-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LlFbOkes9F7YLuxlSOJz6q2ozKjAoFFt/9B6AlPh0rpFjQbC4FgmFTXujNoG/eL3 +eSpRdeG0ZiLgcR/Xgie6g== 0000794154-98-000014.txt : 19981123 0000794154-98-000014.hdr.sgml : 19981123 ACCESSION NUMBER: 0000794154-98-000014 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEPRAGEN CORP CENTRAL INDEX KEY: 0000794154 STANDARD INDUSTRIAL CLASSIFICATION: TOTALIZING FLUID METERS & COUNTING DEVICES [3824] IRS NUMBER: 680073366 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-14068 FILM NUMBER: 98756402 BUSINESS ADDRESS: STREET 1: 30689 HUNTWOOD DRIVE CITY: HAYWARD STATE: CA ZIP: 94544 BUSINESS PHONE: 5104760760 MAIL ADDRESS: STREET 1: 30689 HUNTWOOD DRIVE CITY: HAYWARD STATE: CA ZIP: 94544 10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 1998 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 0-25726 SEPRAGEN CORPORATION (Exact name of small business issuer as specified in its charter) California 68-0073366 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30689 Huntwood Avenue, Hayward, California 94544 (Address of principal executive offices) (Issuer's telephone number (including area code): (510) 476-0650) (Former name, former address and former fiscal year if changed since last report: Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No State the number of shares outstanding of each of the registrant's classes of Common equity, as of the latest practicable date: November 13,1998 Class A Common Stock 2,155,254 Class B Common Stock 701,177 Class E Common Stock 1,209,894 THIS REPORT INCLUDES A TOTAL OF 60 PAGES. THE INDEX TO EXHIBITS IS ON PAGE 14. PART I - FINANCIAL INFORMATION Item 1. - Financial Statements SEPRAGEN CORPORATION CONDENSED BALANCE SHEET ASSETS September 30, 1998 Current Assets: Cash and cash equivalents. $ 206,197 Accounts receivable, less allowance for doubtful accounts of $12,000 as of September 30, 1998 180,799 Inventories 231,355 Prepaid expenses and other. 39,509 Total current assets. 657,860 Furniture and equipment, net 198,157 Intangible assets 101,432 957,449 LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable 827,895 Bridge Loans, net 522,800 Customer deposits 75,800 Notes Payable, including $280,000 from shareholders 380,000 Accrued payroll and benefits 122,283 Accrued liabilities 66,487 Interest payable 38,327 Total current liabilities 2,033,592 Commitments Class E common stock, no par value - 1,600,000 shares authorized; 1,209,894 shares issued and outstanding at September 30, 1998, redeemable at $.01 per share 0 Deficit in Shareholders' equity: Preferred stock, no par value - 5,000,000 shares authorized; and 175,439 convertible, preferred issued and outstanding 500,000 Class A common stock, no par value -20,000,000 shares authorized; 2,155,254 shares issued and outstanding 8,848,075 Class B common stock, no par value - 2,600,000 shares authorized; 701,177 shares issued and outstanding 4,065,618 Additional paid in capital 202,220 Accumulated deficit (14,692,056) Total deficit in shareholders' equity (1,076,143) 957,449 The accompanying notes are an integral part of these condensed financial statements. Page 2 SEPRAGEN CORPORATION CONDENSED STATEMENTS OF OPERATIONS Three Months Nine Months Ended September 30 Ended September 30 1998 1997 1998 1997 Revenues: Net Sales $356,395 $188,264 1,200,199 731,977 Costs and expenses: Cost of goods sold 139,564 112,317 649,391 412,274 Selling, general and administrative 352,014 311,791 957,530 1,115,059 Research and development 172,759 157,881 577,283 669,821 Total costs and expenses 664,337 581,989 2,184,204 2,197,154 Loss from operations (307,942) (393,725) (984,005) (1,465,177) Other income -- 32,804 -- 72,804 Interest income, (expense) net (68,669) 25 (177,951) 1,018 Net loss (376,611) (360,896) (1,161,956) (1,391,355) Net loss per common share, basic and diluted $(.13) $(.13) $(.41) $(.49) Weighted average shares outstanding 2,856,431 2,856,431 2,856,431 2,856,431 The accompanying notes are an integral part of these condensed financial statements. Page 3 SEPRAGEN CORPORATION CONDENSED STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 1998 1997 Cash flows from operating activities: Net Loss $(1,161,956) $(1,391,355) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and Amortization 177,057 102,036 Changes in assets and liabilities: Accounts receivable. 390,069 54,679 Inventories 87,505 23,789 Prepaid expenses and other (22,975) 2,131 Accounts payable 191,641 453,835 Accrued liabilities. (26,233) (25,704) Accrued payroll and (22,856) 6,180 benefits. Interest payable (16,522) 0 Customer deposits (234,681) 285,709 Net cash used in operating activities (638,951) (488,700) Cash flows from financing activities: Proceeds from issuance of preferred stock 500,000 0 Proceeds from notes payable to shareholders 155,000 125,000 Proceeds from issuance of notes payable 0 100,000 Net proceeds from bridge notes payable 115,700 207,000 Proceeds from issuance of convertible secured promissory Note, net 540,000 0 Retirement of bridge debt (510,000) 0 Net cash provided by financing activities 800,700 432,000 Net increase (decrease) in cash 161,749 (56,700) Cash and cash equivalents at the beginning of the period 44,448 217,057 Cash and cash equivalents at the end of the period. $ 206,197 $ 160,357 The accompanying notes are an integral part of these condensed financial statements. Page 4 SEPRAGEN CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 Note 1 - Basis of Presentation These condensed financial statements have been presented on a going concern basis. Sepragen, (the "Company") has incurred recurring losses and cash flow deficiencies from operations that raise substantial doubt about its ability to continue as a going concern. As of September 30, 1998, the Company had an accumulated deficit of $14,692,056. The Company will be required to conduct significant research, development and testing activities which, together with expenses to be incurred for manufacturing, the establishment of a large marketing and distribution presence and other general and administrative expenses, are expected to result in operating losses for the foreseeable future. Accordingly, there can be no assurance that the Company will ever achieve profitable operations. The Company will have to obtain additional financing to support its operating needs beyond December 31,1998. The Company is currently pursuing alternative funding sources to meet its cash flow needs, including private debt and equity financing. Management intends to use such funding to further its marketing efforts and expand sales. It is uncertain, however, whether the Company will be successful in such pursuits. No adjustments have been made to the accompanying condensed financial statements for this uncertainty. Note 2 - Interim Financial Reporting The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10- QSB. Accordingly, certain information and footnotes required by generally accepted accounting principles have been condensed or omitted. These interim statements should be read in conjunction with the financial statements and the notes thereto, included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997. Note 3 - Net Loss Per Share. The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 128, Earning per Share for all periods presented. The adoption of SFAS No. 128 had no impact on previously reported loss per share for the three months ended September 30, 1997. In accordance with SFAS No. 128, primary earnings (loss) per share has been replaced with basic earnings (loss) per share, and fully diluted earnings (loss) per share has been replaced with diluted earnings (loss) per share which includes potentially dilutive securities such as outstanding options and convertible securities, using the treasury stock method. The assumed exercise of options and warrants and assumed conversion of convertible securities have not been included in the calculation of diluted loss per share as the effect would be anti-dilutive. Note 4 - The "Year 2000 Problem", dates following December 31, 1999 and beyond: Many existing computer systems and applications, and other devices, use only two digits to identify a year in the date field, without considering the impact of the upcoming change in the century. Such systems and applications could fail or create erroneous results unless corrected. The Company relies on its internal financial systems and external systems of business enterprises such as customers, suppliers, creditors, and financial organizations both domestically and globally, directly and indirectly for accurate exchange of data. The Company has evaluated such systems and believes the cost of addressing the "Year 2000 Problem" will not have a material adverse affect on the result of operations of financial position of the Company. However, although the internal systems of the Company are not materially affected by the Year 2000 issue, the Company could be affected through disruption in the operation of the enterprises with which the Company interacts. Note 5 - Notes Payable Between May 1997 and August 1998, the Company borrowed an aggregate of $380,000 of which 280,000 are from shareholders of the Company, payable with interest at 9.5% per annum due on March 1, 1999 and 100,000 from an unrelated party payable with interest at 9.5% per annum due on December 31, 1998. The repayment of these notes is subordinate to the claims of the note described in Note 6. Note 6 - Bridge Notes Payable In August 1998, the Company completed a debt-refinancing transaction whereby the Company borrowed $550,000 from Mr. K. Charles Janac pursuant to a Convertible Secured Promissory Note issued by the Company (the "Note") in the principal amount of $550,000 and bearing interest at the rate of 9.75% per annum. The Note is convertible into shares of Class A Common Stock at the option of Mr. Janac at any time before December 15, 1998 by converting the principal balance and any unpaid interest due under the Note into Class A Common Stock at the rate of $0.468 per share. In addition, as further consideration for the loan of funds to the Company, the Company issued to Mr. Janac a warrant, exercisable at any time on or before August 18, 2003, to purchase up to 234,667 shares of Class A Common Stock at $.468 per share (the "Warrants"). The total number of shares of Class A Common Stock issuable upon conversion of the Note or exercise of the Warrants are subject to adjustment in the event of recapitalization, stock dividends, or similar events. As security for the Note, the Company entered into a Security Agreement granting Mr. Janac a first priority security interest in the property, tangible and intangible, of the Company, as well as a Patent and Trademark Mortgage granting Mr. Janac a security interest in all the patents and trademarks of the Company. All principal and accrued interest under the Note is due and payable on or before December 15, 1998. The business address of Mr. Janac is 651 River Oaks Parkway, San Jose, CA 95134. The Company used the funds loaned by Mr. Janac to retire $532,242.47 of existing debt incurred by the Company in connection with a certain bridge financing originally undertaken by the Company in October of 1997, to pay legal fees and costs of the transaction, and approximately $7,000 was utilized for working capital. The fair value of the warrants (calculated using the Black Scholes Pricing Model) is $91,520 and is being amortized over the remaining term of the loan, 4 months. Amortization for the three and nine months ended September 30, 1998 was $34,320. In addition, the Company secured payment extensions on the remaining $30,000 in bridge loans through March 31, 1999. Note 7 - Convertible Preferred Stock On September 1, 1998, the Company sold 175,439 Shares of Series A Preferred Stock. All of the shares of Series A Preferred Stock were sold to Anchor Products Limited of Hamilton, New Zealand ("Anchor"). The acquisition of Series A Preferred Stock by Anchor was consummated in connection with the execution of a Commercial License Agreement between the Company and Anchor, whereby the Company licensed Anchor a technology that isolates proteins from whey, a low value cheese by-product. The shares of Series A Preferred Stock were sold for cash in the aggregate amount of $500,000 ($2.85 per share). There were no underwriting discounts or commissions paid in connection with the transaction. The shares of Series A Preferred Stock were sold pursuant to exemptions from registration under Section 4(2) and Regulation S under the Securities Act of 1933, in a transaction that was not publicly offered. Anchor is a New Zealand corporation. The Company's Series A Preferred Stock provides for both a 7% dividend and liquidation preferences. The dividend is payable from time to time at the election of the Board of Directors of the Company subject to the Company retaining sufficient earnings and profits. The Preferred Stock is also convertible on or before September 30, 2000 into Class A Common Stock, at the conversion rate of $2.86 per share. On any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the holders of Series A Preferred Shares shall receive, out of the assets of the Company, the sum of $2.86 per Series A Preferred Share, plus an amount equal to any dividends accrued and unpaid on those Series A Preferred Shares, before any payment shall be made or any assets distributed to the holders of Common Stock. The Series A Preferred Shares shall be redeemable at the option of the holders of the Series A Preferred Shares commencing September 30, 2003 and expiring December 31, 2008, at the cash price of $2.86 per share, plus any accrued and unpaid dividends on the Series A Preferred Shares which are redeemed. In addition, each share of Series A Preferred Stock shall be automatically converted into one (1) share of Class A Common Stock, if not previously redeemed, on January 1, 2009, or at any time the closing bid price per share of the Company's Class A Common Stock shall average at least $3.86 per share over ninety (90) consecutive trading days prior to January 1, 2004. The conversion ratio for the Series A Preferred Stock shall be adjusted in the event of recapitalization, stock dividend, or any similar event effecting the Class A Common Stock. Anchor may require the Company to immediately redeem the preferred shares in