United States Securities And Exchange Commission
Washington, DC 20549
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FORM 10-KSB
Amendment No. 2
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(Mark One)
[X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2003; OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to _______________
Commission file number: 0-9410
Provectus Pharmaceuticals, Inc.
(Name of Small Business Issuer in Its Charter)
Nevada 90-0031917
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7327 Oak Ridge Highway, Suite A, Knoxville, Tennessee 37931
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(Address of Principal Executive Offices) (Zip Code)
865/769-4011
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None
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(Title of Class)
Securities registered under Section 12(g) of the Exchange Act:
Common shares, par value $.001 per share
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [_]
The issuer's revenues for the most recent fiscal year were $0.
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant as of March 15, 2004, was $9,694,102
(computed on the basis of $1.20 per share).
The number of shares outstanding of the issuer's stock, $0.001 par value
per share, as of March 15, 2004 was 12,793,064.
Documents incorporated by reference in Part III hereof: Proxy Statement for
2004 Annual Meeting of Stockholders
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
Provectus Pharmaceuticals, Inc.
Annual Report on Form 10-KSB
Table of Contents
Page
----
Part I........................................................................1
Item 1. Description of Business.......................................1
History..............................................................1
Description Of Business..............................................1
Intellectual Property................................................7
Competition..........................................................9
Federal Regulation of Therapeutic Products...........................9
Personnel...........................................................12
Available Information...............................................13
Item 2. Description of Property......................................13
Item 3. Legal Proceedings............................................13
Item 4. Submission of Matters to a Vote of Security Holders..........13
Part II......................................................................14
Item 5. Market for Common Equity and Related Stockholder Matters.....14
Item 6. Management's Discussion and Analysis or Plan of Operation....16
Going Concern.......................................................16
Plan of Operation...................................................17
Item 7. Financial Statements.........................................18
Forward-Looking Statements..........................................19
Risk Factors........................................................19
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.....................................26
Item 8A. Controls and Procedures......................................26
Part III.....................................................................27
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act...27
Item 10. Executive Compensation.......................................27
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters...................27
Item 12. Certain Relationships and Related Transactions...............28
Item 13. Exhibits, List and Reports on Form 8-K.......................28
Item 14. Principal Accountant Fees and Services.......................28
Signatures...................................................................29
PART I
Item 1. Description of Business.
History
Provectus Pharmaceuticals, Inc., formerly known as "Provectus
Pharmaceutical, Inc." and "SPM Group, Inc.," was incorporated under Colorado law
on May 1, 1978. SPM Group ceased operations in 1991, and became a
development-stage company effective January 1, 1992, with the new corporate
purpose of seeking out acquisitions of properties, businesses, or merger
candidates, without limitation as to the nature of the business operations or
geographic location of the acquisition candidate.
On April 1, 2002, SPM Group changed its name to "Provectus Pharmaceutical,
Inc." and reincorporated in Nevada in preparation for a transaction with
Provectus Pharmaceuticals, Inc., a privately-held Tennessee corporation, which
we refer to as "PPI." On April 23, 2002, an Agreement and Plan of Reorganization
between Provectus Pharmaceutical and PPI was approved by the written consent of
a majority of the outstanding shares of Provectus Pharmaceutical. As a result,
holders of 6,680,000 shares of common stock of Provectus Pharmaceutical
exchanged their shares for all of the issued and outstanding shares of PPI. As
part of the acquisition, Provectus Pharmaceutical changed its name to "Provectus
Pharmaceuticals, Inc." and PPI became a wholly owned subsidiary of Provectus.
For accounting purposes, we treat this transaction as a recapitalization of PPI.
On November 19, 2002, we acquired Valley Pharmaceuticals, Inc., a
privately-held Tennessee corporation formerly known as Photogen, Inc., by
merging our subsidiary PPI with and into Valley and naming the surviving
corporation "Xantech Pharmaceuticals, Inc." Valley had minimal operations and
had no revenues prior to the transaction with the Company. By acquiring Valley,
we acquired our most important intellectual property, including issued U.S.
patents and patentable inventions, with which we intend to develop:
o prescription drugs, medical and other devices (including laser
devices) and over-the-counter pharmaceutical products in the fields of
dermatology and oncology; and
o technologies for the preparation of human and animal vaccines,
diagnosis of infectious diseases and enhanced production of
genetically engineered drugs.
Prior to the acquisition of Valley, we were considered to be, and continue
to be, in the development stage and had not generated any revenues from the
assets we acquired.
On December 5, 2002, we acquired the assets of Pure-ific L.L.C., a Utah
limited liability company, and created a wholly owned subsidiary, Pure-ific
Corporation, to operate that business. We acquired the product formulations for
Pure-ific personal sanitizing sprays, along with the "Pure-ific" trademarks. We
intend to continue product development and begin to market a line of personal
sanitizing sprays and related products to be sold over the counter under the
"Pure-ific" brand name.
Description Of Business
Overview
Provectus, and its two wholly owned subsidiaries, Xantech Pharmaceuticals,
Inc. and Pure-ific Corporation, develop, license and market and plan to sell
products in three sectors of the healthcare industry:
o Over-the-counter products, which we refer to in this report as "OTC
products;"
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o Prescription drugs; and
o Medical device systems
We manage Provectus, Xantech and Pure-ific on an integrated basis, and when
we refer to "we" or "us" or "the Company" in this Annual Report on Form 10-KSB,
we refer to all three corporations considered as a single unit. Our principal
executive offices are located at 7327 Oak Ridge Highway, Suite A, Knoxville,
Tennessee 37931, telephone 865/769-4011.
Through discovery and use of state-of-the-art scientific and medical
technologies, the founders of our pharmaceutical business have developed a
portfolio of patented, patentable, and proprietary technologies that support
multiple products in the prescription drug, medical device and OTC products
categories (including patented technologies for: (a) treatment of cancer; (b)
novel therapeutic medical devices; (c) enhancing contrast in medical imaging;
(d) improving signal processing during biomedical imaging; and (e) enhancing
production of biotechnology products). Our prescription drug products encompass
the areas of dermatology and oncology and involve several types of small
molecule-based drugs. Our medical device systems include therapeutic and
cosmetic lasers, while our OTC products address markets primarily involving
skincare applications. Because our prescription drug candidates and medical
device systems are in the early stages of development, they are not yet on the
market and there is no assurance that they will advance to the point of
commercialization.
Our first commercially available products are directed into the OTC market,
as these products pose minimal or no regulatory compliance barriers to market
introduction. For example, the active pharmaceutical ingredient (API) in our
ethical products is already approved for other medical uses by the FDA and has a
long history of safety for use in humans. This use of known APIs for novel uses
and in novel formulations minimizes potential adverse concerns from the FDA,
since considerable safety data on the API is available (either in the public
domain or via license or other agreements with third parties holding such
information). In similar fashion, our OTC products are based on established APIs
and, when possible, utilize formulations (such as aerosol or cream formulations)
that have an established precedent. (For more information on compliance issues,
see "Federal Regulation of Therapeutic Products" below.) In this fashion, we
believe that we can diminish the risk of regulatory bars to the introduction of
safe, consumer-friendly products and minimize the time required to begin
generating revenues from product sales. At the same time, we continue to develop
higher-margin prescription pharmaceuticals and medical devices, which have
longer development and regulatory approval cycles.
Over-the-Counter Pharmaceuticals
Our OTC products are designed to be safer and more specific than competing
products. Our technologies offer practical solutions for a number of intractable
maladies, using ingredients that have limited or no side effects compared with
existing products. To develop our OTC products, we typically use compounds with
potent antibacterial and antifungal activity as building blocks and combine
these building blocks with anti-inflammatory and moisture-absorbing agents.
Products with these properties can be used for treatment of a large number of
skin afflictions, including:
o hand irritation associated with use of disposable gloves
o eczema
o mild to moderate acne
Where appropriate, we have filed or will file patent applications and will
seek other intellectual property protection to protect our unique formulations
for relevant applications.
GloveAid
Personnel in many occupations and industries now use disposable gloves
daily in the performance of their jobs, including:
o Airport security personnel;
o Food handling and preparation personnel;
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o Sanitation workers;
o Postal and package delivery handlers and sorters;
o Laboratory researchers;
o Health care workers such as hospital and blood bank personnel; and
o Police,fire and emergency response personnel.
Accompanying the increased use of disposable gloves is a mounting incidence
of chronic skin irritation. To address this market, we have developed GloveAid,
a hand cream with both antiperspirant and antibacterial properties, to increase
the comfort of users' hands during and after the wearing of disposable gloves.
During 2003, we ran a pilot scale run at the manufacturer of GloveAid.
The chronic skin irritation that accompanies the long-term use of
disposable gloves has been characterized as an allergic-like reaction to the
glove materials. Currently, physicians treat the condition using steroids and
other immunosuppressive therapies. To avoid possible regulatory bars, we are
marketing GloveAid as a means to increase users' comfort, not as a long-term
therapy for treatment of chronic skin irritation. However, as we obtain data
regarding people who have existing chronic skin irritation, we may seek
regulatory approval of GloveAid to permit us to market it as a therapy for
chronic skin problems associated with wearing of disposable gloves. If we decide
to obtain this regulatory approval, we anticipate that our projected sales of
GloveAid would increase significantly. Obtaining this approval would require the
completion of glove viability tests required by the United States Food and Drug
Administration, which we refer to as the "FDA," and responding to the FDA's
comments relating to these tests. We estimate regulatory approval would cost
approximately $300,000 and would take from two to three years to obtain.
Pure-ific
Our Pure-ific line of products includes two quick-drying sprays, Pure-ific
and Pure-ific Kids, that immediately kill up to 99.9% of germs on skin and
prevent regrowth for 6 hours. We have determined the effectiveness of Pure-rific
based on our internal testing and testing performed by Paratus Laboratories
H.B., an independent research lab. Pure-ific products help prevent the spread of
germs and thus complement our other OTC products designed to treat irritated
skin or skin conditions such as acne, eczema, dandruff and fungal infections.
Our Pure-ific sprays have been designed with convenience in mind and are
targeted towards mothers, travelers, and anyone concerned about the spread of
sickness-causing germs. During 2003, we identified and engaged sales and
brokerage forces for Pure-ific. We emphasized getting sales in independent
pharmacies and mass (chain store) markets. The supply chain for Pure-ific was
established with the ability to support large-scale sales and a starting
inventory was manufactured and stored in a contract warehouse/fulfillment
center. In addition, a website for Pure-ific was developed with the ability for
supporting on-line sales of the antibacterial hand spray. We intend to continue
developing our distribution network for these products and expect to expand the
Pure-ific product line to include additional applications.
Dermatology
A number of dermatological conditions, including psoriasis, eczema, and
acne, result from a superficial infection which triggers an overwhelming immune
response. We anticipate developing OTC products similar to the GloveAid line for
the treatment of mild to moderate cases of psoriasis, eczema, and acne. Wherever
possible, we intend to formulate these products to minimize or avoid significant
regulatory bars that might adversely impact time to market.
Prescription Drugs
We are developing a number of prescription drugs which we expect will
provide minimally invasive treatment of chronic severe skin afflictions such as
psoriasis, eczema, and acne; and several life-threatening cancers such as those
of the liver, breast and prostate. We believe that our products will be safer
and more specific than currently existing products. Use of topical or other
direct delivery formulations allows these potent products to be conveniently and
effectively delivered only to diseased tissues, thereby enhancing both safety
and effectiveness. The ease of use and superior performance of these products
may eventually lead to extension into OTC applications currently serviced by
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less safe, more expensive alternatives. All of these products are in the
pre-clinical or clinical trial stage.
Dermatology
Our most advanced prescription drug candidate for treatment of topical
diseases on the skin is Xantryl, a topical gel. PV-10, the active ingredient in
Xantryl, is "photoactive": it reacts to light of certain wavelengths, increasing
its therapeutic effects. PV-10 also concentrates in diseased or damaged tissue
but quickly dissipates from healthy tissue. By developing a "photodynamic"
treatment regimen (one which combines a photoactive substance with activation by
a source emitting a particular wavelength of light) around these two properties
of PV-10, we can deliver a higher therapeutic effect at lower dosages of active
ingredient, thus minimizing potential side effects including damage to nearby
healthy tissues. PV-10 is especially responsive to green light, which is
strongly absorbed by the skin and thus only penetrates the body to a depth of
about three to five millimeters. For this reason, we have developed Xantryl
combined with green-light activation for topical use in surface applications
where serious damage could result if medicinal effects were to occur in deeper
tissues.
Acute psoriasis. Psoriasis is a common chronic disorder of the skin
characterized by dry scaling patches, called "plaques," for which current
treatments are few and those that are available have potentially serious side
effects. According to Roenigk and Maibach (Psoriasis, Third Edition, 1998),
there are approximately five million people in the United States who suffer from
psoriasis, with an estimated 160,000 to 250,000 new psoriasis cases each year.
There is no known cure for the disease at this time. According to the National
Psoriasis Foundation, the majority of psoriasis sufferers, those with mild to
moderate cases, are treated with topical steroids that can have unpleasant side
effects; none of the other treatments for moderate cases of psoriasis have
proven completely effective. The 25-30% of psoriasis patients who suffer from
more severe cases generally are treated with more intensive drug therapies or
PUVA, a light-based therapy that combines the drug Psoralen with exposure to
ultraviolet A light. While PUVA is one of the more effective treatments, it
increases a patient's risk of skin cancer.
We believe that Xantryl activated with green light offers a superior
treatment for acute psoriasis because it selectively treats diseased tissue with
negligible potential for side effects in healthy tissue; moreover, the therapy
has shown promise in comprehensive Phase 1 clinical trials. The objective of a
Phase 1 clinical trial is to determine if there are safety concerns with the
therapy. In these studies, involving more than 50 test subjects, Xantryl was
applied topically to psoriatic plaques and then illuminated with green light. In
our first study, a single-dose treatment yielded an average reduction in plaque
thickness of 59% after 30 days, with further response noted at the final
follow-up examination 90 days later. Further, no pain, significant side effects,
or evidence of "rebound" (increased severity of a psoriatic plaque after the
initial reduction in thickness) were observed in any treated areas. This degree
of positive therapeutic response is comparable to that achieved with potent
steroids and other anti-inflammatory agents, but without the serious side
effects associated with such agents. We are continuing the required Food and
Drug Administration reporting to support the active Investigational New Drug
application for Xantryl's Phase 2 clinical trials on psoriasis. The required
reporting includes the publication of results regarding the multiple treatment
scenario of the active ingredient in Xantryl. We expect to conduct Phase 2
studies in the near future, in which we expect to assess the potential for
remission of the disease using a regimen of weekly treatments similar to those
used for PUVA.
Actinic Keratosis. According to Schwartz and Stoll (Fitzpatrick's
Dermatology in General Medicine, 1999), actinic keratosis, or "AK" (also called
solar keratosis or senile keratosis), is the most common pre-cancerous skin
lesion among fair-skinned people and is estimated to occur in over 50% of
elderly fair-skinned persons living in sunny climates. These experts note that
nearly half of the approximately five million cases of skin cancer in the U.S.
may have begun as AK. The standard treatments for AK (primarily comprising
excision, cryotherapy, and ablation with topical 5-fluorouracil) are often
painful and frequently yield unacceptable cosmetic outcomes due to scarring.
Building on our experience with psoriasis, we are assessing use of Xantryl with
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green-light activation as a possible improvement in treatment of early and more
advanced stages of AK. We completed an initial Phase 1 clinical trial of the
therapy for this indication in 2001 with the predecessor company that was
acquired in 2002. This study, involving 24 subjects, examined the safety profile
of a single treatment using topical Xantryl with green light photoactivation; no
significant safety concerns were identified. We are assessing the data from the
study as a possible basis for further clinical development of Xantryl for AK.
Severe Acne. According to Berson et al. (Cutis. 72 (2003) 5-13), acne
vulgaris affects approximately 17 million individuals in the U.S., causing pain,
disfigurement, and social isolation. Moderate to severe forms of the disease
have proven responsive to several photodynamic regimens, and we anticipate that
Xantryl can be used as an advanced treatment for this disease. Pre-clinical
studies show that the active ingredient in Xantryl readily kills bacteria
associated with acne. This finding, coupled with our clinical experience in
psoriasis and actinic keratosis, suggests that therapy with Xantryl will exhibit
no significant side effects and will afford improved performance relative to
other therapeutic alternatives. If correct, this would be a major advance over
currently available products for severe acne.
As noted above, we are researching multiple uses for Xantryl with
green-light activation. Multiple-indication use by a common pool of physicians -
dermatologists, in this case - should reduce market resistance to this new
therapy.
Oncology
Oncology is another major market where our planned products may afford
competitive advantage compared to currently available options. We are developing
Provecta, a sterile injectible form of PV-10, for direct injection into tumors.
Because PV-10 is retained in diseased or damaged tissue but quickly dissipates
from healthy tissue, we believe we can develop therapies that confine treatment
to cancerous tissue and reduce collateral impact on healthy tissue. During 2003,
we have been working toward completion of the extensive scientific and medical
materials necessary for filing an Investigational New Drug application for
Provecta in anticipation of beginning Phase 1 clinical trials for breast and
liver cancer.
Liver Cancer. The current standard of care for liver cancer is ablative
therapy (which seeks to reduce a tumor by poisoning, freezing, heating, or
irradiating it) using either a localized injection of ethanol (alcohol),
cryosurgery, radiofrequency ablation, or ionizing radiation such as X-rays.
Where effective, these therapies have many side effects; selecting therapies
with fewer side effects tends to reduce overall effectiveness. Combined,
ablative therapies have a five-year survival rate of 33% - meaning that only 33%
of those liver cancer patients whose cancers are treated using these therapies
survive for five years after their initial diagnoses. In pre-clinical studies we
have found that direct injection of Provecta into liver tumors quickly ablates
treated tumors, and can trigger an anti-tumor immune response leading to
eradication of residual tumor tissue and distant tumors. Because of the natural
regenerative properties of the liver and the highly localized nature of the
treatment, this approach appears to produce no significant side effects. Based
on these encouraging preclinical results, we are assessing strategies for
initiation of clinical trials of Provecta for treatment of liver cancer.
Breast Cancer. Breast cancer afflicts over 200,000 U.S. citizens annually,
leading to over 40,000 deaths. Surgical resection, chemotherapy, radiation
therapy, and immunotherapy comprise the standard treatments for the majority of
cases, resulting in serious side effects that in many cases are permanent.
Moreover, current treatments are relatively ineffective against metastases,
which in many cases are the eventual cause of patient mortality. Pre-clinical
studies using human breast tumors implanted in mice have shown that direct
injection of Provecta into these tumors ablates the tumors, and, as in the case
of liver tumors, may elicit an anti-tumor immune response that eradicates
distant metastases. Since fine-needle biopsy is a routine procedure for
diagnosis of breast cancer, and since the needle used to conduct the biopsy also
could be used to direct an injection of Provecta into the tumor, localized
destruction of suspected tumors through direct injection of Provecta clearly has
the potential of becoming a primary treatment. We are evaluating options for
initiating clinical studies of direct injection of Provecta into breast tumors,
and expect to formulate final plans based on results from clinical studies of
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our indication for Provecta in liver cancer.
Prostate Cancer. Cancer of the prostate afflicts approximately 190,000 U.S.
men annually, leading to over 30,000 deaths. As with breast cancer, surgical
resection, chemotherapy, radiation therapy, and immunotherapy comprise the
standard treatments for the majority of cases, and can result in serious,
permanent side effects. We believe that direct injection of Provecta into
prostate tumors may selectively ablate such tumors, and, as in the case of liver
and breast tumors, may also elicit an anti-tumor immune response capable of
eradicating distant metastases. Since trans-urethral ultrasound, guided
fine-needle biopsy and immunotherapy, along with brachytherapy implantation, are
becoming routine procedures for diagnosis and treatment of these cancers, we
believe that localized destruction of suspected tumors through direct injection
of Provecta can become a primary treatment. We are evaluating options for
initiating clinical studies of direct injection of Provecta into prostate
tumors, and expect to formulate final plans based on results from clinical
studies of our indications for Provecta in the treatment of liver and breast
cancer.
Medical Devices
We are developing medical devices to address two major markets:
o cosmetic treatments, such as reduction of wrinkles and elimination of
spider veins and other cosmetic blemishes; and
o therapeutic uses, including photoactivation of Xantryl other
prescription drugs and non-surgical destruction of certain skin
cancers.
We expect to develop medical devices through partnerships with third-party
device manufacturers or, if appropriate opportunities arise, through acquisition
of one or more device manufacturers.
Photoactivation. Our clinical tests of Xantryl for dermatology have, up to
the present, utilized a number of commercially available lasers for activation
of the drug. This approach has several advantages, including the leveraging of
an extensive base of installed devices present throughout the pool of potential
physician-adopters for Xantryl; access to such a base could play an integral
role in early market capture. However, since the use of such lasers, which were
designed for occasional use in other types of dermatologic treatment, is
potentially too cumbersome and costly for routine treatment of the large
population of patients with psoriasis, we have begun investigating potential use
of other types of photoactivation hardware, such as light booths. The use of
such booths is consistent with current care standards in the dermatology field,
and may provide a cost-effective means for addressing the needs of patients and
physicians alike. We anticipate that such photoactivation hardware would be
developed, manufactured, and supported in conjunction with one or more
third-party device manufacturer.
Melanoma. A high priority in our medical devices field is the development
of a laser-based product for treatment of melanoma. We continue to conduct
extensive research on ocular melanoma at the Massachusetts Eye and Ear Infirmary
(a teaching affiliate of Harvard Medical School) using a new laser treatment
that may offer significant advantage over current treatment options. A single
quick non-invasive treatment of ocular melanoma tumors in a rabbit model
resulted in elimination of over 90% of tumors, and may afford significant
advantage over invasive alternatives, such as surgical excision, enucleation, or
radiotherapy implantation. Ocular melanoma is rare, with approximately 2,000 new
cases annually in the U.S. However, we believed that our extremely successful
results could be extrapolated to treatment of primary melanomas of the skin,
which have an incidence of over 52,000 new cases annually in the U.S. and a 13%
five-year survival rate after metastasis of the tumor. We have performed similar
laser treatments on large (averaging approximately 3 millimeters thick)
cutaneous melanoma tumors implanted in mice, and have been able to eradicate
over 90% of these pigmented skin tumors with a single treatment. Moreover, we
have shown that this treatment stimulates an anti-tumor immune response that may
lead to improved outcome at both the treatment site and at sites of distant
metastasis. From these results, we believe that a device for laser treatment of
primary melanomas of the skin and eye is nearly ready for human studies. We
anticipate partnering with a medical device manufacturer to bring it to market
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in reliance on a 510(k) notification. For more information about the 510(k)
notification process, see "Federal Regulation of Therapeutic Products" below.
Research and Development
While we continue to actively develop projects that are product directed,
we have placed research activities for new product initiatives on hold as we
attempt to conserve available capital and achieve full capitalization of our
company through equity and convertible debt offerings, generation of product
revenues, and other means. All ongoing research and development activities are
directed toward supporting our OTC product launches, our current product
development and maintaining our intellectual property portfolio. We are
maintaining our research facilities in anticipation of a resumption of our
research programs for new product initiatives.
Production
We have determined that the most efficient use of our capital in producing
OTC products is to contract production with experienced entities having previous
success in economically producing such products. We have ongoing relationships
with two OTC product manufacturers, EXAL, Inc. and 220 Laboratories, Inc., and
several other OTC service vendors that will manufacture, package, warehouse and
ship our OTC products. We do not have written agreements with any of our
manufacturers or vendors.
Sales
Our first commercially available products are directed into the OTC market,
as these products pose minimal or no regulatory compliance barriers to market
introduction. In this fashion, we believe that we can diminish the risk of
regulatory bars to the introduction of products and minimize the time required
to begin generating revenues from product sales. At the same time, we continue
to develop higher-margin prescription pharmaceuticals and medical devices, which
have longer development and regulatory approval cycles.
We are commencing limited sales of GloveAid and Pure-ific. We sold small
amounts of these products during 2003 but did not recognize the revenue from
these sales because we do not consider these sales to be material as total sales
of these products in 2003 was less than $1,000. We will continue to seek
additional markets for our products through existing distributorships that
market and distribute medical products, ethical pharmaceuticals, and OTC
products for the professional and consumer marketplaces.
In addition to developing and selling products ourselves, we are
negotiating actively with a number of potential licensees for several of our
intellectual properties, including patents and related technologies. To date, we
have not yet entered into any licensing agreements; however, we anticipate
consummating one or more such licenses in the future.
Intellectual Property
Patents
We hold a number of U.S. patents covering the technologies we have
developed and are continuing to develop for the production of prescription
drugs, medical devices and OTC pharmaceuticals, including those identified in
the following table:
U.S. Patent No. Title Issue Date Expiration Date
--------------- ----- ---------- ---------------
5,829,448 Method for improved selectivity in November 3, 1998 October 30, 2016
photo-activation of molecular agents
5,832,931 Method for improved selectivity in November 10, 1998 October 30, 2016
photo-activation and detection of
molecular diagnostic agents
5,998,597 Method for improved selectivity in December 7, 1999 October 30, 2016
photo-activation of molecular agents
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U.S. Patent No. Title Issue Date Expiration Date
--------------- ----- ---------- ---------------
6,042,603 Method for improved selectivity in March 28, 2000 October 30, 2016
photo-activation of molecular agents
6,331,286 Methods for high energy phototherapeutics December 18, 2001 December 21, 2018
6,451,597 Method for enhanced protein stabilization September 17, 2002 April 6, 2020
and for production of cell lines useful
for production of such stabilized proteins
6,468,777 Method for enhanced protein stabilization October 22, 2002 April 6, 2020
and for production of cell lines useful
for production of such stabilized proteins
6,493,570 Method for improved imaging and December 10, 2002 December 10, 2019
photodynamic therapy
6,495,360 Method for enhanced protein stabilization December 17, 2002 April 6, 2020
and for production of cell lines useful
for production of such stabilized proteins
6,519,076 Methods and apparatus for optical imaging February 11, 2003 October 30, 2016
6,525,862 Methods and apparatus for optical imaging February 25, 2003 October 30, 2016
6,541,223 Method for enhanced protein stabilization April 1, 2003 April 6, 2020
and for production of cell lines useful
for production of such stabilized proteins
We continue to pursue patent applications on numerous other developments we
believe to be patentable. We consider our issued patents, our pending patent
applications and any patentable inventions which we may develop to be extremely
valuable assets of our business.
Trademarks
We own the following trademarks used in this document: Xantryl(TM),
Provecta(TM), GloveAid(TM), and Pure-ific(TM) (including Pure-ific(TM) and
Pure-ific(TM) Kids). We also own the registered trademark PulseView(R).
Trademark rights are perpetual provided that we continue to keep the mark in
use. We consider these marks, and the associated name recognition, to be
valuable to our business.
Material Transfer Agreement
We have entered into a Material Transfer Agreement dated as of July 31,
2003 with Schering-Plough Animal Health Corporation, which we refer to as
"SPAH", the animal-health subsidiary of Schering-Plough Corporation, a major
international pharmaceutical company. We refer to this agreement in this report
as the "Material Transfer Agreement." Under the Material Transfer Agreement, we
will provide SPAH with access to some of our patented technologies to permit
SPAH to evaluate those technologies for use in animal-health applications. If
SPAH determines that it can commercialize our technologies, then the Material
Transfer Agreement obligates us and SPAH to enter into a license agreement
providing for us to license those technologies to SPAH in exchange for progress
payments upon the achievement of goals. The Material Transfer Agreement covers
four U.S. patents that cover biological material manufacturing technologies
(i.e., biotech related). The Material Transfer Agreement continues indefinitely,
unless SPAH terminates it by giving us notice or determines that it does not
wish to secure from us a license for our technologies. The Material Transfer
Agreement can also be terminated by either of us in the event the other party
breaches the agreement and does not cure the breach within 30 days of notice
from the other party. We can give you no assurance that SPAH will determine that
it can commercialize our technologies or that the goals required for us to
obtain progress payments from SPAH will be achieved.
8
Competition
In general, the pharmaceutical industry is intensely competitive,
characterized by rapid advances in products and technology. A number of
companies have developed and continue to develop products that address the areas
we have targeted. Some of these companies are major pharmaceutical companies
that are international in scope and very large in size, while others are niche
players that may be less familiar but have been successful in one or more areas
we are targeting. Existing or future pharmaceutical, device, or other
competitors may develop products that accomplish similar functions to our
technologies in ways that are less expensive, receive faster regulatory
approval, or receive greater market acceptance than our products. Many of our
competitors have been in existence for considerably longer than we have, have
greater capital resources, broader internal structure for research, development,
manufacturing and marketing, and are in many ways further along in their
respective product cycles.
At present, our most direct competitors are smaller companies that are
exploiting niches similar to ours. In the field of photodynamic therapy, one
competitor, QLT, Inc., has received FDA approval for use of its agent
Photofrin(R) for treatment of several niche cancer indications, and has a second
product, Visudyne(R), approved for treatment of certain forms of macular
degeneration. Another competitor in this field, Dusa Pharmaceuticals, Inc.
recently received FDA approval of its photodynamic product Levulan(R)
Kerastik(R) for treatment of actinic keratosis. We believe that QLT and Dusa,
among other competitors, have established a working commercial model in
dermatology and oncology, and that we can benefit from this model by offering
products that, when compared to our competitors' products, afford superior
safety and performance, greatly reduced side effects, improved ease of use, and
lower cost, compared to those of our competitors.
While it is possible that eventually we may compete directly with major
pharmaceutical companies, we believe it is more likely that we will enter into
joint development, marketing, or other licensure arrangements with such
competitors.
We also have a number of market areas in common with traditional skincare
cosmetics companies, but in contrast to these companies, our products are based
on unique, proprietary formulations and approaches. For example, we are unaware
of any products in our targeted OTC skincare markets that our similar to our
GloveAid and Pure-ific products. Further, proprietary protection of our products
may help limit or prevent market erosion until our patents expire.
Federal Regulation of Therapeutic Products
All of the prescription drugs and medical devices we currently contemplate
developing will require approval by the FDA prior to sales within the United
States and by comparable foreign agencies prior to sales outside the United
States. The FDA and comparable regulatory agencies impose substantial
requirements on the manufacturing and marketing of pharmaceutical products and
medical devices. These agencies and other entities extensively regulate, among
other things, research and development activities and the testing,
manufacturing, quality control, safety, effectiveness, labeling, storage, record
keeping, approval, advertising and promotion of our proposed products. While we
attempt to minimize and avoid significant regulatory bars when formulating our
products, some degree of regulation from these regulatory agencies is
unavoidable. Some of the things we do to attempt to minimize and avoid
significant regulatory bars include the following:
o Using chemicals and combinations already allowed by the FDA;
o Carefully making product performance claims to avoid the need for
regulatory approval;
o Using drugs that have been previously approved by the FDA and that
have a long history of safe use;
o Using chemical compounds with known safety profiles; and
9
o In many cases, developing OTC products which face less regulation than
prescription pharmaceutical products.
The regulatory process required by the FDA, through which our drug or
device products must pass successfully before they may be marketed in the U.S.,
generally involves the following:
o Preclinical laboratory and animal testing;
o Submission of an application that must become effective before
clinical trials may begin;
o Adequate and well-controlled human clinical trials to establish the
safety and efficacy of the product for its intended indication; and
o FDA approval of the application to market a given product for a given
indication.
For pharmaceutical products, preclinical tests include laboratory
evaluation of the product, its chemistry, formulation and stability, as well as
animal studies to assess the potential safety and efficacy of the product. Where
appropriate (for example, for human disease indications for which there exist
inadequate animal models), we will attempt to obtain preliminary data concerning
safety and efficacy of proposed products using carefully designed human pilot
studies. We will require sponsored work to be conducted in compliance with
pertinent local and international regulatory requirements, including those
providing for Institutional Review Board approval, national governing agency
approval and patient informed consent, using protocols consistent with ethical
principles stated in the Declaration of Helsinki and other internationally
recognized standards. We expect any pilot studies to be conducted outside the
United States; but if any are conducted in the United States, they will comply
with applicable FDA regulations. Data obtained through pilot studies will allow
us to make more informed decisions concerning possible expansion into
traditional FDA-regulated clinical trials.
If the FDA is satisfied with the results and data from preclinical tests,
it will authorize human clinical trials. Human clinical trials typically are
conducted in three sequential phases which may overlap. Each of the three phases
involves testing and study of specific aspects of the effects of the
pharmaceutical on human subjects, including testing for safety, dosage
tolerance, side effects, absorption, metabolism, distribution, excretion and
clinical efficacy.
Phase 1 clinical trials include the initial introduction of an
investigational new drug into humans. These studies are closely monitored and
may be conducted in patients, but are usually conducted in healthy volunteer
subjects. These studies are designed to determine the metabolic and
pharmacologic actions of the drug in humans, the side effects associated with
increasing doses, and, if possible, to gain early evidence on effectiveness.
While the FDA can cause us to end clinical trials at any phase due to safety
concerns, Phase 1 clinical trials are primarily concerned with safety issues. We
also attempt to obtain sufficient information about the drug's pharmacokinetics
and pharmacological effects during Phase 1 clinical trial to permit the design
of well-controlled, scientifically valid, Phase 2 studies.
Phase 1 studies also evaluate drug metabolism, structure-activity
relationships, and the mechanism of action in humans. These studies also
determine which investigational drugs are used as research tools to explore
biological phenomena or disease processes. The total number of subjects included
in Phase 1 studies varies with the drug, but is generally in the range of twenty
to eighty.
Phase 2 clinical trials include the early controlled clinical studies
conducted to obtain some preliminary data on the effectiveness of the drug for a
particular indication or indications in patients with the disease or condition.
This phase of testing also helps determine the common short-term side effects
and risks associated with the drug. Phase 2 studies are typically
well-controlled, closely monitored, and conducted in a relatively small number
of patients, usually involving several hundred people.
Phase 3 studies are expanded controlled and uncontrolled trials. They are
10
performed after preliminary evidence suggesting effectiveness of the drug has
been obtained in Phase 2, and are intended to gather the additional information
about effectiveness and safety that is needed to evaluate the overall
benefit-risk relationship of the drug. Phase 3 studies also provide an adequate
basis for extrapolating the results to the general population and transmitting
that information in the physician labeling. Phase 3 studies usually include
several hundred to several thousand people.
Applicable medical devices can be cleared for commercial distribution
through a notification to the FDA under Section 510(k) of the applicable
statute. The 510(k) notification must demonstrate to the FDA that the device is
as safe and effective and substantially equivalent to a legally marketed or
classified device that is currently in interstate commerce. Such devices may not
require detailed testing. Certain high-risk devices that sustain human life, are
of substantial importance in preventing impairment of human health, or that
present a potential unreasonable risk of illness or injury, are subject to a
more comprehensive FDA approval process initiated by filing a premarket
approval, also known as a "PMA," application (for devices) or accelerated
approval (for drugs).
We have established a core clinical development team and have been working
with outside FDA consultants to assist us in developing product-specific
development and approval strategies, preparing the required submittals, guiding
us through the regulatory process, and providing input to the design and site
selection of human clinical studies. Historically, obtaining FDA approval for
photodynamic therapies has been a challenge. Wherever possible, we intend to
utilize lasers or other activating systems that have been previously approved by
the FDA to mitigate the risk that our therapies will not be approved by the FDA.
The FDA has considerable experience with lasers by virtue of having reviewed and
acted upon many 510(k) and premarket approval filings submitted to it for
various photodynamic and non-photodynamic therapy laser applications, including
a large number of cosmetic laser treatment systems used by dermatologists.
