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.
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:
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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED PURSUANT TO THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION. WITHOUT SUCH REGISTRATION, NO TRANSFER OF THESE SHARES OR
ANY INTEREST THEREIN MAY BE MADE UNLESS THE CORPORATION HAS RECEIVED AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION THAT SUCH
TRANSFER DOES NOT REQUIRE SUCH REGISTRATION.
(g) Registration Rights Agreement. On the date hereof, each of
the Company and EIS is executing and delivering the Registration Rights
Agreement, covering the resale by EIS of the Common Stock issuable hereunder
upon conversion of the Preferred Stock, exercise of the Warrant, issuance of the
Subsequent Common Stock and the issuance of any Common Stock hereinafter
acquired by EIS or any affiliate thereof.
SECTION 2. Subsequent Funding. (a) Subsequent Issuance of
Securities. On the Subsequent Closing Date, if the Subsequent Funding shall
occur, the Company shall issue and sell to EIS, and EIS shall purchase from the
Company, $2,000,000 of the Subsequent Common Stock, in accordance with Section
2(b) below, subject to the conditions contained herein.
(b) Subsequent Common Stock. (i) On the Subsequent Closing
Date, the Company shall issue and sell to EIS, and EIS shall purchase from the
Company, a number of shares of Common Stock equal to the quotient obtained by
dividing $2,000,000 by an amount equal to either (A) the price per share of
Common Stock to investors in the Third Party Placement, or (B) in the event that
the Third Party Placement shall not have been consummated on or before the last
day of the Placement Period, the average closing price of the Common Stock as
reported on its principal trading exchange for the 20 consecutive trading days
ending on the day which is two trading days prior to the Subsequent Closing Date
(the "Market Price").
(ii) In the event that the Company shall consummate
a private placement of Common Stock (or securities exchangeable, exercisable or
convertible into Common Stock) within six months after the Subsequent Closing
Date, at a price per share below the price per share of Common Stock to EIS in
respect of the Subsequent Funding, the Company shall issue a number of
additional shares of Common Stock to EIS in an amount equal to the difference
between (A) the number of shares of Common Stock purchased by EIS in the
Subsequent Funding (as determined in accordance with subsection (b)(i) above),
and (X) the quotient obtained by dividing $2,000,000 by the price to a third
party in such private placement.
(iii) Notwithstanding anything contained herein,
whether or not the Third Party Placement has been consummated, in no event shall
the purchase price of Subsequent
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Common Stock referred to in clause (i) above exceed $1.375 per share.
(c) Conditions to the Subsequent Funding. It shall be a
condition to EIS's obligation to purchase securities in the Subsequent Funding
after receiving the Company's notice, issued pursuant to Section 1(b) hereof,
that (i) each of the representations and warranties set forth in Section 3(a),
(b)(iii), (c), (d), (e), (f), (g), (h), (i) and (l) hereof shall be true and
correct in all material respects on the Initial Closing Date and the Subsequent
Closing Date; provided, that each reference to the Quarterly Report in such
Sections shall refer to the most recent quarterly report on Form 10-Q and each
report filed pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), required to be filed by the Company under
applicable law immediately prior to such Subsequent Closing Date and date of
Notice and SEC Filings shall refer to all filings required to be made by the
Company under applicable law on or prior to such dates, (ii) there shall be no
default or breach in any material respect by the Company of a material
obligation under any of the Transaction Documents or any other agreement between
the Company, on the one hand, and EIS or any of its affiliates, on the other
hand and (iii) from the date hereof until the Subsequent Closing Date the
Company shall not have experienced a Material Adverse Effect (as defined below).
SECTION 3. Representations and Warranties of the Company. The
Company hereby represents and warrants to EIS as follows:
(a) Organization. (i) The Company is duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own and lease its properties, to
carry on its business as presently conducted and as proposed to be conducted by
description in the Company's draft Registration Statement on Form S-1, including
the pro forma financial statements attached thereto (collectively, the "S-1",
which is intended to be initially filed with the U.S. Securities and Exchange
Commission (the "SEC") on or about October 15, 1998 in the form attached hereto
as Exhibit E), and to consummate the transactions contemplated by the
Transaction Documents. The Company is qualified and in good standing to do
business in jurisdictions set forth on Schedule 3(a), which constitute all of
the jurisdictions in which the nature of the business conducted or the property
owned by it requires such qualification, except where the failure to so qualify
would not reasonably be expected to have a material adverse effect on the
business, prospects, properties or condition (financial or otherwise) of the
Company (a "Material Adverse Effect").
