SETTLEMENT AGREEMENT
--------------------
This Settlement Agreement (the "Agreement") dated this ___ day of August,
2006, is by and between ENCAPSULATION SYSTEMS, INC., a Pennsylvania corporation
with an address at Xxxxx of Xxxxxxxx, Xxxx. 0, 0000 Xxxxxxxxx Xxxx, Xxxxxxxxxxx,
XX 00000 ("ESI"), DERMISONICS, INC., a Nevada corporation with an address at 0
Xxxx Xxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxxxx 00000 ("Dermisonics") and XX. XXXXXX
XXXXXXXXXX, an adult individual with an address at 00 Xxxx Xxxxx Xxxx, Xxxx
Xxxxxx, Xxxxxxxxxxxx 00000 ("XxXxxxxxxx").
RECITALS
--------
WHEREAS, on February 12, 2004, an involuntary bankruptcy petition was filed
against ESI under chapter 7 of the Bankruptcy Code bearing case number 04-12089
(the "Bankruptcy Case"); and
WHEREAS, on April 30, 2004, the United States Bankruptcy Court for the
Eastern District of Pennsylvania (the "Bankruptcy Court") entered an order
converting the case to a case under chapter 11, and ESI has owned its property
and managed its business as a debtor in possession since then; and
WHEREAS, subsequently, the Bankruptcy Court entered an order approving the
sale of certain of ESI's intellectual property relating to its U-Strip
Technology (the "Intellectual Property") to Second Stage Ventures, Inc. ("SSV")
for $2,500,000 in deferred cash payments and the equivalent of $18,000,000 in
stock in SSV; and
WHEREAS, subsequently, SSV changed its name to "Dermisonics, Inc."
(referred to herein as "Dermisonics"), which holds all legal right, title and
interest in and to the Intellectual Property; and
WHEREAS, XxXxxxxxxx filed two proofs of claim bearing numbers 5 and 23 on
the claims register in ESI's bankruptcy case (the "Claims") in which XxXxxxxxxx
asserted claims as follows: (1) payment on account of a promissory note dated
February 8, 2001; (2) accrued and unpaid fees under a certain Consulting
Agreement II dated March 2, 2000 (the "Consulting Agreement"); (3) a royalty
under the Consulting Agreement equal to 1.5% of the consideration paid for the
Intellectual Property; and (4) additional shares of stock in ESI based upon a
split of shares owned by XxXxxxxxxx; and
WHEREAS, ESI filed an objection to the Claims in which ESI disputed
XxXxxxxxxx'x right to recover under any of the four basis asserted in the
Claims; and
WHEREAS, the Bankruptcy Court entered an order confirming ESI's Amended
Second Plan of Reorganization dated February 8, 2005(the "Plan"); and
WHEREAS, pursuant to the Plan, XxXxxxxxxx had a Class 1B Claim inasmuch as
her Claims, once liquidated, would be an unsecured claim in the case, and ESI
and XxXxxxxxxx agreed
1
that XxXxxxxxxx elected to receive a combination of cash and Dermisonics stock
under the Plan as opposed solely to Dermisonics' stock for those who failed to
make such an election; and
WHEREAS, to avoid the expense, rigors and uncertainties associated with
litigating ESI's objection to the Claims, at a hearing on June 29, 2006, ESI and
XxXxxxxxxx reached an agreement in principle to resolve the Claims and various
other matters (including those involving Dermisonics) in dispute between the
parties; and
WHEREAS, the terms and conditions of that settlement are set forth in their
entirety in this Agreement.
NOW, THEREFORE, incorporating the background herein and in consideration of
the premises and covenants herein contained and for other good and valuable
consideration, the receipt and legal sufficiency of which is hereby
acknowledged, and intending to be legally bound hereby, the parties hereto agree
as follows:
1. ESI's and Dermisonics' Undertakings.
-----------------------------------
(a) ESI acknowledges and agrees that XxXxxxxxxx has an allowed
unsecured claim in the Bankruptcy Case that will be treated as follows (the
"Claim Treatment"): (i) within five business days of the date on which the
official docket in the Bankruptcy Case reflects that the Bankruptcy Court
has entered an order approving this Agreement in its entirety (that date
being known as the "Effective Date"), ESI will pay XxXxxxxxxx the sum of
$30,000 from the monies held in escrow from the sale of the Intellectual
Property; (ii) Dermisonics agrees to pay to XxXxxxxxxx the total sum of
$30,000 as follows: contemporaneous with the final two installment payments
paid to ESI under the terms of the sale of the Intellectual Property, the
sum of $15,000 on each such date; provided, however, that the first payment
by Dermisonics to XxXxxxxxxx shall occur no later than September 30, 2006
and the second payment no later than December 31, 2006; (iii) within five
days of the Effective Date, ESI shall take all steps necessary to cause the
transfer agent for Dermisonics to transfer 200,000 shares owned by ESI in
Dermisonics to XxXxxxxxxx (subject to whatever restrictions on trading or
otherwise that exist with respect to such shares); provided, however, that
XxXxxxxxxx acknowledges and agrees that ESI has no control over or
responsibility for any delays that may occur with respect to the transfer
agent or otherwise so long as ESI has complied with its obligations timely;
and (iv) within five days of the Effective Date, Dermisonics shall take all
steps to issue 200,000 shares of Dermisonics' stock to XxXxxxxxxx subject
to the same restrictions and possibilities of delay described in subpart
(iii) of this Section 1(a). ESI's objection to the Claims shall be deemed
"settled" under the foregoing terms. XxXxxxxxxx acknowledges that the
shares of Dermisonics being transferred to her are "restricted securities,"
as that term is defined in federal securities laws, will be subject to a
legend restricting transfer, and may be transferred only in compliance with
state and federal securities laws and the receipt by Dermisonics of an
opinion of legal counsel as to the legality of such transfer from an
attorney reasonably satisfactory to Dermisonics.
2
(b) With the exception of XxXxxxxxxx'x obligations under this
Agreement, ESI, on behalf of itself and any person or entity claiming by,
through or under it (the "ESI Releasors"), hereby unconditionally remises,
releases and forever discharges XxXxxxxxxx, including her executors,
administrators, heirs, and permitted successors and assigns (the
"XxXxxxxxxx Releasees"), of and from any and all manner of actions, causes
of action, suits, debts, dues, accounts, bonds, covenants, contracts,
agreements, promises, warranties, guaranties, representations, liens,
judgments, claims, counterclaims, cross claims, defenses and/or demands
whatsoever, including claims for contribution and/or indemnity, whether now
known or unknown, past or present, asserted or unasserted, contingent or
liquidated, at law or in equity, or resulting from any assignment, if any,
which any of the ESI Releasors ever had or now have against the XxXxxxxxxx
Releasees, for or by reason of any cause, matter or thing whatsoever,
arising from the beginning of time to the date of execution of this
Agreement. Within five days of the Effective Date, ESI agrees to file with
the Office of Judicial Support (Civil) for the Court of Common Pleas of
Delaware County a praecipe to xxxx the case at Encapsulation Systems, Inc.
---------------------------
v. Xxxxxx XxXxxxxxxx and SMcE Consultants, No. 01-11157 (the "Delaware
-----------------------------------------
County Civil Action") "settled, discontinued and ended." ESI warrants and
represents that it has not assigned, pledged, hypothecated and/or otherwise
divested itself and/or encumbered all or any part of the claims being
released hereby and that it hereby agrees to indemnify and hold harmless
any and all of XxXxxxxxxx Releasees against any party who asserts or claims
that such an assignment, pledge, hypothecation, divestiture and/or
encumbrance was made.
2. XxXxxxxxxx'x Undertakings.
--------------------------
(a) XxXxxxxxxx acknowledges and agrees that (i) the Claim
Treatment shall be in full and final satisfaction of all of ESI's and
Dermisonics' obligations to XxXxxxxxxx with respect to the Claims and any
other claims that XxXxxxxxxx has against ESI and Dermisonics; (ii)
XxXxxxxxxx irrevocably waives any past, present or future claim for
royalties or any other claims arising under, related to or in connection
with the Consulting Agreement or otherwise; (iii) XxXxxxxxxx has no
ownership interest in the Intellectual Property or any other intellectual
property rights or know-how that ESI created, developed, or conceived
during her relationship with ESI or that XxXxxxxxxx created, developed or
conceived in connection with her relationship with ESI, including but not
limited to ideas, concepts, themes, inventions, methods, processes,
devices, apparatus, compositions of matter, designs, improvements,
discoveries, designations, patents, patent applications, copyrights, trade
secrets and trademarks, conceived, developed, reduced to practice,
discovered and/or written by XxXxxxxxxx, either individually or jointly in
collaboration with others (collectively, the "ESI Intellectual Property");
and (iv) XxXxxxxxxx will not, directly or indirectly, seek to patent or
otherwise disclose or claim any of the ESI Intellectual Property.