The testing and approval process requires substantial time, effort, and
financial resources, and we may not obtain FDA approval on a timely basis, if at
all. Success in preclinical or early-stage clinical trials does not assure
success in later stage clinical trials. The FDA or the research institution
sponsoring the trials may suspend clinical trials or may not permit trials to
advance from one phase to another at any time on various grounds, including a
finding that the subjects or patients are being exposed to an unacceptable
health risk. Once issued, the FDA may withdraw a product approval if we do not
comply with pertinent regulatory requirements and standards or if problems occur
after the product reaches the market. If the FDA grants approval of a product,
the approval may impose limitations, including limits on the indicated uses for
which we may market a product. In addition, the FDA may require additional
testing and surveillance programs to monitor the safety and/or effectiveness of
approved products that have been commercialized, and the agency has the power to
prevent or limit further marketing of a product based on the results of these
post-marketing programs. Further, later discovery of previously unknown problems
with a product may result in restrictions on the product, including its
withdrawal from the market.
Marketing our products abroad will require similar regulatory approvals by
equivalent national authorities and is subject to similar risks. To expedite
development, we may pursue some or all of our initial clinical testing and
approval activities outside the United States, and in particular in those
nations where our products may have substantial medical and commercial
relevance. In some such cases any resulting products may be brought to the U.S.
after substantial offshore experience is gained. Accordingly, we intend to
pursue any such development in a manner consistent with U.S. standards so that
the resultant development data is maximally applicable for potential FDA
approval.
OTC products are subject to regulation by the FDA and similar regulatory
agencies but the regulations relating to these products are much less stringent
than those relating to prescription drugs and medical devices. The types of OTC
products developed and sold by us only require that we follow cosmetic rules
relating to labeling and the claims that we make about our product. The process
for obtaining approval of prescription drugs with the FDA does not apply to the
OTC products which we sell. The FDA can, however, require us to stop selling our
product if we fail to comply with the rules applicable to our OTC products.
11
Personnel
Executive Officers
As of March 25, 2004, our executive officers are:
H. Craig Dees, Ph.D., 52, Chief Executive Officer. Dr. Dees has served as
our Chief Executive Officer and as a member of our Board of Directors since we
acquired PPI on April 23, 2002. Before joining us, from 1997 to 2002 he served
as senior member of the management team of Photogen Technologies, Inc.,
including serving as a member of the Board of Directors of Photogen from 1997 to
2000. Prior to joining Photogen, Dr. Dees served as a Group Leader at the Oak
Ridge National Laboratory (ORNL), and as a senior member of the management teams
of LipoGen Inc., a medical diagnostic company which used genetic engineering
technologies to manufacture and distribute diagnostic assay kits for auto-immune
diseases, and TechAmerica Group Inc., now a part of Boehringer Ingelheim
Vetmedica, Inc., the U.S. animal health subsidiary of Boehringer Ingelhem GmbH,
an international chemical and pharmaceutical company headquartered in Germany.
He has developed numerous products in a broad range of areas, including ethical
vaccines, human diagnostics, cosmetics and OTC pharmaceuticals, and has set
several regulatory precedents in licensing and developing biotechnology-derived
products. For example, Dr. Dees developed and commercialized the world's first
live viral vaccine produced by recombinant DNA technologies and licensed the
first recombinant antigen human diagnostic assay using a FDA Class II licensure.
While at TechAmerica he developed and obtained USDA approval for the first in
vitro assay for releasing "killed" viral vaccines. Dr. Dees also has licensed
successfully a number of proprietary cosmetic products and formulated strategic
planning for developing cosmetic companies. He earned a Ph.D. in Molecular
Virology from the University of Wisconsin - Madison in 1984.
Timothy C. Scott, Ph.D., 46, President. Dr. Scott has served as our
President and as a member of our Board of Directors since we acquired PPI on
April 23, 2002. Prior to joining us, Dr. Scott was as a senior member of the
Photogen management team from 1997 to 2002, including serving as Photogen's
Chief Operating Officer from 1999 to 2002, as a director of Photogen from 1997
to 2000, and as interim CEO for a period in 2000. Before joining Photogen, he
served as senior management of Genase LLC, a developer of enzymes for fabric
treatment, and held senior research and management positions at ORNL. Dr. Scott
has been involved in developing numerous high-tech innovations in a broad range
of areas, including separations science, biotechnology, biomedical, and advanced
materials. He has licensed several of his innovations to the oil and gas and
biotechnology industries. As Director of the Bioprocessing R&D Center at ORNL,
Dr. Scott achieved a national presence in the area of use of advanced
biotechnology for the production of energy, fuels, and chemicals. He earned a
Ph.D. in Chemical Engineering from the University of Wisconsin - Madison in
1985.
Eric A. Wachter, Ph.D., 41, Vice President - Pharmaceuticals. Dr. Wachter
has served as our Vice President - Pharmaceuticals and as a member of our Board
of Directors since we acquired PPI on April 23, 2002. Prior to joining us, from
1997 to 2002 he was a senior member of the management team of Photogen,
including serving as Secretary and a director of Photogen since 1997 and as Vice
President and Secretary and a director of Photogen since 1999. Prior to joining
Photogen, Dr. Wachter served as a senior research staff member with ORNL.
Starting during his affiliation with Photogen, Dr. Wachter has been extensively
involved in pre-clinical development and clinical testing of pharmaceuticals and
medical device systems, as well as with coordination and filing of patents. He
earned a Ph.D. in Chemistry from the University of Wisconsin - Madison in 1988.
Peter R. Culpepper, CPA, MBA, 44, Chief Financial Officer. Mr. Culpepper
was appointed to serve as our Chief Financial Officer in February 2004.
Previously, Mr. Culpepper served as Chief Financial Officer for Felix Culpepper
International, Inc. from 2001 to 2004; was a Registered Representative with AXA
Advisors, LLC from 2002 to 2003; has served as Chief Accounting Officer and
Corporate Controller for Neptec, Inc. from 2000 to 2001; has served in various
Senior Director positions with Metromedia Affiliated Companies from 1998 to
2000; has served in various Senior Director and other financial positions with
Paging Network, Inc. from 1993 to 1998; and has served in a variety of financial
roles in public accounting and industry from 1982 to 1993. He earned an MBA in
Finance from the University of Maryland - College Park in 1992. He earned an
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undergraduate degree from the College of William and Mary - Williamsburg,
Virginia in 1982. He is a licensed Certified Public Accountant in both Tennessee
and Maryland and is a faculty member with the University of Phoenix.
Employees
We currently employ four persons, all of whom are full-time employees.
Available Information
Provectus Pharmaceuticals, Inc. is a "public company," and therefore we are
subject to the informational requirements of the Securities Exchange Act of
1934, as amended, which we refer to as the "Exchange Act." To comply with those
requirements, we file annual reports, quarterly reports, periodic reports and
other reports and statements with the Securities and Exchange Commission, which
we refer to as the "SEC." You may read and copy any materials that we file with
the SEC at the SEC's Public Reference Room, at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains an Internet site at http://www.sec.gov, from which you can access
electronic copies of materials we file with the SEC.
Our Internet address is http://www.pvct.com. We have made available,
through a link to the SEC's Web site, electronic copies of the materials we file
with the SEC (including our annual reports on Form 10-KSB, our quarterly reports
on Form 10-QSB, our current reports on Form 8-K, the Section 16 reports filed by
our executive officers, directors and 10% shareholders and amendments to those
reports). To receive paper copies of our SEC materials, please contact us by
U.S. mail, telephone, facsimile or electronic mail at the following address:
Provectus Pharmaceuticals, Inc.
Attention: President
7327 Oak Ridge Highway, Suite A
Knoxville, TN 37931
Telephone: 865/769-4011
Facsimile: 865/769-4013
Electronic mail: info@pvct.com
Item 2. Description of Property.
We currently lease approximately 4,000 square feet of space outside of
Knoxville, Tennessee for our corporate office and operations. Our monthly rental
charge for these offices is approximately $2,800 per month, and the lease is
renewed on a month-to-month basis. We believe that these offices generally are
adequate for our needs currently and in the immediate future.
Item 3. Legal Proceedings.
From time to time, we are party to litigation or other legal proceedings
that we consider to be a part of the ordinary course of our business. At
present, we are not involved in any legal proceedings nor are we party to any
pending claims that we believe could reasonably be expected to have a material
adverse effect on our business, financial condition, or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
During the three months ended December 31, 2003, we did not submit any
matters to a vote of our stockholders.
13
Part II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information and Holders
Quotations for our common stock are reported on the OTC Bulletin Board
under the symbol "PVCT." The following table sets forth the range of high and
low bid information for the periods indicated since January 1, 2002:
2002 High Low
---- ---- ---
First Quarter (January 1 to March 31) $2.60 $0.02
Second Quarter (April 1 to June 30) $10.01 $0.30
Third Quarter (July 1 to September 30) $1.05 $0.12
Fourth Quarter (October 1 to December 31) $0.55 $0.07
2003
First Quarter (January 1 to March 31) $0.60 $0.26
Second Quarter (April 1 to June 30) $ 1.01 $0.21
Third Quarter (July 1 to September 30) $0.60 $0.20
Fourth Quarter (October 1 to December 31) $2.00 $0.22
The closing price for our common stock on March 25, 2004 was $1.69. High
and low quotation information was obtained from data provided by Yahoo! Inc.
Quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not reflect actual transactions.
As of March 15, 2004, we had 1,899 shareholders of record of our common
stock.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We
currently plan to retain future earnings, if any, to finance the growth and
development of our business and do not anticipate paying any cash dividends in
the foreseeable future. We may incur indebtedness in the future which may
prohibit or effectively restrict the payment of dividends, although we have no
current plans to do so. Any future determination to pay cash dividends will be
at the discretion of our board of directors.
Recent Sales of Unregistered Securities
During the year ended December 31, 2003, we did not sell any securities
which were not registered under the Securities Act of 1933, as amended, which we
refer to as the "Securities Act," except as follows:
1. Pursuant to a letter agreement dated January 8, 2003 between us and
Investor-Gate.com, we retained Investor-Gate to provide investor
relations services. For these services, we agreed to pay Investor-Gate
a monthly fee of $7,250 for the first three months of the agreement
and a monthly fee of $6,000 per month thereafter. The monthly fee for
the first three months was paid by the issuance and delivery to
Investor-Gate of 29,000 shares of our common stock at an agreed-upon
value of $0.75 per share. In addition, we agreed to grant
Investor-Gate warrants for the purchase of additional shares of our
common stock. As of the close of business on January 8, 2003, the
value of our common stock was $0.40 per share.
On February 28, 2003, we terminated the agreement with Investor-Gate
as a result of Investor-Gate's failure to perform the contracted-for
investor relations services. Investor-Gate retained the 29,000 shares
initially issued to it, as well as a warrant exercisable for the
purchase of 25,000 shares of our common stock at an exercise price of
$0.75 per share. In addition, we remained obligated to issue
14
additional warrants to Investor-Gate on the following terms:
Number of Shares Exercise Price Issue Date Termination Date
---------------- -------------- ---------- ----------------
25,000 shares $2.00 April 8, 2003 September 8, 2004
25,000 shares $5.00 January 8, 2004 July 8, 2005
We relied on an exemption from registration pursuant to Section 4(2)
of the Securities Act, based on the sale of the shares and warrants,
and the issuance of the shares of common stock issuable upon exercise
of the warrants, to a single purchaser in a transaction not involving
any general solicitation or general advertising.
2. Pursuant to a letter agreement dated January 31, 2003 between us and
Gryffindor, we issued Gryffindor an Amended and Restated Senior
Secured Convertible Note dated January 31, 2003 in the original
principal amount of $1,025,959. The amended note bears interest at 8%
per annum, payable quarterly in arrears, is due and payable in full on
November 26, 2004, and amends and restated the original note in its
entirety. As with the original note, our obligations under the amended
note are secured by a first priority security interest in all of our
assets, including the assets held by our Xantech and Pure-ific
subsidiaries. Subject to certain exceptions, the amended note is
convertible into shares of our common stock beginning on the November
26, 2003; the principal amount of the note is convertible at the rate
of one share of common stock for each $0.73655655 of principal
converted, while accrued but unpaid interest on the note is
convertible at the rate of one share of common stock for each $0.55 of
accrued but unpaid interest converted. We relied on an exemption from
registration pursuant to Section 4(2) of the Securities Act, based on
the issuance of the amended note, and the issuance of the shares of
common stock issuable upon conversion of the amended note, to a
limited number of purchasers in a transaction not involving any
general solicitation or general advertising.
3. Pursuant to a letter agreement dated February 20, 2003 between us and
Strategic Growth International, Inc., which we refer to as "SGI," we
retained SGI as our investor relations consultant. For services under
this agreement, we issued SGI warrants on the following terms:
Number of Shares Exercise Price Issue Date Termination Date
---------------- -------------- ---------- ----------------
120,000 shares $0.25 February 20, 2003 February 20, 2008
120,000 shares $0.35 February 20, 2003 February 20, 2008
120,000 shares $0.50 February 20, 2003 February 20, 2008
In addition, at our option, during the first three months of the
agreement we may elect to issue SGI 30,000 shares per month in lieu of
payment of $3,000 of the monthly cash fee payable under the agreement.
As of the close of business on February 18, 2003, the last day on
which a trade was reported prior to the execution of the agreement
with SGI, the value of our common stock was $0.26 per share. During
the quarter ended March 31, 2003, we did not exercise our option to
issue shares in lieu of payment of fees. We relied on an exemption
from registration pursuant to Section 4(2) of the Securities Act,
based on the sale of the shares and warrants, and the issuance of the
shares of common stock issuable upon exercise of the warrants, to a
single purchaser in a transaction not involving any general
solicitation or general advertising.
4. Pursuant to a letter agreement dated March 27, 2003 between us and
Josephberg Grosz & Co., Inc., which we refer to as "JGC," we issued JG
Capital, Inc., an affiliate of JGC, 35,000 shares of common stock as
consideration for JGC's agreement to assist us in obtaining additional
capital. As of the close of business on March 21, 2003, the last day
15
on which a trade was reported prior to the execution of the agreement
with JGC, the value of our common stock was $0.32 per share. We relied
on an exemption from registration pursuant to Section 4(2) of the
Securities Act, based on the sale of these shares to a single
purchaser in a transaction not involving any general solicitation or
general advertising.
5. Pursuant to Consulting Agreements dated September 2, 2003 between us,
Phil Baker, George Matin and Bruce Cosgrove, we issued 200,000 shares
of common stock and 100,000 warrants to each of Mssrs. Baker, Matin
and Cosgrove as consideration for their agreement to provide
consulting services to us. The warrants provide for the purchase of
our common shares at any time prior to September 2, 2008 at a price of
$0.75 per share. As of the close of business on August 29, 2003, the
last day on which a trade was reported prior to the execution of the
agreements with Mssrs. Baker, Matin and Cosgrove, the value of our
common stock was $0.31 per share. We relied on an exemption from
registration pursuant to Section 4(2) of the Securities Act, based on
the sale of these shares to a single purchaser in a transaction not
involving any general solicitation or general advertising.
6. In November 2003, we completed a short-term unsecured debt financing
in the aggregate gross amount of $500,000. On November 19, 2003, we
issued in a private placement to "accredited investors" under the
Securities Act of 1933, as amended, (i) $500,000 in the aggregate
principal amount of our 8% unsecured convertible debentures; (ii)
warrants to purchase up to 500,000 shares of our common stock at an
exercise price of $1.00 per share; and (iii) warrants to purchase up
to 100,000 shares of our common stock at an exercise price of $1.25
per share. We used the proceeds of the offering to provide short-term
working capital.
7. In December 2003, we commenced an offering for sale up to
approximately $1 million of our restricted common stock. Net proceeds
to us were initially expected to be approximately $400,000 to
$600,000. We have since increased this offering amount to $2 million
and have received proceeds of $967,750 as of March 15, 2004 and have
sold a total of 2,228,769 shares in this offering. We engaged a
placement agent to assist us in the offering. Placement agent fees and
related expenses totaled $1,446,607 as of March 15, 2004. If we are
successful in selling the remaining shares, total net proceeds are
expected to be approximately $1.0 million to $1.6 million. The
transaction is a Regulation S offering to foreign investors as defined
by Regulation S of the Securities Act. The restricted shares cannot be
traded for 12 months. After the first 12 months, sales of the shares
are subject to restrictions under rule 144 for an additional year.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The following discussion is intended to assist in the understanding and
assessment of significant changes and trends related to our results of
operations and our financial condition together with our consolidated
subsidiaries. This discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this Annual Report on Form 10-KSB. Historical results and percentage
relationships set forth in the statement of operations, including trends which
might appear, are not necessarily indicative of future operations.
Going Concern
In connection with their audit report on our consolidated financial
statements as of December 31, 2003, BDO Seidman LLP, our independent certified
public accountants, expressed substantial doubt about our ability to continue as
a going concern because such continuance is dependent upon our ability to raise
capital.
Our technologies are in early stages of development. We have not generated
material revenues from sales or operations and we do not expect to generate
16
sufficient revenues to enable us to be profitable for several calendar quarters.
At critical junctures during 2003 we obtained $40,000 in additional funding
through loans from Eric A. Wachter, our Vice President - Pharmaceuticals, a
member of our Board of Directors, and a major shareholder. These funds allowed
us to complete our planned corporate reorganization and acquisitions, complete
initial production runs for several of our OTC products, and maintain our
facilities and intellectual property portfolio. As of December 31, 2003, we have
borrowed a total of $149,000 from Dr. Wachter, including $109,000 borrowed in
2002. We require additional funding to continue initial production and
distribution of OTC products in order to achieve meaningful sales volumes. In
addition, we must raise substantial additional funds in order to fully implement
our integrated business plan, including execution of the next phases in clinical
development of our pharmaceutical products and full resumption of research
programs for new research initiatives that are currently delayed.
Ultimately, we must achieve profitable operations if we are to be a viable
entity. We intend to proceed as rapidly as possible with the development of OTC
products that can be sold with a minimum of regulatory compliance and with the
development of revenue sources through licensing of our existing intellectual
property portfolio. Although we believe that there is a reasonable basis for our
expectation that we will successfully raise the needed funds, we cannot assure
you that we will be able to raise sufficient capital to sustain operations
before we can commence revenue generation or that we will be able to achieve, or
maintain, a level of profitability sufficient to meet our operating expenses.
Our current plans include continuing to operate with our four employees
during the immediate future, but we anticipate adding some part-time employees
during the next year. Our current plans also include minimal purchases of new
property, plant and equipment, and limited research and development. We
determined research and development expense incurred during 2003 through
specific identification of expenses, as well as an allocation of salaries
expense attributed to research and development.
Plan of Operation
With the reorganization of Provectus and PPI and the acquisition and
integration into the company of Valley and Pure-ific, we believe we have
obtained a unique combination of OTC products and core intellectual properties.
This combination represents the foundation for a successful operating company
that we believe will provide both short-term profitability and long-term growth.
In 2004, through careful control of expenditures, escalating sales of OTC
products, and issuance of debt and equity, we plan to build on that foundation
to increase shareholder value.
In the short term, we intend to develop our business by marketing,
manufacturing, and distributing our existing OTC products, principally GloveAid
and Pure-ific. In the longer term, we expect to continue the process of
developing, testing and obtaining FDA approval of prescription drugs and medical
devices. Additionally, we intend to restart our research programs that will
identify additional conditions that our intellectual properties may be used to
treat and additional treatments for those and other conditions.
We are in the planning phase for the major research and development
projects, and therefore do not have estimated completion dates, completion costs
and capital requirements for these projects. The reason we do not have this
information available is because we have not completed our planning process.
Since there is no defined schedule for completing these development projects,
there are no defined consequences if they are not completed timely. The research
and development costs comprising a total of $724,924 incurred in 2003, included
depreciation expense of $218,082, consulting of $49,198, lab expense of $12,800,
insurance of $10,153, legal expense of $130,271, office and other expense of
$2,008, payroll of $252,042, rent and utilities of $38,057, and taxes and fees
of $12,313. Research and development costs comprising a total of $50,714 for
2002 include lab expense of $250, insurance of $2,244, legal of $1,374, payroll
of $38,996, and rent and utilities of $7,850.
Cash Flow
As of March 15, 2004, we held approximately $500,000 in cash. At our
current cash expenditure rate, this amount will be sufficient to meet our needs
17
until the end of August 2004. We already have begun to reduce our expenditure
rate by delaying some of our research programs for new research initiatives; in
addition, we are seeking to improve our cash flow by increasing sales of OTC
products. However, we cannot assure that we will be successful either in
increasing sales of OTC products or in reducing expenditures. Moreover, even if
we are successful in improving our current cash flow position, we nonetheless
will require additional funds to meet our short-term and long-term needs. We
anticipate these funds will come from the proceeds of private placements or
public offerings of debt or equity securities, but we cannot assure you that we
will be able to obtain such funds.
Capital Resources
As noted above, our present cash flow is not sufficient to meet our
short-term operating needs for initial production and distribution of OTC
products in order to achieve meaningful sales volumes, much less to meet our
longer-term needs for investment in our business through execution of the next
phases in clinical development of our pharmaceutical products and resumption of
our currently suspended research programs. We anticipate that the majority of
the funds for our operating and development needs in 2004 will come from the
proceeds of private placements or public offerings of debt or equity securities.
We are currently in discussions with multiple funding sources and feel confident
adequate operating funding and development funding will result. While we believe
that we have reasonable basis for our expectation that we will be able to raise
additional funds, we cannot give you an assurances that we will be able to do so
on commercially reasonable terms. In addition, any such financing may result in
significant dilution to shareholders.
Equity Transactions
From time to time we enter into consulting agreements with various
providers. The nature of the consulting services include overall business
strategy, the development and support of over-the-counter distribution
agreements, general business development, public relations and investor
relations.
In 2003, we issued 764,000 shares to consultants in exchange for services
rendered, consisting of 29,000 shares issued in January, 35,000 shares issued in
March and 700,000 shares issued in October. Consulting costs charged to
operations were $95,133. At December 31, 2003, $144,667 has been classified as
prepaid consulting expense as this amount represents payments for services to be
provided in the future. The shares are fully vested and non-forfeitable.
In November and December 2003, we committed to issue 341,606 shares to
consultants in exchange for services rendered. Consulting costs charged to
operations were $49,517. At December 31, 2003, $231,983 has been classified as
prepaid consulting expense as this amount represents payments for services to be
provided in the future. The shares are fully vested and non-forfeitable.
We apply the recognition provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," in accounting for stock options and warrants issued
to nonemployees. In January 2003, we issued 25,000 warrants to a consultant for
services rendered. In February 2003, we issued 360,000 warrants to a consultant
180,000 of which were fully vested and non-forfeitable at the issuance and the
remaining 180,000 warrants were cancelled in August 2003 due to the termination
of the consulting contract. In September 2003, we issued 200,000 warrants to two
consultants in exchange for services rendered. In November 2003, we issued
100,000 warrants to one consultant in exchange for services rendered. As the
fair market value of these services was not readily determinable, these services
were valued based on the fair market value, determined using the Black-Scholes
option-pricing model. Fair market value for the warrants ranged from $0.20 to
$0.24. Consulting costs charged to operations were $101,312. At December 31,
2003, $44,167 has been classified as prepaid consulting expense as this amount
represents payments for services to be provided in the future. The prepaid
consulting expense relates to warrants which are fully vested and
non-forfeitable.
Item 7. Financial Statements.
Our consolidated financial statements, together with the report thereon of
BDO Seidman LLP, independent accountants, are set forth on the pages of this
18
Annual Report on Form 10-KSB indicated below.
Page
----
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets as of December 31, 2003
and December 31, 2002 F-2
Consolidated Statements of Operations for the year
ended December 31, 2003 and for the period from
January 17, 2002 (inception) to December 31, 2002 F-3
Consolidated Statements of Shareholders' Equity for
the year ended December 31, 2003 and for the period
from January 17, 2002 (inception) to December 31, 2002 F-4
Consolidated Statements of Cash Flows for the year
ended December 31, 2003 and for the period from
January 17, 2002 (inception) to December 31, 2002 F-6
Notes to Consolidated Financial Statements F-8
Forward-Looking Statements
This Annual Report on Form 10-KSB contains forward-looking statements
regarding, among other things, our anticipated financial and operating results.
Forward-looking statements reflect our management's current assumptions,
beliefs, and expectations. Words such as "anticipate," "believe, "estimate,"
"expect," "intend," "plan," and similar expressions are intended to identify
forward-looking statements. While we believe that the expectations reflected in
our forward-looking statements are reasonable, we can give no assurance that
such expectations will prove correct. Forward-looking statements are subject to
risks and uncertainties that could cause our actual results to differ materially
from the future results, performance, or achievements expressed in or implied by
any forward-looking statement we make. Some of the relevant risks and
uncertainties that could cause our actual performance to differ materially from
the forward-looking statements contained in this report are discussed below
under the heading "Risk Factors" and elsewhere in this Annual Report on Form
10-KSB. We caution investors that these discussions of important risks and
uncertainties are not exclusive, and our business may be subject to other risks
and uncertainties which are not detailed there.
Investors are cautioned not to place undue reliance on our forward-looking
statements. We make forward-looking statements as of the date on which this
Annual Report on Form 10-KSB is filed with the SEC, and we assume no obligation
to update the forward-looking statements after the date hereof whether as a
result of new information or events, changed circumstances, or otherwise, except
as required by law.
Risk Factors
Our business is subject to various risks, including those described below.
You should carefully consider these risk factors, together with all of the other
information included in this Annual Report on Form 10-KSB. Any of these risks
could materially adversely affect our business, operating results and financial
condition:
Our independent auditors have expressed substantial doubt about our ability
to continue as a going concern.
Our independent public accountants have expressed substantial doubt about
our ability to continue as a going concern in their report on our December 31,
2003 financial statements. Currently, our continuance as a going concern is
dependent upon our ability to raise capital or achieve profitable operations.
Our technologies are in early stages of development. We have generated minimal
initial revenues from sales and operations thus far in 2004, but we do not
expect to generate sufficient revenues to enable us to be profitable for several
calendar quarters. We require additional funding to continue initial production
and distribution of OTC products in order to achieve meaningful sales volumes.
In addition, we must raise substantial additional funds in order to fully
19
implement our integrated business plan, including execution of the next phases
in clinical development of our pharmaceutical products and resumption of
research programs currently suspended.
Ultimately, we must achieve profitable operations if we are to be a viable
entity. We intend to proceed as rapidly as possible with the development of OTC
products that can be sold with a minimum of regulatory compliance and with the
development of revenue sources through licensing of our existing intellectual
property portfolio. We cannot assure you that we will be able to raise
sufficient capital to sustain operations before we can commence revenue
generation or that we will be able to achieve, or maintain, a level of
profitability sufficient to meet our operating expenses and continue as a going
concern.
Because of our limited operations and the fact that we are currently
generating limited revenue, we may be unable to pay our debts when they become
due.
We currently have $1,674,959 in debt, net of a debt discount of $499,675
and $100,021 of accrued interest on our balance sheet, consisting of $1,025,959
in principal and $88,000 in accrued but unpaid interest owed to Gryffindor
pursuant to the Note; $500,000 in principal and $4,590 in accrued interest owed
to the holders of our debentures and $149,000 in principal and $7,431 in accrued
interest owed to Dr. Wachter. The amounts due to Gryffindor and to the holders
of are debentures are due in November 2004 and the amounts due to Dr. Wachter
are due in 2009. Because of the convertible nature of the debt owed to
Gryffindor and to the holders of the convertible debentures, we may not have to
repay this debt if the debt is converted into shares of our common stock.
However, we can not assure you that this debt will be converted into common
stock and we may have to repay this indebtedness. We are trying to secure
additional financing, but have not yet succeeded in doing so. Our ability to
satisfy our current debt service obligations and any additional obligations we
might incur will depend upon our future financial and operating performance,
which, in turn, is subject to prevailing economic conditions and financial,
business, competitive, legislative and regulatory factors, many of which are
beyond our control. If our cash flow and capital resources continue to be
insufficient to fund our debt service obligations, we may be forced to reduce or
delay planned acquisitions, expansion and capital expenditures, sell assets,
obtain additional equity capital or restructure our debt. Additionally, our
creditors could accelerate our payment obligations, commence foreclosure
proceedings against our assets or force us into bankruptcy or liquidation. In
such events, any proceeds may not be sufficient to pay off our creditors. We
cannot assure you that our operating results, cash flow and capital resources
will be sufficient for payment of our debt service and other obligations in the
future.
We will need additional capital to conduct our operations and develop our
products, and our ability to obtain the necessary funding is uncertain.
We will require substantial capital resources in order to conduct our
operations and develop our products. We estimate that our existing capital
resources will be sufficient to fund our current and planned operations only
through August 31, 2004, and we may need additional capital at an earlier date.
We have based this estimate on assumptions that may prove to be wrong, and we
cannot assure that estimates and assumptions will remain unchanged. For example,
we are currently assuming that we will continue to operate without any
significant staff or other resources expansion. We intend to acquire additional
funding through public or private equity financings or other financing sources
that may be available. Additional financing may not be available on acceptable
terms, or at all and our independent auditors' going concern qualification may
make it more difficult for us to obtain additional funding to meet our
objectives. As discussed in more detail below, additional equity financing could
result in significant dilution to shareholders. Further, in the event that
additional funds are obtained through licensing or other arrangements, these
arrangements may require us to relinquish rights to some of our technologies,
product candidates or products that we would otherwise seek to develop and
commercialize ourselves. If sufficient capital is not available, we may be
required to delay, reduce the scope of or eliminate one or more of our programs,
any of which could have a material adverse effect on our business, and may
impair the value of our patents and other intangible assets.
Existing shareholders may face dilution from our financing efforts
20
We must raise additional capital from external sources to execute our
business plan. We plan to issue debt securities, capital stock, or a combination
of these securities. We may not be able to sell these securities, particularly
under current market conditions. Even if we are successful in finding buyers for
our securities, the buyers could demand high interest rates or require us to
agree to onerous operating covenants, which could in turn harm our ability to
operate our business by reducing our cash flow and restricting our operating
activities. If we were to sell our capital stock, we might be forced to sell
shares at a depressed market price, which could result in substantial dilution
to our existing shareholders. In addition, any shares of capital stock we may
issue may have rights, privileges, and preferences superior to those of our
common shareholders.
The prescription drug and medical device products in our internal pipeline
are at an early stage of development, and they may fail in subsequent
development or commercialization.
We are continuing to pursue clinical development of our most advanced
pharmaceutical drug products, Xantryl and Provecta, for use as treatments for
specific conditions. These products and other pharmaceutical drug and medical
device products that we are currently developing will require significant
additional research, formulation and manufacture development, and pre-clinical
and extensive clinical testing prior to regulatory licensure and
commercialization. Pre-clinical and clinical studies of our pharmaceutical drug
and medical device products under development may not demonstrate the safety and
efficacy necessary to obtain regulatory approvals. Pharmaceutical and
biotechnology companies have suffered significant setbacks in advanced clinical
trials, even after experiencing promising results in earlier trials.
Pharmaceutical drug and medical device products that appear to be promising at
early stages of development may not reach the market or be marketed successfully
for a number of reasons, including the following:
o a product may be found to be ineffective or have harmful side
effects during subsequent pre-clinical testing or clinical
trials;
o a product may fail to receive necessary regulatory clearance;
o a product may be too difficult to manufacture on a large scale;
o a product may be too expensive to manufacture or market;
o a product may not achieve broad market acceptance;
o others may hold proprietary rights that will prevent a product
from being marketed; or
o others may market equivalent or superior products.
We do not expect any pharmaceutical drug products or medical device
products we are developing to be commercially available for at least several
years, if at all. Our research and product development efforts may not be
successfully completed and may not result in any successfully commercialized
products. Further, after commercial introduction of a new product, discovery of
problems through adverse event reporting could result in restrictions on the
product, including withdrawal from the market and, in certain cases, civil or
criminal penalties.
Our OTC products are at an early stage of introduction, and we cannot be
sure that they will be widely accepted in the marketplace or that we will have
adequate capital to market and distribute these products which are an important
factor in the future success of our business.
We recently have begun marketing GloveAid and Pure-ific, our first two OTC
products, on a limited basis. We have not recognized any revenue from these
products, as the sales of these products have not been material. In order for
these products to become commercially successful, we must increase significantly
our distribution of them. Increasing distribution of these products requires, in
turn, that we or distributors representing us increase marketing of these
products. In view of our limited financial resources, we may be unable to afford
21
increases in our marketing of our OTC products sufficient to improve our
distribution of our products. Even if we can and do increase our marketing of
our OTC products, we cannot give you any assurances that we can successfully
increase our distribution of our products.
If we do begin increasing our distribution of our OTC products, we must
increase our production of these products in order to fill our distribution
channels. Increased production will require additional financial resources that
we do not have at present. Additionally, we may succeed in increasing production
without succeeding in increasing sales, which could leave us with excess,
possibly unsaleable, inventory.
If we are unable to successfully introduce, market and distribute these
products, our business, financial condition, results of operations and cash
flows could be materially adversely affected.
Competition in the prescription drug, medical device and OTC
pharmaceuticals markets is intense, and we may be unable to succeed if our
competitors have more funding or better marketing.
The pharmaceutical and biotechnology industries are intensely competitive.
Other pharmaceutical and biotechnology companies and research organizations
currently engage in or have in the past engaged in research efforts related to
treatment of dermatological conditions or cancers of the skin, liver and breast,
which could lead to the development of products or therapies that could compete
directly with the prescription drug, medical device and OTC products that we are
seeking to develop and market.
Many companies are also developing alternative therapies to treat cancer
and dermatological conditions and, in this regard, are out competitors. Many of
the pharmaceutical companies developing and marketing these competing products
have significantly greater financial resources and expertise than we do in:
o research and development;
o manufacturing;
o preclinical and clinical testing;
o obtaining regulatory approvals; and
o marketing.
Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large and established
companies. Academic institutions, government agencies and other public and
private research organizations also may conduct research, seek patent protection
and establish collaborative arrangements for research, clinical development and
marketing of products similar to ours. These companies and institutions compete
with us in recruiting and retaining qualified scientific and management
personnel as well as in acquiring technologies complementary to our programs.
In addition to the above factors, we expect to face competition in the
following areas:
o product efficacy and safety;
o the timing and scope of regulatory consents;
o availability of resources;
o reimbursement coverage;
o price; and
o patent position, including potentially dominant patent positions
of others.
As a result of the foregoing, our competitors may develop more effective or
more affordable products or achieve earlier product commercialization than we
do.
22
Product Competition. Additionally, since our currently marketed products are
generally established and commonly sold, they are subject to competition from
products with similar qualities.
Our OTC product Pure-ific competes in the market with other hand sanitizing
products, including in particular, the following hand sanitizers:
o Purell (manufactured by GOJO Industries),
o Avagard D (manufactured by 3M) and
o a large number of generic and private-label equivalents to these
market leaders.
Our OTC product GloveAid represents a new product category that has no
direct competitors; however, other types of products, such as AloeTouch(R)
disposable gloves (manufactured by Medline Industries) target the same market
niche.
Since our prescription products Provecta and Xantryl have not yet been
approved by the FDA or introduced to the marketplace, we cannot estimate what
competition these products might face when they are finally introduced, if at
all. We cannot assure you that these products will not face significant
competition for other prescription drugs and generic equivalents.
If we are unable to secure or enforce patent rights, trademarks, trade secrets
or other intellectual property our business could be harmed.
We may not be successful in securing or maintaining proprietary patent
protection for our products or products and technologies we develop or license.
In addition, our competitors may develop products similar to ours using methods
and technologies that are beyond the scope of our intellectual property
protection, which could reduce our anticipated sales. While some of our products
have proprietary patent protection, a challenge to these patents can be subject
to expensive litigation. Litigation concerning patents, other forms of
intellectual property and proprietary technology is becoming more widespread and
can be protracted and expensive and can distract management and other personnel
from performing their duties for us.
We also rely upon trade secrets, unpatented proprietary know-how and
continuing technological innovation in order to develop a competitive position.
We cannot assure you that others will not independently develop substantially
equivalent proprietary technology and techniques or otherwise gain access to our
trade secrets and technology, or that we can adequately protect our trade
secrets and technology.
If we are unable to secure or enforce patent rights, trademarks, trade
secrets or other intellectual property, our business, financial condition,
results of operations and cash flows could be materially adversely affected.
