
determination of holders of Common Stock entitled to receive such dividend).
3. Liquidation Preference.
a. In the event of any liquidation, dissolution or
winding-up of the affairs of the Corporation, whether voluntary or involuntary
(collectively, a "Liquidation"), before any payment of cash or distribution of
other property shall be made to the holders of the Common Stock (the "Common
Stockholders") or any other class or series of stock subordinate in Liquidation
Preference to the Series A Convertible Preferred Stock, the Series A Convertible
Preferred Stockholders shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its stockholders, the Original
Purchase Price per share (as appropriately adjusted for any combinations or
divisions or similar recapitalizations affecting the Series A Convertible
Preferred Stock after issuance) plus any accrued and unpaid dividends thereon
(the "Series A Liquidation Preference"), out of funds legally available
therefor. As used herein, the "Original Purchase Price" is $1,000 per share.
b. If, upon any Liquidation, the assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the Series A Convertible Preferred Stockholders the full amounts to which
they shall be entitled, the Series A Convertible Preferred Stockholders shall
share ratably in any distribution of assets in proportion to the respective
amounts which would be payable to them in respect of the shares held by them if
all amounts payable to them in respect of such were paid in full pursuant to
Section 3(a).
c. After the distributions described in subsection
(a) above have been paid, subject to the rights of other series of Preferred
Stock which may from time to time come into existence, the remaining assets of
the Corporation available for distribution to stockholders shall be distributed
among the holders of Common Stock pro rata based on the number of shares of
Common Stock held by each.
(i) For purposes of this Section 3, a
liquidation, dissolution or winding up of the Corporation shall be
deemed to be occasioned by, or to include, (a) the acquisition of the
Corporation by another entity by means of any transaction or series of
related transactions (including, without limitation, any
reorganization, merger or consolidation but, excluding any merger
effected exclusively for the purpose of changing the domicile of the
Corporation); except, if (i) the Corporation's stockholders of record
as constituted immediately prior to such acquisition or sale will,
immediately after such acquisition (by virtue of securities issued as
consideration for the Corporation's acquisition) hold at least 50% of
the voting power of the surviving or acquiring entity or (ii) if a
majority in interest of the Series A Preferred Stock, voting as a
class, shall have
2
<PAGE>
approved such reorganization, merger or consolidation; or (b) a sale of
all or substantially all of the assets of the Corporation.
(ii) In any of such events, if the
consideration received by the Corporation is other than cash, its value
will be deemed its fair market value, which shall be valued as follows:
(A) If traded on a securities exchange or through
Nasdaq (as defined below), the average of the closing bid prices of the
securities on such exchange for the 20 consecutive trading days ending
with the day which is two trading days prior to the closing of such
transaction (the "Market Price");
(B) If actively traded over-the-counter, the average
of the closing bid or sale prices (whichever is applicable) over the 30
day period ending three days prior to the closing; and
(C) If there is no active public market, the fair
market value thereof, as mutually determined by the Corporation and the
holders of at least a majority of the voting power of all then
outstanding shares of Series A Convertible Preferred Stock.
d. The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (ii), (A), (B) or (C) to reflect the approximate
fair market value thereof, as mutually determined by the Corporation and the
holders of at least a majority of the voting power of all then outstanding
shares of such Preferred Stock.
(i) In the event the requirements of
this subsection 3(d) are not complied with, the Corporation shall
forthwith either:
(A) cause such closing to be postponed until such
time as the requirements of this Section 3 have been complied with; or
(B) cancel such transaction, in which event the
rights, preferences and privileges of the holders of the Series A
Convertible Preferred Stock shall revert to and be the same as such
rights, preferences and privileges existing immediately prior to the
date of the first notice referred to in subsection 3(d)(ii) below.
(ii) The Corporation shall give each
holder of record of Series A Convertible Preferred Stock written notice
of such impending transaction not later than 20 days prior to the
stockholders' meeting called to approve such transaction, or 20 days
prior to the closing of such transaction, whichever is earlier, and
shall also notify such holders in writing of the final approval of such
transaction. The first of such notices shall describe the material
terms and conditions of the impending transaction and the provisions of
this Section 3, and the Corporation shall thereafter give such holders
prompt notice of any
3
<PAGE>
material changes. The transaction shall in no event take place sooner
than 20 days after the Corporation has given the first notice provided
for herein or sooner than 10 days after the Corporation has given
notice of any material changes provided for herein; provided, however,
that such periods may be shortened upon the written consent of the
holders of Preferred Stock that are entitled to such notice rights or
similar notice rights and that represent at least a majority of the
voting power of all then outstanding shares of such Preferred Stock.
4. Conversion. The holders of the Series A Convertible
Preferred Stock shall have conversion rights as follows (the "Conversion
Rights"):
a. Each share of Series A Convertible Preferred Stock
shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of the Corporation or any transfer
agent for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the Series A Liquidation Preference by
the conversion price applicable to such share (the "Conversion Price"),
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion. The initial Conversion Price per share for shares of
Series A Convertible Preferred Stock shall be $1.20; provided, however, that the
Conversion Price for the Series A Convertible Preferred Stock shall be subject
to adjustment as set forth in subsection 4(c).
b. Before any holder of Series A Convertible
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for the
Series A Convertible Preferred Stock, and shall give written notice to the
Corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Corporation shall,
as soon as practicable thereafter, issue and deliver at such office to such
holder of Series A Convertible Preferred Stock, or to the nominee or nominees of
such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Series A Convertible Preferred Stock to
be converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with a Qualified Public Offering, the conversion
may, at the option of any holder tendering Series A Convertible Preferred Stock
for conversion, be conditioned upon the closing with the underwriters of the
sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock upon conversion of the Series A Convertible
Preferred Stock shall not be deemed to have converted such Series A Convertible
Preferred Stock until immediately prior to the closing of such sale of
securities.
c. The Conversion Price of the Series A Convertible
Preferred Stock shall be subject to adjustment from time to time as follows:
4
<PAGE>
(i) (A) If the Corporation shall issue,
after the Purchase Date, any Additional Stock (as defined below)
without consideration or for a consideration per share less than the
Market Price for such series in effect immediately prior to the
issuance of such Additional Stock, the Conversion Price for such series
in effect immediately prior to each such issuance shall forthwith
(except as otherwise provided in this clause (i)) be adjusted to a
price equal to a price determined by multiplying such Conversion Price
by a fraction, the numerator of which shall be the sum of (w) the
number of shares of Common Stock outstanding immediately prior to such
issuance (assuming the conversion of all then outstanding shares of
Series A Convertible Preferred Stock and including shares issued or
issuable pursuant to Section 4(c)(ii)) and (x) the number of shares of
Common Stock that the aggregate consideration received by the
Corporation for such issuance would purchase at such Conversion Price;
and the denominator of which shall be the sum of (y) the number of
shares of Common Stock outstanding immediately prior to such issuance
(assuming the conversion of all then outstanding shares of Series A
Convertible Preferred Stock and including shares issued or issuable
pursuant to Section 4(c)(ii)) and (z) the number of shares of such
Additional Stock.
(B) No adjustment of the Conversion
Price for the Series A Convertible Preferred Stock shall be made in an
amount less than one cent per share, provided that any adjustments
which are not required to be made by reason of this sentence shall be
carried forward and shall be either taken into account in any
subsequent adjustment made prior to three (3) years from the date of
the event giving rise to the adjustment being carried forward, or shall
be made at the end of three years from the date of the event giving
rise to the adjustment being carried forward. Except to the limited
extent provided for in subsections (E)(3) and (E)(4), no adjustment of
such Conversion Price pursuant to this subsection 4(c)(i) shall have
the effect of increasing the Conversion Price above the Conversion
Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of
Common Stock for cash, the consideration shall be deemed to be the
amount of cash paid therefor before deducting any reasonable discounts,
commissions or other expenses allowed, paid or incurred by the
Corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.
(D) In the case of the issuance of
the Common Stock for consideration in whole or in part other than cash,
the consideration other than cash shall be deemed to be the fair value
thereof as determined by the Board of Directors irrespective of any
accounting treatment.
(E) In the case of the grant
(whether before, on or after the applicable Purchase Date) of options
to purchase or rights to subscribe for Common Stock, securities by
their terms convertible into or exchangeable for Common Stock or
options to purchase or rights to subscribe for such convertible or
exchangeable securities that have an exercise, conversion or exchange
price, as applicable, less than the Market Price on their date of
issuance, the following provisions shall apply for all purposes of this
subsection 4(c)(i)
5
<PAGE>
and subsection 4(c)(ii):
(1) The aggregate maximum number of
shares of Common Stock deliverable upon exercise (to the
extent then exercisable) of such options to purchase or rights
to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for
a consideration equal to the consideration (determined in the
manner provided in subsections 4(c)(i)(C) and (c)(i)(D)), if
any, received by the Corporation upon the issuance of such
options or rights plus the minimum exercise price provided in
such options or rights for the Common Stock covered thereby.
(2) The aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in
exchange (to the extent then convertible or exchangeable) for
any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for
such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such options
or rights were issued and for a consideration equal to the
consideration, if any, received by the Corporation for any
such securities and related options or rights (excluding any
cash received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if any,
to be received by the Corporation upon the conversion or
exchange of such securities or the exercise of any related
options or rights (the consideration in each case to be
determined in the manner provided in subsections 4(c)(i)(C)
and (c)(i)(D)).
(3) In the event of any change in
the number of shares of Common Stock deliverable or in the
consideration payable to the Corporation upon exercise of such
options or rights or upon conversion of or in exchange for
such convertible or exchangeable securities, including, but
not limited to, a change resulting from the antidilution
provisions thereof, the Conversion Price of the Series A
Convertible Preferred Stock, to the extent in any way affected
by or computed using such options, rights or securities, shall
be recomputed to reflect such change, but no further
adjustment shall be made for the actual issuance of Common
Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of
such securities.
(4) Upon the expiration of any such
options or rights, the termination of any such rights to
convert or exchange or the expiration of any options or rights
related to such convertible or exchangeable securities, the
Conversion Price of the Series A Convertible Preferred Stock,
to the extent in any way affected by or computed using such
options, rights or securities or options or rights related to
such securities, shall be recomputed to reflect the issuance
of only the number of shares of Common Stock (and convertible
or exchangeable securities which remain in effect) actually
issued upon the exercise of such options or rights, upon the
conversion or exchange of such securities or upon the exercise
of the options or
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<PAGE>
rights related to such securities.
(5) The number of shares of Common
Stock deemed issued and the consideration deemed paid therefor
pursuant to subsections 4(c)(i)(E)(1) and (2) shall be
appropriately adjusted to reflect any change, termination or
expiration of the type described in either subsection
4(c)(i)(E)(3) or (4).
(ii) "Additional Stock" shall mean any
shares of Common Stock issued (or deemed to have been issued pursuant
to subsection 4(d)(i)(E)) by the Corporation after the Purchase Date to
Affiliates or directors, officers, employees or agents of such
Affiliates, other than shares of Common Stock issuable (A) to
employees, consultants or directors of the Corporation pursuant to a
stock option plan or restricted stock plan approved by the Board of
Directors of the Corporation, or (B) pursuant to warrants outstanding
as of September 1998, provided that the sum of such number of shares of
Common Stock issuable or issued pursuant to such stock option plan or
restricted stock plan shall in no event represent more than 2,250,000
shares of Common Stock. "Affiliates" shall mean, with respect to any
party, any entity that, directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control
with such party. For purposes of this definition, "control" means the
power to direct or cause the direction of the management and policies
of an entity, whether through the ownership of voting securities, by
contract or otherwise.
(iii) In the event the Corporation should at
any time or from time to time after the Purchase Date fix a record date
for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in
additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly
or indirectly, additional shares of Common Stock (hereinafter referred
to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common
Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record
date (or the date of such dividend distribution, split or subdivision
if no record date is fixed), the Conversion Price of the Series A
Convertible Preferred Stock shall be appropriately decreased so that
the number of shares of Common Stock issuable on conversion of each
share of such series shall be increased in proportion to such increase
of the aggregate of shares of Common Stock outstanding and those
issuable with respect to such Common Stock Equivalents with the number
of shares issuable with respect to Common Stock Equivalents determined
from time to time in the manner provided for deemed issuances in
subsection 4(c)(i)(E).
(iv) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following
the record date of such combination, the Conversion Price for the
Series A Convertible Preferred Stock shall be appropriately increased
so that the number of shares of Common Stock issuable on conversion of
each share of such series shall
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be decreased in proportion to such decrease in outstanding shares.
5. Redemption. The Series A Convertible Preferred Stock shall
be redeemable as follows:
a. From and after October 1, 2003, if at any time the
closing bid price for a share of Common Stock as reported on its principal
trading exchange shall be equal to or greater than $2.50 per share (subject to
anti-dilution adjustments as described in Section 4(d) above), for 20 out of 30
consecutive trading days, the Corporation shall be entitled to redeem the Series
A Convertible Preferred in cash for an amount equal to the Liquidation
Preference, in accordance with the following:
(i) not less than 30 days, but not more than
60 days prior to the date of any redemption (each, a "Redemption Date")
pursuant to this Section 5(a), the Corporation shall issue a written
notice (a "Redemption Notice") to each holder of Series A Convertible
Stock, which shall indicate, among other things, the Redemption Date,
the Liquidation Preference for which the Series A Convertible Preferred
may be redeemed, and instructions as to the surrender of certificates
representing shares of Series A Convertible Preferred Stock;
(ii) upon receipt of the Redemption Notice
by each holder of Series A Convertible Preferred Stock, such stock will
become due and payable on the Redemption Date unless earlier converted;
and
(iii) upon surrender of certificates
pursuant to the Redemption Notice, the Liquidation Preference shall be
paid in full in cash.
(iv) if the closing bid price for a share of
Common Stock shall be below $2.50 for 45 consecutive trading days, then
the Redemption Notice issued pursuant to clause (a)(i) above shall be
of no further force or effect, and the time period referred to in this
Section 5(a) shall begin again.
b. Notwithstanding anything contained herein to the
contrary, upon receipt of the Redemption Notice, each holder of Series A
Convertible Preferred Stock shall be entitled to exercise its Conversion Rights
until the Redemption Date.
c. Subject to the following sentence, the Series A
Convertible Preferred Stock shall be mandatorily redeemable by the Corporation
in cash for an amount equal to the Liquidation Preference, on September 30, 2005
(the "Mandatory Redemption Date"). If, not less than 15 days prior to the
Mandatory Redemption Date the Corporation shall determine, in its reasonable
discretion, that it has insufficient capital resources to make such redemptions
in cash (or that such redemptions in cash would deplete the Corporation's
working capital to a deficiency level), then upon 10 days written notice the
Series A Convertible Stock holders shall elect, voting as a class, to (i) extend
the Mandatory Redemption Date to a date reasonably acceptable to the
Corporation, or (ii) accept in redemption of the Series A Convertible Preferred
Stock a number of shares of Common Stock equal to the quotient obtained by
dividing the
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Liquidation Preference by the Market Price. In the event that the Series A
Convertible Preferred Stock holders shall elect the option contained in clause
(i) above, the Series A Convertible Preferred Stock shall continue until such
revised Maturity Date on the same terms and conditions and with the same
designations, rights and preferences as described herein.
6. Other Distributions. In the event the Corporation shall
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in subsection 4(d)(iii), then,
in each such case for the purpose of this Section 6, the holders of the Series A
Convertible Preferred Stock shall be entitled to a proportionate share of any
such distribution as though they were the holders of the number of shares of
Common Stock of the Corporation into which their shares of Series A Convertible
Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
7. Recapitalization. If at any time or from time to time there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
Section 3 or Section 4) provision shall be made so that the holders of the
Series A Convertible Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series A Convertible Preferred Stock the number of shares
of stock or other securities or property of the Corporation or otherwise, to
which a holder of Common Stock deliverable upon conversion would have been
entitled on such recapitalization. In any such case, appropriate adjustment
shall be made in the application of the provisions of Section 4 with respect to
the rights of the holders of the Series A Convertible Preferred Stock after the
recapitalization to the end that the provisions of Section 4 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of the Series A Convertible Preferred Stock) shall
be applicable after that event as nearly equivalent as may be practicable.
8. No Impairment. The Corporation will not, by amendment of
its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of Section 4 and in the taking of all such
action as may be necessary or appropriate in order to protect the Conversion
Rights of the holders of the Series A Convertible Preferred Stock against
impairment.
9. No Fractional Shares and Certificate as to Adjustments.
a. No fractional shares shall be issued upon
the conversion of any share or shares of the Series A Convertible Preferred
Stock, and the number of shares of Common Stock to be issued shall be rounded to
the nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Series A Convertible Preferred Stock the holder is at the time converting into
Common Stock and
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the number of shares of Common Stock issuable upon such aggregate conversion.
b. Upon the occurrence of each adjustment or
readjustment of the Conversion Price of Series A Convertible Preferred Stock
pursuant to Section 4, the Corporation, at its expense, shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and prepare
and furnish to each holder of Series A Convertible Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of Series A Convertible Preferred
Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (b) such adjustment and readjustment, (b) the Conversion Price for
such series of Preferred Stock at the time in effect, and (b) the number of
shares of Common Stock and the amount, if any, of other property which at the
time would be received upon the conversion of a share of Series A Convertible
Preferred Stock.
10. Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series A Convertible Preferred Stock, at least 20
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
11. Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Convertible Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Convertible
Preferred Stock; and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Convertible Preferred Stock, in addition to
such other remedies as shall be available to the holder of such Preferred Stock,
the Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to the Certificate of
Incorporation, as amended.
12. Notices. Any notice required by the provisions hereof to
be given to the holders of shares of Series A Convertible Preferred Stock shall
be deemed given on the date of service if served personally on the party to whom
notice is to be given or on the date of transmittal of services via telecopy to
the party to whom notice is to be given and addressed to each holder of record
at his address appearing on the books of the Corporation.
13. Voting Rights.
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a. The holder of each share of Preferred Stock shall
have the right to one vote for each share of Common Stock into which such share
of Preferred Stock could then be converted, and with respect to such vote, such
holder shall have full voting rights and powers equal to the voting rights and
powers of the holders of Common Stock, and shall be entitled, notwithstanding
any provision hereof, to notice of any stockholders' meeting in accordance with
the bylaws of the Corporation, and shall be entitled to vote, together with
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote, except as greater rights are provided by
law. Fractional votes shall not, however, be permitted and any fractional voting
rights available on an as-converted basis (after aggregating all shares into
which shares of Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number (with one-half being rounded upward).
b. In any vote by the holders of the Series A
Convertible Preferred Stock acting as a class, each holder of Series A
Convertible Preferred Stock shall be entitled to one vote for each share of
Series A Convertible Preferred Stock.
14. Protective Provisions. Subject to the rights of any series
of Preferred Stock which may from time to time come into existence, so long as
any shares of Series A Convertible Preferred Stock are outstanding, the
Corporation shall not without first obtaining the approval (by vote or written
consent, as provided by law) of the holders of at least a majority of the then
outstanding shares of Series A Convertible Preferred Stock, voting separately as
a class:
a. increase or decrease the authorized or outstanding
number of the shares of Series A Convertible Preferred Stock, respectively, so
as to affect adversely the shares;
b. authorize or issue any other equity security, or
security convertible into or exercisable for any equity security, having a
preference over, or being on a parity with, the Series A Convertible Preferred
Stock with respect to voting, dividends, liquidation or redemption,
respectively; or
c. authorize or issue any series of preferred stock
which shall be pari passu with or senior to the Series A Convertible Preferred
Stock.
15. Status of Converted or Redeemed Stock. In the event any
shares of Series A Convertible Preferred Stock shall be converted pursuant to
Section 4 hereof, the shares so converted shall be canceled and shall not be
reissuable by the Corporation. The Certificate of Incorporation, as amended, of
the Corporation shall be appropriately amended to effect the corresponding
reduction in the Corporation's authorized capital stock.
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IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Designations, Preferences and Rights to be duly executed by its
President and attested to by its Secretary this ___ day of September, 1998.
ELECTROPHARMACOLOGY, INC.
By: _____/s/ Arup Sen______________________
Arup Sen
Chairman, President and Chief Executive
Officer
ATTEST:
____/s/________________, Secretary
12
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. WITHOUT SUCH
REGISTRATION, NO TRANSFER OF THESE SHARES OR ANY INTEREST THEREIN MAY BE MADE
UNLESS THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE CORPORATION THAT SUCH TRANSFER DOES NOT REQUIRE SUCH
REGISTRATION.
ELECTROPHARMACOLOGY, INC.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
THIS CERTIFIES THAT, for value received, Elan International
Services, Ltd., a Bermuda corporation, or its permitted assigns (each, a
"Holder"), is entitled to subscribe for and purchase up to 1,000,000 shares (as
adjusted pursuant to Section 4 hereof, the "Shares") of the fully paid and
nonassessable common stock, par value $.01 (the "Common Stock"), of
Electropharmacology, Inc., a Delaware corporation (the "Company"), at the price
of $2.50 per share (such price, and such other prices as shall result from time
to time, from the adjustments specified in Section 4 below, the "Warrant
Price"), subject to the provisions and upon the terms and conditions hereinafter
set forth.
1. Term. Subject to the limitations set forth in Section 3 and
4 below, the purchase right represented by this Warrant is exercisable, in whole
or in part, at any time, and from time to time, from and after the date that is
210 days after the date hereof and until 5:00 p.m. Eastern Daylight Time
September 30, 2005. To the extent not exercised at 5:00 p.m. Eastern Daylight
Time on September 30, 2005, this Warrant shall completely and automatically
terminate and expire, and thereafter it shall be of no force or effect
whatsoever.
2. Method of Exercise; Payment; Issuance of New Warrant. (a)
The purchase right represented by this Warrant may be exercised by the Holder,
in whole or in part and from time to time, by the surrender of this Warrant
(with the notice of exercise form attached hereto as Annex A duly executed) at
the principal office of the Company and by the payment to the Company of an
amount, in cash or other immediately available funds, equal to the then
applicable Warrant Price per share multiplied by the number of Shares then being
purchased.
(b) The person or persons in whose name(s) any certificate(s)
representing shares of Common Stock shall be issuable upon exercise of this
Warrant shall be deemed to have
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become the holder(s) of record of, and shall be treated for all purposes as the
record holder(s) of, the Shares represented thereby (and such Shares shall be
deemed to have been issued) immediately prior to the close of business on the
date or dates upon which this Warrant is properly exercised and full payment for
the Shares acquired pursuant to such exercise is made. Upon any exercise of the
rights represented by this Warrant, certificates for the Shares purchased shall
be delivered to the holder hereof as soon as possible and in any event within 30
days of receipt of such notice and payment, and unless this Warrant has been
fully exercised or expired, a new Warrant representing the portion of Shares, if
any, with respect to which this Warrant shall not then have been exercised shall
also be issued to the holder hereof as soon as possible and in any event within
such 30-day period.
3. Stock Fully Paid, Reservation of Shares. All Shares that
may be issued upon the exercise of the rights represented by this Warrant will,
upon issuance, be duly authorized, fully paid and nonassessable, and will be
free from all taxes, liens and charges with respect to the issue thereof. During
the period within which the rights represented by this Warrant may be exercised,
the Company will at all times have authorized, and reserved for the purpose of
the issue upon the exercise of the purchase rights evidenced by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Warrant Price shall be subject to the adjustment from time to time upon the
occurrence of certain events, as follows:
(a) Reclassification, Etc. In case of any reclassification,
reorganization, change or conversion of securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value to
no par value) of other shares or securities of the Company, or (ii) any
consolidation of the Company with or into another corporation (other than a
merger or consolidation with another corporation in which the Company is the
acquiring and the surviving corporation and which does not result in any
reclassification or change of outstanding securities issuable upon exercise of
this Warrant), or (iii) any sale of all or substantially all of the assets of
the Company, then the Company, or such successor or purchasing corporation, as
the case may be, shall duly execute and deliver to the holder of this Warrant a
new Warrant or a supplement hereto (in form and substance reasonably
satisfactory to the holder of this Warrant), so that the holder of this Warrant
shall have the right to receive, at a total purchase price not to exceed that
payable upon the exercise of the unexercised portion of this Warrant, and in
lieu of the shares of Common Stock theretofore issuable upon the exercise of
this Warrant, the kind and amount of shares of stock and other securities,
receivable upon such reclassification, reorganization, change or conversion by a
holder of the number of shares of Common Stock then purchasable under this
Warrant. Such new Warrant shall provide for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
4. The provisions of this Section 4(a) shall similarly attach to successive
reclassifications, reorganizations, changes, and conversions.
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<PAGE>
(b) Subdivision or Combination of Shares. If the Company at
any time during which this Warrant remains outstanding and unexpired shall
subdivide or combine its Common Stock, (i) in the case of a subdivision, the
Warrant Price shall be proportionately decreased and the number of Shares
purchasable hereunder shall be proportionately increased, and (ii) in the case
of a combination, the Warrant Price shall be proportionately increased and the
number of Shares purchasable hereunder shall be proportionately decreased.
(c) Below Market Issuance; Stock Dividends; Etc. If the
Company at any time while this Warrant is outstanding and unexpired shall (i)
issue or sell any shares of Common Stock at a price below average of the closing
bid prices for the Common Stock, as reported by the principal exchange upon
which the Common Stock trades, for the 20 consecutive trading days ending with
the day which is two trading days prior to the date of issuance (the "Market
Price"), other than shares issued pursuant to the exercise of warrants
outstanding as of the date hereof, (ii) issue, sell or fix a record date for the
issuance of rights, options, warrants or other securities exercisable,
convertible or exchangeable into Common Stock (collectively, "Options"), at a
price per share (or exercise, conversion or exchange price per share) which is
below Market Price, (iii) pay a dividend with respect to Common Stock payable in
Common Stock or Options, (iv) issue any Options to officers, directors,
employees or consultants to the Company, other than up to 2,250,000 shares of
Common Stock pursuant to a duly authorized and constituted stock option plan,
having an exercise price (on a per-share basis) below the Market Price, or (v)
make any other distribution with respect to Common Stock (except any
distribution specifically provided for in Sections 4(a) and (b) above), the
price at which the holder of this Warrant shall be able to purchase Shares shall
be adjusted by multiplying the Warrant Price in effect immediately prior to such
date of determination of the holders of securities entitled to receive such
distribution, by a fraction (A) the numerator of which shall be the total number
of shares of Common Stock outstanding immediately prior to such dividend or
distribution, and (B) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such dividend or
distribution, as if all of such Options had been exercised and the Company
received the consideration payable in respect thereof. Upon each adjustment in
the Warrant Price pursuant to this Section 4(c), the number of Shares of Common
Stock purchasable hereunder shall be adjusted, to the nearest whole share, to
the product obtained by multiplying the number of Shares purchasable immediately
prior to such adjustment in the Warrant Price by a fraction, the numerator of
which shall be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately thereafter.
