U.S. Securities and Exchange Commission
Washington, D.C. 2054
FORM 10-QSB/A
(Amendment No. 6)
(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)
12085 Research Drive, Alachua, Florida 32615
--------------------------------------------
(Address of principal executive offices)
(904) 462-2249
--------------
(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>
The following exhibit is hereby amended:
Part II. Item 2. Exhibits and Reports on Form 8-K
Exhibit
Number Description of Exhibit
- ------- ----------------------
10.7 Securities Purchase Agreement between EPi and Elan
International Services, Ltd. dated September 30, 1998
/*/ (P)
- -------
/*/ Confidential portions of this Exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934, as amended.
(P) In accordance with Rule 202 of Regulation S-T, Exhibit E of
Exhibit 10.7 is being filed in paper pursuant to a continuing hardship
exemption.
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 April 7, 2000 /s/ Arup Sen
-------------------------------------
Arup Sen
President and Chief Executive Officer
Dated April 7, 2000 /s/ Arup Sen
-------------------------------------
Arup Sen
Acting Chief Financial Officer
Exhibit 10.7
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.
/*/ Confidential portions of this Exhibit have been
omitted and filed separately with the Securities and
Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934 as amended.
<PAGE>
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 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:
<PAGE>
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 Common Stock
<PAGE>
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
<PAGE>
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, pledges,
<PAGE>
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 to,
<PAGE>
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 misappropriation contesting the
<PAGE>
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
<PAGE>
other 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 purpose of entering into the transactions
described herein and is acquiring the Securities for investment
<PAGE>
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 5% 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
rights, options or warrants exercisable, exchangeable or
convertible for or into Common Stock) representing in the
<PAGE>
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 instituted by a third party as a
result of which the Indemnifying Party may become obligated to
<PAGE>
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 promises made by the
Indemnifying Party herein) the Indemnifying Party shall not be
<PAGE>
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
<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, or any of the provisions hereof waived,
except by written agreement of the Company and EIS.
<PAGE>
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]
<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
<PAGE>
Exhibit A
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES A
CONVERTIBLE PREFERRED STOCK
This Exhibit was previously filed as Exhibit 4.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, Amendment No. 1 dated April 2, 1999 and is
incorporated by reference herein.
<PAGE>
Exhibit B
WARRANT TO ELAN INTERNATIONAL SERVICES, LTD. TO PURCHASE UP TO
1,000,000 SHARES OF EPI COMMON STOCK
This Exhibit was previously filed as Exhibit 4.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, Amendment No. 1 dated April 2, 1999, and is
incorporated by reference herein.
<PAGE>
Exhibit C
REGISTRATION RIGHTS AGREEMENT
This Exhibit was previously filed as Exhibit 4.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, Amendment No. 1 dated April 2, 1999, and is
incorporated by reference herein.
<PAGE>
Exhibit D
September 30, 1998
Elan International Services, Ltd.
102 St. James Court
Flatts Smith, FL 04
Bermuda
Re: Investment in Electropharmacology, Inc., pursuant
to the Letter Agreement dated August 27, 1998
Gentlemen and Ladies:
This opinion is being delivered to you pursuant to Section
1(d) of the Securities Purchase Agreement dated as of the date
hereof (the "Agreement"), by and between Electropharmacology,
Inc., a Delaware corporation (the "Company"), and Elan
International Services, Ltd., a Bermuda corporation ("EIS"). The
Agreement relates to a transaction pursuant to which the Company
will issue and sell to EIS, and EIS will purchase from the
Company, (i) 7,500 shares of convertible preferred stock (the
"Preferred Stock"), issued in accordance with a certificate of
designations, preferences and rights (the "Certificate of
Designations"), and a warrant (the "Warrant") for the purchase of
up to 1,000,000 shares (subject to adjustment) of the common
stock of the Company, par value $.01 per share (the "Common
Stock"), for aggregate consideration of $7,500,000, and (ii)
within 60 days of the date hereof, a certain number of shares of
Common Stock for aggregate consideration of $2,000,000 (the
"Subsequent Common Stock"; together with the Preferred Stock and
the Warrant, the "Securities"). The Subsequent Common Stock, the
Common Stock issuable upon the exercise, conversion or exchange
of any of the Securities, and any other Common Stock acquired by
EIS from time to time have the benefit of a registration rights
agreement (the "Registration Rights Agreement") between the
Company and EIS.
In connection with my preparation of this opinion, I have
examined originals, forms or copies, certified or otherwise
identified to our satisfaction, of the following documents:
1. The Agreement;
2. The Certificate of Designations;
3. The Warrant;
4. The Registration Rights Agreement;
5. Resolutions of the Board of Directors of the Company
dated August 25, 1998; and
6. The Articles of Incorporation of the Company, as
amended, as filed with the Secretary of State of the
State of Delaware and Bylaws of the Company, as
amended.
<PAGE>
I have also examined originals, or copies, certified or
otherwise identified to my satisfaction, of such other documents,
corporate or other records, and other instruments, as I deem
necessary or appropriate for the purpose of rendering the
opinions described herein. The documents referred to in items
(1) through (4) above will be referred to herein as the
STransaction Documents."
In preparing this opinion, I have relied as to certain
factual matters upon certificates or documents of public
officials and of the officers of the Company. In addition, I
have assumed (i) the genuineness of all signatures, except
signatures of the officers of the Company, (ii) the authenticity
of all documents submitted to us as originals, (iii) that each
document submitted to me as a copy is an authentic copy of an
authentic original, (iv) that each party to the transactions
described in the Transaction Documents other than the Company has
complied with all legal requirements pertaining to its status as
such status relates to its right to enforce against the Company
the Transaction Documents, and (v) that each report, certificate
or document of a public official relied upon by me in rendering
this opinion is accurate, complete and authentic, and that all
public records upon which those certificates or documents are
based are accurate and complete.
My opinion, as set forth herein, is subject to the following
further qualifications:
A. The enforceability of the Transaction Documents and all
other documents referred to in this opinion is limited by, and is
subject to, the effect of applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws, and by other legal
or equitable limitations affecting the enforceability of
creditors' rights from time to time; and
A. The enforceability of the Transaction Documents, and
all other documents referred to in this opinion (including
specifically, and without limitation, any provisions of such
documents relating to indemnification, contribution or release),
is subject to general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity or at
law.
Based upon the foregoing, it is my opinion that:
1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware. The Company has the requisite corporate power to
own its properties and to transact the business in which it
is engaged, and is duly qualified and in good standing as a
foreign corporation in each jurisdiction in which the nature
of its business or the ownership of its property has made
such qualification necessary.