the event of certain covenant breaches of the license agreement by the Company. The Company is currently in compliance with all such covenants and does not anticipate any breaches in the future. Item 2 . Management's Discussion and Analysis. First nine months of 1998 compared to first nine months of 1997. Net sales increased by $468,000 or 64% from $732,000 in the first nine months of 1997 to $ 1,200,000 for the comparable period in 1998. The increase in sales is due to the increase of sales of its core products, Radial Flow Chromatography (RFC) equipment and a $200,000 license fee for the Sepralac process received from Anchor products of New Zealand. Gross Margin increased by $231,000 or 72% from $320,000 in the first nine months of 1997 to $551,000 in the first nine months of 1998. The increase in gross margin is primarily due to a higher production volume and revenue generated from license fee that does not have cost of goods associated with it. As a percentage of sales, gross margin increased slightly from 44% in the first three quarters of 1997 to 46% for the comparable period in 1998, primarily due to the license fee income which more than offset the lower margins realized from sales of core products. Selling, general and administrative expenses decreased by $158,000 from $1,115,000 in the first nine months of 1997 to $957,530 in the first nine months of 1998. The decrease was primarily due to continued belt tightening measures adopted in mid 1997 in administrative expenses coupled with a reduction in head count in sales and marketing, scaling back of advertising and promotion and travel expenses partially offset by $49,000 write-off of expenses related to the Company's financing activities. Research and development expenses decreased by $93,000 from $670,000 in the first nine months of 1997 to $577,000 in the first nine months of 1998. The decrease was mainly due to the reduction in the cost of software development for the QuantaSep product. Interest and other expense increased by $179,000 in the first nine months of 1998 compared to the first nine months of 1997 due to amortization of $70,000 of issuance cost, amortization of the fair value of warrants issued of $34,000 and $75,000 interest expense related to the bridge loans and notes payable. Third quarter 1998 compared to third quarter 1997. Net sales increased by $168,000 from $188,000 in the third quarter of 1997 to $356,000 in the third quarter of 1998. The increase in sales is due to $200,000 license fee received for the Sepralac(R) Process partially offset by small decrease in sales of the core products, Radial Flow Chromatography (RFC) equipment. Gross margin increased by $141,000 or 186% from $76,000 in the third quarter of 1997 to $217,000 in the third quarter of 1998, and as a percent of sales, increased by 21% from 40% to 61%. The higher margin was attributable to the Sepralac license fee received in the third of quarter of 1998, which more than offset the lower margins realized on sales of core products. Selling, general and administrative expense increased by $40,000 or 13%. The increase is due to a write-off of $49,000 legal, printing, commission related to a private placement financing. Research and development expenses increased by $15,000 or 9% from $158,000 in the third quarter of 1997 to $173,000 in the third quarter of 1998. This increase was due to a one time severance pay related to the reorganization of the department. Inflation. The Company believes that the impact of inflation on its operations since its inception has not been material. Liquidity and Capital Resources: The Company use of cash for operations was $639,000 and $488,000 during the nine months ended September 30, 1998 and 1997, respectively. Cash used in operations in the first nine months of 1998 was the result of net loss incurred for the nine six months of $1,162,000, offset by net non-cash expense of $177,000, the net change in operating assets and liabilities resulting in source of cash of $346,000. Cash used in the first nine months of 1997 was the result of net loss incurred for the nine months of $1,391,000, offset by net non-cash expenses of $102,000, and the net change in operating assets and liabilities resulting in source of cash of $801,000. Financing activities provided cash of $800,700 during the first nine months of 1998. The cash provided resulted from the subscription proceeds for preferred stock of $500,000 and issuance of notes payable of $300,700. At September 30, 1998 the Company had cash and cash equivalents of $206,200 as compared with $44,400 on December 31, 1997. At September 30, 1998, the Company had working capital deficit of $1,375,700, as compared to working capital deficit of $902,000 at December 31, 1997. The decrease in cash in the first nine months of 1998 is a result of the aforementioned increase or decrease in cash from operating and financing activities noted above. The decrease in working capital for the first nine months is primarily a result of the net loss incurred offset by non-cash charges. This negative cash out flow from operations must be reversed and working capital increased significantly in order for the Company to fund its existing activities and to extend the use of its technology to new applications in the food and dairy and juice industries, and to attract the interest of strategic partners in one or more of these markets. Based on the Company's current operating plan, the Company believes that it will only be able to fund the Company's operations through December 31, 1998. Accordingly, the Company will have to either turn profitable or obtain additional funds to support its operations. The Company is currently pursuing several avenues including increasing revenues and reducing costs in order to turn profitable, secure funds through additional strategic partnerships and secure either debt or equity financing. Following this strategy, on August 25, 1998, the Company announced the signing of a license agreement with Anchor Products. Under this agreement, Anchor Products will have exclusive manufacturing rights to the Sepralac(R) process in Australia and New Zealand and non-exclusive worldwide marketing rights to products produced by the Sepralac(R) Process. In return, the Company has received $700,000 out of a total of about $1 million from Anchor Products, comprised of a license fee of $200,000 and an equity investment of $500,000 for the purchase of 175,439 redeemable, cumulative, preferred stock at $2.85 per share. The preferred stock is convertible into common stock (on share for share basis) at any time within the next 2 years and extendible for a further 1 year at the Company's option. On October 15, 1998, the Company announced a licensing agreement for the Sepralac(R) Process with Carberry Milk Products of Ballineen, County Cork, Ireland. Under the agreement, Carberry will have manufacturing and marketing rights to certain products produced from the Sepralac(R) Process. In return, the Company will receive a license fee of $350,000 payable $200,000 before January 1, 1999 and the balance over the term of the agreement. Further, Carberry agreed to an initial purchase of equipment worth approximately $100,000. The evaluation agreement to commercialize the Sepralac(R) Process between Sepragen Corporation and California Gold Dairy Products of Petaluma, California by mutual agreement was terminated on September 8, 1998. A technical evaluation agreement for the Debitt(R) Process, a debittering and deacidification process using Sepragen Corporation's RFC(R) Column, has been signed with Tropicana products. The Company currently has no credit facility with a bank or other financial institution. Further, the Company's stock is traded over-the- counter and as such there is limited liquidity in the Company's stock which makes financing difficult. The Company is seeking to enter into strategic alliances with corporate partners in the industries comprising its primary target markets (biopharmaceutical, food, dairy and juice). The Company's ability to further develop and market its Sepralaca Process for whey separation and other potential food and juice products and processes will be substantially dependent upon its ability to negotiate partnerships, joint ventures or alliances with established companies in each market. In particular, the Company will be reliant on such joint venture partners or allied companies for both market introduction, operational assistance and financial assistance. The Company believes that development, manufacturing and market introduction of products in these industries, will cost millions of dollars and require operational capabilities in excess of those currently available to the Company. No assurance can be given, however, that the terms of any additional alliances will be successfully negotiated or that such alliance will be successful in generating the revenue required to make the Company profitable. Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995. This report contains or incorporates by reference forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Where any such forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, the Company cautions that, while such assumptions or bases are believed to be reasonable and are made in good faith, assumed facts or bases almost always vary from the actual results, and the differences between assumed facts or bases and actual results can be material, depending upon the circumstances. Where, in any forward- looking statement, the Company or its management expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and is believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished. The words "believe," "estimate," "anticipate," and similar expressions may identify forward- looking statements. Taking into account the foregoing, the following are identified as some but not all of the important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of the Company: Inability to Secure Additional Capital. The Company has incurred operating losses each fiscal year since its inception. The Company must secure additional financing through either the sale of additional securities or debt financing to continue operations past January 1, 1999. Although the Company is attempting to secure such financing, there can be no assurance that such financing will be available to the Company on reasonable terms. The Company has been delisted from the Nasdaq SmallCap Market and the Pacific Stock Exchange. See Item 2 "Management's Discussion and Analysis-Liquidity and Capital Resources." Competition. In both its biopharmaceutical industry market and in the market for its process systems for food, beverage, dairy and environmental industries, the Company faces intense competition from better capitalized competitors. Dependence on Joint Ventures and Strategic Partnerships. The Company's entry into the food, dairy and beverage market for its process systems will be substantially dependent upon its ability to enter into strategic partnerships, joint ventures or similar collaborative alliance with established companies in each market. As of the date of this report, two licensing agreements have been signed but there can be no assurance that the terms of any such alliance will produce profits for the Company nor can there be assurance that additional joint ventures or alliances will be signed. Management Reorganization: Since September 5, 1998, Dr. Q.R. Miranda, Vice President of Research and Development has not been employed by Sepragen Corporation. PART II OTHER INFORMATION Item 1. Legal Proceedings Not Applicable Item 2. Changes in Securities See footnotes 6 and 7 of the financial statements. Item 3. Defaults Upon Senior Securities Not Applicable Item 4. Submission of Matters to a vote of Security Holders Not Applicable Item 5. Other Information Not Applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4.8 Warrant Agreement with Charles Janac 10.9 Convertible Secured Promissory Note issued by the Company to Charles Janac 10.10 Security Agreement with Charles Janac 10.11 Patent and Trademark Mortgage (b) Reports on Form 8-K Form 8-K, dated August 14, 1998, Items 5, 7 and 9. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SEPRAGEN CORPORATION DATE: November 19, 1998 By: /s/Vinit Saxena Vinit Saxena Chief Executive Officer, President and Principal Financial and Chief Accounting Officer INDEX TO EXHIBITS Sequential Page No. 4.8 Warrant Agreement with Charles Janac 14 10.9 Convertible Secured Promissory Note issued by the Company to Charles Janac 24 10.10 Security Agreement with Charles Janac 29 10.11 Patent and Trademark Mortgage 45 EX-4 2 EXHIBIT 4.8 THE SECURITY EVIDENCED BY THIS WARRANT OR THE SECURITIES TO BE PURCHASED UNDER THIS WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES. THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENT UNDER SUCH ACT. VOID AFTER 5 P.M., CALIFORNIA TIME ON AUGUST 18, 2003 WARRANT TO PURCHASE CLASS A COMMON STOCK SEPRAGEN CORPORATION, a California corporation (the "Company"), hereby certifies that K. CHARLES JANAC or his registered assign(s) (collectively referred to as the "Holder") is entitled, subject to the terms set forth below, to purchase from the Company Two Hundred Thirty Four Thousand Six Hundred and Sixty Seven (234,667) fully paid and nonassessable shares of the Class A Common Stock of the Company (the "Shares") at the purchase price of $0.46875 per share (the "Purchase Price"). Both the Purchase Price and such number of Shares are subject to adjustments as described below. 1. Exercise of Warrant; Reservation of Shares. Subject to the restrictions herein, this warrant may be exercised in whole or in part by the Holder at any time before 5 p.m., California local time, on August 18, 2003 by the surrender of this Warrant, together with the Notice of Exercise attached hereto as Attachment 1, duly completed and executed, at the principal office of the Company, accompanied by payment in cash or by check in full with respect to the Shares being purchased. This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above. The Company shall at all times after the date of this Warrant and until expiration of this Warrant reserve for issuance and delivery upon issuance of this Warrant the number of Shares of Common Stock required for exercise of this Warrant. 