If we infringe on the intellectual property of others, our business could be
harmed.
We could be sued for infringing patents or other intellectual property that
purportedly cover products and/or methods of using such products held by persons
other than us. Litigation arising from an alleged infringement could result in
removal from the market, or a substantial delay in, or prevention of, the
introduction of our products, any of which could have a material adverse effect
on our business, financial condition, or results of operations and cash flows.
If we do not update and enhance our technologies, they will become obsolete.
The pharmaceutical market is characterized by rapid technological change,
and our future success will depend on our ability to conduct successful research
in our fields of expertise, to discover new technologies as a result of that
research, to develop products based on our technologies, and to commercialize
those products. While we believe that are current technology is adequate for our
23
present needs, if we fail to stay at the forefront of technological development,
we will be unable to compete effectively. Our competitors are using substantial
resources to develop new pharmaceutical technologies and to commercialize
products based on those technologies. Accordingly, our technologies may be
rendered obsolete by advances in existing technologies or the development of
different technologies by one or more of our current or future competitors.
If we lose any of our key personnel, we may be unable to successfully execute
our business plan.
Our business is presently managed by four key employees:
o H. Craig Dees, Ph.D., our Chief Executive Officer;
o Timothy C. Scott, Ph.D., our President;
o Eric A. Wachter, Ph.D. our Vice President - Pharmaceuticals; and
o Peter R. Culpepper, CPA, our Chief Financial Officer.
In addition to their responsibilities for management of our overall
business strategy, Drs. Dees, Scott and Wachter are our chief researchers in the
fields in which we are developing and planning to develop prescription drug,
medical device and OTC products. Also, as of December 31, 2003, we owe $352,500
in accrued but unpaid compensation to our employees, most of which is owed to
Drs. Dees, Scott and Wachter. The loss of any of these key employees could have
a material adverse effect on our operations, and our ability to execute our
business plan might be negatively impacted. Any of these key employees may leave
their employment with us if they choose to do so, and we cannot assure you that
we would be able to hire similarly qualified executives if any of our key
employees should choose to leave.
Because we have only four employees, our management may be unable to
successfully manage our business.
In order to successfully execute our business plan, our management must
succeed in all of the following critical areas:
o Researching diseases and possible therapies in the areas of
dermatology and skin care, oncology, and biotechnology;
o Developing prescription drug, medical device and OTC products
based on our research;
o Marketing and selling developed products;
o Obtaining additional capital to finance research, development,
production and marketing of our products; and
o Managing our business as it grows.
As discussed above, we currently have only four employees, all of whom are
full-time employees. The greatest burden of succeeding in the above areas
therefore falls on Drs. Dees, Scott, Wachter, and Culpepper. Focusing on any one
of these areas may divert their attention from our other areas of concern and
could affect our ability to manage other aspects of our business. We cannot
assure you that our management will be able to succeed in all of these areas or,
even if we do so succeed, that our business will be successful as a result. We
anticipate adding a part-time regulatory affairs officer, a part-time lab
technician and a part-time office manager within the next year. While we have
not historically had difficulty in attracting employees, our small size and
limited operating history may make it difficult for us to attract and retain
employees in the future which could further divert managements attention from
the operation of our business.
Our common stock price can be volatile because of several factors, including a
limited public float.
During the twelve-month period ended December 31, 2003, the sale price of
our common stock fluctuated from $2.00 to $0.20 per share. We believe that our
24
common stock is subject to wide price fluctuations because of several factors,
including:
o absence meaningful earnings and external financing,
o a relatively thin trading market for our common stock, which
causes trades of small blocks of stock to have a significant
impact on our stock price,
o general volatility of the stock markets and the market prices of
other publicly traded companies, and
o investor sentiment regarding equity markets generally, including
public perception of corporate ethics and governance and the
accuracy and transparency of financial reporting.
We have raised substantial amounts of capital in private placements from time to
time and if we have failed to comply with applicable laws and regulations
applicable to these private placements, we could be required to repay this
capital to investors and could be subject to legal action by the investors and
by state and federal securities regulators .
We have offered and sold securities in private placements in reliance upon
exemptions from the registration requirements of the SEC and state agencies.
These exemptions are highly technical in nature and if we inadvertently failed
to comply with the requirements of any of the exemptive provisions, investors
might have the right to rescind their purchase of our securities or sue for
damages. If one or more investors were to successfully seek rescission or
prevail in any suit, we could face severe financial demands that could
materially and adversely affect our financial position. Further, the SEC and
state agencies could take action against us that could divert management's
attention from the operation of our business, cause us to pay fines and
penalties and cause us to have to repay investors their original investment,
among other things.
Financings that may be available to us under current market conditions
frequently involve sales at prices below the prices at which our common stock
trades on the Over the Counter Electronic Bulletin Board, as well as the
issuance of warrants or convertible debt that require exercise or conversion
prices that are calculated in the future at a discount to the then market price
of our common stock.
Any agreement to sell, or convert debt or equity securities into, common
stock at a future date and at a price based on the then current market price
will provide an incentive to the investor or third parties to sell the common
stock short to decrease the price and increase the number of shares they may
receive in a future purchase, whether directly from us or in the market. For
example, the initial conversion rate of the debentures issued during the fourth
quarter of 2003 is equal to the lower of (i) 75% of the average market price of
our common stock for the twenty (20) trading days ending on the twentieth
trading day subsequent to the effective date of the registration statement or
(ii) $0.75 per share. If the average market price of our common stock is so low
that it causes the conversion rate on the debentures to fall below approximately
$0.73, and if the debenture holders enforce this provision of our agreement with
them, we will have to issue more shares to the debenture holders upon conversion
of the debentures and the anti-dilutive provisions contained in our agreements
with Gryffindor will become operative. If these anti-dilutive provisions become
operative, we may be required to issue a significant number of shares of common
stock to Gryffindor. We will not receive any additional proceeds from Gryffindor
for the issuance of these shares of common stock. Other financings that we may
obtain may contain similar provisions, and the existence of anti-dilutive
provisions in some of our existing financings may make it more difficult for us
to obtain financing in the future. These types of transactions which cause the
issuance of our common stock in connection with the exercise or conversion of
securities may result in substantial dilution to the remaining holders of our
common stock.
Financings that may be available to us frequently involve high selling costs.
Because of our limited operating history, low market capitalization, thin
trading volume and other factors, we have historically had to pay high costs to
25
obtain financing and expect to continue to be required to pay high costs for any
future financings in which we may participate. For example, our past sales of
shares and our sale of the debentures have involved the payment of finder's fees
or placement agent's fees. These types of fees are typically higher for small
companies like us. Payment of fees of this type reduces the amount of cash that
we receive from a financing transaction and makes it more difficult for us to
obtain the amount of financing that need to maintain and expand our operations.
We have not had earnings, but if earnings were available, it is our general
policy to retain any earnings for use in our operation.
We have never declared or paid cash dividends on our common stock. We
currently intend to retain all of our future earnings, if any, for use in our
business and therefore do not anticipate paying any cash dividends on our common
stock in the foreseeable future.
Our stock price is below $5.00 per share and is treated as a "Penny Stock"
which places restrictions on broker-dealers recommending the stock for purchase.
Our common stock is defined as "penny stock" under the Exchange Act and its
rules. The SEC has adopted regulations that define "penny stock" to include
common stock that has a market price of less than $5.00 per share, subject to
certain exceptions. These rules include the following requirements:
o broker-dealers must deliver, prior to the transaction a
disclosure schedule prepared by the SEC relating to the penny
stock market;
o broker-dealers must disclose the commissions payable to the
broker-dealer and its registered representative;
o broker-dealers must disclose current quotations for the
securities;
o if a broker-dealer is the sole market-maker, the broker-dealer
must disclose this fact and the broker-dealers presumed control
over the market; and
o a broker-dealer must furnish its customers with monthly
statements disclosing recent price information for all penny
stocks held in the customer's account and information on the
limited market in penny stocks.
Additional sales practice requirements are imposed on broker-dealers who
sell penny stocks to persons other than established customers and accredited
investors. For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and must have received the
purchaser's written consent to the transaction prior to sale. If our common
stock remains subject to these penny stock rules these disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for our common stock. As a result, fewer broker-dealers may be willing to
make a market in our stock, which could affect a shareholder's ability to sell
their shares.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The information called for by this item is incorporated by reference to our
Current Report on Form 8-K which was filed with the SEC on January 3, 2003, as
amended on January 9, 2003 and March 25, 2004.
Item 8A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. Our chief executive
officer and chief financial officer have evaluated the effectiveness
26
of the design and operation of our "disclosure controls and
procedures" (as that term is defined in Rule 13a-14(c) under the
Exchange Act) as of the last day of the period covered by this Annual
Report on Form 10-KSB. Based on that evaluation, the chief executive
officer and chief financial officer have concluded that our disclosure
controls and procedures are effective to ensure that material
information relating to us and our consolidated subsidiaries is made
known to such officers by others within these entities, particularly
during the period this Annual Report on Form 10-KSB was prepared, in
order to allow timely decisions regarding required disclosure.
(b) Changes in Internal Controls. There was no change in our internal
control over financial reporting identified in connection with the
evaluation during our fourth fiscal quarter that materially affected,
or is reasonably likely to materially affect, our internal control
over financial reporting.
Part III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
Except as set forth below, the information called for by this item with
respect to our executive officers as of March 25, 2004 is furnished in Part I of
this report under the heading Personnel--Executive Officers." The information
called for by this item, to the extent it relates to our directors or to certain
filing obligations of our directors and executive officers under the federal
securities laws, is incorporated herein by reference to the Proxy Statement for
our Annual Meeting of Stockholders to be held on May 27, 2004, which will be
filed with the SEC pursuant to Regulation 14A under the Exchange Act.
Audit Committee Financial Expert
We do not currently have an "audit committee financial expert," as defined
under the rules of the SEC. Because the board of directors consists of only four
members and our operations remain amenable to oversight by a limited number of
directors, the board has not delegated any of its functions to committees. The
entire board of directors acts as our audit committee as permitted under Section
3(a)(58)(B) of the Exchange Act. We believe that all of the members of our board
are qualified to serve as the committee and have the experience and knowledge to
perform the duties required of the committee. We do not have any independent
directors who would qualify as an audit committee financial expert, as defined.
We believe that it has been, and may continue to be, impractical to recruit such
a director unless and until we are significantly larger.
Code of Ethics
We have not adopted a formal Code of Ethics. Since our company only has
four employees, we expect those employees to adhere to high standards of ethics
without the need for a formal policy.
Item 10. Executive Compensation.
The information called for by this item is incorporated herein by reference
to the Proxy Statement for our Annual Meeting of Stockholders to be held on May
27, 2004, which will be filed with the SEC pursuant to Regulation 14A under the
Exchange Act.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The information called for by this item is incorporated herein by reference
to the Proxy Statement for our Annual Meeting of Stockholders to be held on May
27
27, 2004, which will be filed with the SEC pursuant to Regulation 14A under the
Exchange Act.
Item 12. Certain Relationships and Related Transactions.
The information called for by this item is incorporated herein by reference
to the Proxy Statement for our Annual Meeting of Stockholders to be held on May
27, 2004, which will be filed with the SEC pursuant to Regulation 14A under the
Exchange Act.
Item 13. Exhibits, List and Reports on Form 8-K.
(a) Exhibits. Exhibits required by Item 601 of Regulation S-B are incorporated
herein by reference and are listed on the attached Exhibit Index, which
begins on page X-1 of this Annual Report on Form 10-KSB.
(b) Reports on Form 8-K. During the fiscal quarter ended December 31, 2003, we
filed the following Current Reports on Form 8-K:
1. On December 2, 2003, we filed a Current Report on Form 8-K reporting
that we had completed a short-term unsecured debt financing.
2. On December 15, 2003, we filed a Current Report on Form 8-K reporting
an offering of up to $1 million of restricted common stock.
Item 14. Principal Accountant Fees and Services.
The information called for by this item is incorporated herein by reference
to the Proxy Statement for our Annual Meeting of Stockholders to be held on May
27, 2004, which will be filed with the SEC pursuant to Regulation 14A under the
Exchange Act.
28
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this Amendment No. 2 to its annual report on From 10-KSB for the year
ended December 31, 2003 to be signed on its behalf by the undersigned, thereunto
duly authorized.
Provectus Pharmaceuticals, Inc.
By: /s/ H. Craig Dees
--------------------------------------
H. Craig Dees, Ph.D.
Chief Executive Officer
Date: October 7, 2004
29
Report of Independent Registered Public Accounting Firm
Board of Directors
Provectus Pharmaceuticals, Inc.
Knoxville, Tennessee
We have audited the accompanying consolidated balance sheets of Provectus
Pharmaceuticals, Inc. a development stage company, as of December 31, 2003 and
2002, and the related consolidated statements of operations, shareholders'
equity and cash flows for the year ended December 31, 2003 and for the period
from January 17, 2002 (inception) to December 31, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Provectus
Pharmaceuticals, Inc. at December 31, 2003 and 2002 and the results of its
operations and its cash flows for the year ended December 31, 2003 and for the
period from January 17, 2002 (inception) to December 31, 2002, in conformity
with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has reported accumulated losses of
$10,221,449, which raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
As discussed in Note 8, the consolidated financial statements have been restated
to reflect the effect of a change in the valuation of the Company's patents upon
their acquisition.
/s/ BDO Seidman, LLP
Chicago, Illinois
March 12, 2004, except for Note 8 which is as of September 29, 2004
F-1
Provectus Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
Restated Restated
(Note 8) (Note 8)
December 31, December 31,
2003 2002
------------------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash $ 164,145 $ 717,833
Prepaid expenses 26,227 35,481
Inventory 72,578 -
Stock subscription receivable (Note 4) 87,875 -
Deferred loan costs (net of amortization of $19,569 (Note 6)) 150,961 -
Prepaid consulting expense (Note 4) 420,817 -
---------------------------------
Total Current Assets 922,603 753,314
Equipment and Furnishings, less accumulated depreciation of $244,760 and
$39,446 (Note 1) 121,415 471,429
Patents, net of amortization of $749,417 and $78,297 (Notes 1 and 2) 10,966,028 11,637,148
Other Assets 27,000 27,000
---------------------------------
$ 12,037,046 $ 12,888,891
=================================
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable - trade $ 100,640 $ 98,874
Accrued compensation 352,500 19,781
Accrued expenses 57,549 50,000
Accrued interest 100,021 8,000
Short-term convertible debt (net of debt discount of $442,623 (Note 6)) 57,377 -
Current maturities of long-term convertible debt (net of debt discount
of $57,052 (Note 6)) 968,907 -
---------------------------------
Total Current Liabilities 1,636,994 176,655
Loan From Shareholder (Note 7) 149,000 109,000
Convertible Debt (net of debt discount of $120,344 (Note 6)) - 879,656
Shareholders' Equity (Notes 2, 4, 5, and 6)
Common stock; par value $.001 per share; 100,000,000 shares authorized;
10,867,509 and 9,423,689 shares issued and outstanding, respectively 10,868 9,424
Paid-in capital 20,461,632 18,780,291
Deficit accumulated during the development stage (10,221,448) (7,066,135)
---------------------------------
Total Shareholders' Equity 10,251,052 11,723,580
---------------------------------
$ 12,037,046 $ 12,888,891
=================================
See accompanying notes to financial statements.
F-2
Provectus Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
Restated Restated Restated
(Note 8) (Note 8) (Note 8)
Cumulative
For the Period Amounts from
January 17, 2002 January 17, 2002
Year Ended (inception) to (inception) to
December 31, December 31, December 31,
2003 2002 2003
---------------------------------------------------------- --------------- --------------- -----------------
Operating Expenses
Research and development $ 724,924 $ 50,714 $ 775,638
General and administrative (including noncash stock
and warrant compensation of $280,621 in 2003 and
$6,436,000 in 2002) 1,582,250 6,922,946 8,505,196
Amortization of patents 671,120 78,297 749,417
--------------- --------------- -----------------
Total operating loss (2,978,294) (7,051,957) (10,030,251)
Gain on sale of fixed assets 55,000 - 55,000
Interest expense (232,019) (14,178) (246,197)
--------------- --------------- -----------------
Net Loss Applicable to Common Shareholders $ (3,155,313) $ (7,066,135) $ (10,221,448)
=============== =============== =================
Basic and Diluted Loss Per Common Share $ (0.33) $ (0.89)
=============== ===============
Weighted Average Number of Common Shares
Outstanding - Basic and Diluted 9,706,064 7,981,876
=============== ===============
See accompanying notes to financial statements.
F-3
Provectus Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Statements of Shareholders' Equity
------------------------------------------------------------------------------------------------------------------------------------
Common Stock
------------------------
Number of Paid-in Accumulated
Shares Par Value Capital Deficit Total
---------- ---------- ----------- ---------- ------------
Balance, at January 17, 2002 - $ - $ - $ - $ -
Issuance to founding shareholders 6,000,000 6,000 (6,000) - -
Sale of stock 50,000 50 24,950 - 25,000
Issuance of stock to employees 510,000 510 931,490 - 932,000
Issuance of stock for services 120,000 120 359,880 - 360,000
Net loss for the period from January 17, 2002 (inception)
to April 23, 2002 (date of reverse merger) - - - (1,316,198) (1,316,198)
--------- --------- ----------- ----------- ----------
Balance, at April 23, 2002 6,680,000 6,680 1,310,320 (1,316,198) 802
Shares issued in reverse merger 265,763 266 (3,911) - (3,645)
Issuance of stock for services 1,900,000 1,900 5,142,100 - 5,144,000
Purchase and retirement of stock (400,000) (400) (47,600) - (48,000)
Stock issued for acquisition of Valley Pharmaceuticals 500,007 500 12,225,820 - 12,226,320
Exercise of warrants 452,919 453 - - 453
Warrants issued in connection with convertible debt - - 126,587 - 126,587
Stock and warrants issued for acquisition of Pure-ific 25,000 25 26,975 - 27,000
Net loss for the period from April 23, 2002 (date of reverse
merger) to December 31, 2002 - - - (5,749,937) (5,749,937)
--------- -------- ---------- ----------- -----------
Balance, at December 31, 2002 9,423,689 9,424 18,780,291 (7,066,135) 11,723,580
F-4
Common Stock
--------------------------
Number of Paid-in Accumulated
Shares Par Value Capital Deficit Total
--------- --------- ----------- ------------ --------------
Balance, at December 31, 2002 9,423,689 $ 9,424 $18,780,291 $(7,066,135) $ 11,723,580
Issuance of stock for services 764,000 764 239,036 - 239,800
Issuance of warrants for services - - 145,479 - 145,479
Stock to be issued for services - - 281,500 - 281,500
Employee compensation from stock options - - 34,659 - 34,659
Issuance of stock pursuant to Regulation S 679,820 680 379,667 - 380,347
Issuance of convertible debt with warrants - - 601,000 - 601,000
Net loss for the year ended December 31, 2003 - - - (3,155,313) (3,155,313)
---------- --------- ----------- ------------ -------------
Balance, at December 31, 2003 10,867,509 $ 10,868 $20,461,632 ($10,221,448) $ 10,251,052
========== ========= =========== ============ =============
See accompanying notes to financial statements.
F-5
Provectus Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
Restated Restated Restated
(Note 8) (Note 8) (Note 8)
Cumulative
For the Period Amounts from
January 17, 2002 January 17, 2002
Year Ended (inception) to (inception) to
December 31, 2003 December 31, 2002 December 31, 2003
----------------- ----------------- -----------------
Cash Flows From Operating Activities
Net loss $ (3,155,313) $ (7,066,135) $(10,221,448)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation 228,315 39,446 267,761
Amortization of patents 671,120 78,297 749,417
Amortization of original issue discount 120,669 6,243 126,912
Amortization of deferred loan costs 19,569 - 19,569
Compensation through issuance of stock - 932,000 932,000
Compensation through issuance of stock options 34,659 - 34,659
Issuance of stock for services 144,650 5,504,000 5,648,650
Issuances of warrants for services 101,312 - 101,312
Gain on sale of fixed assets (55,000) - (55,000)
(Increase) decrease in assets net of acquisitions
Prepaid expenses 9,254 (35,481) (26,227)
Inventory (72,578) - (72,578)
Increase (decrease) in liabilities
Accounts payable 1,766 95,229 96,995
Accrued expenses 432,289 77,781 510,070
----------- ------------- -----------
Net cash used in operating activities (1,519,288) (368,620) (1,887,908)
----------- ------------- -----------
Cash Flows From Investing Activities
Proceeds from sale of fixed asset 180,000 - 180,000
Capital expenditures (3,301) - (3,301)
----------- -------------- -----------
Net cash provided by investing activities 176,699 - 176,699
----------- -------------- -----------
Cash Flows From Financing Activities
Proceeds from loans from shareholder 40,000 109,000 149,000
Proceeds from convertible debt 525,959 1,000,000 1,525,959
Proceeds from sale of common stock 292,472 25,000 317,472
Proceeds from exercise of warrants - 453 453
Cash paid for deferred loan costs (69,530) - (69,530)
Purchase and retirement of common stock - (48,000) (48,000)
----------- --------------- -----------
Net cash provided by financing activities 788,901 1,086,453 1,875,354
----------- --------------- -----------
(Cont'd)
F-6
Provectus Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
Cumulative
For the Period Amounts from
January 17, 2002 January 17, 2002
Year Ended (inception) to (inception) to
December 31, 2003 December 31, 2002 December 31, 2003
------------------ ----------------- ------------------
Net Change in Cash $ (553,688) $ 717,833 $ 164,145
Cash, at beginning of period 717,833 - -
----------------- ----------------- ------------------
Cash, at end of period $ 164,145 $ 717,833 $ 164,145
================= ================= ==================
Supplemental Schedule of Noncash Investing and Financing
Activities
2003
Issuance or commitment to issue stock and warrants for prepaid services
of $666,779.
Stock subscription receivable recorded of $87,875.
Discount on convertible debt with warrants of
$500,000.
Deferred loan costs through the issuance of warrants
of $101,000.
2002
Acquisition of Valley Pharmaceuticals, Inc. through
the issuance of 500,007 shares of the
Company's common stock. The value of the
assets purchased was $12,226,320.
Acquisition of Pure-ific through the issuance of
common stock valued at $12,500 and warrants
valued at $14,500. Assets valued at $27,000
were acquired.
Discount recorded on convertible debt with warrants
of $126,587.
See accompanying notes to financial statements.
F-7
Provectus Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. Organization and Significant Accounting Policies
Nature of Operations
Provectus Pharmaceuticals, Inc.(together with its subsidiaries, the
"Company")is a development-stage biopharmaceutical company that is focusing
on developing minimally invasive products for the treatment of psoriasis
and other topical diseases, cancer, and certain laser device technology.
Through a previous acquisition, the Company also intends to develop,
manufacture, and distribute over-the-counter pharmaceuticals. To date the
Company has no material revenues.
Liquidity and Basis of Presentation
The Company will continue to require additional capital to develop its
products and develop sales and distribution channels for its products.
However, the Company believes it may not have sufficient working capital to
fund operations for the entire fiscal year ending December 31, 2004.
Management believes there are a number of potential alternatives available
to meet the Company's continuing capital requirements, including proceeding
as rapidly as possible with the development of over-the-counter products
that can be sold with a minimum of regulatory compliance and developing
revenue sources through licensing of the existing intellectual property
portfolio. In addition, the Company is pursuing actively additional debt
and/or equity capital in order to support ongoing operations. There can be
no assurance that the Company will be able to obtain sufficient additional
working capital on commercially reasonable terms or conditions, or at all.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. Continuing as a going concern is
dependent upon successfully obtaining additional working capital as
described above. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and
classification of assets and amounts and classifications of liabilities
that might result from the outcome of this uncertainty.
Principles of Consolidation
Intercompany balances and transactions have been eliminated in
consolidation.
F-8
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Inventory
Inventory, consisting principally of finished goods, is stated at the lower
of cost or market. Cost is determined using a first-in, first-out method.
Deferred Loan Costs
The costs related to the issuance of the convertible debt, including lender
fees, legal fees, due diligence costs, escrow agent fees and commissions,
have been recorded as deferred loan costs and are being amortized over the
term of the loan using the effective interest method. Additionally, the
Company recorded debt discounts related to warrants and beneficial
conversion features issued in connection with the debt.
Equipment and Furnishings
Equipment and furnishings acquired through the acquisition of Valley
Pharmaceuticals, Inc. (Note 2) have been stated at carry over basis. Other
equipment and furnishings are stated at cost. Depreciation of equipment is
provided for using the straight-line method over the estimated useful lives
of the assets. Computers and laboratory equipment are being depreciated
over five years, furniture and fixtures are being depreciated over seven
years. Depreciation expense was $228,315 in 2003 and $39,446 in 2002.
Long-Lived Assets
The Company reviews the carrying values of its long-lived assets for
possible impairment whenever an event or change in circumstances indicates
that the carrying amount of the assets may not be recoverable. Any
long-lived assets held for disposal are reported at the lower of their
carrying amounts or fair value less cost to sell.
Patent Costs
Internal patent costs are expensed in the period incurred. Patents
purchased are capitalized and amortized over the remaining life of the
patent.
Patents at December 31, 2003 were acquired as a result of the merger with
Valley Pharmaceuticals, Inc. ("Valley") (Note 2). The majority shareholders
of Provectus also owned all of the shares of Valley and therefore the
assets acquired from Valley were recorded at their carry over basis. The
patents are being amortized over the remaining lives of the patents, which
range from 12-16 years. Annual amortization of the patents is expected to
be approximately $671,000 per year for the next five years.
Research and Development
Research and development costs are charged to expense when incurred. An
allocation of payroll expenses was made based on a percentage estimate of
time spent. The research and development costs include the following:
consulting - IT, depreciation, lab equipment repair, lab supplies,
insurance, legal - patents, office supplies, payroll expenses, rental -
building, repairs, software, taxes and fees, and utilities. The total
research and development expenses incurred in 2003 are $724,924. The total
research and development expenses incurred in 2002 are $50,714.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the tax basis and
financial reporting basis of certain assets and liabilities based upon
currently enacted tax rates expected to be in effect when such amounts are
realized or settled.
Since inception of the Company on January 17, 2002, the Company has
generated tax net operating losses of approximately $2.7 million, expiring
in 2022 and 2023. The Company has not recorded an income tax benefit for
the net operating losses as the Company is in the development stage and
realization of the losses is not considered more likely than not. An income
tax valuation allowance has been provided for the losses realized to date.
F-9
The amortization of patents and noncash stock compensation is not
deductible for tax purposes. In addition, the Company may have acquired
certain net operating losses in its acquisition of Valley Pharmaceuticals,
Inc. (Note 2). However, the amount of these net operating losses has not
been determined and even if recorded the amount would be fully reserved.
Basic and Diluted Loss Per Common Share
Basic and diluted loss per common share and diluted loss per common share
is computed based on the weighted Per Common Share average number of common
shares outstanding. Loss per share excludes the impact of outstanding
options, warrants, and convertible debt as they are antidilutive. Potential
common shares excluded from the calculation at December 31, 2003 are
356,250 options, 905,000 warrants and 2,218,741 shares issuable upon the
conversion of convertible debt and accrued interest. Additionally, the
Company is committed to issue 80,000 warrants. Included in the weighted
average number of common shares outstanding are 416,606 shares committed to
be issued but not outstanding at December 31, 2003.
Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash,
accounts payable and accrued expenses approximate fair value because of the
short-term nature of these amounts. The Company believes the fair value of
its fixed-rate borrowings approximates the market value.
Stock Options
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS No. 123), but applies the intrinsic value method where
compensation expense, if any, is recorded as the difference between the
exercise price and the market price, as set forth in Accounting Principles
Board Opinion No. 25 for stock options granted to employees and directors.
Options granted to non-employees are accounted for under SAS 123. SAS 123
requires options to be accounted for based on their fair value.
On May 29, 2003, the Company issued 452,000 stock options to employees and
directors. The options vest over three years with 188,000 options vesting
on the date of grant. The exercise prices range from $0.26 to $0.60. The
exercise price for 352,000 options granted was less than the market price
on the date of grant. Accordingly, compensation
F-10
expense of $34,659 has been recorded in 2003.
For stock options granted to employees during 2003, the Company has
estimated the fair value of each option granted using the Black-Scholes
option pricing model with the following assumptions:
2003
--------
Weighted average fair value per options granted * $ 0.60
Significant assumptions (weighted average)
Risk-free interest rate at grant date 2.0%
Expected stock price volatility 150%
Expected option life (years) 10
* The weighted average fair value for both the options less than
market price at date of grant and options equal to market price at
date of grant was $0.60.
If the Company had elected to recognize compensation expense based on the
fair value at the grant dates, consistent with the method prescribed by
SFAS No. 123, net loss per share would have been changed to the pro forma
amount indicated below:
For the Period
January 17, 2002
Year Ended (inception)
December 31, to December 31,
2003 2002
--------------- ---------------
Net loss, as reported $ (3,155,313) $ (7,066,135)
Add stock-based employee compensation
expense included in reported net loss 34,659 -
Less total stock-based employee compensation
expense determined under the fair
value based method for all awards (132,663) -
---------------- ---------------
Pro forma net loss $ (3,253,317) $ (7,066,135)
================ ===============
Basic and diluted loss per common share,
as reported $ (0.33) $ (0.89)
Basic and diluted loss per common share,
pro forma $ (0.34) $ (0.89)
Reclassifications
Certain 2002 amounts have been reclassified to conform with the 2003
presentation.
Recent Accounting Pronouncements
In January 2003, FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46"). In general, a variable interest
entity is a corporation, partnership, trust or any other legal structure
used for business purposes that either (a) does not have equity investors
with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities.
FIN 46 requires certain variable interest entities to be consolidated by
F-11
the primary beneficiary of the entity if the investors do not have the
characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The Company adopted the provisions
of FIN 46 effective February 1, 2003 and such adoption did not have a
material impact on its consolidated financial statements since it currently
has no variable interest entities. In December 2003, the FASB issued FIN
46R with respect to variable interest entities created before January 31,
2003, which among other things, revised the implementation date to the
first fiscal year or interim period ending after March 15, 2004, with the
exception of Special Purpose Entities ("SPE"). The consolidation
requirements apply to all SPE's in the first fiscal year or interim period
ending after December 15, 2003. The Company adopted the provisions of FIN
46R effective December 31, 2003 and such adoption did not have a material
impact on its consolidated financial statements since it currently has no
SPE's.
In April 2003, FASB issued Statement of Financial Accounting Standards No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities ("SFAS 149"). SFAS 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities under SFAS 133. SFAS 149 is
effective for contracts and hedging relationships entered into or modified
after June 30, 2003. The Company adopted the provisions of SFAS 149
effective June 30, 2003 and such adoption did not have a material impact on
its consolidated financial statements since the Company has not entered
into any derivative or hedging transactions.
In May 2003, FASB issued Statement of Financial Accounting Standards No.
150, Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity ("SFAS 150"). SFAS 150 establishes standards
for how an issuer classifies and measures certain financial instruments
with characteristics of both debt and equity and requires an issuer to
classify the following instruments as liabilities in its balance sheet:
o a financial instrument issued in the form of shares that is
mandatorily redeemable and embodies an unconditional obligation that
requires the issuer to redeem it by transferring its assets at a
specified or determinable date or upon an event that is certain to
occur;
o a financial instrument, other than an outstanding share, that embodies
an obligation to repurchase the issuer's equity shares, or is indexed
to such an obligation, and requires the issuer to settle the
obligation by transferring assets; and
o a financial instrument that embodies an unconditional obligation that
the issuer must settle by issuing a variable number of its equity
shares if the monetary value of the obligation is based solely or
predominantly on (1) a fixed monetary amount, (2) variations in
something other than the fair value of the issuer's equity shares, or
(3) variations inversely related to changes in the fair value of the
issuer's equity shares.
F-12
In November 2003, FASB issued FASB Staff Position No. 150-3 ("FSS 150-3")
which deferred the effective dates for applying certain provisions of SFAS
150 related to mandatorily redeemable financial instruments of certain
non-public entities and certain mandatorily redeemable non-controlling
interests for public and non-public companies. For public entities, SFAS
150 is effective for mandatorily redeemable financial instruments entered
into or modified after May 31, 2003 and is effective for all other
financial instruments as of the first interim period beginning after June
15, 2003. For mandatorily redeemable non-controlling interests that would
not have to be classified as liabilities by a subsidiary under the
exception in paragraph 9 of SFAS 150, but would be classified as
liabilities by the parent, the classification and measurement provisions of
SFAS 150 are deferred indefinitely. The measurement provisions of SFAS 150
are also deferred indefinitely for other mandatorily redeemable
non-controlling interests that were issued before November 4, 2003. For
those instruments, the measurement guidance for redeemable shares and
non-controlling interests in other literature shall apply during the
deferral period. The adoption of FAS 150 did not have a material impact on
the consolidated financial statements of the Company.
2. Recapitalization and Merger.
On April 23, 2002, Provectus Pharmaceutical, Inc., a Nevada corporation and
a Merger "blank check" public company, acquired Provectus Pharmaceuticals,
Inc., a privately held Tennessee corporation ("PPI"), by issuing 6,680,000
shares of common stock of Provectus Pharmaceutical to the stockholders of
PPI in exchange for all of the issued and outstanding shares of PPI, as a
result of which Provectus Pharmaceutical changed its name to Provectus
Pharmaceuticals, Inc. (the "Company") and PPI became a wholly owned
subsidiary of the Company. Prior to the transaction, PPI had no significant
operations and had not generated any revenues.
For financial reporting purposes, the transaction has been reflected in the
accompanying financial statements as a recapitalization of PPI and the
financial statements reflect the historical financial information of PPI
which was incorporated on January 17, 2002. Therefore, for accounting
purposes, the shares recorded as issued in the reverse merger are the
265,763 shares owned by Provectus Pharmaceuticals, Inc. shareholders prior
to the reverse merger.
The issuance of 6,680,000 shares of common stock of Provectus
Pharmaceutical, Inc. to the stockholders of PPI in exchange for all of the
issued and outstanding shares of PPI was done in anticipation of PPI
acquiring Valley Pharmaceuticals, Inc, which owned the intellectual
property to be used in the Company's operations.
On November 19, 2002, the Company acquired Valley Pharmeceuticals, Inc,
("Valley") a privately-held Tennessee corporation by merging PPI with and
into Valley and naming the surviving company Xantech Pharmaceuticals, Inc.
Valley had no significant operations and had not generated any revenues.
Valley was formed to hold certain intangible assets which were transferred
from an entity which was majority owned by the shareholders of Valley.
Those shareholders gave up their shares of the other company in exchange
for the intangible assets in a non-pro rata split off. The intangible
assets were valued based on the market price of the stock given up in the
split-off. The shareholders of Valley also owned the majority of the shares
of the Company at the time of the transaction. The Company issued 500,007
shares of stock in exchange for the net assets of Valley which were valued
at $12,226,320 and included patents of $11,715,445 and equipment and
furnishings of $510,875.
F-13
3. Commitments
At December 31, 2003, the Company leases office and laboratory space in
Knoxville, Tennessee, on a month-by-month basis. The Company also has
equipment operating leases.
Minimum future rental payments under noncancellable equipment operating
leases are as follows:
Year ending December 31, Leases
------------------------------------------------------------------------------
2004 $ 15,214
2005 1,242
--------------
Total $ 16,456
==============
Total rental expense charged to operations for 2003 and 2002 was $36,400
and $10,200, respectively.
4. Equity Transactions
(a) During 2002, the Company issued 2,020,000 shares of stock in exchange
for consulting services. These services were valued based on the fair
market value of the stock exchanged which resulted in consulting costs
charged to operations of $5,504,000.
(b) During 2002, the Company issued 510,000 shares of stock to employees
in exchange for services rendered. These services were valued based on
the fair market value of the stock exchanged which resulted in
compensation costs charged to operations of $932,000.
(c) In February 2002, the Company sold 50,000 shares of stock to a related
party in exchange for proceeds of $25,000.