2. The Company has full corporate power and authority to
execute and deliver each of the Transaction Documents to
which it is a party and to consummate the transactions
contemplated thereby. The Company has duly taken or caused
to be taken all necessary corporate actions to authorize
the execution, delivery and performance by it of the
<PAGE>
Transaction Documents, including, without limitation, the
issuance of the Securities thereunder.
3. Each of the Transaction Documents has been duly executed and
delivered by the Company and constitutes a valid, binding
and enforceable obligation of the Company.
4. Neither the execution and delivery of the Transaction
documents by the Company, nor the performance by the Company
of the actions contemplated by the Agreement to be performed
by the Company prior to or at Closing will (i) violate any
existing order or decree of any court or government
instrumentality to which the Company or its properties is
subject of which I have actual knowledge, (ii) violate any
provision of the Certificate of Incorporation or Bylaws of
the Company, (iii) result in the violation by the Company,
based upon existing facts of which I have actual knowledge,
of any federal or law, regulation or rule, (iv) violate or
conflict with any contract, agreement or instrument of the
Company listed on Schedule A which the Company has informed
me sets forth all of the Company's material contracts and
agreements, or (v) require any consent, approval or
authorization of governmental authority or any other third
party.
5. The Securities, and the Common Stock issuable upon
conversion of the Preferred Stock and exercise of the
Warrant, have been duly and validly authorized and issued,
and are fully paid and non-assessable. There exist, as of
this date, authorized but unissued securities in number not
less than the number of securities which the Company would
be required to issue as of this date if the Preferred Stock
were converted to Common Stock and the Warrant was exercised
as of this date. The Common Stock so required to be issued,
if issued as of this date on conversion of the Preferred
Stock or exercise of the Warrant would be fully paid and non-
assessable.
6. The authorized capital stock of the Company consists of (a)
30,000,000 shares of Common Stock, 12,750,303 of which have
been issued and are outstanding, and (b) 10,000,000 shares
of preferred stock, par value $.01 per share, 421,950 of
which have previously been issued as Series A Convertible
Preferred Stock but which are no longer outstanding. All
such authorized and issued shares of Common Stock are fully
paid and non-assessable.
7. To the best of my knowledge, the Company is in compliance,
in all material respects, with all applicable laws, regulations
and rules, and is not in breach, in any material respect, with
its existing contracts and agreements.
The undersigned is a member of the Bar of the State of Florida and expresses
no opinion herein as to any law other then the federal laws of the United
States of America and the Delaware General Corporation Law.
<PAGE>
This opinion is solely for your benefit and is not to be quoted in whole
or in part or otherwise referred to, nor is it to be filed with or disclosed
to any governmental agency or other person, without the prior written consent
of the undersigned.
Very truly yours,
/s/ Wendy M. Mitchler
----------------------
Vice President, Legal and Finance
<PAGE>
Exhibit E
DRAFT REGISTRATION STATEMENT ON FORM S-1
IN ACCORDANCE WITH RULE 202 OF REGULATION S-T, THIS EXHIBIT E OF EXHIBIT 10.7
IS BEING FILED IN PAPER PURSUANT TO A CONTINUING HARDSHIP EXEMPTION
<PAGE>
SCHEDULE 3(a)
EPi Foreign Jurisdictions
Florida
2301 N.W. 33rd Court
Suite 102
Pompano Beach 33069
<PAGE>
SCHEDULE 3(b)
EPi Securities
--------------
Outstanding Options
See attached Schedule 3(b)-1.
1,500,000 shares are authorized and reserved for issuance pursuant to the
1993 EPi Stock Option Plan, as amended, of which 1,500,000 shares have been
issued under the Plan. An additional 378,988 options have been granted under
the Plan in excess of those shares authorized for issuance, which grants are
subject to the adoption of an amendment to the Stock Option Plan authorizing
and reserving for issuance additional shares sufficient to encompass the
additional grants.
The option grants to Messrs. Saloff and Sen as of August 25, 1998 are
further governed by and subject to the respective Term Sheets governing their
employment each dated August 25, 1998. The option grant to Dr. Jayaraman as
of August 19, 1998 is further governed by the Employment Agreement between
Dr. Jayaraman and EPi dated as of August 18, 1998.
Outstanding Warrants
See attached Schedule 3(b)-2.
Other Rights Outstanding to Purchase or Otherwise Acquire, Or Other
Securities Exchangeable or Convertible into or Exercisable for, EPi Common
Stock
1. Shares of common stock of EPi authorized and reserved for issuance,
pursuant to the Non-Employee Directors Equity Compensation Plan, for
calendar year 1998 having a Fair Market Value (as defined in such plan)
of $7,500.
2. 6,000,000 partnership units in Gemini Health Technologies L.P. and the
right to acquire up to 2,050,000 of additional earn-out partnership
units pursuant to the Capital Contribution Agreement between EPi, EPi
HealthTech Inc. ("EPi Sub"), Gemini Biotech Ltd., the Jayaramans and
Gemini Biotech Inc. dated June 18, 1998, all of which partnership units
are exchangeable into EPi common stock pursuant to Unit Exchange
Agreement dated as of June 18, 1998 between EPi and Krishna Jayaraman,
Shashikala Jayaraman, and Gemini Health Technologies L.P.
3. Right to acquire up to 1,650,000 earn out shares of EPi common stock by
shareholders of HealthTech Development Inc. ("HTD") pursuant to the
Agreement of Merger and Plan of Reorganization among EPi, EPi Sub., Inc.
and HTD dated June 11, 1998
<PAGE>
4. Right to acquire up to 100,000 additional shares of EPi common stock
pursuant to Letter Agreement between 20th Century Associates, Inc. and
EPi dated November 25, 1998.
Agreements Concerning the Voting, Acquisition or Disposition of EPi's
Outstanding Securities
1. Master Agreement dated as of June 28, 1998 among HTD, Gemini Biotech,
Ltd., Gemini Biotech, Inc., EPi, EPi Sub, Mr. Norton Herrick (a) David
Saloff, Murray Feldman, George Levine, and Paragon Capital Corporation
at Spear, Leeds & Kellogg, LLC (collectively, the "EPHI Group"), (b)
Arup Sen, James Kaput and Richard Kneipper (collectively, the "HTD
Group") and (c) Krishna Jayaraman and Shashikala Jayaraman
(collectively, the "Gemini Group"), as amended on August 3, 1998.
2. Letter Agreement regarding voting of EPi common stock by and between
Norton Herrick and Murray Feldman dated August 3, 1998.
Agreements to Register EPi's Outstanding Securities Under the U.S. Federal
Securities Acts
1. Registration Rights Agreement dated as of June 28, 1998 among EPi,
Norton Herrick, the EPHI Group, the HTD Group and the Gemini Group.
2. Piggy back Registration Rights granted to certain warrantholders under
those warrant agreements identified in Schedule 3(b)-2.