(ii) In the event that the S-1 as filed with, and declared
effective by, the SEC shall contain material differences from Exhibit E,
indicating a Material Adverse Effect or causing a breach of a representation,
warranty or covenant contained herein, which shall result in money damages to
EIS, then EIS shall submit a claim to the Company in the amount of such damages
pursuant to Section 6 hereof.
(b) Capitalization. (i) As of August 31, 1998, the authorized
capital stock of the Company consisted of (A) 30,000,000 shares of Common Stock,
par value $.01 per share, of
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which 12,750,303 were issued and outstanding and (B) 10,000,000 shares of
Preferred Stock, par value $.01 per share, none of which were issued and
outstanding.
(ii) Except as set forth in Schedule 3(b), as of the date
hereof there are no options, warrants or other rights outstanding to purchase or
otherwise acquire, or any securities exchangeable or convertible into or
exercisable for, any of the Company's authorized capital stock. Other than as
set forth on Schedule 3(b), there are no agreements, arrangements or
understandings concerning the voting, acquisition or disposition of any of the
Company's outstanding securities, and, other than as set forth in Schedule 3(b)
or in the Registration Rights Agreement, there are no agreements to register any
of the Company's outstanding securities under the U.S. federal securities acts
relating to securities that have not already been registered under the
Securities Act.
(iii) All of the outstanding shares of capital stock of the
Company have been issued in accordance with applicable state and federal laws
and regulations governing the issuance, sale and purchase of securities, all of
such shares of have duly and validly issued and are fully paid and
non-assessable, and none of such shares carries pre-emptive or similar rights.
(c) Authorization of Transaction Documents. The Company has
full corporate power and authority to execute and deliver this Agreement and
each of the other Transaction Documents, and to perform its obligations
hereunder and thereunder. The execution, delivery and performance by the Company
of the Transaction Documents (including the issuance and sale of the Securities)
have been authorized by all requisite corporate actions by the Company; and the
Transaction Documents, including the issuance and sale of the Securities, have
been duly executed and delivered by the Company and are the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms. The Securities, when issued, will be duly and validly
issued, not subject to any pre-emptive or similar rights. The transactions
contemplated hereby, to the best of the Company's knowledge, will vest in EIS
legal and valid title to the Securities.
(d) No Violation. The execution, delivery and performance by
the Company of the Transaction Documents, including the issuance and sale of the
Securities, and compliance with the provisions thereof, will not (i) violate any
provision of applicable law, statute, rule or regulation applicable to the
Company, or any ruling, writ, injunction, order, judgment or decree of any
court, arbitrator, administrative agency or other governmental body applicable
to the Company or any of its properties or assets or (ii) conflict with or
result in a breach of any of the terms, conditions or provisions of, or
constitute (with notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, or result in the
creation of, any Encumbrance (as defined below) upon any of the properties or
assets of the Company under its Certificate of Incorporation, as amended, or
By-laws, or any material contract to which the Company is a party, except where
such violation, conflict, breach or default would not, individually or in the
aggregate, have a Material Adverse Effect. As used herein, "Encumbrance" shall
mean any liens, charges, encumbrances, equities, claims, options, proxies,
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pledges, security interests, or other similar rights of any nature, except for
such violations, conflicts, breaches or defaults which would not, individually
or in the aggregate, have a Material Adverse Effect.
(e) Approvals. Except as set forth on Schedule 3(e), no
material permit, authorization, consent or approval of or by, or any
notification of or filing with, any person or entity (governmental or otherwise)
is required in connection with the execution, delivery or performance of the
Transaction Documents, including the issuance and sale of the Securities, by the
Company. There is no approval of the Company's stockholders required under
applicable laws in connection with the execution and delivery the Transaction
Documents or the consummation of the transactions contemplated thereby,
including the issuance of the Securities.
(f) Filings, Taxes and Financial Statements. (i) The Company
has filed its annual report on Form 10-K for the year ended December 31, 1997
(the "Annual Report"), its related proxy materials and the quarterly report on
Form 10-Q for the quarter ended June 30, 1998 (the "Quarterly Report," together
with the Annual Report, including all exhibits and schedules required to be
filed in connection therewith, the "SEC Filings") with the Securities and
Exchange Commission, and any other required person or entity (governmental or
otherwise) in a timely manner and as otherwise required by applicable laws and
regulations, including the federal securities acts. The audited financial
statements of the Company for the fiscal year ended December 31, 1997 included
in the Annual Report (the "Audited Financial Statements"), and the Company's
unaudited balance sheet for the period ended June 30, 1998, together with the
accompanying statements of operations and cash flows including the notes thereto
included in the Quarterly Report (the "June Financial Statements"; collectively,
with the Audited Financial Statements, the "Financial Statements") are accurate
and complete in all material respects and fairly present the financial condition
of the Company as of the dates thereof and have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated (except as may be otherwise indicated in such
financial statements or the notes thereto), subject, in the case of the June
Financial Statements, to normal year-end audit adjustments (which shall not be
material in the aggregate) and the absence of footnote disclosures.
