<PAGE>
As filed with the Securities and Exchange Commission on June 22, 1999
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
UroGen Corp.
(Name of small business issuer in its charter)
------------------------------
<TABLE>
<S> <C> <C>
Delaware 3845 33-0687976
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
10835 Altman Row,
Suite 150
San Diego, Ca 92121
(619) 450-5949
(Address and telephone number of principal executive office and principal
place of businesss)
------------------------------
Robert E. Sobol, MD
President and Chief Executive Officer
Urogen Corp.
10835 Altman Row, Suite 150
San Diego, Ca 92121
(619) 450-5949
(Name, address and telephone number of agent for service)
Copies to:
Herbert P. Fockler, Esq.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
------------------------------
Approximate date of commencement of proposed sale to the public: From time
to time after this Registration Statement becomes effective.
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. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Proposed
Title of each class Proposed Maximum
of securities to be Amount to be maximum offering Aggregate offering Amount of
registered Registered (1) price per unit (2) price (2) registration fee
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$0.001 par value 4,284,894 shares $0.25 $1,071,224 $298
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents shares already issued plus the estimated maximum number of
shares of the Common Stock of the Registrant which may be issued to the
Selling Security Holders upon exercise of the warrants for Common Stock. In
the event of a stock split, stock dividend or similar transaction involving
the Common Stock of the Registrant, in order to prevent dilution, the
number of shares registered shall be automatically increased to cover
additional shares in accordance with Rule 416 (a) under the Securities Act.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933, as amended,
calculated in accordance with Rule 457(c) on the basis of the average of
the bid and ask prices reported for such securities on the Electronic
Bulletin Board on June 11, 1999.
- --------------------------------------------------------------------------------
______________
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>
PROSPECTUS
UroGen Corp.
4,284,894 Shares
COMMON STOCK
On July 8, 1998 and April 28, 1999, we sold Convertible Subordinated Notes
with detachable Warrants raising $1,030,000 and $400,000, respectively. The
purpose of this Registration Statement is to register the shares underlying the
Notes and Warrants.
The July 1998 Notes bore interest at 8% and were due June 30, 1999 unless
previously converted. The July 1998 Notes were convertible, at the option of
the holder, into Common Stock ($.001 par value) of UroGen Corp. at $1.00 per
share, and automatically converted into Common Stock immediately prior to the
filing of this Registration Statement to register the resale of the underlying
shares. In addition, each purchaser of the July 1998 Notes received a warrant
to purchase a number of shares of Common Stock of UroGen equal to one share for
each $2.00 of principal under the purchased note. The warrants are exercisable
for seven years from issuance and have an exercise price of $0.74 per share.
The April 1999 Notes bore interest at 8% and were due March 30, 2000 unless
previously converted. The April 1999 Notes were convertible, at the option of
the holder, into Common Stock at $0.30 per share, and automatically converted
into Common Stock immediately prior to the filing of this Registration Statement
to register the resale of the underlying shares. In addition, each purchaser of
the April 1999 Notes received a warrant to purchase a number of shares of Common
Stock of UroGen equal to one share for each $0.30 of principal under the
purchased note. The warrants are exercisable for seven years from issuance and
have an exercise price of $0.30 per share.
On June 11, 1999, the closing price of the Common Stock, which is quoted on
the Electronic Bulletin Board under the symbol "UROG", was $0.27 per share.
_____________
THE COMMON STOCK OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 6.
_____________
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.
THE DATE OF THIS PROSPECTUS IS JUNE 22, 1999
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements, and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements, and other information filed by the Company can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as the regional offices of the Commission located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports, proxy
statements and other information can also be inspected at the offices of the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20006. The Commission maintains a World Wide Web site that
contains reports, proxy and information statements, and other information that
are filed through the Commission's Electronic Data Gathering, Analysis and
Retrieval System. This Web site can be accessed at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
SB-1 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto, certain parts
of which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company, the Notes and
the Common Stock, reference is made to the Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete and,
in each instance, reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. 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
described above.
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<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
detailed information and financial information appearing elsewhere in this
Prospectus. This Prospectus contains certain forward-looking statements within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. When used in this Prospectus, the words "believes," "intends,"
"anticipates" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Such risks
and uncertainties include the timing and acceptance of new product
introductions, the actions of the Company's competitors and business partners,
and those discussed under the caption "Risk Factors". Unless the context
requires otherwise, all references herein to the "Company" or "UroGen" mean
UroGen Corp. and its wholly-owned subsidiary.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by UroGen None
Common Stock offered by the Selling Securityholders 4,284,894 shares, including 1,848,333
shares issuable upon exercise of the
warrants
Common Stock outstanding after the offering 11,845,327 shares
13,693,649 shares assuming all 1,848,333
shares are issued upon exercise of the
warrants
Use of Proceeds The Company will not receive proceeds from
the sale of the Shares offered hereby.
</TABLE>
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<PAGE>
THE COMPANY
UroGen Corp. is a biopharmaceutical company dedicated to the development of
innovative gene therapy products utilizing advanced adenoviral vector
technologies for the treatment of hemophilia, cancer and other genetic
disorders. In July 1998, UroGen acquired certain equipment from the gene therapy
unit of Baxter Healthcare Corporation together with exclusive rights to certain
technologies in exchange for 1,841,217 shares of Common Stock of UroGen and
5,830 shares of Series A Preferred Stock of UroGen (see "Certain Relationships
and Related Transactions - Baxter Agreements"). Pior to the acquisition, UroGen
was a biotechnology company developing products for the diagnosis and therapy of
prostate cancer. The technology acquired from Baxter is based upon recombinant
adenoviral vector systems that we believe provide superior gene transfer
efficiency and expression compared to other gene therapy approaches. The gene
transfer vectors have been engineered to contain less than 3% of the native
adenovirus. UroGen believes that removal of unwanted adenoviral genes permits
increased gene transfer capacity with high level, sustained gene expression and
improved safety compared to standard vector systems. Because these recombinant
viruses are engineered to minimize the presence of adenoviral gene sequences,
they are termed "Mini-Ad" vectors. These Mini-Ad vectors retain the broad range
of cellular infectivity and efficient gene transfer characteristics of native
adenoviruses. Importantly, we believe we have engineered gene retention and
expression capabilities into our Mini-Ad systems which provide for sustained,
high level gene expression. We believe our gene transfer and expression systems
will advance the capabilities of gene therapy for disease management, providing
what we believe to be efficient gene transfer and long term gene expression
desired for clinical applications.
The initial focus of our research and development efforts will be the
generation of products for the treatment of hemophilia and prostate cancer. Two
vector products are under development: 1) Factor VIII Mini-Ad Vector for the
treatment of hemophilia; 2) Complementary Oncolytic Interleukin-3 (IL-3)
Adenoviral Vectors which result in tumor specific cell lysis, radiation
sensitization and anti-tumor immune responses for the treatment of prostate
cancer. The Factor VIII Mini-Ad Vector for hemophilia is expected to provide a
greater duration of active Factor VIII function, preventing chronic bleeding and
joint damage which are characteristic of this disorder. The IL-3 Adenoviral
Vectors are comprised of a mixture of two adenoviral vectors which complement
each other resulting in viral replication and propagation restricted to tumor
tissues leading to specific tumor cell lysis, radiation sensitization and anti-
tumor immune responses for the treatment of prostate cancer.
UroGen was incorporated in Delaware in June 1995 as a wholly-owned
subsidiary of Medstone International, Inc., a Delaware Company. The business of
UroGen was formed from the medical biology and small molecule pharmaceuticals
divisions of Medstone. UroGen operated as two divisions of Medstone from July
1, 1991 to December 29, 1995. On February 9, 1996, Medstone distributed of all
of the outstanding stock of UroGen Corp. to its shareholders by issuing a
dividend of one share of UroGen Common Stock for each share of Medstone stock
held as of December 29, 1995. Our principal executive offices are located at
10835 Altman Row, Suite 150, San Diego, California 92121, and our telephone
number is (619) 450-5949. References in this Prospectus to "we", "us", "UroGen"
or "the Company" refer to UroGen Corp., a Delaware corporation.
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<PAGE>
Summary Consolidated Financial Information
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period
from July
Three Months Ended 1, 1991 to
Year Ended December 31, March 31, March 31,
-------------------------------------------------- ------------------ ----------
1998(1) 1997 1996 1995 1994 1999 1998 1999
-------- ------ ------- ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues................... $ 192 $ 194 $ - $ - $ - $ - $ 121 $ 841
Total costs and expenses ...... 7,858 497 522 75 398 735 239 13,794
Loss from operations........... (7,666) (303) (522) (75) (398) (735) (119) (12,953)
Other income................... - - 64 - - 1 - 65
Interest income (expense)...... (296) 4 14 - - (56) 1 (334)
Net loss....................... $(7,962) $ (299) $ (444) $ (75) $ (398) $ (790) $ (118) $ (13,222)
Net loss per share............. $ (1.00) $(0.04) $ (0.07) N/A N/A $(0.08) $(0.02)
Weighted average shares
outstanding................... 7,997 7,331 5,980 N/A N/A 9,383 7,537
</TABLE>
_________________________
(1) Includes a one-time charge of $5,455,000 related to the write-off of
acquired in-process technology. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations."
<TABLE>
<CAPTION>
March December
31, 31,
-------- ---------
1999 1998
-------- ---------
<S> <C> <C>
Balance Sheet Data:
Working capital.................................................................... $ (954) $(1,274)
Total assets....................................................................... 1,127 1,098
Long-term debt, net of current portion............................................. 1,432 1,044
Shareholders' equity............................................................... (1,998) (1,934)
</TABLE>
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<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including without limitation statements regarding our expectations,
beliefs, intentions or strategies regarding the future. All forward-looking
statements included in this document are based on information available to
UroGen on the date of this Prospecuts, and we assume no obligation to update any
such forward-looking statements. Our actual results could differ materially from
those anticipated in these forward-looking statements as a result of various
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus. In evaluating UroGen's business, you should consider
carefully the following factors in addition to the other information set forth
in this Prospectus.
