Certified Translation from the German Language
EXHIBIT 10.14
Gesellschaft mbH der
TBG Deutschen Ausgleichsbank
Version 03.97
INVESTMENT AGREEMENT
Agreement on the establishment of a dormant partnership between
PHARMED LABS GMBH, TOLZER STR. 12, 82031 GRUNWALD
- hereinafter referred to as the "TECHNOLOGY COMPANY" -
and
TECHNOLOGIE-BETEILIGUNGS-GESELLSCHAFT MBH
DER DEUTSCHEN AUSGLEICHSBANK, LUDWIG-ERHARD-PLATZ 1-3, 53179 BONN
- the silent partner hereinafter referred to as "TBG" -
of a volume of
DM 3,000,000.00
for the financing of the project described under Sec. 1 para. 2.
PREAMBLE
Within the scope of the program "Investment Capital for Small Technology
Enterprises" implemented together with the German Ministry for Education,
Science, Research and Technology [BMBF] and Deutsche Ausgleichsbank, TBG
supports technology enterprises of the industry and trade sector, provided that
these enterprises are not older than 10 years and meet the EU qualification
requirements for small and medium-sized enterprises (SMEs) located within the
new German federal states and (East) Berlin and/or for small enterprises located
within the rest of the Federal Republic of Germany, i.e.
- - employ a maximum staff of 250 (50)
and either
- generate an annual turnover not exceeding DM 40 million (DM 10
million)
or
- realize a balance sheet total not exceeding DM 20 million (DM 4
million)
and
- are held at a maximum share of 25% by one or several enterprises not
fulfilling these requirements (exception: public holding companies,
risk capital companies and - to the extent control is not exercised
- institutional investors).
All of these three preconditions have to be fulfilled simultaneously, i.e. an
enterprise is only considered to be an SME if it enjoys the independence
required, complies with the staff number requirement and does not exceed at
least one of the limits set for the annual turnover and/or balance sheet total.
TBG effects investments for the financing of innovation projects in accordance
with its investment principles, which form an integral part of this Agreement
and are accepted by the Technology Company, for:
- - applied research and development up to the crucial moment shortly before
the start of commercial production in accordance with the EU definition
and the following differentiations:
Applied research comprises research and experimental work with the purpose
of gaining new findings in order to facilitate the realization of specific
practical targets such as the creation of new products, production methods
or services. Normally, applied research ends with the creation of a first
prototype. The term "development" comprises work carried out on the basis
of applied research with the purpose of introducing new or essentially
improved products, production methods or services up to (but not
including) industrial application and commercial use. This includes in
general pilot and demonstration projects as well as any required further
development work finally resulting in an information package allowing the
commencement of production.
- - investments for market introduction purposes.
SECTION 1
PURPOSE OF THE COMPANY
1) As per its shareholders' agreement in the version dated May 30, 1997, the
Technology Company entered under no. B 62843 in the Commercial Register of
the Hamburg Local Court carries on a trade for
research, development, production and distribution of pharmaceutical
products and the performance of all business transactions serving such
purpose.
2) Within the scope of its company purpose, the Technology Company deals with
the
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development of lipid technology for the pre-oral administration of protein
and peptid agents for medical therapy.
development of topic therapy systems with local anesthetics/local
analgesics for local pain elimination after trauma and surgery.
SECTION 2
CONTRIBUTION
1. For the exclusive purpose of promoting the innovation project described in
Sec. 1 para. 2 above and on the basis of the statements the Technology
Company made in the application for investment dated May 23, 1997, TBG
contributes an amount of DM 3,000,000, provided that the Technology
Company produces evidence for the compliance with the following investment
agreements:
- transfer of an amount of DM 3,000,000 to the capital reserve by APL
American Pharmed Labs, Inc., 21 Henderson Drive, P.O.Box 1327, West
Caldwell, New Jersey 07007-1327, U.S.A. (also in the event of
several investors hereinafter referred to as the "Investor") and the
Investor with whom TBG has entered into a cooperation agreement.