(ii) The Company has filed in a timely manner all federal,
state, local and foreign tax returns, reports and filings (collectively,
"Returns"), including income, franchise, property and other taxes, and has paid
or accrued the appropriate amounts reflected on such Returns. None of the
Returns have been audited or challenged, nor has the Company received any notice
of challenge nor have any of the amounts or other data included in the Returns
been challenged or reviewed by any governmental authority.
(iii) Except as set forth on Schedule 3(f), which sets forth a
true and accurate list and description of any employee benefit plans maintained
or sponsored by the Company or to which the Company is required to make
contributions, the Company does not maintain or sponsor, and is not required to
make contributions to or otherwise have any liability with respect
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to, any pension, profit sharing, thrift or other retirement plan, employee stock
ownership plan, deferred compensation, stock ownership, stock purchase,
performance share, bonus or other incentive plan, severance plan, health or
group insurance plan, welfare plan, or other similar plan, agreement, policy or
understanding (whether written or oral), whether or not such plan is intended to
be qualified under Section 401(a) of the Code, within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended, which
plan covers any employee or former employee of the Company.
(g) Absence of Changes. Except as set forth on Schedule 3(g),
since June 30, 1998, there has not been (a) any material adverse change in the
business, properties, condition (financial or otherwise), operations or
prospects of the Company; (b) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the business,
properties, condition (financial or otherwise), operations or prospects of the
Company; (C) any declaration, setting aside or payment of any dividend or other
distribution or payment (whether in cash, stock or property) in respect of the
capital stock of the Company, or any redemption or other acquisition of such
stock by the Company; (d) any disposal or lapse of any trade secret, invention,
patent, trademark, trademark registration, service ▇▇▇▇, service ▇▇▇▇
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
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misappropriation contesting the validity or Company's right to use any
Proprietary Rights; (C) all of such Proprietary Rights, whether foreign or
domestic, have been duly issued and have not been canceled, abandoned, or
otherwise terminated; and (D) all of the Company's patent applications,
trademark applications, service ▇▇▇▇ applications, trade name applications and
copyright applications have been duly filed.
(ii) Each of the Contracts listed as an exhibit to the
Company's Annual Report is a legal and valid agreement binding upon each of the
parties thereto and is in full force and effect except where the expiration or
termination has not, individually or in the aggregate, had a Material Adverse
Effect. To the best knowledge of the Company, there is no breach or default by
any party thereunder that had a Material Adverse Effect. Such Contracts
constitute all material agreements, arrangements or understandings required to
be included as an exhibit in such reports under Item 601 of the Securities and
Exchange Commission Regulations.
(iii) The Company has and maintains adequate and sufficient
insurance, including liability, casualty and products liability insurance,
covering risks associated with its business, properties and assets, including
insurance that is customary for companies similarly situated.
(iv) The Company, its business and properties and assets are
in compliance, in all material respects, with all applicable laws and
regulations, including without limitation, those relating to (a) health, safety
and employee relations, (b) environmental matters, including the discharge of
any hazardous or potentially hazardous materials into the environment, and (c)
the development, commercialization and sale of pharmaceutical and biotechnology
products, including all applicable regulations of the U.S. Food and Drug
Administration and comparable foreign regulatory authorities.
(j) Legal Proceedings, etc. Except as set forth on Schedule
3(j), there is no legal, administrative, arbitration or other action or
proceeding or governmental investigation pending or, to the best of the
Company's knowledge, threatened against the Company, or any director, officer or
employee of the Company, which is required to be described in the SEC Filings
and is not so described. The Company is not in violation of or default under,
any material laws, judgments, injunctions, orders or decrees of any court,
governmental department, commission, agency, instrumentality or arbitrator
applicable to its business.
(k) Disclosure. The Company's Annual Report and periodic
reports subsequently filed under Section 13 of the Exchange Act, the S-1 when
filed and the representations and warranties set forth herein and the other
Transaction Documents, when viewed collectively, do not, or will not, as
applicable, contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements contained herein and therein not
misleading in light of circumstances in which they were made.
(l) Reliance on Representations. The Company hereby
acknowledges that it is relying exclusively on the representations and
warranties of EIS contained herein and in the other
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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
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investment for its own account, not as a nominee or agent, and not with the view
to, or for sale in connection with, any distribution of any part thereof;
provided, that EIS shall be permitted to exercise or transfer such Securities as
permitted herein and under applicable law.