We will require substantial additional capital to fund our operations, which may
be difficult or impossible to obtain
Our operations to date have consumed substantial amounts of cash. The
negative cash flow from operations is expected to continue and to accelerate in
the foreseeable future. The development of our products will require a
commitment of substantial funds to conduct the costly and time-consuming
research, preclinical and clinical testing necessary to bring our products to
market and to establish manufacturing and marketing capabilities. UroGen's
future capital requirements will depend on many factors, including scientific
progress in our research and development programs, our ability to establish
collaborative arrangements with others for drug development, progress with
preclinical and clinical trials, the time and costs involved in obtaining
regulatory approvals and effective commercialization activities.
We expect that our existing capital resources, including funds received
from Baxter under the Development Collaboration Agreement, and $400,000 in
committed capital will enable us to maintain our current and planned operations
through February 2000. Accordingly, we will need to raise substantial additional
capital to fund our operations. We intend to seek such additional funding either
through collaborative arrangements or through public or private equity or debt
financings. We cannot assure you that additional financing will be available on
acceptable terms or at all. If we raise additional funds by issuing equity
securities you will experience further dilution with respect to the stock
purchased in this offering. If adequate funds are not available, the Company may
be required to delay or reduce the scope of its operations or to obtain funds
through arrangements with collaborative partners or others that may require the
Company to relinquish rights it may have acquired in the interim.
There are significant uncertainties related to the development of our products
Our products are in the early stages of development. None of our products
are in clinical trials. The development of safe and effective gene therapies is
highly uncertain and subject to numerous risks. Products that may appear to be
promising at early stages of development may not reach the market for a number
of reasons. Products may be found to be ineffective or cause harmful side
effects during clinical trials, may take longer to progress through clinical
trials than we anticipate, may not receive necessary regulatory approvals, may
prove to be impractical to manufacture in commercial quantities or may fail to
achieve market acceptance.
The results of initial preclinical testing of the products we are
developing are not necessarily indicative of results that will be obtained from
subsequent or more extensive preclinical studies or clinical testing. We will
need to perform additional development and clinical testing before we can seek
regulatory
-6-
<PAGE>
approval for commercialization of our potential products. The clinical trials of
our products may not demonstrate safety and efficacy to the extent necessary to
obtain regulatory approval. Companies in the pharmaceutical and biotechnology
industries have suffered significant setbacks in advanced clinical trials, even
after obtaining promising results in earlier trials. If we cannot adequately
demonstrate the safety and efficacy of our potential products, regulatory
approval would be delayed or denied, which would have a material adverse impact
on UroGen's business, financial condition and results of operations.
The timing and completion of planned clinical trials are dependent on a
number of factors including how quickly we can enroll patients in the trials.
Patient enrollment is a function of factors such as the size of the patient
population, the number of clinical sites, how close patients live to clinical
sites, the eligibility criteria for the study and whether there are any
competing trials. Delays in patient enrollment in clinical trials may result in
increased costs, program delays or both which could have a material adverse
effect on our business, financial condition and results of operations.
We face intense competition and must cope with rapid technological change
UroGen is engaged in a rapidly changing field. Existing products and
therapies to treat hemophilia and prostate disorders will compete directly with
the products that we are seeking to develop and market. Competition from fully
integrated pharmaceutical companies and more established biotechnology companies
is expected to increase. Most of these companies have significantly greater
financial resources and expertise in research and development, manufacturing,
preclinical and clinical testing, obtaining regulatory approvals and marketing
than we do. Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large pharmaceutical
companies. Many of these competitors have significant products approved or in
development and operate large, well-funded research and development programs.
Academic institutions, governmental agencies and other public and private
research organizations also conduct research, seek patent protection and
establish collaborative arrangements for product and clinical development and
marketing. These companies and institutions also compete with us in recruiting
and retaining highly qualified scientific and management personnel. In addition,
UroGen will face competition based on product efficacy, safety, the timing and
scope of regulatory approvals, availability of supply, marketing and sales
capability, reimbursement coverage, price and patent position. Our competitors
may develop more effective or more affordable products, or achieve earlier
patent protection or product commercialization and market penetration than we
will. Additionally, technologies developed by our competitors may render our
potential products uneconomical or obsolete, and we may not be successful in
marketing our potential products against such competitors.
We lack manufacturing experience and may rely heavily on contract manufacturers
UroGen has no manufacturing facilities for clinical or commercial
production of any compounds. We are currently evaluating whether to establish
arrangements with contract manufacturers to supply compounds for clinical trials
or to establish our own manufacturing facility. We may not be able to establish
our own manufacturing facility to produce our product with acceptable quality in
a cost effective manner. Additionally, contract manufacturers may not be able to
produce our products at commercially reasonable prices or with acceptable
quality. If we are unable to establish our manufacturing facility or contract
for sufficient and timely supplies of compounds on acceptable terms, our
preclinical and human clinical testing schedule would be delayed, resulting in
the delay of submission of products for regulatory approval and initiation of
new development programs. Any such delay would have a material adverse effect on
UroGen. If we encounter delays or difficulties in establishing relationships
with manufacturers to produce, package and distribute our finished products,
market introduction and subsequent sales of such products would be adversely
affected. Manufacturing facilities which we establish and contract manufacturers
that we may use must adhere to current good manufacturing practice ("GMP")
regulations enforced by the FDA through its
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<PAGE>
facilities inspection program. If these facilities cannot pass a pre-approval
plant inspection, the FDA pre-market approval of the products will be adversely
affected.
We are subject to significant government regulation
The production and marketing of our products and our ongoing research and
development activities is subject to extensive regulation by numerous
governmental authorities in the United States and other countries. Prior to
marketing in the United States, any drug developed by UroGen must undergo
rigorous preclinical (animal) and clinical (human) testing and an extensive
regulatory approval process implemented by the US Food and Drug Administration
("FDA") under the Food, Drug and Cosmetic Act. Satisfaction of these regulatory
requirements, which includes satisfying the FDA that the product is both safe
and effective, typically takes several years or more depending upon the type,
complexity and novelty of the product, and requires the expenditure of
substantial resources. We may encounter problems in clinical trials which may
cause us or the FDA to delay or suspend clinical trials. Clinical trials are
rigorously regulated. Preclinical studies must be conducted in conformance with
the FDA's good laboratory practice ("GLP") regulations. Clinical testing must
meet requirements for institutional review board oversight and informed consent,
as well as FDA prior review, oversight and good clinical practice requirements.
We have limited experience in conducting and managing the preclinical and
clinical testing necessary to obtain regulatory approval. Clinical trials in
the United States frequently require large numbers of test subjects. Those
conducting clinical trials for UroGen may not be able to initiate trials at
preferred clinical test sites or recruit sufficient test subjects, and clinical
trials may not be started or completed successfully within any specified time
period, if at all, with respect to any of UroGen's products. Furthermore we may,
or the FDA may require us to, suspend clinical trials at any time if it is felt
that the subjects participating in such trials are being exposed to unacceptable
health risks. We cannot assure you that we will not encounter problems in
clinical trials which will cause us or the FDA to delay or suspend clinical
trials.
Any product developed by UroGen alone or in conjunction with others may not
prove to be safe and efficacious in clinical trials or meet all of the
applicable regulatory requirements needed to receive marketing approval. Before
receiving FDA approval to market a product, we may have to demonstrate that the
product represents an improved form of treatment compared to existing therapies.
Data obtained from preclinical and clinical activities are susceptible to
varying interpretations which could delay, limit or prevent regulatory
approvals. In addition, delays or rejections may be encountered based upon
additional government regulation from future legislation or administrative
action or changes in FDA policy during the period of product development and FDA
regulatory review. Similar delays may also be encountered in foreign countries.
Even after such time and expenditures, we may not obtain regulatory approval for
any products developed by us. If regulatory approval of a product is granted,
such approval will be limited to those disease states and conditions for which
the product is useful, as demonstrated through clinical studies. Furthermore,
approval may entail ongoing requirements for postmarketing studies.
Even if such regulatory approval is obtained, a marketed product, its
manufacturer and its manufacturing facilities are subject to continual review
and periodic inspections. The regulatory standards for manufacturing are
currently being applied stringently by the FDA. Discovery of previously unknown
problems with a product, manufacturer or facility may result in restrictions on
such product or manufacturer, including withdrawal of the product from the
market. Moreover, Congress has given drug pricing extensive scrutiny and is
considering legislation to restrict price increases of pharmaceutical products,
especially sales to the Federal and state governments. Legislation and
regulations affecting the formula for pricing pharmaceutical products may change
before our products, if any, are approved for marketing.
We intend to establish collaborative relationships to conduct clinical
testing and seek regulatory approvals to market its products in major markets
outside the United States. We may not be successful in establishing
-8-
<PAGE>
such relationships, and such approvals may not be received on a timely basis, if
at all. Sales of pharmaceutical products outside of the United States are
subject to regulatory requirements that vary widely from country to country. In
the European Union ("EU"), the general trend has been towards coordination of
common standards for clinical testing of new drugs, leading to changes in
various requirements imposed by each EU country. The level of regulation in the
EU and other foreign jurisdictions varies widely. The time required to obtain
regulatory approval from comparable regulatory agencies in each foreign country
may be longer or shorter than that required for FDA approval. In addition, in
certain foreign markets, we may be subject to governmentally mandated prices.
The foreign regulatory approval process exposes the UroGen to risks similar to
those risks associated with FDA approval set forth above.
We are dependent on future collaborations with others
Our strategy for the development, clinical testing, manufacturing and
commercialization of our products includes entering into various collaborations
with corporate partners, licensors, licensees and others. We may not be able to
negotiate these collaborative arrangements on acceptable terms, if at all. Even
if we enter into these collaborative arrangements, they may not be successful.
To the extent that we are unable to establish such arrangements, UroGen would
experience increased capital requirements to undertake these collaborative
activities at our own expense. In addition, we may encounter significant delays
in introducing our products into certain markets or find that the development,
manufacture or sale of our products in such markets is adversely affected by the
absence of such collaborative agreements.
We may not be able to adequately protect our intellectual property and
proprietary rights
Our success will depend in part on our ability to obtain patents, maintain
trade secrets and operate without infringing on the proprietary rights of
others, both in the United States and other countries. The patent positions of
biotechnology and pharmaceutical companies can be highly uncertain and involve
complex legal and factual questions. Therefore, the breadth of claims allowed in
biotechnology and pharmaceutical patentsare difficult to predict with any degree
of certainty. Patents which may be issued to or licensed by UroGen may be
challenged, invalidated or circumvented. Rights granted thereunder may not
provide us with proprietary protection or competitive advantages.
