ROYALTY PARTICIPATION AGREEMENT
This Royalty Rights Agreement (the "Royalty Agreement") is entered into by
and between In Veritas Medical Diagnostics, Inc., a Colorado Corporation,
located at 1220 The Green House, Beechwood Business Park North, Inverness,
Scotland IV2 3BL (the "Company") and The Rubin Family Irrevocable Stock Trust,
located at 25 Highland Boulevard, Dix Hills, New York 11746 (the "Investor").
RECITALS
WHEREAS, the Company and its wholly owned subsidiaries ("The Group") are in
the business of developing medical diagnostic products for personal and
professional use based on technology that utilizes the Hall Effect, a physical
phenomenon that measures the electrical activity as it relates to magnetic
fields; and
WHEREAS, the Group has entered into a license agreement with Inverness
Medical Innovations, Inc. (the "IMI Agreement") pursuant to which the Group will
receive royalties from the sale of a prothrombin blood clotting measuring device
(the "IMI Royalties); and
WHEREAS, Investor has agreed to provide, and the Company has agreed to
accept, an aggregate investment amount of $250,000 (the "Principal Investment
Amount"); and
WHEREAS, the consideration for the Principal Investment Amount is the
provision of a percentage of the royalties received by the Company pursuant to
the IMI Agreement (the "Royalty Payments"); and
WHEREAS, the Investor and the Company wish to define with precision the
terms and conditions of the Royalty Payments;
THEREFORE, in consideration of the mutual considerations herein, the
receipt of which is mutually acknowledged, the parties hereto agree as follows:
1. PAYMENT. Investor shall provide a $250,000 cash payment to the Company upon
execution hereof.
2. SOURCE, AMOUNT AND TIMING OF ROYALTY PAYMENTS.
(a) Commencing upon receipt of the $250,000 cash payment, the Company shall
pay to Investor Royalty Payments consisting of 5.56 percent (5.56%) of the
future IMI Royalties received by the Company. The Royalty Payments shall be paid
to the Investor within 15 days of the end of the month in which the Company
receives future IMI Royalties.
(b) If no Royalty Payments have been paid to the Investor by December 31,
2007, the Investor shall have the option, for a 30 day period commencing on
January 1, 2008 and ending on January 31, 2008, to convert the funds received by
the Company pursuant to this Agreement into:
(i) a royalty participation from any other product that the Company
may have developed and entered into a license agreement for (an
"Alternative Royalty Stream"). Such Alternative Royalty Stream
shall be for the same percentage of royalties agreed to pursuant
to this Agreement (i.e., 5.56%) from such other product that the
Company may have developed and entered into a license agreement
for; or
(ii) a three (3) year, promissory note with a face value equal to the
difference between (x) 300% of the Principal Investment Amount
and (y) the Royalty Payments made to and received by the
Investor, bearing interest at a rate of prime plus three percent
(3%).
(c) In the event that, by December 31, 2007, (i) the Company has made some
Royalty Payments to the Investor, but such Royalty Payments have not totaled an
aggregate amount that equals or exceeds the Principal Investment Amount, and
(ii) the Company has received a minimum of $3,000,000 in net proceeds from new
equity financing subsequent to the date hereof, then and in such event, the
Company shall be obligated to make a payment (the "Contingent Payment") to the
Investor equal to the difference between (x) the Royalty Payments made to and
received by the Investor and (y) the Principal Investment Amount. The Contingent
Payment shall be deemed an advance on future Royalty Payments payable to the
Investor pursuant to this Agreement on a first in first out basis. Following
payment of the Contingent Payment, the Investor shall not be entitled to receive
additional Royalty Payments until such time as Royalty Payments equal to the
Principal Investment Amount have accrued pursuant to Section 2(a) of this
Agreement. The Contingent Payment shall be capped at the amount by which the net
proceeds from new equity financing exceeds $3,000,000.