(d) In June 2002, the Company issued a warrant to a consultant for the
purchase of 100,000 shares at $2.29 per share. The warrant is only
exercisable upon the successful introduction of the Company to a
designated pharmaceutical company.
(e) In October 2002, the Company purchased 400,000 outstanding shares of
stock from one shareholder for $48,000. These shares were then
retired.
(f) On December 5, 2002, the Company purchased the assets of Pure-ific
L.L.C, a Utah limited liability company, and created a wholly owned
subsidiary called Pure-ific Corporation, to operate the Pure-ific
business which consists of product formulations for Pure-ific personal
sanitizing sprays, along with the Pure-ific trademarks. The assets of
Pure-ific were acquired through the issuance of 25,000 shares of the
Company's stock with a fair market value of $0.50 and the issuance of
various warrants. These warrants included warrants to purchase 10,000
shares of the Company's stock at an exercise price of $0.50 issuable
on the first, second and third anniversary dates of the acquisition.
Accordingly, the fair market value of these warrants of $14,500,
determined using the Black-Scholes option pricing model, was recorded
as additional purchase price for the acquisition of the Pure-ific
assets. In addition, warrants to purchase 80,000 shares of stock at an
exercise price of $0.50 will be issued upon the achievement of certain
sales targets of the Pure-ific product. At December 31, 2003, none of
these targets have been met and accordingly, no costs have been
recorded.
(g) In 2003, the Company issued 764,000 shares to consultants in exchange
for services rendered, consisting of 29,000 shares issued in January,
35,000 shares issued in March and 700,000 shares issued in October.
Consulting costs charged to operations were $95,133. At December 31,
2003, $144,667 has been classified as prepaid consulting expense as
this amount represents payments for services to be provided in the
future. The shares are fully vested and non-forfeitable.
(h) In November and December 2003, the Company committed to issue 341,606
shares to consultants in exchange for services rendered. Consulting
costs charged to operations were $49,517. At December 31, 2003,
$231,983 has been classified as prepaid consulting expense as this
amount represents payments for services to be provided in the future.
The shares are fully vested and non-forfeitable.
F-14
(i) The Company applies the recognition provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," in accounting for stock
options and warrants issued to nonemployees. In January 2003, the
Company issued 25,000 warrants to a consultant for services rendered.
In February 2003, the Company issued 360,000 warrants to a consultant,
180,000 of which were fully vested and non-forfeitable at the issuance
and 180,000 of which were cancelled in August 2003 due to the
termination of the consulting contract. In September 2003, the Company
issued 200,000 warrants to two consultants in exchange for services
rendered. In November 2003, the Company issued 100,000 warrants to one
consultant in exchange for services rendered. As the fair market value
of these services was not readily determinable, these services were
valued based on the fair market value, determined using the
Black-Scholes option-pricing model. Fair market value for the warrants
ranged from $0.20 to $0.24. Consulting costs charged to operations
were $101,312. At December 31, 2003, $44,167 has been classified as
prepaid consulting expense as this amount represents payments for
services to be provided in the future. The prepaid consulting expense
relates to warrants which are fully vested and non-forfeitable.
(j) In December 2003, the Company commenced an offering for sale of
restricted common stock. As of December 31, 2003, the Company had sold
874,871 shares at an average gross price of $1.18 per share. As of
December 31, 2003, the Company has received net proceeds of $292,472
and has recorded a stock subscription receivable of $87,875 for stock
subscriptions prior to December 31, 2003 for which payment was
received subsequent to December 31, 2003. The transaction is a
Regulation S offering to foreign investors as defined by Regulation S
of the Securities Act. The restricted shares cannot be traded for 12
months. After the first 12 months, sales of the shares are subject to
restrictions under rule 144 for an additional year. The Company has
engaged a placement agent to assist the offering. Costs related to the
placement agent of $651,771 have been off-set against the gross
proceeds of $1,032,118 and therefore are reflected as a direct
reduction of equity at December 31, 2003. Subsequent to December 31,
2003, an additional 1,353,898 shares have been issued in the
Regulation S offering with proceeds to the Company of $587,403.
5. Stock Incentive Plan
The Company maintains one long-term incentive compensation plan, the Provectus
Pharmaceuticals, Inc. 2002 Stock Plan, which provides for the issuance of up to
2,000,000 shares of common stock pursuant to stock options, stock appreciation
rights, stock purchase rights and long-term performance awards granted to key
employees and directors of and consultants to the Company.
F-15
Options granted under the 2002 Stock Plan may be either "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code or
options which are not incentive stock options. The stock options are exercisable
over a period determined by the Board of Directors (through its Compensation
Committee), but generally no longer than 10 years after the date they are
granted.
The following table summarizes the options granted, exercised and outstanding as
of December 31, 2003. There were no options issued in 2002.
Exercise Weighted
Shares Price Per Average
Share Exercise
Price
-------- -------------- --------
Outstanding at January 1, 2003 - - -
Granted * 452,000 $0.26 - $0.60 $0.38
Exercised - - -
Forfeited (95,750) $0.26 - $0.32 $0.30
------- ------------- --------
Outstanding at December 31, 2003 356,250 $0.26 - $0.60 $0.40
======= ============= ========
Options exercisable at
December 31, 2003 187,500 $0.26 - $0.60 $0.47
======= ============= ========
* Includes 352,000 options granted at less than market price with a weighted
average exercise price of $0.31 and 100,000 options granted at a price equal to
market price with a weighted average exercise price of $0.60.
The following table summarizes information about stock options outstanding at
December 31, 2003.
Options Outstanding Options Exercisable
---------------------------------------- ----------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding at Remaining Average Exercisable at Average
December 31, Contractual Exercise December 31, Exercise
Exercise Price 2003 Life Price 2003 Price
-------------- ------------- ---------- -------- ------------- --------
$0.26 12,500 9.58 years $0.26 12,500 $0.26
$0.32 243,750 9.58 years 0.32 75,000 0.32
$0.60 100,000 9.58 years 0.60 100,000 0.60
-------------- ------------- ---------- -------- ------------- --------
356,250 9.58 years $0.40 187,500 $0.47
============= ========== ======== ============= ========
F-16
The following table summarizes the warrants granted, exercised and
outstanding as of December 31, 2003.
Weighted
Exercise Average
Price Per Exercise
Warrants Warrant Price
--------- ------------- --------
Outstanding at January 1, 2003 (Note
4(d)) 100,000 $2.29 $2.29
Granted 1,285,000 $0.25 - $1.25 $0.78
Exercised (200,000) $0.75 $0.75
Forfeited (180,000) $0.25 - $0.50 $0.37
--------- ------------- --------
Outstanding at December 31, 2003 1,005,000 $0.25 - $2.29 $1.01
========= ============= ========
Warrants exercisable at
December 31, 2003 905,000 $0.25 - $1.25 $0.87
========= ============= ========
At December 31, 2003 there were 80,000 warrants committed but not issued.
The following table summarizes information about warrants outstanding at
December 31, 2003.
Warrants Outstanding Warrants Exercisable
--------------------------------------------- -----------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding at Remaining Average Exercisable at Average
December 31, Contractual Exercise December 31, Exercise
Exercise Price 2003 Life Price 2003 Price
------------------- -------------- ----------- -------- --------------- --------
$0.25 60,000 4.17 $0.25 60,000 $0.25
$0.35 60,000 4.17 $0.35 60,000 $0.35
$0.50 60,000 4.17 $0.50 60,000 $0.50
$0.75 125,000 4.02 $0.75 125,000 $0.75
$1.00 500,000 1.92 $1.00 500,000 $1.00
$1.25 100,000 2.92 $1.25 100,000 $1.25
$2.29 100,000 0.50 $2.29 - -
------------------- -------------- ----------- -------- --------------- --------
1,005,000 3.29 $1.01 905,000 $0.87
============== =========== ======== =============== ========
6. Convertible Debt.
(a) Pursuant to a Convertible Secured Promissory Note and Warrant Purchase
Agreement dated November 26, 2002 (the "Purchase Agreement") between the
Company and Gryffindor Capital Partners I, L.L.C., a Delaware limited
liability company ("Gryffindor"), Gryffindor purchased the Company's $1
million Convertible Secured Promissory Note dated November 26, 2002 (the
"Note"). The Note bears interest at 8% per annum, payable quarterly in
arrears, and is due and payable in
F-17
full on November 26, 2004. Subject to certain exceptions, the Note is
convertible into shares of the Company's common stock on or after November
26, 2003, at which time the principal amount of the Note is convertible
into common stock at the rate of one share for each $0.737 of principal so
converted and any accrued but unpaid interest on the Note is convertible at
the rate of one share for each $0.55 of accrued but unpaid interest so
converted.
The Company's obligations under the Note are secured by a first priority
security interest in all of the Company's assets, including the capital
stock of the Company's wholly owned subsidiary Xantech Pharmaceuticals,
Inc., a Tennessee corporation ("Xantech"). In addition, the Company's
obligations to Gryffindor are guaranteed by Xantech, and Xantech's
guarantee is secured by a first priority security interest in all of
Xantech's assets.
Pursuant to the Purchase Agreement, the Company also issued to Gryffindor
and to another individual Common Stock Purchase Warrants dated November 26,
2002 (the "Warrants"), entitling these parties to purchase, in the
aggregate, up to 452,919 shares of common stock at a price of $0.001 per
share. Simultaneously with the completion of the transactions described in
the Purchase Agreement, the Warrants were exercised in their entirety.
The $1,000,000 in proceeds received in 2002 was allocated between the
long-term debt and the warrants on a pro-rata basis. The value of the
warrants was determined using a Black-Scholes option pricing model. The
allocated fair value of these warrants was $126,587 and was recorded as a
discount on the related debt and is being amortized over the life of the
debt using the effective interest method. Amortization of $63,294 and
$6,243 has been recorded as additional interest expense as of December 31,
2003 and 2002, respectively.
In 2003, an additional $25,959 was added to the convertible debt
outstanding.
(b) On November 19, 2003, the Company completed a short-term unsecured debt
financing in the aggregate amount of $500,000. The notes bear interest of
8% and are due in full on November 19, 2004. The notes are convertible into
common shares at a conversion rate equal to the lower of (i) 75% of the
average market price for the 20 trading days ending on the 20th trading day
subsequent to the effective date or (ii) $0.75 per share. Pursuant to the
note agreements, the Company also issued warrants to purchase up to 500,000
shares of the Company's common stock at an exercise price of $1.00 per
share. The warrants expire November 19, 2005.
The $500,000 proceeds received was allocated between the debt and the
warrants on a pro-rata basis. The value of the warrants was determined
using a Black-Scholes option-pricing model. The allocated fair value of
F-18
these warrants was $241,655 and was recorded as a discount to the related
debt. In addition, the conversion price was lower than the market value of
the Company's common stock on the date of issue. As a result, an additional
discount of $258,345 was recorded for this beneficial conversion feature.
The combined debt discount of $500,000 is being amortized over the life of
the debt using the effective interest method. Amortization of $57,377 has
been recorded as additional interest expense as of December 31, 2003.
In conjunction with the debt financing, the Company issued warrants to
purchase up to 100,000 shares of the Company's common stock at an exercise
price of $1.25 per share in satisfaction of a finder's fee. The value of
these warrants was determined to be $101,000 using a Black-Scholes
option-pricing model. In addition, the Company incurred debt issuance costs
of $69,530 which were payable in cash. Total debt issuance costs of
$170,530 have been recorded as a current asset and are being amortized over
the life of the debt. Amortization of $19,569 has been recorded as
additional interest expense as of December 31, 2003.
7. Loan From Shareholder
During 2002, a shareholder who is also an employee and member of the
Company's board of directors, loaned the Company $109,000. During 2003, the
same shareholder loaned the Company an additional $40,000. Interest on the
loan is 5%, compounded monthly. Principal is due on December 31, 2009 and
interest is payable quarterly in arrears beginning on June 30, 2003.
Accrued interest and interest expense at 12/31/03 was $7,431. There was no
accrued interest or interest expense at 12/31/02.
8. Restatement
During 2004, the Company restated its historical financial statements to
revise the value of its patents acquired from Valley Pharmaceuticals, Inc.
on November 19, 2002. During a detailed review of the accounting literature
applicable to the valuation of the patents upon acquisition, the Company
determined that the guidance under Accounting Principles Board Opinion No.
29, "Accounting for Nonmonetary Transactions" ("APB 29") was more
appropriate than the guidance under Statement of Financial Accounting
Standard No. 141, "Business Combinations"("SFAS 141"), which had originally
been used by the Company. Under SFAS 141, the Company used the date that
the transaction was entered into to value the shares given up in exchange
for the assets acquired compared to using the date the transaction was
completed as required under APB 29. Under APB 29, the restated value of the
patents upon acquisition is $11,715,445 compared to the $20,037,560 value
initially used by the Company. The accompanying financial statements and
notes reflect the restated amounts. The following tables detail the effects
of the restatement:
For the Period
January 17, 2002
Year Ended (inception) to
December 31, 2003 December 31, 2002
As As
Previously As Previously As
Reported Restated Reported Restated
Income Statement Data:
Amortization $ 1,147,853 $ 671,120 $ 133,916 $ 78,297
Total Operating Loss (3,455,027) (2,978,294) (7,107,576) (7,051,957)
Net Loss (3,632,046) (3,155,313) (7,121,754) (7,066,135)
Basic and Diluted Loss
Per Common Share (0.37) (0.33) (0.89) (0.89)
At At
December 31, 2003 December 31, 2002
As As
Previously As Previously As
Reported Restated Reported Restated
Balance Sheet Data:
Patents, net of amortization 18,755,791 10,966,028 19,903,644 11,637,148
Total Assets 19,826,809 12,037,046 21,155,387 12,888,891
Stockholders' Equity 18,040,815 10,251,052 19,990,076 11,723,580
F-19
EXHIBIT INDEX
Exhibit No. Description
------------ -----------
2.1* Agreement and Plan of Reorganization dated April 23, 2002, among
Provectus Pharmaceutical, Inc., a Nevada corporation ("Provectus"),
Provectus Pharmaceuticals, Inc., a Tennessee corporation ("PPI"), and
the stockholders of PPI identified therein, incorporated herein by
reference to Exhibit 99 to the Company's Current Report on Form 8-K
dated April 23, 2002, as filed with the SEC on April 24, 2002.
2.2* Agreement and Plan of Reorganization dated as of November 15, 2002
among the Company, PPI, Valley Pharmaceuticals, Inc., a Tennessee
corporation formerly known as Photogen, Inc., H. Craig Dees, Ph.D.,
Dees Family Foundation, Walter Fisher, Ph.D., Fisher Family Investment
Limited Partnership, Walt Fisher 1998 Charitable Remainder Unitrust,
Timothy C. Scott, Ph.D., Scott Family Investment Limited Partnership,
John T. Smolik, Smolik Family LLP, Eric A. Wachter, Ph.D., and Eric A.
Wachter 1998 Charitable Remainder Unitrust, incorporated herein by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
dated November 19, 2002, as filed with the SEC on November 27, 2002.
2.3* Asset Purchase Agreement dated as of December 5, 2002 among Pure-ific
Corporation, a Nevada corporation ("Pure-ific"), Pure-ific, L.L.C., a
Utah limited liability company, and Avid Amiri and Daniel Urmann,
incorporated herein by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated December 5, 2002, as filed with the
SEC on December 20, 2002.
2.4* Stock Purchase Agreement dated as of December 5, 2002 among the
Company, Pure-ific, and Avid Amiri and Daniel Urmann, incorporated
herein by reference to Exhibit 2.2 to the Company's Current Report on
Form 8-K dated December 5, 2002, as filed with the SEC on December 20,
2002.
3.1 Restated Articles of Incorporation of Provectus, incorporated herein
by reference to Exhibit 3.1 to the Company's Quarterly Report on Form
10-QSB for the fiscal quarter ended June 30, 2003, as filed with the
SEC on August 14, 2003.
3.2 Bylaws of Provectus, incorporated herein by reference to Exhibit 3.2
to the Company's Quarterly Report on Form 10-QSB for the fiscal
quarter ended March 31, 2003, as filed with the SEC on May 9, 2003.
4.1 Specimen certificate for the common shares, $.001 par value per share,
of Provectus Pharmaceuticals, Inc., incorporated herein by reference
to Exhibit 4.1 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2002, as filed with the SEC on April
15, 2003.
4.2.1+ Convertible Secured Promissory Note and Warrant Purchase Agreement
dated as of November 26, 2002 between the Company and Gryffindor
Capital Partners I, L.L.C. ("Gryffindor").
4.2.2 Letter Agreement dated January 31, 2003 between the Company and
Gryffindor, incorporated by reference to Exhibit 4.2.2 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended March
31, 2003, as filed with the SEC on May 9, 2003.
4.3 Amended and Restated Convertible Secured Promissory Note of the
Company dated January 31, 2003, issued to Gryffindor, incorporated
herein by reference to Exhibit 4.3 to the Company's Quarterly Report
on Form 10-QSB dated March 31, 2003, as filed with the SEC on May 9,
2003.
4.4 Common Stock Purchase Warrant dated November 26, 2002, issued to
Gryffindor, incorporated herein by reference to Exhibit 4.3 to the
Company's Current Report on Form 8-K dated November 26, 2002, as filed
with the SEC on December 10, 2002.
4.5 Common Stock Purchase Warrant dated November 26, 2002, issued to
Stuart Fuchs, incorporated herein by reference to Exhibit 4.4 to the
Company's Current Report on Form 8-K dated November 26, 2002, as filed
with the SEC on December 10, 2002.
X-1
4.6+ Stock Pledge Agreement dated as of November 26, 2002 between the
Company and Gryffindor.
4.7 Guaranty dated November 26, 2002 from Xantech Pharmaceuticals, Inc., a
Tennessee corporation and a wholly owned subsidiary of Provectus
("Xantech"), to Gryffindor, incorporated herein by reference to
Exhibit 4.6 to the Company's Current Report on Form 8-K dated November
26, 2002, as filed with the SEC on December 10, 2002.
4.8 Form of Security Agreement between the Company and Gryffindor,
incorporated herein by reference to Exhibit 4.7 to the Company's
Current Report on Form 8-K dated November 26, 2002, as filed with the
SEC on December 10, 2002.
4.9 Form of Patent and License Security Agreement between the Company and
Gryffindor, incorporated herein by reference to Exhibit 4.8 to the
Company's Current Report on Form 8-K dated November 26, 2002, as filed
with the SEC on December 10, 2002.
4.10 Form of Trademark Collateral Assignment and Security Agreement between
the Company and Gryffindor, incorporated herein by reference to
Exhibit 4.9 to the Company's Current Report on Form 8-K dated November
26, 2002, as filed with the SEC on December 10, 2002.
4.11 Form of Copyright Security Agreement between the Company and
Gryffindor, incorporated herein by reference to Exhibit 4.10 to the
Company's Current Report on Form 8-K dated November 26, 2002, as filed
with the SEC on December 10, 2002.
4.12 Registration Rights Agreement dated as of November 26, 2002 between
the Company and Gryffindor, incorporated herein by reference to
Exhibit 4.11 to the Company's Current Report on Form 8-K dated
November 26, 2002, as filed with the SEC on December 10, 2002.
4.13 Shareholders' Agreement dated as of November 26, 2002 among Provectus,
Gryffindor, H. Craig Dees, Ph.D., Dees Family Foundation, Walter
Fisher, Ph.D., Fisher Family Investment Limited Partnership, Walt
Fisher 1998 Charitable Remainder Unitrust, Timothy C. Scott, Ph.D.,
Scott Family Investment Limited Partnership, John T. Smolik, Smolik
Family LLP, Eric A. Wachter, Ph.D., and Eric A. Wachter 1998
Charitable Remainder Unitrust, incorporated herein by reference to
Exhibit 4.12 to the Company's Current Report on Form 8-K dated
November 26, 2002, as filed with the SEC on December 10, 2002.
4.14 Warrant Agreement dated as of December 5, 2002 among Provectus, Avid
Amiri and Daniel Urmann, incorporated herein by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K dated December 5,
2002, as filed with the SEC on December 20, 2002.
4.15 Form of Warrant issuable pursuant to the Warrant Agreement,
incorporated herein by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K dated December 5, 2002, as filed with the
SEC on December 20, 2002.
4.16 Promissory Note of the Company dated December 31, 2002, issued to Eric
A. Wachter, incorporated herein by reference to Exhibit 4.16 to the
Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2002, as filed with the SEC on April 15, 2003.
4.17+Common Share Purchase Warrant dated January 29, 2003, issued to
Investor-Gate.com.
4.18 Form of 8% Convertible Debenture incorporated herein by reference to
Annex I to Exhibit 10.16 to the Company's Registration Statement on
Form S-2, as filed with the SEC on February 12, 2004.
4.19 Form of Warrant incorporated herein by reference to Annex IV to
Exhibit 10.16 to the Company's Registration Statement on Form S-2, as
filed with the SEC on February 12, 2004.
4.20 Registration Rights Agreement dated as of November 19, 2003 by and
among the Company and the investors named therein incorporated by
reference to Annex IV to Exhibit 10.16 to the Company's Registration
Statement on Form S-2, as filed with the SEC on February 12, 2004.
X-2
4.21 Registration Rights Agreement dated as of September 4, 2003 by and
among the Company and Bruce A. Cosgrove and George F. Martin,
incorporated herein by reference to Exhibit 4.4 to the Company's
Registration Statement on Form S-2, as filed with the SEC on February
12, 2004.
4.22 Form of Warrant issued to selling shareholders other than holders of
8% Convertible Debentures, incorporated herein by reference to Exhibit
4.5 to the Company's Registration Statement on Form S-2, as filed with
the SEC on February 12, 2004.
4.23 Registration Rights Agreement dated as of December 26, 2003 by and
between the Company and The Research Foundation of State University of
New York, incorporated herein by reference to Exhibit 4.6 to the
Company's Registration Statement on Form S-2, as filed with the SEC on
February 12, 2004.
10.1 Consultant Compensation Agreement dated April 23, 2002 among Provectus
and Russell Ratliff, Justeene Blankenship, Michael L. Labertew, and
Phillip Baker, incorporated herein by reference to Exhibit 99.1 to the
Company's Registration Statement on Form S-8 (Registration No.
333-86896), as filed with the SEC on April 24, 2002.
10.2** Provectus Pharmaceuticals, Inc. Amended and Restated 2002 Stock Plan,
incorporated herein by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10QSB for the fiscal quarter ended June 30,
2003, as filed with the SEC on August 14, 2003.
10.3 Consulting Agreement dated August 15, 2002 between Provectus and
Numark Capital Corporation ("Numark"), incorporated herein by
reference to Exhibit 10.3 to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 2002, as filed with the
SEC on April 15, 2004.
10.4 Consulting Agreement dated August 28, 2002 between Provectus and
Robert S. Arndt, incorporated herein by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-8 (Registration No.
333-99639), as filed with the SEC on September 17, 2002.
10.5 Consulting Agreem ent dated August 28, 2002 between Provectus and
Nunzio Valerie, Jr., incorporated herein by reference to Exhibit 4.2
to the Company's Registration Statement on Form S-8 (Registration No.
333-99639), as filed with the SEC on September 17, 2002.
10.6+ Letter Agreement dated June 7, 2002 between Provectus and Nace Pharma,
LLC.
10.7 Letter Agreement dated August 29,2002 between Provectus and Nace
Resources, Inc., incorporated herein by reference to Exhibit 10.7 to
the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2002, as filed with the SEC on April 15, 2004.
10.8 Confidentiality, Inventions and Non-competition Agreement between the
Company and H. Craig Dees, incorporated herein by reference to Exhibit
10.8 to the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2002, as filed with the SEC on April 15, 2004.
10.9 Confidentiality, Inventions and Non-competition Agreement between the
Company and Timothy C. Scott, incorporated herein by reference to
Exhibit 10.9 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2002, as filed with the SEC on April
15, 2004.
10.10 Confidentiality, Inventions and Non-competition Agreement between the
Company and Eric A. Wachter, incorporated herein by reference to
Exhibit 10.10 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2002, as filed with the SEC on April
15, 2004.
10.11.1 Letter Agreement dated January 8, 2003 between the Company and
Investor - Gate.com, incorporated herein by reference to Exhibit
10.11.1 to the Company's Quarterly Report on Form 10-QSB for the
fiscal quarter ended March 31, 2003, as filed with the SEC on May 9,
2003.
X-3
10.11.2 Termination Letter dated February 28, 2003 from the Company to
Investor-Gate.com, incorporated herein by reference to Exhibit 10.11.2
to the Company's Quarterly Report on Form 10-QSB for the fiscal
quarter ended March 31, 2003, as filed with the SEC on May 9, 2003.
10.12 Letter Agreement dated February 20, 2003 between the Company and SGI,
incorporated herein by reference to Exhibit 10.12 to the Company's
Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31,
2003, as filed with the SEC on May 9, 2003.
10.13 Letter Agreement dated March 27, 2003 between the Company and
Josephberg Grosz & Co., Inc., incorporated herein by reference to
Exhibit 10.13 to the Company's Quarterly Report on Form 10-QSB for the
fiscal quarter ended March 31, 2003, as filed with the SEC on May 9,
2003.
10.14 Settlement Agreement dated as of June 16, 2003 among Kelly Adams,
Justeene Blankenship, Nicholas Julian, and pacific Management
Services, Inc.; and Provectus and Xantech, incorporated herein by
reference to Exhibit 10.14 to the Company's Current Report on Form 8-K
dated June 16, 2003, as filed with the SEC on June 26, 2003.
10.15***+ Material Transfer Agreement dated as of July 31, 2003 between
Schering-Plough Animal Health Corporation and Provectus, incorporated
herein by reference to Exhibit 10.15 to the Company's Quarterly Report
on Form 10-QSB for the fiscal quarter ended June 30, 2003, as filed
with the SEC on August 14, 2003.
10.16 Securities Purchase Agreement dated as of November 19, 2003 by and
among the Company and the lenders named therein, incorporated herein
by reference to Exhibit 10.16 to the Company's Registration Statement
on Form S-2, as filed with the SEC on February 12, 2004
21.1 List of Subsidiaries.
23.1 Consent of BDO Seidman, LLP.
31.1+ Certification of CEO pursuant to Rules 13a - 14(a) of the Securities
Exchange Act of 1934.
31.2+ Certification of CFO pursuant to Rules 13a-14(a) of the Securities
Exchange Act of 1934.
32+ Certification Pursuant to 18 U.S.C. ss. 1350.
--------------------------
* The Company agrees by this filing to supplementally furnish to the
SEC, upon request, a copy of the exhibits and/or schedules to this
agreement.
** Management compensation contract or plan.
*** Portions of the exhibits to this agreement have been omitted pursuant
to a request for confidential treatment. The omitted information has
been filed separately with the SEC.
+ Filed herewith.
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Exhibit 4.2.1
Convertible Secured Promissory Note and Warrant
Purchase Agreement
This CONVERTIBLE SECURED PROMISSORY NOTE AND WARRANT PURCHASE AGREEMENT
(the "Agreement") is made as of the 26th day of November, 2002 by and among
PROVECTUS PHARMACEUTICALS, INC., a Nevada corporation ("Provectus"), GRYFFINDOR
CAPITAL PARTNERS I, L.L.C., a Delaware limited liability company ("Gryffindor")
and Eric Wachter, The Eric A. Wachter 1998 Charitable Remainder Trust, Craig
Dees, The Dees Family Foundation, Timothy C. Scott, The Scott Family Investment
Limited Partnership, Walter Fisher, The Fisher Family Investment Limited
Partnership, The Walt Fisher 1998 Charitable Remainder Trust, John T. Smolik and
The Smolik Family LLP (the "Shareholders").
RECITALS
WHEREAS, Photogen Technologies, Inc. ("Technologies") and its wholly-owned
subsidiary Photogen, Inc. ("Photogen") have been involved in two lines of
businesses since May of 1997, namely the Therapeutic Business (defined in the
Separation Agreement) and the Diagnostic Business (defined in the Separation
Agreement);
WHEREAS, the Shareholders are or were shareholders, directors and/or
officers of Technologies and Photogen;
WHEREAS, the Shareholders, Technologies and Photogen have entered into that
certain Separation Agreement, dated as of July 29, 2002, a copy of which is
attached hereto as Exhibit A (the "Separation Agreement"), pursuant to which the
Shareholders obtained all of the capital stock of Photogen, which entity holds
all of the rights, title and interests in and to the assets and other
intellectual property rights described on Schedule 1 to this Agreement (the
"Assets");
WHEREAS, pursuant to the Separation Agreement, Technologies required that
Photogen change its name to Valley Pharmaceuticals, Inc. ("Valley");
WHEREAS, pursuant to (a) an Agreement and Plan of Reorganization dated as
of November 15, 2002 among Provectus, Provectus Pharmaceuticals, Inc., a
Tennessee corporation and the wholly owned subsidiary of Provectus (the
"Subsidiary"), Valley and the Shareholders and (b) an Agreement and Plan of
Merger dated as of November 15, 2002 among Provectus, the Subsidiary and Valley
(collectively, the "Reorganization Agreement"), the following transactions took
place: (i) the Subsidiary merged with and into Valley (the "Merger"), such that
Valley became a wholly owned subsidiary of Provectus, (ii) Valley, as the
surviving corporation in that merger, changed its name to Xantech
Pharmaceuticals, Inc. ("Xantech"), and (iii) upon the Merger, by operation of
law, Xantech, as a wholly owned subsidiary of Provectus, held all of the right,
title and interest in and to the Assets;
WHEREAS, based on such representation and the other representations made
herein, Gryffindor and Provectus desire to enter into: (a) a convertible secured
promissory note in the original principal amount of $1,000,000, a copy of which
is attached hereto as Exhibit B (the "Note"), which Note shall be secured by,
among other things, the Assets and the capital stock of Xantech, and (b) a
warrant(s) to purchase shares of Provectus' common stock, a copy of which is
attached hereto as Exhibit C (the "Warrant"), all in accordance with the terms
and conditions set forth herein and in the Transaction Documents (defined in
Section 2.02(i)).
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Gryffindor and Provectus hereby
agree as follows:
ARTICLE I
---------
DEFINITIONS
-----------
1.01 Definitions. In addition to the terms defined elsewhere herein, when
used herein, the following capitalized terms have the meanings indicated:
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"Act of Bankruptcy" means the occurrence of any of the following with
respect to Provectus: (a) an assignment for the benefit of its creditors; (b) an
admission in writing of its inability to pay its debts as they become due; (c)
filing of a voluntary petition in bankruptcy; (d) an adjudication a bankruptcy
or insolvency; (e) filing any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future applicable law pertinent to such
circumstances; (f) filing any answer admitting or not contesting the material
allegations of a bankruptcy, insolvency or similar petition filed against
Provectus; (g) seeking or consenting to, or acquiescing in, the appointment of
any trustee, receiver, or liquidator of Provectus; (h) 60 days elapse after the
commencement of an action against Provectus seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future applicable law without such action being dismissed or without
all orders or proceedings thereunder affecting the operations or the business of
Provectus being stayed, or if a stay of any such order or proceedings is
thereafter set aside and the action setting it aside is not timely appealed; or
(i) 60 days elapse after the appointment, without the consent or acquiescence of
Provectus of any trustee, receiver or liquidator thereof or of all or any
substantial part of the assets and properties of Provectus without such
appointment being vacated.
"Act of Dissolution" means the occurrence of any action initiating, or any
event that results in, the dissolution, liquidation, winding-up or termination
of Provectus.
"Assets" means the assets and other intellectual property rights described
on Schedule 1 to this Agreement.
"Closing" means delivery by Provectus of the Note and Warrant in exchange
for delivery by Gryffindor of the related purchase amount following satisfaction
or waiver of all conditions precedent to Gryffindor's obligation to invest, as
set forth in Section 2.02.
"Financing Statements" means all UCC-1 Financing Statements delivered in
connection with this Agreement and any other financing statement needed to
perfect a security interest in Intellectual Property Rights (as defined in
Section 3.14) in the U.S. Patent and Trademark Office.
"GAAP" means the generally accepted accounting principles in the United
States of America as in effect from time to time.
"Governmental Authority(ies)" when used in the singular, means any federal,
state or local governmental or quasi-governmental instrumentality, agency,
board, commission or department or any regulatory agency, bureau, commission or
authority and, when used in the plural, means all such entities.
"Key Employees" means Eric A. Wachter, Ph.D, Craig Dees, Ph.D., and Timothy
Scott, Ph.D.
"Licenses" means, collectively, all rights, licenses, permits and
authorizations now or hereafter issued by any Governmental Authority in
connection with the operation or conduct of Provectus' Business.
"Lien" means any pledge, hypothecation, assignment, deposit arrangement,
lien, security interest, easement or encumbrance, or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, any lease intended as security or any
title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement perfecting a security interest under the Code or
comparable law of any jurisdiction).
"Material Adverse Effect" means, subject to any applicable cure or grace
periods, a material adverse effect upon any of (a) the financial condition,
operations, business or properties of Provectus or its Subsidiaries, (b) the
ability of Provectus and its Subsidiaries to perform its material obligations
under this Agreement or any of the Transaction Documents or (c) the legality,
validity or enforceability of this Agreement, the Note, the Warrant or the other
Transaction Documents.
"Obligations" means, collectively, all of Provectus' indebtedness,
liabilities and obligations arising under this Agreement, the Transaction
X-6
Documents and any renewals, modifications, and extensions thereof, including,
but not limited to, the principal, interest, late charges and other sums due and
owing under the Note.
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation, limited
liability company, limited liability partnership, institution, public benefit
corporation, entity or government (whether Federal, state, county, city,
municipal or otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof).
"Provectus' Business" means the owning and operating of the business
currently operated by Provectus and its Subsidiaries including, without
limitation, the Therapeutic Business.
"Provectus Constituent Documents" means, Provectus' and each of its
Subsidiaries' certificate of incorporation, by-laws and all amendments and
supplements thereto, together with good standing certificates from each
jurisdiction in which Provectus and each of its Subsidiaries are required to
maintain good standing issued by the Secretary of State of such jurisdiction no
earlier than ten (10) calendar days prior to the Closing.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of capital stock of Provectus issuable upon
conversion of the Note, exercise of the Warrant and the conversion of any other
convertible security held by Gryffindor, its assigns or successors.
"Subsidiary" means with respect to any Person, any corporation, association
or other entity of which securities or other ownership interests representing
more than twenty percent (20%) of the ordinary voting power are, at the time as
of which any determination is being made, owned or controlled by such Person or
one or more Subsidiaries of such Person or by such Person and one or more
Subsidiaries of such Person. For the avoidance of doubt, the term "Subsidiary"
shall include the Xantech Subsidiary.
"Xantech Subsidiary" means the wholly-owned subsidiary of Provectus that
contains the Therapeutic Business.
ARTICLE II
----------
TERMS OF NOTE AND WARRANT PURCHASE
----------------------------------
2.01 The Closing. The purchase and sale of the Note and Warrant hereunder
shall take place at a closing (the "Closing") on November 26, 2002 (the "Closing
Date"). The Closing shall be held at the offices of Piper Rudnick, 203 N.
LaSalle Street, Chicago, IL, at 10:00 a.m. Central Time on the Closing Date, or
at such other time and place upon which Provectus and Gryffindor shall agree.
If, at the Closing, any of the conditions specified in Section 2.02 shall not
have been fulfilled, Gryffindor, at its election, shall be relieved of all of
its obligations under this Agreement without thereby waiving any other rights it
may have by reason of such failure or such non-fulfillment.
