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Business Associations Keyed to Epstein, 5th Ed.
EP MedSystems, Inc. v. EchoCath, Inc.
Citation:
235 F.3d 865 (2000)Facts
In August 1996, EchoCath’s CEO Frank DeBernardis made a presentation to MedSystems executives, representing that EchoCath had engaged in lengthy negotiations and was on the verge of signing contracts with four prominent medical companies (UroHealth, Johnson & Johnson, Medtronic, and C.R. Bard, Inc.) to develop and market EchoCath’s women’s health products. Throughout negotiations from November 1996 until the closing in February 1997, EchoCath’s CEO continued to represent that these contracts were “imminent.”
In December 1996, EchoCath delivered documents to MedSystems including its 1996 Prospectus and “EchoCath’s Operating Model,” which projected substantial sales from women’s health products. The Operating Model also stated that EchoCath expected to receive $450,000 in license fees and milestone payments from Medtronic and $500,000 from another company. Additionally, EchoCath’s Co-Chairman represented that the company would have sufficient operating funds to develop the women’s health products for at least 18-24 months.
Relying on these representations, MedSystems entered into a subscription agreement on February 27, 1997, purchasing 280,000 shares of preferred EchoCath stock for $1.4 million. In the fifteen months following the investment, EchoCath failed to enter into a single contract or receive any income related to the women’s health products. In September 1997, EchoCath advised MedSystems that it would run out of operating funds in 90 days without new investment.
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