(b) With five days of the Effective Date, XxXxxxxxxx shall turn
over to ESI all documents, papers or other materials in XxXxxxxxxx'x
possession, custody or control that are, contain information set forth in
or in any way derived from the Intellectual Property
3
or any other rights or assets of ESI, including, without limitation, all
originals, copies, notes or electronic media (the "Confidential
Information"). ESI and Dermisonics acknowledge and agree that Confidential
Information does not include any information that enters the public domain
through sources independent of XxXxxxxxxx through no fault or assistance of
XxXxxxxxxx, including, without limitation, granted patents and published
patent applications. Upon effectuating the foregoing turnover, XxXxxxxxxx
hereby certifies that (i) all such property has been turned over to ESI;
(ii) XxXxxxxxxx has not retained any such property or any rights in such
property; and (iii) the property was not at any time given to or made
accessible to any other third party other than XxXxxxxxxx'x legal counsel
in the Delaware County Civil Action or the Bankruptcy Case, any person who
is reflected as a witness in the laboratory books of XxXxxxxxxx and as
required by the presiding judge in the Delaware County Civil Action.
(c) XxXxxxxxxx acknowledges that all shares owned by her in ESI
shall be deemed irrevocably transferred to ESI immediately upon the
execution of this Agreement and that ESI is authorized to reflect same in
its corporate books and records, including its stock ledger. In addition,
XxXxxxxxxx waives any claim to any shares in ESI based upon a split in the
shares that she owned or otherwise. With five days of the Effective Date,
XxXxxxxxxx shall deliver to ESI any and all original certificates in
XxXxxxxxxx'x possession reflecting her ownership interest in ESI or a
certification that said certificates have been lost, destroyed or stolen.
(d) With the exception of ESI's and Dermisonics' obligations
under this Agreement, XxXxxxxxxx, on behalf of herself and any person or
entity claiming by, through or under her (the "XxXxxxxxxx Releasors"),
hereby unconditionally remises, releases and forever discharges ESI and
Dermisonics (in its capacity as purchaser of the Intellectual Property),
including their respective officers, directors, shareholders and all of
their permitted successors and assigns (the "ESI/Dermisonics Releasees"),
of and from any and all manner of actions, causes of action, suits, debts,
dues, accounts, bonds, covenants, contracts, agreements, promises,
warranties, guaranties, representations, liens, judgments, claims,
counterclaims, cross claims, defenses and/or demands whatsoever, including
claims for contribution and/or indemnity, whether now known or unknown,
past or present, asserted or unasserted, contingent or liquidated, at law
or in equity, or resulting from any assignment, if any, which any of the
XxXxxxxxxx Releasors ever had or now have against the ESI/Dermisonics
Releasees, for or by reason of any cause, matter or thing whatsoever,
arising from the beginning of time to the date of execution of this
Agreement. XxXxxxxxxx warrants and represents that she has not assigned,
pledged, hypothecated and/or otherwise divested herself and/or encumbered
all or any part of the claims being released hereby and that she hereby
agrees to indemnify and hold harmless any and all of ESI/Dermisonics
Releasees against any party who asserts or claims that such an assignment,
pledge, hypothecation, divestiture and/or encumbrance was made.
(e) XxXxxxxxxx agrees that she will keep as confidential and not
disclose any Confidential Information to any individual or entity except as
authorized pursuant to
4
subpoena or judicial or governmental order and, in that situation, only as
follows: (i) XxXxxxxxxx will promptly notify ESI and Dermisonics of receipt
of any such request, (ii) consult with ESI and Dermisonics on the
advisability of taking steps to resist or narrow such request, and (iii)
cooperate with ESI and Dermisonics in any attempt that it/they may make to
obtain an order or other reliable assurance that confidential treatment
will be accorded to designated portions or all of the Confidential
Information. In the absence of a protective order or the receipt of a
waiver hereunder, XxXxxxxxxx may disclose such portion of the Confidential
Information as is required to be disclosed in order to avoid penalty for
noncompliance.