- direct debit authorization for the collection of the payable fixed
remuneration by TBG.
2. The TBG contribution shall be used for the co-financing of the
project-related planning specified in Annex I which forms an integral part
of this Investment Agreement.
3. The Technology Company shall be authorized to call the contribution after
the Company has been established (see Sec. 4 para. 1), if its immediate
proper use, a utilization of funds in proportion with the other financing
funds listed in Annex I and the overall financing of the innovation
project are guaranteed.
A statement confirming that all preconditions for such call have been
fulfilled shall be provided by the Investor and TVM Techno Venture
Management GmbH & Co.KG, Denninger Str. 15, 81679 Munchen, and accompany
such call.
5. When the first partial call is made, TBG shall be authorized to retain a
processing fee of 1% of the total amount of contribution agreed upon
hereunder.
6. The TBG contribution shall be paid into a separate contribution account by
the Technology Company. TBG shall not be authorized to withdraw funds from
such account.
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SECTION 3
STATEMENT OF USE
The Technology Company shall confirm the proper use of the contribution funds on
the form attached to the letter of commitment within a period of 3 months from
expiration of the project period specified in Annex I to this Agreement, subject
to an extension of this period by TBG. The statement of use shall be presented
to TBG via the Investor. Evidence for the proper use of funds shall be submitted
to the Investor and TBG upon request.
If the costs of the project listed in Annex I are reduced or if additional
public funds are subsequently obtained for the project, TBG shall be authorized
to reduce its contribution in proportion with the reduction of the investment
volume. The amount of reduction shall be returned to TBG immediately.
SECTION 4
COMMENCEMENT AND DURATION OF THE COMPANY
1. The silent partnership shall commence on the date this Agreement is signed
by both parties.
2. The silent partnership shall be limited in time and terminate on December
31, 2007.
3. Upon termination of the partnership relationship, the TBG contribution and
any unpaid profit shares shall be become due for payment to TBG.
4. If the funds granted by the Investor are returned prior to December 31,
2007, the TBG contribution shall become due for repayment on the same date
and to the same extent. In a corresponding application of Sec. 9 para. 4,
TBG shall be authorized to demand a final compensation with respect to the
portion of its contribution due for premature repayment.
SECTION 5
MANAGEMENT
1. TBG shall not participate in the management of the Technology Company,
unless otherwise provided for in the following.
2. The Technology Company shall require the consent of TBG for
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a) modifications of the partnership agreement; this shall apply in
particular to any changes in the object of the company, the
admission of new partners or the agreement on new investments.
b) appointment or removal of managing directors of the Technology
Company or modifications of the managing director service agreement;
c) conclusion, modification and termination of agreements on the
issuance or the acquisition of licenses, trademarks or know how
(except within the scope of the daily software business), patents,
utility models, design patents to the extent they concern the
innovation project promoted by the TBG investment;
d) conclusion, modification and termination of essential distribution
agreements;
e) partial or total relocation, lease, sale or discontinuation of
business operations;
f) conclusion and termination of domination and profit and loss
transfer agreements;
g) discontinuation or essential modification of the innovation project
described in Sec. 1 para. 2;
h) assumption of investment obligations - unless these obligations are
included in the project financing by TBG - exceeding an amount of DM
150,000 or a monthly amount of DM 15,000 in case of leasing, rental
or lease agreements;
3. The consent required under Sec. 5 para. 2 shall be obtained from TBG
directly.
Unless TBG refuses its consent in writing within a period of 14 days from
the receipt of a notification concerning the measure requiring consent
under Sec. 5 para. 2, consent shall be considered granted.
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SECTION 6
INFORMATION AND CONTROL RIGHTS
1. On a semi-annual basis, i.e. by March 31 and September 30 of each year,
the Technology Company shall inform TBG of its economic situation and the
status of the innovation project described under Sec. 1 para. 2, provided
that TBG does not waive these reports because the Investor also exercises
control functions with respect to the Technology Company for TBG. In
addition, TBG shall receive from the Technology Company a brief monthly
status report in accordance with Annex II and an updated business plan at
the end of each financial year for the individually following year.