<PAGE>
SCHEDULE 3(b)-1
EPi Outstanding Options
9/23/98
<TABLE>
<CAPTION>
DATE # OF
NAME ISSUED PRICE SHARES TERM TYPE VESTING
------ ------ ------ ------ ----- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Feldman, Murray 6/28/95 $ 5.25 5,000 6/28/00 NSO B;F
Rausch, Tom 6/28/95 $ 5.25 250 6/28/00 NSO M
Robertson, Scott 6/28/95 $ 5.25 2,500 6/28/00 NSO M
Soffin, Glen 6/28/95 $ 5.25 250 6/28/00 NSO M
Stewart, Nancy 6/28/95 $ 5.25 500 6/28/02 ISO C
Mooibroek, Joseph 8/5/96 $ 5.50 207,236 8/5/06 NSO B
Saloff, David 4/14/98 $0.32 100,000 8/5/06 ISO B
Kronick, Larry 12/13/96 $2.88 15,000 12/13/98 NSO H
Sen, Arup 11/11/96 $ 4.75 75,000 11/10/06 ISO G
Feldman, Murray 12/13/96 $ 2.875 15,000 12/13/01 NSO F;A
Stewart, Nancy 12/13/96 $ 2.875 2,000 12/13/06 ISO A
Dabb, Richard 1/1/97 $3.06 20,000 1/1/02 NSO D
Kinney, Brian 4/14/98 $0.32 20,000 1/1/02 NSO D;J
Mayrovitz, Harvey 1/1/97 $2.75 7,500 1/1/02 NSO E
Sen, Arup 6/24/97 $1.81 25,000 6/24/07 ISO B
Feldman, Murray 12/31/97 $0.28 2,500 12/31/01 NSO F;B
Sen, Arup 1/3/98 $0.26 244,823 1/.03/98 ISO K
Mitchler, Wendy 1/12/98 $0.28 125,000 1/12/08 ISO L
Sen, Arup 2/1/98 $0.35 17,143 2/1/08 ISO B
Saloff, David 2/1/98 $0.35 34,286 2/1/08 ISO B
Occhionero, Rita 1/3/98 $0.26 10,000 1/3/98 ISO D
Saloff, David (1) 8/25/98 $0.85 200,000 8/24/08 ISO N
Sen, Arup (1) 8/25/98 $0.85 500,000 8/25/08 ISO O
Jayaraman, Krishna 8/19/98 $1.06 250,000 8/19/08 ISO P
Total per Schedule 1,878,988
</TABLE>
Vesting Formula:
A = 20% immediately; 20% after the first anniversary; 20% after the second
anniversary; 20% of remaining after the third anniversary; 20% after the
fourth anniversary
B = Vested
C = 20% after the first anniversary; 5% quarterly
D = 25% immediately; 25% after the first anniversary; 25% after the second
anniversary; 25% after the third anniversary
E = 1,500 shares immediately; 2,000 shares after the first anniversary; 2,000
shares each succeeding anniversary
F = Optionee must be a director of EPi on the date of exercise
G = 25,000 immediately; 20,000 after the first anniversary; 10,000 after each
succeeding anniversary - to be cancelled at transaction
H = 5,000 vest upon $250,000 in 2-year period international revenue,
additional 5,000 after $750,000, all 15,000 after $1,500,000
J = Optionee must be a consultant to EPi on the date of exercise
K = 50% immediately; 50% on July 1, 1998 in lieu of cash and stock
compensation
L = 25% immediately; 25% after 3 months; 25% each succeeding 3-month period
M = 100% upon execution and acceptance of related stock option agreement
N = 20% per year starting with first anniversary; to accelerate based on
following annual sales revenue: $[omission], additional 25%, $[omission],
additional 25%, $[omission], remaining 50%. Vesting to accelerate as
determined by Board of Directors based on (a) demonstration that PEMS
facilitates cell regeneration for would healing and Epi pursues product
approval or (b) receipt of earn-out warrants from ADM Tronics
O = 75,000 shares upon reorganization on 8/24/98; additional $75,000 upon
closing of Elan transaction; additional 50,000 upon annual revenue of
$[omission]; additional 25,000 upon first anniversary of option grant
(8/24/99); and additional 250,000 based on milestones set by Board of
Directors.
P = 20% immediately; 25% on the first and second anniversary of grant date;
and 30% on third anniversary.
FOOTNOTES:
(1) Grant is subject to shareholder approval of increase in number of shares
authorized to be issued under the Epi Stock Option Plan. Number of shares
authorized for issuance at 9/23/98 is 1.5 MM.
<PAGE>
SCHEDULE 3(b)-2
Electropharmacology, Inc.
Outstanding Warrants
23-Sep-98
<TABLE>
<CAPTION>
WARRANTS
--------
Issue Post Post Split
No. Date Issued to Pre Split Split Price Years
---- ----- --------- -------- ----- -------- ----
<S> <C> <C> <C> <C> <C> <C>
W-003 12/1/93 P. Saloff 13,500 8,717 $5.42 5
W-006 8/1/94 AA Pilla PhD 65,000 41,969 $5.03 5
12/5/94 L. Schlesinger 15,000 9,685 $5.03 5
6/28/95 Arsenault, J. 30,000 $4.00 5
6/28/95 Canale, T. 25,000 $5.25 4
6/28/95 H. LeVay 3,000 $5.25 5
6/28/95 M. Porter 3,000 $5.25 5
6/28/95 Z. Rose 3,000 $5.25 5
6/28/95 C. Torre 3,000 $5.25 5
12/15/95 Freidman, R. 32,500 $1.00 5*
12/15/95 J. Markowitz 32,500 $1.00 5*
12/15/95 Whale 40,000 $5.50 5*
12/15/95 Shapiro (Whale) 40,000 $5.50 5*
12/15/95 Segal (Whale) 20,000 $5.50 5*
4/11/97 Joseph Mooibroek 25,000 $2.25 10
-------
Subtotal Outstanding at 9/23/98 317,371
-------
</TABLE>
* Warrantholder has certain registration notice and piggyback
registration rights
<PAGE>
SCHEDULE 3(e)
List of Required Consents, Approvals, etc.
None.
