AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1996
REGISTRATION NO. 333-
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- -----------------------------------------------------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
- -----------------------------------------------------------------------------
SANO CORPORATION
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 2834 65-0263022
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
REGINALD L. HARDY
PRESIDENT
SANO CORPORATION
3250 COMMERCE PARKWAY 3250 COMMERCE PARKWAY
MIRAMAR, FLORIDA 33025 MIRAMAR, FLORIDA 33025
(954) 430-3340 (954) 430-3340
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE,
TELEPHONE NUMBER, AND TELEPHONE
INCLUDING AREA CODE, OF REGISTRANT'S NUMBER, INCLUDING AREA CODE, OF
PRINCIPAL EXECUTIVE OFFICES) AGENT FOR SERVICE)
</TABLE>
- -----------------------------------------------------------------------------
COPY OF COMMUNICATIONS TO:
<TABLE>
<CAPTION>
<S> <C>
GARY EPSTEIN, ESQ. ADAM SONNENSCHEIN, ESQ.
GREENBERG, TRAURIG, HOFFMAN, ROBERT W. SWEET, JR., ESQ.
LIPOFF, ROSEN & QUENTEL, P.A. FOLEY, HOAG & ELIOT LLP
1221 BRICKELL AVENUE ONE POST OFFICE SQUARE
MIAMI, FLORIDA 33131 BOSTON, MASSACHUSETTS 02109
(305) 579-0500 (617) 832-1000
(FACSIMILE) (305) 579-0717 (FACSIMILE) (617) 832-7000
</TABLE>
- -----------------------------------------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
===============================================================================
PROPOSED
TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
- -------------------------------------------------------------------------------
Common Stock, $0.01 par value $46,050,313 $13,955
===============================================================================
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933 based on the
average of the high and low prices reported by the Nasdaq National Market
on October 23, 1996.
(2) Includes 322,500 shares of Common Stock which may be purchased by the
Underwriters pursuant to an over-allotment option.
- -------------------------------------------------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
===============================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 25, 1996
2,150,000 SHARES
[LOGO] SANO CORPORATION
COMMON STOCK
- -----------------------------------------------------------------------------
Of the 2,150,000 shares of Common Stock offered hereby, 1,250,000 are
being offered by Sano Corporation ("Sano" or the "Company") and 900,000
shares are being offered by certain shareholders of the Company (the "Selling
Shareholders"). See "Principal and Selling Shareholders." The Company will
not receive any of the proceeds from the sale of the shares by the Selling
Shareholders. The Company's Common Stock is traded on the Nasdaq National
Market under the symbol "SANO." On October 23, 1996, the last sale price of
the Common Stock as reported on the Nasdaq National Market was $18.0625 per
share. See "Price Range of Common Stock and Dividend Policy."
- -----------------------------------------------------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 6 THROUGH 12.
- -----------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- -------------------------------------------------------------------------------
Per Share..... $ $ $ $
Total(3)...... $ $ $ $
===============================================================================
(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses, payable by the Company, estimated at $450,000.
(3) Certain Selling Shareholders have granted the Underwriters a 30-day
option to purchase up to 322,500 additional shares of Common Stock on the
same terms and conditions as set forth above solely to cover
over-allotments, if any. If the Underwriters exercise this option in
full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Selling Shareholders will be $ , $ , and
$ , respectively. See "Underwriting."
-------------------------------------------------------------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject
to certain conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and to reject any orders in whole or in part. It is
expected that certificates for the shares of Common Stock will be available
for delivery at the offices of Volpe, Welty & Company, One Maritime Plaza,
San Francisco, California on or about , 1996.
VOLPE, WELTY & COMPANY
DILLON, READ & CO. INC.
WHEAT FIRST BUTCHER SINGER
The date of this Prospectus is , 1996
<PAGE>
[Chart entitled "Sano Product Pipeline" depicting the status of product
development and of clinical trials and FDA submissions for the Company's
products currently under development]
- -----------------------------------------------------------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET,
IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME. IN CONNECTION WITH THIS OFFERING, CERTAIN
UNDERWRITERS AND SELLING GROUP MEMBERS (IF ANY) OR THEIR RESPECTIVE
AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMPANY'S
COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A
UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE FINANCIAL STATEMENTS AND NOTES THERETO APPEARING
ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL FINANCIAL
INFORMATION AND SHARE DATA IN THIS PROSPECTUS ASSUME NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION OR OF OPTIONS OR WARRANTS OUTSTANDING AT
SEPTEMBER 30, 1996. THIS PROSPECTUS CONTAINS VARIOUS "FORWARD LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), WHICH REPRESENT THE COMPANY'S INTENTIONS,
EXPECTATIONS OR BELIEFS CONCERNING FUTURE EVENTS, INCLUDING, BUT NOT LIMITED
TO, STATEMENTS REGARDING MANAGEMENT'S EXPECTATIONS WITH RESPECT TO FDA
APPROVAL, THE COMMENCEMENT OF SALES AND THE SUFFICIENCY OF THE COMPANY'S CASH
FLOW FOR THE COMPANY'S FUTURE LIQUIDITY AND CAPITAL RESOURCE NEEDS. THESE
FORWARD LOOKING STATEMENTS ARE QUALIFIED BY IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD LOOKING
STATEMENTS, INCLUDING, WITHOUT LIMITATION, THOSE DISCUSSED IN "RISK FACTORS."
SEE "RISK FACTORS."
THE COMPANY
Sano Corporation ("Sano" or the "Company") develops novel controlled
release drug delivery systems for drug therapies licensed from others and for
off-patent drugs ("Proprietary Products"). The Company also develops generic
versions of branded controlled release products, generally where the advanced
nature of the necessary technologies may limit competition from other
manufacturers ("Generic Products"). Sano's strategy is to develop a
comprehensive line of both Proprietary Products and Generic Products
utilizing controlled release technologies.
Although to date most of Sano's products have utilized transdermal
delivery technologies, the Company is expanding its capabilities to include
other delivery methods, such as solid dose controlled release methods. The
Company believes that its transdermal and solid dose controlled release
technologies and expertise can be applied to a variety of pharmaceutical
products. These technologies are designed to reduce the frequency of drug
administration, improve efficacy, increase patient compliance, reduce side
effects, reduce interaction with other drugs and provide a more consistent
and appropriate drug level in the bloodstream. The Company believes these
benefits will also contribute to lower overall patient care costs, an
increasingly important competitive factor in the managed care environment.
Sano has nine transdermal Proprietary Products in development, including
transdermal buspirone patches for the treatment of anxiety, depression and
attention deficit disorder and patches for the treatment of smoking
addiction, alcohol addiction and motion sickness. The objective of the
Company's Proprietary Product development program is to develop novel
delivery systems for established drugs which have large addressable markets,
where clinical and cost benefits can be obtained through the use of Sano's
controlled release technology. Sano intends to retain the rights to its
Proprietary Products at least until completion of late-stage clinical trials.
The Company believes that this element of its strategy allows greater
flexibility in determining whether to retain marketing rights with respect to
a product or to use a marketing partner. The Company also believes that
late-stage licensing will allow it to negotiate more favorable agreements if
it chooses to utilize marketing partners.
In August 1996, the Company entered into an exclusive worldwide
distribution and supply agreement with Bristol-Myers Squibb Company ("BMS")
with respect to Sano's proprietary transdermal buspirone patches for anxiety,
depression and attention deficit disorder. Sales by BMS of BuSpar/registered
trademark/, its oral formulation of buspirone for the treatment of anxiety,
exceeded $285 million in 1995 and were approximately $180 million during the
first six months of 1996. The patent covering BuSpar/registered trademark/
expires in late 2000. Sano recently received notice of allowance of a United
States patent covering the transdermal delivery of buspirone. Under its
agreement with BMS, Sano received a $15 million non-refundable license
payment and will receive (i) additional payments upon the achievement of
certain milestones, (ii) an advance, to be repaid from royalties, to fund the
purchase of production equipment and (iii) royalties on sales of the
products. BMS has agreed to switch its marketing efforts from
BuSpar/registered trademark/ to Sano's transdermal product. In addition, BMS
has also agreed to fund and conduct all
3
<PAGE>
future clinical trials for anxiety, depression and attention deficit disorder
and will be responsible for foreign patent applications and regulatory
filings in connection with the Company's transdermal buspirone products for
such applications. BMS has not acquired any rights with respect to the
Company's other products.
Sano has ten transdermal and solid dose Generic Products in development,
including a transdermal nicotine patch for smoking cessation, two transdermal
nitroglycerin patches for angina pectoris, one transdermal clonidine patch
for hypertension and two transdermal estradiol patches for menopausal
symptoms and osteoporosis. The Company believes that its Generic Products,
due to their generally shorter development period and abbreviated review
cycle by the United States Food and Drug Administration (the "FDA"), may
enable the Company to achieve revenues from product sales sooner than will
typically be the case with its Proprietary Products. The Company has filed an
Abbreviated New Drug Application ("ANDA") for each of its nicotine patch and
nitroglycerin patches, and in July 1996 successfully completed FDA
pre-approval inspections of its facilities and manufacturing processes for
all three of these products. The Company has entered into an exclusive
distribution agreement with Pharmaceutical Resources, Inc., a generic
pharmaceutical company ("PAR"), under which PAR has the right to distribute
Sano's transdermal Generic Products in the United States, Canada and certain
other markets.
The Company recently initiated a pilot study on its first solid dose
controlled release Generic Product. This drug delivery system offers benefits
similar to transdermal delivery systems, and provides certain benefits of
oral administration without some of the disadvantages of immediate release
oral dosage forms. Sano currently has four solid dose controlled release
Generic Products under development. In addition to its transdermal and solid
dose controlled release technologies, Sano is evaluating and may acquire
other types of controlled release technology.
Sano was incorporated in the State of Florida in May 1991. The Company's
executive offices are located at 3250 Commerce Parkway, Miramar, Florida
33025 and its telephone number is (954) 430-3340.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by:
The Company ........................................ 1,250,000 shares
The Selling Shareholders ........................... 900,000 shares
Common Stock to be outstanding after the offering .. 10,491,096 shares(1)
For research and development, including
clinical trials; capital expenditures,
principally for manufacturing; licensing
products and technologies for product
development; and working capital and other
Use of proceeds ..................................... general corporate purposes
Nasdaq National Market symbol ....................... SANO
</TABLE>
- -----------------------------------------------------------------------------
(1) Based on shares outstanding as of September 30, 1996. Does not include
(i) 1,465,529 shares of Common Stock reserved for issuance upon exercise
of outstanding options under the Company's 1993 Nonqualified Stock Option
Plan and 1995 Stock Option Plan, including 50,000 shares of Common Stock
that will be issued upon the exercise of an option by a Selling
Shareholder at the closing of this offering, and an additional 1,250
shares of Common Stock issued upon the exercise of options since
September 30, 1996; (ii) 13,890 shares of Common Stock reserved for
issuance upon exercise of options available for future grant under the
Company's 1993 Nonqualified Stock Option Plan; (iii) 210,500 shares of
Common Stock reserved for issuance upon exercise of options available for
future grant under the Company's 1995 Stock Option Plan; and (iv) 11,167
shares of Common Stock that will be issued upon exercise of certain
warrants by a Selling Shareholder at the closing of this offering. See
"Management--Stock Option Plans," "Principal and Selling Shareholders"
and "Description of Capital Stock--Warrants."
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1991(1) 1992 1993 1994 1995
---------- ---------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................. $ -- $ -- $ -- $ -- $ --
---------- ---------- ----------- ----------- -------------
Operating expenses:
Research and development ............ 104 441 1,129 2,680 8,429
General and administrative .......... 74 94 163 790 911
---------- ---------- ----------- ----------- -------------
Total operating expenses ........... 178 535 1,292 3,470 9,340
Product development fees ............. -- -- -- 228 --
Interest income ...................... 4 4 7 28 335
Interest and other expense ........... -- -- -- (51) (126)
---------- ----------- ----------- -------------
Net income (loss) .................... $ (174) $ (531) $(1,285) $(3,265) $(9,131)
========== ========== =========== =========== ===========
Net income (loss) per common share(2) $(0.09) $(0.16) $ (0.31) $ (0.71) $ (1.43)
========== ========== =========== =========== ===========
Weighted average shares outstanding . 1,989 3,658 4,478 5,054 6,374
========== ========== =========== =========== ===========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1995 1996
----------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................. $ -- $15,000
----------- ----------
Operating expenses:
Research and development ............ 6,418 10,162
General and administrative .......... 604 2,694
----------- ----------
Total operating expenses ........... 7,022 12,856
Product development fees ............. -- --
Interest income ...................... 88 975
Interest and other expense ........... (72) (68)
----------- ----------
Net income (loss) .................... $(7,006) $ 3,051
=========== ==========
Net income (loss) per common share(2) $ (1.24) $ 0.29
=========== ==========
Weighted average shares outstanding . 6,175 10,402
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------
AS
ACTUAL ADJUSTED(3)
---------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and marketable
securities ...................................... $29,036 $49,809
Working capital ................................... 26,476 47,249
Total assets ...................................... 40,464 61,237
Deferred revenue .................................. 3,319 3,319
Note payable(4) ................................... 509 509
Total stockholders' equity ........................ 34,150 54,923
</TABLE>
- -----------------------------------------------------------------------------
(1) Information provided for the period from May 16, 1991 (inception) through
December 31, 1991.
(2) See Note 2 of Notes to Financial Statements for information concerning
the computation of net income (loss) per common share.
(3) Adjusted to reflect the sale of 1,250,000 shares of Common Stock offered
by the Company at an assumed public offering price of $18.06 per share.
See "Capitalization."
(4) Note payable represents the net present value of a promissory note
discounted at a 9.75% annual rate. The Company's financial statements
reflect the difference between the original proceeds of the note and its
net present value as of the dates of such statements as additional
paid-in capital. See Note 8 of Notes to Financial Statements.
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE
COMPANY AND ITS BUSINESS BEFORE PURCHASING SHARES OF THE COMMON STOCK OFFERED
HEREBY.
EARLY STAGE OF THE COMPANY AND ITS PRODUCTS; TECHNOLOGICAL UNCERTAINTY.
Sano was formed in May 1991 and commenced operations in October 1992. The
Company has not commenced the commercial manufacture or sale of any products
and has not generated any revenues from product sales. In the near term,
revenues, if any, are expected to consist principally of revenues from
license fees, milestone payments and payments from other entities under
collaborative marketing and other agreements, such as the Company's
agreements with BMS and PAR. The timing of such payments is likely to be
irregular and unpredictable, and the amounts are likely to fluctuate. The
Company's objective, subject to the receipt of regulatory approvals, is to
commence the sale of its first Generic Product in 1997, but no assurance can
be given that such approvals will be received or that any sales will occur.
To achieve significant revenues and profitable operations on a continuing
basis, the Company, either alone or through partners, must successfully
develop, manufacture and market its products. The Company's products are in
various stages of development, and the period necessary to achieve regulatory
approval and market acceptance of any individual product is uncertain and
typically lengthy. Additionally, all of the Company's products are required
to undergo a number of human clinical trials prior to regulatory approval.
Because of the nature of such trials, interim results are not always
indicative of final results. Clinical studies involving certain of the
Company's products, particularly those for the treatment of central nervous
system ("CNS") disorders, such as anxiety and depression, frequently
encounter high placebo effects which may adversely affect study results and
regulatory approval. As a result, the Company might pursue the development of
products that ultimately will not be proven effective, might abandon the
development of products that would, if pursued, have proven effective, and
might pursue the development of products notwithstanding unfavorable initial
or interim results if, in the judgment of the Company and its technical
consultants, such results are not indicative of the anticipated final results
or results of subsequent studies. No assurance can be given that the
Company's product development efforts will be successfully completed, that
required regulatory approvals will be obtained, that products under
development can be manufactured at acceptable cost and with appropriate
quality or that any approved products can be successfully introduced or will
achieve and sustain market acceptance.
HISTORY OF LOSSES AND UNCERTAINTY OF FUTURE RESULTS. At September 30,
1996, the Company had an accumulated deficit of $11,335,649 resulting from
expenses incurred in research and development, clinical trials, facilities
operations, the acquisition of supplies and, to a lesser extent, general and
administrative operations. The Company expects to incur losses at least
through 1997, which losses may be substantial. To achieve sustained
profitable operations, Sano, alone or with partners, must successfully
develop, manufacture and market its products. The time required to reach
profitability is highly uncertain, and no assurance can be given that the
Company will be able to achieve profitability. Moreover, if profitability is
achieved, the level of profitability cannot be predicted.
UNCERTAINTY OF GOVERNMENT REGULATORY REQUIREMENTS; LENGTHY APPROVAL
PROCESS. All of the Company's products require regulatory approval by
governmental agencies before they can be marketed. The process of obtaining
such approvals is costly and time-consuming, and is subject to unanticipated
delays. There can be no assurance that required approvals for any of the
Company's products will be granted on a timely basis, if ever. Any delay or
failure to obtain such approvals could materially and adversely affect the
ability of the Company to market products successfully and to generate
revenues from sales. Regulatory requirements could adversely affect the
Company's ability to undertake clinical trials or to manufacture or market
its products. The Company's products require the approval of the FDA before
they can be marketed in the United States. There can be no assurance that
problems will not arise that could delay or prevent the commercialization of
the Company's products or that the FDA will grant the necessary approvals for
the Company to begin marketing its products. The Company is also subject to
regulation by foreign governmental authorities relating to the clinical
study,
6
<PAGE>
manufacture and marketing of its products abroad. Approval of a product by a
foreign regulatory authority must be obtained prior to marketing the product
in any such country, regardless of whether FDA approval has been obtained.
The approval process varies from country to country, and the time required in
any given country may be longer than that required for FDA approval.
Future United States or foreign legislative or administrative action also
could prevent or delay regulatory approval of the Company's products. There
can be no assurance that the Company will be able to obtain the necessary
approvals for clinical trials or for the manufacturing or marketing of any
products. In addition, any approved products are subject to continuing
regulation, and noncompliance by the Company with applicable requirements can
result in criminal penalties, civil penalties, fines, recall or seizure,
injunctions requiring suspension of production, orders requiring ongoing
supervision by the FDA, or refusal by the government to approve marketing or
export applications or to allow the Company to enter into supply contracts.
The FDA also has the authority to revoke previously granted marketing
approvals, clinical testing authorizations and export approvals, and to
require changes in labeling, the occurrence of any of which could have a
material adverse effect on the Company's business, financial condition or
results of operations. All manufacturing operations are subject to the FDA's
Good Manufacturing Practice ("GMP") requirements on an ongoing basis. Any
additional regulation could result in restrictions on the Company's ability
to utilize its technology, thereby adversely affecting the Company's
operations.
On April 19, 1996 the FDA's Nonprescription Advisory Committee voted
unanimously to recommend that two of the four branded transdermal nicotine
patches available in the United States be switched from prescription to
over-the-counter ("OTC") status (an "OTC Switch") and as of the date of this
Prospectus, two nicotine patches had been approved by the FDA for an OTC
Switch. The Company has filed an ANDA for approval of a generic version of
Habitrol/registered trademark/, which was not one of the nicotine patches
approved for the OTC Switch. The FDA may grant any or all of the nicotine
patches approved for the OTC Switch a period of marketing exclusivity of up
to three years. At this time management is unable to predict whether any
branded manufacturers will receive a period of marketing exclusivity, and
what effect, if any, the OTC Switch will have on the Company. In the event
that Habitrol/registered trademark/ is approved for the OTC Switch, any
period of exclusivity granted by the FDA for the OTC version of
Habitrol/registered trademark/ would delay the launch of the Company's
generic nicotine patch and the Company's receipt of revenue from this
product, and could have a material adverse effect on the Company's ability to
successfully market the product.
The Company is also subject to regulation under the Occupational Safety
and Health Act, state and federal environmental protection laws, national
restrictions on technology transfer, import, export and customs regulations
and other local, state and federal regulations. The Company is unable to
predict whether any additional regulations will be adopted or whether, if
adopted, they will adversely affect the Company's business.
RISK OF LITIGATION IN CONNECTION WITH GENERIC PRODUCTS. Because of the
uncertainty of patent and other proprietary protection in the pharmaceuticals
industry, it is possible that one or more of the Company's products may be
found to infringe patents or other proprietary rights of other parties. This
risk is particularly significant for the Company's Generic Products, where it
is foreseeable that the holders of unexpired patents on branded products for
which the Company seeks to market generic counterparts may institute
infringement suits that could prevent or delay the Company's entry into those
markets.
The Drug Price Competition and Restoration Act of 1984 (the "Waxman-Hatch
amendments") requires that when a drug developer files an ANDA for a generic
drug and an unexpired patent has been listed with the FDA as covering the
related branded product, the developer must certify to the FDA that such
patent either will not be infringed by the developer's product or is invalid
or unenforceable. That certification must also be provided to the patent
holder, who may challenge the developer's certification of non-infringement,
invalidity or unenforceability by filing a suit for patent infringement. If
such a suit is filed within 45 days of the patent holder's receipt of such
certification, the
7
<PAGE>
FDA may review and approve the ANDA, but is precluded from granting final
marketing approval of the product until a final judgment in the action has
been rendered or until 30 months from the date the certification was
received, whichever is sooner. Patent litigation is extremely costly,
protracted and burdensome, and the Company could be at a disadvantage in
patent litigation commenced by competitors with substantially greater
resources than the Company. To date, of the three generic products for which
the Company has filed an ANDA, one is the subject of litigation. See
"Business--Legal Proceedings."
DEPENDENCE ON THIRD PARTIES; LIMITED MARKETING CAPABILITIES. The Company's
strategy for the commercialization of the majority of its products
contemplates that it will enter into arrangements with partners, licensors
and others. The Company has entered into a distribution and supply agreement
with BMS giving BMS the exclusive worldwide right to distribute the Company's
transdermal buspirone patches. BMS will share in or control the clinical
trials and will be responsible for foreign patent applications and regulatory
filings as well as marketing of the products, and inaction or delay on the
part of BMS in performing any of such responsibilities could have a material
adverse effect on the Company. The Company also has entered into a
distribution agreement with PAR, pursuant to which PAR has the exclusive
right to distribute the Company's transdermal Generic Products in the United
States, Canada and certain other markets. In the event that PAR is unable to
meet its obligations to market and distribute the Company's transdermal
Generic Products, the Company may be required to find another distribution
partner. In addition, the Company's agreement with PAR provides that PAR may
terminate the agreement if the Company has not received approval of at least
one ANDA for a Generic Product covered by the agreement prior to November 30,
1996. At present, the Company does not anticipate that it will receive such
approval prior to such date and, accordingly, there can be no assurance that
PAR will not terminate the agreement. Any such termination could have a
material adverse effect on the Company's financial condition and results of
operations. Furthermore, no assurance can be given in such event that Sano
will be able to find a partner on terms as favorable as those obtained from
PAR, or at all. Sano also intends to depend on partners such as BMS and PAR
to fund a portion of the Company's product development costs, to market the
Company's products and, in some cases, to participate in clinical testing and
to obtain regulatory approvals. The level of resources and attention devoted
by any partner to the Company's products will not be within the Company's
control. The Company expects to market and sell its products through
licensing or other distribution arrangements with third parties and has no
present intention to establish a direct sales capability. Since the Company
intends to sell its products through licensing and distribution arrangements,
any revenues received by the Company will be substantially dependent on the
efforts of third parties, and no assurance can be given that such efforts
will be successful. The Company's business strategy includes the licensing of
products and technologies from other pharmaceutical companies or inventors
for use in product development. No assurance can be given that the Company
will be able to identify such products or technologies or be able to
negotiate license agreements on acceptable terms or at all. Failure by the
Company to identify such products or technologies or to negotiate
satisfactory agreements could have a material adverse effect on the Company's
business, financial condition and results of operations.
POSSIBLE NEED FOR ADDITIONAL CAPITAL. The Company anticipates that its
existing capital resources, including the net proceeds of this offering and
interest income earned thereon, will enable the Company to maintain its
current and planned operations until mid-1998. However, the Company expects
negative cash flow from operations to continue until at least that time as a
result of the Company's utilization of substantial funds to continue research
and development, to conduct pre-clinical testing and clinical trials and to
establish commercial-scale manufacturing processes and facilities for all of
its intended products. In the event that the Company does not achieve its
product objectives or receive timely regulatory approvals, or incurs higher
than expected research and development or other costs, or if its expectations
with respect to product sales are not fulfilled, the Company may need to seek
additional funding through public or private financing, including equity
financing, or through collaborative arrangements. Adequate funds for these
purposes may not be available when needed or may not be available on terms
acceptable to the Company. If additional funds are raised by the issuance of
equity securities, dilution to shareholders may result. If funding is
insufficient, the Company may be required to delay, scale back or
8
<PAGE>
eliminate some or all of its research and development programs or to license
third parties to commercialize products or technologies that the Company
might otherwise have sought to develop itself. The Company's future cash
requirements will be affected by results of research and development,
pre-clinical studies and clinical trials, acquisitions of products or
technology, if any, relationships with collaborators, if any, the direction
of the Company's research and development programs, competing technological
and market developments, the time and costs associated with obtaining
regulatory approvals and in obtaining, maintaining and enforcing patents and
other intellectual property rights, the costs of manufacturing scale-up and
commercialization activities and other factors.
COMPETITION. Sano is engaged in the rapidly evolving field of drug
delivery systems. The Company's primary competitors have competitive products
on the market and additional products under development. Other companies,
including pharmaceutical companies, have also developed and are marketing
drug delivery systems, including transdermal patches. Such companies have
greater financial, operational, research and development and sales and
marketing resources than Sano. Competitors have developed or are in the
process of developing technologies that are, or in the future may be, the
basis for competitive or superior products or technologies. New drugs or
future developments in alternative drug delivery technologies may provide
therapeutic or cost advantages for competitive products. No assurance can be
given that developments by others will not render the Company's products or
technologies uncompetitive or obsolete. Any such development could have a
material adverse effect on the Company's financial condition and results of
operations.
DEPENDENCE ON KEY PERSONNEL. Because of the specialized scientific nature
of the Company's business, the Company is highly dependent upon its ability
to retain its current personnel, including, in particular, Marc M. Watson,
Chairman of the Board, Reginald L. Hardy, President, Charles Betlach, Ph.D.,
Senior Vice President--Research and Development, Cheryl M. Gentile, Vice
President--Research and Development, Jesus Miranda, Vice President--Research
and Development, and Joseph Gentile, Vice President--Operations. The loss of
the services of any of these individuals could have a material adverse effect
on the business of the Company. The Company's success is also dependent upon
its ability to continue to attract and retain qualified scientific and
technical personnel. There is intense competition for such personnel, and
there can be no assurance that the Company will be able to continue to
attract and retain the qualified personnel necessary for the development of
its business. Loss of the services of, or failure to recruit, key scientific,
technical and other personnel could be detrimental to the Company's product
development programs.
IMPORTANCE OF PATENTS, PROPRIETARY TECHNOLOGY AND TRADE SECRETS. Sano's
success will depend, in part, on its ability to protect trade secrets and to
operate without infringing the proprietary rights of others. The Company does
not intend to rely on patented technology in connection with all of its
products. No assurance can be given that the Company can meaningfully protect
any of its rights in its proprietary technology, that any obligation to
maintain the confidentiality of such proprietary technology will not be
breached by employees, consultants, advisors or others, or that others will
not independently develop substantially equivalent technology. Any
unauthorized use of the Company's patents or other proprietary technology
could have a material adverse effect on the Company's financial condition and
results of operations. No assurance can be given that patents for which the
Company applies will be issued, that any patents that are issued to the
Company will provide it with competitive advantages or will not be challenged
or designed around by others, or that the existence of patents, proprietary
rights or trade secrets of others will not have a material adverse effect on
the ability of the Company to conduct its business. In addition, although the
Company believes that it does not infringe any patents, proprietary rights or
trade secrets, the Company may be required to obtain licenses to patents or
other proprietary rights or trade secrets of other parties. No assurance can
be given that any licenses required under any such patents, proprietary
rights or trade secrets would be made available on terms acceptable to the
Company, or at all. If the Company does not obtain such licenses, it could
encounter delays in product market introductions while it attempts to design
around such patents, proprietary rights or trade secrets or could find that
the development, manufacture or sale of products requiring such licenses
could be foreclosed. The Company could also experience a loss of revenues in
the event that the Company ceases to market any of its products as a result
of suits brought against it
9
<PAGE>
and could incur substantial costs in defending itself and indemnifying its
partners in suits brought against it or one or more of its partners with
respect to such patents, proprietary rights or trade secrets or in suits in
which the Company's patents, proprietary rights or trade secrets may be
asserted by it against other parties. There can be no assurance that any such
litigation will not divert the time, attention and other resources of
management or that any such diversion will not have a material adverse effect
on the Company's financial condition and results of operations. Further, no
assurance can be given that any patent, proprietary right or trade secret
obtained or licensed by the Company will be held valid and enforceable if
challenged by another party.
LIMITED MANUFACTURING CAPABILITIES; SINGLE FACILITY. The Company believes
that it currently has the capacity to manufacture approximately 100 million
patches annually, based upon the Company's anticipated product mix, and is in
the process of increasing this capacity. However, the Company has not
launched any product commercially and has no experience in manufacturing
products in commercial quantities. To be successful, the Company's products
must be manufactured in commercial quantities, in compliance with regulatory
requirements, including the FDA's stringent Good Manufacturing Practices
("GMP") requirements, and at acceptable cost. Production of these products,
especially in commercial quantities, will create technical as well as
financial challenges for the Company. In order to establish and successfully
manage commercial-scale manufacturing operations, the Company will be
required to enhance its quality control, regulatory, marketing, sales and
administrative capabilities and systems. No assurance can be given that
manufacturing or quality control problems will not arise as the Company
attempts to produce these products or as additional facilities are required
in the future, or that the Company will ultimately be able to successfully
manufacture any of its products in commercial quantities. In addition, the
Company has only one facility, located in Miramar, Florida. All of the
Company's development, administrative and manufacturing operations take place
at such facility. Any catastrophe, such as a fire, flood or hurricane, that
renders the facility substantially unusable for an extended period of time
would have a material adverse affect on Sano.
UNCERTAINTY OF HEALTH CARE REIMBURSEMENT. Sano's ability to commercialize
its products successfully may depend in part on the extent to which
reimbursement for the costs of such products and related treatments will be
available from government health administration authorities, private health
coverage insurers and other organizations. Significant uncertainty exists as
to the extent to which newly approved health care products will be reimbursed
by such third parties, and no assurance can be given that adequate coverage
will be available for the Company to maintain price or volume levels
sufficient for realization of an appropriate return on its investment in
developing new drug delivery systems. Government and other third-party payors
are increasingly sensitive to the containment of health care costs and are
limiting both coverage and levels of reimbursement for new therapeutic
products approved for marketing, and are refusing, in some cases, to provide
any coverage for indications for which the FDA and other national health
regulatory authorities have not granted marketing approval. If adequate
coverage and reimbursement levels are not provided by government and
third-party payors for uses of the Company's products, market acceptance of
these products would be materially and adversely affected.
PRODUCT LIABILITY EXPOSURE; LIMITED INSURANCE. The Company's business
exposes it to potential product liability risks which are inherent in the
testing, manufacturing, marketing and sale of therapeutic products. Product
liability insurance for the pharmaceutical industry generally is expensive,
to the extent that it is available at all. The Company has obtained limited
product liability insurance in connection with clinical trials; however, no
assurance can be given that it will be able to maintain such insurance on
acceptable terms, that the Company will be able to secure increased coverage
as the commercialization of its products proceeds or that the insurance will
provide adequate protection against potential liabilities. A successful claim
brought against the Company in excess of the Company's insurance coverage
could have a material adverse effect upon the Company.
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS. The Company's research and
development and manufacturing activities involve the use of certain hazardous
materials. The Company is subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and
10
<PAGE>
disposal of such materials and certain waste products. The risk of accidental
contamination or injury from these materials cannot be completely eliminated.
In the event of such an accident, the Company could be held liable for any
damages that result, and any such liability could exceed the Company's
resources. The Company's operations, business or assets may be materially
adversely affected by current or future environmental laws or regulations.
The Company is required to obtain permits from local, state and federal
agencies in connection with emissions from its manufacturing process. In
order to scale up its manufacturing capacity to commercial levels, it will be
necessary for the Company to apply for and obtain additional federal, state
and local environmental and other regulatory approvals and there can be no
assurance that any such approvals will be granted in a timely manner, if at
all. The failure to obtain any such approval could have a material adverse
effect on the Company's financial condition and results of operations. The
Company may be required to incur significant costs in order to comply with
applicable regulations or to obtain future permits.
DEPENDENCE ON SOLE SOURCE SUPPLIERS. Some materials used in the Company's
products are currently available only from sole source suppliers. Although
Sano has not experienced difficulty acquiring the materials for product
development to date, no assurance can be given that interruptions in supplies
will not occur in the future or that the Company will not have to obtain
substitute materials which would require additional product validations and
regulatory submissions before the Company could continue to manufacture and
market any products incorporating such substitute materials. Any such
interruption of supply could have a material adverse effect on the Company's
ability to manufacture its products or to obtain or maintain regulatory
approval of such products.
POTENTIAL VOLATILITY OF STOCK PRICE. The stock market recently has
experienced significant price and volume fluctuations that were often
unrelated to the operating performance of particular companies. The market
price of the Common Stock, as with that of securities of many similar
companies, is likely to be highly volatile. Factors such as the results of
pre-clinical studies and clinical trials by the Company or its competitors,
regulatory progress or the lack thereof with respect to products in the
Company's pipeline or those of the Company's competitors, evidence of the
safety, efficacy or market acceptance of the products of the Company or its
competitors, announcements of technological innovations or new products by
the Company or its competitors, changes in governmental regulation,
developments in patent or other proprietary rights of the Company or its
competitors, including litigation, fluctuations in the Company's operating
results and changes in general market conditions for drug delivery or other
pharmaceutical companies could have a significant impact on the market price
of the Common Stock.
NO DIVIDENDS. The Company has not paid cash dividends in the past, and it
does not expect to declare or pay cash dividends in the foreseeable future.
CONCENTRATION OF COMMON STOCK OWNERSHIP AND ANTITAKEOVER CONSIDERATIONS.
Following this offering, the Company's directors and executive officers and
certain of their affiliates will beneficially own approximately 40% of the
Common Stock. Accordingly, these shareholders are likely to have the ability
to control the election of the Company's directors and the outcome of most
other matters submitted to a vote of the Company's shareholders. The Company
has the authority to issue 5,000,000 shares of Preferred Stock in one or more
series and to fix the powers, designations, preferences and relative rights
thereof without any further vote or action by the Company's shareholders. The
issuance of Preferred Stock could dilute the voting power of holders of
Common Stock and could have the effect of delaying, deferring or preventing a
change in control of the Company. Certain provisions of the Company's
Articles of Incorporation and By-laws, as well as Florida law, may operate in
a manner that could discourage or render more difficult a takeover of the
Company or the removal of management or may limit the price certain investors
may be willing to pay for shares of Common Stock. See "Principal and Selling
Shareholders," "Description of Capital Stock--Preferred Stock," "--Certain
Florida Legislation" and "--Certain Effects of Authorized but Unissued
Stock."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this offering, the
Company will have outstanding 10,491,096 shares of Common Stock, assuming no
exercise of options or warrants
11
<PAGE>
outstanding at September 30, 1996. On the date of this Prospectus, 5,174,164
shares of Common Stock, including the 2,150,000 shares offered hereby, will
be immediately available for sale without restriction in the public market,
and an additional 682,588 shares of Common Stock will be eligible for sale
under Rule 144(k) under the Securities Act. Subject to volume limits and
other restrictions under Rule 144 under the Securities Act, an additional
4,696,761 shares of Common Stock will be eligible for sale upon the
expiration, 180 days after the date of this Prospectus, of lock-up agreements
entered into between the Company's executive officers and directors and
certain of its shareholders and the Underwriters. Certain holders of the
Company's securities are entitled to registration rights with respect to an
aggregate of 3,322,241 shares of Common Stock. Sales of substantial amounts
of such shares in the public market or the prospect of such sales could
adversely affect the market price of the Common Stock.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,250,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$20.8 million. The Company anticipates that the net proceeds of this offering
will be used for research and development, including clinical trials, capital
expenditures, principally for manufacturing, licensing products and
technologies for product development and working capital and other general
corporate purposes. The amounts to be expended for each such purpose will
depend upon numerous factors, including the progress of the Company's
research and development programs, the results of pre-clinical and clinical
studies, the timing of regulatory approvals, the status of competitive
products, the availability of products for licensing and the terms of
collaborative arrangements, if any, entered into by the Company. Based upon
its currently planned research and development activities and related costs,
the Company anticipates that the net proceeds of this offering will be
sufficient to meet its capital and operational requirements until mid-1998.
Pending utilization as described above, the net proceeds of this offering
will be invested in high-grade, interest-bearing securities. The Company will
not receive any of the proceeds from the sale of Common Stock by the Selling
Shareholders.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock (Nasdaq National Market symbol "SANO") began
trading on the Nasdaq National Market on November 7, 1995. Prior to that
date, there was no public market for the Company's Common Stock. The
following table presents quarterly information on the price range of the
Company's Common Stock. This information indicates the high and low sale
prices reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1995
Fourth Quarter (beginning November 7, 1995) $12.75 $11.00
1996
First Quarter ............................... 15.00 11.00
Second Quarter .............................. 18.63 13.63
Third Quarter ............................... 21.75 10.38
Fourth Quarter (through October 23, 1996) .. 20.75 18.00
</TABLE>
On October 23, 1996, the last sale price reported on the Nasdaq National
Market for the Common Stock was $18.06.
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying cash dividends in the foreseeable future. Any determination
to pay cash dividends will be at the discretion of the Board of Directors and
will depend upon the Company's financial condition, results of operations,
capital requirements and such other factors as the Board of Directors deems
relevant.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996 and as adjusted to reflect the sale of 1,250,000 shares of
Common Stock by the Company at an assumed offering price of $18.06 per share.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------
ACTUAL AS ADJUSTED(1)
----------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Capital lease obligations .............................................. $ 59 $ 59
--------- --------
Note payable(2) ........................................................ 509 509
--------- --------
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; no
shares issued and outstanding, actual and as adjusted ................ -- --
Common stock, $0.01 par value, 25,000,000 shares authorized; 9,241,096
shares issued and outstanding, actual; 10,491,096 shares issued and
outstanding, as adjusted(3) .......................................... 92 105
Additional paid-in capital ............................................. 45,393 66,153
Accumulated deficit .................................................... (11,335) (11,335)
--------- --------
Total stockholders' equity ........................................... 34,150 54,923
--------- --------
Total capitalization ............................................... $ 34,718 $ 55,491
========= ========
</TABLE>
- -----------------------------------------------------------------------------
(1) Adjusted to reflect the sale of 1,250,000 shares of Common Stock by the
Company at an assumed offering price of $18.06 per share.
(2) Note payable represents the net present value of a promissory note
discounted at a 9.75% annual rate. The Company's financial statements
reflect the difference between the original proceeds of the note and its
net present value as of the dates of such statements as additional
paid-in capital. See Note 8 of Notes to Financial Statements.
(3) Excludes (i) 1,465,529 shares of Common Stock issuable upon exercise of
options outstanding at September 30, 1996 at a weighted average exercise
price of $3.90 per share, including an option to purchase 50,000 shares
of Common Stock that will be exercised by a Selling Shareholder at the
closing of this offering and an option to purchase 1,250 shares of Common
Stock that has been exercised since September 30, 1996 and (ii)
outstanding warrants to purchase 11,167 shares of Common Stock at a price
of $7.92 per share that will be exercised by a Selling Shareholder at the
closing of this offering. See "Management--Stock Option Plans,"
"Principal and Selling Shareholders" and "Description of Capital
Stock--Warrants."
14
<PAGE>
DILUTION
At September 30, 1996, the Company had a net tangible book value of $33.8
million or $3.66 per share. Net tangible book value per share is determined
by dividing the net tangible book value (tangible assets less total
liabilities) of the Company by the number of shares of Common Stock
outstanding. After giving effect to the estimated net proceeds from the sale
of the 1,250,000 shares of Common Stock being offered by the Company hereby,
the net tangible book value of the Company as of September 30, 1996, would
have been $54.6 million, or $5.20 per share. This represents an immediate
increase in the net tangible book value of $1.54 per share to existing
shareholders and an immediate dilution of $12.86 per share to new investors.
The following table illustrates the resulting per share dilution with respect
to the Common Stock offered hereby:
ASSUMED PUBLIC OFFERING PRICE PER SHARE .................. $18.06
Net tangible book value per share before offering ..... $3.66
Increase per share attributable to new investors ...... 1.54
--------
Pro forma net tangible book value per share after offering 5.20
------
Dilution per share to new investors ...................... $12.86
======
The foregoing table gives no effect to the exercise by certain Selling
Shareholders at the closing of this offering of an option to purchase 50,000
shares of Common Stock at an exercise price of $0.67 per share and warrants
to purchase 11,167 shares of Common Stock at an exercise price of $7.92 per
share. See "Principal and Selling Shareholders" and "Description of Capital
Stock--Warrants."
