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EXHIBIT 4.10
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made and entered into as of
the 11th day of June, 2001, by and among EMPYREAN BIOSCIENCE, INC., a Delaware
corporation ("Company"), XXXXXXX X. XXXXXXX, XXXXXXX X. XXXXX and UPTIC
INVESTMENTS CO. (each individually, a "Guarantor" and collectively,
"Guarantors").
RECITALS
A. The Company is a party to a Subscription Agreement dated June 11, 2001
with Laurus Master Fund, Ltd. ("Laurus") pursuant to which, among other things,
the Company issued and sold a Convertible Promissory note ("Note") and a Common
Stock Purchase Warrant ("Warrant") to Laurus (the "Subscription Agreement").
B. In the Subscription Agreement, the Company has agreed to register the
shares of its common stock issuable on conversion of the Note and on exercise of
the Warrant (the "Registration Obligations").
C. Each of the Guarantors is a party to a Security Agreement dated June 11,
2001 with Laurus (the "Security Agreement") pursuant to which the Guarantors
have pledged shares of the Company's common stock held by them (the "Pledged
Shares") as security for the Company's fulfillment of the Registration
Obligations.
D. The Company wishes to indemnify the Guarantors against the loss of all
or a portion of the Pledged Shares upon exercise by Laurus of its rights under
the Security Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties, the parties agree as
follows:
1. Indemnification. The Company shall indemnify and hold each Guarantor
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harmless from and against any losses directly or indirectly resulting from the
failure of the Company to discharge in full any of the Registration Obligations.
2. Determination of Amount of Loss.
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a) Set forth below is a true and correct listing of the number of the
Pledged Shares pledged by each Guarantor pursuant to the Security
agreement:
Xxxxxxx X. Xxxxxxx 1,625,000
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Xxxxxxx X. Xxxxx 1,625,000
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Uptic Investments Co. 1,153,750
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b) Upon the loss of any of the Pledged Shares by a Guarantor due to the
Company's failure to discharge any of the Registration Obligations
(the "Involuntary Conversion"), the Company shall issue to such
Guarantor, for no additional consideration, that number of shares of
the Company's common stock that equals the number of Pledged Shares
taken by Laurus pursuant to the Security Agreement (the "Replacement
Shares") within five (5) days after receiving written notice thereof.
The Replacement Shares shall be issued to the Guarantor as of the same
date as the Pledged Shares taken by Laurus in the Involuntary
Conversion and at the closing bid price of the stock on the date of
the Involuntary Conversion. In addition to the issuance of the
Replacement Shares on the occurrence of an Involuntary Conversion, the
Company shall indemnify each of the Guarantors for any loss (a "Tax
Loss") suffered by him or it as a result of (i) any capital gain to
the Guarantor as a result of the transfer of the Pledged Shares to
Laurus in the Involuntary Conversion, or (ii) short term capital gains
treatment incurred as a result of a sale of the Replacement Shares in
connection with the sale of all or substantially all of the voting
securities of the Company to a third party (a "Change of Control").
The Tax Loss on a gain on the Involuntary Conversion shall be the full
amount of federal and state taxes owing by the Guarantor as a result
of the Involuntary Conversion. The Tax Loss on a Change of Control
shall be the difference between (i) the amount of federal and state
short-term capital gain taxes paid by the Guarantor as a result of the
sale of the Replacement Shares in a Change of Control, and (ii) the
amount of federal and state long-term capital gain taxes that would
have been paid by the Guarantor but for the sale of the Replacement
Shares in a Change of Control. The Company shall also pay the
Guarantor a Gross Up Payment (as defined below) with respect to the
indemnification for any Tax Loss. "Gross Up Payment" means an amount
equal to the aggregate amount of federal, state and local income taxes
which the Guarantor will be required to pay and which is attributable
to the receipt of indemnification for a Tax Loss. In computing the
amount of this Gross Up Payment, it will be assumed that the Guarantor
is subject to tax by each taxing authority at the highest marginal tax
rate in the respective taxing jurisdiction of the Guarantor, but
giving effect to the tax benefits, if any, which the Guarantor may
enjoy to the extent that any such tax is deductible in determining the
tax liability of any other taxing jurisdiction. The Tax Loss and the
Gross Up Payment shall be made in cash or in shares of the Company's
common stock at the election of the Company.
c) Each Guarantor shall be reimbursed by the Company for reasonable
expenses including, but not limited to, accountant and attorney fees
incurred by him or it as a result of the operation of any of the
provisions of this Indemnification Agreement.
3. Term of Agreement. This Agreement will terminate only on termination of
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the Security Agreement and on the return of all of the Pledged Shares
to the Guarantors.
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4. Governing Law. This Agreement will be governed by and construed in
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accordance with the laws of the State of Delaware.
5. Successors and Assigns. This Agreement will be binding upon and will
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inure to the benefit of the Company and each of the Guarantors, and
their respective successors and assigns, executors and personal
representatives.
6. Multiple Counterparts. This Agreement may be executed in multiple
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counterparts which, when taken together, will constitute one document.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
EMPYREAN BIOSCIENCE, INC.
By:
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Name:
Title:
UPTIC INVESTMENTS CO.
By:
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Name:
Title:
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Xxxxxxx X. Xxxxxxx
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Xxxxxxx X. Xxxxx
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