<PAGE>
SCHEDULE 3(f)
Pension, Profit Sharing, Deferred Compensation, Stock Ownership, Stock
Purchase, Bonus, Severance, Health or Group Insurance, Welfare Plans
1. EPi Non-Employee Directors' Equity Compensation Plan
2. EPi Premium Only Plan effective August 1, 1995
3. EPi 1993 Stock Option Plan, as amended
4. Dental Services Agreement between EPi and Oral Health Services, Inc.
effective February 1, 1997
5. Group Life and AD&D Insurance Plan between EPi and Metropolitan Life
Insurance Company effective February 1, 1997
6. Accident and Health Insurance Policy between EPi and United HealthCare
Insurance Company effective February 1, 1997
7. Group Policy for Small Employer Enrolling Units between EPi and United
HealthCare of Florida, Inc. effective February 1, 1997
8. Disability Plan between EPi and Guarantee Life Insurance Company dated
November 1, 1996
9. EPi 401(k) Plan effective May 1, 1995
10. EPi 401(k) Plan effective January 1, 1998
Fringe Benefits Agreements
1. Vacation Policy
2. Leave of Absence Policy
3. Holiday Policy
4. Termination Policy
Employee Agreements
1. Agreement between EPi and Jack W. Baxter dated April 23, 1997 (See
Schedule 3(j))
2. Term Sheet between EPi and David Saloff dated August 25, 1998
3. Term Sheet between EPi and Arup Sen dated August 25, 1998
4. Employment Agreement between EPi and Krishna Jayaraman dated August 18,
1998
<PAGE>
SCHEDULE 3(g)
Material Adverse Changes, Dividends, Intellectual Property Actions
and Liabilities in Excess of $50,000
See Schedule 3(g)-1 for a summary of the balance sheet impact of the
reorganization transactions entered into by EPi on August 24, 1998 (the
"Reorganization Transactions"), including the divestiture of its SofPulse
assets and certain rights under EPi's intellectual property, including the
world-wide right to manufacture and sell the SofPulse device for its current
labeled indication, pursuant to an Asset Purchase Agreement dated May 27,
1998 between EPi, ADM Tronics Unlimited, Inc. And AA Northvale Medical
Associates, Inc.; the guarantee of a $1.3 million secured business loan to
Gemini Biotech, Ltd in connection with the acquisition of Gemini Biotech, Ltd
through a newly organized limited partnership, Gemini Health Technologies
L.P.; and the merger of HTD with and into EPi Sub, all of which resulted in a
change of control and the incurrence of a $63.654 liability to Arup Sen in
order for Dr. Sen to exercise certain options to purchase EPi Common Stock.
<PAGE>
Schedule 3(g)-1a
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 1998
<TABLE>
<CAPTION>
Merger
----------
Historical
------------
ASSETS Pro Forma
EPi HTD Adjustments
----- ----- -----------
<S> <C> <C> <C>
Current assets:
Cash 62,465 48
Trade accounts receivable 126,723
Inventory 159,043
Trade notes and other
receivables 2,181
Prepaid expenses 161,962
--------- ------ ----------
Total current assets 512,374 48 -
--------- ------ ----------
Rental and other equipment 568,497 966
Patents & Organization Cost 86,088
Deposits 5,075
Acquired Developed Technology 2,000,000 (1)
Investment in ADM Tronics
=========== ===== ===========
Total Assets 1,172,034 1,014 2,000,000
=========== ===== ===========
LIABILITES AND NET CAPITAL DEFICIENCY
Current liabilities
Note Payable 719,276
Accounts payable 509,330 44,500
Accrued expenses 308,224
Accrued commissions 14,262
Accrued payroll 1,767
Customer deposits -
Deferred Revenue 75,000
Notes payable to related
parties 65,926 63,654 (4)
--------- -------- ----------
Total current liablities 1,693,785 44,500 63,654
--------- -------- ----------
Long term Note Payable 90,260
Minority Interest in Limited Partnership
========= ======== ==========
Total Liabilities 1,784,045 44,500 63,654
========= ======== ==========
Commitments and contigencies
Net capital deficiency/Equity:
Convertible Preferred Stock 2,430
Common Stock 41,325 32 61,689 (1)
Additional paid-in capita 15,277,249 194,522 1,703,225 (1)
Deferred Compensation (67,678)
General Partner (%1)
Limited Partners (%99)
Deficit/Retained Earnings (15,865,337) (238,040) 171,432 (1),(4)
---------- --------- ---------
Net capital deficiency/Total Equity (612,011) (43,486) 1,936,346
========== ========= =========
Total liabilites and net capital
deficiency 1,172,034 1,014 2,000,000
========== ========= =========
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Merger
-----------
Historical
----------
ASSETS Pro Forma Pro Forma
Combined GBLP Adjustments
--------- --------- -----------
<S> <C> <C> <C>
Current assets: 62,513 285,064
Cash 126,723 57,697
Trade accounts
receivable, net 159,043 7,528
Inventory 2,181 30,200
Trade notes and other
receivables 161,962 -
Prepaid expenses --------- -------- -----------
512,422 380,488 -
--------- -------- -----------
Rental and other equipment 569,463 252,976
Patents & Organization Cost, net 86,088 67,034
Deposits 5,075 3,350
Acquired Developed Technology 2,000,000 2,000,000 (2)
Investment in ADM Tronics -
========== ======== ==========
3,173,048 703,848 2,000,000
========== ======== ==========
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Note payable 719,276 97,185
Accounts payable 553,830 (480)
Accrued expenses 308,224 68,958
Accrued commissions 14,262 -
Accrued payroll 1,767 22,361
Customer deposits -
Deferred Revenue 75,000
Notes payable to related
parties 129,580
-
---------- -------- ----------
Total Liabilities 1,801,939 188,025 -
---------- -------- ----------
Commitments and contingencies 90,260 932,791 1,692,985 (2)
========== ========= =============
Net capital deficiency/Equity 1,892,199 1,120,816 1,692,985
========== ========= =============
Convertible Preferred Stock 2430
Common Stock 103,046
Additional paid-in capital 17,174,996
Deferred Compensation (67,678)
General Partner (%1) (85,656) 87,919 (2)
Limited Partners (99%) 5,000 219,096 (2)
Deficit/Retained Earnings (15,931,945) (336,312)
Net capital deficiency/
Total Equity 1,280,849 (416,967) 307,015
----------- ---------- -----------
Total liabilities and net capital
deficiency 3,173,048 703,848 2,000,000
=========== ========== ===========
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Medical Device
Divestiture
--------------
Pro Forma
Pro Forma Pro Forma Combined
Combined Adjustments (as adjusted)
----------- ----------- -------------
<S> <C> <C> <C>
Current assets:
Cash 347,577 135,000 (3) 482,577
Trade accounts
receivable, net 184,420 184,420
Inventory 166,571 (152,233) (3) 14,338
Trade notes and
other receivables 32,381 32,381
Prepaid expenses 161,962 7,500 (5) 169,462
-------- ---------- --------
892,910 (9,733) 883,177
-------- ---------- --------
Rental and other equipment 822,439 (613,466) (3) 208,973
Patents & Organization
Cost, net 153,122 153,122
Deposits 8,425 8,425
Acquired Developed Technology 4,000,000 4,000,000
Investment in ADM Tronics - 606,667 (3) 606,667
========== =========== ==========
Total Assets 5,876,896 (16,532) 5,860,364
========== =========== ==========
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Note Payable 816,461 (672,750) (3) 143,711
Accounts payable 553,350 (48,169) (3) 505,181
Accrued expenses 377,182 (21,581) (3),(5) 355,601
Accrued commissions 14,262 14,262
Accrued payroll 24,128 24,128
Customer deposits - -
Deferred Revenue 75,000 75,000
Notes payable to related
parties 129,580 129,580
- -
---------- --------- ---------
1,989,964 (742,500) 1,247,464
---------- --------- ---------
Long term note payable 1,023,051 1,023,051
Minority Interest in Limited
Partnership 1,692,985 1,692,985
========== ========= ==========
Total Liabilites 4,706,000 (742,500) 3,963,500
========== ========= ==========
Commitments and contingencies
Net capital deficiency/Equity:
Convertible Preferred Stock 2,430 2,430
Common Stock 103,046 3,226 (3) 106,272
Additional paid-in capital 17,174,996 96,774 (3) 17,271,770
Deferred Compensation (67,678) (67,678)
General Partner (%1) 2,263 2,263
Limited Partners (99%) 224,096 224,096
Deficit/Retained Earnings (16,268,257) 625,968 (3) (15,642,289)
---------- --------- ----------
Net capital deficiency/Total Equity 1,170,896 725,968 1,896,864
========== ========= ==========
Total liabilites and net capital
deficiency 5,876,896 (16,532) 5,860,364
========== ========= ==========
</TABLE>
(1) To reflect the elimination of HTD equity accounts, issuance of EPI shares
and allocation of the purchase price in excess of net tangible assets
acquired, see Note 2 to the Pro Forma Condensed Combined Financial
Statements.