15
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements and the notes thereto included elsewhere in this
Prospectus. The statement of operations data for the years ended December 31,
1993, 1994 and 1995 and the balance sheet data as of December 31, 1994 and
1995 are derived from, and are qualified by reference to, the audited
financial statements included elsewhere in this Prospectus. The statement of
operations data set forth below for the periods ended December 31, 1991 and
1992 and the balance sheet data as of December 31, 1991, 1992 and 1993 are
derived from the audited financial statements of the Company not included
herein. The selected financial data as of and for the nine months ended
September 30, 1995 and 1996 have been derived from unaudited financial
statements of the Company which, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of such information as of and for such periods. The results of
operations for the nine months ended September 30, 1996 are not necessarily
indicative of the results of operations to be expected for the entire year or
for any subsequent period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1991(1) 1992 1993 1994 1995
---------- ---------- ----------- ----------- --------------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................. $ -- $ -- $ -- $ -- $ --
---------- ---------- ----------- ----------- -------------
Operating expenses:
Research and development ............ 104 441 1,129 2,680 8,429
General and administrative .......... 74 94 163 790 911
---------- ---------- ----------- ----------- -------------
Total operating expenses ........... 178 535 1,292 3,470 9,340
Product development fees ............. -- -- -- 228 --
Interest income ...................... 4 4 7 28 335
Interest and other expense ........... -- -- -- (51) (126)
---------- ---------- ----------- ----------- -------------
Net income (loss) .................... $ (174) $ (531) $(1,285) $(3,265) $(9,131)
========== ========== =========== =========== =========
Net income (loss) per common share(2) $(0.09) $(0.16) $ (0.31) $ (0.71) $ (1.43)
========== ========== =========== =========== =========
Weighted average shares outstanding . 1,989 3,658 4,478 5,054 6,374
========== ========== =========== =========== =========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1995 1996
----------- ----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................. $ -- $15,000
----------- ----------
Operating expenses:
Research and development ............ 6,418 10,162
General and administrative .......... 604 2,694
----------- ----------
Total operating expenses ........... 7,022 12,856
Product development fees ............. -- --
Interest income ...................... 88 975
Interest and other expense ........... (72) (68)
----------- ----------
Net income (loss) .................... $(7,006) $ 3,051
=========== ==========
Net income (loss) per common share(2) $ (1.24) $ 0.29
=========== ==========
Weighted average shares outstanding . 6,175 10,402
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and marketable securities $ 265 $ 28 $ 267 $ 2,586 $28,299
Working capital .................................... 242 (10) (27) 1,956 27,029
Total assets ....................................... 290 115 792 5,189 34,625
Deferred revenue ................................... -- -- -- -- 1,452
Note payable(3) .................................... -- -- -- 776 473
Redeemable preferred stock ......................... 409 800 2,624 8,960 --
Total stockholders' equity (deficit) ............... (153) (725) (2,130) (5,456) 31,060
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
16
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1996
------------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and marketable securities $29,036
Working capital .................................... 26,476
Total assets ....................................... 40,464
Deferred revenue ................................... 3,319
Note payable(3) .................................... 509
Redeemable preferred stock ......................... --
Total stockholders' equity (deficit) ............... 34,150
</TABLE>
- -----------------------------------------------------------------------------
(1) Information provided for the period from May 16, 1991 (inception) through
December 31, 1991.
(2) See Note 2 of Notes to Financial Statements for information concerning
the computation of net income (loss) per common share.
(3) Note payable represents the net present value of a promissory note
discounted at a 9.75% annual rate. The Company's financial statements
reflect the difference between the original proceeds of the note and its
net present value as of the dates of such statements as additional
paid-in capital. See Note 8 of Notes to Financial Statements.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since its commencement of operations in October 1992, the Company has
devoted substantially all of its resources to drug delivery research and
development programs and now has nine Proprietary Products and ten Generic
Products in various stages of development. The Company was classified as a
development stage company until the third quarter of 1996, when it began to
generate revenue through its receipt of a $15.0 million non-refundable
license payment under its agreement with BMS. At September 30, 1996, after
giving effect to the receipt of the payment from BMS, the Company had an
accumulated deficit of $11.3 million, resulting from expenses incurred in
research and development, clinical trials, facilities operations, the
acquisition of supplies and, to a lesser extent, general and administrative
operations. The Company expects to incur losses at least through 1997, which
losses may be substantial. The Company's sources of working capital have been
an initial public offering, equity financings prior to the initial public
offering and, to a far lesser extent, interest earned on investment of cash.
In the near term, revenues are expected to consist principally of revenues
from license fees, milestone payments, research fees and payments from other
entities under collaborative marketing and other agreements, which payments
are likely to be irregular and unpredictable.
Under its product development agreement with PAR, the Company receives
fees from PAR with respect to the development of specified transdermal
Generic Products to which PAR wishes to obtain distribution rights. Prior to
1995, the Company recorded the amounts received from PAR as product
development fees. Following a May 1995 modification of the original
agreement, pursuant to which the Company agreed to repay the amounts paid by
PAR from the gross profits derived from product sales, amounts received from
PAR have been classified as deferred revenue. As a result, $228,000 recorded
in 1994 as product development fees was charged to research and development
expense in 1995 and a corresponding amount was recorded as deferred revenue.
In August 1996, the Company entered into an exclusive worldwide
distribution and supply agreement with BMS and received a $15.0 million
license payment. Because the $15.0 million license payment is non-refundable
and the Company has no further obligations related to the license payment,
that amount has been recognized as revenue. Any milestone payments Sano may
receive under the BMS agreement will also be recorded as revenue upon the
achievement of the related milestones. An advance to be received from BMS to
fund the purchase of production equipment will be reflected as deferred
revenue and recognized as revenue as sales of the products are made and
related royalties are earned.
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
REVENUES. As a result of the August 1995 license payment under the BMS
agreement, the Company recognized revenue of $15.0 million for the nine
months ended September 30, 1996. Prior to that time, the Company had
recognized no revenue.
RESEARCH AND DEVELOPMENT. The Company's research and development expenses
increased by $3.7 million, or 58%, to $10.2 million for the nine months ended
September 30, 1996, from $6.4 million during the comparable period in 1995.
This increase is primarily attributable to the Company's increased clinical
trial expenses. The significant increase in laboratory and clinical activity
required by the number of products in development resulted in a $959,000
increase in personnel and personnel-related expenditures, a $1.1 million
increase in the cost of clinical trial programs and a $1.2 million increase
in supplies, primarily consisting of chemical supplies. In addition,
operating overhead allocated to research and development increased by
$540,000 as a result of the expansion of the Company's facility and increased
rent, common area maintenance and taxes. All manufacturing expenses incurred
17
<PAGE>
in production of supplies for clinical trials are included within research
and development expenses. The Company intends to continue to increase its
research and development expenditures. Actual expenditures will depend on,
among other things, the outcome of clinical testing of products under
development, delays or changes in required governmental testing and approval
procedures, technological and competitive development and strategic marketing
decisions.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $2.7 million for the nine months ended September 30, 1996 from $604,000 in
the comparable period of 1995. This increase was attributable to increases in
personnel and personnel-related expenditures associated with the expansion of
facilities and administrative support for the Company's research and
development efforts, as well as increases in professional fees, principally
the $1.0 million investment banking fee incurred in connection with the BMS
agreement and legal fees incurred in connection with a patent lawsuit. See
"Business--Legal Proceedings."
OTHER INCOME (EXPENSE). Interest income increased by $887,000 to $975,000
for the nine months ended September 30, 1996 from $88,000 in the comparable
period in 1995, as a result of the investment of the remaining proceeds of
the Company's initial public offering, and the $15.0 million non-refundable
license payment received in August from BMS. Interest and other expense was
$68,000 for the nine months ended September 30, 1996 compared to $72,000 in
the comparable period in 1995. Interest and other expense principally
reflects the accretion of interest on a discounted note.
NET INCOME. As a result of the foregoing, the Company reported net income
of $3.1 million for the nine months ended September 30, 1996, compared to a
net loss of $7.0 million in the comparable period in 1995.
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994
RESEARCH AND DEVELOPMENT. The Company's research and development expenses
increased by $5.7 million, or 215%, to $8.4 million for 1995 from $2.7
million during 1994. The increase is primarily attributable to the Company's
increased clinical trial expenses. The significant increase in laboratory and
clinical activity, required by the number of products in development,
resulted in a $1.3 million increase in personnel and personnel-related
expenditures and an $818,000 increase in supplies consisting primarily of
chemicals. The Company incurred $3.4 million in expenses relating to clinical
trials in 1995, compared to $823,000 in 1994. In 1995, the Company increased
its facility's usable square footage to 74,000 square feet compared to
approximately 6,000 square feet available for use in 1994. The Company's
facility houses the Company's production, operation, laboratories, and
headquarters. This expansion resulted in increases in depreciation due to
leasehold improvements and acquisition of lab equipment, furniture and
fixtures. In 1995, the $228,000 previously received pursuant to the PAR
agreement was charged to research and development expense and a corresponding
amount was recorded as deferred revenue.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by $121,000, or 15%, to $911,000 in 1995 from $790,000 in 1994. The increase
is due to personnel and personnel-related expenditures associated with the
expansion of facilities and administrative support for the Company's research
and development efforts as well as increases in facilities operation
expenses, depreciation and insurance expenses.
OTHER INCOME (EXPENSE). The Company received product development fees of
$1.2 million from PAR in 1995, which amount, together with the $228,000
discussed above, was recorded as deferred revenue. Interest income in 1995
increased by $307,000 to $335,000 from $28,000 during the comparable period
in 1994. This increase is attributable to the Company's short-term investment
of the proceeds of its initial public offering, as well as a preferred stock
equity financing in May 1995. Interest and other expense for 1995 was
$127,000, compared to $51,000 for 1994. The $76,000 difference is primarily a
result of the accretion of interest on a discounted note issued in 1994.
NET INCOME (LOSS). As a result of the foregoing, the Company reported a
net loss of $9.1 million for 1995, an increase of $5.5 million from the net
loss of $3.6 million in 1994.
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<PAGE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND DECEMBER 31, 1993
RESEARCH AND DEVELOPMENT. Research and development expenses increased by
$1.6 million, or 138%, to $2.7 million in 1994 from $1.1 million in 1993.
This increase is primarily attributable to increased clinical trial expenses
and, to a lesser extent, increased ancillary costs, such as consulting fees,
product liability insurance costs and personnel and associated costs
including group health, life, disability and workers compensation insurance.
Additionally, during 1994, to accommodate its expanded development program,
the Company expanded its laboratory facilities and functions, increased its
leasehold and equipment depreciation expenses and incurred additional
administrative overhead expenses.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
by $627,000, or 385%, to $790,000 during 1994 from $163,000 in 1993. This
increase was primarily attributable to increases in personnel and
personnel-related costs to support Sano's increased research and development
activities and additional clinical trials, business development expenses,
professional fees, rent and depreciation.
OTHER INCOME (EXPENSE). The Company received product development fees of
$228,000 in the fourth quarter of 1994 as a result of attaining certain
milestones under its distribution agreement with PAR. Interest income
increased to $28,000 in 1994 from $7,000 in 1993 as a result of the Company's
short-term investment of the proceeds of an equity financing. Interest
expense was $51,000 in 1994 as a result of the accretion of interest on a
discounted note. The Company incurred no interest expense in 1993.
NET INCOME (LOSS). As a result of the foregoing, the Company reported a
net loss of $3.6 million in 1994, an increase of $2.2 million from the net
loss of $1.4 million in 1993.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $4.0 million for the nine
months ended September 30, 1996, compared to net cash used in operating
activities of $5.1 million in the comparable period of 1995. This increase
reflects the Company's receipt of $15.0 million in licensing revenue from
BMS, which more than offset increased cash outlays for clinical trials,
payroll and overhead.
The Company had capital expenditures of $5.0 million for plant and
equipment acquisitions and $118,000 in expenditures for patents during the
nine months ended September 30, 1996, compared to $3.0 million and $106,000,
respectively, for the same period in 1995.
Net cash provided by financing activities totaled $1.7 million for the
nine months ended September 30, 1996 compared to $6.7 million for the same
period in 1995. The difference is primarily the result of the proceeds
received from the issuance of $5.0 million of preferred stock in the same
period in 1995.
At September 30, 1996, the Company had working capital of $26.5 million
compared to working capital of $27.0 million at December 31, 1995. Cash and
cash equivalents and marketable securities were $29.0 million and $28.3
million at September 30, 1996 and December 31, 1995, respectively.
Assuming it does not incur any material unanticipated expenses, the
Company believes that, giving effect to the receipt of the estimated net
proceeds of this offering, its working capital will be sufficient to fund
current operations and capital requirements through at least mid-1998.
The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains various "forward looking statements"
within the meaning of Section 27A of the Securities Act which represent the
Company's intentions, expectations or beliefs concerning future events,
including, but not limited to, statements regarding management's expectations
with respect to FDA approval, the commencement of sales and the sufficiency
of the Company's cash flow for the Company's future liquidity and capital
resource needs. These forward looking statements are qualified by important
factors that could cause actual results to differ materially from those in
the forward looking statements, including, without limitation, the factors
discussed in "Risk Factors." See "Risk Factors."
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BUSINESS
GENERAL
Sano develops novel controlled release drug delivery systems for drug
therapies licensed from others and for off-patent drugs. The Company also
develops generic versions of branded controlled release products, generally
where the advanced nature of the necessary technologies may limit competition
from other manufacturers Sano's strategy is to develop a comprehensive line
of both Proprietary Products and Generic Products utilizing controlled
release technologies.
Although to date most of Sano's products have utilized transdermal
delivery technologies, the Company is expanding its capabilities to include
other delivery methods, such as solid dose controlled release methods. The
Company believes that its transdermal and solid dose controlled release
technologies and expertise can be applied to a variety of pharmaceutical
products. These technologies are designed to reduce the frequency of drug
administration, improve efficacy, increase patient compliance, reduce side
effects, reduce interaction with other drugs in use by a patient and provide
a more consistent and appropriate drug level in the bloodstream. The Company
believes these benefits will also contribute to lower overall patient care
costs, an increasingly important competitive factor in the managed care
environment.
SANO'S STRATEGY
Sano's strategy is to develop and manufacture a broad line of novel
proprietary and generic, controlled release drug delivery systems that the
Company believes provide clinical and economic benefits when compared to
other delivery methods. The Company's strategy includes the following
elements:
DEVELOP PRODUCTS INDEPENDENTLY. Sano will seek to identify opportunities
to apply its controlled release technologies to new drug therapies licensed
from others or to off-patent drugs and to maintain proprietary rights with
respect to the resulting products it develops. Sano does not intend to
develop new chemical entities, but researches academic and industry
literature to identify existing therapeutic drugs to which it can apply its
alternative methods of drug delivery. The Company believes that developing
products independently provides it with the flexibility to enter into
arrangements with marketing partners or to retain the right to market a
product itself. As a consequence, Sano believes that it will receive a
greater economic benefit than that typically achieved by drug delivery
companies which provide contract research, development and manufacturing for
third parties that retain proprietary rights to the resulting end-product.
RETAIN RIGHTS TO PRODUCTS. When the Company determines to enter into an
arrangement with a marketing partner, it intends to do so only in the late
stages of product development. This strategy requires that the Company commit
significantly greater financial resources to the development of each product
than do companies that license their products at early stages to marketing
partners that assume the cost of clinical trials. If the Company is
successful in implementing this strategy and developing late stage products
attractive to prospective marketing partners it believes that it will be
better able to negotiate more favorable agreements than would otherwise be
available from those marketing partners at earlier stages of product
development.
DEVELOP MULTIPLE DRUG DELIVERY TECHNOLOGIES. Although most of Sano's
products use transdermal delivery technology, the Company intends to expand
its capabilities to include a variety of controlled release delivery methods.
Sano recently initiated a pivotal study on its first solid dose controlled
release products. In addition, Sano is evaluating other technologies that it
believes will enable it to provide improved methods of delivery to a variety
of compounds.
DEVELOP A BROAD PIPELINE OF PRODUCTS. Sano is developing a broad pipeline
of both Proprietary and Generic Products. The Company's Proprietary Product
development efforts focus on novel delivery
20
<PAGE>
systems for existing drugs in large addressable markets where the Company
believes that both clinical and economic benefits can be obtained from its
controlled release technologies. The Company's Generic Product development
efforts focus on controlled release branded products where the advanced
nature of the delivery technologies may limit competition. Generic products
generally have shorter development and marketing cycles than do proprietary
products and therefore may generate cash flow at an earlier date than would
be typical of proprietary products.
HIRE AND RETAIN EXPERIENCED PERSONNEL. Sano believes that in order to
compete effectively in any area of drug delivery technology it is essential
to attract and retain people with proven success in developing products
utilizing such technologies. Sano believes that it has been successful in
assembling a team of highly qualified and specialized scientists and
managers. Substantially all of the Company's employees have ownership
interests in the Company. In addition, certain of the Company's scientists
have economic stakes in the performance of particular products with which
they are involved. Sano intends to continue its practice of seeking out and
hiring people experienced in all facets of its business and technology.
SANO'S TECHNOLOGY
Sano has developed proprietary drug delivery technologies in the fields of
transdermal and oral controlled release products. These technologies are
intended to provide the Company with flexible delivery platforms applicable
to a wide range of pharmaceutical products. The Company intends to continue
to apply these technologies to drugs licensed from others and to off-patent
drugs where the Company believes that the use of such technologies may result
in improved patient compliance, better clinical results and/or lower patient
care costs. In addition to the transdermal and oral controlled release
technologies currently in use by Sano, the Company is actively investigating
other drug delivery techniques that it believes hold significant potential
and is seeking personnel with experience and proven records of success in
such fields.
TRANSDERMAL DRUG DELIVERY
Transdermal patches deliver drugs through the skin by means of an adhesive
patch. The patch incorporates medication which is released through the skin
into the blood stream at a controlled rate over an extended period of time.
This method of drug delivery is better suited than oral delivery for some
drugs that are degraded either in the gastrointestinal tract or by the liver
if delivered orally, such that only a small fraction of the total
administered dose remains therapeutically effective. Attempts to overcome
such inefficient oral delivery through increased dosage may result in the
production of high levels of metabolic by-products of the metabolized drug
("metabolites"), that can produce harmful side effects. Transdermal patches
overcome such "first-pass" metabolic problems by delivering the drug locally
or systemically at prescribed rates, providing a convenient means to
administer drugs which would otherwise require frequent oral dosing over
prolonged periods. An additional potential benefit of transdermal patches is
their ability to overcome or significantly reduce the adverse effects
resulting from the "peaks and troughs" routinely encountered in many oral
preparations. In many instances, the "peak" of delivery of an oral product
delivers a higher amount of medication to the blood stream than is
therapeutically necessary, with resulting side effects such as
gastrointestinal distress, headaches, nausea and dizziness, and the "trough"
of delivery of an oral product delivers a subtherapeutic amount of medication
to the blood stream. Transdermal delivery can maintain drug levels in the
bloodstream at a consistent rate and within therapeutically effective ranges.
The principal attributes necessary for the successful commercialization of
a transdermal patch include a sound medical rationale, cost-effectiveness in
manufacturing, appearance and comfort, the ability to adhere to the skin with
minimal irritation, a stable formulation and the ability to produce desired
local or systemic levels of the drug. Six drugs are currently available in
the United States market in transdermal patches: nitroglycerin, nicotine,
estrogen, clonidine, fentanyl, and testosterone.
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<PAGE>
SOLID DOSE CONTROLLED RELEASE DRUG DELIVERY
Sano is in the process of developing proprietary formulation and
manufacturing technology to control the release characteristics of a variety
of orally-administered drugs. The Company's solid dose controlled release
drug delivery technologies utilize a variety of specialized polymers,
plasticizers and other materials to control the rate and locations of drug
release in the gastrointestinal tract. Through the application of
specifically designed polymer coating membranes, drugs are released at
controlled rates as they descend through the gastrointestinal tract, thus
providing sustained availability of the drug. The design of an appropriate
drug delivery technology for a particular drug candidate involves
consideration of (i) the physiology of the gastrointestinal tract; (ii) the
characteristics of the drug to be delivered; (iii) the effect of food on
absorption; (iv) the desired location and extent of absorption at any given
site in the gastrointestinal tract; and (v) the physical and chemical
characteristics of the drug.
Solid dose controlled release drug delivery technologies eliminate or
reduce certain disadvantages of immediate-release drugs. Controlled release
technologies generally provide more consistent and appropriate drug levels in
the bloodstream than immediate release drugs, and may overcome or
significantly reduce the adverse effects resulting from the "peaks and
troughs" encountered with many oral immediate release preparations. Solid
dose controlled release drug delivery also allows for the development of
dosage forms that reduce the frequency of drug administration, thereby
offering improved patient compliance.
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<PAGE>
SANO'S PRODUCT PIPELINE
The tables below indicate the status of the Company's transdermal and
solid dose controlled release products under active development:
TRANSDERMAL PROPRIETARY PRODUCTS
<TABLE>
<CAPTION>
DRUG THERAPEUTIC USES STATUS
- --------------------- -------------------------------- --------------------------------
<S> <C> <C>
Buspirone Anxiety Phase III studies in progress
Buspirone Depression Phase III studies in progress
Buspirone Attention Deficit Disorder Phase III studies in preparation
Nicotine/Mecamylamine Smoking Cessation Phase III studies in preparation
Scopolamine Motion Sickness Pivotal study in progress
Confidential Alcohol Addiction Phase II study in preparation
Estrogen/Progestin Menopausal Symptoms/Osteoporosis IND in preparation
Estrogen/Progestin Menopausal Symptoms/Osteoporosis Formulation development
(second combination)
Albuterol Asthma Formulation development
</TABLE>
TRANSDERMAL GENERIC PRODUCTS
<TABLE>
<CAPTION>
DRUG BRANDED PRODUCT THERAPEUTIC USES STATUS
- ------------- ------------------------ -------------------- ------------------------------------
<S> <C> <C> <C>
Nicotine Habitrol(Registered Smoking Cessation ANDA filed
Trademark)
Nitroglycerin Nitro-Dur(Registered Angina Pectoris ANDA filed
Trademark)
Nitroglycerin Transderm-Nitro Angina Pectoris ANDA filed
(Registered Trademark)
Clonidine Catapres Hypertension Bioequivalency study in progress
TTS(Registered
Trademark)
Estradiol Vivelle(Registered Menopausal Symptoms/ Bioequivalency study in preparation
Trademark) Osteoporosis
Estradiol Climara(Registered Menopausal Symptoms/ Bioequivalency study in preparation
Trademark) Osteoporosis
</TABLE>
SOLID DOSE CONTROLLED RELEASE GENERIC PRODUCTS
<TABLE>
<CAPTION>
DRUG BRANDED PRODUCT THERAPEUTIC USES STATUS
- ----------- -------------------------------- ---------------------------- -----------------------
<S> <C> <C> <C>
Diltiazem To be determined Hypertension Pilot study in progress
Diltiazem To be determined Hypertension/Angina Pectoris Formulation development
Nifedipine To be determined Hypertension/Angina Pectoris Formulation development
Nicardipine Cardene SR/registered trademark/ Hypertension Formulation development
</TABLE>
PROPRIETARY PRODUCTS
BUSPIRONE TRANSDERMAL SYSTEMS FOR ANXIETY, DEPRESSION AND ATTENTION DEFICIT
DISORDER
Sano's three separate patches for the treatment of anxiety, depression and
attention deficit disorder each incorporate the drug buspirone, a serotonin
partial agonist. Buspirone has been marketed in the United States under the
brand name BuSpar(Registered Trademark) by BMS since 1986 for the
management of anxiety disorders and the short-term relief of symptoms of
anxiety. Sales of BuSpar(Registered Trademark) exceeded $285 million in
1995 and were approximately $180 million during the first six months of 1996.
In addition to the treatment of anxiety, certain published reports have
indicated the potential usefulness of buspirone in the treatment of depression
and attention deficit disorder. The patent rights of BMS with respect to oral
immediate release buspirone for the treatment of anxiety will expire in late
2000. In June 1996 Sano received a notice of United States patent allowance for
the transdermal delivery of buspirone. This patent is also pending in Japan, the
European Patent Office and Canada. The Company believes that the availability of
a transdermal dosage form of buspirone will permit a more convenient, once-a-day
regimen, resulting in increased compliance. In addition, because transdermal
delivery of buspirone allows for more consistent therapeutic levels in the
bloodstream, the Company believes that its products may decrease
gastrointestinal and CNS side effects.
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The rationale for the development of a transdermal dosage form of
buspirone arises from the complex characteristics of this drug and from the
clinical experience with it. With the oral dosage form of buspirone, patients
taking a therapeutic regimen of buspirone must have their daily dose divided
into either a two-per-day or a three-per-day regimen in order to achieve
therapeutic success. This results in an inconvenient and burdensome dosage
regimen which can result in a lack of compliance. Buspirone is rapidly
absorbed after oral administration; the drug, however, undergoes extensive
first-pass metabolism, with the majority of the dose degraded in the
gastrointestinal tract or liver, and only a small percentage of the dose
reaching systemic circulation following oral administration. By avoiding
first-pass metabolism through the gastrointestinal tract and the liver, the
dosage required for the transdermal delivery of the product is less than an
oral dose of buspirone and may significantly reduce production of certain
metabolites that may inhibit its action or cause adverse side effects. Sano's
transdermal delivery system for buspirone also provides a continuous level of
drug and eliminates the peaks and troughs in systemic levels of the drug
characteristic of oral administration, which may cause adverse side effects.
In August 1996, the Company entered into an exclusive worldwide
distribution and supply agreement with BMS for the Company's transdermal
buspirone patches for the treatment of anxiety, depression and attention
deficit disorder, under which Sano will manufacture the patches for BMS. Upon
execution of the agreement, Sano received a $15.0 million non-refundable
license payment and will receive (i) additional payments upon the achievement
of certain milestones, (ii) an advance, to be repaid from royalties, to fund
the purchase of production equipment and (iii) royalties on sales of the
products. BMS has agreed to switch its marketing efforts from
BuSpar/registered trademark/ to Sano's transdermal product. BMS also agreed
to fund and conduct all clinical trials of Sano's transdermal buspirone
products for all three indications.
ANXIETY. Anxiety is an unpleasant mood characterized by feelings of
tension and apprehension. It is usually precipitated by the anticipation of
future danger, distress or difficulties. As an emotional response, anxiety is
useful, in that activities that arouse anxiety are avoided and those that
diminish it are sustained. Anxiety becomes a medical problem when it is
excessive, inappropriate or without obvious cause. United States sales of
anti-anxiety drugs exceeded $2 billion in 1994.
Transdermal delivery of buspirone for the treatment of anxiety may offer
several advantages over conventional oral delivery. The dosage for the oral
version of the drug is three times a day, whereas the transdermal dosage will
be once a day, which enhances patient compliance. Additionally, the oral drug
causes gastrointestinal side effects that are avoided with transdermal
delivery of the product.
The Company is completing a multi-center, double-blind controlled Phase
III clinical study in which 160 patients are being treated for anxiety. The
trial is expected to end shortly with data available before March 31, 1997.
Upon receipt and analysis of the data, the Company and BMS will jointly
determine whether or not to submit a New Drug Application ("NDA") for the
product to the FDA.
DEPRESSION. Depression can be described as a state of mind in which the
individual experiences a generalized loss of interest in life or an inability
to experience pleasure. This disorder is characterized by a broad range of
symptoms, including sadness, guilt, apathy, indecision, general irritability,
feelings of low self-esteem, helplessness and hopelessness. Such feelings are
a normal component of the human condition, but when they begin to interfere
with normal function, treatment is desirable.
Depression-related disorders are among the most common psychiatric
conditions to be encountered by physicians and the most undertreated. United
States sales of anti-depressant drugs exceeded $2 billion in 1994.
While the use of buspirone for the treatment of depression has not been
approved by the FDA, its anti-depressant activity has been documented in
certain published clinical studies. It is believed that buspirone's
anti-depressant activity may result from its ability to normalize the
serotonergic system, increasing serotonergic tone in depressed patients and
decreasing serotonergic tone in anxious patients.
24
<PAGE>
As an anti-depressant, buspirone may offer advantages over tricyclic
antidepressant drugs, as buspirone does not cause anticholinergic side
effects such as blurred vision, constipation, urinary retention and dry
mucous membranes. Also, buspirone is nonaddictive, nonsedating and does not
cause insomnia, nervousness or sexual dysfunction, as do other
anti-depressant products. Buspirone is not a Drug Enforcement Agency ("DEA")
controlled substance.
Symptom reduction in an open label study of the Company's transdermal
buspirone patch was achieved with very few adverse events compared to those
reported for the oral product. These encouraging results led the Company to
initiate a multi-center, double-blind, controlled Phase III clinical study of
150 patients with depression that will be completed shortly. Analysis of the
data is expected before March 31, 1997. Upon receipt and analysis of the
data, the Company and BMS will determine whether or not to submit an NDA.
ATTENTION DEFICIT DISORDER. Attention deficit disorder, sometimes referred
to as attention deficit hyperactivity disorder ("ADD"), consists of
developmental deficiencies in the regulation and maintenance of behavior and
occurs more frequently in children. These deficiencies give rise to
inattention, impulsivity and hyperactivity. Medications used to treat ADD
include psychostimulants (such as Ritalin(Registered Trademark),
Dexedrine(Registered Trademark) and Cylert(Registered Trademark) and
tricyclic anti-depressants (such as Imipramine(Registered Trademark) and
Desipramine(Registered Trademark). The United States market for drugs used
to treat ADD exceeded $300 million in 1995.
Transdermal delivery of buspirone for the treatment of ADD may offer
several advantages over conventional treatment. Unlike buspirone, the
psychostimulants which are the principal treatments for ADD are all DEA
controlled substances. Sano's buspirone patch offers the convenience of the
once-a-day administration of a transdermal patch, which enhances patient
compliance. While the use of buspirone for the treatment of ADD has not been
approved by the FDA, the Company has completed a Phase II open label clinical
trial in 32 children ages 9 through 12. The Company believes that the results
of this trial identified an effective dose of buspirone for use in the
treatment of ADD. Sano intends to initiate Phase III trials in 1997.
NICOTINE/MECAMYLAMINE TRANSDERMAL SYSTEM FOR SMOKING CESSATION
Smokers are addicted to cigarettes primarily because of the drug nicotine
in tobacco. Therefore, smokers who attempt to quit typically experience
withdrawal symptoms, most commonly craving, headaches, irritability and
nausea. A 1990 study in the JOURNAL OF THE NATIONAL CANCER INSTITUTE found
that nearly 90% of all Americans who smoke have made an attempt to quit at
some point in their smoking lives. Several studies have shown that every year
nearly 30% of all Americans who smoke make some attempt at smoking cessation
while less than 8% succeed. A principal focus of treatment in recent years
has been transdermal nicotine patches. The FDA has approved four nicotine
patches for sale, two of which were approved in 1996 for sale over the
counter without a prescription.
A therapy involving the simultaneous delivery of nicotine and
mecamylamine, a nicotine antagonist, over a 24-hour period received a United
States patent in 1994. In October 1994, Sano obtained an exclusive license to
this patented combination therapy. Sano also intends to explore opportunities
for the manufacture and/or sale of the combination therapy in non-United
States markets. Mecamylamine has been marketed for many years as an
antihypertensive agent, Inversine(Registered Trademark). Mecamylamine has
been shown to block many of the physiologic, behavioral, and reinforcing
effects of nicotine. The actions of an agonist (nicotine) and an antagonist
(mecamylamine) are such that they both occupy the receptors that would
otherwise be acted upon by nicotine from cigarettes. Thus, nicotine and
mecamylamine may work in concert, both to reduce craving and to attenuate the
rewarding effects of cigarette smoking, thereby facilitating smoking
abstinence.
Transdermal nicotine dosed along with oral mecamylamine has been shown to
be more effective for smoking cessation than transdermal nicotine alone. A
clinical study published in the July 1994 issue of CLINICAL PHARMACOLOGY AND
THERAPEUTICS reported the results of a 48-patient trial in which the percent
of abstinence after 12 months in patients that were treated with the combined
therapy (mecamylamine
25
<PAGE>
and nicotine) was 37.5%, as compared to 4.2% for a transdermal nicotine
therapy alone. Mecamylamine relieved key withdrawal symptoms such as craving
for cigarettes and appetite for food.
Sano has developed a transdermal patch which delivers nicotine and
mecamylamine simultaneously, in accordance with the patented combination
therapy. A 260 patient Phase II dose ranging study was completed in September
1996. Based on the results of this study, the Company anticipates commencing
Phase III clinical trials in the first quarter of 1997.
ESTROGEN/PROGESTIN TRANSDERMAL SYSTEM FOR MENOPAUSAL SYMPTOMS/OSTEOPOROSIS
Menopause occurs naturally in women between the ages of 45 and 55 and is
characterized by a decline in the body's natural production of estrogen and
progestin hormones. Absence of ovarian hormones (mainly estradiol) induces
metabolic and physical changes in the cardiovascular system, connective
tissue, cartilage and bone, resulting in a broad range of unpleasant symptoms
including hot flashes, vaginal dryness and itching, depression, anxiety and
insomnia. In addition, low levels of estrogen can accelerate loss of bone
density, resulting in osteoporosis.
Certain published reports suggest that estrogen replacement therapy not
only relieves all the acute symptoms but also protects against the
development of osteoporosis and the occurrence of related fractures.
Additionally, research indicates that estrogen may help prevent heart disease
by raising the level of high-density lipoprotein in the blood and lowering
the level of low-density lipoprotein, which is believed to contribute to the
build-up of fatty deposits in arteries. Research also indicates that women on
estrogen replacement therapy during menopause have a lower death rate from
cardiovascular disease than do women who are not on estrogen replacement
therapy.
The current market for estrogen is dominated by oral products. With oral
administration, high doses of estrogen must be administered because of the
rapid metabolism and inactivation of estrogens within the liver. Transdermal
delivery of estrogen avoids many of the problems inherent in oral
administration. By avoiding first-pass metabolism through the liver, the
dosage required for transdermal delivery is significantly less than the oral
dose of estrogen, may reduce production of harmful metabolites and result in
a more balanced hormonal level.
Progestin is a hormone that is frequently prescribed in conjunction with
estrogen in order to mitigate the potentially dangerous side effects of
estrogen replacement therapy alone. Clinical studies suggest that estrogen
replacement therapy alone may increase the risk of uterine cancer. The
administration of estrogen and progestin together more closely imitates the
natural female hormonal cycle. The Company expects that its combination
estrogen/progestin transdermal drug delivery system combines the advantages
of both compounds in a single delivery system. The Company has developed a
prototype estrogen/progestin patch, designed to be worn for three and
one-half days, and intends to file an IND to commence clinical testing. The
Company is also formulating another three and one-half day estrogen/progestin
patch using a second progestin.
SCOPOLAMINE TRANSDERMAL SYSTEM FOR THE PREVENTION OF MOTION SICKNESS
Motion sickness is an acute illness characterized by anorexia, nausea,
dizziness and vomiting. Scopolamine has been used to prevent motion sickness
for many years, and is available as scopolamine hydrobromide, either orally
or as an intramuscular injection. This drug in its oral or injectable form
has caused undesirable side effects, especially drowsiness and dry mouth. The
delivery of scopolamine transdermally may enable the administration of a
lower dose, and thus may decrease the incidence of side effects.
In 1979, Alza Corporation received FDA approval for Transderm
Scop(Registered Trademark) (transdermal scopolamine system) for the
prevention of nausea and vomiting due to motion sickness in adults. For
approximately the past two years Transderm Scop(Registered Trademark) has
not been available on the market. Ciba Pharmaceuticals, the company which had
marketed Transderm Scop(Registered Trademark), has not announced why the
product is no longer being marketed.
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Sano is developing a transdermal scopolamine patch for the prevention of
nausea and vomiting due to motion sickness in adults. The patch will be
manufactured using Sano's proprietary manufacturing techniques. The product
is currently undergoing a pivotal clinical study.
CONFIDENTIAL TRANSDERMAL SYSTEM FOR ALCOHOL ADDICTION
Alcoholism is a common disease in the United States. Sano is developing a
transdermal system for the delivery of an existing oral drug for the
treatment of alcohol addiction. The Company's patch is designed to be worn
for seven days. A Phase I trial has been completed, and a Phase II trial is
planned.
ALBUTEROL TRANSDERMAL SYSTEM FOR ASTHMA
The National Institute of Allergy and Infectious Disease estimates that
more than ten million people in the United States (about 4% of the
population) suffer from asthma. Albuterol stimulates the beta-adrenergic
receptors of the bronchial smooth muscle and produces bronchodilation, thus
relieving asthma. In patients with asthma, albuterol decreases the resistance
of airway obstructions, increases vital capacity and expiratory flow rate,
and thus relieves asthmatic symptoms. Albuterol is available as an inhaler
and in tablets. The most common adverse side effects of albuterol are
dose-related. The principal adverse side effects from the oral administration
of albuterol are increased heart rate, decreased blood pressure, tremors,
nervousness, nausea, hyperactivity, excitement and insomnia. Transdermal
albuterol may avoid many of these side effects by providing a constant
delivery of drug, which avoids the peaks that are seen with the oral product.
Sano is developing a transdermal system for the delivery of albuterol for
the treatment of asthma. Sano's albuterol patch product is being designed to
be worn for one day. Sano's transdermal albuterol patch is designed to
provide a measured amount of drug, allowing for lower drug levels, and thus
fewer and/or less severe side effects. The Company believes these advantages
will lead to improved patient compliance. The Company is currently developing
the formulation for this product.
GENERIC PRODUCTS
The Company has ten Generic Products under development. Six of these
products are transdermal generics and four are oral controlled release
generics. Generic products are pharmaceuticals which are identical in three
principal ways to a brand name product: (i) the rate at which a drug is
delivered over a specific time frame, (ii) the amount of drug delivered, and
(iii) the method of delivery (i.e., oral, transdermal, etc.). Before
determining to initiate the development of a Generic Product, the Company
considers the extent of competition, the size of the market, patent status,
the ease and rapidity of the approval process and the estimated time of
market launch. Because the brand name product has already been approved by
the FDA, the approval process for a Generic Product is significantly less
costly and lengthy than that for a Proprietary Product. Before submitting a
Generic Product to the FDA for approval (through filing an ANDA), the Company
conducts bioequivalency studies in patients comparing the rate and extent of
delivery of Sano's generic version to that of a brand name product. However,
the Company is not required to show the safety or efficacy of a Generic
Product as part of the approval process, as is the case with Proprietary
Products. Prior to conducting human trials, Sano first establishes in
laboratory tests that its product and the brand name product are equivalent.
The Company believes that the extensive experience of its scientific staff
has allowed it to formulate and utilize in vitro models that have yielded
consistent and predictable targeted results in human clinical studies. The
Company's Generic Product development activities are subject to certain
risks, including the likelihood that competition will be encountered from
competitors with significantly greater financial and marketing resources than
the Company and that the holders of unexpired patents on branded products for
which the Company seeks to market generic counterparts may institute patent
infringement suits against the Company. See "Risk Factors--Risk of Litigation
in Connection with Generic Products."
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TRANSDERMAL GENERIC PRODUCTS
NICOTINE TRANSDERMAL SYSTEMS FOR SMOKING CESSATION
The Company has developed a generic transdermal nicotine patch for smoking
cessation that the Company believes is generically equivalent to
Habitrol(Registered Trademark), which is manufactured by Ciba
Pharmaceuticals ("Ciba") and which had sales of approximately $50 million in
1995.
In January 1995, the Company filed an ANDA for its generic version of
Habitrol(Registered Trademark). Sano has received comments from the FDA on
this ANDA and has responded to those comments. In July 1996, the Company
successfully completed an FDA pre-approval inspection of its facilities and
manufacturing processes for this product. Ciba owns certain patents on
Habitrol(Registered Trademark) which will expire in July 2003 and May 2008.
After receiving the Waxman-Hatch notice given in connection with the
Company's ANDA filing, Ciba responded that it would not initiate suit during
the 45-day Waxman-Hatch period but that it reserved its right to institute an
infringement action in the future.
NITROGLYCERIN TRANSDERMAL SYSTEMS FOR ANGINA PECTORIS
Angina pectoris is a painful condition caused by decreased blood flow to
the heart due to narrowed arteries. Transdermal nitroglycerin patches provide
a continuous therapeutic level of nitroglycerin in the blood stream, dilating
the blood vessels to increase the flow of oxygenated blood to the heart.
Transdermal nitroglycerin patches have been commercially available since 1982
and are marketed by several companies. Sales of branded and generic
transdermal nitroglycerin patches were approximately $275 million in 1995.
The Company has developed two generic transdermal nitroglycerin patches
for the treatment of angina pectoris. The patches are designed to be
generically equivalent to Nitro-Dur(Registered Trademark), produced by Key
Pharmaceuticals, Inc. ("Key") and Ciba's Transderm-Nitro(Registered
Trademark), which in 1995 had total combined sales in the United States in
excess of $175 million. In late 1995, the Company filed an ANDA for each of
its two generic transdermal nitroglycerin patches. The Company is not aware
of any unexpired patents on Transderm-Nitro.(Registered Trademark) The
patent issued on Nitro-Dur(Registered Trademark) expires in February 2010.
In March 1996, Key filed a complaint in the United States District Court of
Florida alleging that the Company's generic version of Nitro-Dur(Registered
Trademark) infringes a patent owned by Key. See "--Legal Proceedings."
CLONIDINE TRANSDERMAL SYSTEM FOR HYPERTENSION
Hypertension is a leading cause of heart disease. Numerous drugs are used
in the treatment of hypertension, including diuretics, beta blockers, alpha
blockers, calcium channel blockers and angiotensin converting enzyme
inhibitors. Clonidine is an alpha blocker used in the management of
hypertension. In the stepped-care approach to antihypertensive drug therapy,
alpha blockers are generally considered step two drugs and are generally
reserved for patients who fail to respond to diet, exercise and/or weight
reduction and therapy with a step one drug (diuretic or beta blockers).
Although many hypertensive patients may be controlled by clonidine alone, the
drug appears to be more effective when used with a diuretic.