2.02 Conditions Precedent To Gryffindor's Obligations. The obligation of
Gryffindor to purchase the Note and Warrant on the date hereof is subject to the
fulfillment, or in its sole discretion the waiver, by Gryffindor, of the
following conditions on or before the Closing Date:
(a) Accuracy of Representations and Warranties. Each of the
representations and warranties contained in this Agreement must be true and
accurate as of the Closing Date, and Provectus must have performed all of its
obligations hereunder, including execution and delivery of all of the documents,
instruments, and certificates required by this Agreement in such forms and
substances as are satisfactory to Gryffindor and Gryffindor's counsel;
(b) Closing of the Photogen/Valley Transactions. The transactions
contemplated by the Separation Agreement and the Reorganization Agreement shall
have been completed, and Provectus shall have delivered to Gryffindor evidence
of the completion of such transactions, which evidence shall be reasonably
satisfactory to Gryffindor and shall include evidence that, as of the Closing
Date (i) Xantech is a wholly owned subsidiary of Provectus, (ii) certificate(s)
of name change and/or any other documents required by the United States Patent
X-7
and Trademark Office have been filed to evidence the ownership by Xantech of the
Assets, and (iii) 500,007 shares of Common Stock of Provectus, in the aggregate,
have been transferred to the Shareholders in connection with the Merger.
(c) Proprietary Information, Confidentiality, Assignment of Inventions
and Non-Compete Agreements. Each of the Key Employees shall have executed the
form of Proprietary Information, Confidentiality, Assignment of Inventions and
Non-Compete Agreement with Provectus attached hereto as Exhibit D (the
"Confidentiality Agreements"), and Provectus shall have delivered such
Confidentiality Agreements to Gryffindor duly executed by the Key Employees and
Provectus.
(d) Board of Directors; Observer Rights. Upon the Closing, the
authorized size of the Board of Directors of Provectus shall be no less than
three but no greater than five directors, and of the Xantech Subsidiary shall be
no less than three but no greater than five directors, and Provectus, the
Xantech Subsidiary and their respective Boards of Directors and, as applicable,
shareholders shall have granted one representative of Gryffindor to observe all
meetings of the Board of Directors of each of Provectus and the Xantech
Subsidiary. Upon securing directors' and officers' insurance in accordance with
Section 5.02 of this Agreement, the Major Shareholders shall cause Provectus and
the Xantech Subsidiary to vote all of their Shares to elect one representative
of Gryffindor to the Board of Directors of each of Provectus and Xantech, as
more fully set forth in the Shareholders' Agreement by and between the Company
and the Shareholders.
(e) Budget. Provectus shall have delivered to Gryffindor a budget
reasonably satisfactory to Provectus and Gryffindor, which shall be attached
hereto as Schedule 2 (the "Budget").
(f) Certificates and Resolutions. Provectus shall have delivered to
Gryffindor and counsel to Gryffindor:
(i) Provectus Constituent Documents as in effect at Closing, by the
Secretary of Provectus and the applicable Subsidiaries;
(ii) Resolutions of the Board of Directors of Provectus,
authorizing and approving all matters in connection with this Agreement, the
Transaction Documents and the transactions contemplated hereby and thereby,
certified by the Secretary of Provectus as of the date hereof;
(iii) Resolution of the Board of Directors of Provectus,
authorizing and reserving for issuance the Common Shares issuable upon
conversion of the Note and the Common Shares exercisable under the Warrant; and
(iv) A certificate, executed by the President of Provectus,
certifying to the fulfillment of the conditions set forth in Section 2.02 except
for the condition under subsections (h), (j), (l) and (m).
(g) Transaction Documents. Provectus shall have delivered to Gryffindor
and counsel to Gryffindor:
(i) the Note and Warrant, duly executed by Provectus;
(ii) the Shareholders' Agreement, duly executed by Provectus, and
each of the Shareholders, a copy of which is attached hereto as Exhibit E;
(iii) the Registration Rights Agreement, duly executed by
Provectus, a copy of which is attached hereto as Exhibit F;
(iv) the Security Agreement, duly executed by Provectus, a copy of
which is attached hereto as Exhibit G;
(v) the Trademark Collateral Security Agreement, duly executed by
Provectus, a copy of which is attached hereto as Exhibit H;
(vi) the Patent and License Security Agreement, duly executed by
Provectus, a copy of which is attached hereto as Exhibit I;
(vii) the Copyright Security Agreement, duly executed by Provectus,
a copy of which is attached hereto as Exhibit J;
(viii) the Guaranty, duly executed by Xantech, a copy of which is
attached hereto as Exhibit K;
X-8
(ix) the Security Agreement, duly executed by Xantech, a copy of
which is attached hereto as Exhibit L;
(x) the Trademark Collateral Security Agreement, duly executed by
Xantech, a copy of which is attached hereto as Exhibit M;
(xi) the Patent and License Security Agreement, duly executed by
Xantech, a copy of which is attached hereto as Exhibit N;
(xii) the Copyright Security Agreement, duly executed by Xantech, a
copy of which is attached hereto as Exhibit O;
(xiii) the Stock Pledge Agreement, duly executed by Provectus, a
copy of which is attached hereto as Exhibit P;
(xiv) the Financing Statements, duly executed by Provectus; and
(xv) the Confidentiality Agreements and such other agreements and
documents necessary to consummate the transactions contemplated hereunder.
(collectively, the "Transaction Documents").
(h) Opinion of Counsel. Gryffindor shall have received an opinion from
Baker, Donelson, Bearman & Caldwell, counsel for Provectus, dated as of the
Closing Date, addressed to Gryffindor, in form and substance reasonably
satisfactory to Gryffindor.
(i) Absence of Material Adverse Effect. No events and/or changes as
represented in Section 3.23 and Section 3.25 shall have occurred since September
30, 2002, except as otherwise permitted pursuant to Section 3.23 and Section
3.25.
(j) Due Diligence. Gryffindor shall have completed its due diligence
review of Provectus and its Subsidiaries including, without limitation, review
of: (a) Provectus' and its Subsidiaries' financial and accounting records; (b)
Provectus' and its Subsidiaries' corporate structure and corporate records; (c)
correspondence with existing and prospective customers; (d) material contracts,
leases and license agreements; and (e) intellectual property, including without
limitation all patents, copyrights and trademarks.
(k) Authorizations. As of the Closing, all notices and authorizations,
approvals or permits of, or filings with, any Governmental Authority that are
required by law in connection with the lawful consummation of the transactions
contemplated herein and in the Transaction Documents shall have been duly
obtained by Provectus and shall be effective on and as of the Closing.
(l) Fees and Expenses. At the Closing, Provectus shall pay (or
reimburse Gryffindor for) the fees and expenses of Gryffindor that are payable
in accordance with Section 6.01 of this Agreement.
(m) Other Matters. All corporate and other proceedings in connection
with the transactions contemplated by this Agreement, the Transaction Documents
and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to Gryffindor and to its counsel,
and Gryffindor and its counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request.
2.03 Conditions To The Obligations Of Provectus. The obligations of
Provectus under this Agreement are subject to fulfillment, on or before the
Closing Date, of each of the following conditions:
(a) Accuracy of Representations and Warranties. The representations
and warranties of Gryffindor contained in Article IV shall be true on and as of
the Closing Date.
(b) Loan Amount. Gryffindor shall have delivered to Provectus the
amount to be loaned under the Note.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF PROVECTUS
-------------------------------------------
X-9
To induce Gryffindor to enter into this transaction, Provectus and each of
the Shareholders, jointly and severally, represents and warrants to Gryffindor,
as of the date hereof, as follows (which representations and warranties shall
survive the execution and delivery of this Agreement and the Transaction
Documents and the funding of the original principal amount of the Note):
3.01 Organization; Good Standing. Provectus and each of its Subsidiaries
are corporations duly formed, validly organized and in good standing in the
their respective states of incorporation and in good standing in every state in
which Provectus and each of its Subsidiaries are required to maintain good
standing unless failure to do so will not have a Material Adverse Effect.
Provectus has delivered to Gryffindor true and correct copies of Provectus
Constituent Documents, which documents have not been amended and are in full
force and effect as of the date hereof.
3.02 Power and Authority. Provectus and each of the Shareholders have full
power and authority to enter into this Agreement and the Transaction Documents
to which each is a party, to incur the Obligations as contemplated hereby, and
to carry out the provisions of this Agreement and the Transaction Documents to
which each is a party. Provectus and each of the Shareholders have taken all
action necessary for the execution and delivery of this Agreement and the
Transaction Documents and for the performance by Provectus of each of its
obligations hereunder and thereunder.
3.03 Enforceability. Upon execution and delivery by each of the parties
hereto and thereto, this Agreement and each of the Transaction Documents shall
be the legal, valid and binding obligations of Provectus, its Subsidiaries and
the Shareholders and shall be enforceable against Provectus, its Subsidiaries
and the Shareholders each in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency or similar laws and by
equitable principles.
3.04 Litigation. Neither Provectus nor any of its Subsidiaries has been
made a party to or threatened by any suits, actions, claims, investigations by
Governmental Authorities or legal, administrative, arbitration or mediation
proceedings. Provectus does not know of any reasonable basis or grounds for any
such suit, action, claim, investigation or proceeding.
3.05 Orders; Decrees; Judgments. There are no outstanding orders,
judgments, writs, injunctions or decrees of any court, Governmental Authority or
arbitration or mediation panel or tribunal against Provectus, its Subsidiaries
or any of the properties, assets or business of Provectus or its Subsidiaries.
3.06 Non-Contravention. To the best of its knowledge, neither Provectus nor
any of its Subsidiaries is in breach of, in default under, or in violation of,
in any manner that could reasonably be expected to have a Material Adverse
Effect: (a) any applicable law, decree, or order, or (b) any deed, lease, loan
agreement, commitment, bond, note, deed of trust, restrictive covenant, license,
indenture, contract, or other agreement, instrument or obligation to which
Provectus or its Subsidiaries is a party or by which Provectus or its
Subsidiaries is bound or to which any of their respective assets are subject.
Neither the execution and delivery of this Agreement, the Transaction Documents
nor the performance by Provectus or its Subsidiaries of the obligations
hereunder and thereunder will cause any such breach, default or violation or
will require the consent, approval or notification of any court or Governmental
Authority.
3.07 Taxes. Provectus and each of its Subsidiaries have filed all federal,
state and local tax returns which are required to be filed, and Provectus and
each of its Subsidiaries have duly paid or fully reserved for all taxes or
installments thereof (including any interest or penalties) as and when due
pursuant to the filed returns or pursuant to any levy or assessment received by
Provectus or any of its Subsidiaries unless the failure to do so will not have a
Material Adverse Effect. Proper and accurate amounts have been withheld by
Provectus from its employees for all periods in full and complete compliance
with the tax, social security and unemployment withholding provisions of
applicable federal, state, local and foreign law, and such withholdings have
been timely paid to the respective Governmental Authorities. Provectus and its
Subsidiaries have provided to Gryffindor copies of all of each entity's Federal
tax returns for the last three (3) years, if any. Federal income tax returns of
Provectus and its Subsidiaries have not been audited by the Internal Revenue
Service, and no controversy with respect to taxes of any type is pending or, to
the knowledge of Provectus, threatened. Neither Provectus, its Subsidiaries nor
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any of its stockholders (or the stockholders of any Subsidiary) have ever filed
(a) an election pursuant to Section 1362 of the Internal Revenue Code of 1986,
as amended (the "Code"), that Provectus or its Subsidiaries be taxed as an S
Corporation or (b) a consent pursuant to Section 341(f) of the Code relating to
collapsible corporations.
3.08 Licenses. Provectus and each of its Subsidiaries have good title to
all of the Licenses currently needed to properly operate Provectus' Business.
3.09 Capitalization.
(a) The authorized capital stock of Provectus consists of 100,000,000
shares of common stock, par value $0.001 per share (the "Common Stock") of which
8,945,770 shares of Common Stock are issued and outstanding. Of the 8,945,770
shares of Common Stock that are issued and outstanding, 7,773,694 are restricted
and 1,172,076 are unrestricted. The authorized capital stock of Xantech consists
of: (i) 10,000,000 shares of common stock, no par value, of which 6,680,000
shares are issued and outstanding, all of which are owned by Provectus; and (ii)
5,000,000 shares of common stock, no par value, of which none are issued and
outstanding.
(b) All of the issued and outstanding shares of Common Stock have been
duly authorized and validly issued and are fully paid and nonassessable. Except
as set forth on Schedule 3.09, (i) no subscription, warrant, option, convertible
security or other right (contingent or otherwise) to purchase or acquire any
shares of capital stock of Provectus is authorized or outstanding, (ii) there is
no commitment of Provectus to issue any subscription, warrant, option,
convertible security or other such right or to issue or distribute to holders of
any shares of its capital stock any evidences of indebtedness or assets of
Provectus, and (iii) Provectus has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. No person or entity is entitled to any preemptive or similar
right with respect to the issuance of any capital stock of Provectus, or any
rights with respect to the registration of any capital stock of Provectus under
the Securities Act. All of the issued and outstanding shares of Common Stock
have been offered, issued and sold by Provectus in compliance with applicable
Federal and state securities laws. To the best of Provectus' knowledge, no
stockholder of Provectus has granted options or other rights to purchase any
shares of Common Stock from such stockholder.
(c) All of the issued and outstanding shares of capital stock of the
Xantech Subsidiary are owned by Provectus free and clear of any and all Liens
and other encumbrances.
3.10 Stockholder List and Agreements. Attached hereto as Schedule 3.10 is a
true and complete list of: (a) those equity holders of Provectus and each of its
Subsidiaries that own five percent (5%) or more of the issued and outstanding
capital stock of Provectus and each Subsidiary as of the Closing; and (b) those
equity holders of Provectus and each of its Subsidiaries that are officers
and/or directors of Provectus and each of its Subsidiaries, as applicable, in
each case under (a) and (b), showing the number of shares of Common Stock or
other securities (or rights to purchase the Common Stock or other securities) of
Provectus and each Subsidiary held by each such stockholder as of the date of
this Agreement. Except as contemplated by this Agreement, there are no
agreements, written or oral, between Provectus or a Subsidiary and any holder of
its capital stock, or, to the best knowledge of Provectus, among any holders of
its capital stock, relating to the acquisition (including, without limitation,
rights of first refusal or preemptive rights), disposition or voting of the
capital stock of Provectus or one of its Subsidiaries.
3.11 Minute Books. The minute books of Provectus and each of its
Subsidiaries contain complete and correct summaries of all meetings of the Board
of Directors of Provectus and its Subsidiaries, their respective committees and
their respective stockholders since 1995 with respect to Provectus and since the
time of incorporation with respect to each of its Subsidiaries, as applicable.
3.12 Shares. The Shares have been reserved by Provectus, will be validly
issued, fully paid and non-assessable at such time as they are issued to
Gryffindor and will constitute a portion of the capital stock authorized by
Provectus. Upon conversion of the Note or exercise of the Warrant, Provectus
shall convey to Gryffindor all of the Shares free and clear of any and all Liens
or other encumbrances or charges of any kind not created by any action of
Gryffindor.
X-11
3.13 Property and Assets. Schedule 3.13 sets forth all of the material
assets and Intellectual Property Rights necessary to operate Provectus'
Business. Provectus and its Subsidiaries have good title to all of their
material properties and assets, including the Assets and all properties and
assets reflected in the Financial Statements, except those disposed of since the
date thereof in the ordinary course of business, and none of such properties or
assets is subject to any Lien other than those the material terms of which are
described in the Financial Statements or in Schedule 3.13. Set forth on Schedule
3.13 is a true and complete list of all leases to which Provectus and its
Subsidiaries are a party, and Provectus and its Subsidiaries have provided to
Gryffindor copies of all such leases. Provectus and each Subsidiary is in
compliance with all material terms of each lease to which it is a party.
3.14 Patents and Trademarks.
(a) Set forth on Schedule 3.14 is a complete and accurate list of all
patents, patent applications, trademarks, service marks, trademark and service
mark applications, trade names, copyrights, licenses, internet domain names and
registrations presently owned or held by Provectus and each of its Subsidiaries
or necessary for the conduct of Provectus' Business as conducted and as
currently proposed to be conducted, as well as any agreement under which
Provectus or any of its Subsidiaries has access to any confidential information
used by Provectus or its Subsidiaries in their respective businesses (the
"Intellectual Property Rights"). Provectus and its Subsidiaries own, or have the
right to use, free and clear of all Liens, charges, claims and restrictions,
under the agreements and upon the terms described in Schedule 3.14, all of the
Intellectual Property Rights. Except as set forth on Schedule 3.14, there are no
outstanding options, licenses or agreements of any kind relating to the
foregoing, nor is Provectus or its Subsidiaries bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person or
entity other than such licenses or agreements arising from the purchase of "off
the shelf" or standard products. Except as set forth on Schedule 3.14, neither
Provectus nor any of its Subsidiaries has received any communications alleging
that Provectus or any of its Subsidiaries has violated or, by conducting their
respective businesses as currently proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights, licenses, trade secrets or
other proprietary rights of any other person or entity ("Third-Party
Intellectual Property Rights"), and to the best of Provectus' knowledge,
Provectus' Business shall not cause Provectus or its Subsidiaries to infringe or
violate any Third Party Intellectual Property Rights. Provectus is not aware of
any violation by any third party of any Intellectual Property Rights of
Provectus or its Subsidiaries or of any defects therein or in the title thereto.
No Person or entity (including, without limitation, any prior employer of any
employee of Provectus or its Subsidiaries) has any right to or interest in any
Intellectual Property Rights, inventions, improvements, discoveries or other
information assigned to Provectus or its Subsidiaries by any employee,
consultant or contractor.
(b) Provectus and each of its Subsidiaries has taken reasonable
security measures to protect the secrecy, confidentiality and value of all
Intellectual Property Rights and all Inventions (as defined below). Each of
Provectus' and its Subsidiaries' employees and other Persons or entities who,
either alone or in concert with others, developed, invented, discovered,
derived, programmed or designed Intellectual Property Rights or Inventions, or
who have knowledge of or access to information about Intellectual Property
Rights or Inventions, have entered into a written agreement with Provectus or
its Subsidiaries that provides that (i) these Intellectual Property Rights,
other information and Inventions are proprietary to Provectus and are not to be
divulged, misused or misappropriated, and (ii) these Intellectual Property
Rights, other information and Inventions are to be disclosed by such employees
and such persons to Provectus and transferred by them to Provectus, without any
further consideration being given therefor by Provectus, together with all of
such employee's or other person's right, title and interest in and to such
Intellectual Property Rights, other information and Inventions and all patents,
trademarks, service marks, trade names, copyrights, licenses and rights with
respect to such Intellectual Property Rights, other information and Inventions.
As used herein, "Inventions" means all inventions, developments and discoveries
which during the period of an employee's or other person's service to Provectus
or a Subsidiary he or she makes or conceives of, either solely or jointly with
others, that relate to any subject matter with which his or her work for
Provectus or a Subsidiary may be concerned, or relate to or are connected with
the business, products, services or projects of Provectus or a Subsidiary, or
relate to the actual or demonstrably anticipated research or development of
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Provectus or a Subsidiary or involve the use of Provectus' or a Subsidiary's
time, material, facilities or trade secret information.
(c) Each of the Shareholders have assigned to Xantech all of his/its
right, title and interest in and to the technologies and other intellectual
property rights associated with the Therapeutic Business (as defined in the
Separation Agreement) as set forth in Schedule B to the Separation Agreement.
3.15 Interested Party Transactions. No officer, director or stockholder of
Provectus, its Subsidiaries or any affiliate or "associate" (as this term is
defined in Rule 405 of the Securities and Exchange Commission under the
Securities Act) of any such person or Provectus or its Subsidiaries has or has
had, either directly or indirectly, (a) an interest in any person or entity
which (i) furnishes or sells services or products which are furnished or sold or
are proposed to be furnished or sold by Provectus or its Subsidiaries, or (ii)
purchases from or sells or furnishes to Provectus or its Subsidiaries any goods
or services, or (b) except as set forth on Schedule 3.15, a beneficial interest
in any transaction, contract or agreement to which Provectus or one of its
Subsidiaries is a party or by which it may be bound or affected.
3.16 Financial Statements. Provectus has furnished to Gryffindor a complete
and correct copy of the unaudited balance sheet of Provectus and its
Subsidiaries (the "Balance Sheet") as of September 30, 2002 (the "Balance Sheet
Date") and the related statements of income and cash flows for the period then
ended, compiled by Provectus (collectively, the "Financial Statements"). The
Financial Statements have been prepared in accordance with generally accepted
accounting principles, except that the Financial Statement may not contain all
footnotes required by generally accepted accounting principles, and are subject
to normal year-end audit adjustments that in the aggregate will not be material.
The Financial Statements present fairly the financial condition and results of
operations of Provectus and its Subsidiaries, as at the dates and for the
periods indicated therein.
3.17 Business Plan. The Business Plan of Provectus and its Subsidiaries
provided to Gryffindor is a complete and correct statement of the existing
business plans of Provectus and its Subsidiaries as of the Closing Date.
3.18 Compliance. To Provectus' knowledge, Provectus and its Subsidiaries
have, in all material respects, complied with all laws, regulations and orders
applicable to its business and have all material permits and licenses required
thereby. There is no term or provision of any material mortgage, indenture,
contract, agreement or instrument to which Provectus or a Subsidiary is a party
or by which it is bound, or, to the best of Provectus' knowledge, of any state
or Federal judgment, decree, order, statute, rule or regulation applicable to or
binding upon Provectus, that materially adversely affects the business,
prospects, condition, affairs or operations of Provectus, its Subsidiaries or
any of their respective properties or assets. To Provectus' knowledge, no
employee of Provectus or a Subsidiary is in violation of any contract or
covenant (either with Provectus, a Subsidiary or with another entity) relating
to employment, patent, other proprietary information disclosure,
non-competition, or non-solicitation.
3.19 Subsidiaries. Except for the Xantech Subsidiary and as otherwise set
forth on Schedule 3.19, Provectus has no Subsidiaries and does not own or
control, directly or indirectly, shares of capital stock of any other
corporation, or any interest in any partnership, joint venture or other
non-corporate business entity or enterprise.
3.20 Officers and Directors. Schedule 3.20 sets forth a complete and
accurate list of all officers and directors of Provectus and each of its
Subsidiaries.
3.21 Debt Owed by Provectus. Except as set forth on Schedule 3.21, neither
Provectus nor any of its Subsidiaries owe any debt, including any outstanding
interest, to any Person or to any members of management, directors, officers,
principals, founders, or employees of Provectus or any Subsidiary, other than
that debt occurring in the ordinary course of business. Provectus and its
Subsidiaries are not in default on all the indebtedness set forth on Schedule
3.22.
3.22 Absence of Liabilities. Except as disclosed in Schedule 3.22,
Provectus and its Subsidiaries did not have, as of September 30, 2002, any
liabilities of any type which in the aggregate exceed $5,000, whether absolute
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or contingent, which were not fully reflected on the Financial Statements. Since
September 30, 2002, Provectus and its Subsidiaries have not incurred or
otherwise become subject to any liabilities or obligations (contingent or
otherwise). Provectus and its Subsidiaries are current on all debts, accounts
payable and lease obligations.
3.23 Material Contracts and Obligations. Set forth on Schedule 3.23 is a
true and complete list of all of the following written and material oral
contractual obligations of Provectus and its Subsidiaries:
(a) All employment and consulting agreements, employee benefit, bonus,
pension, profit-sharing, stock option, stock purchase and similar plans and
arrangements;
(b) All agreements relating to the Intellectual Property Rights;
(c) All contractual obligations under which Provectus or its
Subsidiaries is or may become obligated to pay any legal, accounting, brokerage,
finder's or similar fees or expenses in connection with, or has incurred any
severance pay or special compensation obligations that would become payable by
reason of, this Agreement or the consummation of the transactions contemplated
hereby;
(d) All contractual obligations to sell or otherwise dispose of any
assets of Provectus and its Subsidiaries having a value in excess of $5,000,
except in the ordinary course of Provectus' or a Subsidiary's business;
(e) All material agreements with any stockholder, officer or director
of Provectus or its Subsidiaries, or any "affiliate" or "associate" of such
persons (as such terms are defined in the Securities Act), including, without
limitation, any agreement or other arrangement providing for the furnishing of
services by, rental or real or personal property from, or otherwise requiring
payments to, any such person or entity;
(f) All contractual obligations under which Provectus or its
Subsidiaries have any liability or obligation constituting or giving rise to a
guarantee of any liability or obligation of any person or entity, or under which
any person or entity has any liability or obligation constituting or giving rise
to a guarantee of any liability or obligation of Provectus or its Subsidiaries
(including, without limitation, partnership and joint venture agreements);
(g) All contractual obligations under which Provectus or its
Subsidiaries are or may become obligated to pay any amount in respect of
indemnification obligations, purchase price adjustment or otherwise in
connection with any (i) acquisition or disposition of assets or securities, (ii)
merger, consolidation or other business combination, or (iii) series or group of
related transactions or events of a type specified in subclauses (i) and (ii);
(h) All material distributorship agreements, agreements with sales
representatives and all other contractual obligations and oral agreements (other
than purchase orders and sales orders entered into in the ordinary course of
business) with distributors, suppliers, vendors, or other suppliers of goods or
services;
(i) All purchase obligations (whether or not in the ordinary course of
business) that require minimum purchases by Provectus or its Subsidiaries in
excess of $5,000;
(j) All non-terminable contractual obligations involving consideration
to or liabilities of Provectus or its Subsidiaries in excess of $5,000; and
(k) All contractual obligations not required to be listed on Schedule
3.23 pursuant to clauses (a) through (j) above that individually involve
liabilities of Provectus or its Subsidiaries in excess of $5,000.
Provectus has delivered to Gryffindor and counsel for Gryffindor a true and
complete copy of each of the contracts and agreements listed on Schedule 3.23,
including, without limitation, all amendments thereto (the "Listed Contracts").
All of the Listed Contracts are valid, binding and in full force and effect.
There are no written or oral "side agreements" with any individual or business
whereby Provectus or any Subsidiary has agreed to do anything beyond the
requirements of formal written contracts executed by Provectus and its
Subsidiaries.
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Each contractual obligation in respect of the Listed Contracts is, and
after giving effect to the Closing hereunder and the consummation of the
transactions contemplated hereby will be, enforceable by Provectus and its
Subsidiaries except for such failures to be so enforceable as do not and will
not, individually or in the aggregate, have a Material Adverse Effect. No breach
or default by Provectus or any Subsidiary under any of the contractual
obligations in respect of the Listed Contracts has occurred and is continuing,
and no event has occurred that with notice or lapse of time would constitute
such a breach or default or permit termination, modification or acceleration by
any other person or entity under any of the contractual obligations, other than
such breaches, defaults and events as have not had and will not have,
individually or in the aggregate, a Material Adverse Effect. To the knowledge of
Provectus, no breach or default by any other person or entity under any of the
contractual obligations has occurred and is continuing, and no event has
occurred that with notice or lapse of time would constitute such a breach or
default or permit termination, modification or acceleration by Provectus or any
Subsidiary under any of such contractual obligations, other than breaches,
defaults and events that have not had and will not have, individually or in the
aggregate, a Material Adverse Effect.
3.24 Absence of Changes. Except as set forth on Schedule 3.24, since
September 30, 2002, there has not been:
(a) Any change in the assets, liabilities, financial condition or
operations of Provectus or any Subsidiary, other than changes occurring in the
ordinary course of business, none of which has had or is expected to have a
Material Adverse Effect;
(b) Any damage, destruction or loss, whether or not covered by
insurance, which has, or could have a Material Adverse Effect;
(c) Any waiver by Provectus or any Subsidiary of a valuable right
or of a material debt owed to it;
(d) Any direct or indirect loans made by Provectus or any
Subsidiary to any shareholder, employee, officer or director of Provectus or any
Subsidiary, other than advances made in the ordinary course of business;
(e) Any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder;
(f) Any declaration or payment of any dividend or other
distribution of the assets of Provectus;
(g) Any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation of Provectus or any Subsidiary, except in the
ordinary course of business;
(h) Any debt, obligation or liability incurred, assumed or
guaranteed by Provectus or any Subsidiary, except those for immaterial amounts
and for current liabilities incurred in the ordinary course of business;
(i) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(j) Any change or amendment to any material agreement to which
Provectus or a Subsidiary is a party or by which it is bound;
(k) To Provectus' knowledge, any other event or condition of any
character that, either individually or cumulatively, has, or could have a
Material Adverse Effect; or
(l) Any arrangement or commitment by Provectus or any Subsidiary to
do any of the acts described in Section 3.24(a) through (k) above.
3.25 erisa. Provectus and its Subsidiaries do not have or otherwise
contribute to or participate in any employee benefit plan subject to the
Employee Retirement Income Security Act of 1974 other than a medical benefit
plan and a 401(k) plan, with respect to which all required contributions have
been made and all applicable laws have been complied with.
3.26 Conduct. Within the past five (5) years, none of the members of
management, directors, officers, principals, founders, key employees of
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Provectus or any Subsidiary have been arrested, charged or convicted of any
felony or other crime of moral turpitude or plead guilty or plead nolo
contendere to any felony or other crime of moral turpitude, nor are they engaged
in criminal activity, nor have any of them been bankrupt or an officer or
director of a bankrupt company.
3.27 Environmental Matters. To Provectus' knowledge, neither Provectus nor
its Subsidiaries are in violation of any applicable Environmental Law (as
defined below) or any applicable statute, law or regulation relating to
occupational health and safety, and, to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation or Environmental Law. Except as set forth on Schedule 3.27, no
Hazardous Materials (as defined below) are used or have been used, stored, or
disposed of by Provectus or any Subsidiary or, to Provectus' knowledge, by any
other person or entity on any property owned, leased or used by Provectus or any
Subsidiary. For purposes of this Agreement, "Environmental Law" means any
federal, state or local law, statute, rule or regulation or the common law
relating to the protection of human health or the environment, including,
without limitation, CERCLA (as defined below), the Resource Conservation and
Recovery Act of 1976, any statute, regulation or order pertaining to (i)
treatment, storage, disposal, generation and transportation of industrial, toxic
or hazardous materials or substances or solid or hazardous waste; (ii) air,
water and noise pollution; (iii) groundwater and soil contamination; (iv) the
release or threatened release into the environment of industrial, toxic or
hazardous materials or substances, or solid or hazardous waste, including
without limitation, emissions, discharges, injections, spills, escapes or
dumping of pollutants, contaminants, chemicals; (v) the protection of wild life,
marine life and wetlands, including without limitation all endangered and
threatened species; (vi) storage tanks vessels, abandoned or discarded barrels,
containers and other closed receptacles; (vii) health and safety of employees
and other persons; and (viii) manufacture, processing, use, distribution,
treatment, storage, disposal, transportation or handling of pollutants,
contaminants, toxic or hazardous materials or substances or oil or petroleum
products or solid or hazardous waste. For the purposes of the preceding
sentence, "Hazardous Materials" shall mean (a) materials which are listed or
otherwise defined as "hazardous" or "toxic" under any Environmental Law or (b)
any petroleum products or nuclear materials. As used in this Section 3.28, the
terms "release" and "environment" shall have the meaning set forth in the
federal Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA").
3.28 Real Property. Neither Provectus nor its Subsidiaries own any real
property. Except as provided on Schedule 3.28, neither Provectus nor its
Subsidiaries lease any real property or hold any leasehold interest in any real
property. To the extent Provectus or its Subsidiaries lease any real property or
hold any leasehold interest in any real property, neither Provectus nor its
Subsidiaries are in breach of any agreement with respect to such real property
or leasehold interest.
3.29 No Brokers. No broker or finder acting on behalf of Provectus or its
Subsidiaries brought about the obtaining, making or closing of the transactions
contemplated by this Agreement and the Transaction Documents, and neither
Provectus nor its Subsidiaries have any obligation to any Person in respect of
any finder's or brokerage fees in connection with the transactions contemplated
by this Agreement and the Transaction Documents.
3.30 Disclosures; No Untrue Statements Or Material Omissions. Provectus has
provided Gryffindor with all information requested in writing by Gryffindor in
connection with its decision to enter into the transactions contemplated by this
Agreement and the Transaction Documents, including all information Provectus
believes is reasonably necessary to make such investment decision. Neither this
Agreement, the Schedules and Exhibits hereto, the Transaction Documents nor any
other document delivered by Provectus to Gryffindor or its attorneys or agents
in connection herewith or therewith or with the transactions contemplated hereby
or thereby, contain any untrue statement of a material fact nor omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. To Provectus' knowledge following due inquiry, there are
no facts (individually or in the aggregate) that would have a Material Adverse
Effect that have not been set forth in the Agreement, the Schedules and Exhibits
hereto, the Transaction Documents or in other documents delivered to Gryffindor
or its attorneys or agents in connection herewith.
ARTICLE IV
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REPRESENTATIONS & WARRANTIES OF GRYFFINDOR
------------------------------------------
Gryffindor hereby represents and warrants to Provectus as follows:
4.01 Organization; Good Standing. Gryffindor is duly formed, validly
organized and in good standing in the State of Delaware and in good standing in
every state in which Gryffindor is required to maintain good standing unless
failure to do so will not have a Material Adverse Effect.
4.02 Authority. Gryffindor has full power and authority to enter into and
to perform this Agreement in accordance with its terms. Gryffindor represents
that it has not been organized, reorganized or recapitalized specifically for
the purpose of investing in Provectus.
4.03 Enforceability. Upon execution and delivery by each of the parties
hereto and thereto, this Agreement and each of the Transaction Documents shall
be the legal, valid and binding obligations of Gryffindor and shall be
enforceable against Gryffindor each in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency or similar laws and by
equitable principles.
4.04 Acquisition of the Shares
(a) Gryffindor is acquiring the Note, the Warrant and the Shares
issuable upon conversion of the Note and the exercise of the Warrant for
Gryffindor's own account for investment and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling the same; and Gryffindor has no present or contemplated
agreement, undertaking, arrangement, obligation, indebtedness or commitment
providing for the disposition thereof.
(b) Gryffindor has reviewed carefully the representations concerning
Provectus, its Subsidiaries and their business contained in this Agreement, has
made detailed inquiry concerning Provectus, its Subsidiaries, their business and
their personnel; the officers of Provectus have made available to Gryffindor any
and all written information which they have requested and have answered to
Gryffindor's satisfaction all inquiries made by Gryffindor or any of its
representatives; and Gryffindor has sufficient knowledge and experience in
investing in companies similar to Provectus so as to be able to evaluate the
risks and merits of its investment in Provectus and is able financially to bear
the risks thereof. Gryffindor is an "accredited investor" as that term is
defined in Rule 501(a) of Regulation D promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
ARTICLE V
---------
COVENANTS
---------
Until such time as (i) all principal and interest due and owing under the
Note is paid in full or (ii) the Shares issued upon conversion of the Note
(including any accrued but unpaid interest) and the Shares issued upon exercise
of the Warrant are registered, and for as long as Gryffindor owns at least ten
percent (10%) of the Shares issued upon conversion of the Note (including any
accrued but unpaid interest), Provectus and the Shareholders shall take such
steps, and shall cause each of its Subsidiaries to take such steps, as
appropriate to do the following:
5.01 Notice Of Defaults Or Judgments. Provide to Gryffindor, within fifteen
(15) calendar days of receipt thereof, a copy of notice of any (a) defaults
under any of the Transaction Documents, (b) Act of Bankruptcy or Act of
Dissolution with respect to Provectus or any Subsidiary, (c) default that is
declared (after giving effect to any applicable notice and/or grace periods)
under any material loan, lease, debt or obligation of Provectus or any
Subsidiary, including but not limited to the Obligations, and the failure to
cure such default could reasonably be expected to have a Material Adverse
Effect, or (d) judgment obtained against Provectus or any Subsidiary that,
singly, or in the aggregate, exceeds $20,000 and remains unpaid for over sixty
(60) days without Provectus obtaining a stay of execution, release, discharge or
appropriate surety bond.
5.02 Insurance. Within thirty (30) calendar days following the Closing
Date, obtain for Provectus and each of its Subsidiaries and, thereafter,
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maintain in full force and effect, one or more policies of insurance issued by
insurers of recognized responsibility, insuring Provectus, its Subsidiaries and
their respective properties and businesses against losses and risks, including,
but not limited to, directors' and officers', comprehensive general liability,
product liability, automobile and errors and omissions insurance coverage in
amount(s) and on terms and conditions reasonably satisfactory to Gryffindor.