(2) To reflect the elimination of the GBLP equity accounts, issuance of EPI
shares and allocation of the purchase price in excess of net tangilble
assets acquired, see Note 2 to the Pro Forma Condensed Combined Financial
Statements.
(3) To reflect the sale of the Medical Device Business for $150,000 cash (net
of $15,000 registration fee) and ADM stock (2,925,000 shares) pursuant to
the Asset Purchase Agreement.
(4) To record additional liability uncurred to Arup Sen as if the change in
control occurred on June 30, 1998.
(5) To record purchase of a one-year product liability policy for discontinued
products coverage.
<PAGE>
ProForma EPI after Asset Sale
3(g)-1b
ProForma Condensed Combined Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
Merger
--------
Historical
-------------
ASSETS Pro Forma
EPi HTD Adjustments
------ ----- -------------
<S> <C> <C> <C>
Current assets :
Cash 111,496 809
Trade accounts receivable 169,406
Inventory 152,233
Trade notes and other receivables 32,748
Prepaid expenses 157,065
------- ------ ------------
Total current assets 622,946 809 -
------- ------ ------------
Rental and other equipment, net 713,466 1,159
Patents & Organization Cost, net 89,129
Deposits 18,001
Acquired Developed Technology 2,000,000 (1)
Investment in ADM Tronics
---------- ----- ----------
Total Assets 1,443,542 1,968 2,000,000
========== ===== ==========
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Note Payable 804,179
Accounts payable 380,313 44,500
Accrued expenses 187,933
Accrued commissions 46,181
Accrued payroll 18,385
Customer deposits 7,561
Deferred Revenue
Notes payable to related parties 73,926
--------- ------ ----------
Total current liabilities 1,518,478 44,500 -
--------- ------ ----------
Long term Note Payable
Minority Interest in Limited Partnership
--------- ------ ----------
Total Liabilities 1,518,478 44,500 -
========= ====== ==========
Commitments and contingencies
Net capital deficiency/Equity:
Convertible Preferred Stock 2,430
Common Stock 40,711 32 62,126 (1),(4)
Additional paid-in capital 15,254,912 192,522 1,766,442 (1),(4)
Deferred Compensation (67,678)
General Partner (1%)
Limited Partners (99%)
Deficit/Retained Earnings (15,305,311) (235,086) 171,432 (1),(4)
Net capital deficiency/ --------- ------- ----------
Total Equity (74,936) (42,532) 2,000,000
Total liabilities and net --------- ------- ----------
capital deficiency 1,443,542 1,968 2,000,000
========= ======= ==========
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Merger
----------
Historical
----------
ASSETS ProForma ProForma
Combined GBLP Adjustments
------ ----- -------------
<S> <C> <C> <C>
Current assets:
Cash 112,305 454,992
Trade accounts receivable 169,404 43,090
Inventory 152,233 5,000
Trade notes and other
receivables 32,748
Prepaid expenses 157,065 3,125
------- ------- -------------
Total current assets 623,755 506,207 -
------- ------- -------------
Rental and other equipment 714,625 195,818
Patents & Organization Cost, net 89,129 75,437
Deposits 18,001 3,350
Acquired Developed Technology 2,000,000 2,000,000 (2)
Investment in ADM Tronics -
--------- -------- ----------
Total Assets 3,445,510 780,812 2,000,000
========= ======== ==========
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Note Payable 804,179 97,185
Accounts payable 424,813 26,818
Accrued expenses 187,933 15,408
Accrued commissions 46,181 3,748
Accred payroll 18,385
Customer deposits 7,561
Deferred Revenue -
Notes payable to related parties 73,926
-
--------- ------ ----------
Total current liabilities 1,562,978 143,159 -
--------- ------ ----------
Long term Note Payable - 944,668
Minority Interest in limited
partnership 1,692,985 (2)
--------- ------ ----------
Total liabilities 1,562,978 1,087,827 1,692,985
========= ====== ==========
Commitments and contingencies
Net capital deficiency/Equity:
Convertible Preferred Stock 2,430
Common Stock 102,869
Additional paid-in capital 17,213,876
Deferred Compensation (67,678)
General Partner (1%) (87,919) 87,919 (2)
Limited Partners (99%) (219,096) 219,096 (2)
Deficit/Retained Earnings (15,368,965)
Net capital deficiency/ --------- ------- ----------
Total Equity 1,882,532 (307,015) 307,015
Total liabilties and net --------- ------- ----------
capital deficiency 3,445,510 780,812 2,000,000
========= ======= ==========
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Medical Device
Divestiture
-------------
ProForma
ProForma ProForma Combined
Combined Adjustments (adjusted)
------ ------- ----------
<S> <C> <C> <C>
Current assets:
Cash 567,297 135,000 (3) 702,297
Trade accounts receivable 212,494 212,494
Inventory 157,233 (152,233) (3) 5,000
Trade notes and other
receivable 32,748 32,748
Prepaid Expenses 160,190 160,190
-------- ------- ---------
Total current assets 1,129,962 (17,233) 1,112,729
------- ------- ---------
Rental and other equipment 910,443 (613,466) (3) 296,977
Patents & Organization Cost, net 164,566 164,566
Deposits 21,351 21,351
Acquired Developed Technology 4,000,000 4,000,000
Investment in ADM Tronics - 606,667 (3) 606,667
-------- ------- ---------
Total Assets 6,226,322 (24,032) 6,202,290
======== ======= =========
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Note Payable 901,364 (672,750) (3) 228,614
Accounts payable 451,631 (48,169) (3) 403,462
Accrued expenses 203,341 (29,081) (3) 174,260
Accrued commissions 49,929 49,929
Accured payroll 18,385 18,385
Customer deposits 7,561 7,561
Deferred Revenue - -
Notes payable to related
parties 73,926 73,926
- -
-------- ------- --------
Total current liabilibes 1,706,137 (750,000) 956,137
-------- ------- --------
Long term Note Payable 944,668 944,668
Minority Interest in limited
partnership 1,692,985 1,692,985
-------- -------- ---------
Total liabilites 4,343,790 (750,000) 3,593,790
======= ======== =========
Commitments and contingencies
Net capital deficiency/Equity:
Convertible Preferred Stock 2,430 2,430
Common Stock 102,869 3,226 (3) 106,095
Additional paid-in capital 17,213,876 96,774 (3) 17,310,650
Deferred Compensation (67,678) (67,678)
General Partner (%1) - -
Limited Partners (99%) - -
Deficit/Retained Earnings (15,368,965) 625,968 (3) (14,742,997)
Net capital deficiency/ --------- ------- ----------
Total Equity 1,882,532 725,968 2,608,500
Total liabilites and net --------- ------- ----------
capital deficiency 6,226,322 (24,032) 6,202,290
========= ======= ==========
</TABLE>
(1) To reflect the elimination of HTD equity accounts, issuance of EPI shares
and allocation of the purchase price in excess of net tangible assets
acquired, see Note 2.