(ii) Nothing contained in this Section 4(e) shall limit any of
the Company's representations or warranties or limit EIS's recourse in respect
thereof.
(iii) EIS has not retained any investment banker, broker or
finder in connection with the transactions contemplated by the Transaction
Documents.
SECTION 5. Covenants of the Company. (a) Non-disclosure. From
and after the date hereof, the Company shall not disclose to any person or
entity, (i) other than its directors, officers, accountants and agents who need
to know such information in connection with the transactions described herein in
and the other Transaction Documents, and (ii) investors and potential investors
in the Third Party Placement, each of whom shall be informed of this
confidentiality provision and in respect of whose breaches the Company shall be
responsible, the content of this Agreement or any of the other Transaction
Documents or the substance of the transactions described herein, without the
prior written consent of EIS (which consent shall not be unreasonably withheld
or delayed), except to the extent required by applicable laws, regulations or
administrative or judicial processes in respect of press releases, periodic
reports or other public disclosure prepared in good faith by the Company;
provided, that the Company shall provide EIS with a reasonable opportunity to
review such releases or reports prior to release. This Section 5 shall not be
construed to prohibit disclosure of any information which has not been
previously determined to be confidential by EIS, or which shall have become
publicly disclosed (other than by breach of the Company's obligations
hereunder).
(b) Board of Directors. (i) Upon the Initial Closing Date, the
Company shall take any and all actions necessary, including, without limitation,
amending its by-laws and certificate of incorporation, to increase the size of
its board of directors by one, and the vacancy thereby created shall be filled
by a designee of EIS (the "EIS Director"), who shall be reasonably satisfactory
to the Company in character and business experience.
(ii) For as long as EIS shall own 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)
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representing in the aggregate in excess of 19.9% of the Company's outstanding
voting securities (assuming any such exercise, exchange or conversion, but not
the exercise, exchange or conversion of any other similar securities), or
otherwise be required to equity account for or consolidate its investment in the
Company, then EIS shall have the right, in its sole discretion, to convert some
amount of such holdings into non-voting securities, such that EIS shall not be
required to equity account for or consolidate its investment in the Company. In
the event that EIS shall undertake to exercise its right as described in this
Section 5(c), EIS shall retain the additional right to exchange such new class
of equity security for voting securities of the Company, at its option.
(d) Use of Proceeds. The Company shall use the proceeds of the
Initial Funding for general working capital purposes. The Company shall use at
least [omitted] of the proceeds of the Subsequent Funding solely to fund
research and development activities relating to certain intellectual property
and products relating to a combined electromagnetic/iontophoretic patch.
SECTION 6. Survival and Indemnification. (a) Survival Period.
The representations and warranties of the Company contained herein shall survive
for a period of three years from and after the date hereof.
(b) Indemnification. In addition to all rights and remedies
available to each of the parties hereto hereunder at law or in equity, the
Company or EIS, as applicable (in such capacity, an "Indemnifying Party") shall
indemnify the other party hereto, any affiliate of such other party, and their
respective stockholders, officers, directors, employees, agents,
representatives, successors and assigns (collectively, the "Indemnified
Person"), and save and hold each Indemnified Person harmless from and against
and pay on behalf of or reimburse each such Indemnified Person, as and when
incurred, for any and all loss, liability, demand, claim, action, judgment,
cause of action, cost, damage, deficiency, tax, penalty, fine or expense,
whether or not arising out of any claims by or on behalf of such Indemnified
Person or any third party, including interest, penalties, reasonable attorneys'
fees and expenses and all reasonable amounts paid in investigation, defense or
settlement of any of the foregoing (collectively, "Losses"), that any such
Indemnified Person may suffer, sustain incur or become subject to, as a result
of, in connection with, relating or incidental to or by virtue of:
(i) any misrepresentation or breach of any warranty
on the part of the Indemnifying Party under Section 3 of this Agreement; or
(ii) any nonfulfillment, default or breach of any
covenant, condition or agreement on the part of the Indemnifying Party contained
in this Agreement.
(c) Procedure. (i) If an Indemnified Person shall assert that
the Indemnifying Party has become obligated to the Indemnified Person pursuant
to Section 6(b) hereof, or if any suit, action, investigation, claim or
proceeding (each, a "Proceeding") is begun, made or instituted by a third party
as a result of which the Indemnifying Party may become obligated to
11
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
responsible
12
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 ▇▇▇▇▇▇ 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.
▇▇▇▇ ▇.▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
13
with a copy to:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
(ii) if to EIS, to:
Elan International Services, Ltd.
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇
Attention: Director
with a copy to:
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ LLC
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
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.