2. Delivery of Stock Certificates, Etc. on Exercise. As soon as practicable after the exercise of this Warrant, and in any event within thirty (30) days thereafter, the Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of, and delivered to, the Holder hereof, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct, (i) a certificate or certificates for the number of Shares to which such Holder shall be entitled upon such exercise and (ii) if this Warrant is not exercised in full, a warrant containing terms identical to herein, provided the number of Shares subject to this Warrant shall be reduced by the number of Shares exercised by delivery of the Notice of Exercise pursuant to Section 1. 3. Adjustment of Exercise Price and Number of Shares. The Exercise Price and the total number of Warrant Shares shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3. Upon each adjustment of the Exercise Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Exercise Price resulting from such adjustment. 3.1 Subdivision or Combination of Stock. In case the Company shall at any time subdivide its outstanding shares of any class of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced and the number of Warrant Shares issuable hereunder proportionately increased, and conversely, in case the outstanding shares of any class of the Common Stock of the Company shall be combined into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of Warrant Shares issuable hereunder proportionately decreased. 3.2 Reclassification. If any reclassification of the capital stock of the Company or any reorganization, consolidation, merger, or any sale, lease, license, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all, of the business and/or assets of the Company (the "Reclassification Events") shall be effected in such a way that holders of any class of Common Stock shall be entitled to receive stock, securities, or other assets or property, then, as a condition of such Reclassification Event lawful and adequate provisions shall be made whereby the Holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities, or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby. In any Reclassification Event, appropriate provision shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Exercise Price and of the number of Warrant Shares), shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities, or assets thereafter deliverable upon the exercise hereof. 3.3 Adjustments Upon Issuance of Additional Stock. If the Company shall issue "Additional Stock" (as defined below) for a consideration per share less than the Exercise Price then in effect on the date and immediately prior to such issue, then and in such event, such Exercise Price shall be reduced concurrently with such issue, to a price equal to the price per share for such Additional Stock. For purposes of this subsection "Additional Stock" shall mean all common stock issued by the Corporation after the date hereof other than common stock issued or issuable at any time (1) upon conversion of any preferred stock; (2) upon exercise of options issued to officers, directors, and employees of, and consultants to, the Company after the date hereof and approved by the Board of Directors pursuant to an employee stock option plan; or (3) upon exercise of Warrants outstanding on the date hereof (4) after August 18 1999; (5) provided, however, that the company shall not be deemed to have issued additional stock until after the Company has issued securities with aggregate proceeds to the Company of $500,000. For the purpose of making any adjustment in the Exercise Price as provided above, the consideration received by the Company for any issue or sale of Additional Stock will be computed: (a) to the extent it consists of cash, as the amount of cash received by the Company before deduction of any offering expenses payable by the Company and any underwriting or similar commissions, compensation, or concessions paid or allowed by the Company in connection with such issue or sale; (b) to the extent it consists of property other than cash, at the fair market value of that property as determined in good faith by the Company s Board of Directors; and (c) if common stock is issued or sold together with other stock or securities or other assets of the Company for a consideration which covers both, as the portion of the consideration so received that may be reasonably determined in good faith by the Board of Directors to be allocable to such common stock. If the Company (1) grants any rights or options to subscribe for, purchase, or otherwise acquires common stock, or (2) issues or sells any security convertible into common stock, then, in each case, the price per share of common stock issuable on the exercise of the rights or options or the conversion of the securities will be determined by dividing the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue or sale of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise or conversion of the securities, by the maximum number of shares of common stock issuable on the exercise of conversion. Such granting or issue or sale will be considered to be an issue or sale for cash of the maximum number of shares of common stock issuable on exercise or conversion at the price per share determined under this subsection, and the Exercise Price will be adjusted as above provided to reflect (on the basis of that determination) the issue or sale. No further adjustment of the Exercise Price will be made as a result of the actual issuance of common stock on the exercise of any such rights or options or the conversion of any such convertible securities. Upon the redemption or repurchase of any such securities or the expiration or termination of the right to convert into, exchange for, or exercise with respect to, common stock, the Exercise Price will be readjusted to such price as would have been obtained had the adjustment made upon their issuance been made upon the basis of the issuance of only the number of such securities as were actually converted into, exchanged for, or exercised with respect to, common stock. If the purchase price or conversion or exchange rate provided for in any such security changes at any time, then, upon such change becoming effective, the Exercise Price then in effect will be readjusted forthwith to such price as would have been obtained had the adjustment made upon the issuance of such securities been made upon the basis of (1) the issuance of only the number of shares of common stock theretofore actually delivered upon the conversion, exchange or exercise of such securities, and the total consideration received therefor, and (2) the granting or issuance, at the time of such change, of any such securities then still outstanding for the consideration, if any, received by the Company therefor and to be received on the basis of such changed price or rate. 3.4 Notice of Adjustment. Upon any adjustment of the Exercise Price or any increase or decrease in the number of Warrant Shares, the Company shall give written notice thereof, by first class mail postage prepaid, addressed to the registered Holder of this Warrant at the address of such Holder as shown on the books of the Company. The notice shall be prepared and signed by the Company s Chief Financial Officer and shall state the Exercise Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 4. Notices of Record Date, Etc. In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend at the same rate as the rate of the last cash dividend theretofore paid) or other distribution (the "Distribution") the Company will mail or cause to be mailed to the Holder of the Warrant a notice specifying the date of any such Distribution and stating the amount and character of such Distribution. Such notice shall be mailed at least ten (10) days prior to the date therein specified. 5. Replacement of Warrant. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of such mutilation, upon surrender and cancellation of this Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new warrant of like tenor. 6. Negotiability, Etc. This Warrant may be transferred in whole or in part by the Holder to any person who, in the opinion of counsel reasonably satisfactory to the Company, is a person to whom this Warrant or the Shares may be legally transferred without registration and without the delivery of a current prospectus under the Securities Act of 1933, as amended (the "Act"), as well as applicable State Securities laws with respect thereto, and then only against receipt of an agreement of such person to comply with the provisions of this section with respect to any resale or disposition of such securities unless, in the opinion of counsel to the Company, such agreement is not required. The terms hereof shall be binding upon the executors, administrators, heirs and assigns of the Holder. 7. Notices, Etc. All notices and other communication shall be mailed by first class mail, postage prepaid, at such address as may have been furnished in writing by the receiving party. 8. Governing Law Headings. This Warrant is being delivered in the State of California and shall be construed and enforced in accordance with and governed by the laws of such state. The headings of this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. 9. Conversion of Warrant. 9.1 Right to Convert. In addition to, and without limiting the other rights of the Holder hereunder, the Holder shall have the right (the "Conversion Right") to convert this Warrant or any part hereof into Shares at any time and from time to time during the term hereof. Upon exercise of the Conversion Right with respect to a particular number of Shares (the "Converted Shares"), the Company shall deliver to the Holder, without payment by the Holder, or any Purchase Price or any cash or other consideration, that number of Shares computed using the following formula: X = (B-A)/Y Where: X = The number of Shares to be issued to the Holder. Y = The fair Market Value of one Share as of the Conversion Date. If. the Company's Common Stock is publicly traded at the time of exercise of this Warrant, the Fair Market Value shall be the average closing price of the Company's Common Stock on the five trading days prior to the Conversion Date. If the Company's Common Stock is not publicly traded at the time of exercise of this Warrant, the Fair Market Value of one Share as of the Conversion Date shall be determined in good faith by the Board of Directors of the Company. B = The Aggregate Fair Market Value (i.e., Fair Market Value x Converted Shares) A = The Aggregate Purchase Price (i.e., Purchase Price x Converted Shares) 9.2 Method of Exercise. The Conversion Right may be exercised by the Holder by the surrender of this Warrant at the Company's principal office, together with a written statement (the "Conversion Statement") specifying that the Holder intends to exercise the Conversion Right and indicating the number of Shares to be acquired upon exercise of the Conversion Right. Such conversion shall be effective upon the Company's receipt of this Warrant, together with the Conversion Statement, or on such later date as is specified in the Conversion Statement (the "Conversion Date"). Certificates for the Shares so acquired shall be delivered to the Holder within a reasonable time, not exceeding thirty (30) days after the Conversion Date. If applicable, the Company shall, upon surrender of this Warrant for cancellation, deliver a new Warrant evidencing the rights of the Holder to purchase the balance of the Shares which Holder is entitled to purchase hereunder. The issuance of Shares upon exercise of this Warrant shall be made without charge to the Holder for any issuance tax with respect thereto or any other cost incurred by the Company in connection with the conversion of this Warrant and the related issuance of Shares. Date: SEPRAGEN CORPORATION By: /s/ Vinit Saxena Its: President ATTACHMENT I NOTICE OF EXERCISE TO: SEPRAGEN CORPORATION 30689 HUNTWOOD AVENUE HAYWARD, CA 94544 1. The undersigned hereby elects to acquire shares of Class A Common Stock of SEPRAGEN CORPORATION pursuant to the terms of the attached Warrant, by exercise or conversion of shares and tenders herewith payment of the Purchase Price in full, together with all applicable transfer taxes, if any. 2. Please issue a certificate or certificates representing said shares of Series C Preferred Stock in the name of the undersigned or in such other name as is specified below: NAME ADDRESS DATE (Name of Warrant Holder) By: Title: (Name of purchaser, and title and signature of authorized person) Social Security Number or Federal Employer ID Number: EX-10 3 EXHIBIT 10.9 THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED THE "ACT" SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii) RECEIPT BY THE ISSUER OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE. SEPRAGEN CORPORATION No. 1 $550,000 Dated: August 18, 1998 CONVERTIBLE SECURED PROMISSORY NOTE SEPRAGEN CORPORATION, a California corporation (the "Company"), for value received, hereby promises to pay to K. Charles Janac or registered assigns (the "Payee") on December 15, 1998 (the "Maturity Date") at the offices of the Company, 30689 Huntwood Avenue, Hayward, California 94544, the principal amount of Five Hundred Fifty Thousand Dollars ($550,000), including interest at the rate of nine point seventy-five percent (9.75%) per annum accrued through the Maturity Date, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, unless converted earlier into Class A Common Stock of the Company. This Note is issued pursuant to a Subscription Agreement dated as of August 18, 1998 between the Company and the Payee (the "Subscription Agreement"), a copy of which agreement is available for inspection at the Company's principal office. Notwithstanding any provision to the contrary contained herein, this Note is subject and entitled to certain terms, conditions, covenants and agreements contained in the Subscrip- tion Agreement. Any transferee or transferees of the Note, by their acceptance hereof, assume the obligations of the Payee in the Subscrip- tion Agreement with respect to the conditions and procedures for transfer of the Note. Reference to the Subscription Agreement shall in no way impair the absolute and unconditional obligation of the Company to pay both principal and interest hereon as provided herein. On or before the Maturity Date, the Payee may elect to receive payment of the principal amount of this Note or any part thereof and accrued interest (the "Conversion Amount") in the form of Class A Common Stock (the "Equity Conversion"). In an Equity Conversion, the Payee shall receive such number of fully paid and non-assessable shares of the Class A Common Stock as is obtained by dividing the Conversion Amount by $0.46875 (the "Conversion Price"). Upon the conversion of all principal and interest hereunder, Payee shall have no further rights under this Note except to surrender the same for a certificate or certificates representing the securities into which this Note shall have automatically converted. As soon as practicable thereafter, the Company shall, at its expense, cause to be issued in the name of the Payee, a certificate or certificates for the number of shares of the securities to which Payee shall be entitled to receive (bearing such legends as may be required by applicable securities laws). No fractional shares shall be issued on conversion of this Note; if any fractional shares would result from such conversion, the Company shall pay the cash value thereof to Payee based on the Equity Conversion Price. 