(d) Repurchases or Redemptions of Common Stock or Options. If
the Company at any time while this Warrant is outstanding and unexpired shall
repurchase or redeem any outstanding shares of Common Stock, or any Options, the
Warrant Price shall thereupon be adjusted by multiplying the Warrant Price in
effect immediately prior to such repurchase or redemption by a fraction (i) the
numerator of which shall be Warrant Price in effect immediately prior to such
repurchase or redemption and (ii) the denominator of which shall be the per
share fair market value of the consideration paid for each of the shares of
Common Stock and/or
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<PAGE>
Options at the time of purchase or redemption. Upon each adjustment in the
Warrant Price pursuant to this Section 4(d), the number of Shares of Common
Stock purchasable hereunder shall be adjusted, to the nearest whole share, to
the product obtained by multiplying the number of Shares purchasable immediately
prior to such adjustment in the Warrant Price by a fraction, the numerator of
which shall be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately thereafter. For
purposes of this section, "Market Price" shall mean the average of the closing
bid prices of the Common Stock for 10 consecutive trading days, ending with the
trading day which is two days prior to the date of the relevant Repurchase or
Redemption, as reported by the principal exchange or over the counter market
upon which the Common Stock is traded; or if not so reported, a price per share
determined in good faith by the Board of Directors of the Company as being equal
to the fair market value of a share of Common Stock.
(e) No Impairment. The Company will not, by amendment of its
charter or bylaws or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
impairment.
(f) Notice of Adjustments. Whenever the Warrant Price or the
number of Shares purchasable hereunder shall be adjusted pursuant to this
Section 4, the Company shall prepare a certificate setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the
method by which such adjustment was calculated. Such certificate shall be signed
by its chief financial officer and shall be delivered to the holder of this
Warrant.
(g) Fractional Shares. No fractional shares of Common Stock
will be issued in connection with any exercise hereunder, but in lieu of such
fractional shares the Company shall make a cash payment therefor based on the
fair market value of the Common Stock on the date of exercise as reasonably
determined in good faith by the Company's Board of Directors.
(h) Cumulative Adjustments. No adjustment in the Warrant Price
shall be required under this Section 4 until cumulative adjustments result in a
concomitant change of 1% or more of the Warrant Price or in the number of shares
of Common Stock purchasable upon exercise of this Warrant as in effect prior to
the last such adjustment; provided, however, that any adjustments which by
reason of this Section 4 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 4 shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
5. Compliance with Securities Act; Disposition of Warrant or
Shares of Common Stock. (a) The holder of this Warrant, by acceptance hereof,
agrees that this Warrant and the Shares to be issued upon exercise hereof are
being acquired for investment and that such holder
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<PAGE>
will not offer, sell or otherwise dispose of this Warrant or any Shares to be
issued upon exercise hereof except under circumstances which will not result in
a violation of applicable securities laws. Upon exercise of this Warrant, unless
the Shares being acquired are registered under the Securities Act of 1933, as
amended (the "Act"), or an exemption from the registration requirements of such
Act is available, the holder hereof shall confirm in writing, by executing an
instrument in form reasonably satisfactory to the Company, that the Shares so
purchased are being acquired for investment and not with a view toward
distribution or resale. This Warrant and all Shares issued upon exercise of this
Warrant (unless registered under the Act) shall be stamped or imprinted with a
legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. WITHOUT SUCH
REGISTRATION, NO TRANSFER OF THESE SHARES OR ANY INTEREST THEREIN MAY BE MADE
UNLESS THE CORPORATION HAS RECEIVED AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE CORPORATION THAT SUCH TRANSFER DOES NOT REQUIRE SUCH
REGISTRATION.
(b) (i) With respect to any offer, sale or other disposition
of this Warrant or any Shares acquired pursuant to the exercise of this Warrant
prior to registration of such Shares, the holder hereof and each subsequent
holder of this Warrant agrees to give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such holders counsel, if requested by the Company, to the effect that such
offer, sale or other disposition may be effected without registration or
qualification (under the Act as then in effect or any federal or state law then
in effect) of this Warrant or such Shares and indicating whether or not under
the Act certificates for this Warrant or such Shares to be sold or otherwise
disposed of require any restrictive legend as to applicable restrictions on
transferability in order to ensure compliance with the Act. Promptly upon
receiving such written notice and reasonably satisfactory opinion, if so
requested, the Company, as promptly as practicable, shall notify such holder
that such holder may sell or otherwise dispose of this Warrant or such Shares,
all in accordance with the terms of the notice delivered to the Company.
Notwithstanding the foregoing, this Warrant or such Shares may be offered, sold
or otherwise disposed of in accordance with Rule 144 as promulgated under the
Act ("Rule 144"), provided that the Company shall have been furnished with such
information as the Company may reasonably request to provide a reasonable
assurance that the provisions of Rule 144 have been satisfied. Each certificate
representing this Warrant or the Shares thus transferred (except a transfer
pursuant to Rule 144) shall bear a legend as to the applicable restrictions on
transferability in order to insure compliance with the Act, unless in the
aforesaid opinion of counsel for the holder such legend is not required in order
to insure compliance with the Act. The Company may issue stop transfer
instructions to its transfer agent in connection with such restrictions.
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(ii) The shares of Common Stock underlying this Warrant are
entitled to the benefit of certain registration rights as set forth in a
Registration Rights Agreement dated as of the date hereof between the Company
and the initial Holder named herein.
(c) Notwithstanding any other provision in this Warrant, the
Holder may transfer this Warrant in whole and only if the transferee is an
affiliate of the Holder.
6. Rights as Shareholders. No holder of this Warrant, as such,
shall be entitled to vote or receive dividends or be deemed the holder of Shares
or any other securities of the Company which may at any time be issuable on the
exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the holder of this Warrant, as such, any right to vote
for the election of directors or upon any matter submitted to shareholders at
any meeting thereof, or to receive notice of meetings, or to receive dividends
or subscription rights or otherwise until this Warrant shall have been exercised
and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein.
7. Representations and Warranties. The Company represents and
warrants to the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms;
(b) The Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable; and
(c) The execution and delivery of this Warrant are not, and
the issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Company's charter or bylaws, as
amended, and do not and will not constitute a default under, any indenture,
mortgage, contract or other instrument of which the Company is a party or by
which it is bound.
8. Miscellaneous. (a) This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by both the Company and the holder of this Warrant.
(b) Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall (i)
be in writing, (ii) be delivered personally or sent by mail or overnight courier
to the intended recipient to each such holder at its address as shown on the
books of the Company or to the Company at the address indicated therefor on the
signature page of this Warrant, unless the recipient has given notice of another
address, and (iii) be effective on receipt if delivered personally, two business
days after dispatch if mailed, and one
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business day after dispatch if sent by overnight courier service.
(c) The Company covenants to the holder hereof that upon
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant and, in the case of any such loss,
theft or destruction, upon receipt of a bond or indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company will make and deliver a
new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated
Warrant.
(d) The descriptive headings of the several sections and
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
(e) This Warrant shall be governed by and construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the laws of the State of New York, without giving effect to the choice of law
rules thereof.
[Signature page follows]
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IN WITNESS WHEREOF, Electropharmacology, Inc. has executed
this Warrant as of the date set forth below.
Electropharmacology, Inc.
By: /s/ Arup Sen
----------------------------
Arup Sen
Chairman, President and
Chief Executive Officer
Dated: September 30, 1998.
8
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Annex A
NOTICE OF EXERCISE
To: Electropharmacology, Inc.
1. The undersigned hereby elects to purchase _____ shares of Common Stock of
Electropharmacology, Inc. pursuant to the terms of the attached Warrant, and
tenders herewith full payment of the purchase price of such shares, in cash or
other immediately available funds.
2. Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name or names as are specified below:
_____________________________________(Name)
(Address)
3. The undersigned represents that the aforesaid shares are being acquired for
the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares.
Signature:__________________________
Name:_____________________________
Address:___________________________
___________________________
___________________________
Social Security or taxpayer identification number:
__________________________________
9
For Execution
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT is made as of September 30,
1998 by and between Electropharmacology, Inc., a Delaware corporation (the
Company"), and Elan International Services, Ltd., a Bermuda corporation
("EIS"). Capitalized terms used herein and not defined shall have the meanings
ascribed to them in the securities purchase agreement dated as of the date
hereof, by and between the parties hereto (the "Purchase Agreement").
R E C I T A L S:
A. Pursuant to the Purchase Agreement, the Company has issued to EIS
(x) shares of convertible preferred stock, par value $.01 per share (the
"Preferred Stock"), and (y) a warrant (the "Warrant"), to purchase up to
1,000,000 shares of common stock, par value $.01 per share (the "Common Stock")
of the Company, and (z) in the event that EIS shall undertake the Subsequent
Funding, the Company will issue to EIS, on the Subsequent Closing Date, a
certain number of shares of Common Stock (the "Subsequent Common Stock";
together with the Preferred Stock and the Warrant, the "Securities").
B. The Initial Closing under the Purchase Agreement has occurred on the
date hereof, it being a condition to such closing that the parties execute and
deliver this Agreement.
C. The parties desire to set forth herein their agreement related to
the granting of certain registration rights to the Holders (as defined below) of
the Securities issued pursuant to the Purchase Agreement, Common Stock issuable
upon conversion, repayment, exercise or exchange of any of the Securities, and
any other Common Stock hereinafter acquired by EIS or its Affiliates.
A G R E E M E N T:
The parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Affiliate" of any Person shall mean any other Person controlling,
controlled by or under common control with such particular Person. In the case
of a natural Person, his Affiliates include members of such Person's immediate
family, natural lineal descendants of such Person or a trust for the exclusive
benefit of such Person and his immediate family and natural lineal descendants.
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"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Holders", "holders" or "Holders of Registrable Securities" shall mean
EIS and any Person who shall have acquired Registrable Securities from EIS as
permitted herein, either individually or jointly as the case may be.
"Person" shall mean an individual, a partnership, a company, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental quasi-governmental entity or any department,
agency or political subdivision thereof.
"Registrable Securities" means (i) any Common Stock issued or issuable
upon conversion of or in connection with the Securities or otherwise acquired by
any Holders, and (ii) any Common Stock issued or issuable in respect of the
Securities upon any stock split, stock dividend, recapitalization or similar
event; excluding in all cases, however, any Registrable Securities sold by a
Person in a transaction (including a transaction pursuant to a registration
statement under this Agreement and transaction pursuant to Rule 144 promulgated
under the Securities Act) in which registration rights are not transferred
pursuant to Section 9 hereof.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, other than Selling
Expenses, incurred by the Company in complying with Sections 2 or 3 hereof,
including without limitation, all registration, qualification and filing fees,
exchange listing fees, printing expenses, escrow fees, fees and disbursements of
counsel for the Company, blue sky fees and expenses, the expense of any special
audits incident to or required by any such registration and the reasonable fees
and disbursements of one counsel for the Holders, such counsel to be selected by
Holders holding a majority of the Registrable Securities held by the Holders and
included in such registration.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and the costs of any accountants, counsel or other experts retained
by the Holders.
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
2. Demand Registrations. (a) Requests for Registration. Any Holder
which holds
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Registrable Securities representing at least 1,250,000 shares of Common
Stock (subject to the anti-dilution adjustments as described in Section 4
of the Warrant) has the right at any time from time to time, to request
registration under the Securities Act of all or part of their Registrable
Securities on Form S-1, S-2 or S-3 (if available) or any similar registration
(each, a "Demand Registration"). Each written request for a Demand Registration
(as defined below) shall specify the approximate number of Registrable
Securities requested to be registered. Within 10 days after receipt of any such
request, the Company will give written notice of such requested registration to
all other Holders of Registrable Securities and, if they request to be included
in such registration, the Company shall include such Holders' Registrable
Securities in such offering if they have responded affirmatively within 15 days
after the receipt of the Company's notice. The Holders in aggregate will be
entitled to request two Demand Registrations. A registration will not count as
one of the permitted Demand Registrations until it has become effective (unless
such Demand Registration has not become effective due solely to the fault of the
Holders requesting such registration, including a request by such Holders that
such registration be withdrawn). The Company will pay all Registration Expenses
in connection with any Demand Registration whether or not it has become
effective.
(b) Priority on Demand Registrations. If a Demand Registration
is an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering,
exceeds the number of Registrable Securities and other securities, if any, which
can be sold in such offering without adversely affecting the marketability of
the offering, the Company will include in such registration:
(i) first, the Registrable Securities requested to
be included in such registration by the Holders (or, if necessary, such
Registrable Securities prorata among the Holders thereof based upon the number
of Registrable Securities owned by each such Holder); and
(ii) thereafter, other securities requested to be
included in such registration.
(c) Restrictions on Demand Registrations. The Company may
postpone for up to three months in any 12 month period, the filing or the
effectiveness of a registration statement for a Demand Registration if the
Company determines in good faith that such Demand Registration would reasonably
be expected to have a material adverse effect on any proposal or plan by the
Company to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or similar
transaction; provided, that in such event, the Holders initially requesting such
Demand Registration will be entitled to withdraw such request and, if such
request is withdrawn, such Demand Registration will not count as one of the
permitted Demand Registrations hereunder and the Company will pay all
Registration Expenses in connection with such registration.
(d) Selection of Underwriters. The Holders will have the right
to select the investment banker(s) and manager(s) to administer an offering
pursuant to a Demand
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Registration, subject to the Company's approval, which will not be unreasonably
withheld or delayed.
3. Piggyback Registrations. (a) Right to Piggyback. The Company shall
include all Registrable Securities beneficially owned by the Holder in its
Registration Statement on Form S-1 (the "S-1") currently contemplated to be
filed with the U.S. Securities and Exchange Commission on or about October 15,
1998. To the extent the S-1 is not declared effective, or such effectiveness
shall lapse, whenever the Company proposes to register any of its securities
under the Securities Act (each, a "Piggyback Registration"), the Company will
give prompt written notice to all Holders of Registrable Securities of its
intention to effect such a registration and, subject to Section 3(b) and the
other terms of this Agreement, will include in such registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 15 days after the receipt of the Company's notice.
(b) Priority on Piggyback Registrations. If a Piggyback
Registration is an underwritten registration on behalf of the Company, and the
managing underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering without adversely affecting the
marketability of the offering, the Company will include in such registration:
(i) first, the securities the Company proposes to sell;
and
(ii) second, the Registrable Securities requested to be
included in such registration by the Holders and any securities requested to be
included in such registration by any other Person, pro rata among the Holders
of such Registrable Securities and such other Persons, on the basis of the
number of shares owned by each of such Holders.
(c) Right to Terminate Registration. If, at any time after
giving written notice of its intention to register any of its securities as set
forth in Section 3(a) and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to register such securities, the Company may, at
its election, give written notice of such determination to each Holder of
Registrable Securities and thereupon be relieved of its obligation to register
any Registrable Securities in connection with such registration (but not from
its obligation to pay the Registration Expenses in connection therewith as
provided herein).
(d) Selection of Underwriters. The Company will have the
right to select the investment banker(s) and manager(s) to administer an
offering pursuant to a Piggyback Registration.
4. Additional Rights. (a) Registration Requirement. To the extent that
shares of Common Stock have not been sold pursuant to a registration statement
effected in accordance with Sections 2 or 3 above, the Company shall cause to be
registered Common Stock:
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(i) issuable upon conversion of the Preferred Stock within 60
days of the date of conversion thereof;
(ii) issuable upon exercise of the Warrant within 60 days of
the initial exercise thereof; and
(iii) issuable as Subsequent Common Stock within 15 months of
the Subsequent Closing Date.
(b) Seniority. Except as provided in this Agreement, so long
as any Holder owns any Registrable Securities, the Company will not grant to any
Persons the right to request the Company to register any equity securities of
the Company, or any securities convertible or exchangeable into or exercisable
for such securities, which is superior to or in conflict with the rights granted
to the Holders hereunder, without the prior written consent of the Holders of at
least 50% of the Registrable Securities held by the Holders; it being understood
that the Company may grant rights to other Persons to (i) participate in
Piggyback Registrations so long as such rights are subordinate or pari passu to
the rights of the holders of Registrable Securities with respect to such
Piggyback Registrations and (ii) request registrations so long as the Holders of
Registrable Securities are entitled to participate in any such registrations
with such Persons pro rata on the basis of the number of shares owned by each
such Holder.
(c) Limitation. The Registration Rights described in Sections
2 and 3 above and this Section 4 shall be of no force and effect in the event
that all Registrable Securities issued pursuant to the Purchase Agreement,
including Registrable Securities issued upon exercise of the Warrants, are
registered; provided, that any Registration Statement covering the Registrable
Securities so registered, remains current and in effect, and upon such
Registration Statement's lapse of effectiveness, the Registration Rights
described herein shall have force and effect.
5. Expenses of Registration. Except as otherwise provided herein, all
Registration Expenses incurred in connection with all registrations pursuant to
Sections 2, 3 and 4 shall be borne by the Company. Unless otherwise stated, all
Selling Expenses relating to securities registered on behalf of the Holders of
Registrable Securities shall be borne by such holders.
6. Holdback Agreements. (a) The Company agrees (i) not to effect any
public sale or distribution of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to and during the 60-day period beginning on the effective date
of any underwritten Demand Registration or any underwritten Piggyback
Registration (except as part of such underwritten registration or pursuant to
registrations on Form S-8 or any successor form), unless the underwriters
managing the registered public offering otherwise agree, and (ii) to use
commercially reasonable efforts to cause each holder of at least 5% (on a
fully-diluted basis) of its Common Stock, or any securities convertible into or
exchangeable or exercisable for Common Stock, purchased from the Company at any
time after the date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or distribution (including
sales pursuant to Rule 144) of any
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such securities during such periods (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree.
(b) Each holder of Registrable Securities whose Registrable
Securities are eligible for inclusion in a Registration Statement filed pursuant
to Sections 2 or 4 hereof agrees, if requested by the managing underwriter or
underwriters in an underwritten offering of any Registrable Securities, not to
effect any public sale or distribution of Registrable Securities, including a
sale pursuant to Rule 144 (or any similar provision then effect) under the
Securities Act (except as part of such underwritten registration), during the
seven-day period prior to, and during the 90-day period or such shorter period
as may be agreed to by the parties hereto) following the effective date of such
Registration Statement to the extent timely notified in writing by the Company
or the managing underwriter or underwriters.
6. Registration Procedures. Whenever the Holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company will use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of distribution thereof, and pursuant thereto the Company will
as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement on any form for which the Company qualifies with respect to such
Registrable Securities and use commercially reasonable efforts to cause such
registration statement to become effective (provided, that before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company will (i) furnish to the counsel selected by the Holders copies of
all such documents proposed to be filed, which documents will be subject to the
reasonable review of such counsel, and (ii) notify each holder of Registrable
Securities covered by such registration of any stop order issued or threatened
by the Commission);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than nine months and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(c) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(d) use commercially reasonable efforts to register or qualify
such Registrable Securities under such other securities or blue sky laws of such
jurisdiction as any seller reasonably requests and do any and all other acts and
things which may be reasonably necessary
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or advisable to enable such seller to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such seller (provided that
the Company will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 6(d), (ii) subject itself to taxation in any jurisdiction or (iii)
consent to general service of process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement of amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on the NASD automated quotation
system and, if listed on the NASD automated quotation system, use commercially
reasonable efforts to secure designation of all such Registrable Securities
covered by such registration statement as a NASDAQ National Market System
security within the meaning of Rule 11Aa2-1 of the Commission or, failing that,
to secure NASDAQ authorization for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register as such with respect to such Registrable Securities with the
NASD;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities;
(i) make available for inspection by a representative of the
Holders of Registrable Securities included in the registration statement, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter all pertinent financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonable requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its commercially reasonable efforts to
comply with all applicable rules and regulations of the Commission, and make
available to its security holders, as
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<PAGE>
soon as reasonably practicable, an earnings statement covering the period of at
least 12 months beginning with the first day of the Company's first full
calendar quarter after t he effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.
(k) in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any common stock included in such registration statement for sale in any
jurisdiction, the Company will use its commercially reasonable efforts promptly
to obtain the withdrawal of such order;
(l) in the event that an offering is underwritten, use
commercially reasonable efforts to obtain a so-called "cold comfort" letter from
the Company's independent public accountants in customary form and covering such
matters of the type customarily covered by cold comfort letters; and
(m) undertake such other actions and do all other things which
the Holders shall reasonably request and which shall be customary at the time
for such registrations.
7. Indemnification. (a) The Company agrees to indemnify, to the fullest
extent permitted by applicable law, each Holder of Registrable Securities, its
officers and directors and each Person who controls such Holder (within the
meaning of the Securities Act) against all losses, claims, damages, liabilities,
expenses or any amounts paid in settlement of any litigation, investigation or
proceeding commenced or threatened (collectively, "Claims") to which each such
indemnified party may become subject under the Securities Act insofar as such
Claim arose in connection with any registration effected pursuant to this
Agreement, and out of (i) any untrue or alleged untrue statement of material
fact contained, on the effective date thereof, in any registration statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto, (ii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any violations by the
Company of any federal, state or common law rule or regulation applicable to the
Company and relating to action required of or inaction by the Company in
connection with any such registration, except insofar as the same are caused by
or contained in any information furnished in writing to the Company by such
Holder expressly for use therein or by such Holder's failure to deliver a copy
of the registration statement or prospectus or any amendments or supplements
thereto after the Company has furnished such Holder with a sufficient number of
copies of the same. In connection with an underwritten offering, the Company
will indemnify such underwriters, their officers and directors and each Person
who controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the holders
of Registrable Securities.
(b) In connection with any registration statements in which a
Holder of Registrable Securities is participating, each such Holder will furnish
to the Company in writing such customary information and affidavits as the
Company reasonably requests for use in
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<PAGE>
connection with any such registration statement or prospectus (the
"Seller's Information") and, to the fullest extent permitted
by applicable law, will indemnify the Company, its directors and
officers and each Person who controls the Company (within the meaning of the
Securities Act) against any and all Claims to which each such indemnified party
may become subject under the Securities Act insofar as such Claim arose in
connection with such Registration Statement or prospectus, and out of (i) any
untrue or alleged untrue statement of material fact contained, on the effective
date thereof, in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto, (ii) any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading or (iii) any
violations by such Person of any federal, state or common law rule or regulation
applicable to such Person and relating to action required of or inaction by such
Person in connection with any such registration; provided that with respect to a
Claim arising pursuant to clause (i) or (ii) above, the material misstatement or
omission is contained in such Seller's Information; provided, further, that the
obligation to indemnify will be individual to each Holder and will be limited to
the net amount of proceeds received by such Holder from the sale of Registrable
Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification (but the failure to provide such notice shall
not release the indemnifying party of its obligation under paragraphs (a) and
(b), unless and then only to the extent that, the indemnifying party has been
prejudiced by such failure to provide such notice) and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. An indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for
all parties indemnified by such indemnifying party with respect
to such claim, unless in the reasonable judgment of any indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such claim.
(d) The indemnifying party shall not be liable to indemnify an
indemnified party for any settlement, or consent to judgment of any such action
effected without the indemnifying party's consent (but such consent will not be
unreasonably withheld). Furthermore, the indemnifying party shall not, except
with the approval of each indemnified party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to each indemnified party of a
release from all liability in respect to such claim or litigation without any
payment or consideration provided by each such indemnified party.
(e) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under clauses (a) and (b) above in respect
of any losses, claims, damages or liabilities referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a
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<PAGE>
result of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect not only the relative benefits received by the Company,
the underwriters, the sellers of Registrable Securities and any other sellers
participating in the registration statement from the sale of shares pursuant to
the registered offering of securities to which indemnity is sought but also the
relative fault of the Company, the underwriters the sellers of Registrable
Securities and any other sellers participating in the registration statement in
connection with the statement or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company, the underwriters,
the sellers of Registrable Securities and any other sellers participating in the
registration statement shall be deemed to be based on the relative relationship
of the total net proceeds from the offering (before deducting expenses) to the
Company, the total underwriting commissions and fees from the offering (before
deducting expenses) to the underwriters and the total net proceeds from the
offering (before deducting expenses) to the sellers of Registrable Securities
and any other sellers participating in the registration statement. The relative
fault of the Company, the underwriters, the sellers of Registrable Securities
and any other sellers participating in the registration statement shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(f) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling person
of such indemnified party and will survive the transfer of securities.
8. Participation in Underwritten Registrations. No Person may
participate in any registration hereunder which is underwritten unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Person or Persons entitled hereunder
to approve such arrangements, (b) as expeditiously as possible notifies the
Company of the occurrence of any event as a result of which such prospectus
contains an untrue statement of material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (c) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
9. Transfer of Registration Rights. The rights granted to any Person
under this Agreement may be assigned to a transferee or assignee in connection
with any transfer or assignment of Registrable Securities by a Holder; provided,
that: (a) such transfer may otherwise be effected in accordance with applicable
securities laws, (b) if not already a party hereto, the assignee or transferee
agrees in writing prior to such transfer to be bound by the provisions of this
Agreement applicable to the transferor, (c) such transferee shall own
Registrable Securities representing at least 1,250,000 shares of Common Stock
(subject to the anti-dilution adjustments as described in Section 4 of the
Warrant), and (d) EIS shall act as agent and representative for such Holder for
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the giving and receiving of notices hereunder.
10. Information by Holder. Each Holder shall furnish the Company such
written information regarding such Holder and any distribution proposed by such
Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration qualification or
compliance referred to in this Agreement.
11. Exchange Act Compliance. The Company shall comply with all of the
reporting requirements of the 1934 Act applicable to it and shall comply with
all other public information reporting requirements of the Commission which are
conditions to the availability of Rule 144 for the sale of the Registrable
Securities. The Company shall cooperate with each Purchaser in supplying such
information as may be necessary for such Purchaser to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of Rule 144.
12. Limitation on Registration. The Company shall not be obligated to
effect a registration of any Holder's Registrable Securities pursuant to
Sections 2 or 3 hereof (a) if all of the Registrable Securities have been sold
under Rule 144, Regulation S or similar provision under the Securities Act so
that there is no further restriction on the transfer by the transferee, or (b)
in accordance with Section 4(c) hereof.