14
SECTION 11. Counterparts and Facsimile. The Transaction
Documents may be executed in any number of counterparts, and each such
counterpart hereof shall be deemed to be an original instrument, but all such
counterparts together shall constitute one agreement. Each of the Transaction
Documents may be signed and delivered to the other party by facsimile
transmission; such transmission shall be deemed a valid signature.
SECTION 12. Headings. The section and paragraph headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of the Agreement.
SECTION 13. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to principles of conflicts of laws. Each of the parties hereby
irrevocably submits to the jurisdiction of any New York State or United States
Federal court sitting in the county, city and state of New York over any action
or proceeding arising out of or relating to this Agreement or the other
Transaction Documents; and each hereby waives the defense of an inconvenient
forum for the maintenance of such an action.
SECTION 14. Expenses. Each of the parties shall be responsible
for its own costs and expenses incurred in connection with the transactions
contemplated hereby and by the other Transaction Documents.
SECTION 15. Public Releases; Etc. The parties shall reasonably
agree upon the contents of any press release or releases and other public
disclosure in respect of the transactions contemplated hereby, and except as may
otherwise be required by applicable law or judicial or administrative process or
which the Company concludes in good faith is required by applicable securities
laws and regulations.
SECTION 16. Schedules, etc. All statements contained in any
exhibit or schedule delivered by or on behalf of the parties hereto, or in
connection with the transactions contemplated hereby, are an integral part of
this Agreement and shall be deemed representations and warranties hereunder.
SECTION 17. Assignments. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. This Agreement,
the other Transaction Documents, and the Securities may be transferred by EIS to
affiliates and subsidiaries.
[Signature page follows]
15
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/ ▇▇▇▇ ▇▇▇
---------------------------------------
▇▇▇▇ ▇▇▇
Chairman, President and Chief Executive
Officer
Elan International Services, Ltd.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: President & CFO
16
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.
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.
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.
Exhibit D
September 30, ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ Services, Ltd.
▇▇▇ ▇▇. ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ 04
Bermuda
Re: Investment in Electropharmacology, Inc., pursuant to the Letter
Agreement dated ▇▇▇▇▇▇ ▇▇, ▇▇▇▇
▇▇▇▇▇▇▇▇▇ 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.
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 "Transaction
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
B. 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
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.
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/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------
Vice President, Legal and Finance
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
SCHEDULE 3(a)
EPi Foreign Jurisdictions
-------------------------
Florida
▇▇▇▇ ▇.▇. ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
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 ▇▇. ▇▇▇▇▇▇▇▇▇ as of August 19,
1998 is further governed by the Employment Agreement between ▇▇. ▇▇▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, 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
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. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ (a) ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇, and Paragon Capital Corporation
at Spear, Leeds & ▇▇▇▇▇▇▇, LLC (collectively, the "EPHI Group"), (b)
▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (collectively, the "HTD
Group") and (c) ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
(collectively, the "Gemini Group"), as amended on August 3, 1998.
2. Letter Agreement regarding voting of EPi common stock by and between
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 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,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇, 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.
SCHEDULE 3(b)-1
EPi Outstanding Options
9/23/98
------------------------------------------------------------------------------------------------------------------------
NAME DATE PRICE # OF TERM TYPE VESTING
ISSUED SHARES
------------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 6/28/95 $5.25 5,000 6/28/00 NSO B;F
▇▇▇▇▇▇, ▇▇▇ 6/28/95 $5.25 250 6/28/00 NSO M
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 6/28/95 $5.25 2,500 6/28/00 NSO M
▇▇▇▇▇▇, ▇▇▇▇ 6/28/95 $5.25 250 6/28/00 NSO M
▇▇▇▇▇▇▇, ▇▇▇▇▇ 6/28/95 $5.25 500 6/28/02 ISO C
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 8/5/96 $5.50 207,236 8/5/06 NSO B
▇▇▇▇▇▇, ▇▇▇▇▇ 4/14/98 $0.32 100,000 8/5/06 ISO B
▇▇▇▇▇▇▇, ▇▇▇▇▇ 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
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 12/13/96 $2.875 15,000 12/13/01 NSO F;A
▇▇▇▇▇▇▇, ▇▇▇▇▇ 12/13/96 $2.875 2,000 12/13/06 ISO A
▇▇▇▇, ▇▇▇▇▇▇▇ 1/1/97 $3.06 20,000 1/1/02 NSO ▇
▇▇▇▇▇▇, ▇▇▇▇▇ 4/14/98 $0.32 20,000 1/1/02 NSO D;J
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 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
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ 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
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ 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
▇▇▇▇▇▇, ▇▇▇▇▇ 2/1/98 $0.35 34,286 2/1/08 ISO B
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ 1/3/98 $0.26 10,000 1/3/98 ISO D
▇▇▇▇▇▇, ▇▇▇▇▇ (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
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ 8/19/98 $1.06 250,000 8/19/08 ISO P
Total per Schedule 1,878,988
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.