Competitors may have filed applications, may have been issued patents or
may obtain additional patents and proprietary rights relating to products or
processes competitive with those that we may acquire or develop. Specifically,
in April 1999, a patent was issued for adenoviral vector technology which may be
competitve with our patent applications for our Mini-Ad vectors. Although we do
not believe that our technology infringes upon any valid claim of this patent,
there can be no assurances that our position would be substantiated if
challenged. There is a substantial backlog of biotechnology and pharmaceutical
patents at the U.S. Patent and Trademark Office. Accordingly, the time at which
UroGen's or competitors' patent applications may issue as patents cannot be
predicted. Since patent applications in the United States are maintained in
secrecy until patents issue, and since publication of discoveries in the
scientific or patent literature often lags behind actual discoveries, we may not
have been the first to discover subject matter covered by its patent
applications or patents or that it was the first to file patent applications for
such inventions.
Our commercial success will also depend, in part, on not infringing on
patents issued to others and not breaching the technology licenses upon which
any of our products are based. It is uncertain whether any third-party patents
will require us to alter out products or processes, obtain licenses or cease
certain activities. A number of pharmaceutical companies, biotechnology
companies, universities and research institutions have filed patent applications
or received patents in the cancer and hemophilia fields. Some of these
applications or patents may be competitive with our applications, or conflict in
certain respects with claims made under our applications. Such a conflict could
result in a significant reduction of the coverage of
-9-
<PAGE>
our patents, if issued. In addition, if patents are issued to others which
contain competitive or conflicting claims and such claims are ultimately
determined to be valid, we may be required to obtain licenses to these patents
or to develop or obtain alternative technology. If any licenses are required,
there can be no assurance that we will be able to obtain any such licenses, or
if we do, that they will contain commercially favorable terms. The breach of an
existing license or our failure to obtain a license to any technology that we
may require to commercialize our products may adversely affect us. Litigation,
which could result in substantial costs to us, may also be necessary to enforce
any patents issued to us or to determine the scope and validity of third-party
proprietary rights. If our competitors prepare and file patent applications in
the United States that claim technology also claimed by us, we may have to
participate in interference proceedings declared by the PTO or litigation to
determine priority of invention, which could result in substantial cost, even if
the eventual outcome is favorable to us. Our future patents, if issued, may not
be held valid and infringed by a court of competent jurisdiction. An adverse
outcome with regard to a third party claim could subject us to significant
liabilities to third parties, require disputed rights to be licensed from third
parties or require us to cease using such technology.
We also rely on secrecy to protect our technology, especially where patent
protection is not believed to be appropriate or obtainable. Thus, UroGen will
protect its proprietary technology and processes, in part, by confidentiality
agreements with its employees, consultants and certain contractors. These
agreements may be breached, we may not have adequate remedies for any breach,
and our trade secrets may otherwise become known or be independently discovered
by our competitors.
We depend upon key personnel
Our future success, if any, depends to a significant degree upon the
continued service of key technical and senior management personnel, particularly
Paul D. Quadros and Robert E. Sobol, MD., and Wei-Wei Zhang, M.D., PhD, the loss
of any of whose services might significantly delay our product development and
commercialization efforts. Only Paul D. Quadros is bound by an employment
agreement, however, this employment agreement does not prevent Mr. Quadros from
leaving the Company. In addition, we will rely on consultants and advisors,
including its scientific advisors, to assist us in formulating our research and
development strategy. In order to pursue our product development and marketing
plans, we may be required to hire additional qualified scientific personnel to
perform research and development, as well as personnel with expertise in
clinical testing, government regulation, manufacturing, and marketing. Product
development and marketing will likely also require the addition of management
personnel and the development of additional expertise by existing management
personnel. Our future success depends on our ability to attract and retain such
highly qualified technical and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that we will be able to
retain its technical and managerial employees or attract, assimilate or retain
highly qualified technical and managerial personnel in the future. If we are
unable to hire the necessary technical personnel, our ability to develop
products (or any future enhancements or modifications thereof) could be
impaired. Failure to do so could have a material adverse effect upon our
business and results of operations. Further, a portion of our research and
development will be conducted under sponsored research programs with
universities and other research organizations. We will depend on the
availability of the principal investigator for each such program, and these
individuals or their research staffs may not be available to conduct the
necessary research and development. Our collaborators will not be employees of
UroGen. As a result, we have limited control over their activities and can
expect that only limited amounts of their time will be dedicated UroGen
activities.
Our auditors have expressed doubt regarding our ability to continue operations
Our independent auditors have issued their report on our financial
statements. This report contains an explanatory paragraph which expresses
substantial doubt regarding UroGen's ability to continue as a going
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<PAGE>
concern based on certain existing conditions such as our negative stockholders'
equity position and the negative cash flow generated from operations. Successful
completion of our development program and our transition, ultimately, to
attaining profitable operations is dependent upon obtaining additional financing
adequate to fulfill our research and development activities, and achieving a
level of revenues adequate to support our cost structure.
UroGen is a development stage company with a limited operating history
UroGen was formed in June 1995 and is in the early development stage. We are
subject to all the risks inherent in the establishment of a new business
enterprise. Our predecessor divisions were engaged solely in research and
development activities, and did not market any products or generate any revenue.
Similarly, we are primarily engaged in research and may not generate significant
revenues from operations for several years. The likelihood of our success must
be considered in light of the problems, expenses, complications and delays
frequently encountered in connection with the development of a new business in a
complex field.
We have a history of operating losses and a significant accumulated deficit
UroGen and its predecessor divisions have experienced significant operating
losses since their inception in 1991. As of March 31, 1999, our balance sheet
reflects an accumulated deficit of $9,495,543. We expect to incur significant
additional operating losses over the next several years as we expand our
research and development efforts. Our ability to achieve profitability depends
upon our ability, alone or with others, to successfully complete development of
pharmaceutical products, obtain required regulatory approvals and manufacture
and market our products.
We lack marketing experience, and our revenues may depend on the efforts of
third parties
UroGen has no experience in sales, marketing or distribution. We have entered
into a distribution agreement with Baxter Healthcare Corporation under which
Baxter has exclusive, worldwide right to market, sell and distribute the
hemophilia product for the longer of ten years from the date of regulatory
approval of the first hemophilia product or the last to expire of any related
patents issued on or before ten years from the date of the first regulatory
approval. Therefore, we are dependent upon the efforts of Baxter to receive
revenues on the hemophilia product. To the extent that we enter into additional
co-promotion, distribution or other licensing arrangements, any revenues we
receive will depend upon the efforts of third parties, and such efforts may not
be successful.
Our revenues will likely depend on third party reimbursements, the availability
of which is uncertain
In both domestic and foreign markets, sales of our products, if any, will
depend, in part, on the availability of third party reimbursement payments from
government agencies and private insurers, such as Blue Cross and the Medicare
reimbursing agency (HCFA), for the costs of or charges for treatments utilizing
the products. Third-party payors are increasingly challenging the price and
cost-effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
Our products may not be considered cost effective, and adequate third-party
reimbursement may not be available to enable UroGen to maintain price levels
sufficient to realize an appropriate return on its investment in product
development. Before any product can be marketed in the United States, animal
testing and extensive human clinical trials must be conducted to successfully
demonstrate its safety and efficacy to the FDA. During the conduct of clinical
trials for a product, we may not be successful in obtaining approvals for
reimbursement payments relating to the particular product. While reimbursement
is customary for therapies the FDA allows to be marketed after they have been
proven safe and effective,
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<PAGE>
approvals to reimburse for the costs of product treatments may not be granted by
third-party payors even if we are successful in obtaining necessary marketing
approvals for a product from the FDA.
We face the risk of product liability for which we may not have adequate
insurance coverage
Our business will expose us to potential product liability risks that are
inherent in the testing, manufacturing and marketing of human therapeutic
products. We currently have no clinical trial liability insurance for its human
clinical trials; and we may not be able to obtain and maintain such insurance
for all of our clinical trials. We may not be able to obtain or maintain product
liability insurance in the future on acceptable terms or with adequate coverage
against potential liabilities.
We are subject to risks associated with the use of hazardous materials
Our research and development efforts involve the controlled use of hazardous
materials and chemicals. Although we believe that our safety procedures for
handling and disposing of such materials comply with the standards prescribed
by state and federal regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, UroGen could be held liable for any damages that result and
any such liability could exceed our resources.
Our stock is subject to extreme price volatility
The market prices for securities of early stage biopharmaceutical companies
such as our securities, are highly volatile. Announcements of technological
innovations or new commercial products by UroGen or its present or potential
competitors, developments concerning proprietary rights, developments in our
relationships with future collaborative partners, if any, adverse results in our
operating results, field or clinical tests, adverse litigation, unfavorable
legislation or regulatory decisions, public concerns regarding our products and
general market conditions may have a significant impact on our business and on
any market price of UroGen Corp. Common Stock. The market price of UroGen Corp.
Common Stock may also be affected by general trends in the health care industry
and other factors outside of our control. In addition, the stock market is
subject to price and volume fluctuations that affect the market prices for
companies in general and small capitalization, high technology companies in
particular, and are often unrelated to their operating performance.
Our Common Stock is currently traded in the over-the-counter market on an
electronic bulletin board established for securities that do not meet the Nasdaq
Small Cap Market listing requirements or in what are commonly referred to as the
"pink sheets." The Common Stock is not expected to be eligible for initial
quotation on the Nasdaq Small Cap Market for the foreseeable future and may be
significantly less transferable than other securities listed on the Nasdaq Small
Cap Market, the Nasdaq National Market or other stock exchanges and reporting
systems. Moreover, if we continue to experience losses from operations, we may
be unable to achieve the minimum standards for quotation on the Nasdaq Small Cap
Market. As a result, our stockholders would find it more difficult to dispose
of, or to obtain accurate quotations as to the price of, our securities. In
addition, our securities may be subjected to so-called "penny stock" rules that
impose additional sales practice and market making requirements on broker-
dealers who sell and/or make a market in such securities. This could affect the
ability or willingness of broker-dealers to sell and/or make a market in our
securities and the ability of holders of our securities to sell their securities
in the secondary market.
