Exhibit 10.5
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding (this "MOU"), dated as of September 12,
2002, is entered into by and among the following parties (each, a "Party";
collectively, the "Parties"):
(a) P&P Research, Inc., a company formed under the laws of the Republic of
Korea, with its principal executive offices located at 5th Floor,
Hosung Building, 44-24 Yeoido-dong, Youngseunpo-gu, Seoul, Korea
("P&P"),
(b) Meditech Pharmaceuticals, Inc., a corporation formed under the laws of
the State of Nevada, with its principal executive offices located at
10105 East Via Linda, Suite 103, Scottsdale, Arizona ("Meditech"), and
(c) a corporation to be formed under the laws of the State of California
pursuant to this MOU (the "New Company").
RECITALS
(A) Meditech is a U.S. public company in the business of drug development
with about 4,000 shareholders.
(B) P&P is a privately held company in the business of market research,
survey and consulting in Korea with about 270 shareholders.
(C) Meditech intends to form the New Company pursuant to the terms and
conditions of this MOU.
(D) The New Company intends to acquire all the equity interests of P&P in
exchange for 22,000,000 shares of common stock of the New Company.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the Parties, intending to be bound by the
provisions of this MOU, agree as follows:
AGREEMENT
1. FORMATION OF THE NEW COMPANY.
1.1 Formation. Upon the execution and delivery of this MOU, Meditech shall
incorporate the New Company under the laws of the State of California by filing
Articles of Incorporation with the Secretary of State of the State of
California. The New Company shall authorize 250,000,000 shares for issuance, of
which there will be 200,000,000 shares of common stock and 50,000,000 of
preferred stock. Upon issuance of the P&P Shares (as defined below) pursuant to
1
Section 3.2 below, P&P shall (A) immediately reimburse Meditech for any filing
fees incurred in connection with the formation of the New Company and (B) be
responsible to fund (or seek funding for) all the costs and expenses incurred by
the New Company following such issuance.
1.2 Name. The name of the New Company shall be "P&P Research, Inc." or such
other name as P&P may select.
1.3 Principal Office. The New Company shall maintain its principal place of
business at 1620 26th Street, Santa Monica, California, or any other location
P&P may select.
1.4 Directors. Initially, the Board of Directors of the New Company shall
consist of three people. P&P shall designate two of the three initial directors
and Meditech shall designate the remaining initial director. The New Company
shall obtain adequate D&O insurance no later than the time when the Registration
Statement (as defined below) is first filed.
2. ISSUANCE OF SHARES TO MEDITECH AND CONSULTING AGREEMENT.
2.1 Dividend Trust. Concurrent with the formation of the New Company, the
New Company shall issue 1,157,890 shares of common stock to Meditech and
Meditech shall set up a dividend trust for purposes of distributing such shares
to Meditech's shareholders.
2.2 Consulting Services. The New Company and Meditech shall enter into a
business consulting agreement, pursuant to which Meditech shall provide
consulting to the New Company with respect to the growth of the latter's
operations in the United States.
2.3 Compensation and Share Issuance. As payment for the Consulting
Services, the New Company shall pay to Meditech the consulting fees as set forth
in Section 7.1 below.
3. ISSUANCE OF SHARES TO P&P SHAREHOLDERS.
3.1 Acquisition. Within five (5) business days following the formation of
the New Company, the New Company shall acquire from the shareholders of P&P, and
P&P shall cause its shareholders to sell to the New Company, all of the equity
interests in P&P (the "P&P Shares").
3.2 Issuance of P&P Shares. In consideration for the P&P Shares and
concurrently with the acquisition thereof, the New Company shall issue an
aggregate of 22,000,000 shares of common stock to the shareholders of P&P
(together with the shares of common stock issued to Meditech, "Covered Shares"),
to be distributed by P&P in proportion to the number of P&P Shares held by each
shareholder.