13. Miscellaneous. (a) No Inconsistent Agreements. The Company will
not hereafter enter into any agreement with respect to its securities which is
inconsistent with or violates the rights granted to the Holders of Registrable
Securities in this Agreement.
(b) Remedies. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction (without posting
any bond or other security) for specific performance and for other injunctive
relief in order to enforce or prevent violation of the provisions of this
Agreement.
(c) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived only upon the
prior written consent of the Company and Holders of at least 50% of the
Registrable Securities; provided, that without the prior written consent of all
the Holders, no such amendment or waiver shall reduce the foregoing percentage.
(d) Successors and Assigns. All covenants and agreements in
this Agreement by or on behalf of any of the parties hereto will bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of
Holders of Registrable Securities are also for the benefit of, and enforceable
by, any
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subsequent holder of Registrable Securities.
(e) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(f) Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
will constitute one and the same Agreement.
(g) Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
(h) Governing Law. All questions concerning the construction,
validity and interpretation of this Agreement and the exhibits and schedules
hereto will be governed by the internal law, and not the law of conflicts, of
New York.
(i) Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient or by facsimile, one day after being
sent to the recipient by reputable overnight courier service
(charges prepaid) or three days after being mailed to the recipient
by certified or registered mail, return receipt requested and postage
prepaid. Such notices, demands and other communications will be sent to the
parties hereto at the addresses indicated on the signature page hereto and to
the Company at the address indicated below:
Electropharmacology, Inc.
1109 N.W. 13th Street
Gainesville, Florida
Attention: President
(j) Termination. This Agreement shall terminate on the date as
of which each Holder has sold all remaining Registrable Securities in a
transaction or transactions of the type described in Section 12 hereof.
[Signature page follows]
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IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
Electropharmacology, Inc.
By:____/s/ Arup Sen_______________
Name: Arup Sen
Title: President, Chairman & CEO
Elan International Services, Ltd.
By:___/s/ Kevin Insley______________
Name: Kevin Insley
Title: President & CFO
102 St. James Court
Flatts, Smiths Parish
Bermuda, FL04
Attention: Director
Facsimile: (441) 292-2224
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as of August
18, 1998, by and between Electropharmacology, Inc. (the "Company"), a Delaware
corporation, and Krishna Jayaraman ("Executive").
WHEREAS, the Company desires to retain Executive in its employ as the
President and Chief Executive Officer of the Gemini Biotech Division of the
Company for the period provided in this Agreement, and Executive has agreed to
employment with the Company in accordance with the contractual terms and
conditions set forth below;
WHEREAS, the Company and Executive have discussed and Executive has
agreed that this Agreement supersedes any and all agreements, oral and written,
between the parties hereto with respect to the subject hereof; and
WHEREAS, this Agreement is intended to, and shall, set forth the
definitive agreement of the parties.
NOW, THEREFORE, for and in consideration of the recitals and premises,
and the promises, covenants and agreements contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Employment. The Company hereby employs Executive, and the Executive hereby
accepts such employment with the Company, for the term of employment set forth
in Section 2 hereof, all upon the terms and conditions hereafter set forth.
2. Term. Employment shall be for a term commencing on the date hereof and
subject to prior termination as provided under Sections 8, 9, 10, 12, or 13
hereof expiring on the third annual anniversary of this date (the "Term").
However, the Term shall automatically be renewed and extended for one additional
year upon the third and subsequent annual anniversaries of this date, upon the
terms and conditions set forth herein, unless prior to any such anniversary
date, either party to this Agreement gives the other party written notice
(delivered in accordance with Section 21 hereof and at least 90 days prior to
the expiration of the previous term) of such party's intention not to further
extend the Term. For purposes of this Agreement, any reference to the "Term"
shall include the original term and any renewal and extension thereof.
3. Duties of Executive. Executive shall serve as the President and Chief
Executive Officer of the Gemini Biotech Division of the Company. Executive shall
perform such executive duties as a President and Chief Executive Officer of a
Division of the Company would normally perform or as otherwise specified in
applicable provisions of the By-Laws of the Company in effect on the date of
this Agreement, and shall perform, in addition thereto, such other reasonable
duties as the Board of
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Directors (the "Board") may reasonably request. Except as may otherwise be
approved in advance by the Board and except during vacation periods of absence
due to sickness, personal injury or other disability, Executive shall devote
substantially all of his normal working time and his best efforts to the
performance of his duties hereunder. Notwithstanding the foregoing, nothing
contained herein shall preclude Executive from (i) serving on the boards of
directors of other companies or organizations with the approval of the Board
(not to be unreasonably withheld) or (ii) pursuing his personal, financial and
legal affairs provided that such activity does not materially interfere with the
performance of Executive's obligations hereunder. It is agreed and understood
that Executive shall have full control of and authority over the day to day
operations of the Gemini Biotech Division of the Company.
4. Compensation.
(a) For the period commencing on the date of this Agreement and ending
on December 31, 1998, Executive's base salary shall be $120,000 on
an annualized basis. The Executive's base salary shall be reviewed
at least once per calendar year by the Board to determine whether
an increase in Executive's base salary is warranted, and if so,
the amount of the increase, provided that in no calendar year
shall Executive's base salary, on an annualized basis, be less
than one hundred and three percent (103%) of the Executive's base
salary, on an annualized basis, for the prior calendar year.
It is further agreed that Executive's base salary, in an annualized
basis, shall be raised to $150,000 upon the earlier of (a) the
consummation of one or more equity financings by the Company that
aggregate at least $2,000,000, or (b) twelve consecutive months of
monthly revenues of the Gemini Biotech Division of the Company which in
the aggregate exceed $1,000,000. Monthly revenues shall mean monthly
gross revenues from persons and entities not affiliates of the Company
as determined under generally accepted accounting principles.
It is further agreed that the Executive's base salary, on an annualized
basis shall be raised to $200,000 upon the earlier of (a) the
consummation of one or more equity financings (in addition to the above
financings) by the Company that aggregate at least $4,000,000, or (b)
twelve consecutive months of monthly revenues of the Gemini Biotech
Division of the Company which in the aggregate exceed $3,000,000.
Such base salary shall be payable at the times and in the manner
consistent with the Company's general policies regarding compensation
of executive employees, but in no event less frequently than
bi-monthly.
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(b) In addition to the base salary provided by Section 4(a) above,
Executive shall be eligible annually to receive any incentive
bonus whether in cash or property, (the "Bonus"), that the Board
may grant to him based on the Company's executive compensation
plan then in effect, based on the Board's assessment of
Executive's individual performance, which decision shall be made
by the Board in its sole discretion. Any such Bonus shall be
payable on the next date on which Executive is entitled to receive
a payment of his base salary. The Board may from time to time
authorize such additional compensation to Executive, in cash,
property, options or warrants as the Board may determine in its
sole discretion to be appropriate.
(c) The Company shall grant to Executive, pursuant to the
Company's Stock Option Plan, a stock option to purchase 250,000
shares of the Company's common stock at a price equal to the last
reported sales price of the Company's common stock for the date
hereof as reported in the OTC Bulletin Board. Such stock option
shall be immediately exercisable with respect to 20% of the shares
covered thereby and such stock option shall be exercisable with
respect to an additional 25% of the shares covered thereby on each
of the first and the second anniversary dates of this Agreement ,
and an additional 30% of such shares shall be exercisable on the
third anniversary of the date of this Agreement. Notwithstanding
the foregoing, in the event Executive's employment hereunder is
terminated by the Company other than for Cause (as defined herein)
or by Executive by Permitted Resignation (as defined herein) prior
to the end of the Term, such stock option shall immediately vest
and become exercisable in accordance with Section 11(c) hereof. If
Executive is terminated for Cause, all stock options, whether or
not vested, shall immediately terminate without any payment made
therefor. If Executive resigns (other than by Permitted
Resignation), all unvested stock options whether or not vested,
shall immediately terminate without any payment made therefor.
Upon Executive's death or Disability (as defined herein), all
unvested stock options that are to vest on the next anniversary
date of this Agreement shall immediately vest and become
exercisable and all other unvested stock options shall immediately
terminate without any payment made therefor. The Agreement
evidencing such stock option shall be substantially in the form
attached hereto as Exhibit A.
5. Executive Benefits.
(a) In addition to the compensation described, in Section 4, the
Company shall make available to Executive and his eligible
dependents such benefits as are comparable to those provided to
other executive employees of the Company, including without
limitation, any group hospitalization, health, dental care or sick
leave plan, life or other insurance or death benefit plan, travel
or accident insurance, retirement income or pension plan, employee
stock option plan or other present or future group employee
benefit plan or program of the Company for which key executives
are or shall become
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eligible, and Executive shall be eligible to receive during the
Term all benefits for which executives are eligible under every
such plan or program to the extent permissible under the general
terms and provisions of such plans and programs and in accordance
with the provisions thereof. Executive shall be eligible to
participate in any Company incentive plan or program, including an
employee stock option plan, deferred compensation, or other
management incentive program under the terms and conditions
applicable to other executive and management employees and in a
manner commensurate with Executive's position and level of
responsibility with the Company as compared to the position and
level of responsibility of other executive employees of the
company as determined by the Board in its sole discretion,
provided that, except to the extent specifically set forth in
Sections 11, 12, and 13, the Executive shall not be permitted to
participate in termination pay programs.
(b) In addition to any life insurance coverage made available to
Executive under Section 5(a) hereof, the Company shall provide, at
its sole cost and expense, term life insurance contract on
Executive's life as dictated by the Benefit Life Insurance Company
Loan requirements.
(c) The Company shall pay to Executive an automobile allowance in the
amount of $500 per month during the Term.
(d) The Executive will accrue vacation time at a rate which results in
20 days (160 hours) of paid vacation time per year. The Executive
may carry over from year to year up to 10 days (80 hours) of
unused vacation time. Notwithstanding anything herein to the
contrary, the Executive may not take more than two (2) weeks'
vacation during any twelve (12) week period without the prior
written permission of the Board, which shall not be unreasonably
withheld.
6. Expenses. The Company shall also pay or reimburse Executive for all
reasonable and necessary expenses incurred by Executive in connection with his
duties on behalf of the Company in accordance with the general policies of the
Company and his employment by the Company pursuant to this Agreement.
7. Place of Performance. Unless otherwise agreed by Executive, Executive shall
be based at the principal executive offices of the Gemini Biotech Division of
the Company which shall be located in Harris County, Texas, or in adjacent
counties, provided that the Executive shall be required to travel as reasonably
required for Company business.
8. Termination. The Company may terminate Executive's employment hereunder at
any time with or without Cause. For purposes of this Agreement, Cause shall
mean.
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(a) Executive's conviction by, or entry of a plea of guilty or nolo
centendere in a court of competent and final jurisdiction for any
crime involving moral turpitude or punishable by imprisonment in
the jurisdiction (provided that if Executive's conviction is
subsequently overturned, and the Company has terminated Executive
pursuant to this Section 8(a), such termination shall be deemed to
be without Cause and Executive shall be entitled to receive the
payments and benefits set forth in Section 11, together with
interest at the prime rate in effect from time to time as reported
in the Wall Street Journal, from the date such payments would have
been due to Executive had such termination been without Cause
until the date such payments are made to Executive);
(b) Executive's breach of any of the covenants contained in
Exhibit B referred to in Section 25 of this Agreement;
(c) Executive's commission of an act of fraud whether prior to or
subsequent to the date hereof, upon Employer;
(d) Executive's continuing repeated willful failure or refusal to
perform his duties as required by this Agreement, provided that
termination of Executive's employment pursuant to this
subparagraph (d) shall not constitute valid termination for cause
unless Executive shall have first received written notice from the
Board stating with specificity the nature of such failure or
refusal and affording Executive at least fifteen (15) days to
correct the act or omission complained of;
(e) Gross negligence, insubordination or material violation by
Executive of any duty of loyalty to the Company or any other
material misconduct on the part of Executive, provided that
termination of Executive's employment pursuant to this
subparagraph (e) shall not constitute valid termination for cause
unless Executive shall have first received written notice from the
Board stating with specificity the nature of such failure or
refusal and affording Executive at least fifteen (15) days to
correct the act or omission complained of;
(f) A material breach of this Agreement by Executive provided that
if such breach is curable, the Executive has been given written
notice of such alleged breach, and not less than thirty (30) days
to cure such alleged breach or such longer period as may be
reasonably necessary to cure such breach provided that Executive
is diligently pursuing such cure.
9. Resignation.
(a) In the event that the Company shall during the Term (i) fail
to continue Executive as President and Chief Executive Officer of
the Gemini Biotech
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Division of the Company, (ii) reduce Executive's base salary below
the minimum amount specified in Section 4(a) without Executive's
prior written consent, (iii) breach any material term of this
Agreement, which breach, if curable, is not cured within thirty
(30) days after the Company receives notice of such alleged breach
or such longer period as may be reasonably necessary to cure such
breach as long as the Company is diligently pursuing such cure, or
(iv) Relocate (as defined herein) the Executive, without the
Executive's prior consent, within one year after the closing of
and due to a Change of Control event (as defined herein) not
proposed or recommended by the Executive, then the Executive, at
his sole option, may give notice to the Company of his election to
resign and terminate this Agreement ("Permitted Resignation")
effective immediately upon receipt of such notice (delivered in
accordance with Section 21 hereof), or effective upon such other
date (not later than ten(10) days following such notice) that the
Executive may designate in such notice, provided that if the
Executive does not give such notice within ten (10) days after the
occurrence of the event giving rise to such right to
terminate(which ten (10) day period, in the case of (iii), shall
not commence until the termination of any applicable cure period),
the Executive shall be deemed to have irrevocably waived such
right to cause a Permitted Resignation.
(b) For Purposes of Section 9(a), the term "Relocate" shall mean a
move of more 30 miles from the then place of performance of
Executive, as set forth in Section 7 and a "Change of Control"
shall mean the occurrence during the term of this Agreement of any
of the following events:
(i) The Company is merged, consolidated or reorganized into or
with another corporation or other legal person, and as a
result of such merger, consolidation or reorganization less
than fifty percent (50%) of the combined voting power of the
then outstanding securities entitled to vote generally in the
election of directors ("Voting Stock") of such corporation or
person immediately after such transaction are held in the
aggregate by the holders of Voting Stock of the Company
immediately prior to such transaction; or
(ii)The Company sells or otherwise transfers all or
substantially all of its assets to another corporation or
other legal person, and as a result of such sale or transfer
less than fifty percent (50%) of the combined voting power of
the then outstanding Voting Stock of such corporation or
person immediately prior to such sale or transfer; or
(iii) If, during any period of two consecutive years, (1)
individuals who at the beginning of any such period constitute
the directors of the Company and (2) such other persons as are
nominated or elected by a vote of the directors of the
Company, collectively, cease for any reason (other than
voluntary resignation, death or removal by the stockholders
for incompetence) to constitute at least a majority of the
directors of the Company; provided, however, that for purposes
of this clause 9(b)(iii) each director who is first
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elected, or first nominated by a vote of the Board (or a
committee thereof) then still in office who were directors of
the Company at the beginning of any such period will be deemed
to have been a director of the Company at the beginning of
such period.
10. Death. The term of this Agreement shall terminate on the death of Executive.
11. Termination Payments and Benefits. If Executive's employment hereunder is
terminated by the Executive by Permitted Resignation or by the Company other
than for Cause, prior to the end of the term of this Agreement, then the Company
shall be obligated to pay to Executive certain termination payments and make
available certain benefits as follows:
(a) Termination Payment. The Company shall pay to the Executive a lump sum
in cash, payable within ten (10) business days after the effective date
of such termination, (1) equal to 85% of an amount equal to the
remaining portion of the base annual salary to which Executive would
have been entitled hereunder during the unexpired portion of the Term,
excluding any renewals.
(b) Special Change in Control Termination Payments. Notwithstanding 11(a),
if there is a Permitted Resignation following a Relocation due to a
Change in Control as provided in Section 9(a)(iv), the payment to the
Executive under Section 11(a) shall be limited to the Executive's base
salary pursuant to Section 4(a) plus the Executive's average annual
bonus granted pursuant to Section 4(b) hereof during the two-year
period (or such shorter period during which the Executive is employed
by the Company) immediately preceding the Executive's termination.
(c) Stock Options. Notwithstanding any provision to the contrary in any
option agreement or other agreement or in any plan (1) all of
Executive's outstanding stock options shall immediately vest and become
exercisable and Executive shall have the full term of the option to
exercise any of the Executive's stock option, and (ii) all restrictions
on any other equity awards relating to continued performance of
services shall lapse.
(d) Benefits. Subject to Section 15, following the termination of
Executive's employment, the Company shall use its reasonable best
efforts to maintain in full force and effect for the continued benefit
of the Executive all group hospitalization, health and dental care
plans and life insurance plans in which Executive was entitled to
participate immediately prior to Executive's termination or shall
arrange to make available to Executive benefits substantially similar
to those which Executive would otherwise have been entitled to receive
if his employment had not been terminated until the earliest to occur
of the following: (i) one year after the Executive's date of
termination; (ii) the end of the Term; or (iii) Executive is
reemployed. Such
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benefits shall be provided to the Executive on the same terms and
conditions (including, without limitation, employee contributions
toward the premium payments) under which Executive was entitled to
participate immediately prior to his termination. and the Company shall
not be required to make any additional insurance premium payments
pursuant to Section 5(b). Notwithstanding the foregoing, with respect
to Executive's continued coverage under the Company's medical and
dental plan, or a successor plan, pursuant to this provision,
Executive's "qualifying event" for purposes of the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA") shall be his date of
termination from the company.
12. Other Termination. If the Company terminates this Agreement for Cause or if
Executive terminates this Agreement for any reason other than by Permitted
Resignation or if Executive dies or in the event of Executive's Disability, then
the Company and Executive shall have no further obligation hereunder except as
follows or except as specifically provided in any available plan, program or
agreement. The Company shall pay Executive his then current minimum base salary
through the effective date of such termination. If Executive terminated this
Agreement other than by Permitted Resignation, he shall receive such benefits,
if any, as are afforded by the Company under its then existing policies
applicable to employees who voluntarily terminate their employment; and
Executive shall have the rights set forth in Section 13 hereof in the event of
termination of this Agreement upon his Disability.
13. Disability. During the term of this Agreement, the Company shall have an
obligation to reasonably accommodate Executive, if Executive becomes disabled.
If despite such reasonable accommodation, Executive is unable to perform the
essential functions of this job, Executive's duties and obligations hereunder
shall cease and the Company shall pay to Executive in cash, for each calendar
year until Executive reaches the age of 65 and at times at which Executive would
have received payment of his base salary, an amount equal to 60% of the
Executive's highest annual base salary pursuant to Section 4(a) then in effect
for the period prior to Executive's Disability. For this purpose, the Company
shall maintain in full force and effect during the term of this Agreement an
insurance policy with an insurance company that shall provide for the payment of
such amounts to Executive upon his Disability. "Disability" shall be defined as
in the insurance policy referenced in Section 13(a) hereof. For the period
during which Executive is entitled to receive payments under this Section 13,
the Company shall use its reasonable best efforts to maintain in full force and
effect for the continued benefit of Executive all employee welfare benefit
plans, as provided for under the insurance policy limits, except for life
insurance provided for under Section 5(b); and except for the automobile
allowance set forth in Section 5(c). Such welfare benefits shall be provided to
Executive on the same terms and conditions (including employee contributions
toward the premium payments) under which Executive was entitled to participate
immediately prior to this Disability. The Company shall have no monetary
obligation under this Section 13 if the Executive is not insurable under an
insurance
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policy with a reasonably priced premium, as determined by the Company in its
sole and absolute discretion.
14. No Other Termination Compensation. Except as specifically provided in
Sections 11, 12 and 13 hereof, upon termination of this Agreement for any
reason, Executive shall not be entitled to any severance pay or to any other
compensation or payments (by way of salary, damages or otherwise) of any nature
relating to this Agreement or otherwise relating to or arising out of his
employment by the Company.
15. Arbitration. Any dispute between the parties under this Agreement shall be
submitted to binding arbitration in Harris County, Texas and such arbitration
shall be conducted in accordance with the commercial arbitration rules of the
American Arbitration Association. The determination of the arbitrators shall be
conclusive and binding upon the parties and judgment upon the same may be
entered in any court having jurisdiction thereof. The expenses of arbitration,
including reasonable attorneys' fees, shall be borne by the losing party or as
the arbitrators shall otherwise equitably determine.
16. Indemnification. To the maximum extent permitted under the corporate laws of
the State of Delaware, or, if permitted by applicable law and more favorable,
the By-Laws of the Company as in effect on the date of this Agreement, (a)
Executive shall be indemnified and held harmless by the Company, as provided
under such corporate laws or such By-Laws, as applicable, for any and all
actions taken or matters undertaken, directly or indirectly, in the performance
of his duties and responsibilities under this Agreement or otherwise on behalf
of the Company, and (b) without limiting clause (a), the Company shall indemnify
and hold harmless Executive from and against (i) any claim, loss, liability,
obligation, damage, cost, expense, including attorneys fees, action, suit,
proceeding or cause of action (collectively, "Claims") arising from or out of or
relating to Executive's performance as an officer, director, employee or agent
of the Company or any of its affiliates or in any other capacity, including,
without limitation, any fiduciary capacity, in which Executive serves at the
request of the Company, and (ii) any cost or expense (including, without
limitation, fees and disbursements of counsel) (collectively, "Expenses")
incurred by Executive in connection with he defense or investigation thereof. If
any claim is asserted or other matter arises with respect to which Executive
believes in good faith Executive is entitled to indemnification as contemplated
hereby, the Company shall pay the Expenses incurred by Executive in connection
with the defense or investigation of such Claim or matter (or cause such Expense
to be paid) on a monthly basis, provided that Executive shall reimburse the
Company for such amounts, plus simple interest thereon at the then current prime
rate as reported in the Wall Street Journal as in effect from time to time,
compounded annually, if Executive shall be found, as finally judicially
determined by a court of competent jurisdiction, not to have been entitled to
indemnification hereunder.
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17. Agreement. This Agreement supersedes any and all other agreements, either
oral or written, between the parties with respect to such subject matter, and
Executive has received legal counsel regarding the entirety of the Agreement.
18. Withholding of Taxes. The Company may withhold from any amounts payable
under this Agreement all federal, state, city or other taxes as the Company is
required to withhold pursuant to law.
19. Successors and Binding Agreement. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation, reorganization
or otherwise) to all or substantially all of the business or assets of the
Company, by agreement in form and substance satisfactory to Executive acting
reasonably, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent the Company would be required to perform if no
such succession had taken place. This Agreement will be binding upon and inure
to the benefit of the Company and any successor to the Company, including,
without limitation, any persons acquiring directly or indirectly all or
substantially all of the business or assets of the Company whether by purchase,
merger, consolidation, reorganization or otherwise (and such successor shall
thereafter be deemed the "Company" for the purpose of this Agreement). This
Agreement will inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees and legatees. The rights of the Company under this Agreement may
without the consent of Executive, be assigned by the Company in its sole and
unfettered discretion (a) to any person, firm, corporation, or other business
entity which at any time, whether by purchase, merger, or otherwise, directly or
indirectly, acquires all or substantially all of the assets or business of the
Company, or (b) to any subsidiary or affiliate of the Company (the "Company
Group"), or any transferee, whether by purchase, merger or otherwise, which
directly or indirectly acquires all or substantially all of the assets of the
Company or any other member of the Company Group.
20. Notices. For all purposes of this Agreement, all communications, including,
without limitation, notices, consents, requests or approvals, required or
permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof confirmed), or five business days after
having been mailed by United States registered or certified mail, return receipt
requested, postage prepaid, or two business days after having been sent by a
nationally recognized overnight courier service such as Federal Express, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company) at its principal executive offices and to Executive at his principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
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21. Governing Law. The validity, interpretation, construction and performance of
this Agreement will be governed and constructed in accordance with the
substantive laws of the State of Texas.
22. Severability and Reformation. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of the parties under this Agreement would not be
materially and adversely affected thereby, such provision shall be fully
separable, and this Agreement shall be constructed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part thereof,
the remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision or
by its severance therefrom, and, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible, and the parties
hereto request the court or any arbitrator to whom disputes relating to this
Agreement are submitted to reform the otherwise illegal, invalid or
unenforceable provision in accordance herewith.
23. Survival of Provisions. Notwithstanding any other provision of this
Agreement, the parties' respective rights and obligations under any provisions
that provide a party with rights (including, without limitation, rights to
receive payments) that have not been fully satisfied as of such termination or
expiration, will survive any termination or expiration of this Agreement or the
termination of Executive's employment for any reason whatsoever.
24. Nondisclosure; Competitive Activity. The agreement attached as Exhibit A
shall be in full force and effect and inure to the benefit of the Company and
Executive.
25. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
signed by Executive and the Company. No waiver by either party hereto at any
time of any breach by the other party hereto or compliance with any condition or
provision of this Agreement to be performed by such other party will be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. Unless otherwise noted, references to "Sections" are
to section of this Agreement. The captions used in this Agreement are designed
for convenient reference only and are not to be used for the purpose of
interpreting any provision of this Agreement. Nothing contained in this
Agreement shall, in any manner whatsoever, be construed to alter or influence
the rights or obligations of Executive under the terms of the Capital
Contribution Agreement between the Company, EPi HealthTech Inc., Gemini Biotech
Ltd., Gemini Biotech, Inc. Shashikala Jayaraman and Executive dated June 18,
1998, the Master Agreement between the Company and Executive et. al dated June
28, 1998, as amended on August 3, 1998, the Registration Rights Agreement
between the Company and Executive et.
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al dated June 28, 1998, and the Limited Partnership Agreement of Gemini Health
Technologies L.P. between Epi HealthTech Inc., Executive and Shashikala
Jayaraman dated June 18, 1998.
26. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereof have executed this Agreement as of
the day and year first above written.
ELECTROPHARMACOLOGY, INC. EXECUTIVE:
By: /s/ Arup Sen /s/ Krishna Jayaraman
------------- ----------------------
Its: Chairman & CEO Krishna Jayaraman, Ph.D.
Date: ___2/23/99 __________ Date: __ 2/19/99______________
Attachments:
Exhibit A: Employee Non-Disclosure, Confidentiality and Noncompetition Agreement
Exhibit B Incentive Stock Option Agreement
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Exhibit A of Exhibit 10.1
ELECTROPHARMACOLOGY, INC.