2. Irrespective of the question whether the Investor also controls the
Technology Company for TBG, the Technology Company shall directly inform
TBG in due time of all measures exceeding the scope of the normal business
operations.
3. In addition, TBG shall be entitled to the control rights of Sec. 716
German Civil Code [BGB]. This right of control shall also survive the
termination of the partnership to the extent required for the review of
the settlement assets.
Moreover, TBG shall be authorized to inspect at any time all documents of
the Technology Company relating to the innovation project described under
Sec. 1 para. 2. TBG shall be authorized to instruct third parties to
exercise its control rights.
4. The Technology Company shall grant the Federal Ministry for Education,
Science, Research and Technology and its agent submission, information and
review rights to the same extent as granted to TBG. The Technology Company
agrees that TBG transmits for scientific analysis of the program specified
in the Preamble of this Agreement the data collected on its company and
the promoted innovation project to the Federal Ministry for Education,
Science, Research and Technology or an institute engaged by the Ministry.
Moreover, the Technology Company agrees to directly furnish to the Federal
Ministry for Education, Science, Research and Technology and an
institution engaged by the Ministry the information required for the
scientific analysis of the program; this shall also apply after the
termination of the silent partnership. For the exercise of supervisory and
control rights, the Federal Ministry shall be authorized to pass on the
data obtained to the EU Commission. It shall be ensured that no
disadvantages are caused to the Technology Company when the data on the
program is processed and, if applicable, published.
5. The Federal Audit Office [Bundesrechnungshof] shall be entitled to audit
the Technology Company in accordance with Sec. 91 Federal Budget Act
[BHO]. For audit purposes, the Technology Company shall make available to
the Federal
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Audit Office and TBG all documents considered necessary by the Federal
Audit Office and furnish the respective information.
SECTION 7
ADVISORY BOARD
TBG shall be authorized to demand the establishment of an advisory board at any
time. TBG shall be represented on this advisory board in reasonable proportion
with the amount of its contribution. The advisory board shall advise the
Technology Company on all technical and economic matters, particularly in view
of the project described under Sec. 1 para. 2. The advisory board shall have the
same information and control rights as granted to TBG under this Agreement.
SECTION 8
FINANCIAL YEAR, ANNUAL FINANCIAL STATEMENTS
1. The silent partnership's financial year shall be the financial year of the
Technology Company ("Investment Year"). The financial year of the
Technology Company shall terminate on December 31 of each calendar year.
2. In accordance with Secs. 238 through 289 German Commercial Code [HGB], the
Technology Company shall prepare its annual financial statements (balance
sheet, profit and loss account, notes) within a period of six months from
expiration of the financial year; an original of the signed annual
financial statements provided with the CERTIFICATE OF THE AUDITOR OR SWORN
ACCOUNTANT shall be forwarded to TBG.
SECTION 9
PROFIT AND LOSS SHARING
1. TBG shall receive a minimum compensation of 6% for its contribution,
independent from the Technology Company's profits/losses for the year.
This compensation shall be subsequently payable on a semi-annual basis by
March 31 and September 30 of each year.
2. In addition, TBG shall receive an amount of 9% of the net profits for the
year realized as from the calling of the contribution.
For any period in which TBG holds more than one participation in the
Technology Company, TBG, in addition to the respective minimum
compensation, shall receive for all participations a compensation of only
9% of the Company's net income for the year.
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Should additional capital be injected into the Technology Company in
further financing rounds, TBG shall adjust its profit share to the then
applicable capital structure.
Such share in profits shall be payable within two weeks following approval
of the annual financial statements (Sec. 8 para. 2).