1. Prepayment. The principal amount of this Note may be prepaid by the Company in whole or in part, without penalty, at any time, unless the Holder elects an Equity Conversion. 2. Covenants of Company. The Company covenants and agrees that, so long as this Note shall be outstanding, it will: (a) Do or cause to be done all things reasonably necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Company, except where the failure. to comply would not have a material adverse effect on the Company. (b) At all times reasonably maintain, preserve, protect and keep its property used or useful in the conduct of its business in good repair, working order and condition, excluding normal wear and tear and Act of God, and from time to time make all needful and proper repairs, renewals, replacements, betterments and improvements thereto as shall be reasonably required in the conduct of its business. (c) To the extent necessary for the operation of its business, keep adequately insured by all financially sound reputable insurers, all property of a character usually insured by similar corporations and carry such other insurance as is usually carried by similar corporations. (d) At all times keep true and correct books, records and accounts. 3. Events of Default. (a) If one or more of the events listed in this Section 3, herein called events of default, shall happen and be continuing, the holder of this Note may send a Notice of Default to Company. Company shall have thirty (30) days from the date of receipt of the Notice of Default to cure the default; provided however, if an event of default was caused by an Act of God, Company shall have sixty (60) days from the date of receipt of the Notice of Default to cure the default (the "Cure Period"). If Company fails to -completely cure the default during the Cure Period, this Note shall become and be due and payable upon written demand made by the holder hereof. (1) Default in the payment of the principal and accrued interest on this Note or any of the Notes issued pursuant to 5(a) hereof when and as the same shall become due and payable, whether by acceleration or otherwise. (2) Application for, or consent to, the appointment of a receiver, trustee, or liquidator of the Company or of its property. (3) General assignment by the Company for the benefit of creditors. (4) Filing by the Company of a voluntary petition in bankruptcy or a petition or an answer seeking reorganization, or an arrangement with creditors or the failure by the Company generally to pay debts, as they become due. (5) Entering against the Company of a court order approving a petition filed against it under the Federal bankruptcy laws, which order shall not have been vacated or set aside or otherwise terminated within sixty (60) days. (6) Any representation or warranty of the Company contained in the Subscription Agreement, Security Agreement, Form UCC-1 related to the obligations hereunder, Patent Mortgage related to the obligations hereunder or any related documents (collectively, the "Loan Documents") is false or misleading in any material respect on the date made. (7) Default by the Company in any obligation under the Loan Documents the effect of which is reasonably likely to reduce the Company's ability to repay principal or interest under the Note when due. (8) The Company voluntarily or involuntarily dissolves or is dissolved. (9) The Company is enjoined, restrained, or in any way prevented by the order of any court or any administrative or regulatory agency from conducting all or any material part of its business affairs the effect of which is reasonably likely to reduce the Company's ability to repay principal or interest under the Note when due. (10) The violation by the Company of any material order, regulation, writ, injunction, or decrees of any government, governmental instrumentality or court, domestic or foreign, the effect of which is reasonably likely to reduce the Company's ability to repay principal or interest under the Note when due. (b) The Company agrees that notice of the occurrence of any of event of default will be promptly given to the holder at his or her registered address by certified mail. (c) In case any one or more of the events of default specified above shall happen and be continuing, the holder of this. Note may proceed to protect and enforce his rights by suit in the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note or may proceed to enforce the payment of this Note or to enforce any other legal or equitable rights as such holder. 4. Amendments. This Note may only be amended with the written consent of the holder. 5. Miscellaneous. (a) This Note has been issued by the Company pursuant to authorization of the Board of Directors of the Company. (b) The Company may consider and treat the person in whose name this Note shall be registered as the absolute owner thereof for all purposes whatsoever (whether or not this Note shall be overdue) and the Company shall not be affected by any notice to the contrary. The registered owner of this Note shall have the right to transfer it by assignment (subject to the limitations on transfer contained in the Subscription Agreement) and the transferee thereof shall upon his registration as owner of this Note, become vested with all the powers and rights of the transferor. Registration of any new owner shall take place upon presentation of this Note to the Company at its offices, 30689 Huntwood Avenue, Hayward, California 94544, together with a duly authenticated assignment. In case of transfer by operation of law, the transferee agrees to notify the Company of such transfer and of his address and to submit appropriate evidence regarding the transfer so that this Note may be registered in the name of the transferee. This Note is transferable only on the books of the Company by the holder hereof, in person or by attorney, on the surrender hereof, duly endorsed. Communications sent to any registered owner shall be effective as against all holders or transferees of the Note not registered at the time of sending the Communication. (c) Payments of interest shall be made as specified above to the registered owner of this Note. Payment of principal and interest shall be made to the registered owner of this Note upon presentation of this Note upon or after maturity. (d) This Note shall be construed and enforced in accordance with the laws of the State of California. IN WITNESS WHEREOF the Company has caused this Note to be signed in its name by its President. SEPRAGEN CORPORATION By: /s/ Vinit Saxena Title: President EX-10 4 EXHIBIT 10.10 SECURITY AGREEMENT This SECURITY AGREEMENT is made as of the 18th day of August, 1998 by SEPRAGEN CORPORATION., a California corporation, with its principal place of business at 30689 Huntwood Avenue, Hayward, California 94544 ("Debtor"), in favor of K. CHARLES JANAC, with an address at 651 River Oaks Parkway, San Jose, CA 95134, c/o Smart Machines (the "Secured Party"). 1. DEFINITIONS. As used in this Agreement, "Agreement" means this Security Agreement, as it may be amended, modified or supplemented from time to time. "Business Day" means a day other than Saturday or Sunday on which banks are open for business in California. "Collateral" means all personal property and interests in personal property now owned or hereafter acquired by Debtor in or upon which a security interest, lien or mortgage has been, or is now or hereafter, granted to Secured Party, whether under this Agreement or under any of the other Loan Documents. "Default" means the occurrence or existence of any of the events listed in Section 4 of this Agreement. "Lien" means any mortgage, pledge, lien, hypothecation, security interest or other charge, encumbrance or preferential arrangement, including, without limitation, the retained security title of a conditional vendor or lessor. "Loan Documents" means, collectively, this Agreement; the Note; the Subscription Agreement between Debtor and Secured Party (the "Subscription Agreement"); the Patent Mortgage; and Form UCC-1, each executed of even date herewith, and all other agreements, instruments and documents now or hereafter executed and/or delivered by Debtor to the Secured Party, in order to evidence or secure the Obligations, as each may be amended, modified or supplemented from time to time. "Note" means the Convertible Promissory Note, dated as of August 18, 1998, executed by Debtor as may be amended, modified or supplemented or modified from time to time. "Obligations" means all of Debtor s liabilities, obligations and indebtedness to the Secured Party of any and every kind and nature, whether heretofore, now or hereafter owing, arising, due or payable and howsoever evidenced, created, incurred, acquired, or owing, whether primary, secondary, direct, contingent, fixed or otherwise (including, without limitation, obligations of performance) and whether arising or existing under written agreement, oral agreement or by operation of law, including, without limitation, all Debtor s indebtedness and obligations to the Secured Party under (i) the Subscription Agreement; (ii) the Note; (iii) the other Loan Documents. The term includes, without limitation, all interest, charges, expenses, fees, reasonable attorneys fees and disbursements and any other sum chargeable under this Agreement, the Note, and the other Loan Documents. The foregoing definitions shall be equally applicable to both the singular and plural forms of the defined terms. Terms used in this Agreement and not defined herein or in the Note shall have the meanings given such terms in the Code, as defined in Section 2.1 below. 2. SECURITY INTEREST. 2.1 Grant of Security Interest. To secure payment and performance of the Obligations, Debtor hereby grants to the Secured Party a right of setoff against and a continuing security interest in and to all of Debtor s now existing or owned and hereafter arising or acquired: (a) all accounts (including, without limitation, all accounts receivable), chattel paper, claims, contract rights, leases and rental income thereunder, leasehold interests, letters of credit, instruments and documents ("Accounts"), and all goods sold, leased or otherwise disposed of by Debtor which have given rise to Accounts and which have been returned to or repossessed or stopped in transit by Debtor; (b) all patents, copyrights and trademarks, and all applications for and registrations of the foregoing, all franchise rights, trade names, goodwill, beneficial interests, rights to tax refunds and all other general intangibles of any kind or nature whatsoever ("General Intangibles"); (c) all inventory and goods of the Debtor, wherever located, whether in transit, held by others for the Debtor s account, covered by warehouse receipts, purchase orders or contracts, or in the possession of any carriers, forwarding agents, truckers, warehousemen, vendors or other persons, including, without limitation, all raw materials, work-in-process, finished merchandise, supplies, goods, incidentals, office supplies, packaging materials and all materials used or consumed in Debtor s business ("Inventory"); (d) goods (other than Inventory), including all returned, reconsigned and repossessed goods, machinery, equipment, vehicles, appliances, furniture, furnishings and fixtures ("Equipment"); (e) monies, reserves, deposits, certificates of deposit and deposit accounts and interest or dividends thereon, guaranties, securities, cash, cash equivalents and other property whether or not in the possession or under the control of, Secured Party or their respective bailee; (f) all books, records, computer records, ledger cards, programs and other computer materials, customer and supplier lists, invoices, orders and other property and general intangibles at any time evidencing or relating to the contents thereof ("Records"); (g) all accessions to any of the foregoing and all substitutions, renewals, improvements and replacements of and additions thereto; (h) all other property of Debtor, real and personal; and (i) all products and proceeds of the foregoing (whether such proceeds are in the form of cash, cash equivalents, proceeds of insurance policies, Accounts, General Intangibles, Inventory, Equipment, Records or otherwise). Debtor further assigns to Secured Party the Debtor s right of stoppage in transit and Debtor s right to reclaim goods from customers and Account Debtors (as hereinafter defined) under Section 2- 702 of the Illinois Uniform Commercial Code, as amended (the "Code"). Debtor and the Secured Party hereby acknowledge their mutual intention that the security interest granted herein will attach to Collateral when Debtor executes and delivers this Agreement or, in the case of any Collateral acquired by Debtor after the execution and delivery hereof, upon Debtor first acquiring rights therein. Debtor hereby acknowledges and agrees, subject hereto, that Debtor has rights in the Collateral and that value has been given. 