EMPLOYEE NONDISCLOSURE, CONFIDENTIALITY AND NONCOMPETITION
AGREEMENT
This Agreement (the "Agreement") is made between Electropharmacology, Inc., a
Delaware Corporation including its Gemini Biotech Division (collectively the
"Company") and Krishna Jayaraman (the "Employee").
RECITALS
A. The Employee recognizes and agrees that the Company is and will be
engaged in research, development, production or commercialization of
products and technologies that are valuable assets of the Company. The
Company is engaged in a very competitive business. Because of the
nature of this business, the Company may be irreparably harmed by
certain activities of the Employee. These activities include
unauthorized disclosure of Company's confidential information, entering
into a business, that competes with the Company, during or following
the term of employment of the Employee by the Company, appropriating or
diverting business or customers of the Company and inducing employees
and/or independent contractors of the Company to leave the employment
or engagement of the Company, all of which are in violation of the
Employee. Employees may be able to do these unfair acts because of
information which is learned and contacts which are made by the
Employee while in the employment with the Company. Therefore, the
Company desires to protect itself by requiring the Employee to agree to
reasonable restrictions concerning certain of the Employee's activities
during and after termination of employment with the Company. These
restrictions are intended to prevent harm directly or indirectly to the
Company (its directors, employees, independent contractors whose
business or compensation depends upon the continuos success of the
Company).
B. The Employee understands and agrees that:
1. As part of his or her employment by the Company, the
Employee is (or may be) expected to make or develop
new contributions and/or Inventions, as further
defined in Section 10 that are of value to the
Company and that are intended to belong to the
Company.
2. Employment by the Company creates a relationship of
confidence and trust between the Employee and the
Company with respect to any information applicable to
the business of the Company.
3. The Company possesses and may acquire information,
which has commercial value in the business in which
the Company is engaged. All such information is
hereinafter called "Proprietary Information". By way
of illustration, but not limitation, Proprietary
Information includes trade secrets, processes,
designs, concepts, know-how, improvements, proposals,
Inventions (as further defined herein below) whether
patentable or not, techniques, marketing plans,
strategies, forecasts, financial and cost information
and customer lists.
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A G R E E M E N T
NOW THEREFORE, in consideration of the foregoing and of the Employee's
employment or continued employment by the Company, as the case may be, and the
compensation or other benefits received by the Employee from the Company during
the course of such employment, the Employee hereby agrees as follows:
1. For purposes of this Agreement, the business of the Company
shall be deemed to be the design, development and
commercialization of (i) drugs or diagnostics based on amino
acids or nucleosides and (ii) drug delivery or tissue repair
by electromagnetic signals or mild electric currents. The
business as described herein may be amended by the Company
based on licensing, acquisitions and other transactions by the
Company relating to technologies, products or businesses.
2. The Employee agrees that while employed by the Company, the
Employee will not engage in any other employment or business,
which would interfere with performance of the Employee's
duties to the Company.
3. The Employee agrees not to take any steps preliminary or
otherwise to set up or engage in any business enterprise that
would be in competition with the Company's business until
after termination of employment with the Company. The
restriction in this section shall include, but not be limited
to, plans to set up, establish or engage in a business
enterprise in competition with the Company and plans to seek
or accept employment from anyone in competition with the
Company.
4. Employee agrees to inform the Company of any business
opportunities relating to the business of the Company, which
comes to the attention of the Employee.
5. The Employee agrees that during the period of his or her
employment under this Agreement and for a period of one (1)
year after termination of his or her employment with the
company for any reason, he or she shall not directly or
indirectly own, manage, operate, control, be employed by, be a
shareholder of, be a director of, be an officer of,
participant in, contract with or be connected in any capacity
or any manner with any business that directly or indirectly
(whether through related companies or otherwise) competes with
the Company's business in any state in the U.S. or any
province or prefecture, as the case may be, in a foreign
country with the Company.
6. The Employee agrees that during the period of his employment
under this Agreement and for a period of one (1) year
following the termination of his employment with the Company
for any reason, he or she shall not supervise, manage, hire,
cause to be hired or otherwise induce any employee or
independent contractor of the Company to leave the employment
of the Company.
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7. The Employee agrees that during the period of his or her
employment and for a period of one (1) year after termination
of his or her employment with the Company for any reason, he
or she shall not appropriate, divert or assist another to
appropriate or divert any business or customer away from the
Company or attempt to do any of the foregoing.
8. The Employee agrees that all Proprietary Information is the
sole property of the Company and the Company is the sole owner
of all intellectual property rights related thereto. The
Employee hereby assigns to the Company all rights the Employee
may have in such Proprietary Information. At all times, both
during employment by the Company and after any termination,
the Employee will keep in confidence any and all Proprietary
Information, and will not use or disclose any Proprietary
Information or anything relating to it without the prior
written consent of the Company, except as may be necessary in
the ordinary course of performing the Employee's duties for
the Company.
9. In the event of a termination of employment, for any reason,
the Employee will immediately deliver to the Company all
documents and data of any nature pertaining to work with the
Company and Proprietary Information and all copies thereof
which the Employee has in his or her possession and the
Employee will not take any documents or data of any
description or any reproduction of any description containing
or pertaining to any Proprietary Information.
10. The Employee shall promptly disclose to the Company any and
all improvements, inventions, whether or not patentable,
formulas, processes, techniques, know-how, and data, made or
conceived or reduced to practice or learned by the Employee,
either alone, or jointly with others, during and prior to the
period of the Employee's employment with the Company,
including but not limited to, any and all such inventions made
or acquired by Delargen or Gemini Biotech, Ltd. All such
improvements, inventions, formulas, processes, techniques,
know-how and data are hereinafter referred to as "Inventions".
11. The Employee agrees that all Inventions shall be the sole
property of the Company, and the Company shall be the sole
owner of all intellectual property rights related thereto. The
Employee hereby assigns to the Company all of the Employee's
rights, title and interest in and to all Inventions. The
Employee further agrees as to all such Inventions to assist
the Company in every proper way (at the Company's expense) to
obtain, and from time to time enforce, rights to the
Inventions. Employee agrees to render such assistance even if
and after his or her employment should terminate.
12. (a) The Employee represents that performance of all the
terms of this Agreement and/or employment by the
Company does not, and will not breach any agreement
with any other person or entity, including, without
limitation, any agreement to keep in confidence
proprietary information of third parties acquired by
the Employee in confidence or in trust prior to
employment by the Company. The Employee
A-3
<PAGE>
has not brought and will not bring to the Company, or
use in the performance of his/her responsibilities at
the Company any materials or documents of a former
employer that are not generally available to the
public. The Employee also agrees that, in connection
with his or her employment with the Company, the
Employee is not to breach any obligation of
confidentiality that the Employee has to former
employers.
(b) The Employee is not a party to or otherwise bound by
an agreement or arrangement, or subject to any
judgment, decree or order of any court or
administrative agency, (i) that would conflict with
the Employee's obligation to diligently promote and
further the interest of the Company, or (ii) that
would conflict with the Company's business as now
conducted or as proposed to be conducted.
13. (a) This Agreement shall be effective as of the
earlier of the first day the Employee is employed by
the Company or date of execution of this Agreement.
(b) This Agreement shall be binding upon the Employee,
the Employee's spouse, heirs, executors, assigns and
administrators and shall inure to the benefit of the
Company, its successors, and assigns.
(c) This Agreement shall be construed under and according
to the laws of the State of Florida. In the event of
any dispute arising out of this Agreement, the
prevailing party will be entitled to its reasonable
attorneys' fees.
(d) The parties agree that in the event of Employee's
breach of Employee's obligations, Employer would be
irreparably damaged, and therefore, in addition to,
other remedies available to Employer, the Employer
shall be entitled to injunctive relief against
Employee, provided, however, that at the request of
the Company, such dispute shall be resolved in
accordance with the commercial arbitration rules of
the American Arbitration Association by binding
arbitration held in Gainesville, Florida.
(e) In the event that any provision hereof shall be
determined by any court of competent jurisdiction to
be unenforceable or otherwise invalid as written, the
same shall be enforced and validated in a re-written
form permitted by the applicable law. The provisions
hereof are severable and the unenforceability or
invalidity of any provision hereof shall not affect
the remainder of the provisions of this agreement.
Furthermore, the unenforceability or invalidity of
any provision in one jurisdiction shall not affect
the enforceability or validity of such provision in
any other jurisdiction.
(f) Nothing herein shall obligate the Company to continue
to retain the Employee in the Company's employment or
limit or impair the Company's ability to terminate
the employment of the Employee at will with or
without cause for any reason. The Employee is an
employee at will.
A-4
<PAGE>
(g) In the event of a violation of this Agreement, if the
Employee is prevented by a court from committing any
further violation, whether by a temporary restraining
order, injunction or otherwise, the time periods set
forth in this Agreement shall be computed by
commencing the periods on the date of the applicable
court order and continuing them from that date for
the full period provided.
(h) The Employee shall have the right to request a waiver
of all or part of the restrictions contained in this
Agreement by providing the Company with a written
statement containing all relevant details. The
Company may, in its sole discretion, waive all or
part of the restrictions contained in this Agreement
on such terms and conditions, and to such extent, as
it, in its sole discretion, deems appropriate.
Such waiver must be in writing.
(i) For one (1) year following the termination of this
Agreement for any reason, the Employee agrees to show
this Agreement to any person or entity before he
directly or indirectly owns, manages, operates,
controls, becomes employed by, becomes a shareholder
of, becomes a director of, becomes an officer of,
participates in, contracts with or becomes connected
in any capacity or in any manner with such person or
entity.
AGREED TO and ACCEPTED this 18th day of August, 1998.
EMPLOYEE: ELECTROPHARMACOLOGY, INC.
By: /s/ Krishna Jayaraman By: /s/ Arup Sen
--------------------- ------------------------
Title: Chairman & CEO
_______/s/____________________________ ____/s/ __________________________
(Witness) (Witness)
A-5
<PAGE>
Exhibit B of Exhibit 10.1
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of August 18, 1998, by and between
Electropharmacology, Inc., (the "Company") and Krishna Jayaraman ("Optionee").
WITNESSETH
WHEREAS, pursuant to the 1993 Stock Option Plan, as amended on November 1, 1996,
(the "Stock Option Plan"), the Plan Committee of the Board of Directors of the
Company (the "Plan Committee") has authorized the granting to Optionee of an
incentive stock option to purchase the number of shares of Common Stock ("Common
Stock") of the Company specified in Paragraph 1 hereof, at the price and
specified therein, such option to be for the term and upon the terms and
conditions hereinafter stated;
NOW, THEREFORE, in consideration of the promises and of the undertaking of the
parties hereto contained herein, it is hereby agreed:
1. Number of Shares: Option Price. Pursuant to said action of the Plan
Committee, the Company hereby grants to Optionee the option ("Option") to
purchase, upon and subject to the terms and conditions of said Stock Option
Plan, all of any part of 250,000 shares of Common Stock of the Company for
cash at the price of $1.06 per share.
2. Term. This Option shall expire at the close of business on August 18, 2008
unless such Option shall have been terminated prior to that date in
accordance with the provision of the Stock Option Plan or this Agreement.
The terms "Parent" and "Subsidiary" herein mean a parent corporation or a
subsidiary corporation, as such terms are defined in the Stock Option Plan.
3. Vesting. Shares subject to exercise shall be 50,000 immediately, 62,500 on
each of the first and second anniversaries of the date hereof and the
remaining 75,000 on the third anniversary of the date hereof. All shares
shall thereafter remain subject to exercise for the term specified in
Paragraph 2 hereof, provided that Optionee is then and has continuously
been an employee of the Company, a Parent or Subsidiary, subject, however,
to the provisions of Paragraph 5 hereof.
4. Exercise. The Option may be exercised by written notice delivered to the
Company stating the number of shares with respect to which the Option is
being exercised, together with a check made payable to the Company in the
amount of the purchase price of such shares plus the amount of applicable
federal, state and local withholding taxes and the written statement
provided for in Paragraph 9 hereof, if required by said Paragraph 9. Not
less than 100 Shares may be purchased under such Option at the time. Only
whole shares may be purchased.
B-1
<PAGE>
5. Exercise on Termination of Employment. In the event Optionee's employment
is terminated, Optionee's right to exercise his/her options, if any, shall
be governed by Section 7 of the Stock Option Plan.
6. Nontransferability. This Option may not be assigned or transferred except
by will or by the laws of descent and distribution, and may be exercised
only by Optionee during his/her lifetime and after his/her death, by
his/her representative or by the person entitled thereto under his/her will
or the laws of interstate succession.
7. Optionee Not a Shareholder. Optionee shall have no rights as a shareholder
with respect to the Common Stock of the Company covered by such Option
until the date of issuance of a stock certificate or stock certificates to
him upon exercise of the Option. No adjustment will be made for dividends
or other rights for which the record date is prior to the date such stock
certificate or certificates are issued, except as provided in Section 10 of
the Stock Option Plan.
8. Modification and Termination. The rights of Optionee are subject to
modification and termination in certain events as provided in Sections 7
and 10 of the Stock Option Plan.
9. Restrictions on Transfer of Shares. Securities Law Restrictions. Optionee
represents and agrees that upon his/her exercise of the Option, in whole or
in part, unless there is in effect at that time under the Securities Act of
1933, a registration statement relating to the shares issued to him, he/she
will acquire the shares issuable upon exercise of this Option for the
purpose of investment and not with a view to the resale or further
distribution, and that upon such exercise thereof he will furnish to the
Company a written statement to such effect, satisfactory to the Company in
form and substance. Optionee agrees that any certificate issued upon
exercise of this Option may bear a legend indicating that its
transferability is restricted in accordance with applicable state and
federal securities laws. Any person or persons entitled to exercise this
Option under the provisions of Paragraph 4 and 5 hereof shall, upon each
exercise of the Option under circumstances in which Optionee would be
required to furnish such a written statement, also furnish to the Company a
written statement to the same effect, satisfactory to the Company in form
and substance.
10. Plan Governs. This agreement and the Option evidenced hereby are made and
granted pursuant to the Stock Option plan and are in all respects limited
by and subject to the express terms and provisions of that Plan, as it may
be amended from time to time and construed by the Plan Committee of the
Board of Directors of the Company. It is intended that this Option shall
qualify as an incentive stock option as defined by Section 422 of the code,
and this Agreement shall be construed in a manner which will enable this
Option to be so qualified. Optionee hereby acknowledges receipt of a copy
of the Stock Option Plan.
B-2
<PAGE>
11. Notices. All notices to the Company shall be addressed to the President of
the Company at the principal office of the Company at 1109 N.W. 13th
Street, Gainesville, Fl 32601, and all notices to Optionee shall be
addressed to Optionee at the address of Optionee on file with the Company
or its subsidiaries, or to such other address as either may designate to
the other in writing. A notice shall be deemed to be duly given if and when
enclosed in a properly addressed sealed envelope deposited, postage
prepaid, with the United States Postal Service. In lieu of giving notice by
mail as aforesaid, written notice under this Agreement may be given by fax
or personal delivery to Optionee or to the President (as the case may be).
12. Sale or Other Disposition. Optionee understand that, under current law,
beneficial tax treatment resulting from the exercise of this option will be
available only if certain requirements of the Code are satisfied, including
with limitation, the requirement that no disposition of shares of Common
Stock of the Company acquired pursuant to exercise of this Option be made
within two years from the grant date or within one year after the transfer
of such shares to him/her. If Optionee at any time contemplates the
disposition (whether by sale, gift or exchange, or other form or transfer)
of any shares acquired by exercise of this option, he or she will first
notify the Company in writing or such proposed disposition and cooperate
with the Company in complying with all applicable requirements of law,
which, in the judgment of the Company, must be satisfied prior to such
disposition. In addition to the forgoing, Optionee hereby agrees that if
Optionee disposes (whether by sale, exchange or gift, or otherwise) of any
shares acquired by exercise of this Option within two years of the grant
date or within one year after the transfer of such shares to Optionee upon
exercise of this Option, then Optionee shall notify the Company of such
disposition in writing within 30 days from the date of such disposition.
Said written notice shall state the date of such disposition, and the type
and amount of the consideration received for such shares or shares by
Optionee in connection therewith. In the event of any such disposition, the
company shall have the right to require Optionee to immediately pay the
company the amount of taxes (if any) which the Company is required to
withhold under federal and/or state law as a result of the granting or
exercise of the subject Option in the disposition of the subject shares.
13. Holdback. In accepting the grant of the Option, Optionee hereby agrees
that, in the event of any underwritten public offering of the Company's
securities pursuant to which any of its securities are registered pursuant
to the Securities Act of 1933, as amended, and to the extent the
underwriter of such offering requests that certain shareholders of the
Company agree to do so, the Optionee will agree not to sell any of the
Common Stock issued or issuable upon exercise of this Option for such
period of at least 12 months after the closing of such public offering, and
to sign a 12-month holdback agreement to that effect.
B-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date and year first above written.
ELECTROPHARMACOLOGY, INC.
/s/ Arup Sen
------------------------------
Title: Chairman & CEO
------------------------------
OPTIONEE:
/s/ Krishna Jayaraman
------------------------------
Signature
Krishna Jayaraman
------------------------------
(Typed or Printed Name)
Address:
------------------------------
------------------------------
------------------------------
B-4
From: The Board of Directors
To: Arup Sen, Chairman and Chief Executive Officer
The following summarizes, in general terms, your compensation package
and incentives for your employment as Chief Executive Officer of
Electropharmacology, Inc. following the successful completion of the recent
corporate reorganization.
1. Annual base compensation:
Initial (as of September 1, 1998) $130,000
Upon closing of Elan transaction 150,000
Upon closing of a total $[omission](+) financing 160,000
Upon achieving $[omission](+) in annual revenue 170,000
Upon closing of a total $[omission](+) financing 180,000
Upon achieving $[omission](+) in annual revenue 200,000
2. Stock Option Vesting:
Total granted 500,000 shares pursuant to the EPI Stock Option Plan
(exercise price is EPI common stock price at close of trading on August 25,
1998; term of exercise - 10 years from date of grant) and subject to approval by
the new Board of Directors:
Successful conclusion of reorganization 75,000 shares
Closing of Elan transaction 100,000 shares
Annual revenue of $[omission](+) 50,000 shares
First anniversary of employment 25,000 shares
Milestones to be set by the Board of Directors 250,000 shares
3. One time Bonuses: Cash and/or Stock - At the sole discretion of the
Board
4. Miscellaneous:
All standard employee benefits, incl. disability and four weeks paid
vacation per year; maximum carryover of vacation - two weeks.
In the event that your employment is terminated without "cause" before
three years, a severance of six months' base salary subject to your mitigation
of such payment by diligently seeking other employment. All stock options vest
immediately and will remain exercisable for the original term of exercise (10
years from date of grant) in the event your employment is terminated (a) due to
an acquisition by or merger with a third party not recommended and/or approved
by you or (b) without "cause".
For EPi: /s/ Murray Feldman For HTD: /s/ Richard K. Kneipper
By: ____________________________ By: _______________________
Murray Feldman Richard K. Kneipper
For Gemini: /s/ Krishna Jayaraman
By: ________________________
Dr. Krishna Jayaraman
REVISED AND RESTATED SECOND AMENDMENT
TO EMPLOYMENT AGREEMENT
This Revised and Restated Second Amendment to the Employment Agreement
(the "Amendment") by and between Electropharmacology, Inc. (the "Company") and
Arup Sen, Ph.D. (the "Executive"), entered into on November 11, 1996, as amended
by Board of Director's resolution on June 24, 1997 and further amended on
January 1, 1998 ("Second Amendment") (the "Employment Agreement") is made and
entered into as of this 21st day of April 1998;
WHEREAS, the Company and the Executive desire to revise and restate the
Second Amendment to the Employment Agreement in order to correct certain
scrivener errors in said Amendment so that the Second Amendment correctly
reflects the parties' actual agreement with respect to the grant date, the
vesting of certain option grants and the payment of certain sums to Executive
upon a Change in Control (as defined hereinafter):
NOW THEREFORE, in consideration of the covenants set forth herein, the
parties hereto agree that the Second Amendment shall be revised and restated as
follows:
1. Paragraph 4(b) Compensation shall be replaced in its entirety as
follows:
For the period commending on January 1, 1998 and ending December 31,
1999, the Executive's base salary shall be reduced by one third (33
1/3%) (the portion of the salary to be so reduced is hereinafter
referred to as the "Foregone Salary"), so that effective January 1,
1998, the Executive's base salary shall be deemed to be $127,308 on an
annualized basis. Each January lst thereafter, for the calendar year
then commencing, the Executive's base salary, on an annualized basis,
shall be not less than two thirds the product of $190,962 per year
multiplied by the percentage obtained by dividing (i) the Consumer
Price Index for All Urban Consumers -- U.S. City Average (1982-84 =
100) (or, if publication of that index is terminated, any substantially
equivalent successor thereto) for the month of July in the fiscal year
of the Company immediately preceding such January 1st, as published by
the Bureau of Labor Statistics of the United States Department of
Labor; by (ii) said Consumer Price Index for the month of July 1998
provided that the Consumer Price Index adjustment shall in no case be
greater than 6% or less than 3% in any year. The Executive's base
salary may be increased from time to time by the Board, but in no event
shall the Executive's base salary for any calendar year be less than
the annualized base salary for 1998 plus the then applicable Consumer
Price Index adjustment provided by the preceding sentence. During the
term of the Agreement, Executive's salary shall be reviewed at least
annually by the Board to determine whether an increase beyond the
Executive's is warranted and appropriate. Except as set forth in this
Section 4, such compensation shall be payable at the times and in the
manner consistent with the Company's general policies regarding
compensation of executive employees, but in no event less frequently
than bi-monthly.
In lieu of the Foregone Salary (for 1998, $63,654), on January 3, 1998
and each January 3rd thereafter, the Company shall grant to the
Executive an option to purchase that number of shares of the Company's
common stock equal to the Foregone Salary divided by the last reported
closing sales price of the Company's common stock for the day prior to
the date of such grant (the "Grant Date Market Value") as reported in
the OTC Bulletin Board. Each such option shall be exercisable with
respect to 50% of the shares covered thereby on January 3, 1998, or
such later year as applicable, and with respect to the
1
<PAGE>
remaining 50% of the shares covered thereby on July 3, 1998 or such
later year as applicable. The exercise price of the options shall be
the Grant Date Market Value. Notwithstanding the foregoing, in the
event the Executive's employment hereunder is terminated by the Company
other than for Cause (as defined herein) or by the Executive by
Permitted Resignation (as defined herein) prior to the end of the term
of this Agreement, such options shall immediately vest and become
exercisable in accordance with Section 11(c) hereof. If the Executive
is terminated for Cause (as defined herein) all stock options, whether
or not vested, shall immediately terminate without any payment made
therefor. If the Executive resigns (other than by Permitted
Resignation), all unvested stock options shall immediately terminate
without any payment therefor. Upon the Employee's death or disability
(as defined herein), all unvested stock options that are to vest on the
next vesting date of this subparagraph shall immediately vest and
become exercisable and all other unvested stock options shall
immediately terminate without any payment made therefor. In the event
of a Change of Control of the Company as defined in the Company's 1993
Stock Option Plan, as amended, the stock options granted under this
subparagraph shall become immediately exercisable in full and the
Executive will receive a cash payment equal to the aggregate exercise
price of such options in order to enable Executive to exercise said
options.
2. Paragraph 5. Executive Benefits, subparagraph (c) is replaced in its
entirety as follows:
In lieu of the automobile allowance in the amount of $500 originally
provided for in the Agreement, effective February 1, 1998, the Company
will grant to the Executive an option to purchase that number of shares
of the Company's common stock equal to $6,000 divided by the Grant Date
Market Value on February 1, 1998. Each such option shall be exercisable
immediately on and after the date of grant, with an exercise price of
the Grant Date Market Value.
3. To the extent not superseded herein, all other provisions of the
Employment Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this agreement as of the
day and year first above written.
_____/s/Arup Sen____________________
Arup Sen
ELECTROPHARMACOLOGY, INC.
By:____/s/David Saloff______________
Name:__David Saloff _______________
Title:___Executive VP_______________
2
David Saloff, Executive Vice President - Sales and Marketing
Electropharmacology, Inc.
2301 NW 33rd Court; Suite 102
Pompano Beach, Florida 33069
The following summarizes your compensation package and incentives for your
employment as Executive Vice President - Sales and Marketing of
Electropharmacology, Inc. (as reorganized recently), effective as of August 25,
1998. Your previous employment contract is terminated by mutual agreement. Your
compensation will, as shown below, be dependent on revenues of the Gemini
Biotech Division.
1. Annual base compensation:
<TABLE>
<CAPTION>
<S> <C>
Initial (effective September 1, 1998) $ 80,000
Completion of 6 months OR achieving $[omission] annual revenue 100,000
Achieving $[omission] annual revenue 110,000
</TABLE>
Annual revenue will be calculated by annualizing based on prior six
months' revenues.
2. Override on Sales revenue:
Starting on month [omission] or achieving $[omission] annualized
revenue run rate: [omission] on first $[omission], [omission] on the next
$[omission] and [omission] on amounts over $[omission]; the override amounts
will be paid on the 15th day of the month for the prior month based on the
annualized rate calculated based on the revenue of said month. Once your
aggregate annual compensation equals or exceeds $200,000, you and the Company
agree to negotiate a new, mutually agreeable compensation arrangement.
3. Stock Option:
Total grant 200,000 shares, pursuant to EPI Stock Option Plan (exercise
price is EPi common stock price at close of trading day on August 25, 1998; term
of exercise - 10 years from date of grant) and subject to approval by the new
Board of Directors:
o Vesting at 20% per year starting with first anniversary of the
grant date over five years.
o Vesting will accelerate based on sales revenue growth as follows:
achieving $[omission] annual revenue, [omission], achieving
$[omission] annual revenue, additional [omission], achieving
$[omission] annual revenue, remaining [omission] (revenue excludes
those through business acquisition/merger).
o Vesting will accelerate (at a rate to be determined by the Board of
Directors) in the event the Company successfully demonstrates that
PEMS facilitates cell regeneration for wound healing and based upon
such demonstration, the Company pursues a product approval in the
US or in a major country in Europe or in Japan
o Vesting will accelerate (at a rate to be determined by the Board of
Directors) in the event that EPI receives warrants from ADM Tronics
as set forth in the Asset Purchase Agreement
1. One time Bonuses: Cash and/or Stock: at the discretion of the
Board
<PAGE>
2. Miscellaneous:
You are entitled to all standard employee benefits, incl. disability
and four weeks paid vacation per year; maximum carryover of vacation - two
weeks.