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<PAGE>
There may be an adverse impact from shares eligible for future sale
Sales of shares of UroGen Common Stock in the public market (including shares
being registered in this Prospectus and shares which will be issued when stock
options are exercised) could have an adverse effect on the market price of the
Common Stock. Sales of this stock might also make it more difficult for us to
sell equity securities and equity-related securities in the future at a time and
price that is acceptable.
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<PAGE>
USE OF PROCEEDS
We will not receive proceeds from the sale of the Common Stock offered in this
Prospectus.
PRICE RANGE OF COMMON STOCK
Our Common Stock is traded on the over-the-counter market on the electronic
bulletin board under the symbol "UROG." Our Common Stock began trading on
February 13, 1998, upon the lapse of the prohibition on transfers imposed at the
time the Common Stock was first distributed. The following table shows for the
periods indicated the high and low closing prices for the Common Stock:
<TABLE>
<CAPTION>
High LOW
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FISCAL YEAR ENDED December 31, 1998
First Quarter $2.25 $0.22
Second Quarter $1.25 $0.31
Third Quarter $1.00 $0.38
Fourth Quarter $0.50 $0.31
FISCAL YEAR ENDED December 31, 1999
First Quarter $0.40 $0.31
Second Quarter (through June 11, 1999) $0.33 $0.27
</TABLE>
On June 11, 1999, the last reported sale price of the Common Stock as
reported on the over-the-counter market was $0.27 per share. As of June 11,
1999, there were approximately 1,300 holders of record of Common Stock.
DIVIDEND POLICY
We have never paid any cash dividends on our Common Stock to date. We
currently anticipates that we will retain all future earnings, if any, to fund
the development and growth of our business and do not anticipate paying any cash
dividends in the foreseeable future.
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<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1999, (i) actual
capitalization of the Company (ii) the pro forma capitalization of the Company
giving effect to the proceeds of the April 1999 Offering and (iii) the
conversion of the Convertible Subordinated Notes and accrued interest into
2,436,602 shares of Common Stock. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
March 31, 1999
Actual Pro forma As Adjusted (1)
---------- ------------------ -------------------
(in thousands)
<S> <C> <C> <C>
Notes payable $ 1,030 $ 1,430 $ -
Advance from related party 1,432 1,432 1,432
Stockholders' Equity (Deficit)
Preferred Stock - $0.01 par value; 5,000,000 shares
authorized; 6,534 (actual), 6,534 (pro forma) and 6,534
(as adjusted) issued and outstanding - - -
Common Stock - $0.001 par value; 40,000,000 shares
authorized; 9,408,755 (actual), 9,408,755 (pro forma)
and 11,845,327 (as adjusted) issued and outstanding (2) 9 9 12
Additional paid-in capital 7,489 7,755 9,253
Deficit accumulated during development stage (9,496) (9,762) (9,773)
-------- ------- -------
Total stockholders' deficit $ (1,998) $(1,998) $ (508)
-------- ------- -------
Total capitalization $ 464 $ 864 $ 924
======== ======= =======
</TABLE>
(1) For purposes of calculating the number of conversion shares related to
accrued interest, assumes that the conversion took place on May 15, 1999.
(2) Excludes 2,996,183 and 2,182,805 shares (of which 1,848,333 are being
registered hereby) issuable upon exercise of outstanding options and
warrants as weighted average exercise prices of $0.29 and $0.38. Excludes
an additional 2,081,485 shares reserved for future grants under stock
option plans. See "Description of Capital Stock" and Notes to the Financial
Statements.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical financial data of UroGen Corp., and the
UroGen division of Medstone, UroGen's predecessor, reflect UroGen's operating
results as a stand-alone entity during 1996, 1997 and 1998, and UroGen's
historical operation as a division of Medstone for the prior periods. The
financial data as of March 31, 1999 and for the periods ended March 31, 1999 and
1998 and for the period from July 1, 1991 (inception) to March 31, 1999 have
been derived from unaudited financial statements of the Company. In the opinion
of management, such unaudited financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation. The financial data as of December 31, 1998 and for each of the
years in the three-year period ended December 31, 1998 have been derived from
the audited financial statements of the Company, included elsewhere herein. The
financial data for all other periods and dates have been derived from audited
financial statements of the UroGen division of Medstone which are not included
herein. The data should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements, related notes and other financial information
included herein.
<TABLE>
<CAPTION>
Period from
Three Months July 1, 1991
ended (inception) To
Year ended December 31, March 31, March 31,
-------------------------------------------------------------------- --------------
1998 1997 1996 1995 1994 1999 1998 1999
-------- -------- -------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues......................... $ 192 $ 194 $ - $ - $ - $ - $ 121 $ 841
------- ------- -------- -------- -------- -------- ------- ---------
Costs and expenses:
Cost of sales - - - - - - - 822
Research and development.......... 1,916 346 384 75 165 539 146 5,974
General and administrative........ 487 151 174 - 233 196 93 1,543
Write-off of acquired in-process
technology.................... 5,455 - - - - - - 5,455
------- ------- -------- -------- -------- -------- ------- ---------
Total costs and expenses.... 7,858 497 22 5 98 735 239 13,794
------- ------- -------- -------- -------- -------- ------- ---------
Income from operations............ (7,666) (303) (522) (75) (398) (735) (119) (12,953)
Other income........................ - - 64 - - 1 65
Interest expense.................... (306) - - - - (59) (365)
Interest income..................... 10 4 14 - - 3 1 31
------- ------- -------- -------- -------- -------- ------- ---------
Net loss............................ $(7,962) $ (299) $ (444) $ (75) $ (398) $ (790) (118) $ (13,222)
======= ======= ======== ======== ======== ======== ======= =========
Net loss per share.................... $ (1.00) $ 0.04) $ (0.07) N/A N/A $ (0.08) $ (0.02)
======= ======= ======== ======== =======
Weighted average shares outstanding... 7,997 7,311 5,980 N/A N/A 9,383 7,537
======= ======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
March December
31, 31,
1999 1998
------- --------
<S> <C> <C>
Balance Sheet Data:
Working capital.................................................................... $ (954) $(1,274)
Total assets....................................................................... 1,127 1,098
Long-term debt, net of current portion............................................. 1,432 1,044
Stockholders' equity............................................................... (1,998) (1,934)
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including without limitation statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth below,
under "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
UroGen commenced operations as a stand-alone entity in January 1996 to develop
pharmaceuticals to treat diseases in urology, with a particular interest in
prostate cancer. On July 8, 1998, UroGen entered into an agreement with Baxter
Healthcare Corporation in which we acquired the exclusive rights to certain gene
therapy technologies and certain tangible assets in exchange for 1,841,219
shares of Common Stock and 5,830 shares of Series A Preferred Stock (See
"Certain Relationships and Related Transactions-Baxter Agreements").
UroGen has been in the development stage since inception, with its current
activities consisting of the development of its core technology, which is based
upon novel recombinant adenoviral vector systems, that we believe provide
superior gene transfer efficiency and expression compared to other gene therapy
approaches. We expect to incur increasing research and development expenditures
as we focus our efforts on further development of its Factor VIII Mini-Ad Vector
for Hemophilia and Complementary Oncolytic IL-3 Viral Vector Product.
Accordingly, we expect no significant revenues and to incur significant
operating losses over the next several years.
RECENT EVENTS
In April 1999, the Company closed a financing in which we received $400,000
representing proceeds from the sale of unsecured convertible notes payable,
which bore interest at 8% per annum and were due on March 30, 2000, unless
previously converted. The notes were convertible, at the option of the holder,
into Common Stock at $0.30 per share, and automatically converted into Common
Stock immediately prior to the filing of any registration statement to register
the resale of the underlying shares. The filing of the registration statement of
which this Prospectus is a part caused such conversion, resulting in the
issuance of 1,333,333 shares of Common Stock.
In addition, each note holder received a warrant to purchase the same number
of shares of Common Stock as his or her notes converted into. The warrants are
exerciseable for seven years from issuance and have an exercise price of $0.30
per share.
In April 1999, the United States Patent and Trademark Office issued a patent
to another company for an adenoviral vector technology. This patent may be
competitive with our Mini-Ad vector technology. Although we do not believe that
our technology infringes upon any valid claim of this patent, there can be no
assurances that our position would be substantiated if challenged. Such a
conflict could result in a significant reduction of the coverage of our patents,
if issued. In addition, we may be required to obtain licenses to this patent or
to develop or obtain alternative technology. If a license is
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<PAGE>
required, there can be no assurances that we will be able to obtain such a
license, or that if we do, that it will contain commercially favorable terms.
RESULTS OF OPERATIONS
Revenues
UroGen has generated revenues to date of $791,000 from contract research
agreements and grants and $50,000 from the sale of proprietary biological
materials. Total revenues for the years ended December 31, 1998, 1997 and 1996
were $192,000, $194,000, and none, respectively. There were no revenues for the
three months ended March 31, 1999. We anticipate seeking additional research
agreements and grants to help fund research and development efforts; however, we
do not expect that contract research will result in significant revenues in the
future. We do not anticipate revenues from products for at least four years.
Research and development and acquired in-process technology
Research and development expenses and acquired in-process technology charges
during the years ended December 31, 1996, 1997 and 1998 and the three months
ended March 31, 1999 were $348,000, $346,000, $7,371,053 and $539,276,
respectively. Research and development expenses during 1996, 1997 and through
June 30, 1998 consisted primarily of payments to consultants who were performing
research and to fees related to technology licenses and patent applications.
Following consummation of the Baxter transaction on July 8, 1998, research and
development costs were expanded to include the costs of the hemophilia and
cancer programs acquired from Baxter, but which were continued at Baxter until
the employees and tangible assets involved were moved to our facilities in
October 1998. Additionally, the technology acquired from Baxter valued at
$5,455,505 was charged to acquired in-process technology due to the early stage
of development. We anticipate increasing research and development expenditures
in the future as we conduct preclinical and clinical testing necessary to bring
our products to market and to establish manufacturing and marketing
capabilities.