2
4. REGISTRATION STATEMENT.
4.1 Registration Statement. P&P shall cause the New Company to, and the New
Company shall, prepare and file an SB-2 Registration Statement (the
"Registration Statement") with the United States Securities and Exchange
Commission (the "SEC") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), for the distribution of the Covered Shares to the
shareholders of the New Company, by no later than October 31, 2002, and use its
good faith efforts to cause the Registration Statement to be declared effective
by the SEC (the "Registration") as soon as possible following the initial
filing. In connection therewith, Meditech shall use its good faith efforts to
assist in the filing of the Registration and the completion of the Registration.
4.2 Listing Application. Simultaneously with the filing of the Registration
Statement, P&P shall cause the New Company to, and the New Company shall, take
all measures commercially reasonable to cause the New Company common stock to be
traded on the OTC Bulletin Board. In connection therewith, Meditech shall use
its good faith efforts to assist in such cause.
4.3 Expenses. P&P shall be responsible for all the expenses incurred in
connection with the preparation and filing of the Registration Statement,
including without limitation all the legal fees and costs, printing fees for the
"red-herring" and final prospectuses, accounting fees, SEC filing and NASD
listing fees, investor relation fees, and any travel-related fees for
pre-approved travels; provided, however, that the expenses and fees of Meditech
are also subject the provisions of Section 7.2 below. Notwithstanding the
foregoing, P&P shall reimburse Meditech for all costs and expenses reasonably
incurred in complying with Sections 4.1 and 4.2 above (other than legal fees),
together with all transfer agent fees, postage, copying and other expenses
reasonably and actually incurred by Meditech in distributing shares of the New
Company pursuant to Section 2.1 above, so long as such fees and expenses have
been approved in writing by P&P in advance.
4.4 Failure of Transaction. Notwithstanding any provision to the contrary
contained herein, in the event (a) Registration Statement is not successfully
filed by October 31, 2002, (b) the Registration fails to occur by December 30,
2002, or (c) the New Company common stock fails to be traded on the OTC Bulletin
Board by December 31, 2002, in each case for any reason or no reason whatsoever,
each Party's sole and exclusive remedy shall be to cancel this MOU by written
notice to the other Parties within 30 days after the applicable deadline set
forth in clauses (a), (b) and (c) of this Section 4.4, in which event this MOU
shall be canceled and be of no further force or effect, except that (i) each and
every share of the New Company common stock theretofore issued to Meditech shall
be returned to the New Company (without any compensation therefor); (ii) in the
event Meditech has theretofore not breached any of its obligations under this
MOU (including without limitation, under Sections 4.1 and 4.2 above), the
3
provisions of Sections 4.3 and 7.2 shall survive the cancellation of this MOU;
(iii) in the event Meditech is in breach of any of its obligations under this
MOU, the provisions of Sections 4.3 and 7.2 shall not survive the cancellation
of this MOU and Meditech shall pay to the New Company all amounts theretofore
paid by P&P or the New Company to Meditech hereunder (less the cost of forming
the New Company actually incurred by Meditech); and (iv) the provisions of
Article 6 and Section 9.3 hereof shall survive the cancellation of this MOU.
5. ACKNOWLEDGMENT OF ADDITIONAL ISSUANCES.
Meditech hereby acknowledges and understands that after the New Company's
acquisition of the P&P Shares, the New Company may, in exercising its business
judgment from time to time and at any time, issue equity shares, warrants,
options or similar rights to acquire such shares to third parties, including
without limitation, investors (for consideration) and officers and employees (in
case of stock options) of the New Company.
6. INDEMNIFICATION.
6.1 Indemnification by P&P and the New Company. P& P and the New Company
will indemnify Meditech and each of its officers, directors and shareholders
against all expenses, claims, losses, damages, and liabilities (or actions,
proceedings, judgments or settlements in respect thereof) arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in the Registration Statement, prospectus or offering circular
incident to the Registration, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statement therein not misleading, or any violation (or alleged violation) by
the of the Securities Act, the Exchange Act of 1934, as amended (the "Exchange
Act"), any other federal or state securities laws, or any rule or regulation
thereunder applicable to the New Company and relating to action or inaction
required of the New Company in connection with the Registration, and will
reimburse Meditech and each of its officers, directors and shareholders for any
legal and any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage, liability,
or action; provided, however, that neither P&P nor the New Company will be
liable in any such case to the extent that any such claim, loss, damage,
liability, or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the New Company by or on
behalf of Meditech specifically for use therein. It is agreed that the indemnity
agreement contained in this Article 6 shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the New Company and P&P (which
consent shall not be unreasonably withheld).