In the event that your employment is terminated without "cause" before
18 months, a severance equal to compensation for the prior six months. The
severance payment is subject to your mitigation of such payment by diligently
seeking other employment unless: (i) you have not been given notice of
termination at least three months prior to the end of the 18-month period and
(ii) Dr. Sen is no longer serving as the Company's Chief Executive Officer at
such time. All stock options vest immediately and will remain exercisable for
the original term of exercise (10 years from date of grant) in the event
employment is terminated (a) due to acquisition by or merger with a third party
not recommended and/or approved by you or (b) without "cause".
Sincerely,
Accepted and Agreed:
/s/ Arup Sen
- ---------------------
Arup Sen, PhD ____/s/Richard K. Kneipper________________
Chairman & CEO for HTD: Richard K Kneippe
____/s/ Krishna Jayaraman ______________
for Gemini: Dr. Krishna Jayaraman
---------------------------------------
David Saloff
ELECTROPHARMACOLOGY, INC.
EMPLOYEE NONDISCLOSURE, CONFIDENTIALITY AND NONCOMPETITION
AGREEMENT
This Agreement (the "Agreement") is made between Electropharmacology, Inc., a
Delaware Corporation including its Gemini Biotech Division (collectively the
"Company") and Arup Sen (the "Employee").
RECITALS
A. The Employee recognizes and agrees that the Company is and will be
engaged in research, development, production or commercialization of
products and technologies that are valuable assets of the Company. The
Company is engaged in a very competitive business. Because of the
nature of this business, the Company may be irreparably harmed by
certain activities of the Employee. These activities include
unauthorized disclosure of Company's confidential information, entering
into a business, that competes with the Company, during or following
the term of employment of the Employee by the Company, appropriating or
diverting business or customers of the Company and inducing employees
and/or independent contractors of the Company to leave the employment
or engagement of the Company, all of which are in violation of the
Employee. Employees may be able to do these unfair acts because of
information which is learned and contacts which are made by the
Employee while in the employment with the Company. Therefore, the
Company desires to protect itself by requiring the Employee to agree to
reasonable restrictions concerning certain of the Employee's activities
during and after termination of employment with the Company. These
restrictions are intended to prevent harm directly or indirectly to the
Company (its directors, employees, independent contractors whose
business or compensation depends upon the continuos success of the
Company).
B. The Employee understands and agrees that:
1. As part of his or her employment by the Company, the
Employee is (or may be) expected to make or develop
new contributions and/or Inventions, as further
defined in Section 10 that are of value to the
Company and that are intended to belong to the
Company.
2. Employment by the Company creates a relationship of
confidence and trust between the Employee and the
Company with respect to any information applicable to
the business of the Company.
3. The Company possesses and may acquire information,
which has commercial value in the business in which
the Company is engaged. All such information is
hereinafter called "Proprietary Information". By way
of illustration, but not limitation, Proprietary
Information includes trade secrets, processes,
designs, concepts, know-how, improvements, proposals,
Inventions (as further defined herein below) whether
patentable or not, techniques, marketing plans,
strategies, forecasts, financial and cost information
and customer lists.
1
<PAGE>
A G R E E M E N T
NOW THEREFORE, in consideration of the foregoing and of the Employee's
employment or continued employment by the Company, as the case may be, and the
compensation or other benefits received by the Employee from the Company during
the course of such employment, the Employee hereby agrees as follows:
1. For purposes of this Agreement, the business of the Company
shall be deemed to be the design, development and
commercialization of (i) drugs or diagnostics based on amino
acids or nucleosides and (ii) drug delivery or tissue repair
by electromagnetic signals or mild electric currents. The
business as described herein may be amended by the Company
based on licensing, acquisitions and other transactions by the
Company relating to technologies, products or businesses.
2. The Employee agrees that while employed by the Company, the
Employee will not engage in any other employment or business,
which would interfere with performance of the Employee's
duties to the Company.
3. The Employee agrees not to take any steps preliminary or
otherwise to set up or engage in any business enterprise that
would be in competition with the Company's business until
after termination of employment with the Company. The
restriction in this section shall include, but not be limited
to, plans to set up, establish or engage in a business
enterprise in competition with the Company and plans to seek
or accept employment from anyone in competition with the
Company.
4. Employee agrees to inform the Company of any business
opportunities relating to the business of the Company, which
comes to the attention of the Employee.
5. The Employee agrees that during the period of his or her
employment under this Agreement and for a period of one (1)
year after termination of his or her employment with the
company for any reason, he or she shall not directly or
indirectly own, manage, operate, control, be employed by, be a
shareholder of, be a director of, be an officer of,
participant in, contract with or be connected in any capacity
or any manner with any business that directly or indirectly
(whether through related companies or otherwise) competes with
the Company's business in any state in the U.S. or any
province or prefecture, as the case may be, in a foreign
country with the Company.
6. The Employee agrees that during the period of his employment
under this Agreement and for a period of one (1) year
following the termination of his employment with the Company
for any reason, he or she shall not supervise, manage, hire,
cause to be hired or otherwise induce any employee or
independent contractor of the Company to leave the employment
of the Company.
2
<PAGE>
7. The Employee agrees that during the period of his or her
employment and for a period of one (1) year after termination
of his or her employment with the Company for any reason, he
or she shall not appropriate, divert or assist another to
appropriate or divert any business or customer away from the
Company or attempt to do any of the foregoing.
8. The Employee agrees that all Proprietary Information is the
sole property of the Company and the Company is the sole owner
of all intellectual property rights related thereto. The
Employee hereby assigns to the Company all rights the Employee
may have in such Proprietary Information. At all times, both
during employment by the Company and after any termination,
the Employee will keep in confidence any and all Proprietary
Information, and will not use or disclose any Proprietary
Information or anything relating to it without the prior
written consent of the Company, except as may be necessary in
the ordinary course of performing the Employee's duties for
the Company.
9. In the event of a termination of employment, for any reason,
the Employee will immediately deliver to the Company all
documents and data of any nature pertaining to work with the
Company and Proprietary Information and all copies thereof
which the Employee has in his or her possession and the
Employee will not take any documents or data of any
description or any reproduction of any description containing
or pertaining to any Proprietary Information.
10. The Employee shall promptly disclose to the Company any and
all improvements, inventions, whether or not patentable,
formulas, processes, techniques, know-how, and data, made or
conceived or reduced to practice or learned by the Employee,
either alone, or jointly with others, during and prior to the
period of the Employee's employment with the Company,
including but not limited to, any and all such inventions made
or acquired by Delargen or Gemini Biotech, Ltd. All such
improvements, inventions, formulas, processes, techniques,
know-how and data are hereinafter referred to as "Inventions".
11. The Employee agrees that all Inventions shall be the sole
property of the Company, and the Company shall be the sole
owner of all intellectual property rights related thereto. The
Employee hereby assigns to the Company all of the Employee's
rights, title and interest in and to all Inventions. The
Employee further agrees as to all such Inventions to assist
the Company in every proper way (at the Company's expense) to
obtain, and from time to time enforce, rights to the
Inventions. Employee agrees to render such assistance even if
and after his or her employment should terminate.
12. (a) The Employee represents that performance of all the
terms of this Agreement and/or employment by the
Company does not, and will not breach any agreement
with any other person or entity, including, without
limitation, any agreement to keep in confidence
proprietary information of third parties acquired by
the Employee in confidence or in trust prior to
employment by the Company. The Employee
3
<PAGE>
has not brought and will not bring to the Company, or
use in the performance of his/her responsibilities at
the Company any materials or documents of a former
employer that are not generally available to the
public. The Employee also agrees that, in connection
with his or her employment with the Company, the
Employee is not to breach any obligation of
confidentiality that the Employee has to former
employers.
(b) The Employee is not a party to or otherwise bound by
an agreement or arrangement, or subject to any
judgment, decree or order of any court or
administrative agency, (i) that would conflict with
the Employee's obligation to diligently promote and
further the interest of the Company, or (ii) that
would conflict with the Company's business as now
conducted or as proposed to be conducted.
13. (a) This Agreement shall be effective as of the
earlier of the first day the Employee is employed by
the Company or date of execution of this Agreement.
(b) This Agreement shall be binding upon the Employee,
the Employee's spouse, heirs, executors, assigns and
administrators and shall inure to the benefit of the
Company, its successors, and assigns.
(c) This Agreement shall be construed under and according
to the laws of the State of Florida. In the event of
any dispute arising out of this Agreement, the
prevailing party will be entitled to its reasonable
attorneys' fees.
(d) The parties agree that in the event of Employee's
breach of Employee's obligations, Employer would be
irreparably damaged, and therefore, in addition to,
other remedies available to Employer, the Employer
shall be entitled to injunctive relief against
Employee, provided, however, that at the request of
the Company, such dispute shall be resolved in
accordance with the commercial arbitration rules of
the American Arbitration Association by binding
arbitration held in Gainesville, Florida.
(e) In the event that any provision hereof shall be
determined by any court of competent jurisdiction to
be unenforceable or otherwise invalid as written, the
same shall be enforced and validated in a re-written
form permitted by the applicable law. The provisions
hereof are severable and the unenforceability or
invalidity of any provision hereof shall not affect
the remainder of the provisions of this agreement.
Furthermore, the unenforceability or invalidity of
any provision in one jurisdiction shall not affect
the enforceability or validity of such provision in
any other jurisdiction.
(f) Nothing herein shall obligate the Company to continue
to retain the Employee in the Company's employment or
limit or impair the Company's ability to terminate
the employment of the Employee at will with or
without cause for any reason. The Employee is an
employee at will.
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<PAGE>
(g) In the event of a violation of this Agreement, if the
Employee is prevented by a court from committing any
further violation, whether by a temporary restraining
order, injunction or otherwise, the time periods set
forth in this Agreement shall be computed by
commencing the periods on the date of the applicable
court order and continuing them from that date for
the full period provided.
(h) The Employee shall have the right to request a waiver
of all or part of the restrictions contained in this
Agreement by providing the Company with a written
statement containing all relevant details. The
Company may, in its sole discretion, waive all or
part of the restrictions contained in this Agreement
on such terms and conditions, and to such extent, as
it, in its sole discretion, deems appropriate. Such
waiver must be in writing.
(i) For one (1) year following the termination of this
Agreement for any reason, the Employee agrees to show
this Agreement to any person or entity before he
directly or indirectly owns, manages, operates,
controls, becomes employed by, becomes a shareholder
of, becomes a director of, becomes an officer of,
participates in, contracts with or becomes connected
in any capacity or in any manner with such person or
entity.
AGREED TO and ACCEPTED this 24th day of August, 1998.
EMPLOYEE: ELECTROPHARMACOLOGY, INC.
By: /s/ Arup Sen By: /s/ David Saloff
------------------------------ -----------------------------
Title: Vice President
-----------------------------
______________________________ _________________________________
(Witness) (Witness)
5
CONSULTING ADVISORY AND NON-COMPETITION AGREEMENT
BY AND BETWEEN
______________________________________AND ____________________________
This agreement ("Agreement") dated as of ___ day, 199_, by and between
_____________________ with its offices at ______________________________________
(hereinafter, "Company") and ________________________________, an individual
residing at ___________________________ _______________________________
(hereinafter, "Consulting Advisor") relates to scientific services to be
rendered to the Company in the field of _____________________________________
("Field") by the Consulting Advisor.
Purpose: Consulting Advisor shall provide professional services in
accordance with the requirements and direction of Company. Consulting Advisor
agrees to provide the following professional services: (i) participation at
bi-monthly meetings on Company's research and development programs (if Company
requests the Consulting Advisor to attend such meetings); (ii) design, review,
supervision (either at the Company's laboratory or at a location reasonably
requested by the Company) and discussion of specific scientific projects in the
Field as set forth in Schedule 1 attached hereto which schedule may be amended
from time to time by mutual agreement; (iii) writing reports and invention
disclosures and telephone consultation as may be required by the Company, and
(iv) such other related services as may be mutually agreed upon from time to
time. Consulting Advisor's obligation hereunder shall not exceed __ days per
year (but not in excess of the maximum number of days permitted by the
institution ("Institution") where the Consulting Advisor is an employee, so long
as the Consulting Advisor is a full-time employee who is bound by institutional
policies).
Field: Field as used herein shall mean the business of Company in (i)
the design and development of genetic databases related to diet-regulated genes
in cancer and other multi-genic chronic, complex diseases and (ii) the design
and development therapeutic or diagnostic molecules targeted at
disease-regulating biochemical pathways or molecular entities as further set
forth in Schedule 1 attached hereto which schedule may be modified from time to
time.
Consideration: In consideration of the professional services rendered
hereunder and the assignment of intellectual property rights to Company relating
to technologies arising out of Consulting Advisor's professional services
rendered hereunder, Company will issue to Consulting Advisor ______ restricted
shares, par value $0.01of HealthTech Development Inc. Restricted shares, when
issued, will bear appropriate legends and be issued pursuant to Company's
Stockholder Agreement that will contain additional terms and conditions
customary to such an agreement.
Expenses: Travel and other reasonable out-of-pocket expenses incurred
by Consulting Advisor in rendering professional services requested by Company
hereunder shall be reimbursed separately on a monthly basis upon submission of
receipts to Company.
Term: The term of this Agreement shall be from __ day of 199_ to - day
of 200_.
Termination: Either party may terminate this Agreement for any reason
upon 30 days' written notice to the other. Consulting Advisor shall offer to
sell to Company all shares owned by Consulting Advisor on the date of
Termination at the then fair market value of such stock. In the event this
Agreement is terminated, for any reason whatsoever, Consulting Advisor's
obligation herein with respect to confidential information, conflict of
interest, and inventions, improvements, or ideas shall survive termination.
Independent Contractor: Consulting Advisor is an independent contractor
and not an employee or joint venturer Company, nor shall Consulting Advisor be
entitled to or be eligible to participate in benefits or privileges extended by
Company to its employees, nor shall Company make any deductions for taxes from
consideration paid to Consulting Advisor hereunder. Taxes shall be the
Consulting Advisor has no authority to obligate Company in any respect
whatsoever, whether by contract or otherwise.
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Confidential Information: Any Confidential Information acquired by
Consultant is covered by a separate Scientific Advisor's Confidentiality
Agreement, the provisions of which shall survive termination of this Agreement.
Inventions: Any inventions, improvements, or ideas (patented,
unpatented, patentable or unpatentable) made or conceived by Consulting Advisor
in connection with and during the performance of services hereunder and for six
months thereafter related to the Field, shall be the sole property of Company
and shall be reported to Company promptly. Consulting Advisor shall file the
appropriate outside activities report with the Institution, if applicable, and
obtain the appropriate approvals therefrom. Consulting Advisor agrees not to
perform any services hereunder on Institution premises (other than the Company
licensed space, if any), with Institution property or with Institution personnel
not also subject to a Consulting Advisory Agreement with Company, without prior
written approval from Company.
Patent Assistance: Consulting Advisor, without charge to Company, shall
execute, acknowledge and deliver to Company all such papers and documents
including applications for patent, as may be necessary to enable Company to
publish or protect said inventions, improvements, or ideas, by patent or
otherwise in any and all countries, and to vest title to said patents,
inventions, improvements and ideas to Company, its successors or assigns.
Consulting Advisor shall render all such assistance as Company may require in
any Patent and Trademark Office proceeding or litigation in Federal or State
Courts involving said inventions, improvements or ideas, and shall be reimbursed
for reasonable expenses incurred by Consulting Advisor in connection therewith.
Severability: If any provision hereof is held invalid or unenforceable
by a court of competent jurisdiction, it shall be considered severed from this
Agreement and shall not serve to invalidate the remaining provisions thereof.
Law: This Agreement shall be construed, and the legal relations between
Consulting Advisor and Company determined, in accordance with the laws of the
State of Texas, without regard to the choice of law provisions of Texas law.
Publicity: Consulting Advisor shall not originate any publicity, news
release, or other public announcement, written or oral, whether to the public,
press or otherwise, relating to this Agreement, to any amendment hereto, or to
any performance hereunder, without the prior written approval of Company.
Entire Agreement: This Agreement constitutes the entire agreement
between the parties. It may not be modified, amended or assigned except by
written agreement signed by both parties. Headings are for convenience only.
IN WITNESS WHEREOF, Company and Consulting Advisor have executed
duplicate originals of this Agreement as of the date and year first written
above.
2
CONSULTING ADVISOR CONFIDENTIALITY AGREEMENT
BY AND BETWEEN
________________________________________AND ___________________________________
This agreement ("Agreement") dated as of ___ day, 199_, by and between
____________________ with its offices at _____________________________________
(hereinafter, "Company") and ___________________________, an individual residing
at ____________________________________ (hereinafter, "Consulting Advisor")
relates to confidential information developed by or on behalf of Company.
1. In consideration of my engagement as a Consulting Advisor to
"Company" pursuant to the Consulting Advisory and Non-competition Agreement of
even date hereof, at any time while a Consulting Advisor, or at any time
thereafter, regardless of the reasons for leaving, I agree not to use or
disclose, directly or indirectly, any Protected Information in any Unauthorized
manner or for any Unauthorized purpose. The terms "Protected Information" and
"Unauthorized" are defined in Paragraph 5 of this Agreement. Further, promptly
upon termination, for any reason, of my engagement as Consulting Advisor to
Company, I agree to deliver all property or materials within my possession or
control which belong to the Company or which contain Protected Information.
2. While a Consulting Advisor of the Company, or after termination, for
any reason, I agree to take any and all lawful measures to prevent the
Unauthorized use and disclosure of Protected Information and to prevent
Unauthorized persons or entities from obtaining or using Protected Information.
During the same period, I further agree to refrain from taking any actions which
would constitute or facilitate the Unauthorized use or disclosure of Protected
Information.
3. My engagement as a Consulting Advisor to Company does not conflict
with any prior business relationship, I do not possess confidential information
arising out of any prior business relationship which, in my best judgment, would
be utilized in connection with my providing professional services pursuant to
the Consulting Advisory Agreement to Company, and I will use best efforts not to
disclose such information to the Company or any customer or employee.
4. I acknowledge (a) that the Protected Information is commercially and
competitively valuable to Company and that it is vital to the success of its
business at all locations at which it does business; (b) that the Unauthorized
use or disclosure of said Protected Information would cause irreparable harm to
Company; (c) that Company has taken and is taking all reasonable measures to
protect its legitimate interests in its Protected Information, including but not
limited to affirmative actions to safeguard the confidentiality of such
Protected Information; (d) that, by this Agreement, Company is taking reasonable
steps to protect its legitimate interests in the Protected Information; (e) that
the restrictions on the activities in which I may engage set forth in this
Agreement, and the locations and periods of time for which such restrictions
apply, are reasonably necessary in order to protect Company's legitimate
interests in its Protected Information; and (f) that nothing herein shall
prohibit Company from pursuing any remedies, whether in law or equity, available
for a breach or threatened breach of this Agreement, including the recovery of
damages from me.
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<PAGE>
5. (a) As used in this Agreement, the term "Protected Information"
shall mean trade secrets, confidential or proprietary information, and all other
knowledge, information, documents or materials, owned, developed, or possessed
by Company, whether in tangible or intangible form, the confidentiality of which
Company takes reasonable measures to protect, and which pertains in any manner
to subjects which include, but are not limited to, Company's research
operations, customers (including identities of customers and prospective
customers, identities of individual contacts at business entities which are
customers or prospective customers, preferences, business or habits), business
relationships, products (including prices, costs, sales or content), financial
information or measures, business methods, future business plans, data bases,
computer programs, designs, models, operating procedures, knowledge of the
organization, and other information owned, developed or possessed by Company.
(b) As used in this Agreement, the term "Unauthorized" shall mean:
(i) in contravention of Company's policies or procedures; (ii) otherwise
inconsistent with Company's measures to protect its interests in the Protected
Information; (iii) in contravention of any lawful instruction or directive,
either written or oral, of the management or staff of Company; (iv) in
contravention of any duty existing under law or contract; or (v) to the
detriment of Company.
6. I agree not to solicit, use, or disclose any information not
generally available to the public including, without limitation, Protected
Information, in any manner directly or indirectly, so that I or any third party
would obtain an advantage, benefit, or gain, whether real or potential, over the
general public, whether in connection with investing or trading in securities or
for any other purpose.
7. This Agreement shall be governed by and in accordance with the laws
of the State of Texas.
8. If any provision or clause of this Agreement, or portion thereof,
shall be held by any court or other tribunal of competent jurisdiction to be
illegal, void or unenforceable in such jurisdiction, the remainder of such
provisions shall not thereby be affected and shall be given full effect, without
regard to the invalid portion. It is the intention of the parties that, if any
court construes any provision or clause of this Agreement, or any portion
thereof, to be illegal, void, or unenforceable because of the duration of such
provision or the area or matter covered thereby, such court shall reduce the
duration, area, or matter of such provision and, in its reduced form, such
provision shall then be enforceable and shall be enforced.
9. I acknowledge that I have read and understand this Agreement and
that I have signed and entered into it on my own free will.
Dated:
----------------------
Consulting Advisor
Accepted and agreed to:
Dated:
By:__________________
2
BENEFIT LIFE INSURANCE COMPANY
LOAN AGREEMENT
This agreement (herein referred to as the "Loan Agreement") is between
Benefit Life Insurance Company (herein referred to as "Lender" also referred to
variously in documents executed contemporaneously herewith as "Secured Party"
and "Mortgagee"); Gemini Biotech, Ltd., a Texas Limited Partnership (hereinafter
"Gemini"); Delargen Corporation, a Texas Corporation sometimes doing business as
Gemini Biotech, Inc. (hereinafter "Delargen") (Gemini and Delargen are herein
jointly and severally called "Borrower" and variously referred to in documents
executed contemporaneously herewith as "Debtor," or "Maker"); and Krishna
Jayaraman and Shashikala Jayaraman (herein sometimes called "Guarantors").
Subject to and upon the terms, conditions, covenants, representations,
warranties and agreements contained herein, and provided further that no Default
(hereinafter defined) exists hereunder or under any term or provision of the
Loan Documents (as defined herein), Lender agrees to lend Borrower One Million
Three Hundred Fifteen Thousand and No/100 U.S. Dollars ($1,315,000.00) (the
"Loan") evidenced by the Note attached hereto as Exhibit "A" and incorporated
herein by reference as if fully set forth at length, in the principal amount of
One Million Three Hundred Fifteen Thousand and No/100 U.S. Dollars
($1,315,000.00), to be executed by Borrower and made payable to the order of
Lender. All renewals, extensions, modifications and rearrangements of the Note,
if any, shall be deemed to have been made pursuant to this Loan Agreement and
accordingly, shall be subject to the terms, conditions and provisions hereof,
and Borrower shall be deemed to have ratified, as of the date of such renewal,
extension, modification or rearrangement, all the terms, conditions, covenants,
representations, warranties, and agreements set forth herein.
Article - Definitions
Throughout this Loan Agreement and throughout all of the Loan
Documents, the terms below shall have the respective meanings set out opposite
each term.
a. "Automatic Default" shall have the meaning set out in
Article 7.2.
b. "Borrower" shall mean, Gemini Biotech, Ltd., a Texas
Limited Partnership, and Delargen Corporation, a Texas
Corporation sometimes doing business as Gemini
Biotech, Inc., jointly and severally.
c. "Collateral" shall have the meaning set out in
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<PAGE>
Article 6.1.
d. "Debtor" shall mean Gemini Biotech, Ltd., a Texas
Limited Partnership, and Delargen Corporation, a Texas
Corporation sometimes doing business as Gemini
Biotech, Inc., jointly and severally.
e. "Default" shall have the meaning set out in Article
7.1.
f. "Equipment" shall include machinery and shall have the
broadest meaning of that term under the Texas Business
and Commerce Code and shall further include anything
and everything set out in Article 6.1 D.
g. "General Partner" shall mean , and Delargen
Corporation, a Texas Corporation sometimes doing
business as Gemini Biotech, Inc., which is the sole
general partner of Gemini Biotech, Ltd.
h. "Guarantors" shall mean Krishna Jayaraman and
Shashikala Jayaraman, individually and jointly.
i. "Holder" shall mean the Lender or any subsequent
holder of the Note including any successors and
assigns.
j. "Indebtedness" shall mean:
i. Any and all sums, including
principal, interest, expenses,
Prepayment Consideration (as defined
in the Note), court costs and
attorneys' fees, called for in the
Note in the principal amount of One
Million Three Hundred Fifteen
Thousand and No/100 U.S. Dollars
($1,315,000.00) bearing a variable
rate of Interest beginning at Ten
and One Half Percent (10.50%) and
being adjusted quarterly to a rate
of Two Percent (2.0%) per annum over
the "Prime Rate" as published by The
Wall Street Journal under the
section entitled "Money Rates,"
subtitled "Prime Rate," adjusted on
a quarterly basis, as more fully set
out in the Note, and being due and
payable as therein stated, at the
address listed therein for Lender or
elsewhere as the Lender or Holder
may direct, containing provisions
for acceleration of maturity and the
collection of
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<PAGE>
attorneys' fees, reference to the
Note being here made for all
purposes; the scheduled maturity
date of the Note being Nine (9)
years after date of execution. The
Note shall be amortized so that
Eight Hundred Six Thousand and
No/100 U.S. Dollars ($806,000.00) of
the Loan proceeds dedicated for
working capital will be repaid
within seven (7) years of the date
of the execution of the Note and so
that Five Hundred Nine Thousand and
No/100 U.S. Dollars ($509,000.00) of
the Loan proceeds dedicated for
leasehold improvements, machinery,
equipment, and debt refinancing
shall be fully repaid within nine
(9) years of the date of the
execution of the Note.
ii. All sums, including principal,
interest, expenses, court costs,
reasonable attorneys' fees, and
Prepayment Consideration, if any,
called for in any note or other
instrument representing, in whole or
in part, a renewal, extension,
modification or rearrangement of the
Indebtedness; it being agreed,
however, that Lender is under no
obligation to renew, extend or
rearrange said Indebtedness.
iii. All sums and/or obligations owing by
Borrower to Lender or Holder of any
part of the Indebtedness pursuant to
the terms and provisions of any Loan
Documents.
iv. All other debts of every kind and
character now or hereafter owing by
Borrower to the Lender whether such
debts be evidenced by written
instrument or not and whether they
be direct obligations arising out of
a guaranty, endorsement suretyship
or otherwise, or whether they be
joint, several or indirect, and
whether they were heretofore or are
hereafter purchased or otherwise
acquired.
v. Any and all renewals, extensions, or
rearrangements of the above.
k. "Land" shall have the meaning set out in Article
6.1 A. 1.
l. "Lease" shall have the meaning set out in Article
6.1 A. 1.
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<PAGE>
m. "Lender" shall mean Benefit Life Insurance Company and
any successors and assigns.
n. "Limited Partnership Agreement" shall mean the limited
partnership agreement of Gemini Biotech, Inc.
o. "Loan" shall mean the One Million Three Hundred
Fifteen Thousand and No/100 U.S. Dollars
($1,315,000.00) loan made the subject of the Loan
Documents.
p. "Loan Documents" shall mean all instruments of even
date including without limitation: this Loan Agreement
(the "Loan Agreement"); Note in the principal amount
of One Million Three Hundred Fifteen Thousand and
No/100 U.S. Dollars ($1,315,000.00) (Adjustable Rate
Note) (the "Note"); Deed of Trust, Security Agreement
and Fixtures Financing Statement (Commercial) (the
"Deed of Trust"); Security Agreement of Gemini (the
"Gemini Security Agreement"); Security Agreement of
Delargen (the "Delargen Security Agreement"); Guaranty
of Krishna Jayaraman (the "Krishna Jayaraman
Guaranty"); Guaranty of Shashikala Jayaraman (the
"Shashikala Jayaraman Guaranty"); Affidavit of Krishna
Jayaraman (the "Affidavit"); Certificate of Limited
Partnership (the "Limited Partnership Resolution");
Certificate of Corporate Resolution of Delargen (the
"Certificate of Corporate Resolution"); Document
Correction Agreement (the "Document Correction
Agreement"); Notice of No Oral Agreements (the "Notice
of No Oral Agreements"); Attorney Representation
Notice (the "Attorney Representation Notice"); UCC-1
Financing Statements, and any modifications or
amendments to the Loan Documents as allowed under the
provisions of the Loan Documents, together with all
other security instruments, documents, instruments and
papers of any nature executed in conjunction with the
Loan Agreement and the Note.
q. "Loan Note Guarantee" shall mean a fully executed Form
FmHA 4279-5 wherein RBS guarantees eighty (80%)
percent of the value of the Note.
r. "Maker" shall mean the Borrower.
s. "Mortgagee" shall mean the Lender.
t. "Mortgagor" shall mean Gemini Biotech, Ltd.