(2) To reflect the elimination of the GBLP equity accounts, issuance of EPI
shares and allocation of the purchase price in excess of net tangilble
assets acquired, see Note 2.
(3) To reflect the sale of the Medical Device Business for $150,000 cash (net
of $15,000 registration fee) and ADM stock (2,925,000 shares) pursuant to
the Asset Purchase Agreement.
(4) To record additional shares of stock assuming the issuance of 436,966
options issued to Arup Sen as if the change in control occurred on
December 31, 1997.
<PAGE>
Electropharmacology, Inc.
Statement of Operations
(unaudited)
3(g)-1c
Pro Form Condensed Combined Statement of Operations
Year Ended December 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Merger
------------
Historical Historical
- ------------- ----------
Pro Forma Pro Forma
EPi HTD Adjustments Combined GBLP
------ ------ ---------- --------- -----
<S> <C> <C> <C> <C> <C>
Revenue:
Rentals 1,700,486 - 1,700,486 -
Sales 700,763 - 700,763 118,018
--------- ------ ---------- --------- -------
Total revenue 2,401,249 - - 2,401,249 118,018
Operating expenses:
Cost of revenue 611,702 - 611,702 92,619
Selling, general
and administrative 3,177,031 89,972 196,987(1),(3) 3,463,990 193,169
Research and
development 214,686 28,070 242,756 -
-------- ------- ---------- -------- -------
Total operating
expenses 4,003,419 118,042 196,987 4,318,448 285,788
-------- ------- ---------- -------- -------
Loss from operations (1,602,170) (118,042) (196,987) (1,917,199) (167,770)
Other income (expense)
Interest expense (25,135) (2,198) (27,333) (71,622)
Interest and
other income 9,894 124 10,018 13,033
Loss on disposal
of equipment (30,506) (30,506)
Total other
income (expense) (45,747) (2,074) - (47,821) (58,589)
--------- -------- --------- -------- --------
Net loss (1,647,917) (120,116) (196,987) (1,965,020) (226,359)
========= ======== ========= ======== ========
Net loss per share
- basic and diluted (0.45) (37) (0.20) -
========= ======== ========= ======== ========
Weighted average
number of common
shares outstanding
- basic and diluted 3,697,611 3,247 6,172,095 9,869,706 -
========= ======== ========= ======== ========
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Medical Device
Divestiture
--------------
Merger
----------
Pro Forma
Pro Forma Pro Forma Pro Forma Combined
Adjustments Combined Adjustments (as adjusted)
----------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenue:
Rentals 1,700,486 (1,700,486) (2) -
Sales 818,781 (700,763) (2) 118,018
----------- -------- -------- ---------
Total Revenue - 2,519,267 (2,401,249) 118,018
Operating expenses:
Cost of revenue 704,321 (611,702) (2) 92,619
Selling, general
and administrative 133,333 (1) 3,790,492 (2,000,000) (2) 1,790,492
Research and development 242,756 242,756
----------- -------- -------- ---------
Total operating expenses 133,333 4,737,569 (2,611,702) 2,125,867
=========== ======== ======== =========
Loss from operations (133,333) (2,218,302) 210,453 (2,007,849)
Other income (expense)
Interest expense (98,955) 25,135 (2) (73,820)
Interest and other income 23,051 23,051
Loss on disposal of equipment (30,506) (30,506)
Total other income ----------- -------- -------- ---------
(expense) - (106,410) 25,135 (81,275)
----------- -------- -------- ---------
Net Loss (133,333) (2,324,712) 235,588 (2,089,124)
=========== ======== ======== =========
Net loss per share
- basic and diluted (0.24) (0.20)
======== =========
Weighted average number
of common shares outstanding
- basic and diluted 9,869,706 322,581 10,192,287
======== ======== =========
</TABLE>
(1) To record amortization of intangible assets acquired. An amortization
period of 15 years is asumed. See Note 2.