SCHEDULE 3(b)-2
Electropharmacology, Inc.
Outstanding Warrants
23-Sep-98
WARRANTS
Issue Post Split
No. Date Issued to Pre Split Post Split Price Years
-----------------------------------------------------------------------------------------------------
W-003 12/1/93 ▇. ▇▇▇▇▇▇ 13,500 8,717 $5.42 5
W-006 8/1/94 ▇▇ ▇▇▇▇▇ PhD 65,000 41,969 $5.03 5
12/5/94 ▇. ▇▇▇▇▇▇▇▇▇▇▇ 15,000 9,685 $5.03 5
6/28/95 ▇▇▇▇▇▇▇▇▇, J. 30,000 $4.00 5
6/28/95 ▇▇▇▇▇▇, T. 25,000 $5.25 4
6/28/95 ▇. ▇▇▇▇▇ 3,000 $5.25 5
6/28/95 ▇. ▇▇▇▇▇▇ 3,000 $5.25 5
6/28/95 ▇. ▇▇▇▇ 3,000 $5.25 5
6/28/95 ▇. ▇▇▇▇▇ 3,000 $5.25 5
12/15/95 ▇▇▇▇▇▇▇▇, R. 32,500 $1.00 5 *
12/15/95 ▇. ▇▇▇▇▇▇▇▇▇ 32,500 $1.00 5 *
12/15/95 Whale 40,000 $5.50 5 *
12/15/95 ▇▇▇▇▇▇▇ (Whale) 40,000 $5.50 5 *
12/15/95 ▇▇▇▇▇ (Whale) 20,000 $5.50 5 *
4/11/97 ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 25,000 $2.25 10
-------------
Subtotal Outstanding at 9/23/98 317,371
=============
* Warrantholder has certain registration notice and piggyback
registration rights
SCHEDULE 3(e)
List of Required Consents, Approvals, etc.
------------------------------------------
None.
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 ▇▇▇▇ ▇. ▇▇▇▇▇▇ dated April 23, 1997 (See
Schedule 3(j))
2. Term Sheet between EPi and ▇▇▇▇▇ ▇▇▇▇▇▇ dated August 25, 1998
3. Term Sheet between EPi and ▇▇▇▇ ▇▇▇ dated August 25, 1998
4. Employment Agreement between EPi and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ dated August 18,
1998
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 ▇▇▇▇ ▇▇▇ in order for Dr. Sen to exercise
certain options to purchase EPi Common Stock.
Schedule 3(g)-1
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 1998
Merger Merger
---------------- -------------
Historical Historical
------------------------ -------------
ASSETS Pro Forma Pro Forma Pro Forma
EPi HTD Adjustments Combined GBLP Adjustments
---------- --------- --------------- -------------- -------- -------------
Current assets :
Cash 62,465 48 62,513 285,064
Trade accounts receivable, net 126,723 126,723 57,697
Inventory 159,043 159,043 7,528
Trade notes and other receivables 2,181 2,181 30,200
Prepaid expenses 161,962 161,962 -
---------- --------- ----------- --------- --------- ------------
Total current assets 512,374 48 - 512,422 380,488 -
---------- --------- ----------- --------- --------- ------------
Rental and other equipment, net 568,497 966 569,463 252,976
Patents & Organization Cost, net 86,088 86,088 67,034
Deposits 5,075 5,075 3,350
Acquired Developed Technology 2,000,000 (1) 2,000,000 2,000,000(2)
Investment in ADM Tronics -
========== ========= =========== ========= ========= ============
Total Assets 1,172,034 1,014 2,000,000 3,173,048 703,848 2,000,000
========== ========= =========== ========= ========= ============
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Note Payable 719,276 719,276 97,185
Accounts payable 509,330 44,500 553,830 (480)
Accrued expenses 308,224 308,224 68,958
Accrued commissions 14,262 14,262 -
Accrued payroll 1,767 1,767 22,361
Customer deposits - -
Deferred Revenue 75,000 75,000
Notes payable to related parties 65,926 63,654 (4) 129,580
-
---------- --------- ----------- --------- --------- ------------
Total current liabilities 1,693,785 44,500 63,654 1,801,939 188,025 -
---------- --------- ----------- --------- --------- ------------
Long term Note Payable 90,260 90,260 932,791
Minority Interest in Limited Partnership 1,692,985 (2)
========== ========= =========== ========= ========== ============
Total Liabilities 1,784,045 44,500 63,654 1,892,199 1,120,816 1,692,985
========== ========= =========== ========= ========== ============
Commitments and contingencies
Net capital deficiency/Equity:
Convertible Preferred Stock 2,430 2,430
Common Stock 41,325 32 61,689 (1) 103,046
Additional paid-in capital 15,277,249 194,522 1,703,225 (1) 17,174,996
Deferred Compensation (67,678) (67,678)
General Partner (1%) (85,656) 87,919 (2)
Limited Partners (99%) 5,000 219,096 (2)
Deficit/Retained Earnings (15,865,337) (238,040) 171,432 (1) (15,931,945) (336,312)
---------- --------- ----------- --------- --------- -----------
Net capital deficiency/Total Equity (612,011) (43,486) 1,936,346 1,280,849 (416,967) 307,015
========== ========= =========== ========= ========= ============
Total liabilities and net capital
deficiency 172,034 1,014 2,000,000 3,173,048 703,848 2,000,000
========== ========= =========== ========= ========= ============
[RESTUBBED TABLE]
Medical Device
Divestiture
---------------
Pro Forma
ASSETS Pro Froma Pro Forma Combined
Combined Adjustments (as adjusted)
------------- ------------------ --------------------
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
----------- ---------- ------------
Total current assets 892,910 (9,733) 883,177
----------- ---------- ------------