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<PAGE>
u. "Prepayment Consideration" shall have the meaning
as set out in the Note.
v. "Properties" shall have the meaning as set out in
Article 6.1 A. 3.
w. "RBS" shall mean the United States Department of
Agriculture Rural Business-Cooperative Services, its
successors and assigns.
x. "Secured Party" shall mean the Lender.
y. "Specified Courts" shall have the meaning set out in
Article 8.12.
z. "USDA" shall mean the United States Department of
Agriculture.
aa. "Usurious Interest" shall mean contracting for,
charging or receiving interest, as defined under
the applicable usury laws, in excess of the maximum
nonusurious rate provided by law.
Article - Conditions Precedent for Making Loan
The obligation of Lender to make and/or fund the Loan, or any portion
of the Loan regardless of the time and regardless if a portion of the loan
proceeds has already been funded, is subject to all of the following conditions
precedent being performed to the satisfaction of Lender and Lender's legal
counsel:
bb. Authorization. Gemini furnishing Lender appropriate
written authority of Gemini authorizing the General
Partner to enter into all of the transactions
contemplated in the Loan Documents on behalf of
Gemini. Delargen furnishing Lender a Corporate
Resolution authorizing Delargen to enter into all of
the transactions contemplated in the Loan Documents;
cc. Documents. Borrower furnishing all requested
documents requested and required by Lender or
Lender's Counsel;
dd. Compliance with Covenants. Borrower has performed
or complied with all of the covenants (both
affirmative and negative) and agreements required
in the Loan Documents;
ee. No Default. No Default and no condition or event
which, with the giving of notice or lapse of time
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<PAGE>
or both, would become a Default, shall have
occurred or if it has occurred will be continuing;
ff. Accuracy of Representations and Warranties. The
representations and warranties contained in all of
the Loan Documents are true and correct in all
material respects;
gg. Taxes and Tax Returns. All applicable federal,
state and local tax returns and reports as required
have been duly filed by Borrower and Guarantors and
all federal, state and local taxes, assessments and
other governmental charges imposed upon Borrower
and Guarantors or their respective assets, which
are due and payable, have been paid;
hh. Other Agreements of Borrower. The execution and
delivery of the Loan Documents and compliance with
the provisions thereof under the circumstances
contemplated thereby did not, do not and will not
in any material respect conflict with, constitute
default under, or contravene any contract or
agreement or other instrument to which the Borrower
is a party or any existing law, regulation, court
order, or consent decree or device to which the
Borrower is subject;
ii. Consent. All necessary consents, approvals, or
authorizations of any governmental agency or
regulatory authority or of partners, whether
general or limited, which are necessary have been
obtained. The improvements and the use of the
property comply in all respects with all federal,
state, and local laws applicable thereto;
jj. Litigation. There are no actions, suits or
proceedings pending or, to the best of its
knowledge, threatened before any court or
administrative agency against Borrower or
Guarantors which could materially adversely affect
the financial condition and operations of Borrower.
kk. Liens. There are no liens of any nature whatsoever
filed against the property of Borrower or
Guarantors, by any governmental taxing authority
or any third party.
ll. Affidavit. Lender being provided an Affidavit of
even date herewith signed by the President of the
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General Partner stating that the conditions precedent
set forth in paragraphs 2.3 through 2.10 above have
been performed by Borrower and Guarantors.
mm. Opinion of Borrower's Counsel. The opinion of
legal counsel for the Borrower and each Guarantor
addressed to Lender, Lender's counsel and the RBS
stating the opinions as set out in attached
Exhibit "B" and in a form acceptable to Lender and
RBS.
nn. Summary of Claims. Borrower provides Lender a list
and summary of all pending or threatened litigation
against Borrower or the Guarantors certified to by
the President of the General Partner.
oo. No Material Change in Financial Condition.
Evidence, satisfactory to Lender, that there has
been no material deterioration in the Borrower's
financial condition since the issuance of the Form
FmHA 449-14 Conditional Commitment for Guarantee.
pp. Minimum Balance Sheet Equity. Evidence,
satisfactory to Lender, that Gemini has a minimum
of Twenty Percent (20%) tangible balance sheet
equity.
qq. Guarantee Fee. Borrower shall pay a guarantee fee
in the amount of Twenty-One Thousand Forty and
No/100 U.S. Dollars ($21,040.00) to the RBS at or
prior to the Closing.
rr. Guaranty. The absolute and unconditional guaranty
of payment by Krishna Jayaraman and Shashikala
Jayaraman.
ss. Feasibility Study. Gemini agrees to provide a
complete professionally prepared feasibility study
to Lender prior to first disbursement of loan
proceeds if so required by the RBS.
tt. RBS Forms. A fully executed Loan Note Guarantee
(Form 4279-5) in an amount equal to One Million
Fifty-Two Thousand and No/100 Dollars
($1,052,000.00) from the RBS, a fully executed
Assignment Agreement (Form 4279-6), a fully
executed Certificate of Incumbency (Form 4279-7),
and a fully executed Lender's Agreement (Form
4279-4).
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uu. Conditional Commitment for Guarantee Terms Met.
The satisfaction of all terms and conditions in the
Conditional Commitment for Guarantee USDA RBS Form
4279-3.
vv. Appraisals. Prior to loan closing, current
appraisals prepared by general certified appraisers
acceptable to Lender are to be submitted to the
Lender and RBS. Prior to the loan closing,
Borrower shall submit an acceptable appraisal of
Borrower's inventory verifying the inventory
appraisal provided by Dennis M. Mulvey, Ph.D. of
Aronex Pharmaceuticals, Inc., on September 3, 1996.
ww. Environmental Assessment. Borrower shall provide
Lender a Phase I Environmental Assessment on the
Land, Lease, Improvements and Properties dated no
earlier than sixty (60) days prior to the day of
Closing of the Loan if required by Lender and/or
RBS. In the event that the Phase I Environmental
Assessment results in a recommendation of further
environmental assessments (Phase II, Phase III or
other) on the Land, Lease, Improvements and
Properties or in a recommendation of remedial
environmental action on the Land, Lease,
Improvements or Properties, Borrower shall take
such further assessment and remedial action prior
to the Closing of the Loan as required by and to
the full satisfaction of the Lender and RBS.
Gemini shall publish all notices regarding the
environmental impact for Gemini and take all other
action required of it set forth in the letter dated
May 28, 1997 from Russell W. Kreuger, Jr. of Rural
Development in Huntsville, Texas to Gemini.
xx. Packaging Fees. Borrower shall pay a packaging fee
in the amount of Thirteen Thousand One Hundred
Fifty and No/100 U.S. Dollars ($13,150.00) to
Lender's Guaranty, Inc. at or prior to the closing
of the Loan.
yy. Citizenship. Proof acceptable to Lender that
Borrower and its General Partner are at least
fifty-one (51%) owned by persons who are either
citizens of the United States or reside in the
United States after being legally admitted for
permanent residence.
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zz. Landlord's Consent. Borrower shall provide to
Lender a consent from any and all relevant
landlords wherein the landlords subordinate any
Landlords' liens to Lender's lien of Borrower's
property, consent to the assumption of the lease by
Lender, notice of default of lease agreements to
Lender and consent to assignment of Lender.
Article - Affirmative Covenants
During the term of this Loan Agreement, and until payment in full of
the Note and payment in full of and fulfillment of all Indebtedness (unless full
compliance with any of the following provisions has been waived in writing,
signed by both Lender and Borrower or Guarantors, as the case may be), Lender,
Borrower and Guarantors agree as follows:
aaa. Use of Loan Proceeds. The proceeds of the Note shall be
used by Gemini as follows:
i. approximately Seventy Thousand and No/100
U.S. Dollars ($70,000.00) for debt
refinancing;
ii. approximately Ninety Thousand and No/100
U.S. Dollars ($90,000.00) for construction
of leasehold improvements;
iii. approximately Eight Hundred Six Thousand U.
S. Dollars ($806,000.00) for working
capital; and
iv. approximately Three Hundred Forty-Nine
Thousand and No/100 U. S. Dollars
($349,000.00) for machinery and equipment.
No part of the proceeds received by Gemini hereunder will be
used, directly or indirectly, for the purpose of purchasing or
carrying, or the payment in whole or in part, of indebtedness
which was incurred for the purpose of purchasing or carrying,
any margin stock, as such term is defined in Section 221.3 of
Regulation U of the Board of Governors of the Federal Reserve
Systems, 12 C.F.R, Part 221. No part of the proceeds received
by Borrower hereunder will be used for any purpose which
violates Regulation X of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Part 224. All loans evidenced by
the Note are and shall be "business loans" as such terms is
used in the Depository Institutions Regulation and Monetary
Control Act of 1980, as amended, and such loans are for
business, commercial, investment or other similar purposes and
not primarily for personal, family, household or agricultural
use, as such terms are used in
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<PAGE>
Chapter One of the Texas Credit Code.
bbb. Documents to Provide Lender. Without request by
Lender, unless otherwise indicated, Borrower and
Guarantors agree to furnish Lender with true,
correct and complete copies of the following
documents and instruments:
i. Annual Financial Statements of Borrower and
Guarantor. Within one hundred twenty (120)
days after the end of each fiscal year of
Gemini, Gemini's annual audited financial
statements with supporting schedules and
written opinion (including the business
balance sheet and income statement and any
supporting documents for the period covered)
that specifically include all accrued
adjustments, and which is prepared in
conformity with generally accepted
accounting principles applied on a
consistent basis and certified by an
independent certified public accountant
satisfactory to Lender. An audited annual
profit and loss statement will also be
provided which will include the year-to-date
profit and loss showing the result of
operations for the fiscal year, a
reconciliation of surplus and the auditor's
notes. Gemini agrees to promptly provide any
other financial information requested by the
RBS or as may be reasonably requested by
Lender. Lender does not require an
unqualified audit opinion as a result of the
audit. An acceptable audit will be performed
in accordance with generally accepted
auditing standards and include such tests of
the accounting records as the auditor
considers necessary in order to express an
opinion on the financial condition of
Gemini. Delargen and Guarantors agree to
furnish the Lender a current annual balance
sheet within ninety (90) days after the end
of each fiscal year of Borrower. The balance
sheets to be provided by Delargen and
Guarantors need not be audited. Delargen
agrees to provide Lender an annual profit
and loss statement showing the result of
operations for the fiscal year and any other
financial information requested by RBS or
the Lender.
ii. Quarterly Financial Statements of Gemini.
Within thirty (30) days after the end of
each
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quarterly period prior to the full payment
of the Note, quarterly year-to-date
financial statements of Gemini (consisting
of at least a consolidated balance sheet and
profit and loss statement for the quarter
then ended, along with aging of accounts
receivable and accounts payable, and any
supporting statements for the period then
ended) internally prepared as of the end of
such applicable month, prepared in
accordance with generally accepted
accounting principles, and certified by the
President of the General Partner.
iii. Income, Franchise, and Payroll Tax Returns.
Within ten (10) days after the filing of
same, Borrower and Guarantors shall furnish
Lender a true, correct and complete copy of
the signed and dated U.S. federal and state
income tax returns, if any, of Borrower and
Guarantors, state franchise tax returns and
sales tax returns of Borrower and quarterly,
state and federal payroll returns for the
immediately preceding fiscal year then
ended.
iv. Other Financial Information. Such other
financial and other information concerning
Borrower and Guarantors as Lender shall
reasonably request from time to time,
including without limitation updated
appraisals on real estate, equipment or
chattel property within ninety (90) days
from the date Lender requests such
appraisals.
v. Proof of Payment of Taxes. Upon request of
Lender evidence of payment and discharge of
all taxes, assessments and governmental
charges or levies imposed on Borrower,
Guarantor, their income or profits, on any
of the Collateral, or on any of their
property prior to the date on which
penalties or liens attach thereto, provided,
however, Borrower shall not be required to
pay any such tax, assessment, charge, levy
or claim the payment of which is being
contested in good faith and by proper
proceedings and against which Borrower, or
Guarantor as the case may be, has set up
adequate reserves in accordance with
generally accepted accounting principles.
vi. Notice of Claims. Prompt notice of all
claims, actions or litigation, including
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<PAGE>
without limitation all proceedings before
any governmental or regulatory agencies
affecting Borrower, Guarantors, or the
Collateral except litigation or proceedings
not materially affecting the financial
condition of Borrower or Guarantors and the
occurrence of any Default hereunder.
vii. Current Financial Statements. Prior to
closing, current financial statements of the
Borrower and Guarantor, dated no more than
sixty (60) days prior to the Closing.
ccc. Maintain Debt to Equity Ratio and Stock Ownership. Borrower
expressly covenants and agrees that from the date of this Loan
Agreement until payment in full of the Note and payment in
full and fulfillment of all Indebtedness, unless Lender shall
otherwise consent in writing, of Gemini shall:
i. Maintain at all times a ratio of total debt
to tangible net worth not exceeding four to
one. As used herein, the term "total debt"
shall mean liabilities as determined in
accordance with generally accepted
accounting principles consistently applied
but all debt of Gemini which is expressly
subordinated to Lender shall not be
included.
ii. Continue the same ownership in of Gemini and
continue to be a limited partnership under
the laws of the State of Texas, and continue
to be duly licensed or qualified as a
foreign limited partnership in all
jurisdictions wherein the property owned or
leased by it, or the nature of the business
transacted by it makes licensing or
qualification necessary as a foreign limited
partnership.
iii. Continue the same ownership in the General
Partner, and the General Partner shall
continue to be an active corporation validly
existing and in good standing under the laws
of the State of Texas and continue to be
duly licensed or qualified as a foreign
corporation in all jurisdictions wherein the
property owned or leased by it, or the
nature of the business transacted by it
makes licensing or
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<PAGE>
qualification necessary as a foreign
corporation.
ddd. Equal Opportunity Laws. Borrower will comply with all equal
opportunity and nondiscrimination requirements as more fully
set out in FmHA Instruction 1980A Section 1980.41.
eee. Clean Air Act. Borrower will comply with all Clean Air Act and
Water Pollution Control Act requirements as more fully set out
in FmHA Instruction 1980A Section 1980.43.
fff. Special Laws and Regulations. Borrower will comply with all
special laws and regulations as required by FmHA Instruction
1980A Section 1980.45.
ggg. Cultural Materials. If cultural materials are encountered
during any construction, work must cease in the immediate
area. Work can continue in the project area where no cultural
materials are present. The Secretary of Interior, (202)
342-1407 must be contacted in accordance with 36 CFR 8007. The
State Historic Preservation Officer (512) 4743057 must also be
notified.
hhh. Americans with Disabilities Act. Any improvements will be in
compliance with The Americans with Disabilities Act which
became effective January 26, 1992.
iii. Compliance with Governmental Agencies. Borrower must comply
with all regulations, orders or requirements of city, state
and federal regulatory agencies.
jjj. Worker's Compensation. Borrower will maintain and be covered
by worker's compensation insurance as required by the laws of
the State of Texas.
kkk. Place of Use of Loan Proceeds. All guaranteed loan funds are
to be utilized in connection with the Borrower's facility
located at The Woodlands, Texas.
lll. Prohibition on Disbursement of Loan Proceeds. The Loan
Proceeds will not be disbursed to the owner(s), general
partners, limited partners, stockholders or beneficiaries of
the Borrower or members of their families when such persons
will retain any portion of the equity in the Borrower.
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<PAGE>
mmm. Lender's Right to Defend. If the validity or priority of the
Loan Documents or any rights, security interests or other
interests created or evidenced hereby shall be attacked,
endangered or questioned or if any legal proceedings are
instituted with respect thereto, the Borrower will give prompt
written notice thereof to the Lender and at the Borrower's own
cost and expense will diligently endeavor to cure any defect
that may be developed or claimed, and will take all necessary
and proper steps for the defense of such legal proceedings,
and the Lender (whether or not named as a party to legal
proceedings with respect thereto) is hereby authorized and
empowered to take such additional steps as in its judgment and
discretion may be necessary or proper for the defense of any
such legal proceedings or the protection of the validity or
priority of this Loan Agreement and the rights, security
interests and other interests created or evidenced hereby, and
all expenses so incurred of every kind and character shall be
a demand obligation owing by the Borrower to the Lender and
shall be a part of the Indebtedness.
nnn. Request Additional Collateral. If the Lender should at any
time be of the opinion that the Collateral is not sufficient
or is declined or may decline in value or should the Lender
deem payment of the Indebtedness to be insecure, then the
Lender may call for additional Collateral satisfactory to the
Lender, and the Borrower promises promptly to furnish such
additional security forthwith and in all events within 30 days
of such notice.
ooo. License for Patents. Borrower shall obtain, maintain and
comply with any and all licenses for patents that Borrower
uses in its operations.
Article - Negative Covenants
Borrower covenants and agrees that from the date of this Loan Agreement
until payment in full of the Note and payment in full of and fulfillment of all
Indebtedness, Borrower shall not, without prior express written consent of
Lender first had and obtained:
ppp. No Additional Debt. Create, incur or assume any
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<PAGE>
debt for borrowed money, whether by way of loan, or the
issuance of sale of bonds, debentures, notes or securities,
including deferred debt for the price of property or of
services purchased, except:
i. The Loan hereunder.
ii. Current accounts payable and other current
obligations (other than for borrowed money)
arising out of transactions in the ordinary
course of business.
qqq. No Guaranties for Third Parties. Assume, guarantee, endorse or
otherwise become liable upon, or agree to purchase or
otherwise furnish funds for the payment of, the liability or
obligation, including contingent liabilities or obligations,
of any person, firm or corporation other than Borrower except
for transactions arising out of the ordinary course of
business. Under no circumstances will Borrower obligate itself
without approval of the Lender for contingent liabilities that
exceed, whether individually or collectively, One Hundred
Thousand U.S. Dollars ($100,000.00).
rrr. No Mortgages, Liens, etc. Create, incur, assume or suffer to
exist any mortgage, deed of trust, pledge, encumbrance, lien
or security interest of any kind upon any of its property now
owned or hereafter acquired, except:
i. Liens, mortgages, encumbrances or security
interests to secure payment of the Note
under this Loan Agreement.
ii. Mechanics', carriers', workmen's,
repairmen's or other like liens in the
ordinary course of business in respect of
obligations which are not overdue or are
being contested in good faith.
sss. No Change in Business Activity of Borrower. Engage in any
other kind of business different from which Borrower is
presently engaged or change the nature or method of operation
or its manner of conducting business in any material respect.
ttt. No Loans to Principals. Make any loans or advances to any
general or limited partner of Gemini, to Guarantors, or to any
shareholders of
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<PAGE>
the General Partner.
uuu. No Mergers, Acquisitions or Sales of Stock or Assets. Form any
new subsidiary or merge or consolidate with any corporation,
partnership, or other entity, or sell, lease, assign, transfer
or otherwise dispose of (whether in one transaction or as a
series of related transactions) all or substantially all of
its assets, whether now owned or hereafter acquired; or change
the ownership of Borrower or acquire by purchase or otherwise,
all or substantially all of the assets of any corporation,
partnership or other entity. Gemini and the General Partner
and Limited Partners shall not change the ownership and
partnership structure of Gemini or Delargen without prior
notice and consent of Lender.
vvv. No Excess Acquisitions of Property. Borrower will not during
any fiscal year, without the prior written consent of Lender,
make or incur any expenditures for acquiring or improving any
real property, machinery, equipment, furniture and fixtures by
purchase, lease purchase agreement or option the aggregate
cost or annual rental of which is in excess of One Hundred
Thousand and No/100 U. S. Dollars ($100,000.00) except as may
be acquired by the proceeds of this Loan.
www. No Excess Dispositions of Property. Borrower will not during
any fiscal year, without the prior written consent of Lender,
sell or dispose of in any manner any real property, machinery,
equipment, furniture or fixtures the aggregate value of which
is in excess of One Hundred Thousand and No/100 U. S. Dollars
($100,000.00).
xxx. Current Asset Requirement. Gemini will maintain current assets
at least equal to current liabilities during the life of the
Note.
yyy. Maximum Debt to Equity Ratio. Gemini will at no time during
the life of the note, allow the total liabilities to exceed
five times the total net worth. Total net worth for purposes
of this agreement will be total assets minus total liabilities
plus capital, surplus, paid in capital, retained earnings and
current earnings.
zzz. Limitation on Payment of Dividends. No cash distributions, in
kind distributions or other
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distributions to investors, general partners, limited
partners, or shareholders of the General Partner shall be
declared or funded by Gemini or Delargen until the Loan is
paid in full without the prior written consent of Lender.
aaaa. No New Management Practice. Borrower agrees to notify Lender
before any new management practices will be implemented.
bbbb. Minimum Working Capital. Gemini agrees to maintain minimum
working capital in the following U. S. Dollar amounts:
Fiscal Year Ending:
1997 $100,000.00
1998 $200,000.00
1999 $300,000.00
All Remaining Years of the Loan $300,000.00
cccc. Limitation of Salaries. Gemini agrees that salaries and
compensation of each of its General Partner and its Limited
Partners shall be limited as follows:
During the first year of the Loan:
$100,000.00
During the second year of the Loan:
$100,000.00
During the third through ninth years of the Loan:
$100,000.00
dddd. Sale of Business Property or Collateral. Any sale or other
disposition of business property or Collateral must be
concurred in by the Lender prior to such sale or disposition.
eeee. Name, Location of Business and Location of Collateral. The
Borrower will not changes its name, identity, federal tax
identification number, partnership structure or corporate
structure in any manner unless it shall have given the Lender
at least 30 days' prior written notice thereof. The Borrower
will not change the location of (i) its chief executive
office, chief place of business or registered address, or (ii)
the locations where it keeps or holds any Collateral or any
records
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<PAGE>
relating thereto, from the applicable location described in
Paragraph 5.12 unless it shall have given the Lender at least
30 days' prior written notice thereof.