In 1984, Boehringer Ingelheim received FDA approval for its Catapres
TTS(Registered Trademark), a seven-day transdermal patch for the delivery
of clonidine. Several patents on Catapres TTS(Registered Trademark) expire
in 2008. In 1995, United States sales of Catapres TTS(Registered Trademark)
were approximately $75 million.
Sano has developed a seven-day transdermal clonidine patch as a generic
version of Catapres TTS(Registered Trademark). Based on laboratory data and
a pilot study completed in March 1995 comparing Sano's clonidine patch to
Catapres TTS(Registered Trademark), the Company believes that its patch is
bioequivalent to the branded product. A pivotal bioequivalency study, which
must be completed prior to filing an ANDA, is ongoing.
ESTRADIOL TRANSDERMAL SYSTEM FOR MENOPAUSAL SYMPTOMS/OSTEOPOROSIS
Sano is developing a transdermal system for the delivery of 17-beta
estradiol, a natural estrogen, for the treatment of menopausal symptoms and
osteoporosis. The Company is developing generic three
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and one-half day and seven-day estradiol transdermal patches. The transdermal
systems under development by the Company are designed to be generically
equivalent to Vivelle(Registered Trademark), a three and one-half day
patch and Climara(Registered Trademark), a seven-day patch. There are a
number of patents on the branded products. Based on a pilot study completed
in August 1996 comparing Sano's two estradiol patches to Vivelle(Registered
Trademark) and Climara(Registered Trademark), the Company believes that
the patches are bioequivalent to the branded products. Pivotal studies on
both products are planned for early 1997.
SOLID DOSE GENERIC PRODUCTS
The Company is currently developing four generic versions of branded solid
dose drugs for the treatment of angina and hypertension. One of these
products is in a pilot study and three are in various phases of formulation
development. The pharmaceutical compounds upon which the Company's solid dose
controlled release products are expected to be based are diltiazem,
nifedipine and nicardipine.
Diltiazem is a calcium channel blocker that relaxes and dilates the smooth
muscle of the blood vessels and is indicated for the treatment of high blood
pressure and prophylactic management of angina pectoris. Diltiazem is
marketed in the United States in once-a-day controlled release forms under
the brand names Cardizem CD(Registered Trademark) by Hoechst Marion
Roussel, Dilacor XR(Registered Trademark) by Rhone Poulenc Rorer
Pharmaceuticals, and Tiazac(Registered Trademark) by Forest Laboratories.
Nifedipine is a calcium channel blocker whose therapeutic applications
include hypertension and angina pectoris. Nifedipine is marketed in the
United States in a once-a-day controlled release dosage form by Pfizer Inc.
under the brand name Procardia XL(Registered Trademark) and by Miles, Inc.
under the brand name Adalat CC(Registered Trademark). Nicardipine is a
calcium channel blocker indicated for the treatment of hypertension.
Nicardipine is marketed in the United States by Roche Laboratories under the
brand name Cardene SR(Registered Trademark). The combined worldwide sales
of these branded products were in excess of $1.8 billion in 1995.
MANUFACTURING AND SUPPLY
The Company leases an 83,000 square foot facility which includes
approximately 10,000 square feet of administrative offices, as well as space
for analytical laboratories, manufacturing areas and research and development
areas. The Company's existing production lines for transdermal products have
a capacity of approximately 100 million patches per year, based upon the
Company's anticipated product mix. By the end of 1997 Sano expects to
complete an expansion program which will bring the Company's capacity to
approximately 400 million patches per year. Sano believes that it has the
ability to expand the manufacturing capacity of its current facility to meet
its commercial requirements for the foreseeable future.
Sano intends to retain manufacturing rights for all of its Proprietary
Products and transdermal Generic Products but may in certain circumstances
contract with third parties to manufacture its solid dose Generic Products.
The Company has developed several proprietary manufacturing and formulation
techniques. The Company intends to file for patents on some, but not all, of
these techniques. The Company believes that the filing of certain
manufacturing process patents would provide only limited protection and, at
the same time, have the negative effect of informing competitors of the
Company's approaches to the manufacture of its products.
Several materials used in the manufacture of the Company's products are
available only from sole source suppliers. These items have generally been
available to Sano and the pharmaceutical industry on commercially reasonable
terms. Sano has not experienced difficulty acquiring materials necessary to
manufacture clinical quantities of its transdermal systems. Sano intends to
negotiate supply contracts, as appropriate, prior to commercial introduction
of its transdermal products. While the Company believes that it could develop
alternative sources of supply or redesign its products to avoid the necessity
of relying upon such sources, any interruption of supply would have a
material adverse effect on the Company's ability to manufacture its products.
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MARKETING AND SALES
Sano currently intends to retain marketing rights to substantially all of
its Proprietary Products in the United States until such products have
reached later stages of development, at which time the Company will determine
whether to enter into a licensing or other arrangements with respect to its
Proprietary Products outside the United States. The Company believes that
this strategy will provide the opportunity to maximize royalties or
distribution rights arrangements where appropriate or necessary and to
evaluate possible marketing and distribution strategies so as to maximize
profit opportunities.
In August 1996, the Company entered into an exclusive worldwide
distribution and supply agreement with BMS for the Company's transdermal
buspirone patches for the treatment of anxiety, depression and attention
deficit disorder. Under its agreement with BMS, Sano will manufacture the
patch for BMS and will receive a percentage of net sales. Upon execution of
the agreement, Sano received a $15.0 million non-refundable license payment
and in addition will receive (i) additional payments upon the achievement of
certain milestones, (ii) an advance, to be repaid from royalties, to fund the
purchase of production equipment and (iii) royalties on sales of products. In
addition, BMS agreed to fund and conduct all future clinical trials of Sano's
transdermal buspirone products for all three indications and to be
responsible for all foreign patent applications and regulatory filings
relating to such products. The patent rights of BMS with respect to oral
immediate release buspirone for the treatment of anxiety will expire in late
2000. In June 1996, Sano received a notice of United States patent allowance
for the transdermal delivery of buspirone. Sano believes that its transdermal
version of buspirone will provide BMS with a line extension for its
BuSpar(Registered Trademark) product, thereby allowing BMS to offer a
once-a-day dose of buspirone as a patent protected product subsequent to the
expiration of BMS's existing patent. As part of its agreement with Sano, BMS
will actively seek to switch its marketing efforts from BuSpar/registered
trademark/ to Sano's transdermal product. BMS may elect not to pursue the
development, marketing and sale of a particular transdermal buspirone product
in one or more countries, in which event the Company may terminate the
agreement as to that product in that country.
Sano has also entered into a distribution agreement with PAR, pursuant to
which PAR has a right of first refusal to distribute the Company's
transdermal Generic Products in the United States, Canada, Latin America and
Israel. PAR also has a limited right of first refusal in connection with the
sale of Sano's transdermal Generic Products in four countries in Europe. Sano
will manufacture its Generic Products and supply them to PAR at Sano's cost
and will share in the gross profits from the sale of such Generic Products by
PAR. The agreement currently covers Sano's two generic nitroglycerin patches,
its generic nicotine patch and its generic clonidine patch. PAR also has a
right of first refusal to distribute in the territories described above any
other generic transdermal patches developed by the Company. As to each
product PAR elects to distribute, PAR must pay Sano a portion of Sano's
pre-clinical development costs and all costs of clinical trials and other
post-formulation expenses. This agreement also provides that Sano will
reimburse PAR for such costs and expenses with respect to certain Generic
Products. The Company's agreement with PAR provides that PAR may terminate
the agreement if the Company has not received at least one approval of an
ANDA for a Generic Product covered by the agreement prior to November 30,
1996. PAR also is entitled to terminate the agreement with respect to any
product that fails to meet specified annual gross profit thresholds.
PATENTS AND PROPRIETARY TECHNOLOGY
Sano files patent applications in appropriate situations to protect and
preserve, for its own use, technology, inventions and improvements that it
considers important to the development of its business. The Company also
relies on trade secrets, know-how, continuing technological innovations and
possible licensing opportunities to develop and maintain its competitive
position. The Company has filed patent applications with the United States
Patent and Trademark Office and has filed corresponding patent applications
in Japan, the European Patent Office and Canada. The Company is not aware of
any claims of infringement against its products or technologies or of any
patents which its products or technologies infringe, except as set forth
under "Legal Proceedings."
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Sano owns or licenses several product related patents. One patent,
developed by Sano, relates to the transdermal delivery of buspirone and a
notice of allowance with respect to this patent was issued by the United
States Patent and Trademark Office in June 1996. This patent is expected to
be in force until at least 2013. In addition, patents on the transdermal
delivery of buspirone are also pending in Europe and Japan.
Sano's transdermal nicotine/mecamylamine patch incorporates patented
technology licensed from Dr. Jed E. Rose, Dr. Edward D. Levin and Robert J.
Schaap (collectively, the "Rose Group"). A patent issued to the Rose Group in
1994 relates to the co-administration of nicotine and mecamylamine for
smoking cessation. Recently, the Rose Group was notified of the allowance of
an additional patent relating to the use of agonist/antagonist therapy on
certain receptors in the brain as a treatment for smoking addiction. The
Company's license from the Rose Group requires Sano to make progress payments
at various stages of the development, testing and regulatory approval
process. Certain payments were made by the Company upon execution of the
license agreement, upon the receipt of a patent non-infringement opinion and
six months after the execution of the license agreement. Additional annual
payments will be required until the earlier to occur of October 1998 or the
filing of an NDA with the FDA covering products using the patented
combination therapy, at which time the Company is required to make an
additional payment to the Rose Group. Sano is also required to pay the Rose
Group a royalty on the net sales of products using the patented combination
therapy and an additional payment in October 1999, less the amount of any
royalties previously paid under this license agreement. In addition to the
foregoing payments, Sano is required to make annual payments for a period of
six years commencing on October 1999 or, if sooner, one year after approval
of an NDA covering products using the patented combination therapy.
The Company requires each of its employees, consultants and advisors to
execute a confidentiality agreement, and, as to its scientific and
manufacturing staff, an assignment of proprietary rights, upon the
commencement of an employment, consulting or advisory relationship with the
Company. These agreements generally provide that all inventions, ideas,
discoveries, improvements and copyrightable material made or conceived by the
individual arising out of the employment, consulting or advisory relationship
and all confidential information developed or made known to the individual
during the term of the relationship shall be the exclusive property of the
Company. This information is required to be kept confidential and not
disclosed to third parties except in specified circumstances.
If a patent is listed with the FDA for a branded drug for which the
Company seeks to develop a generic counterpart, the Company may obtain
opinions of counsel as to the Company's non-infringement, or invalidity of,
the listed patent. Even in cases where the Company obtains an opinion that
its product does not infringe another party's patent or that such patent is
invalid, there can be no assurance that a court would agree with such opinion
or that the Company would not be found liable for patent infringement.
COMPETITION
Competition in the development and marketing of drug delivery products is
intense and expected to increase. The Company's transdermal delivery
competitors include 3M Corp., ALZA Corporation, Cygnus, Inc., Ethical
Holdings, plc, Noven Pharmaceuticals, Inc. and TheraTech, Inc. Most of these
companies have substantially greater financial resources and larger research
and development staffs than Sano. In addition, these companies have greater
experience in obtaining regulatory approvals and in manufacturing and
marketing pharmaceutical products. Competition with these companies involves
not only product development, but also competition for the acquisition of
products and technologies from universities and other research institutions.
The Company also competes with pharmaceutical companies, universities and
other research institutions in the development of products, technologies and
processes. Competitors have developed or are in the process of developing
technologies that are, or in the future may be, the basis for competitive
products. Some of these products may have an entirely different approach or
means of accomplishing a therapeutic effect than products being developed by
the Company. There can be no assurance that the Company will successfully
develop technologies and
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products that are more effective or affordable than those being developed by
its competitors. In addition, one or more of the Company's competitors have
or may achieve product commercialization or patent protection earlier than
Sano. Products that may be competitive with certain of the Company's products
in clinical studies have either been approved or are being developed,
including generic nitroglycerin patches, proprietary nicotine patches and
proprietary estrogen patches. The first pharmaceutical product to reach the
market in a therapeutic area and the first generic to a branded product often
have a significant competitive advantage over later entrants to the market.
Currently, there are no approved transdermal patches for the treatment of
anxiety, depression, ADD or a combined agonist/antagonist patch directed
toward smoking cessation. In addition, the Company is not aware of any
generic transdermal products pending before, or which have been approved by,
the FDA, other than for nitroglycerin. To the extent that the Company enters
the solid dose controlled release product market, the Company will be subject
to additional competition with respect to such technology.
The Company expects that its products will compete primarily on the basis
of product efficacy, price, patient compliance, reduced side effects, product
appearance and comfort, reliability and, in certain cases, scope of patent
rights. The Company's competitive position will also depend on its ability to
attract and retain qualified scientific and other personnel, develop
effective Generic and Proprietary Products, implement production and
marketing plans, obtain patent protection and secure adequate capital
resources.
GOVERNMENT REGULATION AND PRODUCT APPROVALS
The production and marketing of the Company's products and its research
and development activities are subject to regulation by numerous governmental
authorities in the United States and other countries. In the United States,
pharmaceutical products are subject to the Federal Food, Drug and Cosmetic
Act, the Public Health Services Act, and other federal statutes and
regulations. These regulations and statutes govern the testing, manufacture,
labeling, storage, record keeping, advertising, promotion and approval of
such pharmaceutical products. Failure to comply with applicable requirements
can result in fines, recall or seizure of products, total or partial
suspension of production, refusal by the government to approve marketing of
the product and criminal prosecution.
In order to obtain FDA approval of a new dosage form of an existing
product, the Company must submit proof of safety, efficacy and stability and
obtain validation of its manufacturing process. Such proof and validation can
entail extensive pre-clinical, clinical and laboratory testing in order to
prepare the necessary application for FDA approval. The testing and
application process is expensive and time consuming, often taking several
years to complete. There is no assurance that the FDA will act favorably or
quickly in reviewing such applications. Delays imposed by the governmental
approval process may materially reduce the periods during which the Company
will have the exclusive right to exploit patented or proprietary products or
technologies.
The FDA approval process for a new chemical entity typically includes (i)
pre-clinical laboratory and animal studies to enable FDA approval of an
Investigational New Drug ("IND") exemption to permit clinical studies
involving human subjects; (ii) initial clinical studies to define safety and
dose parameters, (iii) well-controlled clinical trials to demonstrate product
efficacy and safety, and (iv) submission and FDA approval of an NDA.
Pre-clinical studies involve laboratory evaluation of product characteristics
and animal studies to assess the efficacy and safety of the product. Human
clinical trials are typically conducted in three sequential, but partially
overlapping, phases. Phase I trials normally consist of testing the product
in a small number of volunteers for safety and pharmacokinetic parameters
using single and multiple dosing regimens. In Phase II, continued safety and
initial efficacy of the product is evaluated in a somewhat larger patient
population for dose ranging. Phase III trials typically involve additional
testing for safety and clinical efficacy using multiple dosage regimens in an
expanded patient population at multiple clinical testing centers. A clinical
plan or protocol, accompanied by the approval of the entity participating in
the trials, must be submitted to the FDA prior to commencement of each
clinical trial. The FDA may order the temporary or permanent discontinuation
of clinical trials at any time.
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All the results of the pre-clinical and clinical studies on a
pharmaceutical product are submitted to the FDA in the form of an NDA for
approval to commence commercial distribution. In responding to an NDA, the
FDA may grant marketing approval, require additional testing and/or
information, or deny the application. Continued compliance with all FDA
requirements and the conditions in an approved application, including product
specification, manufacturing process, labeling and promotional material and
record keeping and reporting requirements, is necessary throughout the life
of the product. Failure to comply, or the occurrence of unanticipated adverse
effects during commercial marketing, could lead to the need for product
recall or other FDA-initiated actions that could delay further marketing
until the products or processes are brought into compliance.
For each Generic Product under development, the Company will be required
to submit an ANDA for approval to commence commercial distribution. The ANDA
must set forth a study demonstrating bioequivalency (i.e. that the rate and
extent of drug delivered by Sano's product are essentially identical to the
rate and extent of delivery of the branded product). The Waxman-Hatch
amendments require that when a drug developer files an ANDA for a generic
drug and an unexpired patent has been listed with the FDA as covering the
related branded product, the developer must certify to the FDA that such
patent will either not be infringed by the developer's product or is invalid
or unenforceable. That certification must also be provided to the patent
holder, who may challenge the developer's certification of non-infringement,
invalidity or unenforceability by filing a suit for patent infringement. If
such a suit is filed within 45 days of the patent holder's receipt of such
certification, the FDA may review and approve the ANDA, but is precluded from
granting final marketing approval of the product until a final judgment in
the action has been rendered or until 30 months from the date the
certification was received, whichever is sooner.
Each pharmaceutical manufacturer's facilities must be registered with and
approved by the FDA. Continued registration requires compliance with GMP
regulations. Manufacturers must also be registered with the DEA and similar
state and local regulatory authorities if they handle controlled substances,
and with the Environmental Protection Agency and similar state and local
regulatory authorities if they generate toxic or dangerous wastes. The
Company is required to obtain permits from local, state and federal agencies
in connection with emissions resulting from its manufacturing operations, and
the Company may be required to spend significant funds to comply with
appropriate regulations or to obtain future permits.
For international markets, a pharmaceutical company is subject to
regulatory requirements, interactions and product approvals substantially the
same as those in the United States. Although the technical descriptions of
the clinical trials are different, the trials themselves are substantially
the same as those in the United States and are commonly referred to in the
industry as Phases I, II and III. In connection with any future marketing,
distribution and license agreements which Sano may enter into, Sano's
partners may accept or assume responsibility for such foreign regulatory
approvals. The time and cost required to obtain these international market
approvals may differ from those required for FDA approval.
FACILITY
Sano's facility is located in Miramar, Florida. This facility, which is
leased by the Company, contains 83,000 square feet of usable space. The
building includes 10,000 square feet of office and administrative space. The
balance of the space is dedicated to formulation and analytical laboratories
and production areas. The Company also leases an adjacent parcel for use as a
parking lot. These leases require the Company to pay an aggregate monthly
rental payment of approximately $29,000, subject to an annual increase of
3.5%. The Company is also required to make a monthly payment to the lessor of
approximately $12,000 for maintenance and taxes. The leases expire in May
2006. The leases provide for four renewal options, each for a term of five
years, that may be exercised upon six months advance notice to the lessor
prior to the expiration of the particular lease term. The Company believes
that this facility can adequately support the completion of development and
manufacture of its products currently under development.
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EMPLOYEES
Sano had 68 full-time employees at September 30, 1996. In addition, the
Company had approximately 25 part-time employees and consultants at that
date. The Company uses part-time and temporary employees to assist in
manufacturing and packaging products. The Company's employees are principally
engaged in research and development, clinical studies, regulatory affairs and
quality control and pilot production. The Company has no union contracts and
believes that its relationship with its employees is good.
LEGAL PROCEEDINGS
On March 6, 1996, Key filed a complaint in the United States District
Court of Florida alleging that one of the Company's transdermal nitroglycerin
patches, for which the Company had filed an ANDA with the FDA, infringed
certain patents owned by Key. The Company had previously obtained
non-infringement opinions with regard to its product and believes that there
is no merit to the allegations in the complaint. The Company has filed an
answer and counterclaim to the complaint and intends to vigorously defend
this lawsuit. However, patent litigation is extremely costly, protracted and
burdensome, and there can be no assurance that the outcome of the lawsuit
will be favorable to the Company. If the Company's product is found to be in
violation of Key's patents, the Company may not be able to market such
product on a commercially acceptable basis or at all.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------------------------------------
<S> <C> <C>
Marc M. Watson ............ 51 Chairman of the Board
Reginald L. Hardy ......... 39 President and Director
Charles J. Betlach, Ph.D. 52 Senior Vice President--Research and Development
and Director
Cheryl M. Gentile ......... 39 Vice President--Research and Development
Jesus Miranda ............. 37 Vice President--Research and Development
Joseph A. Gentile ......... 47 Vice President--Operations
Hubert E. Huckel, M.D. ... 64 Director
Marco Possati ............. 43 Director
Roy S. Walzer ............. 48 Director
</TABLE>
Mr. Watson has been Chairman of the Board of the Company since he
co-founded the Company in May 1991. Prior to joining Sano, Mr. Watson was a
corporate and securities attorney in private practice who represented Key
Pharmaceuticals, Inc. from 1972 to 1986. Following Key's sale to
Schering-Plough Corporation in 1986, Mr. Watson retired from the active
practice of law and worked on the purchase and formation of the three
companies (pharmaceuticals, medical diagnostics, and specialty chemicals)
which became IVAX Corporation and assisted in the consolidation and public
offering of IVAX. Mr. Watson was also the co-founder and Chief Executive
Officer of Exact Science, Inc., a medical instrument company formed in 1987,
which was acquired by Abbott Laboratories in 1990. Mr. Watson was educated at
the University of Miami, receiving a bachelor of business
administration-accounting degree in 1967 and a juris doctor degree in 1970.
From June 1970 through 1972, Mr. Watson was an attorney with the United
States Securities and Exchange Commission in Washington, D.C. Mr. Watson is
also a director of Equitrac Corporation.
Mr. Hardy has been President and a Director of Sano since he co-founded
the Company in May 1991. Prior to joining Sano, Mr. Hardy was the Director of
Business Planning for IVAX Corporation ("Ivax") from 1986 to 1991. From 1989
to 1991, Mr. Hardy was also Acting President of Best Generics, Inc., a
national distributor of generic drugs and a subsidiary of IVAX. Prior to
joining IVAX, Mr. Hardy worked in the Corporate Planning Department at Key
Pharmaceuticals, Inc. and Hoechst-Roussel Pharmaceuticals, Inc. Mr. Hardy was
educated at the University of North Carolina, receiving a bachelor's degree
in pharmacy from the University of North Carolina--Chapel Hill in 1981 and an
MBA in marketing and finance from the University of North
Carolina--Greensboro in 1984. Since 1995 Mr. Hardy has been a member of the
National Development Advisory Board of the University of Florida College of
Pharmacy.
Dr. Betlach has been Senior Vice President--Research and Development and
served as a Director since he co-founded Sano in May 1991. Prior to that
time, Dr. Betlach was Principal Scientist at Key and then Schering-Plough
Corporation from 1984 to 1991. Dr. Betlach was instrumental in the
development and clinical evaluation of K-Dur, a sustained-release potassium
chloride product and Uni-Dur, a once-a-day sustained-release theophylline.
Dr. Betlach was educated at the University of California, receiving a
master's degree in Cellular Biology from the University of California--Santa
Barbara in 1967 and both a Doctor of Pharmacy in 1974, and a Ph.D. in
Pharmaceutical Chemistry in 1978 from the University of California--San
Francisco.
35
<PAGE>
Ms. Gentile has been Vice President--Research and Development since 1991,
and is considered a co-founder of the Company. From 1987 to 1991 Ms. Gentile
was the Manager of Product Development for Noven Pharmaceuticals, Inc.
("Noven"), a pharmaceutical company that specializes in the development of
transdermal delivery systems. While at Noven, Ms. Gentile was instrumental in
the development of the patented Vivelle/registered trademark/ transdermal
estrogen patch that was licensed to Ciba-Geigy (United States rights) and
Rhone-Poulenc Rorer Pharmaceuticals (Europe). Prior to joining Noven, Ms.
Gentile held various research and development positions at Key where she was
involved in the development and scale-up of transdermal drug delivery
systems. Ms. Gentile was educated at Florida Atlantic University, receiving
Bachelor of Science degrees in Chemistry and Geology in 1980 and 1982,
respectively, and an MBA in Operations in 1992.
Mr. Miranda joined Sano in June 1993 as Vice President--Research and
Development. From 1989 to 1993 Mr. Miranda was the Manager of Transdermal
Research at Noven where he was responsible for all of its transdermal
research activities. Mr. Miranda completed development of a transdermal
nitroglycerin system (ANDA pending), a transdermal estrogen/progestin product
that was licensed to Rhone-Poulenc Rorer Pharmaceuticals and a transdermal
progestin product. From 1986 to 1989, Mr. Miranda was the Systems Development
Scientist at Cygnus, Inc. ("Cygnus") where he was instrumental in the
development of the Nicotrol/registered trademark/ nicotine patch. Prior to
joining Cygnus, Mr. Miranda was employed by Key, where he was involved in the
scale-up of the first generation Nitro-Dur/registered trademark/ product and
was the project leader responsible for the development of an isosoribide
dinitrate patch. Mr. Miranda was educated at Florida International
University, receiving a bachelor's degree in Chemistry in 1986.
Mr. Gentile joined Sano in May 1993 as Vice President-Operations. From
1988 to 1993 he was the Manager of Operations for Noven where he was involved
in all aspects of pharmaceutical development and production. Prior to joining
Noven, Mr. Gentile was at Key where he interacted with the FDA during the
FDA's review of Key's facilities and its documentation and manufacturing
processes. Mr. Gentile was educated at Philadelphia College of Pharmacy &
Science and Florida Atlantic University, receiving a Bachelor of Science
degree in Chemistry in 1981 and an MBA in Operations in 1992. Joseph Gentile
and Cheryl Gentile are husband and wife.
Dr. Huckel joined the Company as a consultant in October 1993 and became a
member of the Board of Directors in January 1994. Prior to joining Sano, Dr.
Huckel held various positions with The Hoechst Group for 29 years. At the
time of his retirement in 1993 he was Chairman of the Board of
Hoechst-Roussel Pharmaceuticals, Inc., Chairman and President of
Hoechst-Roussel Agri-Vet Company, Group President Life Sciences and Member,
Executive Committee Hoechst Celanese Corporation. Additionally, Dr. Huckel
was a member of the Board of Directors of Hoechst Corporation, Hoechst
Celanese Corporation, Behring Diagnostics Inc. and PB Diagnostics, Inc. Dr.
Huckel is a director of Royce Laboratories and Titan Pharmaceuticals, Inc.
From 1978 until his retirement in 1993, he served on the Board of Directors
of the Pharmaceutical Manufacturers Association.
Mr. Possati joined the Company as a member of the Board of Directors in
February 1995. Until November 1994 and for more than five years prior to that
time, Mr. Possati was President of Marpos Corporation, a manufacturer of
in-process gauging equipment principally for the automotive industry. Mr.
Possati is currently a private investor in numerous business ventures.
Mr. Walzer joined the Company as a member of the Board of Directors in
September 1991. From 1988 to 1990, Mr. Walzer was the lead investor and a
Director of Exact Science, Inc. Mr. Walzer is the President and founder of
Litchfield Partners, Ltd., an independent investment firm which is one of the
Company's principal investors, with emphasis on early stage medical device
and pharmaceutical companies, manufacturing and real estate. From 1976 to
1986 he was General Counsel and Executive Vice President of Sealy
Connecticut, Inc., a family-owned and operated manufacturer of mattresses.
Officers of the Company serve at the pleasure of the Board of Directors,
subject to the terms of any employment agreements with the Company. See
"Executive Compensation--Employment
36
<PAGE>
Agreements." The term of office of each director of the Company ends at the
next annual meeting of the Company's shareholders or when his successor is
elected and qualified. Except as noted above, there are no family
relationships among any of the Company's executive officers and directors.
The Company's directors do not currently receive any cash compensation for
service on the Board of Directors but may be reimbursed for certain expenses
in connection with attendance at Board of Director meetings or other meetings
on the Company's behalf. Upon election to the Board of Directors, each
director is granted an option to purchase 5,000 shares of Common Stock. In
addition, each year at the time the Company's annual earnings are released,
each director is granted an option to purchase 5,000 additional shares at the
market price of such shares on such date.
The Board of Directors maintains an Audit Committee consisting of Messrs.
Walzer, Possati and Watson, which reviews the results and scope of the audit
and other services provided by the Company's independent auditors, a
Compensation Committee consisting of Messrs. Possati, Huckel and Walzer which
provides recommendations concerning salaries and incentive compensation for
directors, officers and employees of, and consultants to, the Company, and a
Stock Option Committee consisting of Messrs. Huckel, Possati and Walzer which
is responsible for administering the Company's 1993 Nonqualified Stock Option
Plan (the "1993 Plan") and the Company's 1995 Stock Option Plan (the "1995
Plan").
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid during the years
ended December 31, 1995 and 1994 to the Company's President (the "Named
Officer"). In 1995 and 1994, there was no executive officer whose annual
compensation exceeded $100,000. For information concerning the compensation
of certain executive employees, see "--Employment Agreements."
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
ANNUAL COMPENSATION AWARDS
-------------------- SECURITIES
UNDERLYING
NAME YEAR SALARY($) BONUS($) OPTIONS(#)
- ------------------- ------- ---------- --------- ---------------
<S> <C> <C> <C> <C>
Reginald L. Hardy 1995 $96,875 -- --
President 1994 72,188 -- 75,000
</TABLE>
OPTION GRANTS DURING 1995
There were no grants of options to purchase Common Stock to the Named
Officer for the year ended December 31, 1995. Options to purchase 83,333
shares of Common Stock, 41,666 shares of Common Stock, 83,333 shares of
Common Stock and 50,000 shares of Common Stock were granted to Ms. Gentile
and Messrs. Gentile, Miranda and Watson, respectively, during the year ended
December 31, 1995.
37
<PAGE>
AGGREGATE OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth information with respect to the number and
value of unexercised options held by the Named Officer as of December 31,
1995.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NAME AT DECEMBER 31, 1995(#) AT DECEMBER 31, 1995($)(1)
- ------------------- -------------------------------- --------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
REGINALD L. HARDY 75,000 0 $750,000 0
</TABLE>
- -----------------------------------------------------------------------------
(1) The value of each unexercised in-the-money option was determined by
multiplying (i) the difference between (a) the fair market value of the
Common Stock issuable upon exercise of the option using a value of
$11.50, the closing price as reported by the Nasdaq National Market on
December 29, 1995, and (b) the exercise price of the option, by (ii) the
number of shares subject to the option.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Marc M. Watson,
Reginald L. Hardy, Charles Betlach, Cheryl M. Gentile, Jesus Miranda and
Joseph Gentile. The Company's agreements with Messrs. Watson and Hardy
provide for base salaries of $135,000 and $145,000, respectively, and expire
on November 10, 1998. The Company has increased the base salaries to be paid
to each of Messrs. Watson and Hardy to $185,000 for 1997. These two
agreements also provide that, upon the termination of the employee's
employment for death, mental or physical incapacity, illness or disability,
the Company will pay to the employee any unpaid base salary accrued through
the date of termination plus a lump sum severance payment equal to twelve
months' base salary. In October 1996, the employment agreements between the
Company and each of Charles Betlach, Cheryl Gentile, Jesus Miranda and Joseph
Gentile were amended to provide for an additional employment term of three
years and provide for increased base salaries of $150,000, $135,000, $135,000
and $150,000, respectively, for 1997 from $110,000, $97,000, $97,000 and
$110,000, respectively, for 1996. Pursuant to the terms of their respective
employment agreements, each of the officers listed above may receive a bonus
at the discretion of the Board, and such individuals may receive options
granted under the Company's stock option plans. Pursuant to the terms of her
employment agreement, Ms. Gentile is entitled to royalty payments equal to
(A) 1% of the net sales of (i) the Company's proprietary buspirone patch,
(ii) a generic estradiol patch and (iii) an estrogen/progestin combination
patch, and (B) one-half of 1% of the net sales of five additional products to
be developed by Ms. Gentile as specified by the Company and approved by her.
Pursuant to the terms of his employment agreement, Mr. Miranda is entitled to
royalty payments equal to (A) 1% of the net sales of (i) the Company's
generic nicotine patch and (ii) a nitroglycerin patch, and (B) three-quarters
of 1% of net sales of the Company's proprietary mecamylamine and nicotine
combination patch, and (C) one-half of 1% of the net sales of five additional
products to be developed by Mr. Miranda as specified by the Company and
approved by him. Royalty payments under each of Ms. Gentile's and Mr.
Miranda's employment agreements are payable for a period of five years from
the date of the first commercial sale of a particular product in the United
States or another major international market. In instances of bulk sales and
certain upfront license fees paid to the Company, the royalty percentage
payable to Ms. Gentile or Mr. Miranda, as the case may be, may be higher.
Each of the Company's agreements with Messrs. Watson and Hardy provide that,
during the term of the agreement and for two years thereafter, the employee
shall not engage in or have any interest in any business that competes with
the Company, in any state in which the Company conducts business, with
respect to products which were in formulation development or clinical trial
on November 10, 1995. The foregoing non-competition obligations do not apply
in the event that the employee is terminated without "cause," as defined in
each agreement. Each of the Company's agreements with Dr. Betlach, Ms.
Gentile and Mr. Miranda provides that, during the term of employment and for
two years thereafter, the employee shall not develop or assist in the
development of any products competitive with any product under development by
the Company at the date of the termination of employment.
38
<PAGE>
STOCK OPTION PLANS
In May 1993, the Company adopted the 1993 Plan, under which 1,224,083
shares of Common Stock are reserved for issuance upon exercise of options.
The Company's Stock Option Committee administers and interprets the 1993 Plan
and is authorized to grant options thereunder to all eligible employees of
the Company, including executive officers and directors (whether or not
employees) of the Company, as well as consultants and independent
contractors. Under the 1993 Plan the Stock Option Committee may grant both
incentive stock options intended to qualify as such under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and nonqualified
stock options. The 1993 Plan will terminate on May 4, 2003, unless sooner
terminated by the Board of Directors. As of September 30, 1996, the Company
had outstanding under the 1993 Plan options to purchase an aggregate of
1,176,029 shares (of which 909,757 were exercisable as of September 30,
1996). The exercise price of all options granted under the 1993 Plan was at
least equal to the fair market value of the Common Stock on the date of grant
as determined by the Board of Directors. As of September 30, 1996, 34,164
options granted under the 1993 Plan had been exercised. As of September 30,
1996, there were 13,890 shares of Common Stock available for future grants
under the 1993 Plan.
In September 1995, the Company adopted the 1995 Plan, under which 500,000
shares of Common Stock are reserved for issuance upon exercise of options.
The Company's Stock Option Committee administers and interprets the 1995 Plan
and is authorized to grant options thereunder to all eligible employees of
the Company, including executive officers and directors (whether or not
employees) of the Company, as well as consultants and independent
contractors. The 1995 Plan provides for the granting of both incentive stock
options and nonqualified stock options. Incentive stock options may only be
granted, however, to employees. Options can be granted under the 1995 Plan on
such terms and at such prices as determined by the Company's Stock Option
Committee, except that the per share exercise price of options granted under
the 1995 Plan will not be less than the fair market value of the Common Stock
on the date of grant, and, in the case of an incentive stock option granted
to any 10% shareholder, the per share exercise price will not be less than
110% of such fair market value as defined in the 1995 Plan.
Options granted under the 1995 Plan that would otherwise qualify as
incentive stock options will not be treated as incentive stock options to the
extent that the aggregate fair market of the shares to which the options
relate, which are exercisable for the first time by any individual during any
calendar year, exceeds $100,000.
Options granted under the 1995 Plan will be exercisable after the period
or periods specified in the option agreement. Options granted under the 1995
Plan are not exercisable after the expiration of ten years from the date of
grant (five years in the case of a 10% shareholder) and are not transferable
other than by will or by the laws of descent and distribution. Adjustments in
the number of shares subject to options granted under the 1995 Plan can be
made by the Stock Option Committee in the event of a stock dividend or
recapitalization resulting in a stock split-up, combination or exchange of
shares. Under the 1995 Plan, options become immediately exercisable in the
event of a change in control or approval by shareholders of the Company of a
merger, reorganization, liquidation, dissolution or disposition of all or
substantially all of the assets of the Company.
As of September 30, 1996, the Company had outstanding options to purchase
an aggregate of 289,500 shares under the 1995 Plan and 210,500 shares of
Common Stock were available under the 1995 Plan. At such date options to
purchase 31,666 shares of Common Stock were exercisable under the 1995 Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Marc M. Watson, the Chairman of the Board of the Company, and Reginald L.
Hardy, the President of the Company, participated in deliberations of the
Company's Board of Directors concerning executive officer compensation during
1995. Since November 1995 the compensation of the Company's executive
officers has been determined by the Compensation Committee of the Board of
Directors.
39
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information concerning the
beneficial ownership of the Common Stock on October 18, 1996 and as adjusted
to give effect to this offering by (i) each person known by the Company to be
the beneficial owner of more than 5% of the outstanding Common Stock, (ii)
each of the executive officers and directors of the Company, (iii) all
executive officers and directors of the Company as a group and (iv) each
Selling Shareholder. All holders listed below have sole voting power and
investment power over the shares beneficially owned by them, except to the
extent such power may be shared with such person's spouse.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR
OF OFFERING(2)
DIRECTORS, EXECUTIVE OFFICERS AND ----------------------- NUMBER OF
FIVE PERCENT SHAREHOLDERS(1) NUMBER PERCENT SHARES OFFERED(4)
--------------------------------- ------- ------- -----------------
<S> <C> <C> <C>
Reginald L. Hardy ..................... 1,189,092(5) 12.8% 100,000
Charles J. Betlach, Ph.D. ............. 1,009,629(6) 10.9 100,000
Marco Possati ......................... 668,886(7) 7.2 100,000
Roy S. Walzer ......................... 647,451(8) 7.0 25,000
Marc M. Watson ........................ 604,328(9) 6.4 60,000
Cheryl M. Gentile ..................... 453,642(10) 4.8 25,000
Joseph A. Gentile ..................... 453,642 (11) 4.8 25,000
Jesus Miranda ......................... 302,776 (12) 3.2 50,000
Hubert E. Huckel, M.D. ................ 79,565 (13) * --
Executive officers and directors 4,955,369(14) 49.2 485,000
as a group (9 persons) ................
OTHER SELLING SHAREHOLDERS
Alexandra Brooke Balogh Trust ......... 436,097 4.7 100,000
Pharmaceutical Resources, Inc. ....... 373,887 3.8 272,337
One & Company ......................... 20,496 * 1,000
Raymond James & Associates, Inc. ..... 11,167(15) * 11,167
Miles & Jamie Gilman .................. 10,000 * 10,000
Nanette Scofield ...................... 4,166 * 4,166
Nicholas Pontikes ..................... 4,166 * 4,166
Elizabeth Scofield .................... 3,000 * 3,000
Harvey Barsha ......................... 1,666 * 1,666
Robert C. Waggoner .................... 1,666 * 1,666
Jay Blau .............................. 1,250 * 1,250
Frederick F. Case, Profit Sharing Plan 1,250 * 1,250
Arthur Edwards, Profit Sharing Plan .. 1,250 * 1,250
Richard D. Kuhn ....................... 833 * 833
Debra Pinto ........................... 833 * 833
Georgia Veru .......................... 416 * 416
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
SHARES TO BE
BENEFICIALLY OWNED
AFTER OFFERING(3)
DIRECTORS, EXECUTIVE OFFICERS AND -------------------
FIVE PERCENT SHAREHOLDERS(1) NUMBER PERCENT
---------------------------------- ------ -------
<S> <C> <C>
Reginald L. Hardy 1,089,092 10.3%
Charles J. Betlach, PH.D. 909,629 8.6
Marco Possati ......................... 568,886 5.4
Roy S. Walzer ......................... 622,451 5.9
Marc M. Watson ........................ 544,328 5.1
Cheryl M. Gentile ..................... 403,642 3.8
Joseph A. Gentile ..................... 403,642 3.8
Jesus Miranda ......................... 252,776 2.3
Hubert E. Huckel, M.D. ................ 79,565 *
Executive officers and directors
as a group (9 persons) ................ 4,470,369 39.5
OTHER SELLING SHAREHOLDERS
Alexandra Brooke Balogh Trust ......... 336,097 *
Pharmaceutical Resources, Inc. ....... 101,550 *
One & Company ......................... 19,496 *
Raymond James & Associates, Inc. ..... -- --
Miles & Jamie Gilman .................. -- --
Nanette Scofield ...................... -- --
Nicholas Pontikes ..................... -- --
Elizabeth Scofield .................... -- --
Harvey Barsha ......................... -- --
Robert C. Waggoner .................... -- --
Jay Blau .............................. -- --
Frederick F. Case, Profit Sharing Plan -- --
Arthur Edwards, Profit Sharing Plan .. -- --
Richard D. Kuhn ....................... -- --
Debra Pinto ........................... -- --
Georgia Veru .......................... -- --
</TABLE>
40
<PAGE>
- -----------------------------------------------------------------------------
* Less than one percent.
(1) The address of each of the Company's executive officers and directors
listed below is Sano Corporation, 3250 Commerce Parkway, Miramar,
Florida 33025.
(2) For purposes of this table, a person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days
from the date of this table.
(3) Assumes that the Underwriters' over-allotment option is not exercised.
(4) Excludes 50,000, 50,000, 20,000, 25,000, 25,000, 30,000, 20,950, and
101,550 shares to be sold by each of Messrs. Hardy, Betlach, Watson and
Miranda, Ms. Gentile, Mr. Possati, The Alexandra Brooke Balogh Trust and
PAR Pharmaceuticals, Inc., respectively, upon the exercise in full of
the Underwriters' over-allotment option. If such over-allotment option
is exercised in part, each of such Selling Shareholders will sell a
proportionately decreased number of shares.
(5) Includes 75,000 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this table and 1,000,000
shares owned by the Hardy Family Limited Partnerships, which are
controlled by Mr. Hardy.
(6) Includes 33,333 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this table and 900,000 shares
owned by the Betlach Family Limited Partnership, which is controlled by
Dr. Betlach. Does not include the ownership of 18,150 shares of Common
Stock owned by Dr. Betlach's brother and daughter, neither of whom
resides in his household.
(7) Includes 5,000 shares of Common Stock issuable upon exercise of
currently exercisable options.