2.2 Preservation of Collateral and Perfection of Security Interests Therein. Until all of the Obligations of Debtor shall have been indefeasibly paid and satisfied in cash, the Secured Party shall be entitled to retain its security interests in and to all existing Collateral, and all proceeds and products thereof. Debtor agrees that it shall execute and deliver to the Secured Party, concurrently with the execution of this Agreement, and at any time or times hereafter at the request of the Secured Party, all financing statements or other documents (and pay the cost of filing or recording the same in all public offices deemed necessary by the Secured Party) as Secured Party may request, in a form satisfactory to Secured Party, to perfect and keep perfected the security interests in the Collateral or to otherwise protect and preserve the Collateral and Secured Party s security interests therein. Should Debtor fail to do so, Secured Party is authorized to sign any such financing statements as Debtor s agent. Debtor further agrees that a carbon, photographic, photostatic or other reproduction of this Agreement or of a financing statement is sufficient as a financing statement. Notwithstanding anything herein to the contrary, Debtor may sell or license collateral in the ordinary course of business. 2.3 Loss of Value of Collateral. Debtor agrees to notify Secured Party promptly of any material loss or depreciation in the value of the Collateral, other than loss or depreciation occurring in the ordinary course of Debtor s business. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS. 3.1 Recordkeeping. Debtor covenants with Secured Party that Debtor shall at all times hereafter keep accurate and complete records of its finances, in accordance with sound accounting practices and generally accepted accounting principles, all of which records shall be available for inspection during Debtor s usual business hours at the request of Secured Party. 3.2 Asset Warranties. Debtor represents and warrants to Secured Party that the Collateral is located at the premises of Debtor as provided for in the first paragraph hereof is not in transit. None of the Collateral will be removed from such locations without prior written notice to Secured Party, except for use or sale in the ordinary course of business. Except for the security interest held by Pitney Bowes Credit Corporation ("Pitney Bowes"), the Collateral is not subject to any lien, encumbrance, mortgage or security interest whatsoever except for the security interests granted to Secured Party. Debtor shall not permit any lien, encumbrance, mortgage or security interest whatsoever to attach to any of the Collateral, except in favor of Secured Party. 3.3 Verification of Accounts. After the occurrence of a Default hereunder, Secured Party shall have the right, at any time or times hereafter, in Secured Party s or in Debtor s name, to verify the validity, amount or any other matter relating to any Accounts, by mail, telephone, telegraph or otherwise. 3.4 Appointment of Secured Party as Debtor s Attorney-in-Fact. Debtor hereby irrevocably designates, makes, constitutes and appoints Secured Party (and all persons designated by Secured Party in writing to Debtor) as Debtor s true and lawful attorney-in-fact, and authorizes Secured Party, in Debtor s or Secured Party s name, to do the following: at any time after the occurrence of a Default, (i) demand payment of Accounts of Debtor; (ii) enforce payment of accounts of Debtor by legal proceedings or otherwise; (iii) exercise all of Debtor s rights and remedies with respect to proceedings brought to collect any Account; (iv) sell or assign any Account of Debtor upon such terms, for such amount and at such time or times as Secured Party deems advisable; (v) settle, adjust, compromise, extend or renew any Account of Debtor; (vi) discharge and release any Account of Debtor; (vii) prepare, file and sign Debtor s name on any proof of claim in bankruptcy or other similar document against any Account Debtor; (viii) have access to any postal box of Debtor and notify the post office authorities to change the address for delivery of Debtor s mail to an address designated by Secured Party; and (ix) do all other acts and things which are necessary, in Secured Party s discretion, to fulfill Debtor s Obligations under this Agreement. Secured Party shall not exercise its rights arising as a result hereof until after the occurrence of a Default hereunder. 3.5 Notice to Account Debtors. Following the occurrence of a Default under this Agreement, Secured Party may, in its sole discretion, at any time or times, without prior notice to Debtor, notify any or all Account Debtors that the Accounts of Debtor have been assigned to Secured Party, that Secured Party has a security interest therein, and that all payments upon such Accounts be made directly to Secured Party or as otherwise specified by Secured Party. 3.6 Safekeeping of Assets and Asset Covenants. Secured Party shall not be responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to all or any part of the Collateral; (c) any diminution in the value of all or any part of the Collateral; or (d) any act or default of any carrier, warehouseman processor, bailee, forwarding agency or any other person with respect to all or any part of the Collateral. All risk of loss, damage, destruction or diminution in value of all or any part of the Collateral of Debtor shall be borne by Debtor. 3.7 Insurance. Debtor shall insure the Collateral at all times against all hazards specified by Secured Party, including, without limitation, fire, theft and risks covered by extended coverage insurance, and such policies shall be payable to Secured Party as its interest may appear. Such policies of insurance shall be satisfactory to Secured Party as to form, amount and insurer. Debtor shall furnish certificates, policies or endorsements to Secured Party as proof of such insurance, and if Debtor fails to do so, Secured Party is authorized but not required to obtain such insurance at Debtor s expense. All policies shall provide for at least thirty (30) days prior written notice to Secured Party of cancellation or non-renewal. Secured Party may act as attorney-in-fact for Debtor in making, adjusting and settling any claims under any such insurance policies. Debtor hereby assigns to Secured Party all of its right, title and interest to any insurance policies insuring the Collateral, including, without limitation, all rights to receive the proceeds of insurance, and directs all insurers to pay all such proceeds directly to Secured Party and authorizes Secured Party to endorse Debtor s name on any instrument for such payment. 3.8 Transfer of Collateral. Debtor shall not sell, lease, transfer, assign or otherwise dispose of any of the Collateral or any interest therein without the prior written consent of Secured Party in each instance, except Inventory sold to buyers in the ordinary course of business. 3.9 Damage to Collateral. Debtor shall immediately notify Secured Party in writing of any destruction of, or any substantial damage to, any of the Collateral. 3.10 Change of Place of Business. Debtor shall immediately notify Janac in writing of any change in any of its place of business or the opening of any new place of business. 3.11 Inspection. With reasonable prior notice, Debtor shall at all times during normal business hours allow Secured Party or its agents to examine and inspect the Collateral wherever located as well as Debtor s books and records, and to make extracts and copies of them, it being understood that Secured Party shall use reasonable efforts in the normal course of its operations to keep confidential all such information that (a) is not in the public domain, and (b) is not required to be disclosed by any court, agency or authority of competent jurisdiction, provided, however, that the requirement to keep such information confidential shall not apply to the extent necessary in order for Secured Party to foreclose on or otherwise deal with the Collateral in the Secured Party s best interests upon the occurrence of a Default. 3.12 Mergers, Etc. Debtor shall not become a party to any consolidation, merger, liquidation or dissolution or organize, purchase, assume or acquire any subsidiary or joint venture or partnership interest or interest in any other business entity, without the prior written consent of Secured Party. 3.13 Change of Name. Debtor shall notify Secured Party of any intended change of Debtor s name, and will notify Secured Party when such change becomes effective. 3.14 Organization. Debtor is a corporation duly organized, validly existing and in good standing under the laws of the State of California. Debtor is duly qualified and in good standing in each state in which the failure to so qualify would have a material adverse effect on its business. 3.15 Authority. Debtor has full corporate right and power to enter into and perform its obligations under this Agreement and the other Loan Documents to which Debtor is a party. The execution, delivery and performance of this Agreement and the other Loan Documents to which Debtor is a party have been duly authorized by all necessary corporate action of Debtor, and this Agreement and the other Loan Documents to which Debtor is a party constitute valid and binding obligations of Debtor enforceable against Debtor in accordance with their respective terms, subject to applicable bankruptcy, reorganization, insolvency or similar laws affecting the enforcement of creditor s rights generally. 3.16 No Conflicts. The execution, delivery and performance by Debtor of this Agreement and each of the other Loan Documents do not and shall not: (a) contravene or constitute a default (or an event that, with due notice or the lapse of time, or both, would constitute a default) under or result in any breach of, or cause or permit the acceleration of the maturity of any debt or obligation pursuant to, Debtor s Articles of Incorporation or any document, commitment or other agreement to which Debtor is a party or by which any of Debtor s property is bound; or (b) violate any statute or law or any judgment, decree, order, regulation or rule of any court or governmental authority applicable to Debtor. 3.17 Actions or Proceedings. There are no actions or proceedings which are pending or threatened against Debtor which might result in any material and adverse change in its financial condition or materially affect the Collateral pledged hereunder. 3.18 Violation of Law. Debtor is not in violation of any applicable federal, state, municipal or county statue, regulation or ordinance which may materially and adversely affect its business, property, assets, operations or conditions, financial or otherwise. Except with respect to certain employment taxes and FICA obligations, Debtor agrees that, so long as any Obligations shall remain unpaid or outstanding, Debtor shall comply with all applicable laws, rules, regulations, and orders, such compliance to include, without limitation, paying before the same become delinquent all taxes~ assessments, and governmental charges imposed upon Debtor or upon Debtor s property. 3.19 Consents. All authorizations, consents, approvals, registrations, exemptions and licenses required to be obtained by Debtor or which are necessary for the borrowing contemplated by the Note and the other Loan Documents and the execution and delivery by Debtor of the Note and the Loan Documents to which Debtor is a party, and the performance by Debtor of each of Debtor s obligations hereunder and thereunder, if any, have been obtained and are in full force and effect. 3.20 Use of Proceeds. Debtor will use the proceeds of the Note for purposes specified in the Subscription Agreement. 3.21 Accuracy of Information. All factual information heretofore or contemporaneously furnished by or on behalf of Debtor to Secured Party for purposes of or in connection with the Note or any transaction contemplated hereby is, and all other factual information hereafter furnished by or on behalf of Debtor to Secured Party will be, true and accurate in every material respect on the date as of which such information is dated or certified, and Debtor has not omitted and will not omit any material fact necessary to prevent such information from being false or misleading. Debtor has disclosed to Secured Party in writing all facts which might materially and adversely affect the credit, financial condition, affairs or prospects of Debtor, or Debtor s ability to perform Debtor s obligations under the Note. 3.22 Liens. Debtor shall not, without the prior written consent of Secured Party, create, incur, assume or suffer to exist any lien, security interest, encumbrance or other claim of any nature whatsoever on any of its assets, including, without limitation, the Collateral, other than the security interest granted in favor of Secured Party or Pitney Bowes. 4. DEFAULTS: RIGHTS AND REMEDIES OF SECURED PARTY. 