General and administrative expenses
General and administrative expenses during the years ended December 31, 1996,
1997 and 1998 and the three months ended March 31, 1999 were $174,000, $151,000,
$488,000 and $195,449, respectively. General and administrative expenses include
the costs of our administrative personnel and consultants, office lease expenses
and other overhead costs, including legal and accounting costs. General and
administrative expenses have increased related to the increased level of
operations, and we expect general and administrative expenses to continue to
increase to support our increasing research and development activities.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was $642,511 during the year ended
December 31, 1998 and $1,091,213 during the three months ended March 31, 1999.
Net cash used by operating activities consists primarily of UroGen's net loss
increased by non-cash expenses, such as the write-off of in-process technology
acquired with stock and expenses paid via advances from Baxter. Net cash used by
investing activities of $63,493 during 1998 and $20,972 for the three months
ended March 31, 1999 consists of the purchase of furniture and equipment. Net
cash provided by financing activities of $946,634 during 1998 consists of
proceeds from notes payable of $1,030,000 offset by expenses paid to raise
capital. Net cash provided by financing activities for the three months ended
March 31, 1999 of $1,462,175 consists primarily of amounts received from Baxter
for development of the hemophilia product and payment of a note
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<PAGE>
receivable from a stockholder.
Medstone funded all of UroGen's operations from July 1, 1991 (inception)
through and ending with a $500,000 capital contribution of cash on February 9,
1996. In July 1998, we completed an offering of 8% Convertible Subordinated
Notes due June 30, 1999, which raised $1,030,000. In April 1999, we completed
another offering of Convertible Subordinated Notes due March 31, 2000, which
raised $400,000. UroGen has incurred net losses of $13,221,326 since its
inception and has never been profitable during its existence. We expect to incur
significant additional operating losses over the next several years as our
research and development efforts expand. Our ability to achieve profitability
depends upon our ability, alone or with others, to successfully complete
development of products, obtain required regulatory approvals and manufacture
and market products. We can not assure you that we will be successful or that we
will attain significant revenues or profitability. Our operations to date have
consumed substantial amounts of cash. The negative cash flow from operations is
expected to continue and to accelerate in the foreseeable future. The
development of our products will require a commitment of substantial funds to
conduct the costly and time-consuming research, preclinical and clinical testing
necessary to bring our products to market and to establish manufacturing and
marketing capabilities.
UroGen's future capital requirements will depend on many factors, including
scientific progress in our research and development programs, our ability to
establish collaborative arrangements with others for drug development, progress
with preclinical and clinical trials, the time and costs involved in obtaining
regulatory approvals and effective commercialization activities.
Under the terms of our Developmental Collaboration Agreement and Credit
Agreements with Baxter (See "Certain Relationships and Related Transactions
Baxter Transactions"), Baxter is required to provide funding for development of
the hemophilia product until we commence a Phase I Clinical Trial for the
hemophilia product, at which time a milestone payment of $2,000,000 is due from
Baxter. The funding under the Developmental Collaboration Agreement provided by
Baxter is in the form of a note payable, which can be converted to Series B
Preferred Stock at our option on December 31 of each year of the agreement. The
$2,000,000 milestone payment is in the form of Series C Preferred Stock.
We have commitments for $400,000 in additional capital through the sale of
preferred stock and warrants. We anticipate our existing capital resources,
including funds received from Baxter under the Developmental Collaboration
Agreement, coupled with the commitment for an additional $400,000 in capital,
will enable us to maintain our current and planned operations through February
2000. Accordingly, we will need to raise substantial additional capital to fund
our operations. We intend to seek such additional funding either through
collaborative arrangements or through public or private equity or debt
financings. Additional financing may not be available on acceptable terms or at
all. If adequate funds are not available, we may be required to delay or reduce
the scope of our operations or to obtain funds through arrangements with
collaborative partners or others that may require us to relinquish rights we may
have.
Our independent auditors have issued their report on our financial statements.
This report contains an explanatory paragraph which expresses substantial doubt
regarding UroGen's ability to continue as a going concern based on certain
existing conditions. Successful completion of our development program and
transition, ultimately, to attaining profitable operations is dependent upon
obtaining additional financing adequate to fulfill our research and development
activities, and achieving a level of revenues adequate to support our cost
structure.
-19-
<PAGE>
TECHNOLOGY LICENSES
UroGen entered into a license agreement with The Immune Response Corporation
in March 1997 which was amended in January 1999. Under the IRC License, UroGen
is obligated to make a milestone payment to IRC of $200,000 upon the approval by
the Food and Drug Administration or the governing health authority of any other
country of its first product related to the licensed technology. This fee can be
offset against future royalty payments. UroGen is obligated to pay royalties on
its net sales revenue and a percentage of all revenues received from sublicenses
relating to the tumor radiosensitization gene therapy technology. Additionally,
UroGen agreed in the January 1999 amendment to reimburse IRC for past patent
expenses relating to the licensed technology in the amount of $59,400 payable
during 1999.
In November 1997, UroGen entered into a license agreement with an
individual and an affiliated research organization under which we obtained an
exclusive right to certain technology for commercial purposes. UroGen is
obligated to pay royalties on its net sales revenues and a percentage of
revenues from sublicenses relating the technology (the "Running Royalties").
Additionally, UroGen is required to make minimum annual royalties of $30,000 for
the duration of the agreement. The minimum annual royalties may be credited
against Running Royalties, as defined, for that year. If there are no Running
Royalties to offset the annual royalty, one-half of the annual royalty may be
carried forward to offset Running Royalties from the following year. Within
thirty days of UroGen entering into an agreement with a corporate partner or
strategic alliance relationship related to this technology, UroGen will pay a
minimum of $12,500 per month to fund additional research.
In September 1996, UroGen entered into a license agreement with the Regents
of the University of California to license rights to certain patents and
continuing applications thereof in the field of diagnosis of metastases by
nucleic acid amplification. We are required to pay an annual license maintenance
fee of $10,000 until we are selling licensed product. We are also required to
pay milestone fees of $25,000 upon filing an Initial New Drug Application on a
licensed product or method with the Food and Drug Administration and $50,000
upon marketing approval of a licensed product or method by the FDA. UroGen will
pay royalties on its net sales revenues of licensed products or methods. A
minimum annual royalty of $50,000 is payable beginning with the year of first
commercial sale of licensed product, but no later than the fifth year of the
agreement. The minimum annual royalty will be credited against earned royalty
due for the year in which the annual minimum payment was made.
YEAR 2000 COMPLIANCE
The Year 2000 issue refers to the inability of a date-sensitive computer
program to recognize a two-digit date field designated as "00" as the year 2000.
Mistaking "00" for 1900 could result in a system failure or miscalculations
causing disruptions to operations, an inability to process transactions or an
inability to engage in other normal business activities. This is a significant
issue for most companies with far-reaching implications, some of which cannot be
anticipated or predicted with any degree of certainty.
We are in the process of addressing the Year 2000 issue. The majority of our
systems are either new or have been recently upgraded with upgrades including
Year 2000 compliance. Such upgrades have cost approximately $1,500 to date. We
do not engage in significant electronic interfaces with third parties. However,
failure on the part of third parties we do business with to be Year 2000
compliant could impact their operations which would, in turn, impact our
operations. The most reasonably likely worse case scenario resulting from the
Year 2000 issue is unproductive operations. We will have a contingency plan in
place for Year 2000 issues by September 1999.
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<PAGE>
We anticipate that the amount we will spend to modify or replace software in
order to remediate the Year 2000 issue should not have a material effect on
UroGen's liquidity or results of operations. Additionally, those costs are not
expected to cause reported financial information not to be indicative of future
operating results or future financial condition.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At March 31, 1999, the Company's cash and cash equivalents were invested in
liquid checking and money market accounts, and will not change in value if
interest rates change. Accordingly, an immediate 10% change in interest rates
would not have an impact on our financial condition or results of operations.
The Company does not conduct business with foreign entities, and does not have
any foreign exchange risk.
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<PAGE>
BUSINESS
UroGen Corp. is a biopharmaceutical company dedicated to the development of
innovative gene therapy products utilizing advanced adenoviral vector
technologies for the treatment of hemophilia, cancer and other genetic
disorders. In July 1998, UroGen acquired certain equipment from the gene therapy
unit of Baxter Healthcare Corporation together with exclusive rights to certain
technologies in exchange for 1,841,217 shares of Common Stock and 5,830 shares
of Series A Preferred Stock. We also entered into agreements with Baxter under
which Baxter will fund the development of our hemophilia product and Baxter
obtained the exclusive, worldwide rights to market sell and distribute all
hemophilia products we develop (See "Certain Relationships and Related
Transactions Baxter Agreements"). Prior to the acquisition, UroGen was a
biotechnology company developing products for the diagnosis and therapy of
prostate cancer.
The technology acquired from Baxter is based upon recombinant adenoviral
vector systems that we believe provide superior gene transfer efficiency and
expression compared to other gene therapy approaches. The gene transfer vectors
have been engineered to contain less than 3% of the native adenovirus. UroGen
believes that removal of unwanted adenoviral viral genes permits increased gene
transfer capacity with high level, sustained gene expression and improved safety
compared to standard vector systems. As these recombinant viruses are engineered
to minimize the presence of adenoviral gene sequences, they are termed "Mini-Ad"
vectors. These Mini-Ad vectors retain the broad range of cellular infectivity
and efficient gene transfer characteristics of native adenoviruses. Importantly,
we believe we have engineered capabilities into our mini-Ad systems which
provide for sustained, high level gene expression. We believe our proprietary
gene transfer and expression systems advance the capabilities of gene therapy
for disease management, providing what we believe to be efficient gene transfer
and long term gene expression desired for clinical applications.
The initial focus of our research and development efforts will be the
generation of products for the treatment of hemophilia and prostate cancer. Two
vector products are under development: 1) Factor VIII Mini-Ad Vector for the
treatment of hemophilia; and 2) Complementary Oncolytic Interleukin-3 (IL-3)
Adenoviral Vectors which result in tumor specific cell lysis, radiation
sensitization and anti-tumor immune responses for the treatment of prostate
cancer. The Factor VIII Mini-Ad Vector for hemophilia is expected to provide a
greater duration of active Factor VIII function, preventing chronic bleeding and
joint damage which are characteristic of this disorder. The complementary
oncolytic IL-3 Adenoviral Vectors are comprised of a mixture of two adenoviral
vectors which complement each other resulting in viral replication and
propagation leading to tumor cell lysis, radiation sensitization and anti-tumor
immune responses for the treatment of prostate cancer.