(8) Includes 13,333 shares of Common Stock, issuable upon exercise of
options exercisable within 60 days of the date of this table and 616,452
shares of Common Stock owned by Litchfield Partners Ltd., which is
controlled by Mr. Walzer. Also includes 1,000 shares of Common Stock
owned by Mr. Walzer's minor son.
(9) Includes 38,172 shares of Common Stock currently owned and 416 shares of
Common Stock issuable upon exercise of options exercisable within 60
days of the date of this table by Sharon Watson, Mr. Watson's wife, and
183,333 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this table held by Mr. Watson.
Does not include shares of Common Stock owned by Mr. Watson's two adult
children, neither of whom resides in his household.
(10) Includes 81,944 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this table, 255,032 shares of
Common Stock jointly owned with her husband, Joseph Gentile, and 116,666
shares of Common Stock issuable upon exercise of options exercisable
within 60 days of the date of this table held by Mr. Gentile.
(11) Includes 116,666 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of the date of this table, 255,032
shares of Common Stock jointly owned with his wife, Cheryl Gentile, and
81,944 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this table held by Ms.
Gentile.
(12) Consists of 302,776 shares of Common Stock issuable upon exercise of
options exercisable within 60 days of the date of this table., including
50,000 shares of Common Stock that will be issued upon the exercise of
an option at the closing of this offering
(13) Includes 17,499 shares of Common Stock issuable upon exercise of options
exercisable within 60 days of the date of this table.
(14) See footnotes (5) through (13).
(15) Represents shares that will be issued upon exercise of certain warrants
at the close of this offering.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, $0.01 par value, and 5,000,000 shares of Preferred Stock,
$0.01 par value. As of September 30, 1996, there were 9,241,096 shares of
Common Stock outstanding and no shares of Preferred Stock outstanding. As of
September 30, 1996, there were 154 holders of record of the Company's capital
stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available
therefor. Holders of Common Stock have no preemptive, conversion or other
subscription rights. There are no redemption or sinking fund provisions
available to the Common Stock. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to
prior distribution rights of Preferred Stock, if any, then outstanding.
PREFERRED STOCK
The Board of Directors has the authority without further action by the
stockholders to issue up to 5,000,000 shares of Preferred Stock in one or
more series. The Board of Directors is authorized to establish from time to
time the number of shares to be included in and the designation of, any such
series, to determine or alter the rights, preferences, privileges and
restrictions thereof without further action by the stockholders. The Board of
Directors of the Company has not designated any series of Preferred Stock.
Satisfaction of any dividend preferences of outstanding Preferred Stock, if
any, would reduce the amount of funds available for the payment of dividends
on Common Stock. Also, the holders of Preferred Stock, if any, would normally
be entitled to receive a preference payment in the event of any liquidation
or other dissolution or winding up of the Company before any payment is made
to the holders of Common Stock. In addition, any outstanding shares of
Preferred Stock having conversion rights would potentially increase the
number of shares of Common Stock outstanding.
WARRANTS
In connection with a private offering of its securities prior to its
initial public offering, the Company issued warrants to acquire 11,167 shares
of Common Stock at an exercise price of $7.92 per share to the placement
agent in such offering. The warrants may be exercised at any time prior to
May 2000.
REGISTRATION RIGHTS
Prior to its initial public offering, the Company entered into agreements
with the holders of substantially all of the then outstanding shares of
Preferred Stock. Upon the completion of the Company's initial public
offering, all outstanding shares of Preferred Stock were converted to Common
Stock. The holders of 2,797,241 shares of such Common Stock have the right,
subject to certain limitations, to require that the Company prepare a
registration statement registering under the Securities Act the Common Stock
issued as a result of the conversion of their Preferred Stock to Common Stock
at the time of the initial public offering (the "Registrable Securities")
(such right is defined as a "Demand Right") and the holders of 2,068,045
shares of such Common Stock have the right, subject to certain limitations,
to include their Registrable Securities among those securities registered as
part of an offering initiated by the Company (such right is defined as a
"Piggyback Right"). In particular, the holders of Common Stock issued upon
the conversion of the Series A, B and C Preferred Stock may exercise their
Demand Right upon the written request of the holders of 15 percent or more of
the Registrable Securities (a "Minimum Request") and may exercise their
Piggyback Rights individually at any time. The holder of 525,000 shares of
Common Stock issued upon the conversion of the Series D Preferred
42
<PAGE>
Stock is entitled to Piggyback Rights which may be exercised until May 1998.
Holders of 729,166 shares of Common Stock issued upon conversion of the
Series E Preferred Stock are entitled to Demand Rights which may be exercised
until May 1997.
CERTAIN FLORIDA LEGISLATION
The State of Florida has enacted legislation that may deter or frustrate
takeovers of Florida corporations. The Florida Control Share Act generally
provides that shares acquired in excess of certain specified thresholds will
not possess any voting rights unless such voting rights are approved by a
majority of the corporation's disinterested shareholders. The Florida
Affiliated Transactions Act generally requires supermajority approval by
disinterested shareholders of certain specified transactions between a public
corporation and holders of more than 10% of the outstanding voting shares of
the corporation (or their affiliates). Florida law and the Company's Articles
of Incorporation also authorize the Company to indemnify the Company's
directors, officers, employees and agents. In addition, Florida law and the
Company's Articles of Incorporation presently limit the personal liability of
corporate directors for monetary damages, except where the directors (i)
breach their fiduciary duties and (ii) such breach constitutes or includes
certain violations of criminal law, a transaction from which the directors
derived an improper personal benefit, certain unlawful distributions or
certain other reckless, wanton or willful acts or misconduct. The Company may
also indemnify any person who was or is a party to any proceeding by reason
of the fact that he or she is or was a director, officer, employee or agent
of such corporation (or is or was serving at the request of such corporation
in such a position for another entity) against liability for acts which he
believed to be in the best interests of such corporation and, with respect to
criminal proceedings, had no reasonable cause to believe his conduct was
unlawful.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans.
The existence of authorized but unissued and unreserved shares of Common
Stock and Preferred Stock may enable the Board of Directors to issue shares
to persons friendly to current management which would render more difficult
or discourage an attempt to obtain control of the Company by means of a proxy
contest, tender offer, merger or otherwise, and thereby protect the
continuity of the Company's management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Based on shares outstanding at September 30, 1996, and assuming no
exercise of options and warrants outstanding at that date, the Company will
have 10,491,096 shares of Common Stock outstanding upon the closing of this
offering. In addition, 61,167 shares of Common Stock will be issued at the
closing of this offering upon the exercise of options and warrants by certain
Selling Shareholders. An additional 1,250 shares of Common Stock have been
issued upon exercise of options since September 30, 1996. Of the foregoing
10,553,513 shares, 5,174,164 shares (including all of the 2,150,000 shares
sold in this offering) will be available for immediate sale in the public
market, unless acquired by an "affiliate" of the Company, as defined under
Rule 144 promulgated under the Securities Act ("Rule 144"). The remaining
5,379,349 shares outstanding upon completion of this offering will be
"restricted
43
<PAGE>
securities" as defined in Rule 144 ("restricted shares"). Approximately
682,588 of the restricted shares will be available for sale in the public
market pursuant to Rule 144(k) upon the completion of this offering. Upon the
expiration of the lock-up agreements described below, approximately 4,696,761
additional restricted shares will become eligible for sale in the public
market, subject, in certain cases, to the restrictions of Rule 144.
In general, under Rule 144 as currently in effect, if two years have
elapsed since the later of the date of acquisition of restricted securities
from the Company or any "affiliate" of the Company, as that term is defined
under the Securities Act, the acquiror or subsequent holder is entitled to
sell within any three-month period a number of shares that does not exceed
the greater of 1% of the then outstanding shares of the Company's Common
Stock (approximately 105,000 shares immediately after this offering) or the
average weekly trading volume of the Company's Common Stock on the Nasdaq
National Market during the four calendar weeks preceding the date on which
notice of the sale is filed with the Commission. Sales under Rule 144 are
also subject to certain manner of sales provisions, notice requirements and
the availability of current public information relating to the Company. If
three years have elapsed since the later of the date of acquisition of
restricted shares from the Company or from any affiliate of the Company, and
the acquiror or subsequent holder thereof has not been an affiliate of the
Company at any time during the 90 days preceding a sale, such person would be
entitled to sell such shares in the public market under Rule 144(k) without
regard to the volume limitations, manner of sale provisions or public
information or notice requirements.
All directors and executive officers of the Company and certain other
holders of restricted shares, holding in the aggregate 4,172,212 shares of
Common Stock, have agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of the Common Stock or securities convertible into or
exercisable or exchangeable for, or any rights to purchase or acquire, shares
of Common Stock for a period of 180 days following the date of this
Prospectus, without the prior written consent of Volpe, Welty & Company.
An aggregate of 1,724,083 shares of Common Stock issued or issuable upon
the exercise of options granted or to be granted under the Company's stock
option plans are also eligible for sale to the public pursuant to a
Registration Statement on Form S-8 filed by the Company.
The holders of an aggregate of 2,502,962 shares of Common Stock are
entitled to certain registration rights. See "Description of Capital
Stock--Registration Rights."
The Company is unable to predict the effect that sales of Common Stock
made under Rule 144 or pursuant to the Company's Registration Statement on
Form S-8 or any future registration statement may have on any then prevailing
market price for shares of the Common Stock. Nevertheless, sales of a
substantial amount of the Common Stock in the public market, or the
perception that such sales could occur, could materially adversely affect the
market price of the Common Stock as well as the Company's ability to raise
additional capital through the sale of its equity securities.
44
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Shareholders have agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of such Underwriters,
for whom Volpe, Welty & Company, Dillon, Read & Co. Inc. and Wheat, First
Securities, Inc. (together, the "Representatives") are acting as
representatives, has agreed severally to purchase from the Company and the
Selling Shareholders the respective number of shares of Common Stock set
forth opposite its name below. The Underwriters are committed to purchase and
pay for all shares if any shares are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- --------------
<S> <C>
Volpe, Welty & Company ...........
Dillon, Read & Co. Inc. ..........
Wheat, First Securities, Inc. ...
--------------
Total .......................... 2,150,000
==============
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the
absence of any material adverse change in the Company's business and the
receipt of certain certificates, opinions and letters from the Company and
its counsel and independent auditors. The nature of the Underwriters'
obligations is such that they are committed to purchase all shares of Common
Stock offered hereby if any of such shares are purchased.
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose to offer the shares of Common Stock to the
public at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession of not in
excess of $ per share, of which $ may be reallocated to other
dealers. After the public offering, the public offering price, concession and
reallowance to dealers may be reduced by the Representatives. No such
reduction will change the amount of proceeds to be received by the Company
and the Selling Shareholders as set forth on the cover page of this
Prospectus.
Certain Selling Shareholders have granted the Underwriters an option for
30 days after the date of this Prospectus to purchase, at the public offering
price, less the underwriting discounts and commissions as set forth on the
cover page of this Prospectus, up to 322,500 additional shares of Common
Stock solely to cover over-allotments, if any. If the Underwriters exercise
their over-allotment option, the Underwriters have severally agreed, subject
to certain conditions, to purchase approximately the same percentage thereof
that the number of shares of Common Stock to be purchased by each of them, as
shown in the foregoing table, bears to the 2,150,000 shares of Common Stock
offered hereby. The Underwriters may exercise such option only to cover
over-allotments in connection with the sale of the 2,150,000 shares of Common
Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted
by the Underwriters and subject to prior sale and to withdrawal, cancellation
or modification of the offering without notice. The Underwriters reserve the
right to reject an order for the purchase of shares in whole or in part.
45
<PAGE>
The Company, each of its directors and executive officers and certain
holders of the Company's outstanding securities have agreed not to offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock or
securities convertible into or exercisable or exchangeable for, or for any
rights to purchase or acquire, shares of Common Stock for a period of 180
days following the date of this Prospectus, without the prior written consent
of Volpe, Welty & Company, except for the grant or exercise of options
pursuant to the Company's stock option plans. Volpe, Welty & Company, in its
discretion, may waive the foregoing restrictions in whole or in part, with or
without a public announcement of such action.
In general, the rules of the Commission will prohibit the Underwriters
from making a market in the Common Stock during the "cooling off" period
immediately preceding the commencement of sales in the offering. The
Commission has, however, adopted exemptions from these rules that permit
passive market making under certain conditions. These rules permit an
underwriter to continue to make a market subject to the conditions, among
others, that its bid not exceed the highest bid by a market maker not
connected with the offering and that its net purchases on any one trading day
not exceed prescribed limits. Pursuant to these exemptions, certain
Underwriters, selling group members (if any) or their respective affiliates
may engage in passive market making in the Company's Common Stock during the
cooling off period.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which the Underwriters have
discretionary authority in excess of 5% of the number of shares of Common
Stock offered hereby.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities that
may be incurred in connection with this offering, including liabilities under
the Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company and the Selling Shareholders by Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A., Miami, Florida. Certain legal matters relating
to the offering will be passed upon for the Underwriters by Foley, Hoag &
Eliot LLP. Marc M. Watson, Chairman of the Board of the Company, is of
counsel to Greenberg, Traurig and beneficially owns 604,328 shares of Common
Stock. See "Principal and Selling Shareholders."
EXPERTS
The financial statements included in this Prospectus and elsewhere in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and
are included herein in reliance upon the authority of said firm as experts in
giving said report.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information
with the Commission. Such reports, proxy and information statements filed by
the Company may be inspected and copied at the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at 7 World
46
<PAGE>
Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material can also be obtained from the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street
N.W., Washington, D.C. 20549 at prescribed rates. Copies of each document may
also be obtained through the Commission's Internet address at
http://www.sec.gov. In addition, reports, proxy statements and other
information concerning the Company (Nasdaq National Market symbol: SANO) can
be inspected and copied at the offices of Nasdaq Stock Market, 1735 K Street,
N.W., Washington, D.C., 20006.
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement"), under the Securities Act, with respect to
the Common Stock offered hereby. This Prospectus, which constitutes part of
the Registration Statement, does not contain all of the information set forth
in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Copies of the
Registration Statement, including all exhibits thereto, may be obtained from
the Commission's principal office in Washington D.C. upon payment of the fees
prescribed by the Commission or may be examined without charge at the offices
of the Commission as described above.
47
<PAGE>
SANO CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Certified Public Accountants ......... F-2
Balance Sheets as of December 31, 1994 and 1995 and
September 30, 1996 (unaudited) ............................. F-3
Statements of Operations for the years ended
December 31, 1993, 1994 and 1995 and for the
nine months ended September 30, 1995 and 1996 (unaudited) . F-4
Statements of Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and for the
nine months ended September 30, 1996 (unaudited) .......... F-5
Statements of Cash Flows for the years ended
December 31, 1993, 1994 and 1995 and for the
nine months ended September 30, 1995 and 1996 (unaudited) . F-6
Notes to Financial Statements ............................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of Sano Corporation:
We have audited the accompanying balance sheets of Sano Corporation (a
Florida corporation) as of December 31, 1994 and 1995, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sano Corporation as of
December 31, 1994 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
January 31, 1996.
F-2
<PAGE>
SANO CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
SEPTEMBER 30,
1994 1995 1996
-------------- --------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 2,585,918 $ 5,517,061 $ 3,647,737
Marketable securities ................................ -- 22,782,221 25,388,685
Other current assets ................................. 278,917 320,401 413,820
-------------- --------------- ----------------
Total current assets ................................ 2,864,835 28,619,683 29,450,242
-------------- --------------- ----------------
Property, plant and equipment, net .................... 2,074,602 5,304,167 9,815,633
-------------- --------------- ----------------
Other assets:
Patents, net ......................................... 127,677 236,815 313,327
Deposits and other ................................... 122,131 463,838 884,718
-------------- --------------- ----------------
Total other assets .................................. 249,808 700,653 1,198,045
-------------- --------------- ----------------
Total assets ........................................ $ 5,189,245 $ 34,624,503 $ 40,463,920
============== =============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable ......................................... $ 25,667 $ 213,816 $ 508,760
Current obligation under capitalized leases ......... -- 33,429 37,268
Accounts payable ..................................... 314,562 696,015 732,719
Accrued expenses ..................................... 568,764 647,871 1,695,181
-------------- --------------- ----------------
Total current liabilities ........................... 908,993 1,591,131 2,973,928
-------------- --------------- ----------------
Long-term liabilities:
Deferred revenue ..................................... -- 1,451,655 3,318,509
Capitalized lease obligations, net of current portion -- 48,990 21,453
Note payable ......................................... 776,377 473,024 --
-------------- --------------- ----------------
Total long-term liabilities ......................... 776,377 1,973,669 3,339,962
-------------- --------------- ----------------
Commitments and contingencies
(Notes 1 and 7)
Redeemable preferred stock, 5,400,000 shares
authorized (Note 9) ............................... 8,959,996 -- --
-------------- --------------- ----------------
Stockholders' equity:
Preferred stock, $0.01 par value, 5,000,000
authorized, none issued or outstanding ............. -- -- --
Common stock, $0.01 par value, 25,000,000 shares
authorized, 2,419,780 and 9,206,932 issued and
outstanding at December 31, 1994 and 1995,
respectively, and 9,241,096 (unaudited) at
September 30, 1996 ................................. 24,198 92,069 92,411
Additional paid-in capital ........................... 294,024 45,354,225 45,393,268
Notes receivable from stockholders ................... (13,000) -- --
Accumulated deficit .................................. (5,761,343) (14,386,591) (11,335,649)
-------------- --------------- ----------------
Total stockholders' equity .......................... (5,456,121) 31,059,703 34,150,030
-------------- --------------- ----------------
Total liabilities and stockholders' equity ......... $ 5,189,245 $ 34,624,503 $ 40,463,920
============== =============== ================
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-3
<PAGE>
SANO CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------------------------------
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenues ........................ $ -- $ -- $ --
--------------- --------------- ---------------
Operating expenses:
Research and development ...... 1,128,585 2,680,294 8,429,671
General and administrative .... 162,947 789,894 910,552
--------------- --------------- ---------------
Total operating expenses ..... 1,291,532 3,470,188 9,340,223
--------------- --------------- ---------------
Other income (expense):
Product development fees ...... -- 228,025 --
Interest income ................ 6,588 28,109 335,480
Interest and other expense .... -- (51,323) (126,515)
--------------- --------------- ---------------
Total other income (expense) . 6,588 204,811 208,965
--------------- --------------- ---------------
Net income (loss) ............. (1,284,944) (3,265,377) (9,131,258)
Dividends on redeemable
preferred stock ............... (120,224) (335,950) --
--------------- --------------- ---------------
Net income (loss)
attributable to common
stockholders ................ $(1,405,168) $(3,601,327) $(9,131,258)
=============== =============== ===============
Net income (loss) per common
share (Note 2):
Primary ...................... $ (0.31) $ (0.71) $ (1.43)
=============== =============== ===============
Fully diluted .................. $ (0.31) $ (0.71) $ (1.43)
=============== =============== ===============
Weighted average shares
outstanding:
Primary ...................... 4,478,000 5,054,000 6,374,000
=============== =============== ===============
Fully diluted .................. 4,478,000 5,054,000 6,374,000
=============== =============== ===============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1995 1996
--------------- --------------
(UNAUDITED)
<S> <C> <C>
Revenues ........................ $ -- $15,000,000
--------------- --------------
Operating expenses:
Research and development ...... 6,418,723 10,161,958
General and administrative .... 603,729 2,693,919
--------------- --------------
Total operating expenses ..... 7,022,452 12,855,877
--------------- --------------
Other income (expense):
Product development fees ...... -- --
Interest income ................ 88,418 975,287
Interest and other expense .... (72,326) (68,468)
--------------- --------------
Total other income (expense) . 16,092 906,819
--------------- --------------
Net income (loss) ............. (7,006,360) 3,050,942
Dividends on redeemable
preferred stock ............... (658,973) --
--------------- --------------
Net income (loss)
attributable to common
stockholders ................ $(7,665,333) $ 3,050,942
=============== ==============
Net income (loss) per common
share (Note 2):
Primary ...................... $ (1.24) $ 0.30
=============== ==============
Fully diluted .................. $ (1.24) $ 0.29
=============== ==============
Weighted average shares
outstanding:
Primary ...................... 6,175,000 10,329,000
=============== ==============
Fully diluted .................. 6,175,000 10,402,000
=============== ==============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE>
SANO CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------
ADDITIONAL
SHARES PAR VALUE PAID-IN CAPITAL
------------ ------------ ----------------
<S> <C> <C> <C>
Balance, January 1, 1993 ........... 2,307,113 $23,071 $ 19,867
Issuance of common stock ........... 112,667 1,127 (789)
Accrued interest on
preferred stock .................. -- -- --
Net loss ........................... -- -- --
------------ ------------ ----------------
Balance, December 31, 1993 ......... 2,419,780 24,198 19,078
------------ ------------ ----------------
Accrued interest on
preferred stock .................. -- -- --
Addition to capital resulting from
discounting of note payable to
preferred stockholder ............ -- -- 274,946
Net loss .......................... -- -- --
------------ ------------ ----------------
Balance, December 31, 1994 ......... 2,419,780 24,198 294,024
------------ ------------ ----------------
Reversal of all accrued interest
for conversion of preferred stock
to common stock .................. -- -- --
Addition to capital resulting from
discounting of note payable to
stockholder ...................... -- -- 180,706
Collection of notes receivable from
stockholders ..................... -- -- --
Reversal of unamortized interest
due to prepayment of discounted
note payable to preferred
stockholder ...................... -- -- (230,185)
Conversion of Series A Convertible
Preferred Stock .................. 888,887 8,889 391,111
Conversion of Series B Convertible
Preferred Stock .................. 820,736 8,207 545,790
Conversion of Series C Convertible
Preferred Stock .................. 358,423 3,584 1,496,405
Conversion of Series D Convertible
Preferred Stock .................. 1,000,000 10,000 5,990,000
Conversion of Series E Convertible
Preferred Stock .................. 729,167 7,291 5,089,220
Net proceeds from initial
public offering .................. 2,990,000 29,900 31,597,861
Fractional shares .................. (61) -- (707)
Net loss ........................... -- -- --
------------ ------------ ----------------
Balance, December 31, 1995 ......... 9,206,932 92,069 45,354,225
------------ ------------ ----------------
Exercise of stock options
(unaudited) ...................... 34,164 342 39,043
Net income (unaudited) ............. -- -- --
------------ ------------ ----------------
Balance, September 30, 1996
(unaudited) ...................... 9,241,096 $92,411 $45,393,268
============ ============ ================
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE TOTAL
FROM ACCUMULATED STOCKHOLDERS'
STOCKHOLDERS DEFICIT EQUITY
--------------- ---------------- ----------------
<S> <C> <C> <C>
Balance, January 1, 1993 ........... $(13,000) $ (754,848) $ (724,910)
Issuance of common stock ........... -- -- 338
Accrued interest on
preferred stock .................. -- (120,224) (120,224)
Net loss ........................... -- (1,284,944) (1,284,944)
--------------- ---------------- ----------------
Balance, December 31, 1993 ......... (13,000) (2,160,016) (2,129,740)
--------------- ---------------- ----------------
Accrued interest on
preferred stock .................. -- (335,950) (335,950)
Addition to capital resulting from
discounting of note payable to
preferred stockholder ............ -- -- 274,946
Net loss .......................... -- (3,265,377) (3,265,377)
--------------- ---------------- ----------------
Balance, December 31, 1994 ......... (13,000) (5,761,343) (5,456,121)
--------------- ---------------- ----------------
F-5
<PAGE>
NOTES
RECEIVABLE TOTAL
FROM ACCUMULATED STOCKHOLDERS'
STOCKHOLDERS DEFICIT EQUITY
--------------- ---------------- ----------------
Reversal of all accrued interest
for conversion of preferred stock
to common stock .................. -- 506,010 506,010
Addition to capital resulting from
discounting of note payable to
stockholder ...................... -- -- 180,706
Collection of notes receivable from
stockholders ..................... 13,000 -- 13,000
Reversal of unamortized interest
due to prepayment of discounted
note payable to preferred
stockholder ...................... -- -- (230,185)
Conversion of Series A Convertible
Preferred Stock .................. -- -- 400,000
Conversion of Series B Convertible
Preferred Stock .................. -- -- 553,997
Conversion of Series C Convertible
Preferred Stock .................. -- -- 1,499,989
Conversion of Series D Convertible
Preferred Stock .................. -- -- 6,000,000
Conversion of Series E Convertible
Preferred Stock .................. -- -- 5,096,511
Net proceeds from initial
public offering .................. -- -- 31,627,761
Fractional shares .................. -- -- (707)
Net loss ........................... -- (9,131,258) (9,131,258)
--------------- ---------------- ----------------
Balance, December 31, 1995 ......... -- (14,386,591) 31,059,703
--------------- ---------------- ----------------
Exercise of stock options
(unaudited) ...................... -- -- 39,385
Net income (unaudited) ............. -- 3,050,942 3,050,942
--------------- ---------------- ----------------
Balance, September 30, 1996
(unaudited) ...................... $ -- $(11,335,649) $34,150,030
=============== ================ ================
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE>
SANO CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------------------------------
1993 1994 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................. $(1,284,944) $(3,265,377) $ (9,131,258)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization .................... 21,715 153,842 433,234
Interest accrued on notes payable ................... -- 51,323 103,343
Loss on sale of equipment ........................... -- -- --
Accretion of discount on marketable securities ..... -- -- (163,248)
Changes in operating assets and liabilities:
Increase in other current assets ............... (910) (119,534) (198,047)
(Increase) decrease in deposits and other ......... -- (120,697) (341,707)
Increase in accounts payable and accrued expenses . 257,588 586,044 460,560
--------------- --------------- ---------------
Net cash provided by (used in)
operating activities ............................ (1,006,551) (2,714,399) (8,837,123)
--------------- --------------- ---------------
Cash flows from investing activities:
Capital expenditures ............................... (431,139) (1,771,578) (3,559,479)
Sale of equipment .................................... -- -- --
Sales and maturities of marketable securities ....... -- -- --
Purchases of marketable securities ................... -- -- (22,618,973)
Expenditures for patents ............................. (27,323) (64,676) (117,062)
--------------- --------------- ---------------
Net cash used in investing activities ............. (458,462) (1,836,254) (26,295,514)
--------------- --------------- ---------------
Cash flows from financing activities:
Fractional shares .................................. -- -- (707)
Repayment of notes payable ........................... -- -- (1,715,973)
Advances from distributor ............................ -- -- 1,451,655
Proceeds from exercise of stock options .............. -- -- --
Collection of notes receivable from stockholders .... -- -- 13,000
Proceeds from notes payable .......................... -- 1,025,667 1,434,970
Proceeds from issuance of common stock,
net of expenses .................................... 338 -- 31,627,761
Proceeds from issuance of Series B Convertible
Preferred Stock .................................... 203,998 -- --
Proceeds from issuance of Series C Convertible
Preferred Stock .................................... 1,499,989 -- --
Proceeds from issuance of Series D Convertible
Preferred Stock .................................... -- 5,843,437 156,563
Proceeds from issuance of Series E Convertible
Preferred Stock .................................... -- -- 5,096,511
--------------- --------------- ---------------
Net cash provided by financing activities ........ 1,704,325 6,869,104 38,063,780
--------------- --------------- ---------------
Net increase (decrease) in cash and
cash equivalents ................................ 239,312 2,318,451 2,931,143
Cash and cash equivalents, beginning of period ....... 28,155 267,467 2,585,918
--------------- --------------- ---------------
Cash and cash equivalents, end of period .............. $ 267,467 $ 2,585,918 $ 5,517,061
=============== =============== ===============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1995 1996
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................. $(7,006,360) $ 3,050,942
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization .................... 307,103 518,082
Interest accrued on notes payable ................... 68,375 51,617
Loss on sale of equipment ........................... -- 16,640
Accretion of discount on marketable securities ..... -- (246,106)
Changes in operating assets and liabilities:
Increase in other current assets ............... (93,574) (93,419)
(Increase) decrease in deposits and other ......... 34,860 (420,880)
Increase in accounts payable and accrued expenses . 1,629,760 1,084,014
--------------- ---------------
Net cash provided by (used in)
operating activities ............................ (5,059,836) 3,960,890
--------------- ---------------
Cash flows from investing activities:
Capital expenditures ............................... (3,006,144) (5,006,517)
Sale of equipment .................................... -- 2,200
Sales and maturities of marketable securities ....... -- 20,022,819
Purchases of marketable securities ................... -- (22,383,177)
Expenditures for patents ............................. (106,193) (118,383)
--------------- ---------------
F-6
<PAGE>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1995 1996
--------------- ---------------
(UNAUDITED)
Net cash used in investing activities ............. (3,112,337) (7,483,058)
--------------- ---------------
Cash flows from financing activities:
Fractional shares .................................. -- --
Repayment of notes payable ........................... -- (426,802)
Advances from distributor ............................ 432,725 1,866,854
Proceeds from exercise of stock options .............. -- 39,385
Collection of notes receivable from stockholders .... 13,000 --
Proceeds from notes payable .......................... 1,185,758 173,407
Proceeds from issuance of common stock,
net of expenses .................................... -- --
Proceeds from issuance of Series B Convertible
Preferred Stock .................................... -- --
Proceeds from issuance of Series C Convertible
Preferred Stock .................................... -- --
Proceeds from issuance of Series D Convertible
Preferred Stock .................................... -- --
Proceeds from issuance of Series E Convertible
Preferred Stock .................................... 5,096,511 --
--------------- ---------------
Net cash provided by financing activities ........ 6,727,994 1,652,844
--------------- ---------------
Net increase (decrease) in cash and
cash equivalents ................................ (1,444,179) (1,869,324)
Cash and cash equivalents, beginning of period ....... 2,585,918 5,517,061
--------------- ---------------
Cash and cash equivalents, end of period .............. $ 1,141,739 $ 3,647,737
=============== ===============
</TABLE>
(Continued)
F-6
<PAGE>
SANO CORPORATION
STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------------
1993 1994 1995
----------- ----------- ----------
<S> <C> <C> <C>
Supplemental disclosure of non-cash
activities:
Accrued interest on redeemable
preferred stock ......................... $120,224 $335,950 $ --
=========== =========== ==========
Capitalized leases .......................... $ -- $ -- $95,396
=========== =========== ==========
Outstanding stock subscription .............. $ -- $156,563 $ --
=========== =========== ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1995 1996
----------- -------
(UNAUDITED)
<S> <C> <C>
Supplemental disclosure of non-cash
activities:
Accrued interest on redeemable
preferred stock ......................... $658,973 $--
=========== =======
Capitalized leases .......................... $ 53,016 $--
=========== =======
Outstanding stock subscription .............. $ -- $--
=========== =======
</TABLE>
In November 1995, in connection with the initial public offering, the
Company effected a 5 for 6 reverse stock split of its common stock and all
preferred stock was converted into 3,797,213 shares of common stock.
The accompanying notes to financial statements are an integral part of these
statements.
F-7
<PAGE>
SANO CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1--GENERAL
Sano Corporation (the "Company"), was incorporated in Florida in May 1991.
The Company develops novel controlled release drug delivery systems for drug
therapies licensed from others and for off-patent drugs. The Company also
develops generic versions of branded controlled release products, generally
where the advanced nature of the necessary technologies may limit competition
from other manufacturers.
Management of the Company anticipates incurring substantial losses in the
near term. As of December 31, 1995, the Company had not marketed any products
or generated revenues from operations since inception. Future revenues, if
any, are expected to be generated from sales of products, license fees,
research fees and payments from other entities under collaborative marketing
and other agreements. No assurance can be given that the Company's product
development efforts will be successfully completed, that required regulatory
approvals will be obtained, that products under development can be
manufactured at acceptable costs and with appropriate quality or that any
products can be successfully marketed.
In November 1995, the Company completed an initial public offering of its
common stock to finance operations of the Company. The initial public
offering closed with net proceeds to the Company of approximately
$31,628,000, including the exercise of the over-allotment option, net of
underwriting discounts and commissions, expense allowances and registration
costs.
The Company continuously evaluates licensing and joint development
opportunities and other transactions that may result in fees or revenues to
the Company. The likelihood of the success of the Company must be considered
in light of the uncertainty caused by problems, expenses, complications, and
delays frequently encountered in connection with the development of new
business ventures. These business risks include the possible need for
additional capital, dependence on a limited number of key personnel,
competition and the ability to successfully obtain required regulatory
approvals and market its products and services.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less at the time of purchase to be cash equivalents. All
amounts are interest bearing at December 31, 1995.
(b) MARKETABLE SECURITIES
Investments are classified as "Available for Sale" securities pursuant to
Statement of Financial Accounting Standard (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," and accordingly are
recorded at market value. As of December 31, 1995 all securities consisted of
short-term U.S. Government obligations for which cost approximated market
value.
(c) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Routine maintenance,
repairs and replacement costs are charged against current operations.
Depreciation is provided on the straight-line method over
F-8
<PAGE>
SANO CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
the estimated useful lives of the assets, which is seven years. Amortization
of leasehold improvements is computed based on the shorter of the terms of
the lease agreements or estimated useful lives. In addition, the Company's
policy is to capitalize all costs incurred during the construction of a
project and to begin depreciating the asset once the project is operational,
over the estimated useful life.
(d) PATENTS
Patents consist of costs incurred in connection with the filing of certain
patent applications. Such costs are amortized on a straight-line basis over
the shorter of the product's useful life or the life of the patent (not to
exceed 20 years). Amortization begins at the time the patent is issued to the
Company.
(e) RESEARCH AND DEVELOPMENT COSTS
All research and development costs are expensed in the Company's
statements of operations as incurred.
(f) NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is determined by dividing the net
income (loss) attributable to holders of the Company's common stock by the
weighted average number of shares of common stock and dilutive common stock
equivalents outstanding after applying the treasury stock method and after
giving effect to the reverse stock split effected in November 1995 and the
conversion into Common Stock of all outstanding preferred stock in connection
with the Company's initial public offering. For loss periods, common stock
equivalents do not include the issuance of stock options and warrants because
their effect would be anti-dilutive.
(g) INCOME TAXES
The Company follows SFAS No. 109, "Accounting for Income Taxes." This
statement requires, among other things, recognition of future tax benefits or
obligations measured at enacted rates attributable to temporary differences
between the financial statement and income tax basis of assets and
liabilities and to net operating loss carryforwards to the extent that the
realization of said benefits is "more likely than not." The Company has set
up a 100% valuation allowance on net operating loss carryforwards given the
Company's limited operating history.
(h) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-9
<PAGE>
SANO CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(i) INTERIM FINANCIAL DATA
In the opinion of the management of the Company, the accompanying
unaudited financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial
position of the Company as of September 30, 1996, and the results of
operations for the nine months ended September 30, 1995 and 1996. The results
of operations and cash flows for the nine months ended September 30, 1996 are
not necessarily indicative of the results of operations or cash flows which
may be reported for the remainder of 1996 or any subsequent period.
(j) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of the fair value of certain financial instruments. Cash,
cash equivalents, marketable securities, other assets, patents, accounts
payable, accrued expenses and debt are reflected in the financial statements
at cost which approximates fair value.
NOTE 3--DEFERRED REVENUE
In 1994, the Company entered into an agreement with a distribution company
pursuant to which such distribution company agreed to pay certain product
development fees in exchange for the right to distribute certain products in
development by the Company. In 1994, fees under this agreement of $228,025,
were classified as other income in the statement of operations. In May 1995,
the agreement was modified whereby any monies received by the Company would
be repaid out of future gross profits of certain products developed by the
Company and distributed by the distribution company. Accordingly, the Company
expensed as research and development expense, amounts previously received
aggregating $228,025 and reported such amount and current year receipts as
deferred revenue. At December 31, 1995, the distribution company held 513,888
shares of the Company's common stock, equivalent to an ownership's position
in the Company of approximately 6%.
NOTE 4--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
SEPTEMBER 30,
1994 1995 1996
------------- -------------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements ......... $ 411,663 $ 3,207,241 $ 3,285,182
Machinery and equipment ........ 681,118 1,212,920 2,413,291
Furniture and equipment ........ 133,950 406,484 614,097
Construction in progress ...... 1,027,981 1,082,942 4,579,672
------------- -------------- ----------------
2,254,712 5,909,587 10,892,242
Less--accumulated depreciation (180,110) (605,420) (1,076,609)
------------- -------------- ----------------
$2,074,602 $5,304,167 $ 9,815,633
============= ============== ================
</TABLE>
F-10
<PAGE>
SANO CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--PATENTS
Patents consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
SEPTEMBER 30,
1994 1995 1996
----------- ----------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
Amortized currently ............. $ -- $162,961 $353,659
Not amortized currently ......... 127,677 81,778 8,148
-------- -------- --------
127,677 244,739 361,807
Less--accumulated amortization . -- (7,924) (48,480)
-------- -------- --------
$127,677 $236,815 $313,327
======== ======== ========
</TABLE>
Patent expense for the year ended December 31, 1995 and the nine months
ended September 30, 1996 was $7,924 and $40,556 (unaudited), respectively.
NOTE 6--INCOME TAXES
At December 31, 1995, the Company had tax net operating loss carryforwards
and research and development ("R&D") credit carryforwards of approximately
$12,124,000 and $590,000, respectively. These carryforwards expire at various
dates through the year 2010. The following table is a summary of tax net
operating loss carryforwards and R&D credit carryforwards and corresponding
dates of expiration:
<TABLE>
<CAPTION>
R&D CREDIT
NET OPERATING LOSSES CARRYFORWARDS
- --------------------------- -----------------------
YEAR END AMOUNT YEAR END AMOUNT
- ----------- -------------- ----------- ----------
<S> <C> <C> <C>
2006 $ 165,000 2006 $ 8,000
2007 511,000 2007 30,000
2008 1,183,000 2008 67,000
2009 2,966,000 2009 163,000
2010 7,299,000 2010 322,000
-------------- ----------
$12,124,000 $590,000
============== ==========
</TABLE>
At December 31, 1994 and 1995, deferred income taxes consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1995
------------- --------------
<S> <C> <C>
Net operating loss carryforwards $ 1,816,000 $ 4,562,000
R & D credit carryforwards ...... 268,000 590,000
Deferred revenue ................. -- 546,000
Accrued expenses ................. 81,000 91,000
--------------
Deferred tax assets ............. 2,165,000 5,789,000
Prepaid expenses ................. (13,000) (13,000)
Depreciation ..................... (22,000) (16,000)
--------------
Deferred tax liabilities ........ (35,000) (29,000)
Valuation allowance .............. (2,130,000) (5,760,000)
------------ --------------
Net deferred taxes ............... $ -- $ --
============ ===============
</TABLE>
F-11
<PAGE>
SANO CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--COMMITMENTS
(a) OPERATING LEASE COMMITMENTS
The Company operates in one building under two leases. At December 31,
1995, these obligations extend through 2004, with yearly increases of 3.5% to
the base rent, each with two five-year renewal options. The Company has also
entered into operating leases for office equipment.
At December 31, 1995, the future minimum annual commitments under
non-cancelable operating lease agreements are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- --------------------------- ------------
<S> <C>
1996 ...................... $ 441,242
1997 ...................... 452,996
1998 ...................... 456,966
1999 ...................... 446,986
2000 ...................... 350,279
Thereafter ................ 1,369,678
------------
Total minimum rentals due $3,518,147
============
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 was
approximately $30,000, $167,000 and $409,000, respectively. Rent expense for
the nine months ended September 30, 1996 was approximately $329,000
(unaudited).
(b) CAPITAL LEASES
The future minimum payments under all capital lease agreements as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- --------------------------------------------------- -----------
<S> <C>
1996 .............................................. $ 42,899
1997 .............................................. 34,217
1998 .............................................. 21,134
-----------
Total minimum lease payments ...................... 98,250
Less--amount representing interest ................ (15,831)
-----------
Present value of minimum lease payments .......... 82,419
Less--current obligation under capitalized leases (33,429)
-----------
$ 48,990
===========
</TABLE>
F-12
<PAGE>
SANO CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--COMMITMENTS--(CONTINUED)
(c) EMPLOYMENT AGREEMENTS
The Company has entered into 3 year employment agreements with certain of
its principal officers and key employees. In addition to minimum salary
levels, the agreements for two key employees call for royalty payments of
0.5% to 1.0% of net sales over five years for certain products commencing
with the first commercial sales for such products. Furthermore, the
employment agreements for two of its principal officers contain death benefit
provisions which expire in November 1998. Each of these provisions requires
the Company to pay one year's base salary to the officer's family in the
event of death. No accrual has been made in the financial statements for the
death benefits as occurrence is not probable during the lives of the
contracts. The minimum annual commitment for future salaries at December 31,
1995 is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- -------- ------------
<S> <C>
1996 ... $ 521,500
1997 ... 280,000
1998 ... 245,000
------------
$1,046,500
============
</TABLE>
(d) CONSULTING AGREEMENTS
The Company engages several consultants with expertise in clinical trials,
medical research, pharmaceutical operations management, architecture and
engineering.
(e) RESEARCH AND DEVELOPMENT AGREEMENTS
The Company has entered into agreements with respect to clinical trials
with unrelated entities. The Company is primarily responsible for funding the
clinical trials and such other entities primarily responsible for providing
personnel, equipment and facilities to conduct clinical research activities.
The aggregate commitment at December 31, 1995 for future payments under these
arrangements was approximately $400,000 and is included in accrued expenses
in the accompanying balance sheet.
Expense recorded under these agreements was approximately $430,000,
$825,000 and $3,423,000 during the years ended December 31, 1993, 1994 and
1995, respectively, and is included in research and development expense in
the accompanying statements of operations. Expense recorded under these
agreements was approximately $3,748,000 (unaudited) for the nine months ended
September 30, 1996.