Rental and other equipment, net 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
- -
----------- ---------- ------------
Total current liabilities 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 Liabilities 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 liabilities and net capital
deficiency 5,876,896 (16,532) 5,860,364
=========== ========== ============
(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 ▇▇▇▇ ▇▇▇ 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.
Exhibit 3(g)-1
Pro Forma EPI after Asset Sale Pro Forma Condesned Combined Balance Sheet
December 31, 1997
(Unaudited) Merger
-------------------
Historical Historical
---------------------- ----------
ASSETS Pro Forma Pro Forma
------ EPi HTD Adjustments Combined GBLP
-------- ----------- ----------- ------------ ---------
Current assets :
Cash 111,496 809 112,305 454,992
Trade accounts receivable 169,404 169,404 43,090
Inventory 152,233 152,233 5,000
Trade notes and other receivables 32,748 32,748
Prepaid expenses 157,065 157,065 3,125
----------- ----------- ----------- ----------- -----------
Total current assets 622,946 809 623,755 506,207
----------- ----------- ----------- ----------- -----------
Rental and other equipment, net 713,466 1,159 714,625 195,818
Patents & Organization Cost, net 89,129 89,129 75,437
Deposits 18,001 18,001 3,350
Acquired Developed Technology 2,000,000 (1) 2,000,000
Investment in ADM Tronics --
----------- ----------- ----------- ----------- -----------
Total Assets 1,443,542 1,968 2,000,000 3,445,510 780,812
=========== =========== =========== =========== ===========
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Note Payable 804,179 804,179 97,185
Accounts payable 380,313 44,500 424,813 26,818
Accrued expenses 187,933 187,933 15,408
Accrued commissions 46,181 46,181 3,748
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 -- 1,562,978 143,159
----------- ----------- ----------- ----------- -----------
Long term Note Payable -- 944,668
Minority Interest in Limited Partnership
----------- ----------- ----------- ----------- -----------
Total Liabilities 1,518,478 44,500 -- 1,562,978 1,087,827
=========== =========== =========== =========== ===========
Commitments and contingencies
Net capital deficiency/Equity:
Convertible Preferred Stock 2,430 2,430
Common Stock 40,711 32 61,689 (1) 102,432
Additional paid-in capital 15,254,912 192,522 1,703,225 (1) 17,150,659
Deferred Compensation (67,678) (67,678)
General Partner (1%) (87,919)
Limited Partners (99%) (219,096)
Deficit/Retained Earnings (15,305,311) (235,086) 235,086 (1) (15,305,311)
----------- ----------- ----------- ----------- -----------
Net capital deficiency/Total Equity (74,936) (42,532) 2,000,000 1,882,532 (307,015)
----------- ----------- ----------- ----------- -----------
Total liabilities and net capital deficiency 1,443,542 1,968 2,000,000 3,445,510 780,812
=========== =========== =========== =========== ===========
[RESTUBBED TABLE]
Medical Device
Merger Divestiture
------------- -----------------------
Pro Forma
Pro Forma Pro Froma Pro Forma Combined
Adjustments Combined Adjustments (as adjusted)
---------------- ----------- -------------- -------------
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 receivables 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, net 910,443 (613,466) (3) 296,977
Patents & Organization Cost, net 164,566 164,566
Deposits 21,351 21,351
Acquired Developed Technology 2,000,000 (2) 4,000,000 4,000,000
Investment in ADM Tronics -- 606,667 (3) 606,667
----------- ----------- ----------- -----------
Total Assets 2,000,000 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
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 -- 1,706,137 (750,000) 956,137
----------- ----------- ----------- -----------
Long term Note Payable 944,668 944,668
Minority Interest in Limited Partnership 1,692,985 (2)
----------- ----------- ----------- -----------
Total Liabilities 1,692,985 2,650,805 (750,000) 1,900,805
=========== =========== =========== ===========
Commitments and contingencies
Net capital deficiency/Equity:
Convertible Preferred Stock 2,430 2,430
Common Stock 102,432 3,226 (3) 105,658
Additional paid-in capital 17,150,659 96,774 (3) 17,247,433
Deferred Compensation (67,678) (67,678)
General Partner (1%) 87,919 (2) -- --
Limited Partners (99%) 219,096 (2) -- --
Deficit/Retained Earnings (15,305,311) 625,968 (3) (14,679,343)
----------- ----------- ----------- -----------
Net capital deficiency/Total Equity 307,015 1,882,532 725,968 2,608,500
----------- ----------- ----------- -----------
Total liabilities and net capital deficiency 2,000,000 4,533,337 (24,032) 4,509,305
=========== =========== =========== ===========
(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.