(d) If the Investor has not been paid Royalty Payments equal to the
Principal Investment Amount by December 31, 2008, the Investor shall have the
option, for a 30 day period commencing on January 1, 2009 and ending on January
31, 2009, to convert the funds received by the Company pursuant to this
Agreement into:
(i) a royalty participation from any other product that the Company
may have developed and entered into a license agreement for (an
"Alternative Royalty Stream"). Such Alternative Royalty Stream
shall be for the same percentage of royalties agreed to pursuant
to this Agreement (i.e., 5.56%) from such other product that the
Company may have developed and entered into a license agreement
for; or
(ii) a three (3) year promissory note with a face value equal to the
difference between (x) 300% of the Principal Investment Amount
and (y) the Royalty Payments made to and received by the
Investor, bearing interest at a rate of prime plus three percent
(3%).
3. INFORMATION REQUIRED TO BE SUPPLIED WITH EACH PAYMENT. With each Royalty
Payment, the Company shall supply to the Investor an accounting of the IMI
Royalties upon which the Royalty Payment was calculated.
4. TERMINATION. The Company shall have the option to terminate this Agreement at
any time, without penalty, by making a lump sum payment to the Investor equal to
300% of the funds received from the Investor pursuant to this Agreement, less
the amount of any Contingent Payment paid to the Investor pursuant to Section
2(b) of this Agreement (the "Termination Payment").
5. NO SALE OR ASSIGMENT BY COMPANY. During the term of this Agreement, the
Company may not sell, assign or otherwise transfer or encumber the IMI Agreement
or the right to receive royalties pursuant to the IMI Agreement without either
(i) obtaining the written consent of the Investor to such sale, assignment,
transfer or encumbrance, or (i) making the Termination Payment provided for in
Paragraph 4 above.
6. CONFIDENTIALITY. The Investor acknowledges that in the course of normal
reporting, Investor may have access to and become familiar with confidential
information of the Company, including, but not limited to financial information
of Company, customer information, marketing and pricing information and data,
and other technical, marketing and/or business information (collectively,
"Confidential Information"). The Investor agrees to not use in any way or
disclose to any person or entity any such Confidential Information, either
directly or indirectly, either during the term of this Agreement or at any time
thereafter, except as required by legal proceedings. The Investor shall further
take reasonable precautions and act in such a manner as to ensure against
unauthorized disclosure or use of the Confidential Information. This Section
shall survive termination of this Agreement.
7. NOTICES: If to the Company, to:
In Veritas Medical Diagnostics, Inc.
The Green House
Beechwood Business Park North
Inverness, Scotland IV2 3BL
Telephone:
Facsimile:
Copies to:
Richard A. Friedman, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas
New York, NY 10018
Telephone: 212-930-9700
Facsimile: 212-930-9725
If to Investor, to: The Rubin Family Irrevocable Stock Trust
25 Highland Boulevard
Dix Hills, New York 11746
Telephone: 631-595-9367
Facsimile: 631-254-2136
8. ASSIGNMENT BY INVESTOR. Subject to the Company's approval (which shall not be
unreasonably withheld), Investor may assign a portion or all of his interest in
this Agreement to an assignee.
9. SALE OF COMPANY. In the event that a substantial change of control or sale of
the Company occurs, that the Investor rights under this Agreement will become a
recognized obligation of any new controlling group or successor company.
10. APPLICABLE LAW, VENUE, JURISDICTION. All questions concerning the
construction, validity, enforcement and interpretation of the Agreement shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New
York. Each party hereby irrevocably submits to the exclusive jurisdiction of the
state and federal courts sitting in the City of New York, borough of Manhattan
for the adjudication of any dispute hereunder or in connection herewith or with
any transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or inconvenient venue for such
proceeding. The parties hereby waive all rights to a trial by jury.
COMPANY: INVESTOR:
In Veritas Medical Diagnostics, Inc. The Rubin Family Irrevocable Stock Trust
/s/ Martin Thorp /s/ Margery Rubin
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Printed Name: Martin Thorp Printed: Margery Rubin
Title: Chief Financial Officer Title: Trustee
Date: May 3, 2006 Date: May 3, 2006