(2) To reflect the sale of the Medical Device Division, including related
depreciation expense and savings of 2,000,000 in SG&A costs, as if it had
occurred on January 1, 1997
(3) To record additional stock issued as compensation of $63,654 to Arup Sen
in accordance with employment agreement as if it had occurred on January 1,
1997. See Note 4
Electropharmacology, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Merger
------------
Historical
---------------------------
Pro Forma Pro Forma
ASSETS EPi HTD Adjustments Combined
- ------ --------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets :
Cash 111,496 809 112,305
Trade accounts receivable 169,404 169,404
Inventory 152,233 152,233
Trade notes and other receivables 32,748 32,748
Prepaid expenses 157,065 157,065
----------- ----------- ------------ -----------
Total current assets 622,946 809 -- 623,755
----------- ----------- ------------ -----------
Rental and other equipment, net 713,466 1,159 714,625
Patents & Organization Cost, net 89,129 89,129
Deposits 18,001 18,001
Acquired Developed Technology 2,000,000 (1) 2,000,000
Investment in ADM Tronics --
----------- ----------- ------------ -----------
Total Assets 1,443,542 1,968 2,000,000 3,445,510
=========== =========== ============ ===========
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Note Payable 804,179 804,179
Accounts payable 380,313 44,500 424,813
Accrued expenses 187,933 187,933
Accrued commissions 46,181 46,181
Accrued payroll 18,385 18,385
Customer deposits 7,561 7,561
Deferred Revenue --
Notes payable to related parties 73,926 73,926
--
----------- ----------- ------------ -----------
Total current liabilities 1,518,478 44,500 -- 1,562,978
----------- ----------- ------------ -----------
Long term Note Payable --
Minority Interest in Limited Partnership
----------- ----------- ------------ -----------
Total Liabilities 1,518,478 44,500 -- 1,562,978
=========== =========== ============ ===========
Commitments and contingencies
Net capital deficiency/Equity:
Convertible Preferred Stock 2,430 2,430
Common Stock 40,711 32 62,126 (1), (4) 102,869
Additional paid-in capital 15,254,912 192,522 1,766,442 (1), (4) 17,213,876
Deferred Compensation (67,678) (67,678)
General Partner (1%)
Limited Partners (99%)
Deficit/Retained Earnings (15,305,311) (235,086) 171,432 (1), (4) (15,368,965)
----------- ----------- ------------ -----------
Net capital deficiency/Total Equity (74,936) (42,532) 2,000,000 1,882,532
----------- ----------- ------------ -----------
Total liabilities and net capital deficiency 1,443,542 1,968 2,000,000 3,445,510
=========== =========== ============ ===========
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Medical Device
Merger Divestiture
------------ ---------------
Historical
------------
Pro Forma Pro Froma Pro Forma
ASSETS GBLP Adjustments Combined Adjustments
- ------ ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C>
Current assets:
Cash 454,992 567,297 135,000 (3)
Trade accounts receivable 43,090 212,494
Inventory 5,000 157,233 (152,233)(3)
Trade notes and other receivables 32,748
Prepaid expenses 3,125 160,190
----------- ----------- ----------- -----------
Total current assets 506,207 -- 1,129,962 (17,233)
----------- ----------- ----------- -----------
Rental and other equipment, net 195,818 910,443 (613,466)(3)
Patents & Organization Cost, net 75,437 164,566
Deposits 3,350 21,351
Acquired Developed Technology 2,000,000 (2) 4,000,000
Investment in ADM Tronics -- 606,667 (3)
----------- ----------- ----------- -----------
Total Assets 780,812 2,000,000 6,226,322 (24,032)
=========== =========== =========== ===========
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Note Payable 97,185 901,364 (672,750)(3)
Accounts payable 26,818 451,631 (48,169)(3)
Accrued expenses 15,408 203,341 (29,081)(3)
Accrued commissions 3,748 49,929
Accrued payroll 18,385
Customer deposits 7,561
Deferred Revenue --
Notes payable to related parties 73,926
----------- ----------- ----------- -----------
Total current liabilities 143,159 -- 1,706,137 (750,000)
----------- ----------- ----------- -----------
Long term Note Payable 944,668 944,668
Minority Interest in Limited Partnership 1,692,985 (2) 1,692,985
----------- ----------- ----------- -----------
Total Liabilities 1,087,827 1,692,985 4,343,790 (750,000)
=========== =========== =========== ===========
Commitments and contingencies
Net capital deficiency/Equity:
Convertible Preferred Stock 2,430
Common Stock 102,869 3,226 (3)
Additional paid-in capital 17,213,876 96,774 (3)
Deferred Compensation (67,678)
General Partner (1%) (87,919) 87,919 (2) --
Limited Partners (99%) (219,096) 219,096 (2) --
Deficit/Retained Earnings (15,368,965) 625,968 (3)
----------- ----------- ----------- -----------
Net capital deficiency/Total Equity (307,015) 307,015 1,882,532 725,968
----------- ----------- ----------- -----------
Total liabilities and net capital deficiency 780,812 2,000,000 6,226,322 (24,032)
=========== =========== =========== ===========
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Elan
Transactions
------------
Pro Forma Pro Forma
Combined Pro Forma Combined
ASSETS (as adjusted) Adjustments (as adjusted)
- ------ ------------- ---------------- ----------------
<S> <C> <C> <C>
Current assets:
Cash 702,297 2,000,000 (5) 2,702,297
Trade accounts receivable 212,494 212,494
Inventory 5,000 5,000
Trade notes and other receivables 32,748 32,748
Prepaid expenses 160,190 160,190
----------- ----------- -----------
Total current assets 1,112,729 2,000,000 3,112,729
----------- ----------- -----------
Rental and other equipment, net 296,977 296,977
Patents & Organization Cost, net 164,566 164,566
Deposits 21,351 21,351
Acquired Developed Technology 4,000,000 4,000,000
Investment in ADM Tronics 606,667 606,667
----------- ----------- -----------
Total Assets 6,202,290 2,000,000 8,202,290
=========== =========== ===========
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Note Payable 228,614 228,614
Accounts payable 403,462 403,462
Accrued expenses 174,260 174,260
Accrued commissions 49,929 49,929
Accrued payroll 18,385 18,385
Customer deposits 7,561 7,561
Deferred Revenue -- --
Notes payable to related parties 73,926 73,926
----------- ----------- -----------
Total current liabilities 956,137 -- 956,137
----------- ----------- -----------
Long term Note Payable 944,668 944,668
Minority Interest in Limited Partnership 1,692,985 1,692,985
----------- ----------- -----------
Total Liabilities 3,593,790 -- 3,593,790
=========== =========== ===========
Commitments and contingencies
Net capital deficiency/Equity:
Convertible Preferred Stock 2,430 7,500,000 (5) 7,502,430
Common Stock 106,095 25,000 (5) 131,095
Additional paid-in capital 17,310,650 1,975,000 (5) 19,285,650
Deferred Compensation (67,678) (67,678)
General Partner (1%) -- --
Limited Partners (99%) -- --
Deficit/Retained Earnings (14,742,997) (7,500,000) (5) (22,242,997)
----------- ----------- -----------
Net capital deficiency/Total Equity 2,608,500 2,000,000 4,608,500
----------- ----------- -----------
Total liabilities and net capital deficiency 6,202,290 2,000,000 8,202,290
=========== =========== ===========
</TABLE>
(1) To reflect the elimination of HTD equity accounts, issuance of EPI shares
and allocation of the purchase price in excess of net tangible assets
acquired, see Note 2.