(f) At all times following the execution of this Agreement,
XxXxxxxxxx agrees to execute and deliver to ESI and/or Dermisonics or shall
cause to be executed and delivered to ESI and/or Dermisonics, and shall do
or cause to be done, all such other acts and things as ESI/Dermisonics may
reasonably deem to be necessary or desirable to protect, seek, obtain,
maintain, register, enforce, record and defend its/their intellectual
property, including, but not limited to, the Intellectual Property. By way
of further non-limiting example only, XxXxxxxxxx will:
(i) communicate to ESI/Dermisonics, and their successors,
assigns, and legal representatives or nominees, any facts known respecting
any and all to ideas, concepts, themes, inventions, methods, processes,
devices, apparatus, compositions of matter, designs, improvements,
discoveries, designations, patents, patent applications, copyrights, trade
secrets and trademarks, conceived, developed, reduced to practice,
discovered and/or written by XxXxxxxxxx, either individually or jointly in
collaboration with others, in connection with and/or during her
relationship with ESI, when requested by ESI/Dermisonics, or their
successors, assigns, and legal representatives or nominees;
(ii) sign all papers, take all rightful oaths, make all
rightful declarations, and do all acts that may be reasonably necessary,
desirable or convenient, in ESI's/Dermisonics', or their successors',
assigns', or nominees' sole discretion, for securing and/or maintaining
patents and/or other forms of protection for intellectual property,
including, but not limited to, the Intellectual Property, in any and all
countries of the World and for vesting title thereto in ESI/Dermisonics,
and their successors, assigns and nominees;
(iii) authorize and empower ESI/Dermisonics, and their
successors, assigns and nominees, to make application for patent or other
form of protection for any and all to ideas, concepts, themes, inventions,
methods, processes, devices, apparatus, compositions of matter, designs,
improvements, discoveries, designations, patents, patent applications,
copyrights, trade secrets and trademarks, conceived, developed, reduced to
practice, discovered and/or written by XxXxxxxxxx, either individually or
jointly in collaboration with others, in connection with and/or during her
relationship with ESI, in any and all countries of the World, and to invoke
and claim for any application for patent or other form of protection filed
by it or them, the benefit of the right of priority provided
5
by the International Convention for the Protection of Industrial Property,
as amended, or by any convention which may henceforth be substituted for
it, and to invoke and claim such right of priority without further written
or oral authorization from her; and
(iv) assist ESI/Dermisonics to evaluate all past and future
inventorship issues relating to the intellectual property, including, but
not limited to, the Intellectual Property, including, without limitation,
submitting to interviews necessary to evaluate any inventorship issues. In
this regard, ESI and/or Dermisonics shall make such documents and
information available during any such interview as it/they deem appropriate
for the limited purpose of evaluating the inventorship issues, provided
that such access and availability shall at all times be under and subject
to the confidentiality and non-disclosure provisions set forth in this
Agreement.
3. Dermisonics Release of XxXxxxxxxx. Dermisonics, on behalf of itself
---------------------------------
and any person or entity claiming by, through or under it (the "Dermisonics
Releasors"), hereby unconditionally remises, releases and forever discharges the
XxXxxxxxxx Releasees, of and from any and all manner of actions, causes of
action, suits, debts, dues, accounts, bonds, covenants, contracts, agreements,
promises, warranties, guaranties, representations, liens, judgments, claims,
counterclaims, cross claims, defenses and/or demands whatsoever, including
claims for contribution and/or indemnity, whether now known or unknown, past or
present, asserted or unasserted, contingent or liquidated, at law or in equity,
or resulting from any assignment, if any, which any of the Dermisonics Releasors
ever had or now have against the other, for or by reason of any cause, matter or
thing whatsoever, arising from the beginning of time to the date of execution of
this Agreement. Dermisonics warrants and represents that it has not assigned,
pledged, hypothecated and/or otherwise divested itself and/or encumbered all or
any part of the claims being released hereby and that it hereby agrees to
indemnify and hold harmless any and all of XxXxxxxxxx Releasees against any
party who asserts or claims that such an assignment, pledge, hypothecation,
divestiture and/or encumbrance was made.