6.2 Indemnification by Meditech. Meditech will indemnify the New Company
and each of its directors and officers and each person who controls the New
Company within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages and liabilities (or actions, proceedings,
judgments or settlements in respect thereof) arising out of or based on any
4
untrue statement (or alleged untrue statement) of a material fact contained in
the Registration Statement, prospectus or offering circular incident to the
Registration or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged omission)
is made in such Registration Statement, prospectus or offering circular in
reliance upon and in conformity with written information furnished to the New
Company by or on behalf of Meditech, whether by Meditech or otherwise,
specifically for use therein, and will reimburse the New Company and each of its
directors, officers and each person controlling the New Company for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability, or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such Registration
Statement, prospectus or offering circular in reliance upon and in conformity
with written information furnished to the New Company by or on behalf of
Meditech, whether by Meditech or otherwise, specifically for use therein;
provided, however, that the obligations of Meditech hereunder shall not apply to
amounts paid in settlement of any such expenses, claims, losses, damages, or
liabilities (or actions in respect thereof) if such settlement is effected
without the consent of Meditech (which consent shall not be unreasonably
withheld).
6.3 Notice of Indemnification. Each party entitled to indemnification under
this Section 6 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of such
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Indemnified Party
(whose approval shall not unreasonably be withheld), and the Indemnified Party
may participate in such defense at such party's expense, and provided further
that the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this MOU to
the extent such failure is not prejudicial. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
6.4 Contribution. If the indemnification provided for in this Article 6 is
held by a court of competent jurisdiction to be unavailable to or insufficient
to hold harmless an Indemnified Party with respect to any loss, liability,
claim, damage, or expense (or actions or proceedings in respect thereof)
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
5
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such loss, liability, claim, damage, or
expense (or actions or proceedings in respect thereof) in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party, on the one
hand, and of the Indemnified Party on the other, in connection with the
statement or omissions that resulted in such loss, liability, claim, damage, or
expense (or actions or proceedings in respect thereof), as well as any other
relevant equitable considerations; provided, however, that no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contributions from any person or entity
that was not guilty of such fraudulent misrepresentation. The relative fault of
the Indemnifying Party and of the Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
The Parties agree that it would not be just and equitable if contributions
pursuant to this Section 6.4 were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this Section 6.4. The amount paid or payable
by an Indemnified Party as a result of any loss, liability, claim, damage, or
expense (or actions or proceedings in respect thereof) referred to above in this
Section 6.4 shall be deemed to include any legal or other expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
any such action or claim.
6.5 Survival. The obligations of the Parties under this Article 6 shall
survive the completion of any offering of the Covered Shares in the Registration
Statement.
7. ADDITIONAL CONSULTING FEES AND LEGAL FEES.
7.1 Consulting Fee. In consideration of this agreement and consulting
services to be performed by Meditech, P&P shall pay Meditech the sum of $25,000
per month, payable upon the first day of each month commencing on October 1,
2002, for a term of not less than three months. The consulting services shall
include introducing P&P to wireless service providers and potential customers
and advising P&P as to their planned introduction into the US cellular market.
P&P may terminate the consulting arrangement at any time following the third
payment hereunder upon two weeks written notice.
7.2 Legal Fees. Upon P&P's receipt of a detailed, itemized invoice, P&P
shall pay Meditech, in immediately available funds, to be wire-transferred to an
account designated by Meditech, an amount equal to the legal fees and expenses
reasonably incurred by Meditech in connection with this MOU and the
Registration; provided, however, that P&P's obligation to reimburse such fees
and expenses shall not exceed $25,000 under this MOU.
6
8. BINDING EFFECT.
8.1 Upon the execution and delivery of this MOU by P&P and Meditech, this
MOU shall become binding obligations on all the Parties. Upon formation of the
New Company, the New Company shall become a Party to this MOU without any
further action on the part of the New Company or any other Party.