UroGen was incorporated in Delaware in June 1995 as a wholly-owned subsidiary
of Medstone International, Inc., a Delaware Company. UroGen was formed from the
medical biology and small molecule pharmaceuticals divisions of Medstone. The
business of UroGen operated as two divisions of Medstone from July 1, 1991 to
December 29, 1995. On February 9, 1996, Medstone distributed all of the
outstanding stock of UroGen Corp. to its shareholders by issuing a dividend of
one share of UroGen Common Stock for each share of Medstone stock held as of
December 29, 1995. Our principal executive offices are located at 10835 Altman
Row, Suite 150, San Diego, California 92121, and our telephone number is (619)
450-5949. References in this Prospectus to "we", "us", "UroGen" or "the Company"
refer to UroGen Corp., a Delaware corporation.
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<PAGE>
RESEARCH AND DEVELOPMENTTHE MINI-AD SYSTEM
The Mini-Ad System
The components of the Mini-Ad system are diagrammed in Figure 1. The Mini-
Viral Plasmid contains the therapeutic transgene and promoter sequences which
permit sustained transgene expression in host cells. The Ad Helper Cell Line and
Helper Virus, respectively, provide the early E1A and other adenoviral genes
required to package the Mini-Ad Vector into viral particles which contain the
outer coat and core proteins of native adenoviruses. These proteins mediate the
broad host range and efficient gene transfer characteristics of native
adenoviruses. However, the genes encoding these proteins are not packaged into
the Mini-Ad Vector, which is replication incompetent and contains less than 3%
adenoviral components. The Mini-Ad Vector product is purified from the Ad Helper
Cell Line and processed for distribution in an injectable preparation.
FIGURE 1 -- DIAGRAM OF COMPONENTS OF THE MINI-AD SYSTEM
Factor VIII Mini-Ad Vector for Hemophilia A / Liver Directed Gene Therapy
The ease of delivery and affinity of adenoviruses for the liver makes it a
logical target for this gene delivery system. Intravenous injection of
adenoviruses results in viral infection in hepatocytes. The first Mini-Ad
product under development is a Factor VIII vector for the treatment of
hemophilia A. As the liver is one of the major organs for natural Factor VIII
production, the vector has been engineered to optimize Factor VIII expression in
this organ. The vector uses a tissue-specific promoter to drive Factor VIII cDNA
expression for sustained high-level expression and secretion of the protein. In
mouse hemophilia models, intravenous injection of this Mini-Ad vector resulted
in serum Factor VIII concentrations that are twenty to thirty times therapeutic
levels (Figure 2). These serum levels have been maintained for a duration of up
to one year with correction of bleeding time. The animals continue to be
followed to evaluate the duration of therapeutic Factor VIII expression.
We have a Developmental Collaboration Agreement with Baxter Healthcare
Corporation under which Baxter will fund the development of the Factor VIII
Mini-Ad vector (see Certain Relationships and Related Transactions").
FIGURE 2 -- CHART SHOWING EXPRESSION OF FACTOR VIII IN MINI AD-INJECTED MICE FOR
DAYS AFTER INJECTION
We believe that there may be additional product opportunities for this liver
directed vector technology. Diseases resulting from abnormal function or
biochemistry of the liver are among the leading causes of morbidity and
mortality. Cardiovascular disease, the leading cause of death in the
industrialized world, is causally linked to hyperlipidemia, which is controlled
by genes expressed in the liver. There are several common genetic liver diseases
for which effective gene therapy to replace aberrantly functioning genes would
supplant current conventional therapies, which are either cumbersome or
ineffective. We believe that among them, familial hypercholesterolemia, due to
deficiency of LDL-receptors in the liver, is one of the additional diseases
suitable for Mini-Ad therapy.
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Oncolytic IL-3 Viral Vector for Prostate Cancer
Prostatic carcinoma is the most common cancer among men. It currently occurs
in approximately one in six men and has an annual incidence of in the United
States of 187,000 new cases. We believe that a significant advantage of our
proprietary oncolytic IL-3 viral vector product may be its ability to have both
local and systemic anti-tumor activity, while sensitizing tumors to the effects
of standard cancer therapies. These multiple modes of action may have benefits
in the treatment of prostate cancer and other neoplasms. Successful treatment of
prostate cancer requires complete eradication of tumors within the prostate and
the elimination of undetected metastatic tumor cells, which have migrated from
the prostate in approximately fifty percent of patients at the time of initial
diagnosis. Our proprietary viral oncolytic IL-3 viral vector has intrinsic viral
anti-tumor lytic activity. In addition, we believe the product will result in
IL-3 expression, which sensitizes tumors to the effects of radiation, providing
improved treatment of disease within the prostate, and simultaneously inducing
anti-tumor immunity capable of destroying metastatic lesions. Our first
oncolytic IL-3 viral vector product will be injected intratumorly and
administered with radiation for the treatment of prostate cancer (Figure 3).
FIGURE 3 -- DIAGRAM OF THE MULTIPLE EFFECT OF ONCOLYTIC MINI-AD IL-3 AND
RADIOSENSITIZATION
The oncolytic IL-3 viral vector product is comprised of a mixture of two
adenoviral vectors that complement each other to permit selective adenoviral
replication and tumor cell lysis. In this system, one vector contains the AdEl
gene under the control of a tumor tissue promoter (the controlled vector), and
the second vector contains the remainder of the adenoviral genome without AdEl
(the supplemental vector) (Figure 4). The viruses complement each other
resulting in viral replication and propagation in tumor tissues leading to tumor
cell lysis. Importantly, we believe the controlled vector can be engineered to
carry and express additional therapeutic genes such as IL-3.
FIGURE 4 -- DIAGRAM OF THE ONCOLYTIC DUAL-AD SYSTEM
Preliminary studies with vectors incorporating a prostate specific antigen
(PSA) promoter have cured prostate tumors in animal models following
intratumoral injection (Figure 5).
FIGURE 5 -- CHART SHOWING THE ONCOLYTIC EFFECT OF PROSTATE-SPECIFIC DUAL-AD IN
MOUSE TUMOR MODEL
Unlike other oncolytic viral systems, which have limited capacity for
delivering additional therapeutic genes, we believe our vectors may be
engineered to express genes encoding cytokines and co-stimulatory factors that
can enhance tumor antigen presentation and T-cell activation to induce systemic
anti-tumor immunity. We have demonstrated that IL-3 gene therapy sensitizes
tumors to the effects of radiation and stimulates anti-tumor immune responses
capable of eradicating metastatic disease. IL-3 stimulates antigen presenting
cells (macrophages and dendritic cells) required for the generation of systemic
anti-tumor immunity. In animal tumor models, the combination of IL-3 cytokine
gene therapy with radiotherapy was synergistic resulting in enhanced efficacy of
local radiotherapy and generating systemic anti-tumor immunity. We used IL-3-
transfected murine fibrosarcoma Fsa tumors as a model in these studies. The IL-3
secreting tumors (Fsa-JmIL3) were more sensitive than parental tumors (Fsa) to
irradiation in vivo (Figure 6) and post-radiotherapy developed a T cell
infiltrate and induced a high level of systemic immunity. In this study, 25 Gy
of radiation caused parental Fsa tumors to regress only temporarily and then
began progressing again after 10 days. In contrast, IL-3 transduced Fsa-JmIL3
tumors continued to regress after irradiation and complete tumor remission was
achieved (Figure 6). These cured mice developed
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systemic immunity to parental tumor and were resistant to subcutaneous challenge
with 500,000 parental Fsa tumor cells three months later in five out of five
animals tested. This dose of tumor cells reproducibly caused subcutaneous tumors
in one hundred percent of non-immunized animals.
FIGURE 6 -- CHART SHOWING THE EFFECT OF THE IL-3 GENE INJECTED IN-VIVO COUPLED
WITH RADIOSENSITIZATION TREATMENT VERSUS OTHER TREATMENTS
We believe our multimodality oncolytic, radiation sensitizing,
immunotherapeutic approach is suited for the treatment of prostate cancer which
requires elimination of tumors both within the prostate and at metastatic sites.
Current surgical and radiation treatments are incapable of eradicating
metastatic disease.
Approximately 71% of UroGen's employees are engaged in research and
development. During the years ended December 31, 1998, 1997 and 1996, we spent
approximately $1,915,548 (before the non-cash write-off of acquired in-process
technology), $346,000 and $348,000, respectively, for research and development.
Manufacturing
We are currently evaluating whether to establish arrangements with contract
manufacturers to supply compounds for clinical trials or to establish our own
manufacturing facility. If we establish our own manufacturing facility, the
facility must be in compliance with good manufacturing practice ("GMP")
regulations enforced by the FDA. If we decide to establish arrangements with
contract manufacturers, we are dependent upon the contract manufacturer for the
timeliness and quality of compounds produced. For a further discussion of the
risks associated with manufacturing, see "Risk Factors".
Patents and Licenses
We believe that patent and trade secret protection is important to our
business and that our future will depend in part on our ability to maintain our
technology licenses, protect our trade secrets, secure additional patents and
operate without infringing the proprietary rights of others. UroGen currently
holds exclusive rights to one issued United States patent, one allowed United
States patent application and several other pending patent applications that
relate to genetic therapies and molecular diagnostics.
A series of United States and foreign patent applications for the Mini-Ad and
Oncolytic Vector systems have been filed. These applications cover all fields of
use for the packaging attenuated helper Ads, various mini-Ad vectors, and
related helper cell lines. The novel gene retention mechanism which permits
sustained, high level gene expression has also been claimed in these patent
applications. We have obtained exclusive world-wide rights to a patent
application covering the use of cytokines and immunomodulatory substances
utilized in combination with radiation for enhancing the effects of radiation
and stimulating anti-tumor immunity in the treatment of certain cancers. We have
also filed a patent application for the oncolytic/immunogenic complimentary-Ad
vector system utilizing tumor or tissue specific promoters to specifically
induce tumor lysis and systemic anti-tumor immunity to destroy both localized
and disseminated tumors.
The pharmaceutical and biotechnology fields are characterized by a large
number of patent filings. A substantial number of patents have already been
issued to other pharmaceutical and biotechnology companies. Research has been
conducted for many years in the gene therapy field by pharmaceutical and
biotechnology companies and other organizations. Competitors may have filed
applications for or have been issued patents and may obtain additional patents
and proprietary rights related to products or processes competitive with or
similar to ours.