Article - Warranties and Representations
In order to induce Lender to extend the credit and financial
accommodations evidenced by the Loan Documents, Borrower warrants and represents
that:
ffff. Limited Partnership Status of Gemini, Corporate Status of
Delargen and Authority. Gemini is a limited partnership duly
formed, validly existing and in good standing under the laws
of the State of Texas, is authorized to do business in the
State of Texas and is duly licensed and qualified to do
business; is in good standing in each jurisdiction in which
the ownership of its properties or the conduct of its business
requires such licensing and qualification; and has all powers
and all permits, consents and authorizations necessary to own
and operate its properties and carry on its business as
presently conducted. The sole General Partner of the Borrower
is Delargen Corporation, a corporation duly formed, validly
existing and in good standing under the laws of the State of
Texas. The execution, delivery and performance of the Loan
Documents by Gemini have been duly authorized as required by
the Limited Partnership Agreement and will not contravene, or
constitute a default under, any provision of applicable law or
regulation or of the Certificate of Limited Partnership
(including any amendments thereto), Limited Partnership
Agreement, or of any mortgage, indenture, contract, agreement
or other instrument, or any judgment, order or decree binding
upon Gemini. No consents of Gemini's limited partners, or any
holder of any indebtedness of Gemini are required as a
condition to the validity of the Loan Documents. Delargen is a
corporation duly formed, validly existing and in good standing
under the laws of the State of Texas and is authorized to do
business in Texas. The execution, delivery and performance of
the Loan Documents by Delargen have been duly authorized by
its Board of Directors. The Loan Documents, when duly
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<PAGE>
authorized, executed and delivered, will constitute the legal,
valid and binding obligations of Borrower enforceable in
accordance with their respective terms.
gggg. Good Title to Collateral. Borrower has and will continue to
have good and indefeasible title, free and clear of all liens,
claims, impositions, security interests and encumbrances, to
all of the Collateral, except as otherwise permitted by this
Loan Agreement.
hhhh. No Governmental Action Required. No approvals or consents of
any government department, administrative agency or
instrumentality having jurisdiction over Borrower are
necessary or required to permit Borrower to enter into the
Loan Documents. The improvements and the use of the Land and
Improvements complies in all respects with all federal, state
and local laws applicable thereto.
iiii. No Litigation. There is no action, suit or proceeding pending
or, to the knowledge of Borrower, threatened, against Borrower
or Guarantors before any court, governmental department,
administrative agency or instrumentality which, if such
action, suit or proceeding were adversely determined would
subject Borrower or Guarantors to any liability not fully
covered by insurance or adversely affect the financial
position or the results of operations of Borrower or any of
its businesses or the ability of Borrower to perform its
obligations, as shall be applicable, under the Loan Documents.
jjjj. Tax Liability. Borrower and Guarantors have filed all United
States tax returns and all state and foreign tax returns
required to be filed by them and have paid, or made provisions
for the payment of, all taxes which have become due pursuant
to said returns or pursuant to any assessment received by
Borrower or Guarantors and other governmental charges imposed
on Borrower and Guarantors or their assets, except such taxes,
if any, as are being contested in good faith and as to which
adequate reserves have been provided in
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accordance with generally accepted accounting principles
consistently applied, and such returns properly reflect the
United States income, foreign taxes and/or state taxes of
Borrower and Guarantors for the periods covered thereby.
kkkk. No Superior Liens on Collateral. The security interest and
liens attaching to the Collateral will at all times constitute
valid and enforceable first priority perfected security
interests and liens in favor of Lender, subject to no prior
superior lien, security interest or encumbrance, except for
those liens and encumbrances set forth in the Title
Commitments to Lender. Before any funding under the Note,
Borrower and Guarantors will have taken or will have
participated with Lender in taking, all necessary action and
make all necessary filings to provide Lender with perfected,
first priority security interest and liens in the Collateral
under the laws of all applicable jurisdictions.
llll. No Investment Company. Borrower is not an investment company
within the meaning of the Investment Company Act of 1940.
mmmm. Solvency. Borrower is solvent with saleable assets of a value
that exceeds the amount of Borrower's liabilities. Borrower is
able to and anticipates that Borrower shall be able to meet
all debts as they mature and has adequate capital to conduct
the business in which Borrower is engaged.
nnnn. Financial Statements Reflect Financial Condition. Gemini has
furnished to Lender its financial statements, dated June 1,
1997, which financial statements are true and correct and
accurately represent (a) the financial condition of Gemini as
of the date thereof and (b) the results of the operations of
Gemini for the periods indicated. There has been no material
adverse change in the condition, financial or otherwise, of
Gemini since the date of that financial statement. Guarantors
and Delargen have furnished Lender their respective financial
statements, dated
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<PAGE>
April 30, 1997, which are true and correct.
oooo. Limited Partnership Name and Corporate Name. The limited
partnership name of Gemini as it appears in its Certificate of
Limited Partnership is as it appears on page 1 of the Loan
Agreement. Gemini has not used any other limited partnership
name or any other name since its organization. The corporate
name of Delargen as it appears in its Corporate Charter is as
it appears on page 1 of the Loan Agreement. Delargen has not
used any other corporate name or any other name except Gemini
Biotech, Inc. since its organization.
pppp. Federal Identification Number. The federal taxpayer
identification number of Gemini is 76-0539000 and of Delargen
is 76-0486626.
qqqq. Office of Borrower. The chief executive office and registered
address of the Borrower is located at 3608 Research Forest
Drive, Suite B-7, The Woodlands, Texas 77381.
rrrr. No Burdensome Agreements. The Borrower has not performed any
acts or signed any agreements which might prevent the Lender
from enforcing any of the terms of this Agreement or which
would limit the Lender in any such enforcement.
ssss. Performance of Covenants. Borrower has performed or complied
with all of Borrower's covenants and agreements required
hereby and under all Loan Documents.
tttt. No Default. No Default and no condition or event which, with
the giving of notice or lapse of time or both, would become a
Default, shall have occurred or if it has occurred will be
continuing.
uuuu. Accurate Representations and Warranties. The representations
and warranties contained in all the Loan Documents are true
and correct in all material respects on the date hereof.
vvvv. RD Instruction Received. Borrower has received a copy of the
RD Instruction 4279-A, 4279-B, and 4287-B pertaining to
Business and Industry Loans.
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wwww. Review of Loan Documents. Borrower has reviewed the Loan
Documents and notified Lender in writing of all
inconsistencies in the provisions of the Loan Documents.
xxxx. Inventory. All of the peptide reagents, enzymes,
oligonucleotides, monoclonal antibodies and cytokines are held
by Borrower for sale, or to be furnished under contracts of
service or they are held as raw materials, work in process or
materials used or consumed in a business.
Article - Collateral
yyyy. Description of Collateral. Payment of the Note and the
Indebtedness and the performance of the covenants set forth in
this Loan Agreement will be secured, directly or indirectly,
by a first priority perfected security interest or lien, as
the case may be, in and upon all of the following described
property and assets and in and upon those properties and
assets more particularly identified in the Loan Documents
("Collateral") (failure to name any security herein shall not
waive any rights of Lender in security taken now):
i. Real Property Collateral:
(1) All right, title and interest in
and to the leasehold estate of
Gemini under the sublease (the
"Lease") between Houston
Biotechnology Incorporated dated
on or about June 18, 1997 in that
certain real estate (the "Land")
situated in Montgomery County,
Texas, more particularly described
on Exhibit "1" to the Note
attached hereto as Exhibit "A" and
made a part hereof for all
purposes, together with all
appurtenances thereto and all
right, title and interest
(including any reversionary
interest) now and/or hereafter
owned, claimed, held or acquired
by Borrower, its successors and
assigns. This conveyance shall
also include and the lien,
security interest and assignment
created hereby shall encumber and
extend to all other, further
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or additional titles, estates,
interest or rights which may exist
now or at any time be acquired by
Borrower in or to the Land
including Borrower's rights, if
any, to purchase the property
demised under such lease and, if
fee simple title to any of such
property shall ever become vested
in Borrower, such fee simple
interest shall be encumbered by
the Deed of Trust in the same
manner as if Borrower had fee
simple title to such property as
of the date of execution hereof;
including all titles, estates,
interests, or rights in and to:
(a) the whole or any part of the
above described Land (including
all mineral rights and interests
of Borrower relating thereto);
and/or
(b) any easements, rights-of-way,
alleys, rights of ingress and
egress appurtenant to the Land
and/or
(c) any and all strips of land
adjoining, adjacent and/or
contiguous to the Land; and/or
(d) any street or road adjacent and or
contiguous to the Land;
(2) All buildings and other leasehold
improvements now or hereafter placed on
said Lease, as well as all
appurtenances, betterments and additions
thereto; all and singular the rights,
privileges, hereditaments, and
appurtenances in any wise incident or
appertaining to said Lease, and
improvements.
(3) All furniture, fixtures, equipment,
personal property, books, records and
files belonging to Borrower and now or
hereafter or from time to time situated
on or in or used in connection with said
Land, Lease, and improvements, whether
or not affixed to the realty, including,
but not limited to, lighting, heating
ventilating, air conditioning,
sprinkling, mechanical and plumbing
materials, fixtures and equipment, water
and power systems, engines, boilers,
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<PAGE>
furnaces, elevators, motors,
refrigeration, plants, awnings,
shrubbery, ranges, ovens, refrigerators,
dishwashers, disposals, carpeting,
laboratory fixtures and all
after-acquired property in the same
categories including all appurtenances,
additions and accessions thereto and
replacements thereof and articles in
substitution therefore, howsoever
attached or affixed and all products and
proceeds thereof. All of said property
and rights described in Subparagraphs
(1) through and (2) above and in this
Subparagraph (3) are hereinafter
collectively referred to herein as the
"Properties."
ii. Accounts Receivable. All of Borrower's
present and future (hereafter acquired)
accounts, accounts receivable, documents,
instruments, general intangibles, chattel
paper (as such terms are defined in the
Texas Business & Commerce Code), notes
receivable, drafts, acceptances and
contract rights, wherever located and all
replacements thereof and substitutions
therefore and all the products and proceeds
thereof.
iii. Inventory. All of Borrower's inventory,
including all goods, merchandise, raw
materials, goods in process, finished goods
and other tangible personal property now
owned or hereafter acquired and held for
sale or lease or furnished or to be
furnished under contracts for service or
used or consumed in Borrower's business and
all appurtenances, additions and accessions
thereto, and replacements thereof and
articles in substitution therefore,
howsoever attached and affixed, and
contracts with respect thereto and all
documents of title evidencing or
representing any part thereof, and all
products and proceeds thereof, whether in
possession of Borrower, warehouseman,
bailee or other person.
iv. Machinery and Equipment. All of Borrower's
machinery and equipment of every nature and
description whatsoever now owned or
hereafter acquired by Borrower including
without
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<PAGE>
limitation all equipment listed in Exhibit
"2" to the Note attached hereto as Exhibit
"A" and further including all
appurtenances, additions and accessions
thereto and replacements thereof and
substitutions therefor, howsoever attached
and affixed, wheresoever located, including
all tools, parts and accessories used in
connection therewith, and all products and
proceeds thereof, except any and all titled
rolling stock.
v. Furniture and Fixtures. All of Borrower's
furniture, fixtures and appurtenances
thereto, and such other goods, chattels and
personal property of Borrower, now owned or
hereafter acquired, including all
appurtenances, additions and accessions
thereto and replacements thereof and
articles in substitution therefore,
howsoever attached or affixed and all
products and proceeds thereof.
vi. Other Personal Property and General
Intangibles. All of Borrower's other
personal property and general intangibles,
now owned or hereafter acquired by
Borrower, including all appurtenances,
additions and accessions thereto and
replacements thereof and articles in
substitution therefore, howsoever attached
or affixed, and all products and proceeds
thereof.
vii. Guaranty. The absolute and unconditional
guaranty of Krishna Jayaraman, and the
absolute and unconditional guaranty of
Shashikala Jayaraman.
viii. Assignment of Life U.S. Insurance Policy.
Assignment of One Million and No/100
Dollars ($1,000,000.00) life insurance
policy on the life of Krishna Jayaraman.
ix. RBS Guaranty. Guaranty of RBS in the
principal amount of One Million Fifty-Two
Thousand and No/100 U.S. Dollars
($1,052,000.00).
zzzz. Security. It is agreed that the Collateral shall secure all
Indebtedness, regardless of how same may arise, and any and
all security or collateral given to secure any of the
Indebtedness shall additionally secure all of
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<PAGE>
the Indebtedness. Any Default under any of the Loan Documents
shall constitute a Default regarding all of the Indebtedness
or Collateral securing the payment of same.
aaaaa. Maintenance of Collateral. Borrower will safeguard and protect
and keep in good repair all Collateral for Lender's general
account and make no disposition thereof without Lender's prior
written permission. Borrower will not use the Collateral, or
permit the same to be used, for any unlawful purpose or in any
manner inconsistent with the provisions or requirements of any
insurance policy required in the Loan Documents.
bbbbb. Right to Inspect Collateral. Lender may at any time after
notice to Borrower take such steps as Lender deems reasonably
necessary to protect Lender's interest in and to preserve the
Collateral. RBS personnel and any person(s) accompanying RBS
personnel shall be authorized to enter upon the Borrower's
premises and into any building thereon, whether permanent or
temporary, jointly or separately, with personnel of the Lender
to carry out the functions involving Lender and RBS's
interests. It is anticipated that scheduled and unscheduled
inspections shall be conducted during normal business hours by
these personnel as well as final acceptance inspections.
Borrower agrees to cooperate fully with all of Lender's
efforts to preserve the Collateral and will take such actions
to preserve the Collateral as Lender may direct. All of
Lender's reasonable expenses of preserving the Collateral
shall be charged to Borrower's account and added to the Note.
ccccc. Insurance Requirements on Collateral. Borrower shall obtain
and maintain at Borrower's sole expense:
i. All Risk Insurance. All risk insurance with
respect to all insurable Collateral against
loss or damage by fire, lightning,
windstorm, explosion, hail, tornado, riot,
civil commotion, aircraft, vehicle, marine,
smoke, builder's risk during construction by
the business, property damage and such
hazards as are presently included in so
called "all risk"
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<PAGE>
coverage and against such other insurable
hazards as Lender may reasonably require, in
an amount not less than 100% of the
depreciated replacement cost, including the
cost of debris removal, and sufficient to
prevent Borrower and Lender from becoming a
coinsurer, or for an amount equal to the
full remaining balance of the Indebtedness,
whichever is less.
ii. Flood Insurance. A flood insurance policy
covering the Properties in an amount not
less than 100% of the full replacement cost,
including cost of debris removal, without
deduction for depreciation and sufficient to
prevent Borrower and Holder from becoming a
coinsurer or in an amount equal to the full
remaining balance of the Indebtedness,
whichever is less.
iii. Comprehensive General Public Liability
Insurance. Comprehensive general public
liability insurance, on an "occurrence"
basis, for the benefit of Borrower and
Lender as named insureds.
iv. Worker's Compensation. Statutory worker's
compensation insurance with respect to any
work on or about the Properties.
v. Other Insurance. Such other insurance on the
Collateral as may from time to time be
reasonably required by Lender (including but
not limited to business interruption
insurance, boiler and machinery insurance,
earthquake insurance, and war risk
insurance) and against other insurable
hazards or casualties which at the time are
commonly insured against in the case of land
and businesses similarly situated, due
regard being given to the height, type,
construction, location, use and occupancy of
buildings and improvements.
Terms of Insurance Policies. All insurance policies shall be
issued and maintained by insurers, in amounts, with
deductibles, and in a form satisfactory to Lender, and shall
require not less than thirty (30) days' prior written notice
to Lender of any cancellation or change of coverage. All
insurance policies maintained, or caused to be maintained, by
Borrower with respect to the
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<PAGE>
Collateral, except for public liability insurance, shall
provide that each such policy shall be primary without right
of contribution from any other insurance that may be carried
by Borrower or Lender and that all of the provisions thereof,
except the limits of liability, shall operate in the same
manner as if there were a separate policy covering each
insured.
Insolvency of Insurer. If any insurer which has issued a
policy of title, hazard, liability or other insurance required
pursuant to the Loan Documents becomes insolvent or the
subject of any liquidation, bankruptcy, receivership or
similar proceeding or if in Lender reasonable opinion the
financial responsibility of such insurer is or becomes
inadequate, Borrower shall, in each instance promptly upon the
request of Lender and at Borrower's expense, obtain and
deliver to Lender a like policy (or, if and to the extent
permitted by Lender, a certificate of insurance) issued by
another insurer, which insurer and policy meet the
requirements of the Loan Documents.
Loss Payee Clause Required. Without limiting the discretion of
Lender with respect to required endorsements to insurance
policies, all such policies for loss of or damage to the
Collateral shall contain a standard loss payee clause (without
contribution) naming Lender as loss payee with loss proceeds
to be payable to Lender notwithstanding:
(1) any act, failure to act or negligence of
or violation of any warranty,
declaration or condition contained in
any such policy by any named insured;
(2) the occupation or use of the Collateral
for purposes more hazardous than
permitted by the terms of any such
policy;
(3) any foreclosure or other action by
Lender under the Loan Documents;
(4) any change in title to or ownership of
the Collateral or any portion thereof,
such proceeds to be held for application
as provided in the Loan Documents.
Delivery of Insurance Policies to lender
and Payment of Premium. The originals of
each initial insurance policy (or to the
extent permitted by Lender, a copy of
the original policy and a satisfactory
certificate of
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<PAGE>
insurance or an insurance binder in a
form satisfactory to Lender) shall be
delivered to Lender at the time of
execution of the Loan Documents, with
premiums fully paid, and each renewal or
substitute policy (or certificate) shall
be delivered to Lender, with premiums
fully paid, at least ten (10) days
before the termination of the policy it
renews or replaces. Borrower shall pay
all premiums on policies required
hereunder as they become due and payable
and promptly deliver to Lender evidence
satisfactory to Lender of the timely
payment thereof. If any loss occurs at
any time when Borrower has failed to
perform Borrower's covenants and
agreements in paragraph 6.4, Lender
shall nevertheless be entitled to the
benefit of all insurance covering the
loss and held by or for Borrower, to the
same extent as if it had been made
payable to Lender. Upon any foreclosure
hereof or transfer of title to the
Collateral in extinguishment of the
whole or any part of the secured
Indebtedness, all of Borrower's right,
title and interest in and to the
insurance policies referred to in this
Section (including unearned premiums)
and all proceeds payable thereunder
shall thereupon vest in the purchaser at
foreclosure or other such transferee, to
the extent permissible under such
policies. Lender shall have the right
(but not the obligation) to make proof
of loss for, settle and adjust any claim
under, and receive the proceeds of all
insurance for loss of or damage to the
Collateral, and the expenses incurred by
Lender in the adjustment and collection
of insurance proceeds shall be a part of
the secured Indebtedness and shall be
due and payable to Lender on demand.
Lender shall not be, under any
circumstances, liable or responsible for
failure to collect or exercise diligence
in the collection of any of such
proceeds or for the obtaining,
maintaining or adequacy of any insurance
or for failure to see to the proper
application of any amount paid over to
Borrower. Any such proceeds received by
Lender shall, after deduction therefrom
of all reasonable expenses actually
incurred by Lender, including attorneys'
fees, at Lender option be:
(a) released to Borrower, or
(b) applied (upon compliance with such
terms and conditions as may be
required by Lender) to the repair
or restoration, either partly or
entirely, of the Collateral so
damaged, or
(c) applied to the payment of the
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<PAGE>
secured Indebtedness in such order
and manner as Lender, in its sole
discretion, may elect, whether or
not due. In any event, the unpaid
portion of the secured
Indebtedness shall remain in full
force and effect, and the payment
thereof shall not be excused.
Borrower shall at all times comply with the requirements of
the insurance policies required hereunder and of the issuers of such policies
and of any board of fire underwriters or similar body as applicable to or
affecting the Collateral.
ddddd. Books and Records Maintained. Borrower shall maintain books
and records pertaining to the Collateral in such detail, form
and scope as Lender or RBS shall reasonably require and in
accordance with generally accepted practices and procedures.
eeeee. Lender's Access to Borrower's Books and Records. Upon
forty-eight hours notice to Borrower, Lender, and any person
appointed by Lender to act for it and on its behalf, shall
have full access to and the right to audit, inspect and
examine and make copies at Borrower's premises of Borrower's
limited partnership, corporate and financial books and records
and other books, records and properties and to discuss its
affairs, finances and accounts with the General Partner of
Gemini and Borrower's independent certified public accountants
at all reasonable times and as often as may be reasonably
requested by the Lender.
fffff. Compliance with Governmental Laws and Regulations. Borrower
shall comply in all material respects with all acts, rules,
regulations and orders of any legislative, administrative or
judicial body or official applicable to the Collateral or any
part thereof, or to the operation of Borrower's business.
Borrower may, however, contest or dispute any acts, rules,
regulations, orders and directions of those bodies or
officials in any manner, provided Lender is satisfied that the
contest or dispute does not affect Lender's lien or security
interest in the
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<PAGE>
Collateral.
ggggg. Lender's Access for Removal Purposes. So long as anything is
owing under the Note or Indebtedness to Lender and upon the
occurrence and continuation of a Default, Lender may use any
of Borrower's owned or leased lifts, hoists, trucks or other
facilities or equipment for handling or removing the
Collateral and Lender shall have, and is hereby granted, a
right of ingress or egress to and through any of Borrower's
owned or leased property.
hhhhh. No Agency. Nothing contained herein shall be construed to
constitute Borrower as Lender's agent for any purpose
whatsoever, and Lender shall not be responsible or liable for
any shortage, discrepancy, damage, loss or destruction of any
part of the Collateral wherever same may be located and
regardless of the cause thereof. Lender does not, by anything
herein or in any assignment or otherwise, assume any of
Borrower's obligations under any contract or agreement
assigned to Lender, and Lender shall not be responsible in any
way for the performance by Borrower of any of the terms and
conditions hereof.
iiiii. Proceeds from Sales of Collateral. Borrower agrees that all
payments of any kind from any sale including but not limited
to public, private or auction of any of the Collateral, will
be made jointly payable to the Lender and the Borrower. These
payments include but are not limited to the sale of any
equipment, accounts receivable, real estate, inventory, bonds
or stocks. All proceeds must be applied to the Indebtedness
upon receipt of such proceeds unless Borrower elects to
deposit the proceeds into an account at his bank and
simultaneously makes a check payable to Lender.
Notwithstanding anything to the contrary, the above paragraph
shall apply only to those sales requiring prior Lender
approval pursuant to Section 4.8.
jjjjj. No Removal of Collateral. Borrower will not, without prior
written consent of Lender, allow any of the tangible
Collateral or any of the
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<PAGE>
documents or Borrower's books related to the Collateral be
removed from the State of Texas.
Article - Default
kkkkk. Events of Default. The occurrence of any of the following
events or conditions, provided they are not cured after ten
(10) calendar days written notice by Lender to Borrower
(unless such ten (10) calendar day period would unreasonably
subject Lender to a material loss of its rights as set out in
the Loan Documents, in which case a reasonable opportunity to
cure under the circumstances shall be given) shall constitute
a Default ("Default"):
i. Non-Payment Note. Failure of Borrower to pay
any installment of principal or interest on
the Note when due or declared due; the
failure to pay any portion of the
Indebtedness owed to Lender by Borrower or
Guarantors when due or declared due; or the
failure to pay any installment of principal
or interest of any other indebtedness owed
to Lender by Borrower or Guarantors,
regardless of how such indebtedness may
arise when due or declared due.
ii. Untrue Representation or Warranty. Any
representation or warranty made by Borrower
or Guarantors in any of the Loan Documents,
or in any certificate, financial statement
or other written statement furnished to
Lender by Borrower or Guarantors shall prove
to be untrue in any material respect.
iii. Breach of the Loan Documents. Failure of
Borrower or Guarantors to observe or perform
any of the terms, conditions, covenants, or
agreements contained in the Loan Documents
or the failure of Borrower or Guarantors to
observe or perform any of the terms,
conditions, covenants or agreements
contained in any agreement or instrument
executed in connection with any other
indebtedness owed to Lender by Borrower or
Guarantors.
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<PAGE>
iv. Non-Payment of Debts in General. Borrower or
Guarantors do not pay their debts generally
as they become due or admits in writing its
inability to pay its debts.
v. Assignment for the Benefit of Creditors.
Borrower or Guarantors make an assignment
for the benefit of creditors.
vi. Bankruptcy Filing. Borrower or Guarantors
are the subject of a petition (voluntary or
involuntary) in bankruptcy under Title 11 of
the United States Code and/or other
applicable state bankruptcy laws, as same
may be amended from time to time, or for
corporate reorganization filed by or against
any such party.
vii. Receivership for Collateral. A receiver is
appointed for all or any part of the
Collateral.
viii. Attachment or Sequestration of Collateral.
Borrower or Guarantors fail to have
discharged within a period of thirty (30)
days any attachment, sequestration or
similar writ levied upon any of the
Collateral of such party.
ix. Failure to Pay Judgment. Borrower or
Guarantors fail to pay immediately any final
money judgment against such party.
x. Litigation. Any litigation commences which
hinders or delays the collection of any part
of the Indebtedness or the exercise of any
right or option of Lender.
xi. Death or Termination of Business. Death,
incapacity, dissolution, business failure,
merger, or similar event, adversely affects
the Borrower or any Guarantor of the
Indebtedness.
xii. Prohibited Sale or Pledge of Collateral. Any
sale, conveyance, transfer, pledge or
hypothecation of any interest in the
Collateral or any part thereof, other than
as expressly permitted in any of the Loan
Documents, without prior written consent of
Lender.
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<PAGE>
xiii. Prohibited Use of Loan Proceeds or
Collateral. Borrower uses the Loan proceeds
or Collateral in any manner different from
the manner contemplated in the Loan
Documents.
xiv. Loan Note Guarantee Called. Any act or
failure to act by Borrower that creates an
obligation by RBS to pay all or any part of
the Loan under the terms of the Loan Note
Guarantee.
xv. Performance Impaired. Lender or any holder
of the Note believes in good faith that the
prospect of full payment of the Indebtedness
or performance of any covenants or
obligations by the Borrower is impaired.
xvi. Failure to Maintain Citizenship. Failure by
Gemini or its General Partner to maintain
ownership by at least fifty-one (51%)
percent citizens of the United States or
persons residing in the U.S. after being
legally admitted for permanent residence.
lllll. Automatic Default Without Opportunity to Cure. Any payment by
RBS of all or any part of the Loan under the terms of the Loan
Note Guarantee due in whole or in part to the acts of or
failure to act by the Borrower shall constitute an automatic
default ("Automatic Default") by Borrower. Notwithstanding the
Default provisions in paragraph 7.1 above, in the event of
Automatic Default by Borrower, Lender shall have no obligation
to give Borrower notice of Automatic Default nor give Borrower
an opportunity to cure said Automatic Default. Borrower hereby
expressly waives notice of Automatic Default and further
waives the opportunity to cure in the event of Automatic
Default.
mmmmm. Acceleration Upon Default. It is expressly provided that upon
Default or Automatic Default, Lender may declare the entirety
of the Indebtedness, including the Note, and all principal,
accrued interest, court costs and attorneys' fees hereunder,
immediately due and/or payable. Borrower and all sureties,
endorsers, guarantors and any other party now or hereafter
liable for the payment of the
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<PAGE>
Note, in whole or in part, hereby expressly and severally; (i)
waive demand, presentment for payment, notice of nonpayment,
protest, notice of protest, notice of intent to accelerate,
notice of acceleration and all other notice, filing of suit
and diligence in collecting the Note or enforcing any of the
security herefor; (ii) agree to any substitution,
subordination, exchange or the release of any such security or
the release of any party primarily or secondarily liable
hereon; (iii) agree that Holder shall not be required first to
institute suit or exhaust its remedies hereon against Borrower
or others liable or to become liable hereon or to enforce its
rights against them or any security herefor; and (iv) consent
to any extension or postponement of time of payment of the
Note and to any other indulgence with respect hereto without
notice thereof to any of them.