(f) PURCHASE COMMITMENTS
The Company entered into a purchase commitment in December 1995 for a
capital expenditure in the amount of $575,000. Approximately 10% of the
amount due was paid in December and is classified as deposits in the
accompanying 1995 balance sheet.
F-13
<PAGE>
SANO CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--NOTES PAYABLE
Notes payable consists of the following:
DECEMBER 31,
----------------------
1994 1995
-------- --------
Note payable in monthly installments through
June 1995 with interest at 9.75%.................. $ 25,667 $ --
Note payable in monthly installments through
June 1996 with interest at 9.16%.................. -- 56,261
Note payable in monthly installments through
August 1996 with interest at 8.15 -- 130,218
Note payable in monthly installments through
May 1996 with interest at 17%..................... -- 27,337
-------- --------
Total short-term notes payable........................$25,667 $213,816
======= ========
Long-term note payable to stockholder under
distribution agreement................................$776,377 $473,024
======== ========
During 1994, the Company entered into an exclusive distribution agreement
(the "Distribution Agreement") for certain transdermal generic products under
development and rights of first refusal for other generic products to be
produced by the Company. Under the terms of the Distribution Agreement, the
distributor advanced the Company $1,000,000. The advance is non-interest
bearing and, accordingly, has been discounted at a rate of 9.75% to reflect
it at its net present value. The difference between the proceeds from the
note payable and the discounted value has been reflected as an addition to
capital in the accompanying statement of stockholders' equity.
In July 1995, the Company received two additional advances in the amounts
of $418,666 and $578,010 (these amounts are reflected at a 9.75% discount).
The difference between the proceeds from the two additional advances and the
discounted value has been reflected as an addition to capital in the
accompanying statement of stockholders' equity. The original $1,000,000
promissory note was canceled and a new promissory note in the amount of
$1,500,000 issued. In November 1995, the Company repaid the $1,500,000 from
the proceeds of its initial public offering. The unamortized interest on the
advances has been reflected in the accompanying statement of stockholders'
equity as a reduction of capital. The Company must repay the $473,024 plus
interest upon commercialization of a product or the third anniversary of the
note, whichever should occur first.
NOTE 9--REDEEMABLE PREFERRED STOCK
The Company's redeemable Series A, B, C, D and E Convertible Preferred
Stock were unregistered and were subject to all laws pertaining to
unregistered securities. Holders of Series A, B, C, D and E Convertible
Preferred Stock were entitled to vote their preferred shares (adjusted for
conversion values into equivalent common shares) on all corporate matters as if
they held common stock. Dividends declared on common stock would have been
payable to the holders of Series A, B, C, D and E Convertible Preferred Stock.
In May 1995, the Company completed the private placement of 875,000 shares
of Series E Convertible Preferred Stock at $6.00 per share, which raised
approximately $5.1 million.
F-14
<PAGE>
SANO CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--REDEEMABLE PREFERRED STOCK--(CONTINUED)
Preferred stock consisted of the following at December 31, 1994:
<TABLE>
<S> <C>
Series A Convertible Preferred Stock, $0.01 par value, 1,066,664 shares
issued and outstanding, including accrued dividends of $111,152 ......... $ 511,152
Series B Convertible Preferred Stock, $0.01 par value, 984,884 shares
issued and outstanding, including accrued dividends of $98,572 .......... 652,569
Series C Convertible Preferred Stock, $0.01 par value, 430,108 shares
issued and outstanding, including accrued dividends of $170,259 ......... 1,670,248
Series D Convertible Preferred Stock, $0.01 par value, 1,200,000 shares
issued and outstanding, including accrued dividends of $126,027 ......... 6,126,027
Series E Convertible Preferred Stock, $0.01 par value, none issued and
outstanding .............................................................. --
------------
Total redeemable preferred stock ....................................... $8,959,996
============
</TABLE>
Each share of Series A, B, C, D and E Convertible Preferred Stock was
converted into one share of common stock (adjusted for dilution and the
5-for-6 reverse stock split) upon the completion of the Company's initial
public stock offering in November 1995.
NOTE 10--STOCKHOLDERS' EQUITY
On November 10, 1995, the Company completed an initial public offering of
its common stock. Simultaneously with the completion of the initial public
offering, (i) all outstanding shares of redeemable preferred stock
(consisting of 1,066,664 shares of Series A Convertible Preferred Stock,
984,884 shares of Series B Convertible Preferred Stock, 430,108 shares of
Series C Convertible Preferred Stock, 1,200,000 shares of Series D
Convertible Preferred Stock and 875,000 shares of Series E Convertible
Preferred Stock) were automatically converted into an aggregate of 3,797,213
shares of common stock and (ii) the Company's articles of incorporation was
amended and restated to provide that the authorized capital stock of the
Company consists of 25,000,000 shares of common stock, $0.01 par value, and
5,000,000 shares of preferred stock, $0.01 par value.
In connection with the initial public offering, the Board of Directors of
the Company approved a 5-for-6 reverse stock split of its common stock
effective coincident with the date of the initial public offering. Such split
has been retroactively reflected in the accompanying financial statements.
NOTE 11--STOCK OPTION PLANS
During 1993, the Board of Directors of the Company adopted the Sano
Corporation 1993 Nonqualified Stock Option Plan (the "1993 Plan") which has
been approved by the Company's stockholders. All directors, officers,
employees and certain related parties of the Company designated by the Board
are eligible to receive options under the 1993 Plan.
The 1993 Plan is administered by the Stock Option Committee of the Board
of Directors of the Company. The 1993 Plan was established on May 5, 1993 and
terminates on May 4, 2003.
The purchase price per share of stock purchased under an option pursuant
to the Plan is determined by the Board, but in no event may such price be
below the fair market value of such stock. The maximum term of any option is
ten years from the date of grant. All options terminate within 120 days of
termination of employment.
F-15
<PAGE>
SANO CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 11--STOCK OTION PLANS--(CONTINUED)
In September 1995, the Company adopted the 1995 Stock Option Plan (the
"1995 Plan") which provides for the granting of stock options to employees,
officers, directors and independent contractors for the purchase of up to
500,000 shares of the Company's common stock. Options granted under the 1995
Plan may be incentive stock options or nonqualified options.
Additionally, under the 1995 Plan, each non-employee director shall
receive, on the date of his appointment as Director, an option to purchase
5,000 shares of common stock and each subsequent year an option to purchase
5,000 shares of common stock upon the release of the prior year earnings.
The 1995 Plan provides for immediate vesting of options in the event of
certain changes in control of the Company
The following is a summary of stock option activity:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
------------ ---------------
<S> <C> <C>
Outstanding at December 31, 1992 ..................... -- $ --
------------ ---------------
Granted .............................................. 630,334 0.67
Exercised ............................................ -- --
Canceled ............................................. -- --
------------ ---------------
Outstanding at December 31, 1993 ..................... 630,334 0.67
------------ ---------------
Granted .............................................. 370,416 1.50-2.70
Exercised ............................................ -- --
Canceled ............................................. -- --
------------ ---------------
Outstanding at December 31, 1994 ..................... 1,000,750 0.67-2.70
------------ ---------------
Granted .............................................. 275,083 3.60-11.50
Exercised ............................................ -- --
Canceled ............................................. (3,333) 1.50
------------ ---------------
Outstanding at December 31, 1995 ..................... 1,272,500 0.67-11.50
------------ ---------------
Granted (unaudited) .................................. 326,250 11.88-16.75
Exercised (unaudited) ................................ (34,164) 0.67-3.60
Canceled (unaudited) ................................. (99,057) 1.50-16.75
------------ ---------------
Outstanding at September 30, 1996 (unaudited) ....... 1,465,529 $ 0.67-16.75
============ ===============
Options exercisable at December 31, 1995 ............. 858,750 $ 0.67-11.50
============ ===============
Options exercisable at September 30, 1996 (unaudited) 941,423 $ 0.67-11.50
============ ===============
Shares of common stock available for future grants at
December 31, 1995 .................................. 451,583
============
Shares of common stock available for future grants at
September 30, 1996 (unaudited) ..................... 224,390
============
</TABLE>
F-16
<PAGE>
SANO CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--401(K) SAVINGS PLAN
During January 1996, the Company adopted a 401(k) Savings Plan which
allows eligible employees to allocate up to 16% of their salary to such plan.
The Company may make a discretionary match of up to 6% of such salary. As of
January 31, 1996, the Company had not elected to match any contributions made
by employees.
NOTE 13--ITEMS SUBSEQUENT TO THE DATE OF THE AUDITORS' REPORT (UNAUDITED)
(a) LITIGATION
On March 6, 1996, Key Pharmaceuticals, Inc. ("Key") filed a complaint in the
United States District Court of Florida alleging that one of the Company's
transdermal nitroglycerin patches, for which the Company had filed an
Abbreviated New Drug Application with the U.S. Food and Drug Administration,
infringed certain patents owned by Key. The Company had previously obtained
non-infringement opinions with regard to its product and believes that there
is no merit to the allegations in the complaint. The Company has filed an
answer and counterclaim to the complaint and intends to vigorously defend
this lawsuit. However, patent litigation is extremely costly, protracted and
burdensome, and there can be no assurance that the outcome of the lawsuit
will be favorable to the Company. If the Company's product is found to be in
violation of Key's patents, the Company may not be able to market its product
on a commerically acceptable basis or at all.
(b) EMPLOYMENT AGREEMENTS
In October 1996, the employment agreements between the Company and each of
Charles Betlach, Cheryl Gentile, Jesus Miranda and Joseph Gentile were
amended to provide for an additional employment term of three years and
provide for increased base salaries of $150,000, $135,000, $135,000 and
$150,000, respectively, for 1997, from $110,000, $97,000, $97,000 and
$110,000, respectively, for 1996.
(c) REVENUES
In August 1996, the Company entered into an exclusive worldwide
distribution and supply agreement with Bristol-Myers Squibb Company ("BMS")
and received a $15 million license payment. Because the $15 million license
payment is non-refundable and the Company has no further obligations related
to the license payment, such amount has been recognized as revenue. Any
milestone payments Sano may receive under the BMS agreement will also be
recorded as revenue upon the achievement of the related milestones. An advance
to be received from BMS to fund the purchase of production equipment will be
reflected as deferred revenue and recognized as revenue as sales of the products
are made and related royalties are earned.
The Company was classified as a development stage company until the third
quarter of 1996, during which it began to generate revenue through its
receipt of the $15 million license payment under its agreement with BMS.
F-17
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER, ANY
UNDERWRITER OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER
THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES
OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary ...................... 3
Risk Factors ............................ 6
Use of Proceeds ......................... 13
Price Range of Common Stock and Dividend
Policy ................................ 13
Capitalization .......................... 14
Dilution ................................ 15
Selected Financial Data ................. 16
Management's Discussion and Analysis
of Financial Condition and
Results of Operations ................. 17
Business ................................ 20
Management .............................. 35
Executive Compensation .................. 37
Principal and Selling Shareholders ..... 40
Description of Capital Stock ............ 42
Shares Eligible for Future Sale ........ 43
Underwriting ............................ 45
Legal Matters ........................... 46
Experts ................................. 46
Available Information ................... 46
Index to Financial Statements ........... F-1
</TABLE>
==============================================================================
==============================================================================
2,150,000 SHARES
[LOGO] SANO CORPORATION
COMMON STOCK
- -----------------------------------------------------------------------------
PROSPECTUS
, 1996
- -----------------------------------------------------------------------------
VOLPE, WELTY & COMPANY
DILLON, READ & CO. INC.
WHEAT FIRST BUTCHER SINGER
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that expenses payable by it in connection with the
offering described in this registration statement (other than underwriting
discounts and commissions) will be as follows:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission registration fee ................................... $ 13,955
NASD filing fee ....................................................................... 5,106
Nasdaq National Market listing fee .................................................... 17,500
Printing expenses ..................................................................... *
Accounting fees and expenses .......................................................... 75,000
Legal fees and expenses ............................................................... 125,000
Fees and expenses (including legal fees) for qualifications under state securities
laws ................................................................................ 15,000
Registrar and Transfer Agent's fees and expenses ...................................... 5,000
Miscellaneous ......................................................................... *
----------
Total ................................................................................ $450,000
==========
</TABLE>
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* To be provided by amendment.
All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market listing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has authority under Florida law to indemnify its directors and
officers to the extent provided in such statute. The Articles provide that
the Company shall indemnify its directors to the fullest extent permitted by
law either now or hereafter. The Company has also entered into an agreement
with each of its directors and executive officers wherein it has agreed to
indemnify each of them to the fullest extent permitted by law.
At present, there is no pending litigation or proceeding involving a
director or officer of the Company as to which indemnification is being
sought, nor is the Company aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify the
directors, officers and controlling persons of the Company against certain
civil liabilities that may be incurred in connection with this offering,
including certain liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In a series of transactions beginning in August 1993 and ending December
1993, the Registrant issued an aggregate of 430,108 shares of its Series C
Convertible Preferred Stock (the "Series C Offering"). Such shares were
issued in accordance with the exemption provided by Section 4(2) of the
Securities Act, as a transaction not involving a public offering. The
aggregate dollar amount raised from the Series C Offering was $1,500,000. No
commissions or discounts were given in connection with the Series C Offering.
In a series of transactions beginning in April 1994 and ending December
1995, the Registrant issued an aggregate of 1,200,000 shares of its Series D
Convertible Preferred Stock (the "Series D Offering"). Such shares were
issued in accordance with the exemption provided by Section 4(2) of the
Securities Act, as a transaction not involving a public offering. The
aggregate dollar amount raised from the Series D Offering was $6,000,000. No
commissions or discounts were given in connection with the Series D Offering.
II-1
<PAGE>
In a series of transactions beginning in April 1995 and ending May 1995,
the Registrant issued an aggregate of 875,000 shares of its Series E
Convertible Preferred Stock (the "Series E Offering"). Such shares were
issued in accordance with the exemption provided by Section 4(2) of the
Securities Act, as a transaction not involving a public offering. The
aggregate dollar amount raised from the Series E Offering was $5,250,000. An
aggregate commission of $96,480 was paid to Raymond James & Associates, Inc.,
in addition to warrants to purchase 11,167 shares of Common Stock, in
connection with the Series E Offering.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Amended and Restated Articles of Incorporation of Registrant*
3.2 Bylaws of Registrant*
4.1 Form of Common Stock Certificate(1)
5.1 Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. as to the validity of the Common
Stock being registered**
10.1 1993 Nonqualified Stock Option Plan of Registrant(1)
10.2 1995 Stock Option Plan of Registrant(2)
10.3 Form of Indemnification Agreement between the Registrant and each of its directors and executive
officers(1)
10.4 Employment Agreement, dated as of September 20, 1995, between the Registrant and Marc M. Watson(1)
10.5 Employment Agreement, dated as of September 20, 1995, between the Registrant and Reginald L. Hardy(1)
10.6 Employment Agreement, dated as of May 31, 1993, between the Registrant and Charles Betlach(1)
10.7 Employment Agreement, dated September 30, 1993, between the Registrant and Cheryl Gentile, as amended(1)
10.8 Employment Agreement, dated May 28, 1993, between the Registrant and Jesus Miranda, as amended(1)
10.9 Employment Agreement, dated September 30, 1993, between the Registrant and Joseph Gentile(1)
10.10 Distribution Agreement, dated February 24, 1994, between the Registrant and Pharmaceutical Resources,
Inc. (the "PAR Agreement")(1)
10.11 Lease Agreement, dated May 6, 1994, between the Registrant and Sunbeam Properties, Inc. (3250 Commerce
Parkway, Miramar, Florida property)(1)
10.12 Lease Agreement, dated June 10, 1994, between the Registrant and Sunbeam Properties, Inc. (3251 Corporate
Way, Miramar, Florida property)(1)
10.13 Consulting Agreement, dated January 7, 1994, between the Registrant and Dr. Donald Robinson (1)
10.14 License Agreement, dated October 28, 1994, between the Registrant and Dr. Jed E. Rose, Dr. Edward D.
Levin and Robert J. Schaap(1)
10.15 Distribution and Supply Agreement for Transdermal Buspirone, dated August 28, 1996, between the Registrant
and Bristol-Myers Squibb Company(3)
10.16 Letter agreement, dated May 8, 1995, between the Registrant and Pharmaceutical Resources, Inc. and
PAR Pharmaceutical, Inc., amending the PAR Agreement**
10.17 Extension of Employment Agreement, dated October 24, 1996, between the Registrant and Charles Betlach*
10.18 Extension of Employment Agreement, dated October 24, 1996, between the Registrant and Cheryl Gentile*
10.19 Extension of Employment Agreement, dated October 24, 1996, between the Registrant and Jesus Miranda*
10.20 Extension of Employment Agreement, dated October 24, 1996, between the Registrant and Joseph Gentile*
10.21 Business Lease, dated September 11, 1996, between the Registrant and Sunbeam Properties, Inc.*
10.22 Lease Extension and Amendment, dated September 11, 1996, between the Registrant and Sunbeam Properties,
Inc.(3251 Corporate Way, Miramar, Florida property)*
II-3
<PAGE>
EXHIBIT DESCRIPTION
- ------------------------------------------------------------------------------------------------------------
10.23 Lease Extension and Amendment dated September 11, 1996 between the Registrant and Sunbeam Properties,
Inc.(3251 Corporate Way, Miramar, Florida property)*
23.1 Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (to be included in its opinion
to be filed as Exhibit 5.1)**
23.2 Consent of Arthur Andersen LLP**
24.1 Reference is made to the Signatures section of this Registration Statement for the Power of Attorney
contained therein*
27 Financial Data Schedule*
</TABLE>
- -----------------------------------------------------------------------------
* Filed herewith.
** To be filed by amendment.
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (Commission File No. 33-97194).
(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-8 (Commission File No. 333-04025).
(3) Incorporated by reference to the Registrant's Current Report on Form 8-K
dated May 15, 1996.
(b) Financial Statement Schedules:
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions or are not applicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Miramar, State of
Florida, on October 25, 1996.
SANO CORPORATION
By: /s/ REGINALD L. HARDY
Reginald L. Hardy,
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Marc M. Watson and Reginald L. Hardy
his true and lawful attorneys-in-fact, each acting alone, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any or all amendments, including any
post-effective amendments, to this registration statement, and to file the
same, with exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, hereby ratifying and confirming
all that said attorneys-in-fact or their substitutes, each acting alone, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
/s/ REGINALD L. HARDY President and Director October 25, 1996
Reginald L. Hardy (principal executive officer)
/s/ MARC M. WATSON Chairman of the Board October 25, 1996
Marc M. Watson
/s/ GERALD S. COOMBS Chief Financial Officer October 25, 1996
Gerald S. Coombs (principal financial officer and
principal accounting officer)
/s/ CHARLES J. BETLACH, Ph.D. Director October 25, 1996
Charles J. Betlach, Ph.D.
/s/ HUBERT E. HUCKEL, M.D. Director October 25, 1996
Hubert E. Huckel, M.D.
/s/ MARCO POSSATI Director October 25, 1996
Marco Possati
/s/ ROY S. WALZER Director October 25, 1996
Roy S. Walzer
</TABLE>
II-5
EXHIBIT 1.1
2,150,000 Shares(1)
SANO CORPORATION
Common Stock
UNDERWRITING AGREEMENT
November __, 1996
Volpe, Welty & Company
Dillon, Read & Co. Inc.
Wheat, First Securities, Inc.
As Representatives of the
several Underwriters
c/o Volpe, Welty & Company
One Maritime Plaza, 11th Floor
San Francisco, California 94111
Ladies and Gentlemen:
Sano Corporation, a Florida corporation (the "Company"), proposes to
issue and sell 1,250,000 shares of its authorized but unissued Common Stock,
$.01 par value (the "Common Stock"), and the stockholders of the Company named
in Schedule II hereto (collectively, the "Selling Securityholders") propose to
sell an aggregate of shares of 900,000 Common Stock of the Company (the "Firm
Shares"). The Company and certain Selling Securityholders identified in Schedule
II hereto propose to grant to the Underwriters (as defined below) an option to
purchase up to 322,500 additional shares of Common Stock (the "Optional Shares"
and, with the Firm Shares, collectively, the "Shares"). The Common Stock is more
fully described in the Registration Statement and the Prospectus hereinafter
mentioned.
The Company and the Selling Securityholders severally hereby confirm
the agreements made with respect to the purchase of the shares by the several
underwriters, for whom you are acting, named in Schedule I hereto (collectively,
the "Underwriters," which term shall also include any underwriter purchasing
Stock pursuant to Section 3(b) hereof). You represent and warrant that you have
been authorized by each of the other Underwriters to enter into this Agreement
on its behalf and to act for it in the manner herein provided.
- --------
(1)Plus an option to purchase from the Company and from certain Selling
Securityholders up to 322,500 additional shares to cover over-allotments.
<PAGE>
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
and each of Marc M. Watson, Reginald L. Hardy, Charles J. Betlach, Cheryl M.
Gentile, Joseph A. Gentile, Jesus Miranda, Marco Possati and Roy S. Walzer (each
a "Principal Securityholder") hereby represents and warrants to the several
Underwriters as of the date hereof and as of each Closing Date (as defined
below) that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (No.
333-______), including the related preliminary prospectus, for the registration
under the Securities Act of 1933, as amended (the "Securities Act") of the
Shares. Copies of such registration statement and of each amendment thereto, if
any, including the related preliminary prospectus (meeting the requirements of
Rule 430A of the rules and regulations of the Commission) heretofore filed by
the Company with the Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean
such registration statement, including all exhibits and financial statements,
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, in the form in which it became effective, and
any registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the shares (a "Rule 462(b)
registration statement"), and, in the event of any amendment thereto after the
effective date of such registration statement (the "Effective Date"), shall also
mean (from and after the effectiveness of such amendment) such registration
statement as so amended (including any Rule 462(b) registration statement). The
term Prospectus as used in this Agreement shall mean the prospectus relating to
the Shares first filed with the Commission pursuant to Rule 424(b) and Rule 430A
(or if no such filing is required, as included in the Registration Statement)
and, in the event of any supplement or amendment to such prospectus after the
Effective Date, shall also mean (from and after the filing with the Commission
of such supplement or the effectiveness of such amendment) such prospectus as so
supplemented or amended. The term Preliminary Prospectus as used in this
Agreement shall mean each preliminary prospectus included in such registration
statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
(b) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, has full corporate power and authority to own or lease its
properties and conduct its business as described in the Registration Statement
and the Prospectus and as being conducted, and is duly qualified as a foreign
corporation and in good standing in all jurisdictions in which the character of
the property owned or leased or the nature of the business transacted by it
makes qualification necessary (except where the failure to be so qualified would
not have a material adverse effect on the business, business prospects,
properties, condition (financial or otherwise) or results of operations of the
Company.
-2-
<PAGE>
(c) The Company does not own or control, directly or
indirectly, any corporation, association or other entity. The Company is in
possession of and operating in compliance with all material authorizations,
licenses, permits, consents, certificates and orders material to the conduct of
its business as described in the Prospectus, all of which are valid and in full
force and effect.
(d) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, business prospects, properties,
condition (financial or otherwise) or results of operations of the Company,
whether or not arising from transactions in the ordinary course of business,
other than as set forth in the Registration Statement and the Prospectus, and
since such dates, except in the ordinary course of business, the Company has not
entered into any material transaction not referred to in the Registration
Statement and the Prospectus.
(e) The Registration Statement and the Prospectus comply, and
on the Closing Date (as hereinafter defined) and any later date on which
Optional Shares are to be purchased, the Prospectus will comply, in all material
respects, with the provisions of the Securities Act and the rules and
regulations of the Commission thereunder; on the Effective Date, the
Registration Statement did not contain any untrue statement of a material fact
and did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and, on the
Effective Date the Prospectus did not and, on the Closing Date and any later
date on which Optional Shares are to be purchased, will not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; PROVIDED, HOWEVER, that none of the
representations and warranties in this subparagraph (iii) shall apply to
statements in, or omissions from, the Registration Statement or the Prospectus
made in reliance upon and in conformity with information herein or otherwise
furnished in writing to the Company by or on behalf of the Underwriters for use
in the Registration Statement or the Prospectus.
(f) The Company has authorized and outstanding capital stock
as set forth under the heading "Capitalization" in the Prospectus. The issued
and outstanding shares of Common Stock have been duly authorized and validly
issued, are fully paid and nonassessable, have been issued in compliance with
all federal and state securities laws, and were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities. Except as disclosed in or contemplated by the Prospectus and the
financial statements of the Company and the related notes thereto included in
the Prospectus, the Company has no outstanding options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required by the Securities Act
and the Rules and Regulations to be shown with respect to such plans,
arrangements, options and rights.
(g) The Shares are duly authorized, are (or, in the case of
Shares to be sold by the Company, will be, when issued and sold to the
Underwriters as provided herein) validly issued, fully paid and nonassessable
and conform to the description thereof in the Prospectus.
-3-
<PAGE>
No further approval or authority of the stockholders or the Board of Directors
of the Company will be required for the transfer and sale of the Shares to be
sold by the Selling Securityholders or the issuance and sale of the Shares to be
sold by the Company as contemplated herein.
(h) The Shares to be sold by the Selling Securityholders are
listed and duly admitted to trading on the Nasdaq National Market, and prior to
the Closing Date, the Shares to be issued and sold by the Company will be
authorized for listing on the Nasdaq National Market upon official notice of
issuance.
(i) The Shares to be sold by the Company will be sold free and
clear of any pledge, lien, security interest, encumbrance, claim or equitable
interest, and will conform to the description thereof contained in the
Prospectus. No preemptive right, co-sale right, registration right, right of
first refusal or other similar right to subscribe for or purchase securities of
the Company exists with respect to the issuance and sale of the Shares by the
Company pursuant to this Agreement. No stockholder of the Company has any right
which has not been waived, or complied with, to require the Company to register
the sale of any shares owned by such stockholder under the Securities Act in the
public offering contemplated by this Agreement.
(j) The Company has full corporate power and authority to
enter into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and
constitutes a valid and binding obligation of the Company enforceable in
accordance with its terms, except as enforceability may be limited by general
equitable principles or by bankruptcy, insolvency, reorganization or moratorium
laws affecting creditors' rights generally and except as to those provisions
relating to indemnity or contribution for liabilities arising under federal and
state securities laws. The making and performance of this Agreement by the
Company and the consummation of the transactions contemplated hereby (i) will
not violate any provisions of the Articles of Incorporation, Bylaws or other
organizational documents of the Company and (ii) will not conflict with, result
in a material breach or violation of, or constitute, either by itself or upon
notice or the passage of time or both, a material default under (A) any
agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument to which the Company is a party or by which the Company or
any of its properties may be bound or affected, or (B) any statute or any
authorization, judgment, decree, order, rule or regulation of any court or any
regulatory body, administrative agency or other governmental body applicable to
the Company or any of its properties. No consent, approval, authorization or
other order of any court, regulatory body, administrative agency or other
governmental body that has not already been obtained is required for the
execution and delivery of this Agreement or the consummation of the transactions
contemplated by this Agreement, except for compliance with the Securities Act,
the Blue Sky laws applicable to the public offering of the Common Shares by the
several Underwriters and the clearance of such offering with the NASD.
(k) The financial statements and schedules of the Company and
the related notes thereto included in the Registration Statement and the
Prospectus present fairly the financial position of the Company as of the
respective dates of such financial statements and schedules, and the results of
operations and cash flows of the Company for the respective periods covered
thereby. Such statements, schedules and related notes have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods
-4-
<PAGE>
specified, as certified by the independent accountants named in subsection
10(f). No other financial statements or schedules are required to be included in
the Registration Statement. The selected financial data set forth in the
Prospectus under the captions "Capitalization" and "Selected Consolidated
Financial Information" fairly present the information set forth therein on the
basis stated in the Registration Statement.
(l) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The representations and warranties given by the Company and its
officers to its independent public accountants for the purpose of supporting the
letters referred to in Section 10(f) are true and correct.
(m) The Company is not (i) in violation or default of any
provision of its Articles Incorporation, Bylaws or other organizational
documents, or (ii) in material breach of or default with respect to any
provision of any agreement, judgment, decree, order, mortgage, deed of trust,
lease, franchise, license, indenture, permit or other instrument to which it is
a party or by which it or any of its properties are bound; and there does not
exist any state of facts which, with notice or lapse of time or both would
constitute such a breach or default on the part of the Company.
(n) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and Regulations
which have not been described or filed as required. The contracts so described
in the Prospectus are in full force and effect on the date hereof.
(o) Except as disclosed in the Prospectus, there are no legal
or governmental actions, suits or proceedings pending or threatened to which the
Company is or is threatened to be made a party or of which property owned or
leased by the Company is or is threatened to be made the subject, which actions,
suits or proceedings could, individually or in the aggregate, prevent or
adversely affect the transactions contemplated by this Agreement or result in a
material adverse change in the business, business prospects, properties,
condition (financial or otherwise), or results of operations of the Company; and
no labor disturbance by the employees of the Company exists or is imminent which
could materially adversely affect the business, business prospects, properties,
condition (financial or otherwise), or results of operations of the Company. The
Company is not a party or subject to the provisions of any material injunction,
judgment, decree or order of any court, regulatory body, administrative agency
or other governmental body. Except as disclosed in the Prospectus, there are no
material legal or governmental actions, suits or proceedings pending or, to the
Company's knowledge, threatened against any executive officers or directors of
the Company.
(p) The Company has good and marketable title to all the
properties and assets reflected as owned in the financial statements hereinabove
described (or elsewhere in the
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Prospectus), subject to no lien, mortgage, pledge, charge or encumbrance of any
kind except (i) those, if any, reflected in such financial statements (or
elsewhere in the Prospectus), or (ii) those which are not material in amount to
the Company and do not adversely affect the use made and proposed to be made of
such property by the Company. The Company holds its leased properties under
valid and binding leases. Except as disclosed in the Prospectus, the Company
owns or leases all such properties as are necessary to its operations as now
conducted or as proposed to be conducted.
(q) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as described in
or specifically contemplated by the Prospectus: (i) the Company has not (A)
incurred any liabilities or obligations, indirect, direct or contingent, or (B)
entered into any oral or written agreement or other transaction, which in the
case of (A) or (B) is not in the ordinary course of business; (ii) the Company
has not sustained any material loss or interference with its business or
properties from fire, flood, windstorm, accident or other calamity, whether or
not covered by insurance; (iii) the Company has not paid or declared any
dividends or other distributions with respect to its capital stock and the
Company is not in default in the payment of principal or interest or any
outstanding debt obligations; (iv) there has not been any change in the capital
stock of the Company (other than upon the sale of the Shares hereunder or upon
the exercise of any options or warrants disclosed in the Prospectus); (v) there
has not been any material increase in the short- or long-term debt of the
Company; and (vi) there has not been any material adverse change or any
development involving or which may reasonably be expected to involve a
prospective material adverse change, in the business, business prospects,
condition (financial or otherwise), properties, or results of operations of the
Company.
(r) The Company is conducting business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business, except where the failure to be so in compliance would not
have a material adverse effect on the business, business prospects, properties,
condition (financial or otherwise) or results of operations of the Company.
(s) The Company has filed all necessary federal, state and
foreign income and franchise tax returns, and all such tax returns are complete
and correct in all material respects, and the Company has not failed to pay any
taxes which were payable pursuant to said returns or any assessments with
respect thereto. The Company has no knowledge of any tax deficiency which has
been or is likely to be threatened or asserted against the Company.
(t) The Company has not distributed, and will not distribute
prior to the later to occur of (i) completion of the distribution of the Shares,
or (ii) the expiration of any time period within which a dealer is required
under the Securities Act to deliver a prospectus relating to the Shares, any
offering material in connection with the offering and sale of the Shares other
than the Prospectus, the Registration Statement and any other materials
permitted by the Securities Act and consented to by the Underwriters.
(u) The Company maintains insurance of the types and in the
amounts generally deemed adequate for its business, including, but not limited
to, directors' and officers' insurance, insurance covering real and personal
property owned or leased by the Company against theft, damage, destruction, acts
of vandalism and all other risks customarily insured against, all of
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which insurance is in full force and effect. The Company has not been refused
any insurance coverage sought or applied for, and the Company has no reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not materially
adversely affect the business, business prospects, properties, condition
(financial or otherwise) or results of operations of the Company.
(v) Neither the Company nor, to the best of the Company's or
any Principal Securityholder's knowledge, any of its employees or agents has at
any time during the last five years (i) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any foreign, federal or state
governmental officer or official or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the laws of
the United States or any jurisdiction thereof.
(w) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(x) The Company has caused (i) each of its executive officers
and directors as set forth in the Prospectus and (ii) each holder of 50,000 or
more shares of Common Stock (including shares issuable upon the exercise or
conversion of any option, warrant or other security that is or will become
exercisable or convertible within the 180-day period referred to below) to
furnish to the Underwriters an agreement in form and substance satisfactory to
Volpe, Welty & Company pursuant to which each such party has agreed that during
the period of one hundred eighty (180) days after the date the Registration
Statement becomes effective, without the prior written consent of Volpe, Welty &
Company, such party will not (i) offer, sell, contract to sell, make any short
sale (including without limitation short against the box), pledge or otherwise
dispose of, directly or indirectly, any shares of the Company's Common Stock,
options to acquire Common Stock or securities convertible into or exchangeable
for, or any other rights to purchase or acquire, the Company's Common Stock
(including, without limitation, Common Stock of the Company, which may be deemed
to be beneficially owned in accordance with the rules and regulations of the
Commission) other than the exercise or conversion of outstanding options,
warrants or convertible securities; or (ii) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic consequences
or ownership of Common Stock, whether any such transaction described in (i) or
(ii) is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise; PROVIDED, HOWEVER, that bona fide gift transactions and
transfers which will not result in any change in beneficial ownership may be
permitted if the transferee enters into a lock-up agreement in substantially the
same form covering the remainder of the lock-up period.
(y) Neither the Company nor any of its affiliates does
business with the government of Cuba or with any person or affiliate located in
Cuba.
(z) Except as specifically disclosed in the Prospectus, the
Company has sufficient trademarks, trade names, patent rights, copyrights,
licenses, approvals and governmental authorizations to conduct its business as
now conducted; the expiration of any trademarks, trade
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names, patent rights, copyrights, licenses, approvals or governmental
authorizations would not have a material adverse effect on the business,
business prospects, properties, condition (financial or otherwise) or results of
operations of the Company; the Company has no knowledge of any infringement by
the Company of trademark, trade name rights, patent rights, copyrights,
licenses, trade secret or other similar rights of others; and no claims have
been made or are threatened against the Company regarding trademark, trade name,
patent, copyright, license, trade secret or other infringement which could have
a material adverse effect on the business, business prospects, properties,
condition (financial or otherwise) or results of operations or prospects of the
Company.
(aa) Except as disclosed in the Prospectus, (i) the Company is
in compliance in all material respects with all rules, laws and regulations, and
has all necessary permits, relating to the use, treatment, storage and disposal
of toxic substances and protection of health or the environment ("Environmental
Laws") which are applicable to its business, (ii) the Company has not received
any notice from any governmental authority or third party of an asserted claim
under Environmental Laws, (iii) no facts currently exist that will require the
Company to make future material capital expenditures to comply with
Environmental Laws, and (iv) to the knowledge of the Company, no property which
is or has been owned, leased or occupied by the Company has been designated as a
Superfund site pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. ss. 9601, ET
SEQ.), or otherwise designated as a contaminated site under applicable state or
local law.
(bb) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(cc) While there can be no assurance that FDA approval for any
of the Company's products will be obtained on a timely basis, or at all, the
Company has received no communication from the FDA expressing adverse comments,
questions or concerns with regard to (i) any Abbreviated New Drug Application
filed by the Company or (ii) any pending clinical trials relating to any of the
Company's products, other than comments, questions or concerns to which the
Company reasonably believes it has responded, or can respond, to the
satisfaction of the FDA without unreasonable delay or expense and without
materially impairing the commercial feasibility of introducing the product in
question. The Company has applied for and obtained from the FDA an
Investigational New Drug exemption for each product with respect to which it has
commenced human clinical trials, and all such human clinical trials are being
conducted, to the best of the Company's knowledge, in compliance in all material
respects with the protocols submitted by the Company to the FDA and any
conditions relating thereto imposed by the FDA. The Company has received no
notice from the FDA, and has no reason to believe, that its manufacturing
facilities or processes are not in compliance with current good manufacturing
practice requirements.
SECTION 2. REPRESENTATIONS AND WARRANTIES, AND COVENANTS, OF THE
SELLING SECURITYHOLDERS.
Each of the Selling Securityholders, severally and not jointly,
represents and warrants and covenants to the several Underwriters as of the date
hereof and as of each Closing Date hereinafter mentioned that:
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(a) Each such Selling Securityholder has reviewed the
representations and warranties of the Company and, although such Selling
Securityholder (if not a Principal Security- holder) has not independently
verified the accuracy of such representations and warranties, such Selling
Securityholder has no reason to believe that such representations and warranties
of the Company contained in Section 2 are not true and correct in all respects.
(b) Such Selling Securityholder has good and marketable title
to the Shares to be sold by such Selling Securityholder hereunder, free and
clear of all liens, encumbrances, equities, security interests and claims
whatsoever, with full right and authority to deliver the same hereunder,
subject, in the case of each Selling Securityholder, to the rights of the
Company, as Custodian (the "Custodian"), and that upon the delivery of and
payment for such Shares hereunder, the several Underwriters will receive good
and marketable title thereto, free and clear of all liens, encumbrances,
equities, security interests and claims whatsoever.
(c) Certificates in negotiable form for the Shares to be sold
by such Selling Securityholder have been placed in custody under a Custody
Agreement for delivery under this Agreement with the Custodian; such Selling
Securityholder specifically agrees that the Shares represented by the
certificates so held in custody for such Selling Securityholder are subject to
the interests of the several Underwriters and the Company, that the arrangements
made by such Selling Securityholder for such custody, including the Power of
Attorney provided for in such Custody Agreement, are to that extent irrevocable,
and that the obligations of such Selling Securityholder shall not be terminated
by any act of such Selling Securityholder or by operation of law, whether by the
death or incapacity of such Selling Securityholder (or, in the case of a Selling
Securityholder that is not an individual, the dissolution or liquidation of such
Selling Securityholder) or the occurrence of any other event; if any such death,
incapacity, dissolution, liquidation or other such event should occur before the
delivery of such Shares hereunder, certificates for the Shares shall be
delivered by the Custodian in accordance with the terms and conditions of this
Agreement as if such death, incapacity, dissolution, liquidation or other event
had not occurred, regardless of whether the Custodian shall have received notice
of such death, incapacity, dissolution, liquidation or other event.
(d) Such Selling Securityholder has reviewed the Registration
Statement and Prospectus and, although such Selling Securityholder has not
independently verified the accuracy or completeness of all the information
contained therein, nothing has come to the attention of such Selling
Securityholder that would lead such Selling Securityholder to believe that (i)
on the Effective Date, the Registration Statement contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading;
and, (ii) on the Effective Date the Prospectus contained and, on the Closing
Date and any later date on which Optional Shares are to be purchased contains,
any untrue statement of a material fact or omitted or omits to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(e) All information in the Registration Statement or the
Prospectus, or any amendment or supplement thereto, relating to such Selling
Securityholder (including, without limitation, the information relating to the
Selling Securityholder which is set forth in the Prospectus under the caption
"Principal and Selling Shareholders"), and all representations and
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warranties of such Selling Securityholder in the Custody Agreement are true and
correct in all respects and do not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the information in the light of the circumstances under which
they were made not misleading. The sale of the Shares by such Selling
Securityholder pursuant hereto is not prompted by such Selling Securityholder's
knowledge of any material adverse information concerning the Company which is
not set forth in the Prospectus.
(f) Such Selling Securityholder has full power and authority
to enter into this Agreement and the Custody Agreement and perform the
transactions contemplated hereby and thereby. This Agreement and the Custody
Agreement have been duly authorized, executed and delivered by or on behalf of
such Selling Securityholder and the form of such Securityholder Agreement has
been delivered to you.
(g) The making and performance of this Agreement and the
Custody Agreement and the consummation of the transactions contemplated hereby
and thereby will not result in a breach or violation by such Selling
Securityholder of any of the terms or provisions of, or constitute a default by
such Selling Securityholder under, any indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Securityholder is a party or by
which such Selling Securityholder or any of its properties is bound, any
statute, or any judgment, decree, order, rule or regulation of any court or
governmental agency or body applicable to such Selling Securityholder or any of
its properties.
(h) Such Selling Securityholder has not taken and will not
take, directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares.
(i) Each of the Selling Securityholders that owns beneficially
50,000 or more shares of Common Stock agrees that during the period of one
hundred and eighty (180) days after the date of the Registration Statement
becomes effective, without the prior written consent of Volpe, Welty & Company,
such Selling Securityholder will not (i) offer, sell, make any short sale
(including without limitation short against the box), pledge or otherwise
dispose of, directly or indirectly, any of the Company's Common Stock, options
to acquire Common Stock or securities convertible into or exchangeable for or
any other rights to purchase or acquire the Company's Common Stock (including
without limitation, Common Stock of the Company which may be deemed to be
beneficially owned in accordance with the rules and regulations of the
Commission) other than the exercise or conversion of outstanding options,
warrants or convertible securities or (ii) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic consequences
or ownership of Common Stock, whether any such transaction described in (i) or
(ii) is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise; PROVIDED, HOWEVER, that bona fide gift transactions and
transfers which will not result in any change in beneficial ownership may be
permitted if the transferee enters into a lock-up agreement in substantially the
same form covering the remainder of the lock-up period.