4.1 Defaults. Each of the following occurrences shall constitute a "Default" under this Agreement: (a) Debtor s failure to pay when due any of the payment obligations under this Agreement or under the Note. (b) The occurrence of any material default by Debtor, or Debtor s failure or neglect to perform, keep or observe any of the covenants, conditions, promises or agreements contained in one or more of the Loan Documents. (c) Any representation or warranty made or deemed made by Debtor to Secured Party herein or in any of the other Loan Documents or in any written statement or certificate at any time given pursuant to any of the Loan Documents is false or misleading in any material respect on the date made. (d) A judgment or order is rendered against Debtor the effect of which is reasonably likely to reduce the Company ~s ability to repay principal or interest under the Note when due. (e) A notice of lien, levy, or assessment is filed or recorded with respect to all or a material part of the assets of Debtor or the Collateral by the United States, or any department, agency or instrumentality thereof, or by any state, county, municipality or other governmental agency or any taxes or debts owing at any time or times hereafter to any one or more of them become a lien upon all or a material part of the Collateral the effect of which is reasonably likely to reduce the Company s ability to repay principal or interest under the Note when due. (f) All or any part of the Collateral in an amount exceeding $10,000.00 is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors. (g) A proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law or statute is filed against Debtor, which proceeding is either consented to by Debtor or not dismissed, vacated or stayed within thirty (30) days after the filing thereof, or a proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law or statute is filed by Debtor, or Debtor makes an assignment for the benefit of creditors, or Debtor takes any corporate action to authorize any of the foregoing. (h) Debtor voluntarily or involuntarily dissolves or is dissolved. (i) Debtor is enjoined, restrained, or in any way prevented by the order of any court or any administrative or regulatory agency from conducting all or any material part of its business affairs the effect of which is reasonably likely to reduce the Company s ability to repay principal or interest under the Note when due. 4.2 Rights and Remedies. (a) Rights and Remedies Generally. Upon the occurrence of a Default, Secured Party shall issue a Notice of Default to Debtor. Debtor shall have thirty (30) days from receipt of such Notice of Default to cure the Default; provided however, if an event of default was caused by an Act of God, Company shall have sixty (60) days from the date of receipt of the Notice of Default to cure the default (the "Cure Period"). If Debtor fails to completely cure the Default within the Cure Period, all of the Obligations of Debtor shall immediately and automatically, without any additional notice of any kind, be immediately due and payable in cash. In addition, upon the occurrence of a Default and expiration of the Cure Period without a complete cure, Secured Party shall have, in addition to any other rights and remedies contained in this Agreement, the Note or in any of the other Loan Documents, all of the rights and remedies of a secured party under the Uniform Commercial Code, as then in effect in California, or other applicable laws, all of which rights and remedies shall be cumulative, and non-exclusive, to the extent permitted by law. In addition to all such rights and remedies, the sale, lease or other disposition of the Collateral, or any part thereof, by Secured Party after Default and expiration of the Cure Period without a complete cure, may be for cash, credit or any combination thereof, and Secured Party may purchase all or any part of the Collateral at public or, if permitted by law, private sale, and in lieu of actual payment of such purchase price, may set-off the amount of such purchase price against the Obligations then owing. Any sales of such Collateral may be adjourned from time to time with or without notice. Secured Party may, in its sole discretion, cause the Collateral to remain on the premises of Debtor, at Debtor s expense, pending sale or other disposition of such Collateral. At such times, Secured Party shall have the right to repair, process, preserve, protect and maintain the Collateral and make such replacements thereof and additions thereto as Secured Party may deem advisable. Secured Party shall have the right to conduct such sales on the premises of Debtor, at Debtor s expense, or elsewhere, on such occasion or occasions as Secured Party may see fit. (b) Entry Upon Premises and Access to Information. Upon the occurrence of a Default, Secured Party shall have the right to enter upon (to the exclusion of Debtor) the premises of Debtor where the Collateral is located (or is believed to be located) without any obligation to pay rent to Debtor, or any other place or places where such Collateral is believed to be located and kept, and remove such Collateral therefrom to the premises of Secured Party or any agent of Secured Party, for such time as Secured Party may desire, in order effectively to collect or liquidate such Collateral or to retain such Collateral in satisfaction of the Obligations, and/or Secured Party may require Debtor to assemble such Collateral and make it available to Secured Party at a place or places to be designated by Secured Party. Upon the occurrence of a Default, Secured Party shall have the right to obtain access to Debtor s data processing equipment, computer hardware and software relating to the Collateral and to use all of the foregoing and the information contained therein in any manner Secured Party deems appropriate; and Secured Party shall have the right to notify post office authorities to change the address for delivery of Debtor s mail to an address designated by Secured Party and to receive, open and process all mail addressed to Debtor. (c) Sale or Other Disposition of Collateral by Secured Party. Any notice required to be given by Secured Party of a sale, lease or other disposition or other intended action by Secured Party, with respect to any of the Collateral, which is deposited in the United States mails, postage prepaid and duly addressed to Debtor at the address specified below, at least ten (10) days prior to such proposed action shall constitute fair and reasonable notice to Debtor of any such action. The net proceeds realized by Secured Party upon any such sale or other disposition, after deduction for the expense of retaking, holding, preparing for sale, selling or the like and the reasonable attorneys and paralegals fees and legal expenses incurred by Secured Party in connection therewith, shall be applied as provided herein toward satisfaction of the Obligations. Secured Party shall account to Debtor for any surplus realized upon such sale or other disposition, and Debtor shall remain liable for any deficiency. The commencement of any action, legal or equitable, or the rendering of any judgment or decree for any deficiency shall not affect Secured Party s security interest in the Collateral until the Obligations are fully paid. Secured Party shall have the right to commence, continue or defend proceedings in any court of competent jurisdiction in the name of Secured Party, the "Receiver" (as hereinafter defined) or Debtor for the purpose of exercising any of the rights, powers and remedies set out in this Section 4.2, including, without limitation, the institution of proceedings for the appointment of a Receiver. Debtor agrees that Secured Party has no obligation to preserve rights to the Collateral against any other Person. Secured Party is hereby granted a license or other right to use, without charge, Debtor s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, tradestyles, trademarks, service marks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any such Collateral, and Debtor s rights under all licenses and all franchise agreements shall inure to Secured Party s benefit until the Obligations are paid. (d) Appointment of Receiver. Upon the occurrence of a Default, Secured Party shall have the right to appoint any Person to be an agent or any Person to be a receiver, manager or receiver and manager (the "Receiver") of the Collateral and to remove any Receiver so appointed and to appoint another if Secured Party so desires; it being agreed that any Receiver appointed pursuant to the provisions of this Agreement will have all of the powers of Secured Party hereunder, and in addition, will have the power to carry on the business of Debtor. The Receiver will be deemed to be the agent of Debtor for the purpose of establishing liability for the acts or omissions of the Receiver and Secured Party will not be liable for such acts or omissions and, without restricting the generality of the foregoing, Debtor hereby irrevocably authorizes Secured Party to give instructions to the Receiver relating to the performance of its duties as set forth herein. (e) Advice of Counsel. Debtor acknowledges that it has been advised by its counsel with respect to this transaction and this Agreement, including without limitation any waivers contained herein, or has voluntarily chosen not to consult counsel. 5. MISCELLANEOUS. 5.1 Waiver. Secured Party s failure, at any time or times hereafter, to require strict performance by Debtor of any provision of this Agreement shall not waive, affect or diminish any right of Secured Party thereafter to demand strict compliance and performance therewith. Any suspension or waiver by Secured Party of a Default under this Agreement or a default under any of the other Loan Documents shall not suspend, waive or affect any other Default under this Agreement or any other default under any of the other Loan Documents, whether the same is prior or subsequent thereto and whether of the same or of a different kind or character. None of the undertakings, agreements, warranties, covenants and representations of Debtor contained in this Agreement or any of the other Loan Documents, and no Default under this Agreement or default under any of the other Loan Documents, shall be deemed to have been suspended or waived by Secured Party unless such suspension or waiver is in writing signed by an officer of Secured Party, and directed to Debtor specifying such suspension or waiver. 5.2 Costs and Attorneys Fees. If at any time or times hereafter Secured Party employs counsel in connection with protecting or perfecting Secured Party s security interest in the Collateral or in connection with any matters contemplated by or arising out of this Agreement, whether (a) to commence, defend, or intervene in any litigation or to file a petition, complaint, answer, motion or other pleading, (b) to take any other action in or with respect to any suit or proceeding (bankruptcy or otherwise), (c) to consult with officers of Secured Party to advise Secured Party with respect to this Agreement or the other Loan Documents or the Collateral, (d) to protect, collect, lease, sell, take possession of, or liquidate any of the Collateral, or (e) to attempt to enforce or to enforce any security interest in any of the Collateral, to attempt to enforce or to enforce any rights of Secured Party to collect any of the Obligations, then in any of such events, all of the reasonable attorneys fees arising from such services, and any expenses, costs and charges relating thereto, including without limitation all reasonable fees of the paralegals and other staff employed by such attorneys, together with interest at the rate prescribed in the Note and shall be part of the Obligations, payable on demand and secured by the Collateral. Such interest shall accrue at the times, and in the manner, provided for in the Note. 5.3 Expenditures by Secured Party. If Debtor shall fail to pay taxes, insurance, assessments, costs or expenses which Debtor is, under any of the terms hereof or of any of the other Loan Documents, required to pay, or fails to keep the Collateral free from other security interests, liens or encumbrances, except as permitted herein, Secured Party may, in its sole discretion, after notice to Debtor, make expenditures for any or all of such purposes, and the amount so expended, together with interest thereon at the rate prescribed in the Note and shall be part of the Obligations, payable on demand and secured by the Collateral. 5.4 Custody and Preservation of Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral in its possession if it takes such action for that purpose as Debtor shall request in writing, but failure by Secured Party to comply with any such request shall not of itself be deemed a failure to exercise reasonable care, and no failure by Secured Party to preserve or protect any right with respect to such Collateral against prior parties, or to do any act with respect to the preservation of such Collateral not so requested by Debtor, shall of itself be deemed a failure to exercise reasonable care in the custody or preservation of such Collateral. 5.5 Assignability; Parties. This Agreement may not be assigned by Debtor without the prior written consent of Secured Party. Secured Party shall not assign this Agreement without prior written consent of Debtor, except for estate planning purposes or through law of decent and distribution. Whenever in this Agreement there is reference made to any of the parties hereto, such reference shall be deemed to include, wherever applicable, a reference to the successors and permitted assigns of Debtor and the successors and assigns of Secured Party. 5.6 Applicable Law of Severability. THIS AGREEMENT SHALL BE CONSTRUED IN ALL RESPECTS IN ACCORDANCE WITH, AND GOVERNED BY, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PRINCIPLES) AND DECISIONS OF THE STATE OF CALIFORNIA. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Agreement. 5.7 Application of Payments. Notwithstanding any contrary provision contained in this Agreement or in any of the other Loan Documents, Debtor irrevocably waives the right to direct the application of any and all payments at any time or times hereafter received by Secured Party from Debtor or with respect to any of the Collateral, and Debtor does hereby irrevocably agree that Secured Party shall have the continuing exclusive right to apply and reapply any and all payments received at any time or times hereafter, whether with respect to the Collateral or otherwise, against the Obligations in such manner as Secured Party may deem advisable, notwithstanding any entry by Secured Party upon any of its books and records. 5.8 Marshaling; Payments Set Aside. Secured Party shall be under no obligation to marshall any assets in favor of Debtor or any other Person or against or in payment of any or all of the Obligations. To the extent that Debtor makes a payment or payments to Secured Party or Secured Party enforces its security interests or exercises its rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state, federal or foreign law, common law or equitable cause, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made. or such enforcement or setoff had not occurred. 5.9 Section Titles. The section and subsection titles contained in this Agreement shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties. 5.10 Continuing Effect. This Agreement, Secured Party s security interests in the Collateral of Debtor, and all of the other Loan Documents shall continue in full force and effect so long as any Obligations of Debtor shall be owed to Secured Party. 