Page 1
Electropharmacology, Inc. Exhibit 3(g)-1
Statements of Operations Pro Forma Condesned Combined Statement of Operations
Year Ended December 31, 1997
(Unaudited) (Unaudited)
Merger
-------------------
Historical Historical
---------------------- ----------
ASSETS Pro Forma Pro Forma
------ EPi HTD Adjustments Combined GBLP
-------- ----------- ----------- ------------ ---------
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 89,972 133,333 (3) 3,400,336 193,169
Research and development 214,686 28,070 200,000 (1) 442,756 --
---------- ---------- ---------- ---------- ----------
Total operating expenses 4,003,419 118,042 333,333 4,454,794 285,788
---------- ---------- ---------- ---------- ----------
Loss from operations (1,602,170) (118,042) (333,333) (2,053,545) (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) (333,333) (2,101,366) (226,359)
========== ========== ========== ========== ==========
Net loss per share - basic and diluted (0.45) (37) (0.21) [ILLEGIBLE]
========== ========== ========== ==========
Weighted average number of common shares outstanding -
basic and diluted 3,697,611 3,247 6,172,095 9,869,706 --
========== ========== ========== ==========
[RESTUBBED TABLE]
Medical Device
Merger Divestiture
------------- -----------------------
Pro Forma
Pro Forma Pro Froma Pro Forma Combined
Adjustments Combined Adjustments (as adjusted)
---------------- ----------- -------------- -------------
Rentals 1,700,486 (1,700,486) (4) --
Sales 818,781 (700,763) (4) 118,018
----------- ----------- ----------- -----------
Total revenue -- 2,519,267 (2,401,249) 118,018
Operating expenses:
Cost of revenue 704,321 (611,702) (4) 92,619
Selling, general and administrative 133,333 (3) 3,726,838 (2,000,000) (4) 1,726,838
Research and development 250,000 (2) 692,756 692,756
----------- ----------- ----------- -----------
Total operating expenses 383,333 5,123,915 (2,611,702) 2,512,213
----------- ----------- ----------- -----------
Loss from operations (383,333) (2,604,648) 210,453 (2,394,195)
Other income (expense)
Interest expense (98,955) 25,135 (4) (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 (383,333) (2,711,058) 235,588 (2,475,470)
=========== =========== =========== ===========
Net loss per share - basic and diluted (0.27) (0.24)
=========== ===========
Weighted average number of common shares outstanding -
basic and diluted 9,869,706 322,581 10,192,287
=========== ===========
(1) To record charge of $200,000 for acquired research and development from HTD
(2) To record charge of $250,000 for acquired research and development from
GBLP
(3) To record amortization of intangible assets acquired. An amortization
period of 15 years is asumed. See Note 2.
(4) To reflect the sale of the Medical Device Division as if it had occurred
on January 1, 1997
Page 1
SCHEDULE 3(h)
Liabilities Incurred
--------------------
See Schedule 3(g)-1 for a listing of those liabilities incurred in connection
with the Reorganization Transactions.
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.
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. ▇'▇▇▇▇▇▇▇ v. Kinetech Medical, Inc. and Electropharmacology, Inc. filed
in August 1997 in the County Court in Dallas, Texas
4. ▇▇▇▇▇▇ v. Electropharmacology, Inc. filed in July 1998 in the Circuit
Court of Broward County, Florida
SCHEDULE 3(l)
Brokers or Finders
------------------
None.