3. The net income for the year prior to the TBG profit share shall be
decisive for the calculation pursuant to para. 2.
a) To be added to the net income for the year are
- corporate income tax as well as bonus payments to the managing
directors, if any, to the extent these have reduced the
identified net income for the year;
- extraordinary expenses to the extent these result from
business transactions prior to commencement of the silent
partnership;
- losses and sales or destruction of economic goods of the fixed
assets to the extent such assets existed at the time of
commencement of the silent partnership.
b) To be deducted from the net income for the year are
- any amounts from the release of tax-free reserves set up prior
to the commencement of the silent partnership;
- extraordinary income to the extent it results from business
transactions prior to commencement of the silent partnership;
- public grants, subsidies and allowances to the extent these
affected the net income;
- income from the sale of economic goods of the fixed assets to
the extent such assets existed at the time of commencement of
the silent partnership.
c) In the year the investment is called, the net profits for the year
shall be deemed to have been realized evenly throughout the year for
the purpose of calculating the profit share pursuant to para. 2.
4. By the end of the investment period, TBG shall be authorized to demand a
one-time compensation of 30% of the amount of investment plus 6% of the
investment
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amount for each year following the expiration of the fifth completed year
of investment (Final Compensation). The profit shares annually paid in
accordance with Sec. 9 para. 2 shall be set off against the Final
Compensation to be paid. If the amount of the profit shares exceeds the
amount of the Final Compensation, no payment shall be effected.
TBG shall make use of this right only if justified in its opinion in
accordance with the overall economic situation of the Technology Company,
the profits realized during the last three year prior to the termination
of the investment or the silent reserves set up during the investment
period in particular.
5. TBG shall not participate in the losses of the Technology Company.
SECTION 10
TAXES
The Technology Company shall ensure payment of the statutory capital gains tax
including solidarity surcharge with regard to the compensation for the silent
participation and withhold capital gains tax including solidarity surcharge from
the respective payments to TBG and pay such tax immediately after it becomes due
to the competent tax office directly. Following payment, the Technology Company
shall issue to TBG within two months after payment becomes due confirmations
within the meaning of Sec. 45a para. 2 German Income Tax Act [EStG] on the forms
provided by TBG.
SECTION 11
DISSOLUTION OF SILENT PARTNERSHIP
1. If the Technology Company is dissolved, the silent partnership shall be
dissolved as well. The silent participation shall be repaid in such case.
2. Sec. 9 para. 4 shall also apply in such case.
SECTION 12
TERMINATION
1. The Technology Company shall be entitled to repay the TBG investment in
whole or in part observing a notice period of three months to June 30 or
December 31 of each year. If such repayment is made by the end of the
fifth completed year of investment, the TBG contribution shall be repaid
with a 30% surcharge. As of the beginning of the sixth year of investment
the provisions of Sec. 9 para. 4 shall apply. TBG may waive such surcharge
payment if the termination is due to the
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abandonment of the innovation project promoted in accordance with Sec. 1
para. 2.
2. In addition, the silent partnership may be terminated for cause without
notice by written declaration of each of its partners. To the extent the
contribution has not been paid or has not been paid in full, TBG shall be
released from its contribution obligation upon the declaration of
termination.
In particular, TBG shall be entitled to termination for cause if
a) the Technology Company has provided incorrect information in its
application for investment;
b) it turns out that the conditions for granting or maintenance of the
investment were not fulfilled, the conditions for the maintenance of
the investment are no longer given, the innovation project described
under Sec. 1 para. 2 proves to be unsuccessful or is abandoned by
the Technology Company or changed essentially. Should the innovation
project described under Sec. 1 para. 2 proves to be technically
impracticable or economically unsuccessful, TBG may waive the
repayment of its investment in full or part if such waiver renders
the continuation of the Technology Company possible;
c) the Technology Company does not present the statement of use
pursuant to Sec. 3 in spite of a reminder within a period of three
months from the date agreed;
d) bills of exchange accepted by the Technology Company are being
protested, the Technology Company has stopped payments, an
application for bankruptcy or the institution of court composition
proceedings is filed or insolvency is determined in some other
manner;
e) the individuals with know-how in management positions of the
Technology Company at the time of the signing of the Agreement on
the Silent Partnership are no longer full-time managers of the
Technology Company;
f) one of the measures listed in Sec. 5 para 2 was performed without
the prior consent of TBG.