4. Judicial Relief. XxXxxxxxxx acknowledges that disclosure of any
---------------
Confidential Information will give rise to immediate and irreparable injury to
ESI that would be inadequately compensated in money damages alone. Accordingly,
ESI may seek injunctive relief against the breach, or threatened breach, of the
disclosure of any Confidential Information by XxXxxxxxxx, in addition to any
other legal remedies which may be available.
5. Amendments. Any amendment to this Agreement shall be made in
----------
writing and signed by the parties hereto.
6. Severability. The provisions of this Agreement will, to the
------------
greatest extent possible, be interpreted in such a manner as to comply with
applicable law, but if any provision hereof is, notwithstanding such
interpretation, determined to be invalid, void or unenforceable, the remaining
provisions of this Agreement will not be affected thereby but will remain in
full force and effect and be binding upon the parties hereto, unless the
deletion of such invalid, void or unenforceable provision or provisions would
result in such a material change as to cause the
6
continuation of this Agreement to be unreasonable.
7. Assignment; Binding Effect. The rights and obligations of the
--------------------------
parties hereto under this Agreement shall inure to the benefit of, and shall be
binding upon, their respective successors and assigns. Reference to XxXxxxxxxx
throughout this Agreement is intended to mean and be binding upon Xxxxxx
XxXxxxxxxx as well as any other party or entity through which XxXxxxxxxx
conducts business or her affairs.
8. Counterparts. This Agreement may be signed by each party hereto by
------------
facsimile and in several counterparts, in which event all such counterparts
shall constitute one agreement, binding on all the parties hereto.
9. Fees and Costs. In any action to enforce the terms of this
--------------
Agreement, the prevailing party shall be entitled to recover its attorneys' fees
and court costs and other non-reimbursable litigation expenses.
10. Governing Law; Enforceability. Each party agrees that the
-----------------------------
formation, interpretation and performance of this Agreement shall be governed by
the laws of the Commonwealth of Pennsylvania excluding its conflict of law rules
and that this Agreement can be enforced by the Bankruptcy Court or any other
court having jurisdiction over the enforceability of a contract generally,
including the United States District Court for the Eastern District of
Pennsylvania and the Court of Common Pleas of Delaware County, Pennsylvania.
The language of all parts of this Agreement shall in all cases be construed as a
whole, according to its fair meaning, and not strictly for or against any party.
11. Integrated Agreement. Each party agrees that this Agreement sets
--------------------
forth the entire agreement between them on this subject and supersedes all other
oral and written understandings or agreements between the parties regarding the
subject matter of this Agreement. The terms of this Agreement are contractual
and not mere recitals. All heading, titles and similar items are provided for
the purpose of reference and convenience and are not intended to affect the
meaning, content or scope of this Agreement.
12. Representation by Counsel. Each party hereto acknowledges that
-------------------------
she/it has had the benefit of legal counsel of her/its own choice and has been
afforded an opportunity to review this Agreement with her/its legal counsel and
agrees that this Agreement shall be construed as if jointly drafted by all the
parties hereto.
13. Preservation of Legal Rights. This Agreement shall be interpreted
----------------------------
consistently with, and nothing contained herein shall be deemed as an attempt to
modify or circumvent the requirement under Title 35 of the United States Code,
and corresponding foreign laws, as interpreted by the courts of competent
jurisdiction, that only the true inventor(s) may apply for patent. Further,
nothing contained herein shall constitute a waiver on behalf of any person of
any right to be lawfully named as such an inventor, or any remedy under
applicable law, rule or regulation to enforce such right.
7
IN WITNESS WHEREOF, this Agreement has been executed by the parties as of
the date first written above.
ATTEST ENCAPSULATION SYSTEMS, INC.
By:
---------------------- -----------------------------
Name: Xxxxx Xxxxxxx
Title: President
ATTEST DERMISONICS, INC.
By: /s/ Xxxxx Xxxxxxx
---------------------- -----------------------------
Name: Xxxxx Xxxxxxx
Title: Chairman
WITNESS
---------------------- --------------------------------------
Xxxxxx XxXxxxxxxx
8