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SECTION 3. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell 1,250,000 of the Firm Shares to the several Underwriters, each
Selling Securityholder agrees to sell to the several Underwriters the number of
the Firm Shares set forth in Schedule II opposite the name of such Selling
Securityholder, and each of the Underwriters agrees to purchase from the Company
and the Selling Securityholders the respective aggregate number of Firm Shares
set forth opposite its name in Schedule I. The price at which such Firm Shares
shall be sold by the Company and the Selling Securityholders and purchased by
the several Underwriters shall be $____ per share. The obligation of each
Underwriter to the Company and each of the Selling Securityholders shall be to
purchase from the Company and the Selling Securityholders that number of Firm
Shares which represents the same proportion of the total number of Firm Shares
to be sold by each of the Company and the Selling Securityholders pursuant to
this Agreement as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto represents of the total number of shares of the
Firm Shares to be purchased by all Underwriters pursuant to this Agreement, as
adjusted by you in such manner as you deem advisable to avoid fractional shares.
In making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraphs (b) and (c) of this Section 3, the
agreement of each Underwriter is to purchase only the respective number of
shares of the Firm Shares specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall
fail or refuse (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 9 or 10 hereof) to
purchase and pay for the number of Shares agreed to be purchased by such
Underwriter or Underwriters, the Company or the Selling Securityholders shall
immediately give notice thereof to you, and the non-defaulting Underwriters
shall have the right within 24 hours after the receipt by you of such notice to
purchase, or procure one or more other Underwriters to purchase, in such
proportions as may be agreed upon between you and such purchasing Underwriter or
Underwriters and upon the terms herein set forth, all or any part of Shares
which such defaulting Underwriter or Underwriters agreed to purchase. If the
non-defaulting Underwriters fail so to make such arrangements with respect to
all such shares and portion, the number of Shares which each non-defaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb the remaining shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase;
PROVIDED, HOWEVER, that the nondefaulting Underwriters shall not be obligated to
purchase the portion which the defaulting Underwriter or Underwriters agreed to
purchase if the aggregate number of such Shares exceeds 10% of the total number
of Shares which all Underwriters agreed to purchase hereunder. If the total
number of Shares which the defaulting Underwriter or Underwriters agreed to
purchase shall not be purchased or absorbed in accordance with the two preceding
sentences, the Company and the Selling Securityholders shall have the right,
within 24 hours next succeeding the 24-hour period above referred to, to make
arrangements with other underwriters or purchasers satisfactory to you for
purchase of such Shares and portion on the terms herein set forth. In any such
case, either you or the Company and the Selling Securityholders shall have the
right to postpone the Closing Date determined as provided in Section 5 hereof
for not more than seven business days after the date originally fixed as the
Closing Date pursuant to Section 5 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the
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non-defaulting Underwriters nor the Company and the Selling Securityholders
shall make arrangements within the 24-hour periods stated above for the purchase
of all of the Shares which the defaulting Underwriter or Underwriters agreed to
purchase hereunder, this Agreement shall be terminated without further act or
deed and without any liability on the part of the Company or the Selling
Securityholders to any non-defaulting Underwriter and without any liability on
the part of any nondefaulting Underwriter to the Company or the Selling
Securityholders. Nothing in this paragraph (b), and no action taken hereunder,
shall relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and
covenants herein contained, and subject to the terms and conditions herein set
forth, the Company and the Selling Securityholders identified on Schedule II
grant an option to the several Underwriters to purchase, severally and not
jointly, up to 322,500 Optional Shares from the Company and such Selling
Securityholders at the same price per share as the Underwriters shall pay for
the Firm Shares. Said option may be exercised only to cover over-allotments in
the sale of the Firm Shares by the Underwriters and may be exercised in whole or
in part at any time on or before the thirtieth day after the date of this
Agreement upon written or telegraphic notice by you to the Company setting forth
the aggregate number of Optional Shares as to which the several Underwriters are
exercising the option. Delivery of certificates for the Optional Shares, and
payment therefor, shall be made as provided in Section 5 hereof. The number of
Optional Shares to be purchased by each Underwriter shall be the same percentage
of the total number of Optional Shares to be purchased by the several
Underwriters as such Underwriter is purchasing of the Firm Shares, as adjusted
by you in such manner as you deem advisable to avoid fractional shares.
SECTION 4. OFFERING BY UNDERWRITERS.
(a) The terms of the public offering by the Underwriters of
the Shares to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the public offering and increase or decrease the concessions and
discounts to dealers as they may determine.
(b) The information (insofar as such information relates to
the Underwriters) set forth in the last paragraph on the front cover page and
under "Underwriting" in the Registration Statement, any Preliminary Prospectus
and the Prospectus relating to the Shares constitutes the only information
furnished by the Underwriters to the Company for inclusion in the Registration
Statement, any Preliminary Prospectus, and the Prospectus, and you on behalf of
the respective Underwriters represent and warrant to the Company that the
statements made therein are correct.
SECTION 5. DELIVERY OF AND PAYMENT FOR THE SHARES.
(a) Delivery of certificates for the Firm Shares and the
Optional Shares (if the option granted by Section 3(c) hereof shall have been
exercised not later than 7:00 A.M., San Francisco time, on the date two business
days preceding the Closing Date), and payment therefor, shall be made at the
office of __________________, _____________, at 7:00 a.m., San Francisco time,
on the fourth business day after the date of this Agreement, or at such time on
such other day, not later than seven full business days after such fourth
business day, as shall be agreed upon in writing by the Company, the Selling
Securityholders and you. The date and hour
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of such delivery and payment (which may be postponed as provided in Section 3(b)
hereof) are herein called the "Closing Date".
(b) If the option granted by Section 3(c) hereof shall be
exercised after 7:00 a.m., San Francisco time, on the date two business days
preceding the Closing Date, delivery of certificates for the shares of Optional
Shares, and payment therefor, shall be made at the office of ______________,
________________, at 7:00 a.m., San Francisco time, on the third business day
after the exercise of such option.
(c) Payment for the shares purchased from the Company shall be
made to the Company or its order, and payment for the shares purchased from the
Selling Securityholders shall be made, in the discretion of the Underwriters, to
them or to the Custodian, for the account of the Selling Securityholders, in
each case by (i) one or more certified or official bank check or checks in next
day funds (and the Company and the Selling Securityholders agree not to deposit
any such check in the bank on which drawn until the day following the date of
its delivery to the Company or the Custodian, as the case may be) or (ii)
federal funds wire transfer. Such payment shall be made upon delivery of
certificates for the shares to you for the respective accounts of the several
Underwriters (including without limitation, at the election of the Underwriters,
by "full- fast" electronic transfer by Depository Trust Company) against receipt
therefor signed by you. Certificates for the shares to be delivered to you shall
be registered in such name or names and shall be in such denominations as you
may request at least one business day before the Closing Date, in the case of
Firm Shares, and at least one business day prior to the purchase thereof, in the
case of the Optional Shares. Such certificates will be made available to the
Underwriters for inspection, checking and packaging at the offices of Volpe,
Welty & Company's clearing agent, Bear Stearns Securities Corp., on the business
day prior to the Closing Date or, in the case of the Optional Shares, by 3:00
p.m., New York time, on the business day preceding the date of purchase.
It is understood that you, individually and not on behalf of
the Underwriters, may (but shall not be obligated to) make payment to the
Company and the Selling Securityholders for shares to be purchased by any
Underwriter whose check shall not have been received by you on the Closing Date
or any later date on which Optional Shares are purchased for the account of such
Underwriter. Any such payment by you shall not relieve such Underwriter from any
of its obligations hereunder.
SECTION 6. COVENANTS OF THE COMPANY. The Company covenants and agrees
as follows:
(a) The Company will (i) prepare and timely file with the
Commission under Rule 424(b) a Prospectus containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been advised
and furnished with a copy or to which you shall have reasonably objected in
writing or which is not in compliance with the Securities Act or the rules and
regulations of the Commission.
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(b) The Company will promptly notify each Underwriter in the
event of (i) the request by the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional information,
(ii) the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement, (iii) the institution or notice of
intended institution of any action or proceeding for that purpose, (iv) the
receipt by the Company of any notification with respect to the suspension of the
qualification of the shares for sale in any jurisdiction, or (v) the receipt by
it of notice of the initiation or threatening of any proceeding for such
purpose. The Company will make every reasonable effort to prevent the issuance
of such a stop order and, if such an order shall at any time be issued, to
obtain the withdrawal thereof at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date,
deliver to you a signed copy of the Registration Statement as originally filed
and of each amendment thereto filed prior to the time the Registration Statement
becomes effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event relating
to or affecting the Company, or of which the Company shall be advised in writing
by you, shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for the Underwriters, to supplement or
amend the Prospectus in order to make the Prospectus not misleading in the light
of the circumstances existing at the time it is delivered to a purchaser of the
shares, the Company will forthwith prepare and file with the Commission a
supplement to the Prospectus or an amended prospectus so that the Prospectus as
so supplemented or amended will not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the time such
Prospectus is delivered to such purchaser, not misleading. If, after the public
offering of the shares by the Underwriters and during such period, the
Underwriters shall propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, you will advise the Company
in writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to the Prospectus or
an amended prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the shares may be sold by the
several Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the shares in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
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(e) Prior to the filing thereof with the Commission, the
Company will submit to you, for your information, a copy of any post-effective
amendment to the Registration Statement and any supplement to the Prospectus or
any amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you,
in the qualification of the shares for offer and sale under the securities or
blue sky laws of such jurisdictions as you may designate and, during the period
in which a prospectus is required by law to be delivered by an Underwriter or
dealer, in keeping such qualifications in good standing under said securities or
blue sky laws; PROVIDED, HOWEVER, that the Company shall not be obligated to
file any general consent to service of process or to qualify as a foreign
corporation in any jurisdiction in which it is not so qualified. The Company
will, from time to time, prepare and file such statements, reports, and other
documents as are or may be required to continue such qualifications in effect
for so long a period as you may reasonably request for distribution of the
shares.
(g) During a period of five years commencing with the date
hereof, the Company will furnish to you, and to each Underwriter who may so
request in writing, copies of all periodic and special reports furnished to
stockholders of the Company and of all information, documents and reports filed
with the Commission.
(h) Not later than the 45th day following the end of the
fiscal quarter first occurring after the first anniversary of the Effective
Date, the Company will make generally available to its security holders an
earnings statement in accordance with Section 11(a) of the Securities Act and
Rule 158 thereunder.
(i) The Company agrees to pay all costs and expenses incident
to the performance of its obligations under this Agreement, including all costs
and expenses incident to (i) the preparation, printing and filing with the
Commission and the National Association of Securities Dealers, Inc. ("NASD") of
the Registration Statement, any Preliminary Prospectus and the Prospectus, (ii)
the furnishing to the Underwriters and the persons designated by them of copies
of any Preliminary Prospectus and of the several documents required by paragraph
(c) of this Section 6 to be so furnished, (iii) the printing of this Agreement
and related documents delivered to the Underwriters, (iv) the preparation,
printing and filing of all supplements and amendments to the Prospectus referred
to in paragraph (d) of this Section 6, (v) the furnishing to you and the
Underwriters of the reports and information referred to in paragraph (g) of this
Section 6 and (vi) the printing and issuance of stock certificates, including
the transfer agent's fees. The Selling Securityholders will pay any transfer
taxes incident to the transfer to the Underwriters of the Shares being sold by
the Selling Securityholders.
(j) The Company agrees to reimburse you, for the account of
the several Underwriters, for blue sky fees and related disbursements (including
counsel fees and disbursements and the cost of printing memoranda for the
Underwriters) paid by or for the account of the Underwriters or their counsel in
qualifying the shares under state securities or blue sky laws and in the review
of the offering by the NASD.
(k) The provisions of paragraphs (i) and (j) of this Section
are intended to relieve the Underwriters from the payment of the expenses and
costs which the Company and the Selling
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Securityholders hereby agree to pay and shall not affect any agreement which the
Company and the Selling Securityholders may make, or may have made, for the
sharing of any such expenses and costs.
(l) The Company and each of the Selling Securityholders that
owns beneficially 50,000 or more shares of Common Stock hereby agrees that,
without the prior written consent of Volpe, Welty & Company, the Company or such
Selling Securityholder, as the case may be, will not, for a period of 180 days
following the date the Registration Statement becomes effective, (i) offer,
sell, contract to sell, make any short sale (including without limitation short
against the box), pledge, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any options to acquire shares of Common Stock or
securities convertible into or exchangeable or exercisable for or any other
rights to purchase or acquire Common Stock (including without limitation, Common
Stock of the Company which may be deemed to be beneficially owned in accordance
with the rules and regulations of the Commission) other than the exercise or
conversion of outstanding options, warrants or convertible securities or (ii)
enter into any swap or other agreement that transfers, in whole or in part, any
of the economic consequences or ownership of Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise; PROVIDED,
HOWEVER, that bona fide gift transactions and transfers which will not result in
any change in beneficial ownership may be permitted if the transferee enters
into a lock-up agreement in substantially the same form covering the remainder
of the lock-up period. The foregoing sentence shall not apply to (A) the shares
to be sold to the Underwriters pursuant to this Agreement, (B) shares of Common
Stock issued by the Company upon the exercise of options granted under the
option plans of the Company (the "Option Plans") or upon the exercise of
warrants outstanding as of the date hereof, all as described in footnote ( ) to
the table under the caption "Capitalization" in the Preliminary Prospectus, and
(C) options to purchase Common Stock granted under the Option Plans.
(m) The Company agrees to use its best efforts to cause all
directors, officers, and beneficial holders of 50,000 or more shares of Common
Stock (including shares issuable upon the exercise or conversion of any option,
warrant or other security that is or will become exercisable or convertible
within the 180-day period referred to below) to agree that, without the prior
written consent of Volpe, Welty & Company, such person or entity will not, for a
period of 180 days following the date the Registration Statement becomes
effective, (i) offer, sell, contract to sell, make any short sale (including
without limitation short against the box), pledge, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any options to acquire
shares of Common Stock or securities convertible into or exchangeable or
exercisable for or any other rights to purchase or acquire Common Stock
(including without limitation, Common Stock of the Company which may be deemed
to be beneficially owned in accordance with the rules and regulations of the
Commission) other than the exercise or conversion of outstanding options,
warrants or convertible securities or (ii) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic consequences
or ownership of Common Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise; PROVIDED, HOWEVER, that bona fide gift
transactions and transfers which will not result in any change in beneficial
ownership may be permitted if the transferee enters into a lock-up agreement in
substantially the same form covering the remainder of the lock-up period.
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(n) If at any time during the 25-day period after the
Registration Statement becomes effective any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price for the shares has been or is likely to be materially
affected (regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
(o) The Company is familiar with the Investment Company Act of
1940, as amended, and has in the past conducted its affairs, and will in the
future conduct its affairs, in such a manner to ensure that the Company was not
and will not be an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.
(p) The Company agrees to maintain directors' and officers'
insurance in amounts customary for the size and nature of the Company's business
for a period of two years from the date of this Agreement.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this Section
7, the Company and the Selling Securityholders jointly and severally agree to
indemnify and hold harmless each Underwriter and each person (including each
partner or officer thereof) who controls any Underwriter within the meaning of
Section 15 of the Securities Act from and against any and all losses, claims,
damages or liabilities, joint or several, to which such indemnified parties or
any of them may become subject under the Securities Act, the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or the common law or otherwise,
and the Company and the Selling Securityholders jointly and severally agree to
reimburse each such Underwriter and controlling person for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that (1) the indemnity agreements of the Company
and the Selling Securityholders contained in this paragraph (a) shall not apply
to any such losses, claims, damages, liabilities or expenses if such statement
or omission was made in reliance upon and in conformity with information
furnished as herein
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stated or otherwise furnished in writing to the Company by or on behalf of any
Underwriter for use in any Preliminary Prospectus or the Registration Statement
or the Prospectus or any such amendment thereof or supplement thereto, (2) the
indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the shares which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such shares a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof, and (3) each Selling
Securityholder shall only be liable under this paragraph with respect to (A)
information pertaining to such Selling Securityholder furnished by or on behalf
of such Selling Securityholder expressly for use in any Preliminary Prospectus
or the Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto or (B) facts that would constitute a breach of any
representation or warranty of such Selling Securityholder set forth in Section
2(b) hereof. The indemnity agreements of the Company and the Selling
Securityholders contained in this paragraph (a) and the representations and
warranties of the Company and the Selling Securityholders contained in Section 2
hereof shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Shares.
(b) Each Underwriter severally agrees to indemnity and hold
harmless the Company, each of its officers who signs the Registration Statement
on his own behalf or pursuant to a power of attorney, each of its directors,
each other Underwriter and each person (including each partner or officer
thereof) who controls the Company or any such other Underwriter within the
meaning of Section 15 of the Securities Act, and the Selling Securityholders
from and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Exchange Act, or the common law or otherwise and
to reimburse each of them for any legal or other expenses (including, except as
otherwise hereinafter provided, reasonable fees and disbursements of counsel)
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus as part
thereof and any Rule 462(b) registration statement) or any post-effective
amendment thereto (including any Rule 462(b) registration statement) or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or
(ii) any untrue statement or alleged untrue statement of a material fact
contained in the Prospectus (as amended or as supplemented if the Company shall
have filed with the Commission any amendment thereof or supplement thereto) or
the omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, if such statement or omission was made in
reliance upon and in conformity with information furnished as herein stated or
otherwise furnished in writing to the Company by or on behalf of such
indemnifying Underwriter for use in the Registration Statement or the Prospectus
or any such amendment thereof or supplement thereto.
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The indemnity agreement of each Underwriter contained in this paragraph (b)
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the Shares.
(c) Each party indemnified under the provision of paragraphs
(a) and (b) of this Section 7 agrees that, upon the service of a summons or
other initial legal process upon it in any action or suit instituted against it
or upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (the "Notice") of such service
or notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give the Notice if the party to whom such
Notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the Notice would have related and was prejudiced by the
failure to give the Notice, but the omission so to notify such indemnifying
party or parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party shall be entitled at its own expense
to participate in the defense of any action, suit or proceeding against, or
investigation or inquiry of, an indemnified party. Any indemnifying party shall
be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (the "Notice of Defense") to the indemnified
party, to assume (alone or in conjunction with any other indemnifying party or
parties) the entire defense of such action, suit, investigation, inquiry or
proceeding, in which event such defense shall be conducted, at the expense of
the indemnifying party or parties, by counsel chosen by such indemnifying party
or parties and reasonably satisfactory to the indemnified party or parties;
PROVIDED, HOWEVER, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties in conducting the
defense of such action, suit, investigation, inquiry or proceeding or that there
may be legal defenses available to such indemnified party or parties different
from or in addition to those available to the indemnifying party or parties,
then counsel for the indemnified party or parties shall be entitled to conduct
the defense to the extent reasonably determined by such counsel to be necessary
to protect the interests of the indemnified party or parties and (ii) in any
event, the indemnified party or parties shall be entitled to have counsel chosen
by such indemnified party or parties participate in, but not conduct, the
defense. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
paragraphs (a) through (c) of this Section 7 for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding, except that
(A) the indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in clause
(i) of the proviso to the preceding sentence and (B) the indemnifying party or
parties shall bear such other expenses as it or they have authorized to be
incurred by the indemnified party or parties. If, within a reasonable time after
receipt of the Notice, no Notice of Defense has been given, the indemnifying
party or parties shall be responsible for any legal or other expenses incurred
by the indemnified party or parties in connection with the defense of the
action, suit, investigation, inquiry or proceeding.
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(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Securityholders on the one hand and the Underwriters on
the other shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the Shares received by the Company and the
Selling Securityholders and the total underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the Shares. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by each indemnifying party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparing to defend or defending against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the shares purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) Neither the Company nor the Selling Securityholders will,
without the prior written consent of each Underwriter, settle or compromise or
consent to the entry of any
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judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not such
Underwriter or any person who controls such Underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act is a party to
such claim, action, suit or proceeding) unless such settlement, compromise or
consent includes an unconditional release of such Underwriter and each such
controlling person from all liability arising out of such claim, action, suit or
proceeding.
(f) The liability of each Selling Securityholder under the
indemnity and reimbursement agreements contained in the provisions of this
Section 7 and Section 8 hereof, and of each Principal Securityholder under
Section 2(a) hereof, shall be limited to an amount equal to the public offering
price of the shares to be sold by such Selling Securityholder or Principal
Securityholder, as the case may be, to the Underwriters. The Company and the
Selling Securityholders may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to the respective amounts of
such liability for which they each shall be responsible.
SECTION 8. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their
other obligations under Section 7 of this Agreement (and subject, in the case of
a Selling Securityholder, to the provisions of paragraph (f) of Section 7), the
Company and the Selling Securityholders hereby jointly and severally agree to
reimburse on a monthly basis the Underwriters for all reasonable legal and other
expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 8 and the possibility that such payments might later be held
to be improper; PROVIDED, HOWEVER, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
SECTION 9. TERMINATION. This Agreement may be terminated by you at any
time prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders in accordance with Section 10, or if after the date of
this Agreement trading in the Common Stock shall have been suspended, or if
there shall have occurred (i) the engagement in hostilities or an escalation of
major hostilities by the United States or the declaration of war or a national
emergency by the United States on or after the date hereof, (ii) any outbreak of
hostilities or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, calamity,
crisis or change in economic or political conditions in the financial markets of
the United States or the Company's industry sector would, in the Underwriters'
reasonable judgment, make the offering or delivery of the shares impracticable,
(iii) suspension of trading in securities generally or a material adverse
decline in value of securities generally on the New York Stock Exchange, the
American Stock Exchange, or the Nasdaq Stock Market, or limitations on prices
(other than limitations on hours or numbers of days of trading) for securities
on either such exchange or system, (iv) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order
of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and
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adversely affects or will materially or adversely affect the business or
operations of the Company, (v) declaration of a banking moratorium by either
federal or New York State authorities or (vi) the taking of any action by any
federal, state or local government or agency in respect of its monetary or
fiscal affairs which in the Underwriters' reasonable opinion has a material
adverse effect on the securities markets in the United States. If this Agreement
shall be terminated pursuant to this Section 9, there shall be no liability of
the Company or the Selling Securityholders to the Underwriters and no liability
of the Underwriters to the Company or the Selling Securityholders; PROVIDED,
HOWEVER, that in the event of any such termination the Company and the Selling
Securityholders agree to indemnity and hold harmless the Underwriters from all
costs or expenses incident to the performance of the obligations of the Company
and the Selling Securityholders under this Agreement, including all costs and
expenses referred to in paragraphs (i) and (j) of Section 6 hereof.
SECTION 10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations
of the several Underwriters to purchase and pay for the shares shall be subject
to the performance by the Company and by the Selling Securityholders of all
their respective obligations to be performed hereunder at or prior to the
Closing Date or any later date on which Optional Shares are to be purchased, as
the case may be, and to the following further conditions:
(a) The Registration Statement shall have become effective;
and no stop order suspending the effectiveness thereof shall have been issued
and no proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the shares
hereunder and the validity and form of the certificates representing the shares,
all corporate proceedings and other legal matters incident to the foregoing, and
the form of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been approved at or prior to
the Closing Date by Foley, Hoag & Eliot LLP, counsel for the Underwriters.
(c) You shall have received from Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A., counsel for the Company and the Selling
Securityholders, and from _____________, patent counsel for the Company,
opinions, addressed to the Underwriters and dated the Closing Date, covering the
matters set forth in Annex A and Annex B hereto, respectively, and if Optional
Shares are purchased at any date after the Closing Date, additional opinions
from each such counsel, addressed to the Underwriters and dated such later date,
confirming that the statements expressed as of the Closing Date in such opinions
remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date,
the statements made in the Registration Statement and the Prospectus were true
and correct, and neither the Registration Statement nor the Prospectus omitted
to state any material fact required to be stated therein or necessary in order
to make the statements therein, respectively, not misleading; (ii) since the
Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus which has not been set forth in such a
supplement or amendment; (iii) since the respective dates as of which
information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material
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adverse change in or affecting the business, properties, financial condition or
results of operations of the Company, whether or not arising from transactions
in the ordinary course of business, and, since such dates, except in the
ordinary course of business, the Company has not entered into any material
transaction not referred to in the Registration Statement in the form in which
it originally became effective and the Prospectus contained therein; (iv) the
Commission has not issued any order preventing or suspending the use of the
Prospectus or any Preliminary Prospectus filed as a part of the Registration
Statement or any amendment thereto; no stop order suspending the effectiveness
of the Registration Statement has been issued; and to the best knowledge of the
respective signers, no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act; (v) the Company does not have
any material contingent obligations which are not disclosed in the Registration
Statement and the Prospectus; (vi) there are not any pending or known threatened
legal proceedings to which the Company is a party or of which property of the
Company is the subject which are material and which are not disclosed in the
Registration Statement and the Prospectus; (vii) there are not any franchises,
contracts, leases or other documents which are required to be filed as exhibits
to the Registration Statement which have not been filed as required; and (vii)
the representations and warranties of the Company herein are true and correct in
all material respects as of the Closing Date or any later date on which Optional
Shares are to be purchased, as the case may be.
(e) You shall have received on the Closing Date and on any
later date on which Optional Shares are purchased a certificate, dated the
Closing Date or such later date, as the case may be, and signed by the President
and the Chief Financial Officer of the Company, stating that the respective
signers of said certificate have carefully examined the Registration Statement
in the form in which it originally became effective and the Prospectus contained
therein and any supplements or amendments thereto, and that the statements
included in clauses (i) through (viii) of paragraph (d) of this Section 10 are
true and correct.
(f) You shall have received from Arthur Andersen LLP a letter
or letters, addressed to the Underwriters and dated the Closing Date and any
later date on which Optional Shares are purchased, confirming that they are
independent public accountants with respect to the Company within the meaning of
the Securities Act and the applicable published rules and regulations thereunder
and based upon the procedures described in their letter delivered to you
concurrently with the execution of this Agreement (the "Original Letter"), but
carried out to a date not more than three business days prior to the Closing
Date or such later date on which Optional Shares are purchased (i) confirming,
to the extent true, that the statements and conclusions set forth in the
Original Letter are accurate as of the Closing Date or such later date, as the
case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of the Original Letter or to reflect the availability of more recent
financial statements, data or information. The letters shall not disclose any
change, or any development involving a prospective change, in or affecting the
business or properties of the Company which, in your sole judgment, makes it
impractical or inadvisable to proceed with the public offering of the shares or
the purchase of the Optional Shares as contemplated by the Prospectus.
(g) You shall have received from Arthur Andersen LLP a letter
stating that their review of the Company's system of internal accounting
controls, to the extent they deemed
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necessary in establishing the scope of their examination of the Company's
financial statements as at December 31, 1995, did not disclose any weakness in
internal controls that they considered to be material weaknesses.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the shares to be issued and
sold by the Company shall have been duly authorized for listing by the Nasdaq
National Market upon official notice of issuance.
(j) On or prior to the Closing Date, you shall have received
from all directors, officers, and beneficial holders of more than 50,000 or more
shares of Common Stock (including shares issuable upon the exercise or
conversion of any option, warrant or other security that is or will become
exercisable or convertible within the 180-day period referred to below)
agreements, in form reasonably satisfactory to Volpe, Welty & Company, stating
that without the prior written consent of Volpe, Welty & Company, such person or
entity will not, for a period of 180 days following the date the Registration
Statement became effective (i) offer, sell, contract to sell, make any short
sale (including without limitation short against the box), pledge, or otherwise
dispose of, directly or indirectly, any shares of Common Stock or any options to
acquire shares of Common Stock or securities convertible into or exchangeable or
exercisable for or any other rights to purchase or acquire Common Stock
(including without limitation, Common Stock of the Company which may be deemed
to be beneficially owned in accordance with the rules and regulations of the
Commission) other than the exercise or conversion of outstanding options,
warrants or convertible securities or (ii) enter into any swap or other
agreement that transfers, in whole or in part, any of the economic consequences
or ownership of Common Stock, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise; PROVIDED, HOWEVER, that bona fide gift
transactions and transfers which will not result in any change in beneficial
ownership may be permitted if the transferee enters into a lock-up agreement in
substantially the same form covering the remainder of the lock-up period.
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Foley, Hoag & Eliot LLP, counsel for the Underwriters,
shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Selling Securityholders. Any such termination shall be
without liability of the Company or the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or Selling
Securityholders; PROVIDED, HOWEVER, that (i) in the event of such termination,
the Company and the Selling Securityholders agree to indemnity and hold harmless
the Underwriters from all costs or expenses incident to the performance of the
obligations of the Company and the Selling Securityholders under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company or the Selling
Securityholders to
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<PAGE>
perform any agreement herein, to fulfill any of the conditions herein, or to
comply with any provision hereof other than by reason of a default by any of the
Underwriters, the Company will reimburse the Underwriters severally upon demand
for all out-of-pocket expenses (including reasonable fees and disbursements of
counsel) that shall have been incurred by them in connection with the
transactions contemplated hereby.
SECTION 11. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE
SELLING SECURITYHOLDERS. The obligation of the Company and the Selling
Securityholders to deliver the shares shall be subject to the conditions that
(a) the Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 11 shall not
be fulfilled, this Agreement may be terminated by the Company and the Selling
Securityholders by giving notice to you. Any such termination shall be without
liability of the Company and the Selling Securityholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Securityholders; PROVIDED, HOWEVER, that in the event of any such termination
the Company and the Selling Securityholders jointly and severally agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
SECTION 12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This
Agreement shall inure to the benefit of the Company, the Selling Securityholders
and the several Underwriters and, with respect to the provisions of Section 7
hereof, the several parties (in addition to the Company, the Selling
Securityholders and the several Underwriters) indemnified under the provisions
of said Section 7, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give to
any other person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein contained. The
term "successors and assigns" as herein used shall not include any purchaser, as
such purchaser, of any of the shares from any of the several Underwriters.
SECTION 13. NOTICES. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telegraphed or delivered to Volpe, Welty &
Company, One Maritime Plaza, 11th Floor, San Francisco, California 94111,
Attention: Gil Mogavero; and if to the Company, shall be mailed, telegraphed or
delivered to it at its office, 3250 Commerce Parkway, Miramar, Florida 33025,
Attention: Chairman of the Board; and if to the Selling Securityholders, shall
be mailed, telegraphed or delivered to the Selling Securityholders in care of
Marc M. Watson, c/o Sano Corporation, 3250 Commerce Parkway, Miramar, Florida
33025. All notices given by telegraph shall be promptly confirmed by letter.
SECTION 14. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation made
by or on behalf of any Underwriter or controlling person thereof, or by or on
behalf of the Company or the Selling Securityholders or their respective
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<PAGE>
directors or officers, and (c) delivery and payment for the shares under this
Agreement; PROVIDED, HOWEVER, that if this Agreement is terminated prior to the
Closing Date, the provisions of paragraphs (l) (m) and (n) of Section 6 hereof
shall be of no further force or effect.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 17. GENERAL. This Agreement constitutes the entire agreement
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Securityholders and you.
Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Securityholders represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Securityholder pursuant to a
validly existing and binding Power of Attorney which authorizes such
Attorney-in-fact to take such action. Any action taken under this Agreement by
any of the Attorneys-in-fact will be binding on all of the Selling
Securityholders.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement among the Company and the several Underwriters,
including you, all in accordance with its terms.
Very truly yours,
SANO CORPORATION
By:
-----------------------------
Title:
--------------------------
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<PAGE>
SELLING SECURITYHOLDERS
By:
-----------------------------
Attorney-in-fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted by us
in San Francisco, California as of the
date first above written.
VOLPE, WELTY & COMPANY
DILLON, READ & CO. INC.
WHEAT FIRST BUTCHER SINGER
Acting for ourselves and as Representatives
of the several Underwriters named in the
attached Schedule A
BY: VOLPE, WELTY & COMPANY
By:
-------------------------
General Partner
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<PAGE>
SCHEDULE I
UNDERWRITERS
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
- --------------------------------------------------------------------------------
Volpe, Welty & Company .....................................
Dillon, Read & Co. Inc......................................
Wheat, First Securities, Inc. ..............................
Total..................................... =========
2,150,000
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<PAGE>
SCHEDULE II
SELLING SECURITYHOLDERS
MAXIMUM
NUMBER OF NUMBER OF
NAME AND ADDRESS FIRM SHARES OPTIONAL SHARES
OF SELLING SECURITYHOLDERS TO BE SOLD TO BE SOLD
- -------------------------------------------------------------------------------
Total....................... ========== ==========
900,000
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<PAGE>
ANNEX A
Matters to be Covered in the Opinion of
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.
Counsel for the Company
and the Selling Securityholders
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, is duly qualified as a foreign corporation and in good standing
in each state of the United States of America in which the nature of its
business or its ownership or leasing of property requires such qualification
(except where the failure to be so qualified would not have a material adverse
effect on the business, properties, financial condition or results of operations
of the Company and its subsidiaries, taken as a whole), and has full corporate
power and authority to own or lease its properties and conduct its business as
described in the Registration Statement;
(ii) the authorized capital stock of the Company consists of
___________ shares of Common Stock, $.01 par value, of which there are
outstanding ________ shares; all of the outstanding shares of such capital stock
(including the Firm Shares and the outstanding Optional Shares) have been duly
authorized and validly issued and are fully paid and nonassessable; and no
preemptive rights of, or rights of refusal in favor of, shareholders exist with
respect to the Shares, or the issue and sale thereof, pursuant to the Articles
of Incorporation or Bylaws of the Company or any other instrument and, to the
knowledge of such counsel, there are no contractual preemptive rights that have
not been waived, rights of first refusal or rights of co-sale which exist with
respect to the Shares being sold by the Selling Securityholders or the issue and
sale of the Shares by the Company;
(iii) the Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus is in effect and no proceedings for that
purpose have been instituted or are pending or contemplated by the Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained therein,
as to which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and with the rules
and regulations of the Commission thereunder;
(v) the information required to be set forth in the Registration
Statement in answer to Items 9, 10 (insofar as it relates to such counsel),
11(c) and 11(m) of Form S-1 is to the best of such counsel's knowledge
accurately and adequately set forth therein in all material respects or no
response is required with respect to such Items; the statements under the
captions "Business-Government Regulation and Product Approvals" and "Shares
Eligible for Future Sale," insofar as such statements constitute matters of law
or legal conclusions, have been reviewed by such counsel and are accurate and
complete statements of the information called for with respect to such matters;
and the description of the Company's stock option plans and the options granted
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<PAGE>
and which may be granted thereunder and the options granted otherwise than under
such plans set forth in the Prospectus accurately and fairly presents the
information required to be shown with respect to said plans and options to the
extent required by the Securities Act and the rules and regulations of the
Commission thereunder;
(vi) such counsel do not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the opinion of
such counsel are of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not described and filed as required;
(vii) the Underwriting Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the Underwriting Agreement has been duly executed and delivered
by or on behalf of the Selling Securityholders and the Custody Agreement between
the Selling Securityholders and the Company, as Custodian, and the Power of
Attorney referred to in such Custody Agreement have been duly executed and
delivered by the several Selling Securityholders;
The statements under the captions "Business--Government Regulation,"
"Description of Capital Stock" and "Shares Eligible for Future Sale," insofar as
such statements constitute matters of law or legal conclusions, have been
reviewed by such counsel and are accurate and complete statements of the
information called for with respect to such matters.
(ix) the Company has full corporate power and authority to enter into
the Underwriting Agreement and to sell and deliver the Shares to be sold by it
to the several Underwriters; the Underwriting Agreement is a valid and binding
agreement of the Company enforceable against it in accordance with its terms,
except as enforceability may be limited by general equitable principles,
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditor's rights generally and except as to those provisions relating to
indemnity or contribution for liabilities arising under federal and state
securities laws (as to which no opinion need be expressed);
(x) the Underwriting Agreement, the Custody Agreement and the Power of
Attorney are valid and binding agreements of each of the Selling Securityholders
enforceable against them in accordance with their terms, except as
enforceability may be limited by general equitable principles, or by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors' rights
generally and except with respect to those provisions relating to indemnity or
contribution for liabilities under the Securities Act (as to which no opinion
need be expressed), and each Selling Securityholder has full legal right and
authority to enter into the Underwriting Agreement, the Custody Agreement and
the Power of Attorney and to sell, transfer and deliver in the manner provided
in the Underwriting Agreement the Shares sold by such Selling Securityholder
hereunder;
(xi) the issue and sale by the Company of the Shares sold by the
Company as contemplated by the Underwriting Agreement will not conflict with, or
result in a breach of, or constitute a default under the Articles of
Incorporation or Bylaws of the Company or any agreement or instrument known to
such counsel to which the Company is a party or by which
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<PAGE>
any of its properties may be bound or any applicable law or regulation, or so
far as is known to such counsel, any order, writ, injunction or decree, of any
jurisdiction, court or governmental instrumentality;
(xii) the transfer and sale by the Selling Stockholders of the Shares
to be sold by the Selling Stockholders as contemplated by the Underwriting
Agreement, the Power of Attorney and the Custody Agreement will not conflict
with, result in a breach of, or constitute a default under any agreement or
instrument known to such counsel to which any of the Selling Stockholders is a
party or by which any of the Selling Stockholders or any of their properties may
be bound, or any applicable law or regulation, or so far is known to such
counsel, any order, writ, injunction or decree of any jurisdiction, court or
governmental instrumentality or body;
(xiii) all holders of securities of the Company having rights to the
registration of shares of Common Stock or other securities by reason of the
filing of the Registration Statement by the Company have waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement;
(xiv) good and marketable title to the Shares under the Underwriting
Agreement, free and clear of all liens, encumbrances, equities, security
interests and claims, has been transferred to the Underwriters who have
severally purchased such Shares under the Underwriting Agreement, assuming for
the purpose of this opinion that the Underwriters purchased the same in good
faith without notice of any adverse claims;
(xv) based, insofar as factual matters with respect to the Shares to be
sold by the Selling Securityholders are concerned, upon certificates of the
Selling Securityholders, the accuracy of which such counsel have no reason to
question, no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as have been obtained
under the Securities Act and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Shares by
the Underwriters and the clearance of the offering with the NASD; and
(xvii) the Shares sold by the Selling Securityholders are listed and
duly admitted to trading on the Nasdaq National Market, and the shares issued
and sold by the Company will be duly authorized for listing by the Nasdaq
National Market upon official notice of issuance.
In addition to the matters set forth above, counsel rendering the
foregoing opinion shall also include a statement to the effect that nothing has
come to the attention of such counsel that leads them to believe that the
Registration Statement (except as to the financial statements and schedules and
other financial data contained therein, as to which such counsel need not
express any opinion or belief) at the Effective Date contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, that
the Prospectus (except as to the financial statements and schedules and other
financial data contained therein, as to which such counsel need not express any
opinion or belief) as of its date or at the Closing Date (or any later date on
which Optional Shares is purchased), contained or contains any untrue statement
of a material fact or omitted or omits to
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<PAGE>
state a material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
-----------------------------
-33-
<PAGE>
ANNEX B
Matters to be Covered in the Opinion of
Patent Counsel for the Company
Such counsel are familiar with the technology used by the Company in
its business and the manner of its use thereof and have read the Registration
Statement and the Prospectus, including particularly the portions of the
Registration Statement and the Prospectus referring to patents, trade secrets,
trademarks, service marks or other proprietary information or materials and such
counsel have no reason to believe that the Registration Statement or the
Prospectus (A) contains any untrue statement of a material fact with respect to
patents, trade secrets, trademarks, service marks or other proprietary
information or materials owned or used by the Company, or the manner of its use
thereof, or any allegation on the part of any person that the Company is
infringing any patent rights, trade secrets, trademarks, service marks or other
proprietary information or materials of any such person or (B) omits to state
any material fact relating to patents, trade secrets, trademarks, service marks
or other proprietary information or materials owned or used by the Company, or
the manner of its use thereof, or any allegation of which such counsel have
knowledge, that is required to be stated in the Registration Statement or the
Prospectus or is necessary to make the statements therein not misleading.
-34-
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
SANO CORPORATION
ARTICLE I
The name of the corporation is SANO CORPORATION (hereinafter called the
"Corporation").
ARTICLE II
The address of the principal office and the mailing address of the
Corporation is c/o: Reginald Hardy, 2780 Egret Way, Cooper City, Florida 33026.
ARTICLE III
(a) The capital stock authorized, the par value thereof, and the
characteristics of such stock shall be as follows:
NUMBER OF SHARES PAR VALUE CLASS OF
AUTHORIZED PER SHARE STOCK
---------------- --------- --------
1,000 $ 0.10 Common
(b) The Corporation shall hold a special meeting of shareholders:
(1) On call of the Board of Directors or persons authorized to
do so by the Corporation's Bylaws; or
(2) If the holders of not less than 50 percent of all votes
entitled to be cast on any issue proposed to be considered at the proposed
special meeting sign, date, and deliver to the Corporation's secretary one or
more written demands for the meeting describing the purpose or purposes for
which it is to be held.
ARTICLE IV
The street address of the Corporation's initial registered office in the
State of Florida is 2780 Egret Way, Cooper City, Florida 33026, City of Cooper
City, County of Broward, and the name of its initial registered agent at such
office is Reginald Hardy.
ARTICLE V
The Board of Directors of the Corporation shall consist of at least one
director, with the exact number to be fixed from time to time in the manner
provided in the Corporation's Bylaws. The number of directors constituting the
initial Board of Directors
<PAGE>
is one, and the name and address of the member of the initial Board of
Directors, who will serve as the Corporation's director until successors are
duly elected and qualified is:
Reginald Hardy
2780 Egret Way
Cooper City, Florida 33026
ARTICLE VI
The name of the Incorporator is Reginald Hardy, and the address of the
Incorporator is 2780 Egret Way, Cooper City, Florida 33026.