5.11 Notices. Except as otherwise expressly provided herein, any notice required or desired to be served, given or delivered hereunder shall be in writing, and shall be deemed to have been validly served, given or delivered upon the earlier of (a) personal delivery to the address set forth below (b) delivery by facsimile or similar means of delivery and (c) in the case of mailed notice, three (3) days after deposit in the United States mails, with proper postage for certified mail, return receipt requested, prepaid, or in the case of notice by Federal Express or other reputable overnight courier service, one (1) Business Day after delivery to such courier service, addressed to the party to be notified as follows: (i) If to Secured Party at: K. Charles Janac c/o Smart Machines 651 River Oaks Parkway San Jose, CA 95134 Telephone No.: (408) 324-1234 ext. 104 Facsimile No.: (408) 324-1966 (ii) If to Debtor at: Sepragen Corporation 30689 Huntwood Avenue Hayward, CA 94544 Attention: President Telephone No: (5l0)-476-0690 Facsimile No: (510)-476-0655 or to such other address as each party designates to the other in the manner herein prescribed. 5.12 Equitable Relief. Debtor recognizes that, in the event Debtor fails to perform, observe or discharge any of its obligations or liabilities under this Agreement, any remedy at law may prove to be inadequate relief to Secured Party; therefore, Debtor agrees that Secured Party, if Secured Party so requests, shall be entitled to temporary and permanent injunctive relief. 5.13 Entire Agreement. This Agreement, together with the Loan Documents executed in connection herewith, constitutes the entire Agreement among the parties with respect to the subject matter hereof, and supersedes all prior written or oral understandings with respect thereto. This Agreement may be amended only by mutual agreement of the parties evidenced in writing and signed by the party to be charged therewith. 5.14 Indemnity. Debtor agrees to defend, protect, indemnify and hold harmless Secured Party and each and all of its respective officers, directors, employees, attorneys and agents ("Indemnified Parties") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for the Indemnified Parties in connection with any investigative, administrative or judicial proceeding, whether or not the Indemnified Parties shall be designated by a party thereto), which may be imposed on, incurred by, or asserted against any Indemnified Party (whether direct, indirect or consequential and whether based on any federal, state, local or foreign laws or other statutory regulations, including without limitation securities, environmental and commercial laws and regulations, under common law or at equitable cause, or on contract or otherwise) in any manner relating to or arising out of this Agreement or the other Loan Documents, or any act, event or transaction related or attendant thereto (including any liability under federal, state, local or foreign environmental laws or regulations); provided, that Debtor shall not have any obligation to any Indemnified Party hereunder with respect to matters caused by or resulting from the willful misconduct or gross negligence of such Indemnified Party. To the extent that the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, Debtor shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all matters incurred by the Indemnified Parties. Any liability, obligation, loss, damage, penalty, cost or expense incurred by the Indemnified Parties shall be paid to the Indemnified Parties on demand, together with interest thereon at the rate prescribed for in the Note from the date incurred by the Indemnified Parties until paid by Debtor, be added to the Obligations and be secured by the Collateral. The provisions of and undertakings and indemnifications set out in this Section 5.14 shall survive the satisfaction and payment of the Obligations. 5.15 Representations and Warranties. Notwithstanding anything to the contrary contained herein, each representation or warranty contained in this Agreement or any of the other Loan Documents shall survive the execution and delivery of this Agreement and the other Loan Documents and the repayment of the Obligations. 5.16 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 5.17 Conflict. To the extent that any provision or term of the Subscription Agreement or the Note conflict with any provision or term herein, the term or provision of this Agreement shall govern. IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year above written. SEPRAGEN CORPORATION By: /s/ Vinit Saxena Its: President /s/ K. Charles Janac K. CHARLES JANAC EXHIBIT A TO UCC-1 FINANCING STATEMENT Debtor: Secured Party: Sepragen Corporation K. Charles Janac 30689 Huntwood Avenue c/o Smart Machines Inc. Hayward, CA 94544 651 River Oaks Parkway San Jose, CA 95134 This Financing Statement covers all of Debtor's right, title and interest in and to the following types of property, whether currently existing or owned or hereafter arising or acquired, wheresoever located (collectively, the "Collateral"): (a) accounts (including, without limitation, all accounts receivable), chattel paper, claims, contract rights, leases and rental income thereunder, leasehold interests, letters of credit, instruments and documents ("Accounts"), and all goods sold, leased or otherwise disposed of by Debtor which have given rise to Accounts and which have been returned to or repossessed or stopped in transit by Debtor; (b) all patents, copyrights and trademarks, and all applications for and registrations of the foregoing, all franchise rights, trade names, goodwill, beneficial interests, rights to tax refunds and all other general intangibles of any kind or nature whatsoever ("General Intangibles"); (c) all inventory and goods of the Debtor, wherever located, whether in transit, held by others for the Debtor's account, covered by warehouse receipts, purchase orders or contracts, or in the possession of any carriers, forwarding agents, truckers, warehousemen, vendors or other persons, including, without limitation, all raw materials, work-in-process, finished merchandise, supplies, goods, incidentals, office supplies, packaging materials and all materials used or consumed in Debtor's business ("Inventory"); (d) goods (other than Inventory), including all returned, reconsigned and repossessed goods, machinery, equipment, vehicles, appliances, furniture, furnishings and fixtures ("Equipment"); (e) monies, reserves, deposits, certificates of deposit and deposit accounts and interest or dividends thereon, guaranties, securities, cash, cash equivalents and other property whether or not in the possession or under -the control of Agent, any Secured Party or their respective bailee; (f) all books, records, computer records, ledger cards, programs and other computer materials, customer and supplier lists, invoices, orders and other property and general intangibles at any time evidencing or relating to the contents thereof ("Records"); (g) all accessions to any of the foregoing and all substitutions, renewals, improvements and replacements of and additions thereto; (h) all other property of Debtor, real and personal; and (i) all products and proceeds of the foregoing (whether such proceeds are in the form of cash, cash equivalents, proceeds of insurance policies, Accounts, General Intangibles, Inventory, Equipment, Records or otherwise). EX-10 5 EXHIBIT 10.11 PATENT AND TRADEMARK MORTGAGE This PATENT, TRADEMARK AND LICENSE MORTGAGE (the "Mortgage") made as of this 18th day of August, 1998, by SEPRAGEN CORPORATION a California corporation having an address at 30689 Huntwood Avenue, Hayward, CA 94544 ("Mortgagor"), in favor of K. CHARLES JANAC ("Mortgagee"): WITNESSETH: WHEREAS, Mortgagor and Mortgagee are parties to a certain Subscription Agreement (the "Subscription Agreement") and other related documents of even date herewith (collectively, with the Subscription Agreement, the "Loan Documents"), which Loan Documents provide (i) for Mortgagee to extend credit to or for the account of Mortgagor and (ii) for the grant by Mortgagor to Mortgagee of a security interest in certain of Mortgagor's assets, including, without limitation, its patents, patent applications, trademarks, trademark applications, trade names, service marks, service mark applications and goodwill; NOW, THEREFORE, in consideration of the premises set forth herein and for other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, Mortgagor agrees as follows: 1. Capitalized Terms. All terms capitalized but not otherwise defined herein shall have the same meanings herein as in the Loan Documents. 2. Mortgage of Patents, Trademarks and Licenses. To secure the complete and timely satisfaction of all of Mortgagor's Obligations, Mortgagor hereby grants, bargains, assigns, mortgages, pledges, sells, creates a security interest in, transfers, and conveys to Mortgagee, as and by way of a first mortgage and security interest having priority over all other security interests, with power of sale, to the extent permitted by law, upon the occurrence of an Event of Default, all of Mortgagor's right, title and interest in and to all of its now existing: (i) patents and patent applications, including, without limitation, the inventions and improvements described and claimed therein, and those patents listed on Exhibit A attached hereto and hereby made a part hereof, and (a) the reissues, divisions, continuations, renewals, extensions and continuations in-part thereof, (b) all income, damages and payments now and hereafter due or payable under or with respect thereto, including, without limitation, damages and payments for past or future infringements thereof, (c) the right to sue for past, present and future infringements thereof, and (d) all rights corresponding thereto throughout the world (all of the foregoing patents and applications, together with the items described in clauses (a)-(d) of this subsection 2(i), are sometimes hereinafter referred to individually as a "Patent" and, collectively, as the "Patents"); (ii) trademarks, trademark registrations, trademark applications, trade names and tradestyles, service marks, service mark registrations and service mark applications, including, without limitation, the trademarks, trade names, service marks and applications and registrations thereof listed on Exhibit B attached hereto and hereby made a part hereof, and (a) renewals or extensions thereof, (b) all income, damages and payments now and hereafter due or payable with respect thereto, including, without limitation, damages and payments for past or future infringements thereof, (c) the right to sue for past, present and future infringements thereof, and (d) all rights corresponding thereto throughout the world (all of the foregoing trademarks, trade names and tradestyles, service marks and applications and registrations thereof, together with the items described in clauses (a)-(d) of this subsection 2(u), are sometimes hereinafter referred individually as a "Trademark", and, collectively, as the "Trademarks"); and (iii) the goodwill of Mortgagor's business connected with and symbolized by the Trademarks. 3. Warranties and Representations. Mortgagor warrants and represents to Mortgagee that: (i) The Patents and Trademarks have not been adjudged invalid or unenforceable and have not been canceled, in whole or in part and are presently subsisting; (ii) To the best of Mortgagor's knowledge, each of the Patents and Trademarks is valid and enforceable; (iii) Mortgagor is the sole and exclusive owner of the entire and unencumbered right, title and interest in and to each of the Patents and Trademarks, free and clear of any liens, charges and encumbrances, including, without limitation, licenses, shop rights and covenants by Mortgagor not to sue third persons; (iv) Mortgagor has adopted all of the Trademarks; (v) Mortgagor has no notice of any suits or actions commenced or threatened with reference to the Patents or Trademarks; and (vi) Mortgagor has the right to execute and deliver its Mortgage and perform its terms and has entered into or will enter into written agreements with each of its present and future employees, agents and consultants which will enable it to comply with the covenants contained herein. 4. Restrictions on Future Agreements. Mortgagor agrees that until Mortgagor's Obligations shall have been satisfied in full and the Loan Documents shall have been terminated, Mortgagor shall not sell or assign its interest in, or grant any license to substantially all of Mortgagor's rights under, the Patents or Trademarks, or enter into any other agreement with respect to the Patents or Trademarks which is inconsistent with Mortgagor's Obligations under this Mortgage, without the prior written consent of Mortgagee except in the ordinary course of business, and Mortgagor further agrees that it shall not take any action, or permit any action to be taken by others subject to its control, including, without limitation, licensees, or fail to take any action (solely with respect to the Patents and the Tradenames), which would affect the validity or enforcement of the rights transferred to Mortgagee under this Mortgage. Mortgagee shall cooperate with Mortgagor to facilitate third party licenses in the Patents. 5. Post-Default Non-exclusive License. If Mortgagor Defaults on the Convertible Secured Promissory Note, Mortgagee shall negotiate,, in good faith, an arms length transaction pursuant to which Mortgagee may grant Mortgagor a non-exclusive license to use the Patents and Trademarks listed on Exhibits A and B. 6. Royalties; Terms. The term of the mortgages granted herein shall extend until the earlier of(i) the expiration of each of the respective Patents and Trademarks assigned hereunder, and (ii) Mortgagor's Obligations have been paid in full and the Loan Documents have been terminated. Upon the occurrence of an Event of Default or Default, Mortgagor agrees that the use by Mortgagee of all Patents and Trademarks shall be worldwide and without any liability for royalties or other related charges from Mortgagee to the Mortgagor. 7. Mortgagee's Right to Inspect. Mortgagee shall have the right upon prior written notice, after executing a reasonable confidentiality agreement and at any time and from time to time during normal business hours and prior to payment in full of Mortgagor's Obligations and termination of the Loan Documents, to inspect Mortgagor's premises and to examine Mortgagor's books, records and operations, including, without limitation, Mortgagor's quality control processes. 