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SECTION 13
DUE PAYMENTS
Due payments shall bear interest at a rate of 4% p.a. from the occurrence of
default until receipt by TBG.
SECTION 14
GENERAL PROVISIONS
1. Any amendments of or additions to this Agreement shall be made in writing.
There are no oral side agreements to this Agreement.
2. Should any provision of this Agreement be legally invalid, the remaining
provisions shall not be affected thereby. The Technology Company and TBG
shall be obligated to replace any invalid contractual provisions by
legally valid provisions coming as close as possible to the aim and
purpose of the legally invalid provision.
3. Place of jurisdiction for all legal disputes arising from this Agreement
or its performance shall be Bonn.
Bonn, August 26, 1997 Grunwald, August 20, 1997
Technologie-Beteiligungs Pharmed Labs GmbH
Gesellschaft mbH der
Deutschen Ausgleichsbank
[company stamp]
[signature illegible] [signature illegible]
Project-related Planning (Annex I)
Brief Status Report (Annex II)
TBG Investment Principles
11
Gesellschaft mbH der
TBG Deutschen Ausgleichsbank
ANNEX I
PROJECT-RELATED PLANNING
PLANNING PERIOD: JUNE 1997 THROUGH JUNE 2000
PROJECT-SPECIFIC EXPENSES amount in DM (without VAT)
- ------------------------------------------------------ --------------------------
I. FOR APPLIED RESEARCH AND DEVELOPMENT
1. INVESTMENTS IDENTIFIED AS TANGIBLE ASSETS IN THE
BALANCE SHEET
1.1 Laboratory equipment and facilities 650,000
1.2 Machines and facilities for the
manufacture of prototypes
1.3 Others
2. NON-INVESTMENT FUE EXPENSES
2.1 Personnel 6,700,000
2.2 Material 200,000
2.3 Third-party services
(order placement/consultation) 700,000
2.4 Patents and licenses 300,000
2.5 Traveling expenses 300,000
2.6 Others
II INVESTMENTS FOR MARKET INTRODUCTION
Total 8,850,000
PROJECT-SPECIFIC FINANCING amount in DM (without VAT)
- ------------------------------------------------------ --------------------------
1. INTERNAL FUNDS
1.1 Cash flow 2,850,000
1.2 ...
2. INVESTMENT CAPITAL
2.1 TBG 3,000,000
2.2 Lead Investor 3,000,000
2.3 Other investors
3. PUBLIC FUNDS
3.1 Subsidies, grants, allowances
3.2 Others
4. THIRD-PARTY CAPITAL
4.1 Bank
4.2 Others
TOTAL 8,850,000
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TBG FAX NO.: 0228/831 24 93
ANNEX II
Technology Company: Pharmed Labs GmbH
Tolzer Str. 12
82031 Grunwald
BRIEF STATUS REPORT FOR THE MONTH OF* ........., 199...
ACTUAL amount in TDM
--------------------
sales
material costs
personnel costs
preliminary result
orders received
KK line
amount used
Special occurrences during the last month:
Management prognosis regarding the future development:
- - much better - better - same - worse - much worse
Grunwald,
_____________________________________
(manager signature and company stamp)
- -----------------------------
* To be presented by the end of the following month at the latest
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INVESTMENT PRINCIPLES FOR THE PROGRAM
"INVESTMENT CAPITAL FOR SMALL
TECHNOLOGY ENTERPRISES"
1. TBG AS INVESTOR
Technology-Beteiligungs-Gesellschaft mbH (TBG) is a subsidiary of Deutsche
Ausgleichsbank. Within the scope of the program "Investment Capital for
Small Technology Enterprises"* implemented together with the Federal
Ministry for Education, Science, Research and Technology TBG assumes
silent participations in Technology Companies without generally
participating in the Technology Company's management.