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<PAGE>
Patents applications are maintained in secrecy for a period after filing.
Publication of discoveries in the scientific or patent literature tends to lag
behind actual discoveries and the filing of related patent applications. We may
not be aware of all of the patents potentially adverse to UroGen's interest that
may have been issued to other companies, research or academic institutions, or
others. No assurances can be given that such patents which contain claims
relating to UroGen's technology.
To date, no consistent policy has emerged regarding the breadth of claims
allowed in pharmaceutical and biotechnology patents. If patents have been or are
issued to others containing preclusive or conflicting claims, and such claims
are ultimately determined to be valid, we may be required to obtain licenses to
one or more of such patents or to develop or obtain alternative technology. We
believe that our current and proposed activities do not infringe on any patents
that would be determined to be valid. We can not assure you that patents do not
exist in the United States or in other countries or that patents will not be
issued to third parties that contain preclusive or conflicting claims with
respect to any of UroGen's technologies. Commercialization of UroGen's proposed
products may require licensing and/or cross-licensing of one or more patents
with other organizations in the field. We can not assure you that the licenses
that might be required for UroGen's processes or products would be available on
commercially acceptable terms, if at all.
UroGen's breach of an existing license or failure to obtain a license to
technology required to commercialize its product candidates may have a material
adverse effect on our business, financial condition and results of operations.
Litigation, which could result in substantial cost, may also be necessary to
enforce any patents issued to UroGen or to determine the scope and validity of
third-party proprietary rights. If our competitors prepare and file patent
applications in the United States that claim technology also claimed by us, we
may have to participate in interference proceedings declared by the United
Stated Patent and Trademark Office to determine the priority of invention, which
could resultssee in substantial cost, even if the eventual outcome is favorable
to us. An adverse outcome could subject UroGen to significant liabilities to
third parties and require us to license disputed rights from third parties or to
cease using such technology.
UroGen also relies on trade secrets to protect our technology, especially
where patent protection is not believed to be appropriate or obtainable. We
protect our proprietary technology and processes, in part, by confidentiality
agreements with our employees, consultants and collaborators. We can not assure
you that these agreements will not be breached, that we would have adequate
remedies for any breach, or that UroGen's trade secrets or those of its
collaborators or contractors will not otherwise become known or be discovered
independently by competitors.
Patents issued and patent applications filed internationally relating to gene
therapy are numerous and we cannot assure you that current and potential
competitors or other third parties have not filed or received or will not file
or receive applications in the future for, patents or obtain additional
proprietary rights relating to products or processes used or proposed to be
used by UroGen.
Additionally, there is certain subject matter which is patentable in the United
States but not generally patentable outside of the United States. Differences in
what constitutes patentable subject matter in various countries may limit the
protection we can obtain on some of our inventions outside of the United States.
For example, methods of treating humans are not patentable in many countries
outside of the United States. These and-or other issues may prevent UroGen from
obtaining patent protection outside of the United States which would have a
material adverse effect on our business, financial condition and results of
operations.
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<PAGE>
Competition
The pharmaceutical and biotechnology industries are intensely competitive.
Any product candidate developed by UroGen would compete with existing drugs and
therapies and with others under development. There are many pharmaceutical
companies, biotechnology companies, public and private universities and research
organizations actively engaged in research and development of products for the
treatment of hemophilia and prostate cancer. Many of these organizations have
financial, technical, manufacturing and marketing resources which are greater
than ours. If a competing company develops or acquires rights to a more
efficient, more effective, or safer competitive therapy for treatment of the
same diseases we have targeted, or one which offers significantly lower costs of
treatment, our business, financial condition and results of operations could be
materially adversely affected.
We believe that our product development programs will be subject to
significant competition from companies using alternative technologies, as well
as to increasing competition from companies that develop and apply technologies
similar to our technologies. Other companies may succeed in developing products
earlier than we do, obtaining approvals for such products from the FDA more
rapidly than we do or developing products that are safer and more effective than
those under development or proposed to be developed by us. We can not assure you
that research and development by others will not render our technology or
potential products obsolete or non-competitive or result in treatments superior
to any therapy developed by us, or that any therapy developed by UroGen will be
preferred to any existing or newly developed technologies.
Marketing and Sales
We entered a Distribution Agreement with Baxter in July 1998. Under the
Distribution Agreement, Baxter has the exclusive, worldwide right to market,
sell and distribute all products which are developed under the Development
Collaboration Agreement with Baxter. It is anticipated that Baxter will fund
the development of the hemophilia product and have distribution rights for all
hemophilia products. Under the terms of the agreement, UroGen receives a
percentage of the revenues generated by Baxter.
We have no internal sales force and currently plan to enter into additional
corporate partnership arrangements under which a corporate partner would fund
development of our cancer product and/or other potential products and would have
distribution rights for the product funded. See "Risk Factors" for a further
discussion of the risks associated with distribution agreements.
Employees
At March 31, 1999 UroGen had 16 employees, including 12 in research and
development and 4 in finance and administration. Our continued success will
depend in large measure on our ability to attract and retain highly skilled
employees who are in great demand. None of our employees are represented by a
labor union and we believe that our relations with the employees are generally
good.
Properties
UroGen leases approximately 4,800 square feet of office and laboratory space
in San Diego, California. The term of the lease expires in May 2000. We believe
our existing facilities will be sufficient to meet our anticipated operating
needs through May 2000.
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<PAGE>
Legal Proceedings
UroGen is not a party to any material litigation or legal proceedings.
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<PAGE>
MANAGEMENT
Directors and Executive Officers
The names of the directors and executive officers of UroGen, their ages as of
December 31, 1998 and certain information about them are set forth below:
<TABLE>
<CAPTION>
NAME OF DIRECTORS
AND EXECUTIVE OFFICERS AGE PRINCIPAL OCCUPATION
- -------------------------- ---- --------------------
<S> <C> <C>
Paul D. Quadros 52 Chairman of the Board of Directors
Robert E. Sobol, M.D. 46 President, Chief Executive Officer and
Director
Wei-Wei Zhang. M.D, PhD 41 Senior Vice President, Chief
Scientific Officer and Director
William Raschke, PhD 52 Vice President
Carin D. Sandvik 35 Controller, Chief Accounting Officer
and Corporate Secretary
Peter F. Bernardoni 39 Director
Ivor Royston, M.D. 53 Director
Victor W. Schmitt 50 Director
</TABLE>
PAUL D. QUADROS has been Chairman of the Board and the Company's Chief Financial
Officer since August 1998. Prior to that Mr. Quadros had been the President and
Chief Executive Officer since April 1997 and prior to that was the Company
Chairman of the Board, Chief Financial Officer and Secretary since the Company's
formation in June 1995. From June 1994 to May 1995, Mr. Quadros served as Senior
Vice President and Chief Financial Officer of Thermatrix, Inc., a manufacturer
of pollution control equipment. Prior to joining Thermatrix, Mr.Quadros was,
from January 1985 an officer and from April 1986 a general partner of Technology
Funding, a venture capital management organization. From April 1986 through May
1994, Mr. Quadros was a member of Technology Funding's Commitments Committee,
serving as its chairman from 1987 to 1990. During his affiliation with
Technology Funding he also served as Director of Research and Director of Equity
Investments. From 1991 to 1994 Mr. Quadros was chairman of Technology Funding's
Medical Investment Committee and was involved in managing Technology Funding's
healthcare portfolio. Mr. Quadros currently serves as a director of several
private companies and one public company, Cardiac Science, Inc.
Prior to joining Technology Funding in 1985, Mr. Quadros was Executive Vice
President of Amreal Securities Corp., an affiliate of Home Federal Savings and
Loan. Before joining Amreal in April 1984, Mr. Quadros was a Senior Vice
President of Public Storage, Inc., a national real estate developer. Prior to
joining Public Storage in 1981, Mr. Quadros was Assistant Treasurer of The Times
Mirror Company, where he served for seven years in several corporate finance
positions. Mr. Quadros began his career as a securities analyst and
institutional portfolio manager. Mr. Quadros has a B.A. in Finance from
California State University at Fullerton and an M.B.A. from the UCLA Graduate
School of Management.
ROBERT E. SOBOL, M.D has been President and Chief Executive Officer of the
Company since August 1998. Prior to that Dr. Sobol was the Executive Vice
President and Chief Operating Officer since July 1996. Dr. Sobol was previously
the Director of Clinical Science at Sidney Kimmel Cancer Center, which is
affiliated with Sharp HealthCare, one of the largest healthcare providers in San
Diego. Dr. Sobol has developed clinical applications of immuno therapy and gene
therapy for the treatment of cancer and is a
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founder of several successful biotechnology ventures. He was a founder and Vice
President of IDEC Pharmaceuticals Corporation, a publicly traded company
developing monoclonal antibody based treatments for cancer and autoimmune
disorders. He was also a founder of GeneSys Therapeutics, a gene therapy company
which merged with publicly traded Somatix Therapy Corporation and subsequently
with Cell GeneSys Incorporated.
Dr. Sobol led the research team which was the first to treat a brain tumor
patient with cytokine gene therapy. He is also the principal investigator for
one of the first gene therapy protocols approved for the treatment of colon
carcinoma. Dr. Sobol is the Editor of the journal Cancer Gene Therapy. He is
also on the Editorial Board of the journal Oncology Reports.
Dr. Sobol received a B.A. in Philosophy from Boston University and an M.D.
from The Chicago Medical School. He subsequently trained at the University of
Southern California Medical Center and at the University of California, San
Diego. He is Board Certified in Internal Medicine and Medical Oncology.