Article - Miscellaneous
nnnnn. Disbursement of the Loan. Borrower agrees that all of the loan
proceeds will be disbursed for the benefit of Gemini. Borrower
agrees that none of the loan proceeds shall be disbursed for
the benefit of Delargen. Borrower agrees that none of the loan
proceeds shall be disbursed to or for the benefit of Delargen
except to the extent it is for the payment of Delargen
obligations expressly assumed by Gemini. Attached as Exhibit
"C" is a written disbursements schedule signed and agreed to
by the Borrower listing names, addresses, and wiring
instructions of the recipients of the loans proceeds and the
amount to be paid each recipient known as of the date of the
closing of this transaction. Borrower warrants and represents
that the disbursements contemplated in Exhibit "C" comply with
the restrictions on the use of the loan proceeds set forth in
paragraph 3.1 above. Lender, at its sole option, may disburse
the loan proceeds directly to the recipients set forth in
Exhibit "C" as well as directly to any vendors of any of the
Collateral and/or creditors with claims or liens against the
Collateral, or in any other manner necessary to insure
Lender's first lien
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<PAGE>
security position in all of the Collateral and in collateral
acquired by Gemini after the closing of the Loan. Lender has
no obligation to disburse the loan proceeds or any part
thereof if such disbursement would not be in accordance with
the use of loan proceeds limitations set forth in paragraph
3.1, above.
ooooo. Further Documentation. Borrower, at any time and from time to
time, will execute and deliver such further documents and
instruments and take such further action as may be reasonably
requested by Lender, in order to cure any defects in the
execution and delivery of, or to comply with or accomplish the
terms, conditions, covenants, representations, warranties and
agreements contained in the Loan Documents.
ppppp. Notices. In the event any notice or other document is sent to
any party hereto, such notice or other document shall be sent
by hand delivery (including private delivery service) or by
registered or certified mail, return receipt requested, to the
party entitled to receive such notice or other document at the
address specified adjacent to their signature at the end of
this Loan Agreement or any such other address as such party
shall request in a written notice made in compliance herewith
and such notice or document will be deemed received on the
earlier of the date actually received if sent by hand delivery
(including private delivery service) or three (3) calendar
days after the date mailed.
qqqqq. Cumulative Remedies and No Waiver. No failure to exercise and
no delay in exercising or strictly enforcing on the part of
Lender of any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude
any other right, power or privilege. A waiver of Default by
Lender shall not be a waiver of any other or subsequent
Default. A waiver of Lender to require strict performance by
Borrower under the Loan Documents in any instance shall not
constitute a waiver of Lender's right to require strict
performance under the Loan Documents by Borrower in future
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<PAGE>
instances. The rights and remedies provided herein are
cumulative of, and not exclusive of, any rights or remedies
provided by law, in equity, or in any other agreement or Loan
Document, all of which Lender may pursue at any time and from
time to time.
rrrrr. Binding Effect. This Loan Agreement shall be binding upon
Borrower and their successors and permitted assigns and shall
be binding upon Lender and inure to the benefit of Lender, its
successors and assigns.
sssss. Unenforceable Provision. If a court of competent jurisdiction
finds any provision of this Loan Agreement, the Note, or the
Loan Documents to be invalid or unenforceable as to any person
or circumstance, such finding shall not render that provision
invalid or unenforceable as to any other persons or
circumstances. If feasible, any such offending provision shall
be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending
provision cannot be so modified, it shall be stricken and all
of the remaining provisions of this Loan Agreement in all
other respects shall remain valid and enforceable and in no
way affected thereby.
ttttt. Accounting Terms. Accounting terms used but not defined herein
shall have the meanings assigned to them in accordance with
generally accepted accounting principles consistently applied.
uuuuu. Note Participation. Borrower expressly recognizes and agrees
that Lender may sell to other financial institutions one or
more participations in the loans incurred by Borrower pursuant
hereto.
vvvvv. Loan Fees and Attorneys' Fees. Borrower shall pay all
out-of-pocket expenses and fees, including but not limited to,
loan fees, packaging fees, underwriting fees, referral fees,
brokerage fees, attorneys fees and expenses incurred by Lender
or Borrower as a result of making the Loan. Borrower shall pay
all fees and expenses of Lender in connection with the
enforcement, operation and
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<PAGE>
administration of this Loan Agreement, the Note, and all other
Loan Documents, or any waiver or amendment of any provision
hereof, and if a Default occurs, all reasonable fees, expenses
and disbursements of counsel employed in connection with any
and all collection efforts.
wwwww. Non-Usurious Interest. It is the intention of the parties
hereto to comply with applicable usury laws. Accordingly, it
is agreed that, notwithstanding any provision to the contrary
in this Loan Agreement, the Note, or the Loan Documents, in no
contingency or event whatsoever shall this Loan Agreement, the
Note, or any of the Loan Documents require the payment or
permit the collection of interest, as defined under applicable
usury laws, in excess of the maximum nonusurious rate provided
by law ("Usurious Interest"). If any such Usurious Interest is
contracted for, charged or received under this Loan Agreement,
the Note, or the Loan Documents, or if the maturity of the
Note is accelerated in whole or in part, or in the event that
all or part of the principal or interest upon the Note is
accelerated in whole or in part, or in the event that all or
part of the principal or interest upon the Note shall be
prepaid,so that under any of such circumstances, event or
contingency Usurious Interest is contracted for, charged or
received under this Loan Agreement, the Note, or the Loan
Documents then, in any such event, the provisions of this
section shall govern and control, neither Borrower nor
Guarantor, nor any other person or entity now or hereafter
liable under this Loan Agreement or the Loan Documents for the
payment of the Note shall be obligated to pay the amount of
such Usurious Interest to the extent that it is in excess of
the maximum amount of interest permitted under applicable
usury laws to be contracted for, charged to or received from
any person or entity obligated thereon. Any such excess
interest which may have been collected either shall be applied
as a credit against the then unpaid principal amount on the
Note or refunded to the person or entity paying the same, at
holder's option and the effective rate of interest shall be
automatically reduced to the maximum
Page 38
<PAGE>
nonusurious rate permitted by law. Determination of the rate
of interest for the purpose of determining whether the Loan
Agreement, the Note or the Loan Documents are usurious under
all applicable Texas laws shall be made by amortizing,
prorating, allocating, and spreading, in equal parts during
the period of the full stated term of the Note, all interest
at any time contracted for, charged, or received from the
Borrower in connection with the Loan Agreement, the Note or
the Loan Documents. However, in the event the Note is paid in
full by the Borrower prior to the end of the full stated term
of the Note and the interest received for the actual period of
the existence of the Note exceeds the maximum lawful rate, the
Lender contracting for, charging, or receiving all such
interest shall refund to the Borrower the amount of the excess
or shall credit the amount of the excess against amounts owing
under the Note and shall not be subject to any of the
penalties provided by law for contracting for, charging, or
receiving interest in excess of the maximum lawful rate.
xxxxx. Conflict in Loan Documents. This Loan Agreement, including the
representations and warranties made herein, shall survive the
delivery of the Note, the Loan Documents and the making of any
renewals thereof. In the event of any actual conflict in the
express terms and provisions of any of the Loan Documents, the
provisions of the Loan Documents requiring the strictest
standard or degree of performance (as permitted by law) by the
Borrower and giving the greatest degree of protection to the
Lender, its successors, assigns and attorneys, will be
applied. In no event will an actual conflict in the express
provisions of any of the Loan Documents permit a more lenient
standard or lesser degree of performance by the Borrower
unless required by law. In the event of any actual conflict
between the express terms and provisions of the Loan Documents
where in the conflicting terms and provisions there is no
difference in the standard of performance required of the
Borrower and the degree of protection for the Lender, then the
provisions of the Loan
Page 39
<PAGE>
Documents will take precedence in the order listed in
paragraph 1.16 above.
yyyyy. Venue, Jurisdiction and Governing Law. The Loan Documents and
any other agreement or instrument executed pursuant hereto are
performable in Richardson, Dallas County, Texas, at Lender's
office which shall be the proper place of venue for suit on
any dispute, matter or issue arising out of or related to the
Loan Documents, and Borrower irrevocably agrees that any legal
proceeding between thereon shall be brought in the District
Courts of Dallas County, Texas or the United States District
Court for the Northern District of Texas, Dallas Division
(collectively called the "Specified Courts"). Borrower and
Guarantor agree that a final, nonappealable judgment in any
such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in
any other manner provided by law. The Loan Documents and any
other agreement or instrument executed pursuant hereto shall
be governed by and construed in accordance with the applicable
laws of the State of Texas.
zzzzz. Multiple Originals. This Loan Agreement may be executed in
multiple originals, each of which shall be deemed an original.
aaaaaa. Headings. Headings in this Loan Agreement are for convenience
only and shall not be used to interpret or construe any of its
provisions.
bbbbbb. No Third Party Beneficiary. The Loan Documents are for the
benefit of the Lender and Borrower and their successors and
assigns, and the Borrower, Guarantors, and Lender intend that
no third party shall have any rights or claims by reason of
this contract, including but not limited to those third party
recipients set forth in Exhibit "C."
cccccc. Integration. The Loan Documents constitute the entire
agreement between the parties hereto regarding the Loan, and
any prior agreements between the parties, whether oral or
written, are superseded by the Loan Documents.
dddddd. Modification. The Loan Agreement and other Loan
Page 40
<PAGE>
Documents may only be modified or amended in writing signed by
the Lender and the Borrower.
eeeeee. Indemnification. BORROWER HEREBY AGREES TO INDEMNIFY AND HOLD
LENDER AND ANY SUBSEQUENT HOLDERS HARMLESS FROM ANY AND ALL
LOSSES, CLAIMS, EXPENSES, PROFESSIONAL FEES (INCLUDING BUT NOT
LIMITED TO ATTORNEYS FEES) OR LITIGATION INCURRED BY LENDER AS
A RESULT OF THE LOAN TO BORROWER.
ffffff. Documents survive the Closing. This Loan Agreement
and all of the other Loan Documents shall survive
the closing of the Loan.
gggggg. Joint and Several Liability of Gemini and Delargen.
Gemini and Delargen shall both be deemed makers of
the Note, and Gemini and Delargen shall be jointly
and severally liable as makers of the Note.
Page 41
<PAGE>
BENEFIT LIFE INSURANCE COMPANY Address for Notice:
1600 North Coit
Promenade Center 1010
Richardson, TX 75083
By: /s/Stanley E. Corvin, Jr.
--------------------------------------------
Stanley E. Corvin, Jr., Attorney-in-Fact
ACCEPTED AND AGREED TO on this the 24th day of June, 1997.
GEMINI BIOTECH, LTD. Address for Notice:
3608 Research Forest Drive,
Suite B-7
The Woodlands, Texas 77381
By: /s/Krishna Jayaraman
--------------------------------------------
Krishna Jayaraman, President of Delargen
Corporation, General Partner of Gemini
ACCEPTED AND AGREED TO on this the 24th day of June, 1997.
DELARGEN CORPORATION Address for Notice:
d/b/a Gemini Biotech, Inc. 3608 Research Forest Drive,
Suite B-7
The Woodlands, Texas 77381
By: /s/Krishna Jayaraman
--------------------------------------------
Krishna Jayaraman, President
ACCEPTED AND AGREED TO on this the 24th day of June, 1997.
KRISHNA JAYARAMAN Address for Notice:
3608 Research Forest Drive,
Suite B-7
The Woodlands, Texas 77381
By: /s/Krishna Jayarman
--------------------------------------------
Krishna Jayaraman, Limited Partner of Borrower
ACCEPTED AND AGREED TO on this the 24th day of June, 1997.
SHASHIKALA JAYARAMAN Address for Notice:
3608 Research Forest Drive,
Suite B-7
The Woodlands, Texas 77381
Page 42
<PAGE>
By: /s/Shashikala Jayaraman
--------------------------------------------
Shashikala, Limited Partner of Borrower
ACCEPTED AND AGREED TO on this the 24th day of June, 1997.
KRISHNA JAYARAMAN Address for Notice:
3608 Research Forest Drive,
Suite B-7
The Woodlands, Texas 77381
By: /s/Krishna Jayaraman
--------------------------------------------
Krishna Jayaraman, Guarantor
ACCEPTED AND AGREED TO on this the 24th day of June, 1997.
SHASHIKALA JAYARAMAN Address for Notice:
3608 Research Forest Drive,
Suite B-7
The Woodlands, Texas 77381
By: /s/Shashikala Jayaraman
--------------------------------------------
Shashikal, Guarantor
ACCEPTED AND AGREED TO on this the 24th day of June, 1997.
Page 43
MODIFICATION OF BENEFIT LIFE INSURANCE COMPANY LOAN AGREEMENT,
NOTE (ADJUSTABLE RATE NOTE),
AND OTHER LOAN DOCUMENTS
WHEREAS, Gemini Biotech, Ltd. and Delargen Corporation (hereinafter
jointly referred to as "Borrower"), as makers, executed a promissory note to
Benefit Life Insurance Company as holder (hereinafter "Holder") in the original
principal sum of One Million Three Hundred Fifteen Thousand and No/100 U. S.
Dollars ($1,315,000.00) and dated June 24, 1997, (hereinafter the "Loan");
WHEREAS, Krishna Jayaraman and Shashikala Jayaraman (hereinafter the
"Jayaramans") each executed Guaranty dated June 24, 1997, personally guarantying
the Loan;
WHEREAS, the Loan is documented by the following documents all of which
are dated June 24, 1997: Loan Agreement (the "Loan Agreement"); Note in the
principal amount of One Million Three Hundred Fifteen Thousand and No/100 U.S.
Dollars ($1,315,000.00) (Adjustable Rate Note) (the "Note"); Deed of Trust,
Security Agreement and Fixtures Financing Statement (Commercial) (the "Deed of
Trust"); Security Agreement of Gemini (the "Gemini Security Agreement");
Security Agreement of Delargen (the "Delargen Security Agreement"); Guaranty of
Krishna Jayaraman (the "Krishna Jayaraman Guaranty"); Guaranty of Shashikala
Jayaraman (the "Shashikala Jayaraman Guaranty"); Affidavit of Krishna Jayaraman
(the "Affidavit"); Certificate of Limited Partnership (the "Limited Partnership
Resolution"); Certificate of Corporate Resolution of Delargen (the "Certificate
of Corporate Resolution"); Document Correction Agreement (the "Document
Correction Agreement"); Notice of No Oral Agreements (the "Notice of No Oral
Agreements"); Attorney Representation Notice (the "Attorney Representation
Notice"); and UCC-1 Financing Statements (hereinafter the "Loan Documents").
WHEREAS, Borrower, the Jayaramans, and Holder desire to modify the Loan
Documents to reflect the acquisition of Gemini Biotech, Ltd. and Delargen
Corporation by Gemini Health Technologies, L.P., additional corporate
guaranties, and other modifications to the terms of the Loan Documents.
NOW THEREFORE, in consideration of Holder consenting to the acquisition
of Borrower by Gemini Health Technologies, L.P. and in further consideration of
related parties providing additional collateral for the Loan in the form of a
corporate guaranty from Electropharmacology, Inc., a corporate guaranty from EPi
HealthTech
MODIFICATION OF BENEFIT LIFE INSURANCE COMPANY LOAN DOCUMENTS - Page 1
<PAGE>
Inc. and a limited partnership guaranty from Gemini Health Technologies, L.P.,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Borrower, the Jayaramans and Holder agree as follows:
1. Loan to Principal. Notwithstanding paragraph 4.5 of the Loan Agreement,
Gemini Biotech, Ltd. may loan Thirty Thousand and NO/100 U.S. Dollars
($30,000.00) to Krishna Jayaraman for the sole purpose of purchasing an
automobile provided that the Borrower is current on the Note to Holder at the
time of the loan to Krishna Jayaraman and further provided that Holder is shown
as a lienholder on the title to the automobile until such time as the loan to
Krishna Jayaraman is paid in full.
2. Consent to Restructuring. Holder consents to the Jayaramans transferring
their limited partnership ownership interest in Gemini Biotech, Ltd. to Gemini
Health Technologies, L.P. provided that Electropharmacology, Inc., EPi
HealthTech Inc. and Gemini Health Technologies, L.P. execute guaranties on the
Note to Holder. Holder further consents to the transfer of all of the shares of
Delargen Corporation by the Jayaramans to Gemini Health Technologies, L.P.
3. Payment of Costs and Fees by Borrower. Borrower shall pay Holder's costs,
expenses and attorneys' fees incurred as a result of entering into this
Modification Agreement in the amount of $2,760.00 (hereinafter "Holder's Fees").
Borrower and the Jayaramans both acknowledge that such a fee is a reasonable
fee. Borrower and the Jayaramans agree that Holder's Fees shall be paid on the
date of this Modification.
4. Additional Salary to Krishna Jayaraman. Paragraph 4.14 of the Loan Agreement
is modified to read $150,000.00 rather than $100,000.
5. Audited Financial Statements. Paragraph 3.2.A. of the Loan Agreement is
amended to read that Electropharmacology, Inc. shall provide Holder with annual
audited financial statements and the Borrower shall provide Holder with annual
unaudited financial statements.
6. Adjustment to Financial Statements. Holder consents to Electropharmacology,
Inc. adjusting its balance sheet to reduce the value of Gemini Biotech, Ltd.'s
inventory to its net realizable value of approximately $731,000.00 rather than
its previously stated fair market value of $2,000,000.
7. Use of Funds. Holder consents to Borrower using $4,423.19 of
MODIFICATION OF BENEFIT LIFE INSURANCE COMPANY LOAN DOCUMENTS - Page 2
<PAGE>
the Loan Proceeds designated for debt refinancing in the original Loan Documents
to be used for working capital purposes. Holder further consents to Borrower
using the $84,386.59 of the Loan Proceeds designated for leaseholder
improvements in original Loan Documents to be used for working capital purposes,
and further consents to Borrower using $53,386.06 of the Loan Proceeds
designated for machinery and equipment for working capital purposes.
8. Reamoritization of Loan. Paragraph 1.10 of the Loan Agreement and the text of
the Note are amended to read that $948,195.84 rather than $806,000.00 of the
Loan Proceeds are dedicated for working capital and will be repaid within seven
(7) years of June 24, 1997, the date of the execution of the Note. Paragraph
1.10 of the Loan Agreement and the text of the Note are amended to read that
$336,804.16 rather than $509,000.00 of the Loan Proceeds are dedicated for
leaseshold improvements, machinery, equipment, and debt refinancing shall be
fully repaid within nine (9) years of the date of the execution of the Note.
9. Additional Collateral. Paragraph 6.1 of the Loan Agreement is amended to add
as additional Collateral (as defined in the Loan Agreement) sixty-five (65)
Model 912 Sofpulse devices owned by EPi HealthTech Inc., all of which devices
are listed by serial number in Exhibit "1" attached to the Security Agreement of
EPi HealthTech Inc.
10. Non Waiver Provisions. Borrower agrees to perform in accordance with all of
the terms, conditions, covenants, warranties, representations and requirements
of the Loan Documents as modified by this Modification. Borrower further
acknowledges and agrees that any performance or nonperformance required by the
Loan Documents up through the date of this Modification does not affect,
diminish or waive, in any way, the requirement of strict compliance by Borrower
and the Jayaramans with the Loan Documents as modified by this Modification.
Borrower and the Jayaramans agree and acknowledge that the acceptance of late
payments by Holder from Borrower up through the date of this Modification and
the entering in this Modification does not in any way affect, diminish or waive
Holder's right to accelerate the Note upon a Default (as defined in the Loan
Documents) by Borrower occurring after the date of this Modification. Borrower
and the Jayaramans expressly acknowledge the justness of the indebtedness owed
to the Holder by Borrower documented by the Note and other Loan Documents as
modified by this Modification. Borrower and the Jayaramans further expressly
acknowledge Borrower's willingness to pay the indebtedness documented by the
Loan Documents to the Holder in accordance with all of the Loan Documents as
modified by this
MODIFICATION OF BENEFIT LIFE INSURANCE COMPANY LOAN DOCUMENTS - Page 3
<PAGE>
Modification. Borrower and the Jayaramans acknowledge that the unpaid principal
and accrued interest on the Note as of the day of this Modification of even date
herewith is: $1,197,159.34.
11. Release. In consideration of Holder modifying the Note, Borrower and the
Jayaramans do hereby RELEASE, REMISE, CANCEL, ACQUIT, RELINQUISH AND FOREVER
DISCHARGE Holder, its employees, agents, successors, participants, and assigns
from any and all claims, demands, actions, and causes of action of any kind
whatsoever which Borrower and/or the Jayaramans have or might have against
Holder, its employees, agents, successors, participants, and assigns, whether
known or unknown, now existing or that might arise from the beginning of time up
through and including the date of this Modification, directly or indirectly
attributable to or in any way arising out of actions taken by Holder, its
employees, agents, successors, participants and assigns in anyway related to or
arising out of the Loan, including but not limited to, the manner in which the
Loan was funded by Holder or its agents, the disbursement of any of the Loan
proceeds, the non-disbursement of any of the Loan Proceeds, the charging,
contracting or receiving of interest which is greater than the amount
authorized, any other usury claims or defenses. By execution hereof, Borrower
warrants that it owns and holds the claims being released and further
represents, covenants, and warrants that no claim released herein has previously
been conveyed, assigned, or in any manner transferred, in whole or in part, to
any third party. The statements of release in this paragraph are not mere
recitals but are contractual.
12. Consent of Guarantor. The Jayaramans, in their capacities as personal
guarantors of the Note, hereby consent to this Modification, agrees to be bound
by the terms hereof as Guarantors, and further agree that nothing in this
Modification or in any of the other modification documents shall amend, modify,
cancel, change or diminish either of their Guaranties dated June 24, 1997.
13. Texas Business and Commerce Code Section 26.02 Notice. THIS MODIFICATION
DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN BORROWER, HOLDER AND GUARANTORS
REGARDING THE MODIFICATION OF THE LOAN DOCUMENTS. THE LOAN DOCUMENTS AS MODIFIED
BY THIS MODIFICATION DOCUMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT BETWEEN BORROWER, THE JAYARAMANS,
AND HOLDER. THERE ARE NO ORAL AGREEMENTS BETWEEN BORROWER, THE JAYARAMANS, AND
HOLDER.
14. Remaining Provisions. Except as modified in this Modification, all other
provisions of the Loan Documents shall
MODIFICATION OF BENEFIT LIFE INSURANCE COMPANY LOAN DOCUMENTS - Page 4
<PAGE>
remain unchanged and in full force and effect. The modifications set forth in
this Modification shall be effective as of the date below.
15. Reaffirmation of Warranties & Covenants. Borrower and The Jayaramans hereby
reaffirm all of their representations, warranties, covenants and obligations set
forth in the Loan Documents.
AGREED, ACCEPTED and EFFECTIVE this 22nd day of December, 1998.
BENEFIT LIFE INSURANCE COMPANY
By: /s/Keith Gregory
--------------------------
Keith Gregory, President
THE STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, the undersigned authority, in and for said county and state,
on this the day of , 1998, personally appeared Keith Gregory, known to me to be
the person whose name is subscribed to the foregoing instrument and in his
capacity as President of Benefit Life Insurance Company, acknowledged to me that
the same was the act and deed of said life insurance company; that he executed
the same for the purposes and consideration therein expressed, and in the
capacity therein stated.
--------------------------------------
NOTARY PUBLIC in and for
the State of TEXAS
My Commission Expires:
--------------------------------------
--------------------------------------
Printed or typed name of Notary
MODIFICATION OF BENEFIT LIFE INSURANCE COMPANY LOAN DOCUMENTS - Page 5
<PAGE>
GEMINI BIOTECH, LTD.
By: /s/Krishna Jayaraman
------------------------------------------------
Krishna Jayaraman, President of General Partner
THE STATE OF TEXAS
COUNTY OF
BEFORE ME, the undersigned authority, in and for said county and state,
on this the day of , 1998, personally appeared Krishna Jayaraman, known to me to
be the person whose name is subscribed to the foregoing instrument and in his
capacity as President of Delargen, the General Partner of Gemini Biotech, Ltd.
acknowledged to me that the same was the act and deed of said limited
partnership; that he executed the same for the purposes and consideration
therein expressed, and in the capacity therein stated.
--------------------------------------
NOTARY PUBLIC in and for
the State of TEXAS
My Commission Expires:
--------------------------------------
--------------------------------------
Printed or typed name of Notary
MODIFICATION OF BENEFIT LIFE INSURANCE COMPANY LOAN DOCUMENTS - Page 6
<PAGE>
DELARGEN CORPORATION
By: /s/Krishna Jayaraman
--------------------------------
Krishna Jayaraman, President
THE STATE OF TEXAS
COUNTY OF
BEFORE ME, the undersigned authority, in and for said county and state,
on this the day of , 1998, personally appeared Krishna Jayaraman, known to me to
be the person whose name is subscribed to the foregoing instrument and in his
capacity as President of Delargen Corporation acknowledged to me that the same
was the act and deed of said corporation; that he executed the same for the
purposes and consideration therein expressed, and in the capacity therein
stated.
--------------------------------------
NOTARY PUBLIC in and for
the State of TEXAS
My Commission Expires:
--------------------------------------
--------------------------------------
Printed or typed name of Notary
MODIFICATION OF BENEFIT LIFE INSURANCE COMPANY LOAN DOCUMENTS - Page 7
<PAGE>
GUARANTOR
By: /s/Krishna Jayaraman
---------------------------------
Krishna Jayaraman, Guarantor
THE STATE OF TEXAS
COUNTY OF
This instrument was acknowledged before me on the ______ day
of _______________ 1998, by Krishna Jayaraman to which witness my
hand and seal of office.
--------------------------------------
NOTARY PUBLIC in and for
the State of TEXAS
My Commission Expires:
--------------------------------------
--------------------------------------
Printed or typed name of Notary
MODIFICATION OF BENEFIT LIFE INSURANCE COMPANY LOAN DOCUMENTS - Page 8
<PAGE>
GUARANTOR
By: /s/Shashikala Jayaraman
-------------------------------
Shashikala Jayaraman, Guarantor
THE STATE OF TEXAS
COUNTY OF
This instrument was acknowledged before me on the ______ day
of _______________ 1998, by Shashikala Jayaraman to which witness
my hand and seal of office.
--------------------------------------
NOTARY PUBLIC in and for
the State of TEXAS
My Commission Expires:
--------------------------------------
--------------------------------------
Printed or typed name of Notary
MODIFICATION OF BENEFIT LIFE INSURANCE COMPANY LOAN DOCUMENTS - Page 9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-QSB AT SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 236,068
<SECURITIES> 0
<RECEIVABLES> 154,321
<ALLOWANCES> 26,367
<INVENTORY> 7,171
<CURRENT-ASSETS> 544,405
<PP&E> 610,707
<DEPRECIATION> (273,488)
<TOTAL-ASSETS> 1,889,088
<CURRENT-LIABILITIES> 2,335,248
<BONDS> 0
125,055
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,889,088
<SALES> 138,143
<TOTAL-REVENUES> 497,286
<CGS> 205,147
<TOTAL-COSTS> 205,147
<OTHER-EXPENSES> 16,867,496
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,721
<INCOME-PRETAX> (15,962,252)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,962,252)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,654,474)
<EPS-PRIMARY> (2.72)
<EPS-DILUTED> (2.72)
</TABLE>