5.03 Access To Information. Permit Gryffindor, or any authorized
representative thereof, to visit and inspect the properties of Provectus and
each of its Subsidiaries, including their respective corporate and financial
records, to make copies and abstracts thereof and to discuss their respective
business and finances with officers, employees and independent accountants of
Provectus and its Subsidiaries, during normal business hours following
reasonable notice and as often as may be reasonably requested.
5.04 Maintain Existence. Preserve and keep in full force and effect
Provectus' and its Subsidiaries' respective corporate existences in good
standing and their respective rights to conduct their respective businesses in a
prudent and lawful manner in all jurisdictions in which it conducts business
except to the extent that the failure to do so would not have a Material Adverse
Effect on Provectus.
5.05 Licenses. Keep all Licenses needed to properly operate Provectus'
Business valid and in full force and effect.
5.06 Non-Disclosure, Developments and Non-Competition Agreement. Require
all persons now or hereafter employed by Provectus or any of its Subsidiaries to
enter into the form of Proprietary Information, Confidentiality, Assignment of
Inventions and Non-Compete Agreement with Provectus attached hereto as Exhibit
D. Provectus will not make any material change to such form or such agreements
signed by the Shareholders without the prior written consent of Gryffindor,
which consent shall not be unreasonably withheld.
5.07 Expenses of Directors. Promptly reimburse in full each Gryffindor
Director for all of his or her reasonable out-of-pocket expenses incurred in
attending each meeting of the Board of Directors of Provectus and/or its
Subsidiaries or any committee thereof or incurred in connection with any other
travel requested by or on behalf of Provectus and/or its Subsidiaries, which
expenses shall be consistent with the travel policies of Provectus.
5.08 Reservation of Common Stock. Reserve and maintain a sufficient number
of shares of Provectus Common Stock for issuance upon conversion of all of the
outstanding Shares.
5.09 Board of Directors Meetings. Initially require the Board of Directors
to meet monthly until such time as the Board of Directors unanimously votes to
schedule such meetings less frequently, provided that the Board of Directors
shall meet at least twice each quarter unless waived by Gryffindor Director.
Provectus and each of its Subsidiaries shall provide Gryffindor with advance
written notice of all meetings of their respective Boards of Directors and
committees thereof and copies of all meeting minutes thereto, regardless of
whether Gryffindor is represented on the applicable Board of Directors.
5.10 Auditor. Retain a firm of certified public accountants acceptable to
Provectus' board of directors (including Gryffindor Director) to audit its books
and records at least annually.
5.11 No Liens. Upon conversion of the Note or exercise of the Warrant,
convey to Gryffindor all of the applicable Shares free and clear of any and all
Liens or other encumbrances or charges of any kind not created by any action of
Gryffindor.
5.12 Financial Statements and Other Information.
(a) Provectus shall maintain books and records of account in which full
and correct entries shall be made of all of its business transactions pursuant
to a system of accounting established and administered in accordance with GAAP
consistently applied, and shall set aside on its books all such proper accruals
and reserves as shall be required under GAAP, consistently applied.
(b) Provectus shall deliver to Gryffindor:
(i) within sixty (60) calendar days after the end of each fiscal
quarter, unaudited consolidated financial statements of Provectus (including
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balance sheet, statement of earnings, stockholder's equity and cash flows) for
such quarter, year-to-date and compared to budget and the comparable period of
the prior year, prepared in accordance with GAAP, with the exception that no
notes need be attached to such statements and year-end audit adjustments may not
have been made;
(ii) within ninety (90) calendar days after the fiscal year's end,
audited annual consolidated financial statements prepared by a nationally
recognized independent public accounting firm or such other independent public
accounting firm reasonably acceptable to Gryffindor and prepared in accordance
with GAAP, consistently applied;
(iii) not less than sixty (60) calendar days prior to the beginning
of each fiscal year an annual operating plan and budget, prepared on a monthly
basis for the ensuing fiscal year, and on a basis consistent with prior periods
(including, among other items, appropriate reserves, accruals and provisions for
income taxes) and representing the best estimate of Provectus based upon
available information. Provectus also shall furnish to Gryffindor, within a
reasonable time of its preparation, amendments to the annual budget, if any.
Such budget shall include underlying assumptions and a brief qualitative
description of Provectus' plan by the Chief Executive Officer or Chief Financial
Officer in support of that budget;
(iv) within forty-five (45) days of the close of any fiscal year a
revised/updated three (3)-year business plan of Provectus;
(v) any management letters and other any reports to management of
Provectus by accounting firms concerning internal controls or operating
procedures; and
(vi) such other information respecting Provectus' business,
financial condition or prospects as Gryffindor may reasonably request from time
to time.
(c) The foregoing financ ial statements shall be prepared on a
consolidated basis if Provectus then has any Subsidiaries.
(d) The financial statements delivered pursuant to subsections(b)(i)
and (ii) shall be accompanied by a certificate of Provectus' Chief Executive
Officer and Chief Financial Officer stating that such statements have been
prepared in accordance with GAAP consistently applied (except as noted) and
fairly present the financial condition and results of operations of Provectus
and its Subsidiaries at the date thereof and for the periods covered thereby.
(e) If Provectus fails to provide the reports or financial statements
required by this Section 5.12, within thirty (30) days after written request
therefore, Gryffindor shall have the right and authority, at Provectus' sole
expense, to request an audit by an accounting firm of its or their choice, such
that the reports or financial statements are produced to its or their sole
satisfaction.
5.13 Material Adverse Changes. Provectus shall notify Gryffindor, as soon
as practicable, and in any event within ten (10) days of discovery, of: (a) any
event (including pending or threatened litigation) which could reasonably be
expected to involve an amount in excess of $10,000 or could have a Material
Adverse Effect; (b) a material default or any event or occurrence which with the
lapse of time or notice or both could become a default under any of Provectus'
Material Agreements; (c) a default or any event or occurrence which with the
lapse of time or notice or both could become a default under the Purchase
Agreement; and (d) any change in any material fact or circumstance represented
or warranted in this Agreement. Such notice shall contain a reasonably detailed
statement outlining such default or event, and Provectus' proposed response.
5.14 Directors' Liability and Indemnification. Provectus' and its
Subsidiaries' Certificate of Incorporation and Bylaws shall provide for: (a)
elimination of the liability of directors to the maximum extent permitted by
law; and (b) indemnification of directors for acts on behalf of Provectus to the
maximum extent permitted by law.
5.15 Compliance with Law. Provectus shall (and shall cause each of its
Subsidiaries, if any) to comply with all federal, state and local laws and
regulations applicable to it, including, without limitation, ERISA, those
regarding the collection, payment and deposit of employees' income, unemployment
and Social Security taxes and those relating to environmental matters where the
X-19
failure to comply could reasonably be expected to have a Material Adverse
Effect.
5.16 Agreements. Provectus shall and shall cause each of its Subsidiaries
to perform, within any required time period (after giving effect to any
applicable grace periods), all of its obligations and enforce all of its rights
under each agreement to which it is a party, including, without limitation,
collective bargaining agreements and leases to which any such company is a
party, where the failure to so perform and enforce could reasonably be expected
to have a Material Adverse Effect. Provectus shall not and shall cause each of
its Subsidiaries not to terminate or modify in any manner adverse to any such
company any provision of any agreement to which it is a party which termination
or modification could reasonably be expected to have a Material Adverse Effect.
5.17 Payment of Taxes. Provectus agrees to pay or cause to be paid all
taxes, assessments and other governmental charges levied upon any of its assets
or those of its Subsidiaries or in respect of its or their respective
franchises, businesses, income or profits, all trade accounts payable in
accordance with usual and customary business terms, and all claims for work,
labor or materials, which if unpaid might become a Lien upon any asset of
Provectus or any Subsidiary, before the same become delinquent, except that
(unless and until foreclosure, sale or other similar proceedings shall have been
commenced) no such charge need be paid if being contested in good faith and by
appropriate measures promptly initiated and diligently conducted if (a) such
reserve or other appropriate provision, if any, as shall be required by sound
accounting practice consistent with GAAP shall have been made therefor and (b)
such contest does not have a Material Adverse Effect.
5.18 Preservation of Intellectual Property Rights. Possess and maintain all
material Intellectual Property Rights necessary to the conduct of their
respective businesses and own all right, title and interest into and to, or have
a valid license for, all material Intellectual Property Rights used by Provectus
and its Subsidiaries in the conduct of their respective businesses. Provectus
will not take any action or fail to take any action, and will prevent each of
its Subsidiaries from taking any action or failing to take any action, which
would result in the invalidity, abuse, misuse or unenforceability of such
Intellectual Property Rights or which would infringe upon any rights of other
Persons.
5.19 Use of Proceeds. Use the net proceeds received from the loan under the
Note in accordance with the terms set forth in the Note.
ARTICLE VI
----------
FEES, EXPENSES AND INDEMNIFICATION
----------------------------------
6.01 Fees And Expenses Of Provectus and Gryffindor. Provectus and the
Shareholders, jointly and severally, shall pay, and hold Gryffindor and all
subsequent holders of the Note, the Warrant and the Shares harmless against
liability for the payment of (a) the reasonable fees and out-of-pocket expenses
of Piper Rudnick, counsel to Gryffindor, arising in connection with the
negotiation and execution of this Agreement and the consummation of the
transactions contemplated by this Agreement, which shall be payable at the
Closing to the extent then known; provided, however, that Provectus shall not be
required to pay more than an aggregate of $10,000; and (b) stamp and other taxes
which may be payable in respect of the execution and delivery of this Agreement
or the issuance, delivery or acquisition of any Shares pursuant to this
Agreement, the Transaction Documents or any Common Stock upon conversion of the
Shares.
6.02 Indemnification by Provectus and the Shareholders. Provectus and the
Shareholders, jointly and severally, shall defend (at Gryffindor Indemnified
Parties' sole option and at Provectus' sole expense), indemnify and hold
Gryffindor, its officers, directors, members, managers, employees, agents,
representatives, successors and assigns (collectively the "Gryffindor
Indemnified Parties") harmless from and against any and all losses, claims,
damages, liabilities and related expenses, including reasonable attorney's fees
and expenses, incurred by the Indemnified Parties arising out of or relating to:
(a) any action or inaction of Provectus or a Subsidiary that gives rise to or
results in the occurrence of any claim; (b) any breach of any representation or
warranty made by Provectus and/or the Shareholders in or pursuant to this
Agreement, the Transaction Documents or any other certificate or document
delivered by them pursuant to this Agreement; (c) any breach or default by the
X-20
Provectus and/or the Shareholders of any covenant or obligation of them in this
Agreement or any of the Transaction Documents; (d) any claim or proceeding of
any kind whatsoever, whether instituted or commenced prior to or after the date
hereof, which relates to, arises from, or occurs in connection with facts or
circumstances relating to (i) the Separation Agreement, (ii) the Assets, or
(iii) the conduct of Provectus' business, or its assets, or any services
provided on or prior to the date hereof; (e) any liabilities of Provectus and/or
the Shareholders; or (f) any violations of, or obligations under any laws
relating to acts, omissions, circumstances or conditions existing on or prior to
the date hereof, whether or not such acts, omissions, circumstances or
conditions constituted a violation of such laws, as then in effect; provided,
however, any such indemnity shall not apply to any such losses, claims, damages,
liabilities or related expenses arising from the gross negligence or willful
misconduct of the Gryffindor Indemnified Parties.
6.03 Indemnification By Gryffindor. Gryffindor shall defend (at the
Provectus Indemnified Parties' sole option and at Gryffindor's sole expense),
indemnify and hold Provectus, its officers, directors, members, managers,
shareholders (including the Shareholders), employees, agents, representatives,
successors and assigns (collectively the "Provectus Indemnified Parties")
harmless from and against any and all losses, claims, damages, liabilities and
related expenses, including reasonable attorney's fees and expenses, incurred by
the Indemnified Parties arising out of or relating to: (a) any breach of any
representation or warranty made by Gryffindor in or pursuant to this Agreement,
the Transaction Documents or any other certificate or document delivered by
Gryffindor pursuant to this Agreement; or (b) any breach or default by
Gryffindor of any covenant or obligation of them in this Agreement or any of the
Transaction Documents; provided, however, any such indemnity shall not apply to
any such losses, claims, damages, liabilities or related expenses arising from
the gross negligence or willful misconduct of the Provectus Indemnified Parties.
ARTICLE VII
-----------
MISCELLANEOUS
-------------
7.01 Non-Waiver. No course of dealing between Gryffindor and any other
party hereto or any failure or delay on the part of Gryffindor in exercising any
rights or remedies under this Agreement, the Note or the Warrant operates as a
waiver of any rights or remedies of Gryffindor under any Agreement, the Note or
the Warrant. No single or partial exercise of any rights or remedies hereunder
operates as a waiver or precludes the exercise of any other rights or remedies
hereunder.
7.02 Successors and Assigns. Except as otherwise expressly provided herein,
all covenants and agreements contained in this Agreement by or on behalf of any
of the parties hereto will bind and inure to the benefit of the respective
successors and assigns of the parties hereto, whether so expressed or not,
provided, however, that Provectus shall not assign (by operation of law or
otherwise) this Agreement, the Transaction Documents or any part hereof or
thereof or any obligation hereunder or thereunder without the prior written
consent of Gryffindor. Gryffindor may assign, transfer, sell or otherwise convey
or hypothecate all or any portion of the Note, the Warrant or the Shares in
Gryffindor's (or such other holder's) sole and absolute discretion subject to
compliance with the applicable securities laws. In addition, and whether or not
any express assignment has been made, the provisions of this Agreement which are
for the benefit of Gryffindor or any holder of all or any part of the Note, the
Warrant or the Shares are also for the benefit of, and enforceable by, any
subsequent holders of all or any part of the Note, the Warrant or the Shares.
7.03 Remedies Non-Exclusive. None of Gryffindor's rights, remedies,
privileges or powers expressly provided for herein are exclusive, but each of
them is cumulative with, and in addition to, every other right, remedy,
privilege and power now or hereafter existing in Gryffindor's favor, whether
pursuant to this Agreement, the Transaction Documents, at law or in equity, by
statute or otherwise.
7.04 Notices. All notices, requests, demands and other communications
required or permitted under this Agreement or by law shall be in writing and
given to the parties at the address listed below (or to such other address as
shall at any time be designated by any party in writing to the other parties):
(a) by certified U.S. mail, return receipt requested, postage prepaid; (b) by
facsimile transmission (provided confirmation of the receipt thereof is
X-21
obtained); (c) by recognized overnight courier service (e.g., Federal Express);
or (d) by hand-delivery:
To Gryffindor: Gryffindor Capital Partners I, L.L.C.
150 North Wacker Drive, Suite 800
Chicago, Illinois 60606
Facsimile: (312) 499-1935
Attention: Stuart Fuchs
with a copy to: Piper Rudnick
203 N. LaSalle Street
Suite 1800
Chicago, IL 60504
Attn: Deborah Gersh
To Provectus: Provectus Pharmaceuticals, Inc.
7327 Oak Ridge Highway, Suite A
Knoxville, TN 37931
Attention: Timothy C. Scott, Ph.D., President
with a copy to: Baker, Donelson, Bearman & Caldwell
2200 Riverview Tower
900 South Gay Street
Knoxville, TN 37902
Attn: David L. Morehous
All such notices shall be deemed effective (a) when actually delivered or
when sent by facsimile (upon electronic confirmation of receipt), (b) three days
after being deposited in the United States mail, first class, postage prepaid,
or (c) one day after being delivered to a reputable overnight delivery service.
7.05 Entire Agreement; Integration Clause. This Agreement and the
Transaction Documents set forth the entire agreements and understandings of the
parties hereto with respect to this transaction, and any prior agreements are
hereby merged herein and terminated. The recitals appearing at the beginning of
this Agreement are hereby incorporated herein by this reference.
7.06 No Oral Modification Or Waivers. The terms of this Agreement may not
be modified or waived orally, but only by an instrument in writing signed by the
party against which enforcement of the modification or waiver (as the case may
be) is sought.
7.07 Governing Law. The laws of the State of Illinois (other than its
conflicts of law principles) govern this Agreement and the Transaction Documents
except with respect to the following matters which will be governed by the state
of incorporation of Provectus and/or its Subsidiaries as applicable: due
incorporation and qualifications for good standing, the issuance of Common Stock
and other capital stock of Provectus and its Subsidiaries and the Board of
Directors of Provectus and its Subsidiaries.
7.08 Headings. The headings of the paragraphs and sub-paragraphs of this
Agreement and the Transaction Documents are inserted for convenience only and do
not constitute a part of this Agreement or the Transaction Documents.
7.09 Severability. To the extent any provision herein violates any
applicable law, that provision shall be considered void and the balance of this
Agreement shall remain unchanged and in full force and effect.
7.10 Counterparts. This Agreement may be executed in counterparts. The
signature of, or on behalf of, each party does not need to appear on each
counterpart, so long as it appears on one or more of the counterparts. All
counterparts shall collectively constitute one original document.
X-22
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement as of the date first above written.
GRYFFINDOR CAPITAL PARTNERS I, L.L.C.
By:
By:/s/ Stuart Fuchs
---------------------------------
Name:Stuart Fuchs
Title:Managing Principal
PROVECTUS PHARMACEUTICALS, INC.
a Nevada corporation
By:/s/ Craig Dees
---------------------------------
Craig Dees, Ph.D., Chief Executive Officer
/s/ Craig Dees
------------------------------------
Craig Dees, Ph.D.
THE DEES FAMILY FOUNDATION
By:/s/ Craig Dees
---------------------------------
Name: Craig Dees
Its:President
/s/ Eric A. Wachter
------------------------------------
Eric A. Wachter, Ph.D.
THE ERIC A. WACHTER 1998
CHARITABLE REMAINDER UNITRUST
By:/s/ Eric A. Wachter
---------------------------------
Name:/s/ Eric A. Wachter
-------------------------------
Its: Trustee
X-23
/s/ Timothy C. Scott
------------------------------------
Timothy C. Scott, Ph.D.
THE SCOTT FAMILY INVESTMENT
LIMITED PARTNERSHIP
By: /s/ Timothy C. Scott
---------------------------------
Name: Timothy C. Scott
Its: General Partner
/s/ Walter Fisher
------------------------------------
Walter Fisher, Ph.D.
THE FISHER FAMILY INVESTMENT
LIMITED PARTNERSHIP
By: /s/ Walter Fisher
---------------------------------
Name: Walter Fisher
Its: General Partner
THE WALT FISHER 1998
CHARITABLE REMAINDER UNITRUST
By: /s/ Walter Fisher
--------------------------------
Name: Walter Fisher
Its: Trustee
/s/ John T. Smolik
----------------------------------
John T. Smolik
THE SMOLIK FAMILY LLP
By: /s/ John T. Smolik
-------------------------------
Name: John T. Smolik
Its: General Partner
X-24
SCHEDULE 3.09
CONVERTIBLE SECURITIES AND COMMITMENTS
1. Note and Warrants to be issued pursuant to the Purchase Agreement.
2. 2,000,000 shares of Common Stock have been reserved for issuance upon the
exercise of options to be granted pursuant to Provectus's employee stock option
plan (the "Plan"). No options have been granted pursuant to the Plan; however,
Provectus plans to grant options to employees as shown in the "Employee Stock
Options Schedule" beginning on the following page. Grants are expected to be
made annually in the spring following the release of Provectus's audited annual
financial statements for the preceding fiscal year, with the first grants to be
made in the spring of 2003.
3. Upon the consummation of the pending acquisition of Pure-ific, L.L.C.
("Pure-ific"), Provectus will issue the following securities to the members of
Pure-ific:
a. 25,000 shares of Common Stock, which will not be registered under the
Securities Act; and
b. Warrants for the purchase of an aggregate of 80,000 shares of Common
Stock.
X-25
Employee Stock Options Schedule
Options Awarded
Position Year 1 Year 2 Year 3 Year 4 Year 5 Totals
Senior Execs.
CEO 75,000 75,000 75,000 75,000 75,000 375,000
President 75,000 75,000 75,000 75,000 75,000 375,000
Vice President-Research 75,000 75,000 75,000 75,000 75,000 375,000
CFO 75,000 75,000 75,000 75,000 75,000 375,000
Administration
AP Clerk 2,000 2,000 2,000 2,000 2,000 10,000
Secretary 2,000 2,000 2,000 2,000 2,000 10,000
Marketing & Sales
VP Marketing Sales 15,000 15,000 15,000 15,000 15,000 75,000
Sales Manager 5,000 5,000 5,000 5,000 20,000
Sales Specialist 2,000 2,000 2,000 2,000 8,000
Sales Specialist 2,000 2,000 2,000 2,000 8,000
Sales Specialist 2,000 2,000 2,000 2,000 8,000
Product Manager 2,000 2,000 2,000 2,000 8,000
Product Manager 2,000 2,000 2,000 2,000 8,000
Product Manager 2,000 2,000 2,000 2,000 8,000
Product Manager 2,000 2,000 2,000 2,000 8,000
Secretary 2,000 2,000 2,000 2,000 8,000
Secretary 2,000 2,000 2,000 2,000 8,000
Secretary 2,000 2,000 2,000 6,000
Secretary 2,000 2,000 4,000
Clerk 2,000 2,000 2,000 2,000 8,000
Clerk 2,000 2,000 2,000 2,000 8,000
Clerk 2,000 2,000 2,000 6,000
Clerk 2,000 2,000 4,000
Research/Reg Affairs
Secretary 2,000 2,000 2,000 2,000 2,000 10,000
Secretary 2,000 2,000 2,000 6,000
Reg Affairs Director 5,000 5,000 5,000 5,000 20,000
Scientist 5,000 5,000 5,000 5,000 20,000
Scientist 5,000 5,000 5,000 15,000
Scientist 5,000 5,000 5,000 15,000
Technician 3,000 3,000 3,000 3,000 12,000
Technician 3,000 3,000 3,000 9,000
Technician 3,000 3,000 3,000 9,000
X-26
SCHEDULE 3.10
STOCKHOLDER LIST
Percentage
Stockholder Name Number of Shares Ownership (1)
------------------------------------------------------------ --------------------------- -------------
Blankenship, Justeene....................................... 493,666 5.52%
Dees, H. Craig (2).......................................... 1,397,323
Dees Family Foundation...................................... 536
Dees total:............................................. 1,397,859 15.62%
Fisher, Walter G............................................ 831,880
Fisher Family Investment Limited Partnership................ 55,577
Walt Fisher 1998 Charitable Remainder Unitrust.............. 9,734
Fisher total:........................................... 897,191 10.03%
Hamilton, Daniel R. (2)..................................... 300,000
Scott, Timothy C. (2)....................................... 1,341,553
Scott Family Investment Limited Partnership................. 55,966
Scott total:............................................ 1,397,519 3.35%
Smolik, John T.............................................. 848,673
Smolik Family LLP........................................... 48,666
Smolik total:........................................... 897,339 10.03%
Wachter, Eric A. (2)........................................ 1,405,232
Eric A. Wachter 1998 Charitable Remainder Unitrust.......... 4,867
Wachter total:.......................................... 1,410,099 15.76%
Depository Trust Company (CEDE & Co.) (3) 566,283 6.33%
-----------------------------------------------
(1) Calculated by dividing the total number of shares by 8,945,770, the number of shares outstanding pursuant to
Section 3.09 of the Purchase Agreement.
(2) Ownership shown for Messrs. Dees, Hamilton, Scott and Wachter does not include options that may be granted to
them pursuant to the Plan. See Item 2 of Schedule 3.09.
-------------
(3) Provectus does not believe that any single person who holds shares in "street name," for whom CEDE & Co. is the record
holder, holds more than 5% of the Common Stock.
X-27
SCHEDULE 3.13
PROPERTY AND ASSETS
1. Intellectual Property Rights are identified on Schedule 3.14.
-------------
2. Tangible assets are identified on Annex 3.13a attached hereto.
-----------
X-28
SCHEDULE 3.14
INTELLECTUAL PROPERTY RIGHTS
1. Intellectual Property Rights
a. Patents, patent applications, drafts, and disclosures, US and
international:
i. PHO-0001 Method for Improved Selectivity in Photo-Activation of
Molecular Agents (Fisher, Wachter and Dees), including the following
US patents: A. 5,829,448 B. 5,998,597 C. 6,042,603
ii. PHO-0002 Method for Improved Selectivity in Photo-Activation and
Detection of Molecular Diagnostic Agents (Wachter, Fisher and Dees),
including the following US patents: A. 5,832,931
iii. PHO-0003 Method and Apparatus for Treating Biological Contaminants in
the Blood Supply (Dees, Smolik and Wachter). Prepared as a first draft
in 1998; not forwarded since.
iv. PHO-101 Universal Activator for Laser Medical Treatment (Wachter,
Smolik and Fisher). Prepared as a first draft in 1997; not forwarded
since.
v. PHO-102 Treatment of Pigmented Tissues Using Optical Energy (Dees and
Wachter)
vi. PHO-103 Injectable Collagen and Protein Gels Containing Photoactive
Agents (Dees). Prepared as a first draft in 1998; not forwarded since.
vii. PHO-104 Improved Methods and Apparatus for Multi-Photon
Photo-Activation of Therapeutic Agents (Wachter, Fisher and Smolik)
viii. PHO-105 Improved Method for Targeted Topical Treatment of Disease
(Dees, Scott, Smolik, Wachter and Fisher) ix. PHO-106 Method for
Improved Imaging and Photodynamic Therapy (Dees and Scott) x. PHO-107
High Energy Phototherapeutic Agents (Dees, Scott, Smolik and Wachter),
including the following US patents: A. 6,331,286
xi. PHO-108 Method and Agents for Improved Radiation Therapy (Wachter,
Smolik and Dees); abandoned April 15, 2002
xii. PHO-109 Improved Methods and Apparatus for Multi-photon
Photo-activation and Detection of Molecular Agents (Fisher, Wachter,
Smolik and Dees)
xiii. PHO-110 Method for Enhanced Protein Stabilization and for Production
of Cell Lines Useful for Production of such Stabilized Proteins (Dees
and Smolik), including the following US patents: A. 6,451,597, issued
September 17, 2002 B. 6,468,777, issued October 22, 2002
xiv. PHO-113 Improved Topical Medicaments and Methods for Photodynamic
Treatment of Disease (Dees, Scott, Smolik, Wachter and Fisher)
xv. PHO-119 Improved Intracorporeal Medicaments for Photodynamic Treatment
of Disease (Dees, Scott, Wachter, Fisher and Smolik)
xvi. PHO-120 Improved Intracorporeal Medicaments for High Energy
Phototherapeutic Treatment of Disease (Dees, Scott, Wachter, Fisher
and Smolik)
xvii. PHO-121 Improved Methods and Apparatus for Optical Imaging (Fisher and
Wachter)
xviii. PHO-122 Improved Medicaments for Chemotherapeutic Treatment of
Disease (Scott and Dees)
xix. PHO-123 Phototherapeutic Vaccination and Immunotherapy Against Tumors
(Dees, Scott and Wachter)
xx. PRO-201 Combination Antiperspirant and Antimicrobial Compositions
(Dees)
xxi. Method and Apparatus for Permanent Hair Removal (Wachter and Dees)
xxii. Treatment for Colon Cancer (Dees)
xxiii. Spatially-Localized Sequential Two-Photon PDT and Imaging (Fisher,
Wachter and Smolik)
xxiv. Method for Delivery of Ultrashort Pulses through an Optical Fiber
(Wachter and Fisher)
xxv. Biospecific Targeting of Molecules (Dees)
xxvi. A Macromolecular Carrier to Preferentially Deliver Imaging Agents
(Dees)
xxvii. Materials and Method for Localizing Immunomodulation (Dees)
xxviii. Treatment of Autoimmune Disorders (Dees)
X-29
xxix. Iodinated and Esterified Rhodamine Derivatives (Dees and Besharat)
xxx. Ultrasound Contrast Using Halogenated Xanthenes (Dees, Scott and
Wachter)
b. Trademarks, service marks and applications for same; trade names:
i. PHO-118 PulseView
c. Copyrights:
i. None
d. Licenses:
None pursuant to which Provectus or Xantech have acquired Intellectual
Property Rights
e. Internet domain names and registrations:
i. www.provectuscorp.com
2. Pursuant to the Patent and Know How License Agreement identified in Item 3
of Schedule 3.24, Photogen Technologies has rights to use the following
Intellectual Property Rights in connection with "the research, development,
manufacture and commercialization of nanoparticulate x-ray, CT and/or MRI
diagnostic imaging agents using radio-opaque molecules containing Iodine
that passively target to lymph nodes involved in a disease state following
parenteral administration to a mammal to locate, diagnose, and/or treat
cancer or other diseases":
a. PHO-106; see Item a.ix. above.
b. PHO-107; see Item a.x. above.
c. PHO-108; see Item a.xi. above.
d. PHO-120; see Item a.xvi. above.
X-30
SCHEDULE 3.16
INTERESTED PARTY TRANSACTIONS
1. Pursuant to the Stock Ownership and Agency Agreement dated as of November
15, 2002 (the "Ownership Agreement")among Valley, H. Craig Dees, Ph.D., Dees
Family Foundation, Walter Fisher, Ph.D., Fisher Family Investment Limited
Partnership, Walt Fisher 1998 Charitable Remainder Unitrust, Timothy C. Scott,
Ph.D., Scott Family Investment Limited Partnership, John T. Smolik, Smolik
Family LLP, Eric A. Wachter, Ph.D., and Eric A. Wachter 1998 Charitable
Remainder Unitrust (the "Valley Shareholders"), the issued and outstanding stock
of Valley was held by Timothy C. Scott, Ph.D. as Agent for the Valley
Shareholders. Upon the consummation of the Merger, Provectus issued an aggregate
of 500,007 shares of its Common Stock to the Valley Shareholders, in the
following amounts:
Name of Valley Shareholder Number of Provectus Shares Issued
-------------------------- ---------------------------------
Craig Dees, Ph.D. 97,323
Dees Family Foundation 536
Walter Fisher, Ph.D. 31,880
Fisher Family Investment Limited Partnership 55,577
Walt Fisher 1998 Charitable Remainder Unitrust 9,734
Timothy C. Scott, Ph.D. 41,553
Scott Family Investment Limited Partnership 55,966
John T. Smolik 48,673
Smolik Family LLP 48,666
Eric A. Wachter, Ph.D. 105,232
Eric A. Wachter 1998 Charitable Remainder Unitrust 4,867
--------------------------
Total for All Valley Shareholders: 500,007
H. Craig Dees is the Chief Executive Officer of Provectus. Timothy C.
Scott is the President of Provectus. Eric A. Wachter is the Executive
Vice President of Provectus.
X-31
SCHEDULE 3.20
SUBSIDIARIES
Name Jurisdiction % Ownership
---- ------------ -----------
1. Xantech Pharmaceuticals, Inc. Tennessee 100%
X-32
SCHEDULE 3.21
OFFICERS AND DIRECTORS
1. Directors and officers of Provectus:
Name Title Member of Board?
---- ----- ----------------
H. Craig Dees Chief Executive Officer Yes
Timothy C. Scott President Yes
Daniel R. Hamilton Chief Financial Officer No
Eric A. Wachter Executive Vice President Yes
2. Directors and officers of Xantech:
Name Title Member of Board?
---- ----- ----------------
H. Craig Dees Chief Executive Officer Yes
Timothy C. Scott President Yes
Daniel R. Hamilton Chief Financial Officer No
Eric A. Wachter Executive Vice President Yes
X-33
SCHEDULE 3.22
DEBT OWED BY PROVECTUS
Nothing other than debts identified on the Financial Statements.
X-34
SCHEDULE 3.23
UNDISCLOSED LIABILITIES
None.
X-35
SCHEDULE 3.24
MATERIAL CONTRACTS AND OBLIGATIONS
1. Consulting and financial services agreements:
Financial Consulting Services Agreement dated April 23, 2002 between Provectus
and Phillip C. Baker
Consulting Agreement dated as of August 15, 2002 between Provectus and Numark
Capital Corp.
Consulting Agreement dated as of August 15, 2002 between Provectus and Nunzio
Valerie.
Consulting Agreement dated as of August 28, 2002 between Provectus and Robert
S. Arndt.
2. Marketing and distribution agreements:
Consulting Contract dated June 1, 2002 between Provectus and Avid Amiri.
Consulting Agreement dated June 7, 2002 between Provectus and Nace Pharma, L.L.C
Financial Services Agreement dated August 29, 2002 between Provectus and Nace
Resources, Inc.
Marketing Agreement dated as of November 15, 2002 between Provectus and Vertical
Investments Corp.
3. The Separation Agreement (as defined in the Purchase Agreement), and the
following agreements entered into in connection therewith:
In connection with the Separation Agreement, Xantech assumed the obligation to
pay certain royalties to Dr. Wolf pursuant to Section 4.1 of the Settlement
Agreement and Mutual Release of Claims dated as of June 13, 2002 among Photogen
Technologies, Inc., a Nevada corporation ("Technologies"), Photogen, Inc., a
Tennessee corporation (now known as Xantech Pharmaceuticals, Inc. ("Xantech")),
The General Hospital Corporation d/b/a Massachusetts General Hospital, and
Gerald L. Wolf, Ph.D.
Patent and Know How License Agreement dated as of November 12, 2002 between
Technologies and Xantech.
Non-Competition Agreement dated as of November 12, 2002 among Xantech, Craig
Dees, Eric A. Wachter, Timothy C. Scott, Walter Fisher, and John T. Smolik
(collectively, the "Tennessee Stockholders"), and Technologies, pertaining to
the "Therapeutic Business" (as defined in the Separation Agreement).
Non-Competition Agreement dated as of November 12, 2002 among Xantech, the
Tennessee Stockholders, and Technologies, pertaining to PH-10.
4. The Reorganization Agreement (as defined in the Purchase Agreement).
X-36
SCHEDULE 3.25
MATERIAL CHANGES
None.
X-37
SCHEDULE 3.28
ENVIRONMENTAL MATTERS
In the ordinary course of its business, Provectus operates a laboratory and
similar research facilities. In the course of these operations, Provectus
handles chemicals which may be classified as Hazardous Materials. Chemicals
presently in Provectus's inventory are identified on Annex 3.13a to Schedule
3.13; some of these chemicals may be classified as Hazardous Materials.
Provectus handles all chemicals, including Hazardous Materials, in compliance
with all applicable Environmental Laws and other legal requirements. Provectus
has not 1. entered into or been subject to any consent decree, compliance order,
or administrative order with respect to any environmental or health and safety
matter relating to its business or any of its currently or formerly owned,
operated or managed properties or facilities, 2. received notice under the
citizen suit provision of any Environmental Law in connection with its business
or any of its currently or formerly owned, operated or managed properties or
facilities, 3. received any written request for information, demand letter,
administrative inquiry, or formal or informal complaint or claim with respect to
any environmental or health and safety matter relating to its business or any of
its properties or facilities or 4. been subject to any governmental or citizen
enforcement action with respect to any environmental or health and safety matter
relating to its business or any of its properties or facilities, and has no
knowledge that any matters described in clauses 1-4 above will be forthcoming;
in any such case as would have or reasonably be expected to have a material
adverse effect on Provectus or its operations.
X-38
SCHEDULE 3.29
LEASEHOLD INTERESTS IN REAL PROPERTY
Provectus leases its offices at 7327 Oak Ridge Highway, Suite A, Knoxville,
Tennessee 37932 from the owner of the property pursuant to a verbal agreement
providing for a month-to-month lease at a rent of $2800 per month.
X-39
Exhibit 4.6
STOCK PLEDGE AGREEMENT
----------------------
STOCK PLEDGE AGREEMENT, dated as of November 26, 2002, between PROVECTUS
PHARMACEUTICALS, INC. (the "Pledgor"), and GRYFFINDOR CAPITAL PARTNERS I, L.L.C.