8. Release of Mortgage. This Mortgage is made for collateral purposes only. Upon payment in full of Mortgagor's Obligations and termination of the Loan Documents, Mortgagee shall execute and deliver to Mortgagor all deeds, assignments and other instruments, and shall take such other actions, as may be necessary or proper to revest in Mortgagor full title to the Patents and Trademarks, subject to any disposition thereof which may have been made by Mortgagee pursuant hereto or pursuant to the Loan Documents. 9. Expenses. All expenses incurred in connection with the performance of any of the agreements set forth herein shall be borne by Mortgagor. All fees, costs and expenses, of whatever kind or nature, including, without limitation, reasonable attorneys and paralegals fees and legal expenses, incurred by Mortgagee in connection with the filing or recording of any documents (including, without limitation, all taxes in connection therewith) in public offices, the payment or discharge of any taxes, counsel fees, maintenance fees, encumbrances or otherwise in protecting, maintaining or preserving the Patents and Trademarks, or in defending or prosecuting any actions or proceedings arising out of or related to the Patents and Trademarks, shall be borne by and paid by Mortgagor on demand by Mortgagee and until so paid shall be added to the principal amount of Mortgagor's Obligations and shall bear interest at the highest rate provided for in the Note. 10. Duties of Mortgagor. Mortgagor shall have the duty (i) to preserve and maintain all rights in the Patents and Trademarks, and (ii) to ensure that the Patents and Trademarks are and remain enforceable. Any expenses incurred in connection with Mortgagor's obligations under this Section 10 shall be borne by Mortgagor. Mortgagor shall not abandon any right to file a patent, trademark or service mark application, or abandon any pending patent application, or any other Patent or Trademark without the consent of Mortgagee. 11. Mortgagee's Right to Sue. After the occurrence of an Event of Default or Default, Mortgagee shall have the right, but shall in no way be obligated, to bring suit in its own name to enforce the Patents and Trademarks, and, if Mortgagee shall commence any such suit, Mortgagor shall, at the request of Mortgagee, do any and all lawful acts and execute any and all proper documents required by Mortgagee in aid of such enforcement and Mortgagor shall promptly, upon demand, reimburse and indemnify Mortgagee for all reasonable costs and expenses incurred by Mortgagee in the exercise of its rights under this Section 11. 12. Waivers. No course of dealing between Mortgagor and Mortgagee, nor any failure to exercise, nor any delay in exercising, on the part of Mortgagee, any right, power or privilege hereunder or under the Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 13. Severability. The provisions of this Mortgage are severable, and if any clause or provision shall be held invalid and unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Mortgage in any jurisdiction. 14. Modification. This Mortgage cannot be altered, amended or modified in any way, except by a writing signed by the parties hereto. 15. Cumulative Remedies; Power of Attorney; Effect on Subscription Agreement. All of Mortgagee's rights and remedies with respect to the Patents, Trademarks and Licenses, whether established hereby or by the Loan Documents, or by any other agreements or by law shall be cumulative and may be exercised singularly or concurrently. Upon the occurrence of an Event of Default or Default, Mortgagor hereby authorizes Mortgagee to make, constitute and appoint any officer or agent of Mortgagee as Mortgagee may select, in its sole discretion, as Mortgagor's true and lawful attorney-in-fact, with power to (i) endorse Mortgagor's name on all applications, documents, papers and instruments necessary or desirable for Mortgagee in the use of the Patents and Trademarks, or (ii) take any other actions with respect to the Patents and Trademarks as Mortgagee deems to be in the best interest of Mortgagee, or (iii) grant or issue any exclusive or non-exclusive license under the Patents or Trademarks to anyone, or (iv) assign, pledge, convey or otherwise transfer title in or dispose of the Patents or Trademarks to anyone. Mortgagee hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney shall be irrevocable until Mortgagor's Obligations shall have been paid in full and the Security Agreement, including any amendments thereto, has been terminated. Mortgagor acknowledges and agrees that this Mortgage is not intended to limit or restrict in any way the rights and remedies of Mortgagee under the Loan Documents but rather is intended to facilitate the exercise of such rights and remedies. Mortgagee shall have, in addition to all other rights and remedies given it by the terms of this Mortgage and the Loan Documents, all rights and remedies allowed by law and the rights and remedies of a secured party under the Uniform Commercial Code as enacted in any jurisdiction in which the Patents or Trademarks may be located. 16. Acknowledgment of Mortgagor's Licensing Needs. Mortgagee acknowledges that Mortgagor is in the business of licensing the Intellectual Property covered by the Patent and Trademark Mortgage. It is not the intent of the parties to restrict Mortgagor's ability to license the Intellectual Property. Mortgagee will cooperate with Mortgagor and not take any action to hinder the execution of licenses for the Intellectual Property in Mortgagor's ordinary course of business. 17. Binding Effect; Benefits. This Mortgage shall be binding upon the Mortgagor and its respective successors and assigns, and shall inure to the benefit of Mortgagee, its successors, nominees and assigns. 18. Governing Law. This Mortgage shall be governed by and construed in accordance with the internal laws of the State of California. 19. Headings. Paragraph headings used herein are for convenience only and shall not modify the provisions which they precede. 20. Further Assurances. Mortgagor agrees to execute and deliver such further agreements, instruments and documents, and to perform such further acts, as Mortgagee shall reasonably request from time to time in order to carry out the purpose of this Mortgage and agreements set forth herein. 21. Survival of Representations. All representations and warranties of Mortgagor contained in this Mortgage shall survive the execution and delivery of this Mortgage. IN WITNESS WHEREOF, Mortgagor has duly executed this Mortgage in favor of Mortgagee as of the date first written above. SEPRAGEN CORPORATION By: /s/ Vinit Saxena Its: President /s/ K. Charles Janac K. CHARLES JANAC STATE OF CALIFORNIA ) ) ss COUNTY OF SAN MATEO ) The foregoing Patent and Trademark Mortgage was executed and acknowledged before me this 18 th day of August, 1998, by Vinit Saxena and n/a, personally known to me to be the person and n/a, of Sepragen Corporation, a California corporation, on behalf of such corporation. Notary Public San Mateo County, My Commission expires: 7-3-2001 ACKNOWLEDGMENT STATE OF CALIFORNIA ) )SS COUNTY OF SANTA CLARA ) I, Frederick C. Harris, Notary Public in and for and residing in said County and State, DO HEREBY CERTIFY that K. Charles Janac personally known to me to be the same person whose names is subscribed to the foregoing instrument, appeared before me this day in person and acknowledged that he signed and delivered said instruments as his own free and voluntary act and as the free and voluntary act of said bank for the uses and purposes therein set forth. GIVEN under my hand and notarial seal this 16 day of August, 1998. /s/Frederick C. Harris Notary Public My Commission Expires: 1-16-02 THIS INSTRUMENT PREPARED BY AND AFTER FILING RETURN TO: Kyle Guse, Esq. Heller Ehrman White & McAuliffe 2500 Sand Hill Road, Suite 100 Menlo Park, CA 94025 EXHIBIT A PATENTS AND PATENT APPLICATIONS U.S. PATENTS ISSUED 1. Patent Number 4,627,918, issued December 9, 1986, "Chromatography Column Using Horizontal Flow", issued to Vinit Saxena and assigned to Sepragen Corporation. Sepragen Corporation - File 1723 2. Patent Number 4,676,898, issued June 30, 1987, "Electrophoresis - Mass Spectrometry Probe", issued to Vinit Saxena and assigned to Sepragen Corporation. Sepragen Corporation - File 1724 3. Patent Number 4,705,616, issued November 10, 1987, "Chromatography Column -Electrophoresis System", issued to Brian D. Andresen and Vinit Saxena and assigned to Sepragen Corporation. Sepragen Corporation - File 1731 4. Patent Number 4,708,782, issued November 24, 1987, "Chromatography Column -Electrophoresis System", issued to Brian D. Andresen and Vinit Saxena and assigned to Sepragen Corporation. Sepragen Corporation - File 1725 5. Patent Number 4,740,298, issued April 26, 1988, "Chromatography Column! Moving Belt Interface", issued to Brian D. Andresen and Vinit Saxena and assigned to Sepragen Corporation. Sepragen Corporation - File 1726 6. Patent Number 4,833,083, issued May 23, 1989, "Packed Bed Bioreactor", issued to Vinit Saxena and assigned to Sepragen Corporation. Sepragen Corporation - File 1727 7. Patent Number 4,840,730, issued June 20, 1989, "Chromatography System Using Horizontal Flow Columns", issued to Vinit Saxena and assigned to Sepragen Corporation. Sepragen Corporation - File 1728 8. Patent Number 4,865,729, issued September 12, 1989, "Radial Thin Layer Chromatography", issued to Vinit Saxena and Brian D. Andresen and assigned to Sepragen Corporation. Sepragen Corporation - File 1729 9. Patent Number 4,865,947, issued September 19, 1989, "Interface for Liquid Chromatography - Mass Spectrometer", issued to Brian D. Andresen and Eric R. Fought and assigned to Sepragen Corporation. Sepragen Corporation - File 1932 10. Patent Number 5,462,659, issued October 31, 1995, "An Improved Chromatography Column", issued to Venit Saxena and Paul Young and assigned to Sepragen Corporation. Sepragen Corporation - File 1933 11. Euro Patent Number 0530258, issued September 1995, "Absorbent Medium", issued to Alan Sanderson, R. Dove, Fang Ming and John Howell, and assigned to Sepragen Corporation. Sepragen Corporation - File 1981 12. Patent Number 5,492,723, issued February 20, 1996, "Absorbent Medium", issued to Alan Sanderson, R. Dove, Fang Ming, and John Howell, and assigned to Sepragen Corporation. Sepragen Corporation - File 1740 13. Patent Number 5,597,489, issued January 28, 1997, "Method For Removing Contaminants From Water", issued to H. Michael Schneider, Edward Allen, Richard Woodling, and Roy Barnes and assigned to Sepragen Corporation. Sepragen Corporation - File 1739 14. Patent Number 5,690,996, issued November 25, 1997, "Cross-Linked Cellulose Sponge", issued to Alan Sanderson, Rod Dove, Fang Ming, and John Howell and assigned to Sepragen Corporation. Sepragen Corporation - File 1910 15. Patent Number 5,756,680, issued May 26, 1998, "Sequential Separation of Whey Proteins and Formulation Thereof , issued to Salah H. Ahmed, Vinit Saxena, Zahid Mozaffar, and Quirinus R. Miranda and assigned to Sepragen Corporation. Sepragen Corporation - File 2338 U.S. PATENT APPLICATION EXAMINED AND ALLOWED FOR ISSUANCE 1. Patent Application, pending for "High Throughput Debittering", has been accepted for issuance to Zahid Mozaffar, Quirinus Miranda, and Vinit Saxena and assignment to Sepragen Corporation. Sepragen Corporation - File 2397 2. Patent Application, pending for "Sequential Separation of Whey", has been filed on May 4, 1998, for issuance to Salah H. Ahmed, Vinit Saxena, Zahid Mozaffar, and Quirinus R. Miranda and assignment to Sepragen Corporation. Sepragen Corporation - File 2181 FOREIGN PATENTS ISSUED 1. U.S. Patent #5,756,680, "Sequential Separation of Whey Proteins and Formulations Thereof , has been filed on September 22, 1997 for (PCT) foreign patent, in Australia and New Zealand; and (EPC) in Switzerland, Ireland and The Netherlands, as of September 22, 1997. Sepragen Corporation - File 2338 U.S. TRADEMARKS REGISTERED AND PENDING 1. Trademark Principal Register, Registration Number 1,419,016, registered on December 2, 1986, "SUPERFLO" to Sepragen Corporation. Sepragen Corporation - File 1982 2. Trademark Principal Register, Registration Number 1,574,587, Registered on January 2, 1990, "QUANTASEP", to Sepragen Corporation. Sepragen Corporation - File 1983 3. Trademark Principal Register, Registration Number 1,803,149, registered on November 9, 1993, "S" Trademark, to Sepragen Corporation. Sepragen Corporation - File 1984 4. Trademark applied for "S" and Design. File 01743 5. Trademark applied for "Sepragen". File 01742 6. Trademark applied for "SepraLac". File 02251 7. Trademark applied for "SepraSorb". File 02092 FOREIGN TRADEMARKS REGISTERED AND PENDING 1. "Sepralac" Trademark: a. New Zealand -- International Class 9, Trademark Application #26803 5, Registration #268035, October 8, 1996. b. Australia -- International Class 9, Registration #03128/1997, July 25, 1997. c. Denmark -- International Class 9, Registration #03128/1997, July 25, 1997. d. Switzerland -- International Class 9, Registration #441337, October 7, 1996. e. Benelux -- International Class 9, Registration #598445, October 4, 1996. EXHIBIT B TRADEMARKS The Company's name, helix logo. Superflo and QuantaSep trademarks are registered on the Principal Register of Trademarks maintained by the U.S. Patent and Trademark Office, and applications to register the mark SepraSorb, Sepragen, "S" and Design and Sepralac are pending. EX-27 6
5 LEGEND THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS FOR SEPTEMBER 30, 1998 AS FILED ON FORM 10QSB WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS 9-MOS DEC-31-1998 DEC-31-1998 SEP-30-1998 SEP-30-1998 206,197 206,197 0 0 192,799 192,799 12,000 12,000 231,355 231,355 657,860 657,860 198,157 198,157 0 0 957,449 957,449 2,033,592 2,033,592 0 0 0 0 500,000 500,000 12,913,693 12,913,693 (14,489,836) (14,489,836) 957,449 957,449 356,395 1,200,199 356,395 1,200,199 139,564 649,391 139,564 649,391 524,773 1,534,813 0 0 68,669 177,951 (376,611) (1,161,956) (376,611) (1,161,956) (376,611) (1,161,956) 0 0 0 0 0 0 (376,611) (1,161,956) (.13) (.41) (.13) (.41)
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