(2) To reflect the elimination of the GBLP equity accounts, issuance of EPI
shares and allocation of the purchase price in excess of net tangilble
assets acquired, see Note 2.
(3) To reflect the sale of the Medical Device Business for $150,000 cash (net
of $15,000 registration fee) and ADM stock (2,925,000 shares) pursuant to
the Asset Purchase Agreement.
(4) To record additional shares of stock assuming the issuance of 436,966
options issued to Arup Sen as if the change in control occurred on December
31, 1997.
(5) To record the initial license fee ($7.5M), convertible preferred stock
investment ($7.5M), and common stock investment ($2M) assumed 2,500,000
shares at $0.80 per share. See Note 5.
Electropharmacology, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Merger
--------------
Historical
---------------------------
Pro Forma Pro Forma
EPi HTD Adjustments Combined
--------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenue:
Rentals 1,700,486 -- 1,700,486
Sales 700,763 -- 700,763
---------- ---------- ---------- ----------
Total revenue 2,401,249 -- -- 2,401,249
Operating expenses:
Cost of revenue 611,702 -- 611,702
Selling, general and administrative 3,177,031 89,972 196,987(1),(3) 3,463,990
Research and development 214,686 28,070 242,756
---------- ---------- ---------- ----------
Total operating expenses 4,003,419 118,042 196,987 4,318,448
---------- ---------- ---------- ----------
Loss from operations (1,602,170) (118,042) (196,987) (1,917,199)
Other income (expense)
Interest expense (25,135) (2,198) (27,333)
Interest and other income 9,894 124 10,018
Loss on disposal of equipment (30,506) (30,506)
---------- ---------- ---------- ----------
Total other income (expense) (45,747) (2,074) -- (47,821)
---------- ---------- ---------- ----------
Net loss (1,647,917) (120,116) (196,987) (1,965,020)
========== ========== ========== ==========
Net loss per share - basic and diluted (0.45) (37) (0.20)
========== ========== ==========
Weighted average number of common shares outstanding -
basic and diluted 3,697,611 3,247 6,172,095 9,869,706
========== ========== ==========
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Medical Device
Merger Divestiture
------------ ---------------
Historical
------------
Pro Forma Pro Froma Pro Forma
GBLP Adjustments Combined Adjustments
------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenue:
Rentals -- 1,700,486 (1,700,486) (2)
Sales 118,018 818,781 (700,763) (2)
---------- ---------- ---------- ----------
Total revenue 118,018 -- 2,519,267 (2,401,249)
Operating expenses:
Cost of revenue 92,619 704,321 (611,702) (2)
Selling, general and administrative 193,169 133,333 (1) 3,790,492 (2,000,000) (2)
Research and development -- 242,756
---------- ---------- ---------- ----------
Total operating expenses 285,788 133,333 4,737,569 (2,611,702)
---------- ---------- ---------- ----------
Loss from operations (167,770) (133,333) (2,218,302) 210,453
Other income (expense)
Interest expense (71,622) (98,955) 25,135 (2)
Interest and other income 13,033 23,051
Loss on disposal of equipment (30,506)
---------- ---------- ---------- ----------
Total other income (expense) (58,589) -- (106,410) 25,135
---------- ---------- ---------- ----------
Net loss (226,359) (133,333) (2,324,712) 235,588
========== ========== ========== ==========
Net loss per share - basic and diluted -- (0.24)
========== ==========
Weighted average number of common shares outstanding -
basic and diluted -- 9,869,706 322,581
========== ==========
</TABLE>
<PAGE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Elan
Transactions
------------
Pro Forma Pro Forma
Combined Pro Forma Combined
(as adjusted) Adjustments (as adjusted)
------------- ---------------- ----------------
<S> <C> <C> <C>
Revenue:
Rentals -- --
Sales 118,018 118,018
---------------- ---------------- ----------------
Total revenue 118,018 -- 118,018
Operating expenses:
Cost of revenue 92,619 92,619
Selling, general and administrative 1,790,492 1,790,492
Research and development 242,756 7,500,000 (4) 7,500,000
---------------- ---------------- ----------------
Total operating expenses 2,125,867 7,500,000 9,383,111
---------------- ---------------- ----------------
Loss from operations (2,007,849) (7,500,000) (9,265,093)
Other income (expense)
Interest expense (73,820) (73,820)
Interest and other income 23,051 23,051
Loss on disposal of equipment (30,506) (30,506)
---------------- ---------------- ----------------
Total other income (expense) (81,275) -- (81,275)
---------------- ---------------- ----------------
Net loss (2,089,124) (7,500,000) (9,346,368)
================ ================ ================
Net loss per share - basic and diluted (0.20)
================
Weighted average number of common shares outstanding -
basic and diluted 10,192,287
================
</TABLE>
(1) To record amortization of intangible assets acquired. An amortization
period of 15 years is asumed. See Note 2.
(2) To reflect the sale of the Medical Device Division, including related
depreciation expense and savings of 2,000,000 in SG&A costs, as if it had
occurred on January 1, 1997
(3) To record additional stock issued as compensation of $63,654 to Arup Sen in
accordance with employment agreement as if it had occurred on January 1,
1997. See Note 4
(4) To record the initial license fee ($7.5M) related to the Elan transaction.
See Note 5.
SCHEDULE 3(h)
Liabilities Incurred
--------------------
See Schedule 3(g)-1 for a listing of those liabilities incurred in connection
with the Reorganization Transactions.
<PAGE>
SCHEDULE 3(i)(ii)
Possible Limitations On or Claims Against EPi's Intellectual Property Rights
- ----------------------------------------------------------------------------
1. Royalties payable to Aronex Pharmaceutical in order to maintain
exclusive rights under the Aronex License Agreement with Gemini with
respect to Phosphazole class of compounds.
2. Royalities payable and development obligation with respect to the MMP
Pump protein marker for malignant cancers pursuant to the Vanderbilt
University license agreement with HTD.
3. Rights granted to ADM Tronics Unlimited, Inc. To manufacture and sell
worlwide the SofPulse product pursuant to the Asset Purchase Agreement
with EPi.
<PAGE>
SCHEDULE 3(j)
Legal Proceedings
1. Diapulse Corporation of America, Inc. ("Diapulse") v. Magnetic Resonance
Therapeutics, Inc. et al., filed in August 1994 in the Supreme Court of
the State of New York, Nassau County
2. Citizen's petition filed in February 1993 by Diapulse with the U.S. Food
and Drug Administration
3. O'Connell v. Kinetech Medical, Inc. and Electropharmacology, Inc. filed
in August 1997 in the County Court in Dallas, Texas
4. Baxter v. Electropharmacology, Inc. filed in July 1998 in the Circuit
Court of Broward County, Florida
<PAGE>
SCHEDULE 3(l)
Brokers or Finders
------------------
None.