("Lender").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Pledgor is the record and beneficial owner of all of the issued
and outstanding shares of stock of Xantech Pharmaceuticals, Inc. ("Xantech") and
the other stock described in Schedule I hereto (the "Pledged Shares") issued by
the corporations named therein; and
WHEREAS, Pledgor has entered into a Senior Secured Convertible Note, dated
as of even date herewith (as at any time amended, modified or supplemented, the
"Note") with Lender pursuant to which Lender has agreed to make a loan to
Pledgor (the "Loan"), the proceeds of which are to be used as set forth in the
Note; and
WHEREAS, in connection with the making of the Loan as evidenced by the Note
and as security for all of the Obligations of Pledgor under the Note, the Lender
is requiring that Pledgor shall have executed and delivered this Stock Pledge
Agreement and granted the security interest contemplated hereby;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained and to induce Lender to make the Loan evidenced by the
Note, it is agreed as follows:
1. Definitions. Unless otherwise defined herein, terms defined in the Note
are used herein as therein defined, and the following shall have (unless
otherwise provided elsewhere in this Stock Pledge Agreement) the following
respective meanings (such meanings being equally applicable to both the singular
and plural form of the terms defined):
"Act" shall have the meaning assigned to such term in Section 8(d) hereof.
"Agreement" shall mean this Stock Pledge Agreement, including all
amendments, modifications and supplements and any exhibits or schedules to any
of the foregoing, and shall refer to the Agreement as the same may be in effect
at the time such reference becomes operative.
"Default" shall mean an Event of Default under the Note or any other
Transaction Document.
"Pledged Collateral" shall have the meaning assigned to such term in
Section 2 hereof.
"Pledged Shares" shall have the meaning assigned to such term in the first
"Whereas" clause hereof.
"Secured Obligations" shall have the meaning assigned to such term in
Section 3 hereof.
"Stock" shall mean all shares, options, interests, participations or other
equivalents (howsoever designated) of or in a corporation, whether voting or
non-voting, including without limitation, common stock, warrants, preferred
stock, convertible debentures and all agreements, instruments and documents
convertible, in whole or in part, into any one or more or all of the foregoing.
"Subsidiaries" means with respect to any Person, any corporation
association or other entity of which securities or other ownership interest
representing more than twenty percent (20%) of the ordinary voting power are, at
the time as of which any determination is being made, owned or controlled by
such Person or one or more Subsidiaries of such Person or by such person and one
or more Subsidiaries of such Person.
X-40
2. Pledge. Pledgor hereby pledges and grants to Lender a first priority
security interest in all of the following (the "Pledged Collateral"), except as
otherwise provided in Section 7(b):
(a) the Pledged Shares and the certificates representing the Pledged
Shares, and all dividends, cash instruments and other property or proceeds from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares;
(b) all additional shares of stock of any issuer of the Pledged Shares
from time to time acquired by Pledgor in any manner (which shares shall be
deemed to be part of the Pledged Shares) and the certificates representing such
shares, and all dividends, cash, instruments and other property or proceeds from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares; and
(c) all shares of any Person who, after the date of this Agreement,
becomes, as a result of any occurrence, a directly owned Subsidiary of Pledgor
(which shares shall be deemed to be part of the Pledged Shares) and the
certificates representing such shares, and all dividends, cash, instruments and
other property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such shares.
3. Security for Obligations. This Agreement secures, and the Pledged
Collateral is security for, the prompt payment in full when due, whether at
stated maturity, by acceleration or otherwise, and performance of the
Obligations, whether for principal, premium, interest, fees, costs and expenses,
and all obligations of Pledgor now or hereafter existing under this Agreement
and under the Note (collectively, the "Secured Obligations").
4. Delivery of Pledged Collateral. All certificates representing or
evidencing the Pledged Shares shall be delivered to and held by or on behalf of
Lender pursuant hereto and shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to
Lender. Subject to Section 7 hereof, Lender shall have the right, at any time in
its discretion and without notice to the Pledgor, to transfer to or to register
in the name of Lender or any of its nominees any or all of the Pledged Shares.
In addition, also subject to Section 7 hereof, Lender shall have the right at
any time to exchange certificates or instruments representing or evidencing
Pledged Shares for certificates or instruments of smaller or larger
denominations.
5. Representations and Warranties. Pledgor represents and warrants to
Lender that:
(a) Pledgor is, and at the time of delivery of the Pledged Shares to
Lender pursuant to Section 4 hereof will be, the sole holder of record and the
sole beneficial owner of the Pledged Collateral pledged by Pledgor free and
clear of any lien thereon or affecting the title thereto except for the lien
created by this Agreement.
(b) All of the Pledged Shares have been duly authorized, validly issued
and are fully paid and non-assessable.
(c) Pledgor has the right and requisite corporate authority to pledge,
assign, transfer, deliver, deposit and set over the Pledged Collateral pledged
by Pledgor to Lender as provided herein.
(d) None of the Pledged Shares has been issued or transferred in
violation of the securities registration, securities disclosure or similar laws
of any jurisdiction to which such issuance or transfer may be subject.
(e) The authorized Stock of each of the issuers listed on Schedule I
hereto consists of the number of shares of common and preferred stock, with the
number of shares issued and outstanding, that are described in Schedule I
hereto. As of the date hereof, there are no existing options, warrants, calls or
commitments of any character whatsoever relating to any Stock of any of such
issuers.
(f) No consent, approval, authorization or other order of any Person
and no consent, authorization, approval, or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required either
(i) for the pledge by Pledgor of the Pledged Collateral pursuant to this
Agreement or for the execution, delivery or performance of this Agreement by
Pledgor or (ii) for the exercise by Lender of the voting or other rights
X-41
provided for in this Agreement or the remedies in respect of the Pledged
Collateral pursuant to this Agreement, except as may be required in connection
with such disposition by laws affecting the offering and sale of securities
generally.
(g) The pledge, assignment and delivery of the Pledged Collateral
pursuant to this Agreement will create a valid first priority lien on and a
first priority perfected security interest in the Pledged Collateral pledged by
Pledgor, and the proceeds thereof, securing the payment of the Secured
Obligations.
(h) This Agreement has been duly authorized, executed and delivered by
Pledgor and constitutes a legal, valid and binding obligation of Pledgor
enforceable in accordance with its terms.
(i) The Pledged Shares constitute one hundred percent (100%) of the
issued and outstanding shares of Stock of the issuers thereof.
The representations and warranties set forth in this Section 5 shall
survive the execution and delivery of this Agreement.
6. Covenants. Pledgor covenants and agrees that until the Obligations under
the Note have been repaid in full or Lender has otherwise converted all of the
outstanding Obligations thereunder in accordance with the terms set forth
therein:
(a) Without the prior written consent of Lender, Pledgor will not sell,
assign, transfer, pledge, or otherwise encumber any of its rights in or to the
Pledged Collateral pledged by Pledgor or any unpaid dividends or other
distributions or payments with respect thereto or grant a lien in any therein
except as otherwise permitted by the Note.
(b) Pledgor will, at its expense, promptly execute, acknowledge and
deliver all such instruments and take all such action as Lender from time to
time may request in order to ensure to Lender the benefits of the liens in and
to the Pledged Collateral intended to be created by this Agreement.
(c) Pledgor has and will defend the title to the Pledged Collateral and
the liens of Lender thereon against the claim of any Person and will maintain
and preserve such liens.
(d) Pledgor will, upon obtaining any additional shares of any
Subsidiaries or of any new indirectly owned Subsidiary, which shares are not
already Pledged Collateral, promptly (and in any event within three (3) Business
Days) deliver to Lender a Pledge Amendment, duly executed by Pledgor, in
substantially the form of Schedule II hereto (a "Pledge Amendment"), in respect
of the additional Pledged Shares which are to be pledged pursuant to this
Agreement. Pledgor hereby authorizes Lender to attach each such Pledge Amendment
to this Agreement and agrees that all Pledged Shares listed on any Pledge
Amendment delivered to Lender shall for all purposes hereunder be considered
Pledged Collateral.
7. Pledgors' Rights. As long as no Default shall have occurred and be
continuing and until written notice shall be given to Pledgor in accordance with
Section 8(a) hereof:
(a) Pledgor shall have the right, from time to time, to vote and give
consents with respect to the Pledged Collateral or any part thereof for all
purposes not inconsistent with the provisions of this Agreement, the Note, and
any other agreement except as otherwise provided in the Purchase Agreement of
any of the other Transaction Documents (defined in the Purchase Agreement);
provided, however, that no vote shall be cast, and no consent shall be given or
action taken, which would have the effect of impairing the position or interest
of Lender in respect of the Pledged Collateral or which would authorize or
effect (i) the dissolution or liquidation, in whole or in part, of any of its
Subsidiaries, (ii) the consolidation or merger of Xantech with any other Person,
(iii) the sale, disposition or encumbrance of all or substantially all of the
assets of any of its Subsidiaries, (iv) any change in the authorized number of
shares, the stated capital or the authorized share capital of any of its
Subsidiaries or the issuance of any additional shares of its Stock, or (v) the
alteration of the voting rights with respect to the Stock of any of its
Subsidiaries;
(b) (i)) Pledgor shall be entitled, from time to time, to collect and
receive for its own use all cash dividends paid in respect of the Pledged Shares
X-42
to the extent not in violation of the Note other than any and all (A) dividends
paid or payable other than in cash in respect of, and instruments and other
property received, receivable or otherwise distributed in respect of, or in
exchange for, any Pledged Collateral, (B) dividends and other distributions paid
or payable in cash in respect of any Pledged Collateral in connection with a
partial or total liquidation or dissolution, and (C) cash paid, payable or
otherwise distributed in redemption of, or in exchange for, any Pledged
Collateral; provided, however, that until actually paid all rights to such
dividends shall remain subject to the lien created by this Agreement; and (ii)
all dividends (other than such cash dividends as are permitted to be paid to
Pledgor in accordance with clause (i) above) and all other distributions in
respect of any of the Pledged Shares of Pledgor, whenever paid or made, shall be
delivered to Lender to hold as Pledged Collateral and shall, if received by
Pledgor, be received in trust for the benefit of Lender, be segregated from the
other property or funds of Pledgor, and be forthwith delivered to Lender as
Pledged Collateral in the same form as so received (with any necessary
endorsement).
8. Defaults and Remedies.
(a) Upon the occurrence of a Default and during the continuation of a
Default (provided that such Default is not waived by Lender) and following
written notice to Pledgor, Lender (personally or through an agent) is hereby
authorized and empowered, to transfer and register in its name or in the name of
its nominee the whole or any part of the Pledged Collateral, to exercise the
voting rights with respect thereto, to collect and receive all cash dividends
and other distributions made thereon, to sell in one or more sales after ten
(10) days' notice of the time and place of any public sale or of the time after
which a private sale is to take place (which notice Pledgor agrees is
commercially reasonable), but without any previous notice or advertisement, the
whole or any part of the Pledged Collateral and to otherwise act with respect to
the Pledged Collateral as though Lender was the outright owner thereof, Pledgor
hereby irrevocably constituting and appointing Lender as the proxy and
attorney-in-fact of Pledgor, with full power of substitution to do so; provided,
however, Lender shall not have any duty to exercise any such right or to
preserve the same and shall not be liable for any failure to do so or for any
delay in doing so. Any sale shall be made at a public or private sale at
Lender's place of business, or at any public building in Chicago or elsewhere to
be named in the notice of sale, either for cash or upon credit or for future
delivery at such price as Lender may deem fair, and Lender may be the purchaser
of the whole or any part of the Pledged Collateral so sold and hold the same
thereafter in its own right free from any claim of such Pledgor or any right of
redemption. Each sale shall be made to the highest bidder, but Lender reserves
the right to reject any and all bids at such sale which, in its discretion, it
shall deem inadequate. Demands of performance, except as otherwise herein
specifically provided for, notices of sale, advertisements and the presence of
property at sale are hereby waived and any sale hereunder may be conducted by an
auctioneer or any officer or agent of Lender.
(b) If, at the original time or times appointed for the sale of the
whole or any part of the Pledged Collateral, the highest bid, if there be but
one sale, shall be inadequate to discharge in full all the Secured Obligations,
or if the Pledged Collateral be offered for sale in lots, if at any of such
sales, the highest bid for the lot offered for sale would indicate to Lender, in
its discretion, the unlikelihood of the proceeds of the sales of the whole of
the Pledged Collateral being sufficient to discharge all the Secured
Obligations, Lender may, on one or more occasions and in its discretion,
postpone any of said sales by public announcement at the time of sale or the
time of previous postponement of sale, and no other notice of such postponement
or postponements of sale need be given, any other notice being hereby waived;
provided, however, that any sale or sales made after such postponement shall be
after ten (10) days' notice to Pledgor.
(c) In the event of any sales hereunder, Lender shall, after deducting
all costs or expenses of every kind (including reasonable attorneys' fees and
disbursements) for care, safekeeping, collection, sale, delivery or otherwise,
apply the residue of the proceeds of the sales to the payment or reduction,
either in whole or in part, of the Secured Obligations in accordance with the
agreements and instruments governing and evidencing the Secured Obligations,
returning the surplus, if any, to Pledgor.
(d) If, at any time when Lender shall determine to exercise its rights
to sell the whole or any part of the Pledged Collateral hereunder, such Pledged
Collateral or the part thereof to be sold shall not, for any reason whatsoever,
be effectively registered under the Securities Act of 1933, as amended (or any
X-43
similar statute then in effect) (the "Act"), Lender may, in its discretion
(subject only to applicable requirements of law), sell such Pledged Collateral
or part thereof by private sale in such manner and under such circumstances as
Lender may deem necessary or advisable, but subject to the other requirements of
this Section 8, and shall not be required to effect such registration or to
cause the same to be effected. Without limiting the generality of the foregoing,
in any such event Lender in its discretion (i) may, in accordance with
applicable securities laws, proceed to make such private sale notwithstanding
that a registration statement for the purpose of registering such Pledged
Collateral or part thereof could be or shall have been filed under the Act (or
similar statute), (ii) may approach and negotiate with a single possible
purchaser to effect such sale, and (iii) may restrict such sale to a purchaser
who will represent and agree that such purchaser is purchasing for its own
account, for investment and not with a view to the distribution or sale of such
Pledged Collateral or part thereof. In addition to a private sale as provided
above in this Section 8, if any of the Pledged Collateral shall not be freely
distributable to the public without registration under the Act (or similar
statute) at the time of any proposed sale pursuant to this Section 8, then
Lender shall not be required to effect such registration or cause the same to be
effected but, in its discretion (subject only to applicable requirements of
law), may require that any sale hereunder (including a sale at auction) be
conducted subject to restrictions (iv) as to the financial sophistication and
ability of any Person permitted to bid or purchase at any such sale, (v) as to
the content of legends to be placed upon any certificates representing the
Pledged Collateral sold in such sale, including restrictions on future transfer
thereof, (vi) as to the representations required to be made by each Person
bidding or purchasing at such sale relating to that Person's access to financial
information about Pledgor and such Person's intentions as to the holding of the
Pledged Collateral so sold for investment, for its own account, and not with a
view of the distribution thereof, and (vii) as to such other matters as Lender
may, in its discretion, deem necessary or appropriate in order that such sale
(notwithstanding any failure so to register) may be effected in compliance with
the Code and other laws affecting the enforcement of creditors' rights and the
Act and all applicable state securities laws.
(e) Pledgor acknowledges that notwithstanding the legal availability of
a private sale or a sale subject to the restrictions described above in
paragraph (d), Lender may, in its discretion, elect to register any or all the
Pledged Collateral under the Act (or any applicable state securities law) in
accordance with its rights hereunder. Pledgor, however, recognizes that Lender
may be unable to effect a public sale of any or all the Pledged Collateral and
may be compelled to resort to one or more private sales thereof. Pledgor also
acknowledges any such private sale (conducted in a commercially reasonable
manner for private sales) may result in prices and other terms less favorable to
the seller than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. Lender shall be under no obligation to
delay a sale of any of the Pledged Collateral for the period of time necessary
to permit the registrant to register such securities for public sale under the
Act, or under applicable state securities laws, even if Pledgor or issuer of the
Pledged Collateral would agree to do so.
(f) Pledgor agrees that following the occurrence and during the
continuance of a Default it will not at any time plead, claim or take the
benefit of any appraisal, valuation, stay, extension, moratorium or redemption
law now or hereafter in force in order to prevent or delay the enforcement of
this Agreement, or the absolute sale of the whole or any part of the Pledged
Collateral or the possession thereof by any purchaser at any sale hereunder, and
Pledgor waives the benefit of all such laws to the extent it lawfully may do so.
Pledgor agrees that it will not interfere with any right, power and remedy of
Lender provided for in this Agreement or now or hereafter existing at law or in
equity or by statute or otherwise, or the exercise or beginning of the exercise
by Lender of any one or more of such rights, powers, or remedies. No failure or
delay on the part of Lender to exercise any such right, power or remedy and no
notice or demand which may be given to or made upon Pledgor by Lender with
respect to any such remedies shall operate as a waiver thereof, or limit or
impair Lender's right to take any action or to exercise any power or remedy
hereunder, without notice or demand, or prejudice its rights as against Pledgor
in any respect.
(g) Pledgor further agrees that a breach of any of the covenants
contained in this Section 8 will cause irreparable injury to Lender, that Lender
has no adequate remedy at law in respect of such breach and, as a consequence,
agrees that each and every covenant contained in this Section 8 shall be
specifically enforceable against Pledgor, and Pledgor hereby waives and agrees
X-44
not to assert any defenses against an action for specific performance of such
covenants except for a defense that the Secured Obligations are not then due and
payable in accordance with the agreements and instruments governing and
evidencing such obligations.
9. Application of Proceeds. Any cash held by Lender as Pledged Collateral
and all cash proceeds received by Lender in respect of any sale of, liquidation
of, or other realization upon all or any part of the Pledged Collateral shall be
applied by Lender as follows:
(a) First, to the payment of the costs and expenses of such sale,
including reasonable compensation to Lender and its agents and counsel, and all
expenses, liabilities and advances made or incurred by Lender in connection
therewith;
(b) Next, to the payment of the Secured Obligations; and
(c) Finally, after payment in full of all Secured Obligations, to the
payment to Pledgor, or its successors or assigns, or to whomsoever may be
lawfully entitled to receive the same or as a court of competent jurisdiction
may direct, of any surplus then remaining from such proceeds.
10. Waiver. No delay on Lender's part in exercising any power of sale,
lien, option or other right hereunder, and no notice or demand which may be
given to or made upon Pledgor by Lender with respect to any power of sale, lien,
option or other right hereunder, shall constitute a waiver thereof, or limit or
impair Lender's right to take any action or to exercise any power of sale, lien,
option, or any other right hereunder, without notice or demand, or prejudice
Lender's rights as against Pledgor in any respect.
11. Assignment. Lender may assign, indorse or transfer any instrument
evidencing all or any part of the Secured Obligations as provided in, and in
accordance with, the Note, and the holder of such instrument shall be entitled
to the benefits of this Agreement.
12. Termination. Immediately following the payment of all Secured
Obligations, Lender shall deliver to Pledgor the Pledged Collateral pledged by
Pledgor at the time subject to this Agreement and all instruments of assignment
executed in connection therewith, free and clear of the liens hereof, and any
assignment required to be executed by Lender to effect such redelivery and,
except as otherwise provided herein, all of Pledgor's obligations hereunder
shall at such time terminate.
13. Lien Absolute. All rights of Lender hereunder, and all obligations of
Pledgor hereunder, shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of the Note, any Security
Document or any other agreement or instrument governing or evidencing any
Secured Obligations;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any part of the Secured Obligations, or any other
amendment or waiver of or any consent to any departure from the Note, any
Transaction Document or any other agreement or instrument governing or
evidencing any Secured Obligations;
(c) any exchange, release or non-perfection of any other collateral, or
any release or amendment or waiver of or consent to departure from any guaranty,
for all or any of the Secured Obligations; or
(d) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, Pledgor.
14. Release. Pledgor consents and agrees that Lender may at any time, or
from time to time, in its discretion exchange, release and/or surrender all or
any of the Pledged Collateral, or any part thereof, by whomsoever deposited,
which is now or may hereafter be held by Lender in connection with all or any of
the Secured Obligations; all in such manner and upon such terms as Lender may
deem proper, and without notice to or further assent from Pledgor, it being
hereby agreed that Pledgor shall be and remain bound upon this Agreement,
irrespective of the existence, value or condition of any of the Pledged
Collateral, and notwithstanding any such change, exchange, settlement,
compromise, surrender, release, renewal or extension, and notwithstanding also
that the Secured Obligations may, at any time exceed the aggregate principal
amount thereof set forth in the Note, or any other agreement governing any
X-45
Secured Obligations. Pledgor hereby waives notice of acceptance of this
Agreement, and also presentment, demand, protest and notice of dishonor of any
and all of the Secured Obligations, and promptness in commencing suit against
any party hereto or liable hereon, and in giving any notice to or of making any
claim or demand hereunder upon such Pledgor. No act or omission of any kind on
Lender's part shall in any event affect or impair this Agreement.
15. Indemnification. Pledgor agrees to indemnify and hold Lender harmless
from and against any taxes, liabilities, claims and damages, including
reasonable attorney's fees and disbursements, and other expenses incurred or
arising by reason of the taking or the failure to take action by Lender, in good
faith, in respect of any transaction effected under this Agreement or in
connection with the lien provided for herein, including, without limitation, any
taxes payable in connection with the delivery or registration of any of the
Pledged Collateral as provided herein (collectively "Indemnified Claims").
Whether or not the transactions contemplated by this Agreement shall be
consummated, Pledgor agrees to pay to Lender all out-of-pocket costs and
expenses incurred in connection with this Agreement and all reasonable fees,
expenses and disbursements, including registration costs under the Act (or
similar statute) and the reasonable fees of Lender's agents or representatives,
incurred in connection with the execution and delivery of this Agreement and the
performance by Lender of the provisions of this Agreement and of any
transactions effected in connection with this Agreement. The obligations of
Pledgor under this Section 15 shall survive the termination of this Agreement.
The foregoing notwithstanding, the indemnity provided for herein shall not apply
to any Indemnified Claim of Lender if a court of competent jurisdiction
determines that such Indemnified Claim is the result of the gross negligence or
willful misconduct of Lender.
16. Reinstatement. This Agreement shall remain in full force and effect and
continue to be effective should any petition be filed by or against Pledgor for
liquidation or reorganization, should Pledgor become insolvent or make an
assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of Pledgor's assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Secured Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned, and in any such case, the Secured Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
17. Miscellaneous.
(a) Lender may execute any of its duties hereunder by or through
agents or employees and shall be entitled to advice of counsel concerning all
matters pertaining to its duties hereunder.
(b) Pledgor agrees to promptly reimburse Lender for actual
out-of-pocket expenses, including, without limitation, reasonable counsel fees,
incurred by Lender in connection with the administration and enforcement of this
Agreement.
(c) Neither Lender nor any of its officers, directors, employees,
agents or counsel shall be liable for any action lawfully taken or omitted to be
taken by it or them hereunder or in connection herewith, except for its or their
own gross negligence or willful misconduct.
(d) This Agreement shall be binding upon Pledgor and its successors and
assigns, and shall inure to the benefit of, and be enforceable by, Lender and
its respective successors and assigns, and shall be governed by, and construed
and enforced in accordance with, the internal laws in effect in the State of
Illinois without giving effect to principles of choice of law, and none of the
terms or provisions of this Agreement may be waived, altered, modified or
amended except in writing duly signed for and on behalf of Lender and Pledgor.
18. Severability. If for any reason any provision or provisions hereof are
determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or effect those portions of this
Agreement which are valid.
19. Notices. Except as otherwise provided herein, whenever it is provided
herein that any notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon any of the parties by
another, or whenever any of the parties desires to give or serve upon another
any communication with respect to this Agreement, each such notice, demand,
X-46
request, consent, approval, declaration or other communication shall be in
writing, addressed as follows:
If to Lender, at: Gryffindor Capital Partners I, L.L.C.
150 North Wacker Drive, Suite 800
Chicago, Illinois 60606
Attn: Stuart Fuchs
Facsimile No.: (312) 499-1935
With a copy to:
Piper Rudnick
203 North LaSalle Street
Chicago, Illinois 60601
Attn: Deborah Gersh, Esq.
Facsimile No. (312) 630-5371
If to Pledgor, at: Provectus Pharmaceuticals, Inc.
7327 Oak Ridge Highway, Suite A
Knoxville, TN 37931
Attention: Timothy C. Scott, Ph.D., President
Facsimile No. (865) 539-9654
With a copy to:
Baker, Donelson, Bearman & Caldwell
2200 Riverview Tower
900 South Gay Street
Knoxville, TN 37902
Attn: David L. Morehous, Esq.
Facsimile No. (865) 633-7120
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice, demand,
request, consent, approval, declaration or other communication hereunder
shall be deemed to have been duly given or served on the date on which
personally delivered, in person, by delivery service or by overnight
courier service, with receipt acknowledged, on the date of telecopy
transmission or three (3) days after the same shall have been deposited in
the United States mail, postage prepaid. Failure or delay in delivering
copies of any notice, demand, request, consent, approval, declaration or
other communication to the persons designated above to receive copies shall
in no way adversely affect the effectiveness of such notice, demand,
request, consent, approval, declaration or other communication.
20. Section Titles. The Section titles contained in this Agreement are and
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the agreement between the parties hereto.
21. Counterparts. This Agreement may be executed in any number of
counterparts, which shall, collectively and separately, constitute one
agreement.
22. Conflict of Terms. Except as otherwise explicitly provided in this
Agreement, if any provision contained in this Agreement is in conflict with or
inconsistent with any provision in the Note, the provision contained in the Note
shall govern and control, to the extent of such conflict or inconsistency.
[Signature Page(s) to Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Stock Pledge
Agreement to be duly executed as of the date first written above.
PLEDGOR:
PROVECTUS PHARMACEUTICALS, INC.
By: /s/ Timothy C. Scott
------------------------------
Name: Timothy C. Scott
Title: President
Accepted and agreed to in Chicago, Illinois as of this 26th day of
November, 2002
GRYFFINDOR CAPITAL PARTNERS I, L.L.C.
By: /s/ Stuart Fuchs
------------------------------
Name: Stuart Fuchs
Title: Managing Principal
X-48
SCHEDULE I
----------
to the Stock Pledge Agreement
Class of Certificate Number of
Issuer Stock No(s). Shares
------ -------- ----------- ---------
Xantech Pharmaceuticals, Inc.
X-49
SCHEDULE II
-----------
to the Stock Pledge Agreement
PLEDGE AMENDMENT
----------------
This Pledge Amendment, dated ______________________, 2002 is delivered
pursuant to Section 6(d) of the Stock Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to that
certain Stock Pledge Agreement, dated as of November 26, 2002, by the
undersigned, as Pledgor, to Gryffindor Capital Partners I, L.L.C. and that the
Pledged Shares listed on this Pledge Amendment shall be and become a part of the
Pledged Collateral referred to in said Stock Pledge Agreement and shall secure
all Secured Obligations referred to in said Stock Pledge Agreement.
-----------------------------------
Certificate Number of
Issuer Class of Stock No(s). Shares
------ -------------- ----------- ---------
X-50
Exhibit 4.17
Neither this Warrant represented by this certificate nor this Warrant Shares
issuable upon the exercise of this Warrant have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be
offered, sold or otherwise transferred, pledged or hypothecated unless and until
such shares are registered under the Securities Act or an opinion of counsel or
other evidence, in either case reasonably satisfactory to the Corporation, is
obtained to the effect that such registration is not required.
Common Share Purchase Warrant
Date: January 29, 2003
--------------------------------------------------------------------------------
Transfer Restricted - See Section Article IX
Provectus Pharmaceuticals, Inc., a Nevada corporation (the "Corporation"),
hereby certifies that, for value received, Investor-Gate.com (the "Holder"), is
entitled, on the terms and subject to the conditions set forth herein, to
purchase from the Corporation, up to Twenty-Five Thousand (25,000) of the
Corporation's Common Shares, as defined in Section 6.4 (the "Warrant Shares"),
at a price of Seventy-Five Cents ($0.75) per Warrant Share (the "Exercise
Price"). This Warrant shall be exercisable at any time and from time to time
during the period beginning on the date set forth above and ending on the date
which is 18 months thereafter (the "Exercise Period"). The number of Common
Shares issuable upon the exercise of this Warrant and the Exercise Price per
share shall be subject to adjustment from time to time as set forth herein.
1. CERTAIN DEFINITIONS
Whenever used in this Warrant, the following terms shall have the following
meanings:
(a) "Affiliate" means any Person who now or hereafter, directly or
indirectly through one or more intermediaries, Controls, is Controlled by, or is
under common Control with, another Person.
(b) "Business Day" means a day other than Saturday, Sunday or a day on
which banks are not open for business in Knoxville, Tennessee.
(c) "Combination" means an event in which the Corporation consolidates
with, merges with or into, or sells all or substantially all of its assets to
another Person.
(d) "Common Shares" means the Corporation's common shares, $.001 par value.
(e) "Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting stock or interests, by contract or
otherwise.
(f) "Exchange Act" means the Securities Exchange Act of 1934.
(g) "Person" means an individual, partnership, corporation, limited
liability company, trust, unincorporated organization, association, joint
venture or a government or agency or political subdivision thereof.
(h) "Securities Act" means the Securities Act of 1933.
2. EXERCISE OF WARRANT
(a) This Warrant may be exercised, in whole or in part, at any time during
the Exercise Period, by the Holder providing written notice thereof to the
Corporation, in the form attached hereto as Exhibit A (the "Notice of
Exercise"), in accordance with Section Article XII hereof, accompanied by
payment of the aggregate Warrant Price for the number of Warrant Shares to be
purchased (i) in cash or by check, payable to the order of the Corporation or
(ii) by wire transfer in accordance with instructions provided by the
Corporation.
(b) Subject to Section Article IX hereof, upon the surrender of this
Warrant and payment of the aggregate Exercise Price in accordance with Section
2(a), the Corporation shall issue, and shall deliver to or upon the written
order of the Holder and in such name or names as the Holder may designate, a
X-51
certificate or certificates for the number of whole Warrant Shares so purchased
(or the other securities or property to which the Holder is entitled pursuant to
Section 3 of this Warrant), together with cash as provided in Section 2(d) in
respect of any fractional Warrant Shares otherwise issuable upon such exercise.
(c)Certificates for Warrant Shares shall be deemed to have been issued, and
any Person so designated to be named therein shall be deemed to have become a
holder of record of the Warrant Shares, as of the date of the surrender of the
Warrant Certificate and payment of the aggregate Exercise Price in Shares shall
be closed, certificates for Warrant Shares shall be issuable as of the date on
which such books next shall be opened, and until such date the Corporation shall
be under no duty to deliver any certificates for Warrant Shares. Each
certificate representing Warrant Shares shall bear the Private Placement Legend
except as otherwise provided in Section 4(c).
(d) The Corporation shall not be required to issue fractional Warrant
Shares on the exercise of Warrants. If, except for the provisions of this
Section 2(d), any fraction of a Warrant Share would be exercisable upon the
exercise of any Warrant or specified portion thereof, the Corporation shall pay
at the time of exercise an amount in cash equal to such fraction of a Warrant
Share, multiplied by the fair market value of a Common Share on the Business Day
prior to the date of exercise, computed to the nearest whole cent.
3. ANTIDILUTION PROVISIONS
(a) In the event that, at any time or from time to time after the Effective
Date, the Corporation (i) shall pay a dividend or make a distribution on the
Common Shares payable in Common Shares or other shares of the Corporation's
capital stock, (ii) shall subdivide the outstanding Common Shares into a larger
number of Common Shares or other equity securities of the Corporation, (iii)
shall combine the outstanding Common Shares into a smaller number of Common
Shares or other equity securities of the Corporation, or (iv) shall increase or
decrease the number of Common Shares outstanding by reclassification of the
Common Shares; then:
(A) the number of Common Shares issuable upon the exercise of any
Warrant shall be a number of shares equal to the product of (I) the number
of Common Shares that the Holder of this Warrant would have been entitled
to receive if this Warrant had been exercised immediately prior to the
event (or, in the case of a dividend or distribution described in clause
(i) above, immediately prior to the record date therefor) and (II) a
fraction, the numerator of which shall be the total number of Common Shares
outstanding immediately after the completion of the event described above
and the denominator of which shall be the total number of Common Shares
outstanding immediately prior to the happening of the event described
above; and
(B) subject to Section 3(e), the Exercise Price shall be a price per
share equal to the Exercise Price in effect immediately prior to the event,
divided by the fraction calculated in accordance with clause (A)(II) above.
An adjustment made pursuant to this Section 3(a) shall become effective
immediately after the effective date of the event, retroactive to the record
date for the event in the case of a dividend or distribution in Common Shares or
other shares of the Corporation's capital stock.
(b) Except as provided in Section 3(c), in the event of a Combination, the
Holder shall have the right to receive, upon exercise of this Warrant, the kind
and amount of shares of capital stock or other securities or property which such
Holder would have been entitled to receive upon or as a result of such
Combination had this Warrant been exercised immediately prior to the
Combination. Unless Section 3(c) applies to the Combination, the Corporation
shall provide that the surviving or acquiring Person in the Combination (the
"Successor Corporation") will confirm the Holder's rights pursuant to this
Section 3(b) and provide for adjustments, which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 3. The
provisions of this Section 3(b) shall apply to successive Combinations involving
any Successor Corporation.
(c) In the event of (i) a Combination in which consideration is to be paid
to the holders of Common Shares in exchange for their shares solely in cash or
(ii) the dissolution, liquidation or winding-up of the Corporation, Holder shall
be entitled to receive, upon surrender of their Warrant Certificates,
X-52
distributions on an equal basis with the holders of Common Shares, or other
securities issuable upon the exercise of this Warrants, as if this Warrants had
been exercised immediately prior to the event, less the aggregate Exercise Price
payable by the Holder.
(d) In the event of a Combination pursuant to which Holder become entitled
to receive, upon exercise of this Warrants, capital stock, other securities,
property, cash or other distributions pursuant to Sections 3(b) or 3(c), Holder
thereafter shall not be entitled to receive Common Shares upon exercise of this
Warrants.
(e) The adjustments required by this Section 3 shall be made whenever and
as often as any specified event requiring an adjustment shall occur, except that
no adjustment of the Exercise Price or the number of Common Shares issuable upon
the exercise of Warrants that otherwise would be required to made unless and
until such adjustment, either by itself or with other adjustments not previously
made, increases or decreases by at least 1% of the Exercise Price or the number
of Common Shares issuable upon the exercise of Warrants as in effect immediately
prior to the making of such adjustment (the "Minimum Adjustment"). Any
adjustment smaller than the Minimum Adjustment shall be carried forward and made
as soon as such adjustment, together with other adjustments required by this
Section 3 and not previously made, would result in an adjustment at least as
large as the Minimum Adjustment. For the purpose of any adjustment, except as
specified in the final paragraph of Section 3(a), any event requiring an
adjustment shall be deemed to have occurred at the close of business on the date
of its occurrence. In computing adjustments under this Section 3, fractional
interests in Common Shares shall be taken into account to the nearest
one-hundredth of a share.
(f) Whenever the Exercise Price or the number of Common Shares and other
securities or property, if any, issuable upon the exercise of this Warrant is
adjusted pursuant to this Section 3, the Corporation shall deliver to the Holder
a certificate describing in reasonable detail the event requiring the adjustment
and the method by which the adjustment was calculated and setting forth the
Exercise Price and the number of Common Shares issuable upon the exercise of
this Warrant after giving effect to such adjustment.