8.2 Binding Effects. This MOU shall be binding upon, and inure to the
benefit of, the Parties and their respective successors and permitted assigns or
heirs and personal representatives; provided, however, that, except otherwise
provided in this MOU, no Party may assign any of its rights or delegate any of
its duties under this MOU without the prior written consent of the other Parties
hereto, which consent each Party may withhold or grant in its sole and absolute
discretion.
9. MISCELLANEOUS.
9.1 Entire Agreement. This MOU constitutes the entire agreement of the
Parties with respect to the subject matter hereof and supersedes any prior or
contemporaneous agreement or understanding among the Parties regarding such
subject matter. No change, modification, amendment, addition or termination of
this MOU or any part hereof shall be valid unless in writing and signed by or on
behalf of the Parties.
9.2 Effect of Waiver. No waiver of the provisions hereof shall be effective
unless in writing and signed by the Party to be charged with such waiver. No
waiver shall be deemed a continuing waiver or waiver in respect of any
subsequent breach or default, either of similar or different nature, unless
expressly so stated in writing.
9.3 Governing Law and Jurisdiction. This MOU shall be construed (both as to
validity and performance) and enforced in accordance with, and governed by, the
laws of the State of California, without giving effect to the principles of
conflicts of law of such state. The Parties hereby absolutely and irrevocably
consent and submit to the jurisdiction of the courts of the State of California
and of any federal court located in said state in connection with any actions or
proceedings brought by or against any Party and arising out of or relating this
MOU and agree that any such actions or proceedings shall be brought only in such
courts.
9.4 Severability. Should any clause, section or part of this MOU be held or
declared to be void or illegal for any reason, all other clauses, sections or
parts of this MOU which can be effected without such illegal clause, section or
part shall nevertheless continue in full force and effect.
9.5 Transaction Fees. Except as otherwise expressly provided herein,
whether or not the transactions contemplated hereby are consummated, all fees
and expenses incurred by any Party in connection with the negotiation,
consummation and performance of this MOU (including without limitation all
legal, accounting, consulting and all other fees and expenses of third parties)
shall be borne by such Party.
7
9.6 Further Assurances. Each Party shall, at the request of another Party,
execute and deliver such other documents and instruments and do and perform such
other acts and things as may be reasonably necessary or desirable for effecting
completely the consummation of this MOU and the transactions contemplated
hereby.
9.7 Termination. Notwithstanding any term to the contrary contained herein,
P&P may terminate this Agreement by paying Meditech $75,000 and all attorneys'
fees incurred by Meditech up till such termination date; provided, however, that
any such termination must occur prior to the effective date of the Registration
Statement.
9.8 Construction.
-------------
9.8.1 The headings or captions under sections of this MOU are for
convenience and reference only and do not in any way modify, interpret or
construe the intent of the Parties or effect any of the provisions of this MOU.
9.8.2 Whenever the context may require, any pronoun used in this MOU
shall include the corresponding masculine, feminine and neuter forms, and the
singular form of nouns, pronouns and verbs shall include the plural and vice
versa.
9.8.3 This MOU is the joint product of the Parties, each of which has
been represented by competent counsel of its own choosing. Each provision of
this MOU has been subject to the mutual consultation, negotiation and agreement
of the Parties, and shall not be construed for or against any Party.
(The remainder of this page is intentionally left blank. The next page is
the signature page.)
8
[SIGNATURE PAGE TO MEMORANDUM OF UNDERSTANDING]
IN WITNESS WHEREOF, the Parties have signed or caused this MOU to be signed as
of the date and year first above written.
"P&P"
P&P Research, Inc.
By: Eun-Woo Lee
--------------------------------
Name: President-CEO
------------------------------
Title: /s/ Eun-Woo Lee
-----------------------------
"Meditech"
Meditech Pharmaceuticals, Inc.
By: Gerald N. Kern
--------------------------------
Name: /s/ Gerald N. Kern
------------------------------
Title: CEO
-----------------------------
9