ARTICLE VII
This Corporation shall indemnify and shall advance expenses on behalf of
its officers and directors to the fullest extent not prohibited by law in
existence either now or hereafter.
IN WITNESS WHEREOF, the undersigned, being the Incorporator named above,
for the purpose of forming a corporation pursuant to the Florida Business
Corporation Act of the State of Florida has signed these Articles of
Incorporation this 15th day of May, 1991.
/s/ REGINALD HARDY
----------------------------------------
Reginald Hardy - Incorporator
STATE OF FLORIDA )
) SS:
COUNTY OF DADE )
BEFORE ME, the undersigned authority, personally appeared REGINALD
HARDY, to me known to be the person described in and who executed the foregoing
Articles of Incorporation, who, after being duly sworn under oath, acknowledged
before me that said person executed the same for the purpose therein expressed.
WITNESS my hand and official seal in the State and County aforesaid,
this 15th day of May, 1991.
/s/ ELIZABETH C. GALVIN
----------------------------------------
Notary Public
"OFFICIAL NOTARY SEAL"
ELIZABETH C. GALVIN
[ILLIGIBLE]
- 2 -
<PAGE>
ACCEPTANCE OF APPOINTMENT OF REGISTERED AGENT
The undersigned, having been named the Registered Agent of SANO
CORPORATION, hereby accepts such designation and is familiar with, and accepts,
the obligations of such position, as provided in Florida Statutes Section
607.0505.
/s/ REGINALD HARDY
----------------------------------------
Reginald Hardy,
Registered Agent
Dated: May 15, 1991.
- 3 -
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION OF
SANO CORPORATION
Pursuant to the provisions of ss.607.1005 of the Florida Business
corporation Act (1990), the undersigned corporation adopts the following
Articles of Amendment to its Articles of Incorporation:
1. The name of the corporation is SANO CORPORATION, (the "Corporation").
2. The following amendment of the Articles of Incorporation was adopted
by the Board of Directors of the Corporation on September 16, 1991, in the
manner prescribed by ss.607.1006(2) of the Florida Business Corporation Act
Shareholder action was not required.
"RESOLVED, that Article III of the Articles of Incorporation of SANO
CORPORATION, shall be amended and restated to read in its entirety as
follows:
ARTICLE III.
The capital stock which this Corporation is authorized to issue
shall be 2,000,000 shares of Common stock with a par value of $0.01
per share and 1,000,000 shares of Preferred stock with a par value
of $0.01 per share which may be divided into and issued in series
by the Board of Directors.
The Board of Directors is authorized to divide the Preferred Stock
into series or classes having the relative rights, preferences and
limitations as may from time to time be determined by the Board of
Directors, without limiting the foregoing, the Board of Directors
is expressly authorized to fix and determine:
a. The number of shares which shall constitute the series
and designation of such shares.
b. The rate and the time at which dividends on that series
shall be paid and whether, and to the extent to which, such
dividends shall be cumulative or noncumulative.
c. The right of the holders of the series to vote.
d. The preferential rights of the holders upon liquidation
or distribution of the assets of the Corporation.
e. The terms upon which the holders of any series may
convert their shares into any class or classes of any series or any
class or classes.
f. The terms and conditions upon which the series may be
redeemed and the terms and amount of any sinking fund or purchase
fund for the purchase or redemption of that series."
3. Except as hereby amended, the Articles of Incorporation of the Corporation
shall remain the same.
4. This Amendment made to the Articles of Incorporation was duly adopted by
written consent executed by the Sole Director of the Corporation on September
16th 1991, pursuant to Section 607.1006(2) of the Florida Business Corporation
Act (1990).
SANO CORPORATION, a Florida
corporation
BY: /s/ REGINALD HARDY
---------------------------------
Reginald Hardy, Sole Director
STATE OF FLORIDA )
) SS:
COUNTY OF DADE )
On this day personally appeared before me, REGINALD HARDY, the Sole
Director of SANO CORPORATION, a Florida corporation, and acknowledged that he
executed the above and foregoing ARTICLES OF AMENDMENT as such for and on behalf
of said Corporation after having been duly authorized so to do.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at the
County and State aforesaid, THIS 16th day of September, 1991.
NOTARY PUBLIC
---------------------------
State of Florida at Large
- 2 -
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION OF
SANO CORPORATION
Pursuant to the provisions of ss.607.1006 of the Florida Business
Corporation Act (1990), the undersigned corporation adopts the following
Articles of Amendment to its Articles of Incorporation:
1. The name of the corporation is SANO CORPORATION (the "Corporation").
2. The Amendment of the Articles of Incorporation of the Corporation set
forth below (the "Amendment"), was adopted in connection with the approval of a
4 for 1 stock split of the Corporation's outstanding shares of Common Stock,
Series A Convertible Preferred Stock ("Series A Stock"), Series B Convertible
Preferred Stock ("Series B Stock") and Series C Convertible Preferred Stock
("Series C Stock") by the Board of Directors of the Corporation on September 16,
1994 and by the shareholders of the Corporation on August 25, 1994. The holders
of each of the Corporation's Common Stock, Series A Stock, Series B Stock and
Series C Stock were entitled to vote separately as a class on the Amendment. The
number of votes cast for the Amendment by the shareholders of each of the
Corporation's Common Stock, Series A Stock Series B Stock and Series C Stock was
sufficient for approval of the Amendment by the Common Stock and each such class
of Preferred Stock.
3. The text of the Amendment is as follows: Article III of the Articles
of Incorporation of the Corporation shall be amended and restated to read in its
entirety as follows:
"ARTICLE III.
The capital stock which this Corporation is authorized to
issue shall be 8,000,000 shares of Common stock with a par
value of $0.01 per share and 4,000,000 shares of Preferred
Stock with a par value of $0.01 per share which may be divided
into and issued in series by the Board of Directors.
The Board of Directors is authorized to divide the Preferred
Stock into series or classes having the relative rights,
preferences and limitations as may from time to time be
determined by the Board of Directors. Without limiting the
foregoing, the Board of Directors is expressly authorized to
fix and determine:
<PAGE>
a. The number of shares which shall constitute the series and
designation of such shares.
b. The rate and the time at which dividends on that series
shall be paid and whether, and to the extent to which, such dividends
shall be cumulative or noncumulative.
c. The right of the holders of the series to vote.
d. The preferential rights of the holders upon liquidation or
distribution of the assets of the Corporation.
e. The terms upon which the holders of any series may convert
their shares into any class or classes of any series or any class or
classes.
f. The terms and conditions upon which the series may be
redeemed and the terms and amount of any sinking fund or purchase fund
for the purchase or redemption of that series."
4. Except as hereby amended, the Articles of Incorporation of the
corporation shall remain the same.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be signed in its name by its President as of the 16th day of
November, 1994.
SANO CORPORATION, a Florida
corporation
BY: /s/ REGINALD HARDY
---------------------------------
Reginald Hardy, President
-2-
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
SANO CORPORATION
Pursuant to the provisions of ss.607.1006 of the Florida Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
1. The name of the corporation is SANO CORPORATION (the "Corporation").
2. The Amendment of the Articles of Incorporation of the Corporation set
forth below (the "Amendment") was adopted by the holders of the Corporation's
outstanding shares OF Common Stock, par value $.Ol per share ("Common Stock"),
Series A Convertible Preferred Stock ("Series A Stock"), Series B Convertible
Preferred Stock ("Series B Stock"), Series C Convertible Preferred Stock
("Series C Stock"), Series D Convertible Preferred Stock ("Series D Stock") and
Series E Convertible Preferred Stock ("Series E Stock") on September 29, 1995
and by the Board of Directors of the Corporation on September 20, 1995. The
holders of each of the Corporaton's Common Stock, Series A Stock, Series B
Stock, Series C Stock, Series D Stock and Series E Stock were entitled TO vote
separately as a class on the Amendment. The number of votes cast for the
Amendment by the shareholders of each of the Corporation's Common Stock, Series
A Stock, Series B Stock, Series C Stock, Series D Stock and Series E Stock was
sufficient for approval of the Amendment.
3. The text of the Amendment is as follows: Article III of the Articles
of Incorporation of the Corporation shall be amended and restated to read in its
entirety as follows:
"ARTICLE III.
The capital stock which this Corporation is authorized to
issue shall be 25,000,000 shares of Common stock with a par
value of $0.01 per share and 5,000,000 shares of Preferred
Stock with a par value OF $0.01 per share which may be divided
into and issued in series by the Board of Directors.
The Board of Directors is authorized to divide the Preferred
Stock into series or classes having the relative rights,
preferences and limitations as may from time to time be
determined by the Board of Directors. Without limiting the
foregoing, the Board of Directors is expressly authorized to
fix and determine:
<PAGE>
a. The number of shares which shall constitute the series and
designation of such shares.
b. The rate and the time at which dividends on that series
shall be paid and whether, and to the extent to which, such dividends
shall be cumulative or noncumulative.
c. The right of the holders of the series to vote.
d. The preferential rights of the holders upon liquidation or
distribution of the assets of the Corporation.
e. The terms upon which the holders of any series may convert
their shares into any class or classes of any series or any class or
classes.
f. The terms and conditions upon which the series may be
redeemed and the terms and amount of any sinking fund or purchase fund
for the purchase or redemption of that series."
4. Except as hereby amended, the Articles of Incorporation of the
Corporation shall remain the same.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be signed in its name by its Chairman of the Board as of the 13 day
of OCTOBER 1995.
SANO CORPORATION, a Florida
corporation
BY: /s/ MARC M. WATSON
-----------------------------------
Marc M. Watson, Chairman of the
Board
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EXHIBIT 3.2
BYLAWS
OR
SANO CORPORATION
(A FLORIDA CORPORATION)
<PAGE>
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
ARTICLE ONE - OFFICES
1. Registered Office..............................................................1
2. Other offices..................................................................1
ARTICLE TWO - MEETINGS OF SHAREHOLDERS
1. Place.......................................................................1
2. Time of Annual Meeting......................................................1
3. Call of Special Meetings....................................................1
4. Conduct of Meetings.........................................................1
5. Notice and Waiver of Notice.................................................2
6. Business of special Meeting.................................................2
7. Quorum......................................................................2
8. Voting Per Share............................................................3
9. Voting of Shares............................................................3
10. Proxies.....................................................................4
ii. Shareholder List............................................................4
12. Action Without Meeting......................................................5
13. Fixing Record Date..........................................................5
14. Inspectors and Judges.......................................................5
15. Voting for Directors........................................................6
ARTICLE THREE - DIRECTORS
1. Number, Election and Term.................................................6
2. Vacancies.................................................................6
3. Powers....................................................................7
4. Place of Meetings.........................................................7
5. Annual Meeting............................................................7
6. Regular Meetings..........................................................7
7. Special Meetings and Notice...............................................7
8. Quorum; Required Vote; Presumption
of Assent...............................................................8
9. Action Without Meeting....................................................8
10. Conference by Telephone or Similar
Communications Equipment Meetings.......................................8
11. Committees................................................................8
12. Compensation of Directors.................................................9
13. Chairman of the Board.....................................................9
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<PAGE>
ARTICLE FOUR - OFFICERS
1. Positions.................................................................9
2. Election of Specified officers BY Board...................................9
3. Election or Appointment of Other
Officers...............................................................9
4. Salaries.................................................................10
5. Term; Resignation........................................................10
6. President................................................................10
7. VICE Presidents..........................................................10
8. Secretary................................................................11
9. Treasurer................................................................11
10. Other Officers, EMPLOYEES AND Agents . .............................11
ARTICLE FIVE - CERTIFICATES FOR SHARES
1. Issue of Certificates....................................................11
2. Legends for Preferences and Restrictions
on Transfer...........................................................11
3. Facsimile Signatures.....................................................12
4. Lost Certificates........................................................12
5. Transfer OF Shares.......................................................13
6. Registered SHAREHOLDERS..................................................13
7. Redemption of Control SHARES.............................................13
ARTICLE SIX - GENERAL PROVISIONS
1. Dividends................................................................13
2. RESERVES.................................................................13
3. CHECKS...................................................................13
4. FISCAL Year..............................................................14
5. SEAL.....................................................................14
6. Gender...................................................................14
ARTICLE SEVEN - AMENDMENTS OF BYLAWS..................................................................14
</TABLE>
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<PAGE>
SANO CORPORATION
BYLAWS
ARTICLE ONE
OFFICES
Section 1. REGISTERED OFFICE. The registered office of SANO
CORPORATION, a Florida corporation (the "Corporation"), shall be located in the
City of Cooper City, State of Florida, unless otherwise designated by the Board
of Directors.
Section 2. OTHER OFFICES. The Corporation may also have offices at such
other places, either within or without the State of Florida, as the Board of
Directors of the Corporation (the "Board of Directors") may from time to time
determine or as the business of the Corporation may require.
ARTICLE TWO
MEETINGS OF SHAREHOLDERS
Section 1. PLACE. All annual meetings of shareholders shall be held at
such place, within or without the State of Florida, as may be designated by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof. Special meetings of shareholders may be held at such
place, within or without the State of Florida, and at such time as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. TIME OF ANNUAL MEETING. Annual meetings of shareholders
shall be held on such date and at such time fixed, from time to time, by the
Board of Directors, provided that there shall be an annual meeting held every
year at which the shareholders shall elect a Board of Directors and transact
such other business as may properly be brought before the meeting.
Section 3. CALL OF SPECIAL MEETINGS. Special meetings of the
shareholders shall be held if called by the Board of Directors, the President,
or if the holders of not less than 50 percent of all the votes entitled to be
cast on any issue proposed to be considered at the proposed special meeting
sign, date, and deliver to the Secretary one or more written demands for the
meeting describing the purpose or purposes for which it is to be held.
Section 4. CONDUCT OF MEETING @s. The chairman of the Board (or in his
absence, the President or such other designee of the Chairman of the Board)
shall preside at the annual and special meetings of shareholders and shall be
given full discretion in
<PAGE>
establishing the rules and procedures to be followed in conducting the
meetings, except as otherwise provided by law or in these Bylaws.
Section S. NOTICE AND WAIVER OF NOTICE. Except as otherwise provided by
law, written or printed notice stating the place, day and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (10) nor more than sixty
(60) days before the day of the meeting, either personally or by first class
mail, by or at the direction of the President, the Secretary, or the officer or
person calling the meeting, to each shareholder of record entitled to vote at
such meeting. If the notice is mailed at least thirty (30) days before the date
of the meeting, it may be done by a class of United States mail other than
first-class. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail addressed to the shareholder at his address
as it appears on the stock transfer books of the Corporation, with postage
thereon prepaid. If a meeting is adjourned to another time and/or place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the Board
of Directors, after adjournment, fixes a new record date for the adjourned
meeting. Whenever any notice is required to be given to any shareholder, a
waiver thereof in writing signed by the person or persons entitled to such
notice, whether signed before, during or after the time of the meeting stated
therein, and delivered to the corporation for inclusion in the minutes or filing
with the corporate records, shall be equivalent to the giving of such notice.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the shareholders need be specified in any written waiver of
notice. Attendance of a person at a meeting shall constitute a waiver of (a)
lack of or defective notice of such meeting, unless the person objects at the
beginning to the holding of the meeting or the transacting of any business at
the meeting,, or (b) lack of defective notice of a particular matter at a
meeting that is not within the purpose or purposes described in the meeting
notice, unless the person objects to considering such matter when it is
presented.
Section 6. BUSINESS OF SPECIAL MEETING. Business transacted at any
special meeting shall be confined to the purposes stated in the notice thereof.
Section 7. QUORUM. Shares entitled to vote as a separate voting group
may take action on a matter at a meeting only if a quorum of these shares exists
with respect to that matter. Except as otherwise provided in the Articles of
Incorporation or by law, a majority of the shares entitled to vote on the matter
by each voting group, represented in person or by proxy, shall constitute
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<PAGE>
a quorum at any meeting of shareholders, but in no event shall a quorum
consist of less than one-third (1/3) of the shares of each voting group entitled
to vote. If less than a majority of outstanding shares entitled to vote are
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. After a quorum has been
established at any shareholders' meeting ' the subsequent withdrawal of
shareholders, so as to reduce the number of shares entitled to vote at the
meeting below the number required for a quorum, shall not affect the validity of
any action taken at the meeting or any adjournment thereof. Once a share is
represented for any purpose at a meeting, it is deemed present for quorum
purposes for the remainder of the meeting and for any adjournment of that
meeting unless a new record date is or must be set f or that adjourned meeting.
Section 8. VOTING PER SHARE. Except as otherwise provided in the
Articles of Incorporation or by law, each shareholder is entitled to one (1)
vote for each outstanding share held by him on each matter voted at a
shareholders' meeting.
Section 9. VOTING OF SHARES. A shareholder may vote at any meeting of
shareholders of the Corporation, either in person or by proxy. Shares standing
in the name of another corporation, domestic or foreign, may be voted by the
officer, agent or proxy designated by the bylaws of such corporate shareholder
or, in the absence of any applicable bylaw, by such person or persons as the
board of directors of the corporate shareholder may designate. In the absence of
any such designation, or, in case of conflicting designation by the corporate
shareholder, the chairman of the board, the president, any vice president, the
secretary and the treasurer of the corporate shareholder, in that order, shall
be presumed to be fully authorized to vote such shares. Shares held by an.
administrator, executor, guardian, personal representative, or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name or the name of his
nominee. Shares held by or under the control of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by such person without the transfer thereof into his name. If shares stand of
record in the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary of the Corporation is given
notice to the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, then
acts with respect to voting shall have the following effect: (a) if only one
votes,
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<PAGE>
in person or by proxy, his act binds all; (b) if more than one vote, in person
or by proxy, the act of the majority so voting binds all; (c) if more than one
vote, in person or by proxy, but the vote is evenly split on any particular
matter, each faction is entitled to vote the share or shares in question
proportionally; or (d) if the instrument or order so filed shows that any such
tenancy is held in unequal interest, a majority or a vote evenly split for
purposes hereof shall be a majority or a vote evenly split in interest. The
principles of this paragraph shall apply, insofar as possible, to execution of
proxies, waivers, consents, or objections and for the purpose of ascertaining
the presence of a quorum.
Section 10. PROXIES. Any shareholder of the Corporation, other person
entitled to vote on behalf of a shareholder pursuant to law, or attorney-in-fact
for such persons may vote the shareholder's shares in person or by proxy. Any
shareholder of the Corporation may appoint a proxy to vote or otherwise act for
him by signing an appointment form, either personally or by his
attorney-in-fact. An executed telegram or cablegram appearing to have been
transmitted by such person, or a photographic, photostatic, or equivalent
reproduction of an appointment form, shall be deemed a sufficient appointment
form. An appointment of a proxy is effective when received by the Secretary of
the Corporation or such other officer or agent which is authorized to tabulate
votes, and shall be valid for up to 11 months, unless a longer period is
expressly provided in the appointment form. The death or incapacity of the
shareholder appointing a proxy does not affect the right of the Corporation
to accept the proxy's authority unless notice of the death or incapacity is
received by the secretary or other officer or agent authorized to tabulate votes
before the proxy exercises his authority under the appointment. An appointment
of a proxy is revocable by the shareholder unless the appointment is coupled
with an interest.
Section 11. SHAREHOLDER LIST. After fixing a record date for a meeting
of shareholders, the Corporation shall prepare an alphabetical list of the names
of all its shareholders who are entitled to notice of the meeting, arranged by
voting group with the address of, and the number and class and series, if any,
of shares held by each. The shareholders' list must be available for inspection
by any shareholder for a period of ten (10) days prior to the meeting or such
shorter time as exists between the record date and the meeting and continuing
through the meeting at the corporation's principal office, at a place identified
in the meeting notice in the city where the meeting will be held', or at the
office of the Corporation's transfer agent or registrar. Any shareholder of the
Corporation or his agent or attorney is entitled on written demand to inspect
the shareholders' list (subject to the requirements of law), during regular
business hours and at his expense, during the period it is available for
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<PAGE>
inspection. The Corporation shall make the shareholders' list available at the
meeting of shareholders, and any shareholder or his agent or attorney is
entitled to inspect the list at any time during the meeting or any adjournment.
Section 12. ACTION WITHOUT MEETING. Any action required by law to be
taken at a meeting of shareholders, or any action that may be taken at a meeting
of shareholders, may be taken without a meeting or notice if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted with respect to the subject
matter thereof, and such consent shall have the same force and effect at a vote
of shareholders taken at such a meeting.
Section 13. FIXING RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purposes, the
Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than sixty
(60) days, and, in case of a meeting of shareholders, not lets than ten (10)
days, prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
date on which the notice of the meeting is mailed or the date on which the
resolutions of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section 13, such determination
shall apply to any adjournment thereof, except where the Board of Directors
fixes a new record date for the adjourned meeting or as required by law.
Section 14. INSPECTORS AND JUDGES. The Board of Directors in advance of
any meeting may, but need not, appoint one or more inspectors of election or
judges of the vote, as the case may be, to act at the meeting or any
adjournments thereof. If any inspector or inspectors, or judge or judges, are
not appointed, the person presiding at the meeting may, but need not, appoint
one or more inspectors or judges. In case any person who may be appointed as an
inspector or judge fails to appear or act, the vacancy may be filled by the
Board of Directors in advance of the meeting, or at the meeting by the person
presiding thereat. The inspectors or judges, if any, shall determine the number
of shares
-5-
<PAGE>
of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots an consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate votes, ballots and consents, determine the result, and do such acts as
are proper to conduct the election or vote with fairness to all shareholders. on
request of the person presiding at the meeting, the inspector or inspectors or
judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by him or them, and execute a certificate of any
fact found by him or them.
Section 15. VOTING FOR DIRECTORS. Unless otherwise provided in the
Articles of Incorporation, directors shall be elected by a plurality of the
votes cast by the shares entitled to vote in the election at a meeting at which
a quorum is present.
ARTICLE THREE
DIRECTORS
Section 1. NUMBER, ELECTION AND TERM. The number of directors of the
Corporation shall be fixed from time to time, within the limits specified by the
Articles of Incorporation, by resolution of the Board of Directors; provided,
however, no director's term shall be shortened by reason of a resolution
reducing the number of directors. The directors shall be elected at the annual
meeting of the shareholders, except as provided in Section 2 of this Article,
and each director elected shall hold office for the term for which he is elected
and until his successor is elected and qualified or until his earlier
resignation, removal from office or death. Directors must be natural persons who
are 18 years of age or older but need not be residents of the State of Florida,
shareholders of ' the Corporation or citizens of the United States. Any director
may be removed at any time, with or without cause, at a special meeting of
the shareholders called for that purpose.
Section 2. VACANCIES. A director may resign at any time by giving
written notice to the Corporation, the Board of Directors or the Chairman of the
Board. Such resignation shall take Affect when the notice is delivered unless
the notice specifies a later effective date, in which event the Board of
Directors may fill the pending vacancy before the effective date if they provide
that the successor does not take office until the effective date. Any vacancy
occurring in the Board of Directors and any directorship to be filled by reason
of an increase in the size of the Board of Directors shall be filled by the
affirmative vote of a majority of the current directors though less than a
quorum of the Board of
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<PAGE>
Directors, or may be filled by an election at an annual or special meeting of
the shareholders called for that purpose, unless otherwise provided by law. A
director elected to fill a vacancy shall be elected f or the unexpired term of
his predecessor in office, or until the next election of one or more directors
by shareholders if the vacancy is caused by an increase in the number of
directors.
Section 3. POWERS. Except as provided in the Articles of Incorporation
and by law, all corporate powers shall be exercised by or under the authority
of, an ' d the business and affairs of the Corporation shall be managed under
the direction of, its Board of Directors.
Section 4. PLACE OF MEETINGS. Meetings of the Board of Directors,
regular or special, may be held either within or without the State of Florida.
Section 5. ANNUAL MEETING. The first meeting of each newly elected
Board of Directors shall be held, without call or notice, immediately following
each annual meeting of shareholders.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may also be held without notice at such time and at such place as shall from
time to time be determined by the Board of Directors.
Section 7. SPECIAL MEETING AND NOTICE. Special meetings of the Board
of Directors may be called by the Chairman of the Board or by the President and
shall be called by the Secretary on the written request of any two directors.
Written notice of special meetings of the Board of Directors shall be given to
each director at least forty-eight (48) hours before the meeting. Except as
required by statute, neither the business to be transacted at, nor the purpose
of ' any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting. Notices to directors shall be
in writing and delivered personally or mailed to the directors at their
addresses appearing on the books of the Corporation. Notice by mail shall be
deemed to be given at the time when the same shall be received. Notice to
directors may also be given by telegram, teletype or other form of electronic
communication. Notice ' of a meeting of the Board of Directors need not be given
to any director who signs a written waiver of notice before, during or after the
meeting. Attendance of a director at a meeting shall constitute a waiver of
notice of such meeting and a waiver of any and all objections to the place of
the meeting, the time of the meeting and the manner in which it has been called
or convened, except when a director states, at the beginning of the meeting or
promptly upon arrival at the meeting, any objection to the
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<PAGE>
transaction of business because the meeting is not lawfully called or convened.
Section 8. QUORUM; REQUIRED VOTE; PRESUMPTION OF ASSENT. A majority
of the number of directors fixed by, or in the manner provided in, these bylaws
shall constitute a quorum for the transaction of business; provided, however,
that whenever, for any reason, a vacancy occurs in the Board of Directors, a
quorum shall consist of a majority of the remaining directors until the vacancy
has been filled. The act of a majority of the directors present at a meeting at
which a quorum is present when the vote is taken shall be the act of the Board
of Directors. A director of the corporation who is present at a meeting of the
Board of Directors or a committee of the Board of Directors when corporate
action is taken shall be presumed to have assented to the action taken, unless
he objects at the beginning of the meeting, or promptly upon his arrival, to
holding the meeting or transacting specific business at the meeting, or he votes
against or abstains from the action taken.
Section 9. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the Board of Directors or a committee thereof may be
taken without a meeting if a consent in writing, setting forth the action taken,
is signed by all of the members of the Board of Directors or the committee, as
the case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting. Action taken under this section is effective when
the last director signs the consent, unless the consent specifies a different
effective date. A consent signed under this Section 9 shall have the effect of a
meeting vote and may be described as such in any document.
Section 10. CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT
MEETINGS. Members of the Board of Directors may participate in a meeting of the
Board by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participation in such a meeting shall constitute presence in
person at the meeting, except where a person participates in the meeting for the
express purpose of objecting to the transaction of any business on the ground
the meeting is not lawfully called or convened.
Section 11. COMMITTEES. The Board of Directors, by resolution adopted
by a majority of the full Board of Directors, may designate from among its
members an executive committee and one or more other committees, each of which,
to the extent provided in such resolution, shall have and may exercise all of
the authority of the Board of Directors in the business and affairs of the
Corporation except where the action of the full Board of Directors is required
by statute. Each committee must have two or more
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<PAGE>
members who serve at the pleasure of the Board of Directors. The Board of
Directors, by resolution adopted in accordance with this Article Three, may
designate one or more directors as alternate members of any committee, who may
act in the place and stead of any absent member or members at any meeting ;f
such committee. Vacancies in the membership of a committee shall be filled by
the Board of Directors at a regular or special meeting of the Board of
Directors. The executive committee shall keep regular minutes of its proceedings
and report the same to the Board of Directors when required. The designation of
any such committee and the delegation thereto of authority shall not operate to
relieve the Board of Directors, or any member thereof, of any responsibility
imposed upon it or him by law.
Section 12. COMPENSATION OF DIRECTORS The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 13. CHAIRMAN OF THE BOARD. The Board of Directors may, in its
discretion, choose a chairman of the board who shall preside at meetings of the
shareholders and of the directors and shall be an ex officio member of all
standing committees. The Chairman of the Board shall have such other powers and
shall perform such other duties as shall be designated by the Board of
Directors. The Chairman of the Board shall be a member of the Board of Directors
but no other officers of the Corporation need be a director. The Chairman of the
Board shall serve until his successor is chosen and qualified, but he may be
removed at any time by the affirmative vote of a majority of the Board of
Directors.
ARTICLE FOUR
OFFICERS
Section 1. POSITIONS. The officers of the Corporation shall consist of
a President, one or more Vice Presidents, a Secretary and a Treasurer, and, if
elected by the Board of Directors by resolution, a Chairman of the Board. Any
two or more offices may be held by the same person.
Section 2. ELECTION OF SPECIFIED OFFICERS BY BOARD. The Board of
Directors at its first meeting after each annual meeting of shareholders shall
elect a President, one or more Vice Presidents, a Secretary and a Treasurer.
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<PAGE>
Section 3. ELECTION OR APPOINTMENT OF OTHER OFFICERS. Such other
officers and assistant officers and agents as may be deemed necessary may be
elected or appointed by the Board of Directors, or, unless otherwise specified
herein, appointed by the President of the Corporation. The Board of Directors
shall be advised of appointments by the President at or before the next
scheduled Board of Directors meeting.
Section 4. SALARIES. The salaries of all officers of the Corporation to
be elected by the Board of Directors pursuant to Article Four, Section 2 hereof
shall be fixed from time to time by the Board of Directors or pursuant to its
discretion. The salaries of all other elected or appointed officers of the
Corporation shall be fixed from time to time by the President of the Corporation
or pursuant to his direction.
Section 5. TERM; RESIGNATION. The officers of the Corporation shall
hold office until their successors are chosen and qualified. Any officer or
agent elected or appointed by the Board of Directors or the President of the
Corporation may be removed, with or without cause, by the Board of Directors.
Any officers or agents appointed by the President of the Corporation pursuant to
Section 3 of this Article Four may also be removed from such officer positions
by the President, with or without cause. Any vacancy occurring in any office of
the Corporation by death, resignation, removal or otherwise shall be filled by
the Board of Directors, or, in the case of an officer appointed by the President
of the Corporation, by the. President or the Board of Directors. Any officer of
the Corporation may resign from his respective office or position by delivering
notice to the Corporation. Such resignation is effective when delivered unless
the notice specifies a later effective date. If a resignation is made effective
at a later date and the corporation accepts the future effective date, the Board
of Directors may fill the @ending vacancy before the effective date if the Board
provides that the successor does not take office until the effective date. 1
Section 6. PRESIDENT. The President shall be the. Chief Executive
officer of the Corporation, shall have general and active management of the
business of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. In the absence of the Chairman of
the Board or in the event the Board of Directors shall not have designated a
chairman of the board, the President shall preside at 'meetings of the
shareholders and the Board of Directors.
Section 7. VICE PRESIDENTS. The vice Presidents in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of. the President, perform the duties and exercise the
powers of the
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<PAGE>
President. They shall perform such other duties and have such other powers as
the Board of Directors shall prescribe or as the President may from time to time
delegate.
Section 8. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the shareholders and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the shareholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or President, under whose supervision he shall be. He shall keep in
safe custody the seal of the Corporation and, when authorized by the Board of
Directors, affix the same to any instrument requiring it.
Section 9. TREASURER. The Treasurer shall have the custody of corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. He shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors at its regular meetings or when the
Board of Directors so requires an account of all his transactions as treasurer
and of the financial condition of the Corporation unless otherwise specified by
the Board of Directors, the Treasurer shall be the Corporation's Chief
Financial Officer.
Section 10. OTHER OFFICERS, EMPLOYEES AND AGENTS. Each and every other
officer, employee and agent of the Corporation shall possess, and may exercise,
such power and authority, an4A shall perform such duties, as may from time to
time be assigned to him by the Board of Directors, the officer so appointing him
and such officer or officers who may from time to time be designated by the
Board of Directors to exercise such supervisory authority.
ARTICLE FIVE
CERTIFICATES FOR SHARES
Section 1. ISSUE OF CERTIFICATES. The corporation shall deliver
certificates representing all shares to which shareholders are entitled; and
such certificates shall be signed by the Chairman of the Board, President or a
Vice President, and by the Secretary or an Assistant Secretary of the
Corporation, and may be sealed with the seal of the Corporation or a facsimile
thereof.
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<PAGE>
Section 2. LEGENDS FOR PREFERENCES AND RESTRICTIONS ON TRANSFER. The
designations, relative rights, preferences and limitations applicable to each
class of shares and the variations in rights, preferences and limitations
determined for each series within a class (and the authority of the Board of
Directors to determine variations for future series) shall be summarized on the
front or back of each certificate. Alternatively, each certificate may state
conspicuously on its front or back that the corporation will furnish the
shareholder a full statement of this information on request and without charge.
Every certificate representing shares that are restricted as to the sale,
disposition, or transfer of such shares shall also indicate that such shares are
restricted as to transfer and there shall be set forth or fairly summarized upon
the certificate, or the certificate shall indicate that the corporation will
furnish to any shareholder upon request and without charge, a full statement of
such restrictions. If the Corporation issues any shares that are not registered
under the Securities Act of 1933, as amended, and registered or qualified under
the applicable state securities laws, the transfer of any such shares shall be
restricted substantially in accordance with the following legend:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER
THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW,, OR (2) AT
HOLDER'S EXPENSE, AN OPINION (SATISFACTORY TO THE CORPORATION) OF
COUNSEL (SATISFACTORY TO THE CORPORATION) THAT REGISTRATION IS NOT
REQUIRED."
Section 3. FACSIMILE SIGNATURES. The signatures of the Chairman of the
Board, the President or a Vice President and the Secretary or Assistant
secretary upon a certificate may be facsimiles, if the certificate is manually
signed by a transfer agent, or registered by a registrar, other than the
Corporation itself or an employee of the Corporation. In case any officer who
has signed or whose facsimile signature has been placed upon such certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer at
the date of the issuance.
Section 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance
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<PAGE>
thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost or destroyed.
Section 5. TRANSFER OF SHARES. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 6. REGISTER SHAREHOLDERS. The corporation shall be entitled to
recognize the exclusive rights of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the state of
Florida.
Section 7. REDEMPTION OF CONTROL SHARES. As provided by the Florida
business corporation act, if a person acquiring control shares of the
corporation does not file an acquiring person statement with the corporation,
the corporation may redeem the control shares at fair market value at any time
during the 60-day period after the last acquisition of such control shares. If a
person acquiring control shares of the corporation files an acquiring person
statement with the Corporation, the control shares may be redeemed by the
Corporation only if such shares are not accorded full voting rights by the
shareholders as provided by law.
ARTICLE SIX
GENERAL PROVISIONS
Section 1. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
cash, property, or its own shares pursuant to law and subject to the provisions
of the Articles of Incorporation.
Section 2. RESERVES. The Board of Directors may by resolution create a
reserve or reserves out of earned surplus for any proper purpose or purposes,
and may abolish any such reserve in the same manner.
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<PAGE>
Section 3. CHECKS. All checks or demands f or money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the Corporation shall end on
December 31 of each year, unless otherwise fixed by resolution of the Board of
Directors.
Section 5. SEAL. The corporate seal shall have inscribed thereon the
name and state of incorporation of the Corporation. The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
Section 6. GENDER. All words used in these Bylaws in the masculine
gender shall extend to and shall include the feminine and neuter genders.
ARTICLE SEVEN
AMENDMENTS OF BYLAWS
Unless otherwise provided by law, these Bylaws may be altered, amended
or repealed or new Bylaws may be adopted by action of the Board of Directors.
EXTENSION OF EMPLOYMENT AGREEMENT
WHEREAS, the undersigned parties have entered into an Employment Agreement
made and entered into as of the 31st day of May, 1993 by and between Sano
Corporation, a Florida corporation (the "Company") and Charles Betlach (the
"Employee"), (the "Agreement"); and
WHEREAS, the Company and Employee each desire to extend said Agreement.
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties agree as follows:
1. The Agreement shall be extended for a three (3) year period commencing
May 31, 1996 (the "Renewal Term") unless sonner terminated in accordance with
the terms and conditions of the Agreement.
2. The Renewal Term of the Agreement and the employment of the Employee
thereunder may be renewed and extended, upon written notice delivered by the
Company to the Employee at least sixty (60) days prior to the expiration of the
Renewal Term or any renewal tereof for up to two (2) additional one-year periods
beyond the Renewal Term.
3. The Employee hereby waives notice from the Company of the renewal of the
Agreement, as set forth in Section 2.2 of the Agreement.
4. The Base Salary of the Employee as set forth in Section 3.1 of the
Agreement shall be $150,000 commencing January 1, 1997.
5. All other terms and conditions of the Agreement shall remain unchanged
and in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
October 24, 1996.
SANO CORPORATION
By: /s/ REGINALD HARDY
_________________________________
Reginald Hardy, President
EMPLOYEE
/s/ CHARLES BETLACH
_________________________________
Charles Betlach
EXTENSION OF EMPLOYMENT AGREEMENT
WHEREAS, the undersigned parties have entered into an Employment Agreement
made and entered into as of the 30th day of September, 1993 by and between Sano
Corporation, a Florida corporation (the "Company") and Cheryl Gentile (the
"Employee"), as amended by that certain Amendment to Employment Agreement
between the parties dated August 1, 1995 (the "Amendment"), (the Employment
Agreement and the Amendment being collectively the "Agreement"); and
WHEREAS, the Company and Employee each desire to extend said Agreement.
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties agree as follows:
1. The Agreement shall be extended for a three (3) year period commencing
September 30, 1996 (the "Renewal Term") unless sooner terminated in accordance
with the terms and conditions of the Agreement.
2. The Renewal Term of the Agreement and the employment fo the Employee
thereunder may be renewed and extended, upon written notice delivered by the
Company to the Employee at least sixty (60) days prior to the expiration of the
Renewal Term or any renewal thereof for up to two (2) additional one-year
periods beyond the Renewal Term.
3. The Employee hereby waives notice from the Company of the renewal of the
Agreement, as set forth in Section 2.2 of the Agreement.
4. The Base Salary of the Employee as set forth in Section 3.1 of the
Agreement shall be $135,000 commencing January 1, 1997.
5. All other terms and conditions of the Agreement shall remain unchanged
and in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
October 24, 1996.
SANO CORPORATION
By: /s/ REGINALD HARDY
________________________________
Reginald Hardy, President
EMPLOYEE
/s/ CHERYL GENTILE
_____________________________________
Cheryl Gentile
EXTENSION OF EMPLOYMENT AGREEMENT
WHEREAS, the undersigned parties have entered into an Employment Agreement
made and entered into as of the 28th day of May, 1993 by and between Sano
Corporation, a Florida corporation (the "Company") and Jesus Miranda (the
"Employee"), as amended by those certain Amendments to Employment Agreement
dated October 5, 1994 and August 1, 1995 (the "Amendment"), (the "Employment
Agreement and the Amendments being collectively the "Agreement"); and
WHEREAS, the Company Employee each desire to extend said Agreement.
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties agree as follows:
1. The Agreement shall be extended for a three (3) year period commencing
May 28, 1996 (the "Renewal Term") unless sooner terminated in accordance with
the terms and conditions of the Agreement.
2. The Renewal Term of the Agreement and the employment of the Employee
thereunder may be renewed and extended, upon written notice delivered by the
Company to the Employee at least sixty (60) days prior to the expiration of the
Renewal Term or any renewal thereof for up to two (2) additional one-year
periods beyond the Renewal Term.
3. The Employee hereby waives notice from the Company of the renewal of the
Agreement, as set forth in Section 2.2 of the Agreement.
4. The Base Salary of the Employee as set forth in Section 3.1 of the
Agreement shall be $135,000 commencing January 1, 1997.
5. All other terms and conditions of the Agreement shall remain unchanged
and in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
October 24, 1996.
SANO CORPORATION
By: /s/ REGINALD HARDY
_______________________________
Reginald Hardy, President
EMPLOYEE
/s/ JESUS MIRANDA
___________________________________
Jesus Miranda
EXTENSION OF EMPLOYMENT AGREEMENT
WHEREAS, the undersigned parties have entered into an Employment Agreement
made and entered into as of the 30th day of September, 1993 by and between Sano
Corporation, a Florida corporation (the "Company") and Joseph Gentile (the
"Employee"), the "Agreement"); and
WHEREAS, the Company and Employee each desire to extend said Agreement.
NOW THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties agree as follows:
1. The Agreement shall be extended for a three (3) year period commencing
September 30, 1996 (the "Renewal Term") unless sooner terminated in accordance
with the terms and conditions of the Agreement.
2. The Renewal Term of the Agreement and the employment of the Employee
thereunder may be renewed and extended, upon written notice delivered by the
Company to the Employee at least sixty (60) days prior to the expiration of the
Renewal Term or any renewal thereof for up to two (2) additional one-year
periods beyond the Renewal Term.
3. The Employee hereby waives notice from the Company of the renewal of the
Agreement, as set forth in Section 2.2 of the Agreement.
4. The Base Salary of the Employee as set forth in Section 3.1 of the
Agreement shall be $150,000 commencing January 1, 1997.
5. All other terms and conditions of the Agreement shall remain unchanged
and in full force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
October 24, 1996.
SANO CORPORATION
By: /s/ REGINALD HARDY
__________________________________
Reginald Hardy, President
EMPLOYEE
/s/ JOSEPH GENTILE
__________________________________
Joseph Gentile
EXHIBIT 10.21
MIRAMAR PARK OF COMMERCE
BUSINESS LEASE
THIS LEASE, entered into this 11 day of September, 19 between Sunbeam
Properties, Inc., hereinafter called the Lessor, party of the first part,
and SANO Corporation of the County of Broward and State of Florida hereinafter
called the Lessee or tenant, party of the second part:
WITNESSETH, That the said Lessor does this day Lease unto said Lessee,
and said Lessee does hereby hire and take as tenant 3270 Corporate Way (the
/plus/minus/1.22 acre "Premises" as shown on Exhibit "A" attached) situate in
Miramar, Florida, to be used and occupied by the Lessee as vacant land and/or a
parking lot and for no other purposes or uses whatsoever without the express
written consent of Lessor, said consent not to be unreasonably withheld or
delayed, beginning July 1, 1996 and ending May 31, 2006, at and for the rental
payable as follows:
$2,550.00 per month plus State Sales Tax from December 1, 1996 thru May
31, 2006.