(g) In the event that the Corporation shall propose (i) to pay a dividend
or make a distribution on the Common Shares payable in Common Shares or other
shares of the Corporation's capital stock, (ii) to subdivide, combine or
reclassify the outstanding Common Shares, (iii) effect any reorganization of the
Corporation or any Combination, (iv) to effect the voluntary or involuntary
dissolution, liquidation or winding-up of the Corporation, or (v) to make any
tender offer or exchange offer with respect to the Common Shares, then the
Corporation shall give the Holder notice of such proposed action or offer,
specifying the record date for the action or offer and the date of participation
therein by the holders of Common Shares, if any such date is to be fixed, and
briefly describing the effect of such action on the Common Shares and on the
Exercise Price and the number and kind of any other shares of stock and the
other property, if any, issuable upon exercise of this Warrant after giving
effect to any adjustment pursuant to this Section 3 that will be required as a
result of such action. Notice in accordance with the foregoing shall be given as
promptly as possible and in any event (A) at least 10 days prior to the record
date for the action, in the case of an action described in clause (i); or (B) at
least 20 days prior to the date of the taking of the action or the date of
participation therein by the holders of Common Shares, whichever is earlier, in
the case of any other action.
4. TRANSFER; LEGENDS
(a) This Warrant shall not be transferable, nor may it be the subject of
any sale, assignment, pledge or other conveyance.
(b) The Warrant Shares may not be offered or sold except (i) pursuant to an
effective registration statement under the Securities Act or (ii) if the
Corporation first shall have been furnished with an opinion of legal counsel or
other evidence, in either case reasonably satisfactory to the Corporation, to
the effect that such sale or transfer is exempt from the registration
requirements of the Securities Act.
(c) Notwithstanding the provisions of Section 4(b) of this Warrant, no
registration or opinion of counsel shall be required for a transfer of Warrant
Shares made in accordance with Rule 144 under the Securities Act.
(d) Except as provided in Section 9.5 of this Warrant, this Warrant, any
X-53
Warrant issued in replacement of this Warrant and each certificate representing
Warrant Shares issued upon exercise of this Warrant shall bear the following
legend (the "Private Placement Legend") on the face thereof:
Neither the Warrants represented by this certificate nor the shares
issuable upon the exercise of these Warrants have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be
offered, sold or otherwise transferred, pledged or hypothecated unless and
until such shares are registered under the Securities Act or an opinion of
counsel or other evidence, in either case reasonably satisfactory to the
Corporation, is obtained to the effect that such registration is not
required.
(e) Upon the exchange or replacement of Warrants or Warrant Shares bearing
the Private Placement Legend, the Corporation shall deliver only Warrants or
Warrant Shares, as applicable, that bear the Private Placement Legend, unless:
(i) such transfer or exchange is effected pursuant to an effective registration
statement under the Securities Act; or (ii) in the case of Warrant Shares, such
Warrant Shares were acquired pursuant to an effective registration statement
under the Securities Act; or (iii) there is delivered to the Corporation an
opinion of legal counsel or other evidence, in either case reasonably
satisfactory to the Corporation, to the effect that such sale or transfer is
exempt from the registration requirements of the Securities Act.
(f) By its acceptance of this Warrant or any Warrant Share bearing the
Private Placement Legend, the Holder acknowledges the restrictions on transfer
of this Warrant and the Warrant Shares, as applicable, set forth in this Warrant
and agrees that it shall transfer this Warrant or the Warrant Shares, as
applicable, only as provided in this Warrant.
5. RIGHTS OF HOLDER
Prior to the exercise of this Warrant, the Holder shall not be entitled (i)
to receive dividends or other distributions payable on Common Shares, (ii) to
receive notice of or vote at any meeting of the Corporation's stockholders,
(iii) to consent to any action of the stockholders, (iv) to receive notice as
stockholders of the Corporation of any other proceedings of the Corporation, (v)
to exercise any preemptive rights, or (vi) to exercise any other rights
whatsoever as stockholders of the Corporation.
6. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
The Corporation is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Nevada, and has the full right,
power and authority to execute and deliver this Warrant and to consummate the
transactions contemplated hereby. The execution and delivery of this Warrant and
the consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary action on the part of the Corporation and no
other proceedings on the part of the Corporation are necessary to authorize this
Warrant or the consummation of the transactions contemplated hereby.
7. NOTICES
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been made (x) upon actual receipt, when
given by hand or confirmed facsimile or electronic mail transmission, (y) one
day after delivery to the carrier, when given by overnight delivery service or
(z) two days after mailing, when given by first-class registered or certified
mail, postage prepaid, return receipt requested; in any case to the following
address, or to such other address as a party, by notice to the other parties
given pursuant to this Section 7, may designate from time to time:
(a) If to the Holder, to:
Investor-Gate.com
Attention: Kevin Leigh, President
18533 Roscoe Blvd #142
Northridge CA 91324
Facsimile:
email:
X-54
(b) If to the Corporation, to: With a copy to:
Provectus Pharmaceuticals, Inc. Baker, Donelson, Bearman & Caldwell
Attention: President Attention: David L. Morehous, Esq.
7327 Oak Ridge Highway, Suite A Riverview Tower, Suite 2200
Knoxville, TN 37931 900 South Gay Street
Facsimile: 865.539.9654 Knoxville, TN 37902
email: scott@provectuscorp.com Facsimile: 865.525.8569
Email: dmorehous@bdbc.com
8. GOVERNING LAW; VENUE OF ACTIONS
(a) This Warrant shall be governed and construed in accordance with the
internal laws of the State of Nevada as applied to contracts made and performed
within the State of Nevada, without regard to the principles thereof regarding
resolution of conflicts of law.
(b) The Corporation and the Holder each hereby (i) submit to the
jurisdiction of any state court of competent jurisdiction in and for Knox
County, Tennessee, or in the United States District Court for the Eastern
District of Tennessee sitting at Knoxville in any action or proceeding arising
out of or relating to this Warrant and agree that all claims in respect of the
action or proceeding may be heard and determined in any such court; (ii) agree
not to bring any action or proceeding arising out of or relating to this Warrant
in any other court; (iii) waive any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waive any bond, surety,
or other security that might be required of any other Party with respect
thereto; and (iv) agree that a final judgment in any action or proceeding so
brought shall be conclusive and may be enforced by suit on the judgment or in
any other manner provided by law or in equity.
9. GENERAL PROVISIONS
(a) This Warrant embodies the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings relating to such subject matter.
(b) Except as otherwise expressly set forth in this Warrant, any term
hereof may be amended and the observance of any term hereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), with the written consent of the parties hereto. No waivers of or
exceptions to any term, condition or provision of this Warrant, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.
(c) The invalidity or unenforceability of any provision hereof shall not
affect the validity or enforceability of any other provision hereof.
* Signatures appear on following page *
X-55
SIGNATURES
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be duly
executed and delivered as of the date first set forth above.
PROVECTUS PHARMACEUTICALS, INC.,
a Nevada corporation
By:
Name:
Title:
ACCEPTED AND AGREED to as of the date first set forth above:
INVESTOR-GATE.COM
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
X-56
EXHIBIT A
NOTICE OF WARRANT EXERCISE
Pursuant to the Warrant dated January __, 2002 for the purchase of up to
Twenty-Five Thousand (25,000) common shares, $.001 par value (the "Warrant
Shares"), of Provectus Pharmaceuticals, Inc., a Nevada corporation (the
"Corporation"), issued by the Corporation to the undersigned, the Holder hereby
irrevocably elects to exercise the Warrant as to ______________ Warrant Shares,
and herewith tenders payment for such Warrant Shares to the order of Provectus
Pharmaceuticals, Inc. (or its successor) in the amount of
_______________________________ Dollars ($__________.00) in accordance with the
terms of the Warrant.
Dated: ,
---------------------- -------------
-------------------------------
Signature of Owner
The signature must correspond with the name as written upon the face
of the Warrant in every particular, without alteration or
enlargement or any change whatsoever.
Securities and/or checks should be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
A new Warrant the number of Warrant Shares as to which the Warrant has not been
exercised should be issued to:
Please insert social security or identifying number:
Name:
Street Address:
City, State and Zip Code:
X-57
Exhibit 10.6
Nace Pharma, llc
69 MacArthur Loop
Highland Park, Il 60035
June 7, 2002
Craig Dees, Ph.D.
Chief Executive Officer
Provectus Pharmaceuticals, Inc.
7327 Oak Ridge Highway, Suite B
Knoxville, TN 37931
Dear Craig:
Thank you for your prompt responses to earlier versions of our proposal. As
discussed, Nace Pharma, LLC ("Nace") is prepared to enter into an agreement with
Provectus Pharmaceuticals, Inc. ("Provectus") to represent your company as its
agent authorized to solicit offers to license or options to license its products
to the pharmaceutical companies listed in Exhibit A. In order to strike a fair
balance between your reasonable desire not to be tied to an "exclusive"
representation arrangement with Nace Pharma and our objective to be fairly
compensated for an initiative of our which results in a license or option to
license agreement of Provectus new chemical entity, we agree as follows:
If Nace introduces Provectus to one or more of the companies on Exhibit A,
and if our introduction leads to a meeting between Provectus and the prospect
and the execution of a Provectus CDA by the prospect, then and only then would
we be "protected" with respect to that particular company for a period of two
years from the date of the CDA, or until the Nace Pharma contact declines the
technology, whichever is sooner.
The intention of the parties is to leverage the relationships developed by
Dr. Michael H. Davidson and Stuart Fuchs, the members of Nace, to the benefit of
Provectus. As founder and CEO of the Chicago Center for Clinical Research, one
of the largest site management organizations, Dr. Davidson has developed
professional and social ties to a large number of CEOs and research director of
Big Pharmas and other ethical drug companies, and has served as Principal
Investigator or advised on numerous clinical trials. Stuart Fuchs has since 1995
been involved in funding several biotech companies, particularly in the field of
cancer therapeutics. Formed in 1997, Nace Pharma seeks to bridge the chasm
between the innovative biotech companies like Provectus and pharmaceutical
companies interested in augmenting their pipeline of drugs in development by
in-licensing promising new chemical entities.
The subject of our agreement is XANTRYL and PROVECTA, pharmaceutical
compositions based on a common halogenated xanthene, and related chemical
entities ("XANTRYL" and "PROVECTA") which employ one or more of the following
techniques:
1. Photodynamic Therapy: Topical Application of XANTRYL with Green Light or
other means of photonic excitation to treat psoriasis, actinic keratosis, basal
cell carcinoma, and other forms of skin cancer.
2. Radiosensitization: Injection, ingestion or intratumoral injection of
doses of PROVECTA using ionizing radiation to produce photolysis in targeted
cancer cells.
3. Chemoablation: Lightly concentrated doses of PROVECTA injected
intratumorally, which without activation by light or ionizing radiation effect
chemoablation of targeted lesions of hepatocellular carcinoma, breast cancer and
other "focal" cancers.
Other new chemical entities discovered by Provectus could be included in
our agreement by mutual agreement of the parties.
Provectus agrees to reimburse Nace for travel and other reasonable
out-of-pocket expenses actually incurred in connection with our solicitation
efforts on behalf of Provectus pursuant to this agreement; provided, however,
that any reimbursable expense in excess of $1,000 are subject to prior approval
in writing by Craig Dees or other duly authorized officer of Provectus.
X-58
Nace's fees would consist of the following:
Upfront Warrants
In order to provide Nace with the incentive to get started, Provectus
agrees to grant Nace upon the signing of this Agreement 3 year warrants to
purchase 100,000 shares of restricted common stock at an exercise price equal to
the weighted average price of the stock over the preceding 30 trading days. The
warrants would include "piggyback" registration rights, but would vest only upon
the signing of the initial transaction with one of the companies listed on
Exhibit A in an estimated amount of no less than $10 million dollars. For
purposes of this paragraph only, the estimated value of the contract will be
based upon revenues of any kind, including all fees, joint development expenses,
payments in kind and work in kind.
Cash Fees
In addition, Nace would earn 2.5% of the first $50 million of any
cumulative revenues paid to Provectus by any of the potential licensees listed
on Exhibit A, and 5.0% of any cumulative revenues above $50 million. For
purposes of this paragraph, "revenues" are defined to include milestone payments
and exclude any work in kind or payments in kind, as well as any amounts paid to
Provectus pursuant to joint development contracts. The case fees earned by Nace
are due and payable within thirty (30) days of the actual receipt by Provectus
of revenues as defined in this paragraph.
If this proposal is acceptable to you, please sign in the appropriate
space. In order to introduce you and other members of the Provectus management
team to Dr. Michael Davidson, I'd be delighted to arrange a meeting or
conference call at a mutually convenience time and place.
Thanks again for your kind consideration. Michael and I look forward to a
long and mutually profitable association with Provectus Pharmaceuticals.
Sincerely,
/s/ STUART FUCHS
---------------------------------------------
Stuart Fuchs
cc: Dr. Michael H. Davidson
AGREED:
Provectus Pharmaceuticals, Inc.
/s/ CRAIG DEES
---------------------------------------------
Craig Dees, Ph.D.
Chief Executive Officer
X-59
Exhibit A to Letter Agreement dated June 7, 2002
between
Nace Pharma llc and Provectus Pharmaceuticals, Inc.
Amersham plc
Amgen Inc.
Astra Zeneca
Bristol Meyers Squibb
Relaint
Pfizer
Abbott
Medline
Novartis
Aventis
Bayer
Pharmacia
Wyeth
Varian
X-60
Exhibit 10.15
-------------
MATERIAL TRANSFER AGREEMENT
---------------------------
(SCHERING RECEIPT)
------------------
THIS MATERIAL TRANSFER AGREEMENT ("Agreement") is made as of this 31st day
of , , ("Effective Date"), by and between SCHERING-PLOUGH ANIMAL HEALTH
CORPORATION (hereinafter, referred to as "Schering"), a Delaware corporation,
having its principal office located at 1095 Morris Avenue, Union, New Jersey
07083, and (hereinafter, referred to as "Supplier"), , having its principal
office located at .
WITNESSETH:
-----------
WHEREAS, Schering and Supplier desire to contract for the exchange of the
Information (as hereinafter defined) relating to the Material (as hereinafter
defined) on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and covenants set forth in this Agreement, Schering and Supplier hereby agree as
follows:
1. Definitions. For purposes of this Agreement, the following terms shall
have the following meanings (such meanings to be equally applicable to both
the singular and plural forms of the terms defined):
1.01 "Agents" shall mean any officer, director, employee, and agent of
a Party.
1.02 "Commercial Purpose" shall mean (a) the sale, lease, license, or
other transfer of the Material or Modifications or (b) use of the
Material or Modifications by any Person, including Schering to (i)
perform contract research, (ii) screen compound libraries, (iii)
produce or manufacture products for general sale; or (iv) conduct
research activities that result in any sale, lease, license, or
transfer of the Material or Modifications.
1.03 "Developments" shall mean all ideas, concepts, discoveries,
inventions, developments, know-how, trade secrets, techniques,
methodologies, modifications, innovations, improvements, writings,
documentation, data and rights (whether or not protectable under
state, federal, or foreign patent, trademark, copyright or similar
laws), incorporating or requiring the use of the Material, that are
discovered, developed, created, conceived, or reduced to practice by
Schering, independently or in conjunction with any Person, during the
term of this Agreement, including, without limitation, New Substances
and New Uses.
1.04 "Effective Date" shall have the meaning set forth in the
introductory paragraph to this Agreement.
1.05 "Field" shall mean the veterinary field, including, without
limitation, any and all applications for non-human animals.
1.06 "Findings" shall mean any observations, studies, conclusions, or
Results arising out of Schering's evaluation of the Material.
1.07 "Information" shall mean all tangible and intangible information,
including, without limitation, technical, financial, commercial and
proprietary information, know-how, and trade secrets of any
description, whether created or produced by Schering, Supplier, or any
Person on behalf of Schering and/or Supplier, that concerns or relates
to the Material or is otherwise acquired in anticipation of, during,
or as a result of, or in any way connected with, this Agreement, and
(a) if disclosed in writing, graphically, or by any means or way of
sample or specimen, is marked "Confidential" when disclosed, or (b) if
disclosed orally, is reduced to writing within thirty (30) days from
the date of such oral disclosure and is marked "Confidential."
X-61
1.08 "Material" shall mean the eukaryotic expression vector with the
HSP70 gene running off a B-actin promoter, with the usual antibiotic
resistance inserts for cloning purposes (ampicillin and geneticin
resistance), resulting in an HSP70 increase in Schering's Vero cells
of about 4-16x over normal levels, and any Progeny and Unmodified
Derivatives (including, without limitation, expression products,
subclones, sub-units or fractionations).
1.09 "Modifications" shall mean any substances created by Schering
which contain or incorporate the Material or derived by chemical
modification of the Material.
1.10 "New Substance" shall mean any material first produced or
isolated by Schering with or by the use of the Material.
1.11 "New Use" shall mean any new use of the Material, including,
without limitation, new therapeutic uses or methods of treatment
discovered by Schering.
1.12 "Party" shall mean Schering or Supplier; "Parties" shall mean
Schering and Supplier.
1.13 "Patent Rights" shall mean the following patents and patent
applications: (a) Patent No. US 6,495,360 B1 (issued December 17,
2002), (b) Patent No. US 6,451,597 B2 (issued September 17, 2002), (c)
Patent No. US 6,541,233 B2 (issued April 1, 2003), and (d) Patent No.
US 6,468,777 B2 (issued October 22, 2002), including all foreign
counterparts thereof, and any and all divisions, continuations,
continuation-in-part, patents of addition, reissues, renewals,
extensions, registrations, confirmations, re-examinations, any
provisional applications, supplementary protection certificates, or
the like, of any such patents, patent applications and foreign
equivalents thereof, which, during the term of this Agreement, are
owned by Supplier or to which Supplier, through license or otherwise,
has or acquires rights.
1.14 "Person" shall mean (a) any corporation, partnership, joint
venture, joint stock company, association, trust, business trust,
estate, unincorporated organization, or other business entity, (b) any
government or agency, division or subdivision thereof, or (c) any
individual.
1.15 "Progeny" shall mean an unmodified descendent generated from the
Material, such as a virus, cell from cell, or organism from organism.
1.16 "Purpose" shall have the meaning set forth in Section 2 hereof.
1.17 "Results" shall mean any and all results, know-how, Findings, and
knowledge related to the Material achieved or obtained by or on behalf
of Schering.
1.18 "Territory" shall mean all of the countries in the world.
1.19 "Unmodified Derivative" shall mean any substance created by the
Supplier which constitutes an unmodified functional subunit or product
expressed by or generated from the original Material, including, but
not limited to, subclones of unmodified cell lines, purified or
fractionated subsets of the original Material, proteins expressed by
DNA/RNA supplied by Supplier, or monoclonal antibodies secreted by a
hybridoma cell lines.
2. Scope. During the term of this Agreement, Schering shall have the right
to use the Material in accordance with the terms and conditions of this
Agreement for the sole and limited purpose of evaluating the Material and
determining if the Material may be used for Commercial Purposes or any
other purpose agreed to by the Parties ("Purpose"). Within a period of
thirty (30) days from the completion of the Purpose, Schering shall notify
Supplier in writing of its intention to use the Material for Commercial
Purposes, and the Parties agree to enter into a license agreement, under
which Supplier shall grant to Schering an exclusive license (with right to
grant sublicenses) to develop the Material under the Patent Rights for
Commercial Purposes in the Field within the Territory. Such license
agreement shall include, without limitation, the milestone payments set
forth on Exhibit A hereof.
X-62
3. Obligations of Schering.
------------------------
3.01 During the term of this Agreement and for a period of five (5)
years from the date of expiration or termination of this Agreement,
Schering shall: (a) protect and hold in confidence the Information of
Supplier; (b) not disclose or use, or cause to be disclosed or used,
such Information to or by any Person except with the prior written
consent of Supplier and in accordance with this Agreement; (c) handle,
preserve, and protect such Information with at least the same degree
of care Schering affords its own confidential information; and (d) use
diligent efforts to ensure that each of its Agents preserves and
protects the confidentiality of such Information.
3.02 Schering's duty of confidentiality under this Section 3 shall not
apply to any Information of Supplier that:
(a) was demonstrably known to Schering prior to the date such
Information was disclosed by Supplier;
(b) was known or available generally to the public prior to the
date such Information was disclosed by Supplier;
(c) becomes known or available generally to the public,
subsequent to the date such Information was disclosed by
Supplier, through no act of Schering in violation of this
Agreement;
(d) is or was disclosed by Supplier to any Person without an
obligation to maintain confidentiality;
(e) is or was developed independently by Schering or its Agents
without any breach of this Agreement;
(f) is received by Schering from a Person and is not subject to
any obligation of confidentiality owed by such Person to
Supplier; or
(g) subject to Section 3.04 hereof, is required to be disclosed
by Schering pursuant to any applicable law or judicial or
governmental order.
3.03 Failure by Schering to disclose the existence of any of the
conditions set forth in Section 3.02 hereof shall not be deemed a
representation that such conditions do not exist or that such
conditions have been waived.
3.04 Schering shall notify Supplier of receipt of any process,
subpoena, demand, or request by any Person to disclose Information of
Supplier, and shall, as soon as practicable but in no event later than
five (5) business days from the date of such receipt, furnish to
Supplier a copy of such process, subpoena, demand, or request and
inform Supplier of the circumstances relating thereto. Schering shall,
at its cost and expense, take all reasonable steps to maintain and
protect the confidentiality of the Information of Supplier; provided,
however, that nothing in this Agreement shall be deemed to require
Schering to violate any law or court order. Supplier also shall have
the right to take any legal action to prevent disclosure of its
Information, including, without limitation, the right to appear on
behalf of Schering, to represent Schering, and to employ counsel of
its choice for these purposes. If Supplier elects to exercise its
rights under this Section 3.04, it shall do so at its cost and expense
and shall hold harmless, defend, and indemnify Schering from and
against any and all legal responsibility or liability from the
exercise of these rights. If Supplier elects not to exercise any such
rights or Schering is nonetheless legally compelled to disclose the
Information of Supplier, then Schering may, without liability under
this Agreement, disclose only that portion of such Information that it
is legally compelled to disclose and shall furnish to Supplier a copy
of the Information disclosed and all correspondence and communications
relating to such disclosure.
X-63
3.05 Except as provided in Sections 3.02 and 3.04 hereof, Schering
shall: (a) limit disclosure of any Information received by it under
this Agreement to only those of its Agents who are directly involved
in the evaluation of the Information; (b) upon such disclosure, advise
such Agents of the proprietary nature of such Information; and (c)
subject to Section 3.06 hereof, be responsible for any breach of this
Agreement by its Agents.
3.06 Schering shall, within five (5) days from the date of receipt of
notice or knowledge, notify Supplier of, and provide all information
and documents relating to, any breach of this Section 3, including,
without limitation, conditions or circumstances that indicate that the
Information of Supplier has been or may have been disclosed or used
without the written consent of Supplier; provided, however, that a
disclosure of the Information of Supplier shall not be deemed a
violation of this Agreement, if such Information (a) is disclosed by
Schering or its Agents, inadvertently, accidentally, or without
Schering's informed authorization despite the degree of care which
Schering affords its own confidential information or (b) subject to
Section 3.04 hereof, is produced in any judicial or governmental
action, whether or not pursuant to a protective order. Schering shall,
upon the request of Supplier and at the cost and expense of Schering,
take all steps reasonably necessary to recover any and all such
Information that has been or may have been improperly disclosed or
used.
4. Representations and Warranties.
-------------------------------
4.01 Supplier represents and warrants to Schering that Supplier has,
as of the date of this Agreement, no obligation or commitment, and
will not, during the term of this Agreement: (a) assume or undertake
any obligation or commitment, that is inconsistent with its
obligations under, or the terms and conditions of, this Agreement,
including, without limitation, Sections 3 through 9 hereof or (b)
enter into negotiations with any Person regarding the Material.
4.02 Supplier represents and warrants that it is the lawful owner or
licensee of the Material and all Information to be disclosed by it
under this Agreement, and that it has the right to disclose all such
Information to Schering.
4.03 Schering represents and warrants to Supplier that Schering shall
comply with all laws, rules and regulations applicable to the handling
and storage of the Material.
5. Ownership of Patents.
---------------------
5.01 All rights, title, and interest to and in the Information of
Supplier shall be and remain the property of Supplier, and no license,
right, title, or interest to or in any such Information shall be
granted or created by this Agreement, except the right to receive the
Information for the Purpose, or may be granted or created, except by
written agreement signed by a duly authorized representative of
Supplier. Schering shall not use the Material for Commercial Purposes.
5.02 All rights, title, and interest to the Developments, Findings,
Modifications, New Substances, New Uses, Results or the non-modified
parental Schering Vero cells and any modified cell lines based
thereon, shall be and remain the property of Schering, and no license,
right, title, or interest shall be granted or created by this
Agreement, except by written agreement signed by a duly authorized
representative of Schering.
6. Term and Termination.
---------------------
6.01 This Agreement shall become effective as of the Effective Date,
and, except as provided in this Section 6, shall continue in effect
until such time as: (a) Schering terminates this Agreement, in its
reasonable discretion, with or without cause, by notice to Supplier in
accordance with Section 12 hereof; (b) Schering notifies Supplier in
writing that it has completed the Purpose and does not wish to secure
from Supplier a license to use the Material for Commercial Purposes;
X-64
or (c) a Party fails to remedy or otherwise cure a breach of any
material obligation under this Agreement within thirty (30) days from
the date of receipt of notice of such breach given by the other Party;
provided, however, that, if such breach was outside the control of
such Party or such Party cures such breach within such thirty (30)-day
period, then there shall be no termination of this Agreement pursuant
to Section 6.01(c) hereof.
6.02 Upon Supplier's written request, Schering shall, within twenty
(20) days from the date of expiration or termination of this
Agreement, return to Supplier or destroy all Material in its
possession and all extant copies of Supplier's Information, except one
(1) copy which may be retained for legal purposes. Notwithstanding any
return of Supplier's Information in accordance with this Section 6.02,
the other duties and obligations of Schering under this Agreement
that, by their nature, are to be performed or observed after
expiration or termination of this Agreement, including, without
limitation, Schering's duties and obligations under Section 3 hereof,
shall continue in effect.
7. Independent Contractor. Nothing contained in this Agreement shall be
construed to constitute either Party as a partner or agent of the other
Party or to create any other form of legal association that would impose
liability upon a Party for any act or omission of the other Party or
provide a Party with the right, power, or authority to create or impose any
duty or obligation on the other Party, it being intended that each Party
shall remain an independent contractor acting in its own name and for its
own account.
8. Headings, Counterparts and Ambiguities. The division of this Agreement
into sections and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of
this Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
taken together shall constitute one and the same instrument. In
interpreting any provision of this Agreement, no weight shall be given to,
nor shall any construction or interpretation be influenced by, the fact
that counsel for one of the Parties drafted this Agreement, each Party
recognizing that it and its counsel have had an opportunity to review this
Agreement and have contributed to the final form of the same.
9. Assignment and Amendment. Neither Party shall assign this Agreement, any
portion hereof, or any obligation hereunder, except with the prior written
consent of the other Party. Neither this Agreement nor any of the terms
hereof may be amended, supplemented, waived, or modified except in a
specific writing signed by each of the Parties.
10. Waiver. A Party's failure to exercise or enforce any right conferred
upon it hereunder shall not be deemed a waiver of any such right or any
other right or operate to bar the exercise or performance thereof at any
time or times thereafter; nor shall a Party's waiver of any right hereunder
at any time be deemed a waiver thereof for any other time.
11. Governing Law. This Agreement and all issues arising hereunder or
relating hereto, including, without limitation, its construction, validity,
breach, and damages for breach, shall be governed by and construed in
accordance with the laws of the State of New Jersey (without regard to its
conflict of laws principles). Any action, cause of action, or dispute
arising under or relating to this Agreement shall be brought only in the
courts of the State of New Jersey or the federal court of the United
States, located in Newark, New Jersey, and each of the Parties expressly
consents to personal jurisdiction in the State of New Jersey with respect
to such action, cause of action, or dispute.
12. Notices. Any notice required or permitted under this Agreement shall be
in writing and shall be deemed to have been duly given when (a) delivered
by hand, courier, or express mail service (with written confirmation of
receipt), (b) sent by facsimile (with provision for assurance of receipt in
a manner typical with respect to communications of that type), or (c)
mailed by registered or certified first class mail, return receipt
requested, at the address or facsimile number set forth below (or to such
other person, address, or facsimile (fax) number as a Party may, from time
to time, designate by written notice):
X-65
(i) if to Schering:
Schering-Plough Animal Health Corporation
21401 West Center Road
Elkhorn, Nebraska 68022
Attention: Michael J. Bartkoski, Jr.
Fax: 402.289.6200;
(ii) if to Supplier:
Provectus Pharmaceuticals, Inc.
7327 Oak Ridge Highway, Suite A
Knoxville, Tennessee 37931
Attention: Craig Dees, Ph.D.
Fax: 865.769.4013.
13. Publicity. Neither Party shall, except with the prior written consent
of the other Party, use, disclose, or otherwise identify the name of the
other Party or any of its affiliates or the nature of this Agreement, the
Material, or the Information in any advertising, promotional material, or
publication.
14. Entire Agreement. This Agreement represents and contains the full and
complete understanding and agreement of the Parties with respect to the
subject matter hereof, and supersedes all prior and contemporaneous
agreements, understandings, and statements, including any specific legends
or statements associated with the Information when received.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed as of the date first above written.
PROVECTUS PHARMACEUTICAL, INC.
By: /s/ H. Craig Dees
---------------------------------------
Name: H. Craig Dees, Ph.D.
Title: CEO
SCHERING-PLOUGH ANIMAL HEALTH CORPORATION
By: /s/ Kanwal J. Varma
----------------------------------------
Name: Kanwal J. Varma
Title: Vice President, Research & Development
X-66
EXHIBIT A
MILESTONE PAYMENTS
------------------
A. Schering shall pay to Supplier a one-time fee of + upon Schering's
notification to Supplier of Schering's synthesis of such Material following
Schering's notification to Supplier that Schering intends to use the Material
for Commercial Purposes.
B. For the first antigen or vaccine developed by Schering with a Schering cell
line modified with a particular Material, Schering shall pay to Supplier:
1. A sum of + upon Schering's reasonable satisfaction that the Material will
enhance titers of specific viruses when inoculated, wherein Schering's
reasonable satisfaction, shall be considered achieved when Schering or its Agent
is able to grow three (3) lots of virus with meaningfully elevated titers* with
the modified cell line;
2. A sum of + upon Schering's notification to Supplier of the licensing and
approval by the USDA (or its equivalent regulatory agency) of the use of such
Material in the manufacture of a Product;
3. A sum of + upon Schering's notification to Supplier of the successful
completion of an immunogenicity test demonstrating the efficacy of the Product
for host animals at the current immunogenicity level; and
4. A sum of + upon Schering's notification to Supplier of the licensure by the
USDA (or its equivalent regulatory agency) of the Product containing virus grown
with such Material.
*Specific cell lines and target titer values shall be agreed upon by the Parties
at the start of the testing of each Material.
Notwithstanding the foregoing, if Schering shall develop additional antigens or
vaccines using the same Material, Schering shall only be obligated to pay the
sum set forth in item. #4 upon the first occurrence of such milestone.
The Company has entered into a Material Transfer Agreement dated as of July 31,
2003 with a major international pharmaceutical company. Under the Material
Transfer Agreement, we will provide SGP with access to certain of our patented
technologies, to permit SGP to evaluate those technologies for use in
animal-health applications. If SGP determines that it can commercialize our
technologies, then the Material Transfer Agreement obligates us and SGP to enter
into a license agreement providing for us to license those technologies to SGP
in exchange for certain progress payments upon the achievement of certain goals.
We can give you no assurance that SGP will determine that it can commercialize
our technologies or that the goals required for the Company to obtain progress
payments from SGP will be achieved.
The current contract is worth + per animal cell line there are several hundred
animal cell lines that are to be developed over the next several years so `the
contract has an upper end for animal trials of +. In the very likely event that
this virus defining development goes into human cell lines the contract value is
at least worth 10 times the animal cell line effort. Provectus gets paid for
every cell line they develop as well as a separate contract for doing the actual
work. The work contract is still being defined but has to happen since Provectus
is under a license agreement.
+ This material has been omitted pursuant to a request for confidential
treatment and has been filed separately.
X-67
EXHIBIT 21.1
LIST OF SUBSIDIARIES
SUBSIDIARY STATE OF INCORPORATION
---------- ------------------------
Xantech Pharmaceuticals, Inc. Tennessee
Pure-ific Corporation Nevada
X-68
EXHIBIT 23.1
Consent of Independent
Certified Public Accountants
Provectus Pharmaceuticals, Inc.
Knoxville, Tennessee
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-99639, 333-86896, 333-73994 and 333-109354)of
Provectus Pharmaceuticals, Inc. of our report dated March 12, 2004, relating to
the consolidated financial statements, which appears in this Form 10-KSB. Our
report contains an explanatory paragraph regarding the Company's ability to
continue as a going concern.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Chicago, Illinois
March 29, 2004
X-69
EXHIBIT 31.1
302 Certification
I, H. Craig Dees, Ph.D., certify that:
1) I have reviewed this annual report on Form 10-KSB of Provectus
Pharmaceuticals, Inc. (the "Small Business Issuer");
2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Small Business Issuer as of, and for, the periods presented in this annual
report;
4) The Small Business Issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Small Business Issuer and
we have:
a) designed such disclosure controls and procedures, or caused such
disclosure control and procedures to be designed under our supervision, to
ensure that material information relating to the Small Business Issuer,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this annual
report is being prepared; and
b) evaluated the effectiveness of the Small Business Issuer's disclosure
controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this annual report based on such evaluation,
disclosed in this report any change in the Small Business Issuer's internal
control over financial reporting that occurred during the Small Business
Issuer's most recent fiscal quarter (the Small Business Issuer's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the Small Business
Issuer's internal control over financial reporting; and
5) The Small Business Issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the Small Business Issuer's auditors and the audit committee of
the Small Business Issuer's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
control over financial reporting which are reasonably likely to adversely
affect the Small Business Issuer's ability to record, process, summarize
and report financial data; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Small Business Issuer's
internal controls over financial reporting.
Date: October 7, 2004 /s/ H. Craig Dees, Ph.D.
-----------------------------------------
H. Craig Dees
Chief Executive Officer
X-70
EXHIBIT 31.2
302 Certification
I, Peter R. Culpepper, CPA, certify that:
1) I have reviewed this annual report on Form 10-KSB of Provectus
Pharmaceuticals, Inc. (the "Small Business Issuer");
2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Small Business Issuer as of, and for, the periods presented in this annual
report;
4) The Small Business Issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Small Business Issuer and
we have:
a) designed such disclosure controls and procedures, or caused such
disclosure control and procedures to be designed under our supervision, to
ensure that material information relating to the Small Business Issuer,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this annual
report is being prepared; and
b) evaluated the effectiveness of the Small Business Issuer's disclosure
controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this annual report based on such evaluation,
disclosed in this report any change in the Small Business Issuer's internal
control over financial reporting that occurred during the Small Business
Issuer's most recent fiscal quarter (the Small Business Issuer's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the Small Business
Issuer's internal control over financial reporting; and
5) The Small Business Issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the Small Business Issuer's auditors and the audit committee of
the Small Business Issuer's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
control over financial reporting which are reasonably likely to adversely
affect the Small Business Issuer's ability to record, process, summarize
and report financial data; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Small Business Issuer's
internal controls over financial reporting.
Date: October 7, 2004 /s/ Peter R. Culpepper, CPA
-------------------------------------------
Peter R. Culpepper
Chief Financial Officer
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EXHIBIT 32.1
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, and in connection with the annual report on Form
10-KSB of Provectus Pharmaceuticals, Inc. (the "Company") for the year ended
December 31, 2003, as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), the undersigned, H. Craig Dees, Ph.D., the Chief
Executive Officer of the Company, and Peter R. Culpepper, CPA, the Chief
Financial Officer of the Company hereby certify that (1) the Report fully
complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, and (2) the information contained in the Report fairly
presents, in all material respects, the financial condition and results of
operations of the Company.
This Certification is signed on October 7, 2004.
/s/ H. Craig Dees, Ph.D.
-------------------------------
H. Craig Dees, Ph.D.
Chief Executive Officer
/s/ Peter R. Culpepper, CPA
-------------------------------
Peter R. Culpepper, CPA
Chief Financial Officer
X-72