An essential condition for such investment is that another Lead Investor
participates in the Technology Company in at least the same amount as TBG
and also manages the TBG investment on the basis of a cooperation
agreement.
2. INVESTMENT PURPOSE
The investments serve for the financing of innovation projects (see item
3.1), i.e. for:
- applied research and development up until the crucial moment shortly
before commercial production is taken up;
- investments for market introduction.
3. INVESTMENT CONDITIONS
3.1 INNOVATION PROJECTS
- Through the innovation project new techniques are intended to be
applied for the first time within the enterprise.
- The developments affecting the project's innovative core shall be
provided by the enterprise itself. If services are required for
individual development phases, the enterprise shall prepare the
respective specifications itself.
- The new product (procedure/service) differs in its essential
functions from the previous products (procedure/service) of the
enterprise.
- The new product (procedure/service) provides competition advantages
(function, quality, price) and market chances on the (regional,
national, European, international) markets relevant for the
enterprise.
3.2 INVESTEES
tbg investments may be obtained by enterprises of the industry and trade
sector, provided that these enterprises fulfill the following conditions:
SMALL ENTERPRISES
- registered offices located within the Federal Republic of Germany
and
- 50 employees as a maximum and either an
- annual turnover of a maximum of DM 10 million or a balance sheet
total of a maximum of DM 4 million
MEDIUM-SIZED ENTERPRISES
- registered offices located within the new German federal states and
(East) Berlin and
- 250 employees as a maximum and either an
- annual turnover of a maximum of DM 40 million or a balance sheet
total of a maximum of DM 20 million
* [Footnote missing in the original text!]
Technologie-Beteiligungs-
TBG Gesellschaft mbH der
Deutschen Ausgleichsbank
ECONOMIC INDEPENDENCE
Companies not fulfilling the qualification criteria for small and
medium-sized enterprises may hold an interest not to exceed 25% in the
enterprise.
(exception: public holding companies, risk capital companies and -
provided that control is not exercised - institutional investors)
AGE:
10 years as a maximum.
TECHNICAL AND COMMERCIAL EXPERT KNOWLEDGE
The Technology Company must have the technical expert knowledge required
for the development and production work and must be able to document that
the required commercial knowledge is available to the Technology Company.
Commercial know-how may also be made available by way of external experts
- e.g. the Lead Investor -, provided that the Technology Company has not
realized any significant turnovers prior to the time the application for
investment is filed.
3.3 COOPERATING LEAD INVESTOR
The Lead Investors cooperating with TBG may be holding companies as well
as natural and legal persons providing equity to enterprises.
The Lead Investor must take over an investment in the same amount as TBG.
The Lead Investor shall advise and support the Technology Company with
respect to all commercial and financial matters and, if necessary, must
also be able to offer management and marketing support services. In
principle, the Lead Investor must be willing and able to provide
additional financing funds.
Prior to the investment, the Lead Investor shall verify and plausibly
document the investment requirements for TBG as well. During the
investment period the Lead Investor shall monitor the management of the
Technology Company and the development of the innovation project and
inform TBG of the economic situation of the Technology Company and the
innovation project. In addition, the Lead Investor shall participate in
the preparation of the statement of use (see 3.4). Details shall be
governed by a cooperation agreement between the Lead Investor and TBG.
3.4 OVERALL FINANCING
The overall financing of the innovation project has to be secured. The
investment funds may only be used for the financing of the innovation
project(s) for which the investment has been committed. The Lead Investor
shall be informed immediately if the innovation project or its financing
is changed.
If the innovation project costs are reduced subsequently or if additional
public funds are subsequently obtained for the financing of the innovation
project so that a financing of more than 100% results, the return of the
investment funds may be demanded.
[Rest of text missing!]
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I, Michael W. Brien, in my capacity as a sworn translator for the English
language, hereby certify that the above is an accurate and complete translation
of the German text presented to me in electronic form.
Frankfurt am Main, November 11, 2004
/s/ Michael W. Brien
- --------------------
(Michael W. Brien)
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