No security deposit shall be held under this Lease.
Such payments are in addition to all other payments to be made under this Lease
by Lessee, including but not limited to those described in Paragraph 28.
In the event the term of this Lease begins or ends on other than the firm or
last day of a month, rent for such month(s) shall be prorated on a per diem
basis. In the event that any monthly rental payment due hereunder is not
received by Lessor by the fifth (5th) day of any month, said payment shall bear
a late charge of ten percent (10%) of the monthly payment which shall be then
due and payable.
All payments to be made to the Lessor on the first day of each and every month
in advance without demand at the office of Sunbeam Properties, 1401 79th St.
Causeway in the City of Miami, Florida 33141 or at such other place and to such
other person, as the Lessor may from the time to time designate in writing.
The following express stipulations and conditions are made a part of this Lease
and are hereby assented to by the Lessee:
FIRST: The Lessee shall not assign this Lease, nor sub-let the Premises,
or any part thereof nor use the same, or any part thereof, nor permit the same,
or any part thereof, to be used for any other purpose than as above stipulated,
nor make any alterations therein, and all additions thereto, without the written
consent of the Lessor, said consent not to be unreasonably withheld or delayed,
and all additions, fixtures, or improvements which may be made by Lessee shall
become the property of the Lessor and remain upon the Premises as a part
thereof, and be surrendered with the Premises at the termination of this Lease.
SECOND: All personal property placed or moved onto the Promises above
described shall be at the risk of the Lessee or owner thereof, and Lessor shall
not be liable for any damage to said personal property unless caused by Lessor's
negligence or misconduct.
THIRD: That the Lessee shall promptly execute and comply with all
statutes, ordinances, rules, orders, regulations and requirements of the
Federal, State and City Government and of any and all their Departments and
Bureaus applicable to said Premises, for the correction. prevention, and
abatement of nuisances or other grievances, in, upon, or connected with said
Premises during said term.
FOURTH: In the event the Premises shall be destroyed or so damaged or
injured by fire or other casualty during the life of this agreement, whereby the
same shall be rendered untenantable, then the Lessor shall have the right to
render said Premises tenantable by repairs within 180 days therefrom. If said
Premises are not rendered tenantable within said time, it shall be optional with
either party hereto to cancel this Lease, and in the event of such cancellation
the rent shall be paid only to the date of such fire or casualty. The
cancellation herein mentioned shall be evidenced in writing. Rent and Lessee's
Proportionate Share of Expenses (pursuant to Paragraph 28) shall be abated on a
per diem basis during any such period of untenability.
FIFTH: The prompt payment of the rent for said Premises upon the dates
named, and the faithful observance of the rules and regulations printed upon
this Lease, and which are hereby made a part of this covenant, and of such other
and further rules or regulations as may be hereafter made by the Lessor, are the
conditions, upon which the Lease is made and accepted and any failure on the
part of the Lessee to comply with the terms of said Lease, or any of said rules
and regulations now in existence, or which may be hereafter prescribed by the
Lessor, shall at the option of the Lessor, work a forfeiture of this contract,
and all of the rights of the Lessee hereunder, and thereupon the Lessor, his
agents or attorneys, shall have the right to enter said Premises, and remove all
persons therefrom forcibly or otherwise, and the Losses thereby expressly waives
any and all notice required by law to terminate tenancy, and also waives any and
all legal proceedings to recover possession of said Promises, and expressly
agrees that in the event of a violation of any of the terms of this Lease, or of
said rules and regulations, now in existence, or which may hereafter be made,
said Lessor. his agent or attorneys, may
<PAGE>
Immediately re-enter said Premises and dispossess Lessee without legal notice or
the institution of any legal proceedings whatsoever.
SIXTH: If the Lessee shall abandon said Premises before the end of the
term of this Lease, or shall suffer the rent to be in arrears, the Lessor may.
at his option, forthwith cancel this Lease or he may enter said Promises as the
agent of the Lessee, by force or otherwise, Without being liable in any way
therefor, and relet the Premises with or without any furniture that may be
therein, as the agent of the Lessee, at such price and upon such terms and for
such duration of time as the Lessor may determine, and receive the rent
therefor, applying the same to the payment of the rent due by these presents,
and if the full rental herein provided shall not be realized by Lessor over and
above the expenses to Lessor in such re-letting, the said Lessee shall pay any
deficiency, and if more than the full rental is realized Lessor will pay over to
said Lessee the excess of demand.
SEVENTH: Lessee agrees to pay the cost of collection and ten percent
attorney's fee on any part of said rental that may be collected by suit or by
attorney, after the same is past due. In the event of any litigation arising out
of this Lease, the prevailing party shall receive reasonable attorney's fees.
EIGHTH: The Lessee agrees that he will pay all charges for rent, gas,
electricity or other illumination, and for all water used on said Premises, and
should said charges for rent, light or water herein provided for at any time
remain due and unpaid for the space of five days after the same shall have
become due, the Lessor may at its option consider the said Lessee tenant at
sufferance and immediately re-enter upon said Premises and the entire rent for
the rental period then next ensuing shall at once be due and payable and may
forthwith be collected by distress or otherwise.
NINTH: The said Lessee hereby pledges and assigns to the Lessor all the
furniture, fixtures, goods, and chattels of said Lessee, which shall or may be
brought or put on said Promises as security for the payment of the rent herein
reserved, and the Lessee agrees that the said lien may be enforced by distress
foreclosure or otherwise at the election of the said Lessor, and does hereby
agree to pay attorney's fees of ten percent of the amount so collected or found
to be due, together with all costs and charges therefore incurred or paid by
Lessor. Notwithstanding anything to the contrary contained herein, Lessor's
aforedescribed lien shall be subordinate to the lien(s) of any lenders or
mortgagees of Lessee.
TENTH: [INTENTIONALLY DELETED]
ELEVENTH: The Lessor, or any of his agents, shall have the right to enter
said Premises during all reasonable hours, to examine the same to make such
repairs, additions or alterations as may be deemed necessary for the safety,
comfort, or preservation thereof, or to exhibit said Premises, and to put or
keep thereof a notice "FOR RENT" at any time within thirty (30) days before the
expiration of this Lease. The right of entry shall likewise exist for the
purpose of removing placards, signs, fixtures, alterations, or additions, which
do not conform to this agreement.
TWELFTH: Lessee hereby accepts the Premises in the condition they are in
at the beginning of this Lease and agrees to make good to said Lessor
immediately upon demand, any damage to water apparatus, or electric lights, or
any fixtures, appliances or appurtenances of said caused by any act or neglect
of Lessee, or of any person or persons in the employ or under the control of the
Lessee.
THIRTEENTH: (a) It is expressly agreed and understood by and between the
parties to this agreement, that the landlord shall not be liable for any damage
or injury by water, which may be sustained by the said tenant or other person or
for any other damage or injury resulting from the carelessness, negligence, or
improper conduct on the part of any other tenant or agents, or employees, or by
reason of the breakage, leakage, or obstruction of the water, sewer or soil
pipes, or other leakage in or about the said Premises.
(b) Except for Lessor's negligence or intentional acts and
except as may be specifically provided elsewhere in this Lease, Lessor shall not
be liable for any damage or injury to any person or property whether it be to
the person or property of the Lessee, its employees, agents, invitees, licensees
or guests by reason of Lessee's occupancy of the Premises or because of fire,
flood, windstorm, water, acts of God or third parties or for any other reason
beyond the control of Lessor. Lessee agrees to indemnity and save harmless
Lessor from and against any and all loss, damage, claim demand, liability or
expense, including reasonable attorney's fees at trial and upon appeal, by
reason of damage to person or property which may arise or be claimed to have
arisen as a result of Lessee's occupancy or use of the Premises by Lessee, its
employees, agents, invitees, licensees or guests, or in connection therewith, or
in any way arising on account of any injury or damage caused to any person or
property on or in the Premises.
FOURTEENTH: If the Lessee shall become insolvent or if bankruptcy
proceedings shall be begun by or against the Lessee, before the end of said
term the Lessor is hereby irrevocably authorized at its option, to forthwith
cancel this Lease, as for a default. Lessor may elect to accept rent from such
receiver, trustee, or other judicial officer during the term of their occupancy
in their fiduciary capacity without effecting Lessor's rights as contained in
this contract, but no receiver, trustee or other judicial officer shall ever
have any right, title or interest in or to the above described property by
virtue of this contract.
FIFTEENTH: Lessee hereby waives and renounces for himself and family any
and all homestead and exemption rights he may have now or hereafter, under or by
virtue of the constitution and laws of the State of Florida, or of any other
State, or of the United States, as against the payment of said rental or any
portion hereof, or any other obligation or damage that may accrue under the
terms of this agreement.
SIXTEENTH: This contract shall bind the Lessor and its assigns or
successors, and the heirs, assigns. administrators, legal representatives,
executors or successors as the case may be, of the
<PAGE>
Lessee.
SEVENTEENTH: It is understood and agreed between the parties hereto that
time is of the essence of this contract and this applies to all terms and
conditions contained heroin.
EIGHTEENTH: It is understood and agreed between the parties hereto that
written notice mailed or delivered to the Premises Leased hereunder shall
constitute sufficient notice to the Lessee and written notice mailed or
delivered to the office of the Lessor shall constitute sufficient notice to the
Lessor, to comply with the terms of this contract.
NINETEENTH: The rights of the Lessor under the foregoing shall be
cumulative, and failure on the part of the Lessor to exercise promptly any
rights given hereunder shall not operate to forfeit any of the said rights.
TWENTIETH: It is further understood and agreed between the parties hereto
that any charges against the Lessee by the Lessor for services or for work done
on the Premises by order of the Lessee or otherwise accruing under this contract
shall be considered as rent due and shall be included in any lien for rent due
and unpaid.
TWENTY-FIRST: It is hereby understood and agreed that any signs or
advertising to be used, including awnings, in connection with the Premises
Leased hereunder shall be first submitted to the Lessor for approval before
installation of same.
TWENTY-SECOND: All personal property placed or moved in the Premises and
tenant improvements to the Premises shall be at the risk of Lessee or the owner
thereof, and Lessor shall not be liable to Lessee for damages to same unless
caused by or due to gross negligence of Lessor, Lessor's agents or employees.
Lessee agrees to obtain liability insurance containing a single limit of not
less than $500,000.00 for both property and bodily injury, at its own cost.
Lessee consents to provide Lessor with a Certificate of Insurance, as above
described, naming Lessor as additional insured and favoring the Lessor with a
thirty (30) day notice of cancellation.
TWENTY-THIRD: [INTENTIONALLY DELETED]
TWENTY-FOURTH: Lessee represents and warrants that no broker is due a
commission, fee or other sum which is now or in the future may be due and
payable with regard to leasing, acquisition or other such matters related to the
Demised Premises. Lessor and Lessee agree to indemnify and hold each other
harmless from any and all liability for the payment of any such commission, fee
or other sum.
TWENTY-FIFTH: Lessor agrees to maintain the landscaping, irrigation
system, lighting, loading areas, parking areas, sidewalks and driveways, and to
keep the Premises reasonably clean of debris and to provide proper supervision
and security of as necessary. Lessee agrees to pay in addition to the rent set
forth herein, Lessee's Proportionate Share of such costs (which costs include a
management fee of five percent (5%)).
TWENTY-SIXTH: Lessor shall pay all taxes, assessments and levies charged
or assessed by any governmental authority, (hereinafter collectively referred to
as Taxes) upon the Premises and shall cause all-risk insurance to be maintained
thereon in amounts not to exceed the full replacement cost of the improvements
constructed on the Premises. Lessee agrees to pay as additional rent, without
relief from valuation or appraisement laws, Lessee's Proportionate Share of any
such taxes and of any premiums payable in respect of public liability insurance
and rental insurance maintained by or for the Lessor in respect of the Premises.
TWENTY-SEVENTH: Lessee recognizes that the Premises are subject to that
certain Declaration of Protective Covenants and Restrictions for Miramar Park of
Commerce. Under the Declaration, Sunbeam Properties, Inc. currently enforces the
Declaration and operates and maintains the Common Area referred to therein. The
Lessee agrees to pay on behalf of Lessor any and all maintenance or other
assessments imposed by Sunbeam Properties, Inc. (or its successor, on the Lessor
as owner of the Premises as provided in the Declaration.
TWENTY-EIGHTH: Lessee shall pay $230.00 per month plus State Sales Tax as
an estimate of the expenses described in Paragraphs 25, 26 and 27. Said payment
is in addition to all other sums to be paid by Lessee including but not limited
to rent. On an annual basis, Lessor shall notify Lessee what the actual expenses
were over the previous calendar year and within ten (10) days Of such notice,
Lessee shall pay (or receive a reimbursement) for the difference, if any, plus
State Sales Tax, between what Lessee paid as an estimate and the actual
expenses. Lessee's share for a partial calendar year at the beginning or and of
the term of this Lease shall be prorated on a per diem basis. In the event that
Lessor adjusts its estimate of the expenses described in Paragraphs 25, 26 and
27 to more accurately reflect the actual expenses incurred, Lessee's monthly
estimated shall be appropriately adjusted. Lessee acknowledges that the expenses
described in this Paragraph will increase if the Parking Lot described in
paragraph 47 is constructed.
TWENTY-NINTH: (a) It the whole or any substantial part of the Premises
should be taken for any public or quasi-public use under governmental law,
ordinance or regulation, or by right of eminent domain, or by private purchase
in lieu thereof and the taking would prevent or materially interfere with the
use of the Premises for the purpose of which they are then being used, this
Lease shall terminate and the rent shall be abated during the unexpired portion
of this Lease, effective when the physical taking shall occur.
(b) If part of the Premises shall be taken for any public
or quasi-public. use under any governmental law, ordinance or regulation, or by
right of eminent domain, or by private purchase in lieu thereof, and this Lease
is not terminated as provided in the Subparagraph above, this
<PAGE>
Lease shall not terminate but the rent payable hereunder during the unexpired
portion of this Lease shall be reduced to such extent as may be fair and
reasonable under all of the circumstances and Lessor shall undertake to restore
the Premises to a condition suitable for the Lessee's use, as near to the
condition thereof immediately prior to such taking as is a reasonably feasible
under all the circumstances.
(c) In the event of any such taking or private purchase
in lieu thereof, Lessor and Lessee shall each be entitled to receive and retain
such separate awards and/or portion of lump sum awards as may be allocated to
their respective interest in any condemnation proceedings; provided that Lessee
shall not be entitled to receive any award for Lessee's loss of its Leasehold
interest, the right to such award being hereby assigned by Lessee to Lessor.
THIRTIETH: Should Lessee hold over and remain in possession of the
Premises at the expiration of any term hereby created, Lessee shall, by virtue
of this paragraph become a Lessee by the month at twice the Rent per month of
the last monthly installment of Rent above provided to be paid, which said
monthly tenancy shall be subject to all the conditions and covenants of this
Lease as through the same had been a monthly tenancy instead of a tenancy as
provided herein, and Lessee shall give to Lessor at least thirty (30) days'
written notice of any intention to remove from the Premises, and shall be
entitled to ten (10) days' notice from Lessor in the event Lessor desires
possession of the Premises; provided, however, that said Lessee by the month
shall not be entitled to ten (10) days' notice in the event the said Rent is not
paid in advance without demand, the usual ten (10) days' written notice being
hereby expressly waived.
THIRTY-FIRST: [INTENTIONALLY DELETED]
THIRTY-SECOND: [INTENTIONALLY DELETED]
THIRTY-THIRD: Lessee, its successors and assigns shall comply with the
Hazardous Materials Standard for the Miramar Park of Commerce attached hereto as
Exhibit "B".
THIRTY-FOURTH: Radon is a naturally occurring radioactive gas that, when
it has accumulated in a building in sufficient quantities, may present health
risks to persons who are exposed to it over time. Levels of radon that exceed
federal and state guidelines have been found in buildings in Florida. Additional
information may be obtained from your county public health unit.
THIRTY-FIFTH: FORCE MAJEURE. In any case, where either party hereto is
required to do any act, except the payment of rent or other money, the term for
the performance thereof shall be extended by a period equal to any delay caused
by or resulting from acts of God, the elements, weather, war, civil commotion,
fire or other casualty, strikes, lockouts, labor disturbances, inability to
procure labor or materials, failure of power, government regulations or other
causes beyond such party's reasonable control, whether such time be designated
by a fixed date, a fixed time or a "reasonable time".
THIRTY-SIXTH: ALTERATIONS. Lessee shall not make any alterations,
additions or improvements to the Premises (including, without limitation, roof
and wall penetrations) without the prior written approval of Lessor of the plans
and specifications for said alterations, which approval shall not be
unreasonably withheld or delayed by Lessor. All work shall be performed by a
contractor or contractors who shall be reasonably approved in writing by Lessor.
All work shall be performed in accordance with said approved plans and
specifications; any material deviations therefrom must first be approved in
writing by Lessor. Lessee may, without the consent of Lessor, but at its own
cost and expense and in good workmanlike manner erect such shelves bins,
machinery and other trade fixtures as it may deem advisable, without altering
the basic character of the building or improvements and without overloading such
building or improvements, and in each case after complying with all applicable
governmental laws, ordinances, regulations and other requirements. All
alterations, additions, improvements and partitions erected by Lessee shall be
and remain the property of Lessee during the term of this Lease and shall become
the property of Lessor as of the date of termination of this Lease, or upon
earlier vacating of the Premises, and the title shall pass to lessor under this
Lease as by a bill of sale. All shelves, bins, machinery and trade fixtures
installed by Lessee may be removed by the lessee prior to the termination of
this Lease, if the Lessee so elects, and shall be removed by the date of
termination of this Lease or upon earlier vacating of the Premises if required
by lessor, upon any such removal Lessee shall restore the Premises to a good
and tenantable condition. All such removals and restoration shall to
accomplished in a good workmanlike manner so as not to damage the primary
structure, roof or structural qualities of the building and other improvements
within which the Premises are situated. If Lessor shall consent to any
alterations, additions or improvements proposed by Lessee, Lessee shall
construct and maintain the same to comply with all then existing governmental
laws, ordinances, rules and regulations. Prior to commencing any work or
installing any equipment in excess of $5,000.00 in, on or about the Premises,
Building or Property, Lessee shall:
(1) NOTICE OF COMMENCEMENT. File a Notice of Commencement with
Broward County and provide Lessor with a copy of same;
(2) SUBCONTRACTORS. Enter into a contract with its contractor
and/or other persons who will do the work and install the equipment referred to,
which contract will provide, among other things, that said work shall be done an
equipment installed in a good workmanlike manner in accordance with the plans
and specifications previously approved and consents, authorizations, and
licenses previously obtained and which contract shall provide that the
contractor, subcontractor, or other person referred to above will look solely to
Lessee for payment and will hold Lessor and the premises free from all liens and
claims of all persons furnishing labor or materials therefor, and will also
provide that similar waivers of the rights to file liens shall be obtained from
any and all said contractors or materialmen. A copy of said contract, together
with a duly executed waiver of the right to file liens executed by the
contractor, subcontractor or other persons referred above, shall be furnished to
Lessor as a condition of Lessor approving such alterations or installations.
(3) INDEMNIFICATION. Indemnify and save Lessor harmless against
any and all bills for labor performed and equipment, mixture, and materials
furnished to Lessee in connection with said
<PAGE>
work as aforesaid and against any and all liens, bills or claims therefore or
against the premises and from and against all loss, damages, costs, expenses,
suits, claims, and demands related to such work.
(4) INSURANCE. Lessee and/or all contractors which Lessee
employs shall procure and maintain at Lessee's and/or Lessee's contractors' own
cost and expense insurance against claims under Workman Compensation Acts with
limits of $100,000.00 for Employers Liability Insurance.
(5) INSPECTIONS. Lessor shall have the right to place its
supervisory personnel or representatives on the job during the course of
construction, at Lessor's expense, for the purpose of making inspections and
insuring that Lessee and Lessee's contractors, suppliers, and materialmen comply
with these conditions.
(6) ADDITIONAL SECURITY. As a condition of Lessor approving
Lessee's aterations, Lessee maybe required to post additional security with
Lessor. The amount and type of security shall be reasonably determined by Lessor
based upon Lessor's review of the financial condition of the Lessee at the time
it submits its plans and specifications. Lessor shall release such additional
security upon Lessee completing the alterations and supplying releases of liens
and a Certificate of Completion or a Certificate of Occupancy (whichever is more
appropriate) from the City of Miramar.
(7) Lessee's alterations shall be limited to the office portion
of the Premises until the Cancellation Option described in Paragraph 43 of this
Lease has either expired or has been waived in writing by Lessee. Until such
time, no alterations may be made by the Lessee to any other portion of the
Premises.
THIRTY-SEVENTH: [INTENTIONALLY DELETED]
THIRTY-EIGHTH: (a) FIRST RENEWAL OPTION. Provided that there
are no defaults under this Lease at the time that the option herein set forth is
exercised by Lessee, this Lease may be renewed or extended for one (1)
additional term of five (5) years by Lessee given written notice to Lessor of
its intent to renew not less that six (6) months prior to the expiration of the
then current term. All conditions and covenants of the Lease shall continue in
full force and effect during such additional term except that the monthly rent
described in the Witnesseth Paragraph on page 1 shall be as follows:
$3.300.00 per month plus State Sales Tax from June 1, 2006 thru May 31, 2011
(b) SECOND RENEWAL OPTION. Provided that there are no defaults
under this Lease at the time that the Second Renewal Option herein set forth is
exercised by Lessee, this Lease may be renewed or extended for one (1)
additional term of five (5) years by Losses given written notice to Lessor of
its intent to renew not less that six (6) months prior to the expiration of the
First Renewal Option term. All conditions and covenants of the Lease shall
continue in full force and effect during such additional term except that the
monthly rent described in the Witnesseth Paragraph an page 1 shall be as
follows:
$3,900.00 per month plus State Sales Tax from June 1, 2011 thru May 31, 2016.
(c) THIRD RENEWAL OPTION. Provided that there are no defaults
under this Lease at the time that the option herein set forth is exercised by
Lessee, this Lease may be renewed or extended for one (1) additional term of
five (5) years by Lessee giving written notice to Lessor of its interest to
renew not less than six (6) months prior to the expiration of the then current
term. All conditions and covenants of the Lease shall continue in full force and
effect during such additional term except that the monthly rent described in the
Witnesseth Paragraph on page 1 of the Lease shall be the then prevailing market
rate for similar premises. Notwithstanding anything to the contrary contained
hereinabove, in the event Lessee and Lessor do not mutually execute a Lease
Renewal within ninety (90) days of the expiration of the then current term of
this Lease, Lessee's renewal option as described herein shall be null and void.
(d) FOURTH RENEWAL OPTION. Provided that there are no defaults
under this Lease at the time that the option herein set forth is exercised by
Lessee, this Lease may be renewed or extended for one (1) additional term of
five (5) years by Lessee giving written notice to Lessor of its interest to
renew not less than six (6) months prior to the expiration of the then current
term. All conditions and covenants of the Lease shall continue in full force and
effect during such additional term except that the monthly rent described in the
Witnesseth Paragraph on page 1 of the Lease shall be the then prevailing market
rate for similar premises. Notwithstanding anything to the contrary contained
herainabove, in the event Lessee and Lessor do not mutually execute a Lease
Renewal within ninety (90) days of the expiration of the then current term of
this Lease, Lessee's renewal option as described herein shall be null and void.
(e) CO-RENEWAL REQUIREMENT. Notwithstanding anything to the
contrary contained herein, Lessor's execution of any option to renew this Lease
shall only be valid if it simultaneously executes both
(1) the option for the concurrent renewal term under
the lease for 3251 Corporate Way between Sano Corporation and Sunbeam
Properties, Inc.; and
(2) the option for the concurrent renewal under the
lease for 3250 Commerce Parkway between Sano Corporation and Sunbeam Properties,
Inc.
THIRTY-NINTH: [INTENTIONALLY DELETED]
FORTIETH: [INTENTIONALLY DELETED]
FORTY-FIRST: [INTENTIONALLY DELETED]
FORTY-SECOND: [INTENTIONALLY DELETED]
FORTY-THIRD: INTENTIONALLY DELETED]
<PAGE>
FORTY-SECOND: [INTENTIONALLY DELETED]
FORTY-THIRD: [INTENTIONALLY DELETED]
FORTY-FOURTH: [INTENTIONALLY DELETED]
FORTY-FIFTH: [INTENTIONALLY DELETED]
FORTY-SIXTH: [INTENTIONALLY DELETED]
FORTY-SEVENTH: PARKING LOT IMPROVEMENTS. (a) Either Lessee or Lessor may
construct the parking lot generally shown on Exhibit "B" attached hereto. The
final plans for said parking lot shall be mutually approved in writing by Lessee
and Lessor prior to the commencement of any construction.
(b) If Lessee delivers a written request to construct the
parking lot to Lessor prior to December 31, 1996, Lessor shall dilligently
pursue having said parking approved by the applicable governmental authorities
and constructing same. It is anticipated that the construction of the parking
lot will take 6-8 weeks after governmental approvals and permits received. Prior
to the commencement of construction Lessee shall pay the agreed to construction
costs (said costs shall include permitting and related professional fees) into
an interest bearing escrow account prior to the commencement of construction.
Upon Lessor's completion of the parking lot as evidenced by a Certificate of
Completion said escrow funds shall be released to Lessor. The rent described in
the Witnesseth paragraph on page 1 of this Lease and Paragraphs 38(a) and 38(b)
shall not be adjusted.
(c) In the event Lessee makes a request for Lessor to build the
Parking Lot after December 31, 1996, Lessee and Lessor agree to negotiate in
good faith to determine an equitable adjustment to this Lease to reflect the
cost of the construction and the remaining Lease Term. Such adjustments shall be
agreed to in writing by both parties.
(d) In the event the parking lot is never built or Lessee
builds the parking lot, the rents in this Lease shall not be adjusted.
IN WITNESS WHEREOF, the parties hereto have hereunto executed this
instrument for the purpose herein expressed, the day and year above written.
Signed, sealed and delivered in the presence of:
LESSOR: SUNBEAM PROPERTIES, INC.
/s/ MARIDEE BELL by: /s/ ANDREW L. ANSIN, V.P.
- ------------------------------- ------------------------------------
Witness Sign Name Andrew L. Ansin/Vice President
/s/ MARIDEE BELL 9/16/96
- ------------------------------- ----------------------------------------
Witness Print Name Date
/s/ NANCY KWOK
- -------------------------------
Witness Sign Name
/s/ NANCY KWOK
- -------------------------------
Witness Print Name
LESSOR: SANO CORPORATION
/s/ SUZANNE GRILLO by: /s/ REGINALD HARDY
- ------------------------------- ------------------------------------
Witness Sign Name Reginald Hardy/President
/s/ SUZANNE GRILLO September 11, 1996
- ------------------------------- ----------------------------------------
Witness Print Name Date
/s/ LESLEY-ANN LAWRENCE
- -------------------------------
Witness Sign Name
/s/ LESLEY-ANN LAWRENCE
- -------------------------------
Witness Print Name
EXHIBIT 10.22
"Old Zephyrhills Space"
LEASE EXTENSION & AMENDMENT
We the undersigned hereby agree to renew and extend that Lease dated June 10,
1994 between Sunbeam Properties, Inc. ("Lessor") and SANO Corporation ("Lessee")
for the Premises located at 3251 Corporate Way, Miramar, Florida, for an
additional period to commence on November 1, 1999 and to expire on May 31, 2006.
The monthly rent during said period is, to be as follows:
<TABLE>
<S> <C>
$8,216.95 per month plus State Sales Tax from November 1, 1999 thru October 31, 2000:
$8,504.54 per month plus State Sales Tax from November 1, 2000 thru October 31, 2001;
$8,802.20 per month plus State Sales Tax from November 1, 2001 thru October 31, 2002;
$9.110.28 per month plus State Sales Tax from November 1, 2002 thru October 31, 2003;
$9.429.14 per month plus State Sales Tax from November 1, 2003 thru October 31, 2004.
$9,759.16 per month plus State Sales Tax from November 1, 2004 thru October 31. 2005;
$9,958.25 per month plus State Sales Tax from November 1. 2005 thru May 31, 2006.
</TABLE>
Said rental payments are in addition to all other payments due under the Lease
including but not limited to those described in Paragraph 28 of the Lease.
Lessor shall continue to hold the security deposit of $6,918.45 during this
Lease Extension pursuant to the terms of the Lease.
As additional terms and conditions of this Lease Extension, both parties hereby
agree to the following:
(1) Delete Lease Paragraph 38 ("First Renewal Option") and replace Lease
Paragraph 39 ('Second Renewal Option") with the following:
(a) FIRST RENEWAL OPTION. Provided that there
are no defaults under this Lease at the time that the option herein set forth is
exercised by Lessee, this Lease may be renewed or extended for one (1)
additional term of five (5) years by Lessee given written notice to Lessor of
its intent to renew not less that six (6) months prior to the expiration of the
then current term. All conditions and covenants of the Lease shall continue in
full force and effect during such additional term except that the monthly rent
described in the Witnesseth Paragraph on page 1 shall be as follows:
<TABLE>
<S> <C>
$10,306.79 per month plus State Sales Tax from June 1, 2006 thru May 31, 2007;
$10,667.53 per month plus State Sales Tax from June 1, 2007 thru May 31, 2008;
$11,040.89 per month plus State Sales Tax from June 1, 2008 thru May 31, 2009;
$11,427.32 per month plus State Sales Tax from June 1, 2009 thru May 31, 2010;
$11,827.28 per month plus State Sales Tax from June 1, 2010 thru May 31, 2011.
</TABLE>
(b) SECOND RENEWAL OPTION. Provided that there
are no defaults under this Lease at the time that the Second Renewal Option
herein set forth is exercised by Lessee, this Lease may be renewed or extended
for one (1) additional term of five (5) years by Lessee given written notice to
Lessor of its intent to renew not less that six (6) months prior to the
expiration of the First Renewal Option term. All conditions and covenants of the
Lease shall continue in full force and effect during such additional term except
that the monthly rent described in the Witnesseth Paragraph on page 1 shall be
as follows:
<TABLE>
<S> <C>
$12,241.23 per month plus State Sales Tax from June 1, 2011 thru May 31, 2012;
$12,669.67 per month plus State Sales Tax from June 1, 2012 thru May 31, 2013;
$13,113.11 per month plus State Sales Tax from June 1, 2013 thru May 31, 2014;
$13,572.07 per month plus State Sales Tax from June 1, 2014 thru May 31, 2015;
$14,047.10 per month plus State Sales Tax from June 1, 2015 thru May 31, 2016,
</TABLE>
(c) THIRD RENEWAL OPTION. Provided that there
are no defaults under this Lease at the time that the option herein set forth is
exercised by Lessee, this Lease may be renewed or extended for one (1)
additional term 'of five (5) years by Lessee giving written notice to Lessor of
its interest to renew not less than six (6) months prior to the expiration of
the then current term. All conditions and covenants of the Lease
<PAGE>
shall continue in full force and effect during such additional term except that
the monthly rent described in the Witnesseth Paragraph on page I of the Lease
shall be the then prevailing market rate for similar space. Notwithstanding
anything to the contrary contained hereinabove, in the event Lessee and Lessor
do. not mutually execute a Lease Renewal within ninety (90) days of the
expiration of the then current term of this Lease, Lessee's renewal option as
described herein shall be null and void.
(d) FOURTH RENEWAL OPTION. Provided that
there are no defaults under this Lease at the time that the option herein set
forth is exercised by Lessee, this Lease may be renewed or extended for one (1)
additional term of five (5) years by Lessee giving written notice to Lessor of
its interest to renew not less than six (6) months prior to the expiration of
the then current term. All conditions and covenants of the Lease shall continue
in full force and affect during such additional term except that the monthly
rent described in the Witnesseth Paragraph on page 1 of the Lease shall be the
then prevailing market rate for similar space. Notwithstanding anything to the
contrary contained hereinabove, in the event Lessee and Lessor do not mutually
execute a Lease Renewal within ninety (90) days of the expiration of the then
current term of this Lease, Lessee's renewal option as described herein shall be
null and void.
(e) CO-RENEWAL REQUIREMENT. Notwithstanding
anything to the contrary contained herein, Lessors execution of any option to
renew this Lease shall only be valid if it simultaneously executes both
(i) the option for the
concurrent renewal term under the lease for 3270 Corporate Way between Sano
Corporation and Sunbeam Properties, Inc.; and
(ii) the option for the
concurrent renewal under the lease for 3250 Commerce Parkway between Sano
Corporation and Sunbeam Properties, Inc.
(2) Delete Paragraph 43 ("Cancellation")
(3) Lessee hereby accepts the Premises in "as-is" condition and Paragraph
46 ("Lessor's Repairs") is hereby deleted.
(4) Lessee and Lessee each represents and warrants that no broker due a
commission, fee or other sum which is now or in the future may be due and
payable with regard to this Lease Extension and Amendment. Lessor and Lessee
agree to indemnity and hold each other harmless from any and all liability for
the payment of any such commissions, fees and other sums.
All other terms and conditions of the Lease shall remain unchanged.
The provisions of this Lease Extension Agreement shall bind and inure to the
benefit of the parties hereto, their heirs, executors, administrators,
successors and assigns.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have hereunto executed this
instrument for the Purpose herein expressed. the day and year above written.
Signed, sealed and delivered in the presence of.
LESSOR: SUNBEAM PROPERTIES, INC.
/S/ MARIDEE BELL by: /s/ ANDREW L. ANSIN
- ------------------------------- --------------------------------
Witness Sign Name Andrew L. Ansin, Vice President
Maridee Bell September 16,, 1996
- ------------------------------ --------------------------------
Witness Print Name Date
/S/ NANCY KWOK
- -------------------------------
Witness Sign Name
Nancy Kwok
- ------------------------------
Witness Print Name
LESSEE: SANO CORPORATION
/S/ SUZANNE GRILLO by: /s/ REGINALD HARDY
- ------------------------------- --------------------------------
Witness Sign Name Reginald Hardy, President
Suzanne Grillo September 16, 1996
- ------------------------------ --------------------------------
Witness Print Name Date
/S/ LESLEY-ANN LAWRENCE
- -------------------------------
Witness Sign Name
Lesley-Ann Lawrence
- ------------------------------
Witness Print Name
EXHIBIT 10.23
"Old AT&T Space"
LEASE EXTENSION & AMENDMENT
We, the undersigned hereby agree to renew and extend that Lease dated May 6,
1994 (and amended by way of letter agreement dated July 14, 1994)) between
Sunbeam Properties, Inc. ("Lessor") and SANO Corporation ("Lessee") for the
Premises located at 3250 Commerce Parkway, Miramar, Florida, for an additional
period, to commence on September 1, 2004 and to expire on May 31, 2006. The
monthly rent during said term is to be as follows:
<TABLE>
<S> <C>
$25,864.20 per month plus State Sales Tax from September 1, 2004 thru August 31, 2005;
$26,536.67 per month plus State Sales Tax from September 1, 2005 thru May 31, 2006.
</TABLE>
Said rental payments are in addition to all other payments due under the Lease
including but not limited to Additional Rent as described in Paragraph 28 of the
Lease.
Lessor shall continue to hold the security deposit of $36,671.25 during this
Lease Extension pursuant to the terms of the Lease.
As additional terms and conditions of this Lease Extension, both parties hereby
agree to the following:
(1) Delete Lease Paragraph 38 ("First Renewal Option") and replace Lease
Paragraph 39 ("Second Renewal Option") with the following:
Thirty-Ninth: RENEWAL OPTIONS. (a) FIRST
RENEWAL OPTION. Provided that there are no defaults under this Lease at the time
that the option herein set forth is exercised by Lessee, this Lease may be
renewed or extended for one (1) additional term of five (5) years by Lessee
given written notice to Lessor of its intent to renew not less that s ' ix (6)
months prior to the expiration of the then current term. All conditions and
covenants of the Lease shall continue in full force and effect during such
additional term except that the monthly rent described in the Witnesseth
Paragraph on page 1 shall be as follows:
<TABLE>
<S> <C>
$27,465.45 per month plus State Sales Tax from June 1, 2006 thru May 31, 2007;
$28,426.74 per month plus State Sales Tax from June 1, 2007 thru May 31, 2008;
$29,421.68 per month plus State Sales Tax from June 1, 2008 thru May 31, 2009;
$30,451.44 per month plus State Sales Tax from June 1, 2009 thru May 31, 2010;
$31,517.24 per month plus State Sales Tax from June 1, 2010 thru May 31, 2011.
</TABLE>
(b) SECOND RENEWAL OPTION. Provided that
there are no defaults under this Lease at the time that the Second Renewal
Option herein set forth is exercised by Lessee, this Lease may be renewed or
extended for one (1) additional term of five (5) years by Lessee given written
notice to Lessor of its intent to renew not less that six (6) months prior to
the expiration of the First Renewal Option term. All conditions and covenants of
the Lease shall continue in full force and effect during such additional term
except that the monthly rent described in the Witnesseth Paragraph on page 1
shall be as follows:
<TABLE>
<S> <C>
$32,620.34 per month plus State Sales Tax from June 1, 2011 thru May 31, 2012;
$33,762.05 per month plus State Sales Tax from June 1, 2012 thru May 31, 2013;
$34,943.73 per month plus State Sales Tax from June 1, 2013 thru May 31, 2014;
$36,166.76 per month plus State Sales Tax from June 1, 2014 thru May 31, 2015;
$37,432.59 per month plus State Sales Tax from June 1, 2015 thru May 31, 2016.
</TABLE>
(c) THIRD RENEWAL OPTION. Provided that there
are no defaults under this Lease at the time that the option herein set forth is
exercised by Lessee, this Lease may be renewed or extended for one (1)
additional term of five (5) years by Lessee giving written notice to Lessor of
its interest to renew not less than six (6) months prior to the expiration of
the then current term. All conditions and covenants of the Lease shall continue
in full force and effect during such additional term except that the monthly
rent described in the Witnesseth Paragraph on page 1 of the Lease shall be
<PAGE>
the then prevailing market rate for similar space. Notwithstanding anything to
the contrary contained hereinabove, in the event Lessee and Lessor do not
mutually execute a Lease Renewal within ninety (90) days of the expiration of
the then current term of this Lease, Lessee's renewal option as described herein
shall be null and void.
(d) FOURTH RENEWAL OPTION. Provided that
there are no defaults under this Lease at the time that the option herein set
forth is exercised by Lessee, this Lease may be renewed or extended for one (1)
additional term of five (5) years by Lessee giving written notice to Lessor of
its interest to renew not less than six (6) months prior to the expiration of
the then current term. All conditions and covenants of the Lease shall continue
in full force and effect during such additional term except that the monthly
rent described in the Witnesseth Paragraph on page 1 of the Lease shall be the
then prevailing market rate for similar space. Notwithstanding anything to the
contrary contained hereinabove, in the event Lessee and Lessor do not mutually
execute a Lease Renewal within ninety (90) days of the expiration of the then
current term of this Lease, Lessee's renewal option as described herein shall be
null and void.
(e) CO-RENEWAL REQUIREMENT. Notwithstanding
anything to the contrary contained herein, Lessors execution of any option to
renew this Lease shall only be valid if it simultaneously executes both
(i) the option for the
concurrent renewal term under the lease for 3251 Corporate Way between Sano
Corporation and Sunbeam Properties, Inc.; and
(ii) the option for the
concurrent renewal under the lease for 3270 Corporate Way between Sano
Corporation and Sunbeam Properties, Inc.
(2) Delete Paragraph 37 ("Delayed Occupancy")
(3) Delete Paragraph 40 ("Right of First Refusal on Contiguous Space")
(4) Delete Paragraph 43 ("Cancellation")
(5) Lessee and Lessee each represents and warrants that no broker due a
commission, fee or other sum which is now or in the future may be due and
payable with regard to this Lease Extension and Amendment. Lessor and Lessee
agree to indemnify and hold each other harmless from any and all liability for
the payment of any such commissions, fees and other sums.
All other terms and conditions of the Lease (and the letter agreement dated July
14, 1994) shall remain unchanged.
The provisions of this Lease Extension Agreement shall bind and inure to the
benefit of the parties hereto, their heirs, executors, administrators,
successors and assigns.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have hereunto executed this
instrument for the Purpose herein expressed. the day and year above written.
Signed, sealed and delivered in the presence of.
LESSOR: SUNBEAM PROPERTIES, INC.
/S/ MARIDEE BELL by: /s/ ANDREW L. ANSIN
- ------------------------------- --------------------------------
Witness Sign Name Andrew L. Ansin/Vice President
Maridee Bell September 16,, 1996
- ------------------------------ --------------------------------
Witness Print Name Date
/S/ NANCY KWOK
- -------------------------------
Witness Sign Name
Nancy Kwok
- -------------------------------
Witness Print Name
LESSEE: SANO CORPORATION
/S/ SUZANNE GRILLO by: /s/ REGINALD HARDY
- ------------------------------- --------------------------------
Witness Sign Name Reginald Hardy, President
Suzanne Grillo September 11, 1996
- ------------------------------ --------------------------------
Witness Print Name Date
/S/ LESLEY-ANN LAWRENCE
- -------------------------------
Witness Sign Name
Lesley-Ann Lawrence
- ------------------------------
Witness Print Name
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 3,647,737
<SECURITIES> 25,388,685
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,450,242
<PP&E> 10,892,242
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0
0
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