WEI-WEI ZHANG, M.D., PH.D. joined the Company as Senior Vice President, Chief
Scientific Officer and Director in October 1998. Dr. Zhang has sixteen years of
biomedical research experience including nine years of research management
experience. He was formerly the Director of Molecular Biology in theGene Therapy
Unit of Baxter Healthcare Corporation since March 1995. Dr. Zhang established
the Department of Molecular Biology at Baxter and initiated a comprehensive
program for the mini-Ad vector system for in vivo gene therapy. Dr. Zhang has
significant technical expertise in vector technology, particularly with
adenoviral vectors and their application in gene therapy of cancer and
hemophilia. Prior to joining Baxter, Dr. Zhang was an Assistant Professor in the
Department of Thoracic and Cardiovascular Surgery at the University of Texas MD
Anderson Cancer Center, where he led the program of adenoviral vector
development and adenovirus-mediated tumor suppressor gene therapy of cancer
(Adp53) from lab to clinic. The clinical trial of this therapeutic intervention
was approved by the National Institutes of Health and the FDA in 1994. Dr. Zhang
also has experience in start-up biotechnology ventures, and his inventionsformed
a key part of the scientific foundation of Introgen Inc.
Dr. Zhang received his M.D. from the Zhejiang Medical University in China and
received a Ph.D. in molecular biology, recombinant DNA, and protein chemistry
from The University of Alabama. Dr. Zhang had postdoctoral training in gene
manipulation and transfer technologies at the Baylor College of Medicine.
WILLIAM C. RASCHKE, PH.D has been Vice President since August 1998 and devotes
his efforts to both scientific and corporate development projects. He was
previously Director of Research of the Company since September 1996. Dr. Raschke
also holds the positions of Member and Director of Molecular Immunology of the
Sidney Kimmel Cancer Center (formerly the San Diego Regional Cancer Center),
positions he has held since coming to the Center in 1994. Since March 1997, he
has also served as the Acting Scientific Director of the Center. Dr. Raschke has
previously held positions at SIBIA, Inc. from 1988 to 1994 where he was Senior
Research Fellow, The Salk Institute from 1988 to 1994, and 1975 to 1981 with
various staff appointments and the La Jolla Cancer Research Foundation (now the
Burnham Institute) from 1981 to 1988 as Associate Scientific Director and Staff
Scientist.
Dr. Raschke has served as a reviewer for the National Institute of Health with
two four - year terms on the Experimental Immunology Study Section, the American
Cancer Society and The National Science Foundation, as well as international
funding agencies. He also reviews manuscripts for various immunology and cancer
journals.
Dr. Raschke received a B.S. in Chemistry from the University of Texas, Austin
and a Ph.D. in Biochemistry from the University of California, Berkley. He
conducted post graduate training at the Salk
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Institute in Developmental Biology and Immunology.
CARIN D. SANDVIK has served as the Company's Controller, Chief Accounting
Officer and Corporate Secretary since joining the Company in October 1998. Prior
to joining the Company, Ms. Sandvik was a Senior Manager in the Technology
Industry Group at Pricewaterhouse Coopers LLP (formerly Price Waterhouse LLP),
where she had served in various positions for twelve years. Ms. Sandvik
received a B.A in Business Administration with an emphasis in Accounting from
the University of San Diego.
PETER F. BERNARDONI is a Partner of Technology Funding. Mr. Bernardoni joined
Technology Funding as an Investment Officer in 1988, was elected as a Vice
President in 1992 and a Partner in 1994. Mr. Bernardoni has served as a member
of Technology Funding's Commitments Committee since 1994 and as Chairman of
Technology Funding's Medical Investment Committee since 1994. Prior to joining
Technology Funding, Mr. Bernardoni was employed for six years by IBM and served
in several capacities including Design Engineer and as a manager for large scale
information systems in major pharmaceutical and hospital accounts.
Mr. Bernardoni has served as a Director for several private and two public
companies, Poly Medical Industrial and Circadian. He currently serves on the
Board of Endocare, Inc., Avalon Imaging and Reflection Technology, and is
Chairman of Portable Energy Products.
Mr. Bernardoni has a B.S.M.E. from Santa Clara University and an M.S.M.E. from
Stanford University.
IVOR ROYSTON, M.D. was the Chairman of the Board from April 1997 until August
1998. Prior to that, he served as President and Chief Executive Officer. He has
served as a Director since the Company's formation in June 1995. Dr. Royston was
appointed by the President of United States to the National Cancer Advisory
Board during 1996.
Dr. Royston is the President and Chief Executive Officer of Sidney Kimmel
Cancer Center (formerly the San Diego Regional Cancer Center), a position he has
held since founding the Center in 1990. He is also a General Partner of Forward
Ventures, a life science venture capital firm. From 1977 to 1993, Dr. Royston
held various positions in academic medicine at the University of California, San
Diego (UCSD) School of Medicine. Dr. Royston also served as Director, Clinical
Immunology Program at the UCSD Cancer Center and Chief of Oncology at the San
Diego VA Medical Center.
Dr. Royston was a founder and Director of Hybritech, Inc., GeneSys
Therapeutics Corporation and IDEC Pharmaceuticals, Inc. He has served on the
Board of Directors of various companies, including Unisyn Technologies, Inc.,
Medstone International Inc., Sequana Therapeutics, Inc., Corixa, Inc.,
CombiChem, Inc. IDEC Pharmaceuticals and GenQuest, Inc. He currently is a member
of the Board of Directors of the Sidney Kimmel Cancer Center.
Dr. Royston received a B.A. in Human Biology from Johns Hopkins University and
an M.D. from the Johns Hopkins School of Medicine. He later trained in internal
medicine and oncology at Stanford University and is board certified in both
Internal Medicine and Medical Oncology.
VICTOR W. SCHMITT is President, Venture Management, Baxter Healthcare
Corporation. He has held this position since 1994 and is responsible for the
creation and management of Baxter's interests in development-stage biotech
companies. Prior to his current assignment, he held the operating position of
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President, Baxter Biotech Europe. He has also served as Vice President, Business
Development and Finance for Baxter's Blood Therapy Group.
Mr. Schmitt joined Baxter from a sixteen-year career with the American Red
Cross Blood Services. At the Red Cross Blood Services, Mr. Schmitt held
positions in marketing and operations. At the time of his departure, he was
Vice President, Blood Services with responsibility for the organization's
national blood services program.
Mr. Schmitt holds a B.S. from the University of Virginia and an M.B.A. from
the University of Maryland. He serves on the Board of Directors of a number of
development-stage biotech companies.
Compensation of Directors
Cash Compensation
UroGen does not compensate its Directors for their services as such.
However, Directors are reimbursed for their out-of-pocket expenses in attending
Board meetings.
1995 Directors' Option Plan
Non-employee directors also receive stock options under the Company's 1995
Directors' Option Plan (the "Directors' Plan"). The Directors' Plan was adopted
and approved by the shareholders of the Company in 1995 to provide automatic,
nondiscretionary grants of options to non-employee directors of the Company. A
total of 100,000 shares of Common Stock have been reserved for issuance under
the Directors' Plan. The Directors' Plan provides that each non-employee
director is automatically granted an option to purchase 10,000 shares of UroGen
Corp. Common Stock upon his or her initial election or appointment as an non-
employee director (Initial Options). Subsequently, each non-employee director
who has served for at least six months will be granted an additional option to
purchase 5,000 shares of UroGen Corp. Common Stock on December 31 or each year
so long as he or she remains an non-employee director (Subsequent Options). The
exercise price of the options granted to non-employee directors must be the fair
market value of UroGen Common Stock on the date of grant.
Options granted to non-employee directors have ten-year terms, subject to an
non-employee director's continued service as a director. Initial Options vest
over three years rate of 33.3% per year, subsequent options vest one year from
the grant date. As of December 31, 1998, options to purchase 35,000 shares of
Common Stock to non-employee directors has been granted under the Directors'
Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16") requires UroGen's executive
officers, directors and beneficial owners of more than 10% of UroGen Common
Stock to file reports of ownership and changes in ownership of Common Stock of
the Company with the Securities and Exchange Commission, and to furnish us with
copies of all Section 16(a) forms they file. Based solely on its review of the
copies of such forms received by it, or written representations from certain
reporting persons that no Form 5's were required for those persons, we are not
aware that any reporting persons did not comply with all applicable Section 16
filing requirements during fiscal 1998.
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Board Meetings and Committees
The Board of Directors of the Company held a total of four meetings during
the year ended December 31, 1998. The Board of Directors has a Compensation
Committee and an Audit Committee.
The Compensation Committee of the Board of Directors consists of Mr.
Bernardoni, Mr. Quadros and Mr. Schmitt and held two meeting during the year
ended December 31, 1998. The Compensation Committee establishes the Company's
executive compensation policy, determines the salary and bonuses of the
Company's executive officers and recommends to the Board of Directors stock
option grants for executive officers.
The Audit Committee of the Board of Directors consists of Mr. Bernardoni
and Mr. Schmitt. The Audit Committee was formed in January 1999 and has held no
meetings to date. The Audit Committee recommends engagement of the Company's
independent accountants and is primarily responsible for approving the services
performed by the Company's independent accountants and for reviewing and
evaluating the Company's accounting principles and its system of internal
accounting controls.
No director attended fewer than 100% of the sum of the total number of
meetings of the Board of Directors or the total number of meetings of all
committees of the Board of Directors on which that director served.
Compensation Committee Interlocks and Insider Participation
Two of the members of the Compensation Committee are independent Directors.
Only Mr. Quadros is a member of the Compensation Committee and an officer and
employee of the Company.
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<PAGE>
EXECUTIVE COMPENSATION
The table below sets forth information for the annual and long-term
compensation of the Chief Executive Officer and all executive officers who
received cash compensation greater than $100,000 during the three years ended
December 31, 1998 for services to UroGen in all capacities during the three
years ended December 31, 1998. No other corporate officer received cash
compensation in excess of $100,000 during the three years ended December 31,
1998:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------
Annual Compensation Restricted Securities All Other
-----------------------
Fiscal Salary Bonus Stock Underlying Compensation
Name and Principal Position Period ($) ($) Award ($) Options (#) ($)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Paul D. Quadros (1)........................ 1998 $ 95,000 - - - -
Chairman of the Board 1997 $ 60,000 - - - -
1996 $ 83,000 - - - -
Robert E. Sobol, M.D (2).................. 1998 $162,917 - - - -
President and Chief Executive Officer 1997 $143,379 - - - -
1996 $ 9,000 - - 150,000 -
Wei-Wei Zhang, M.D., PhD (3).............. 1998 $ 40,000 - - - -
Sr. Vice President and Chief 1997 - - - - -
Scientific Officer 1996 - - - -
</TABLE>
(1) Mr. Quadros served as the President and CEO from April 1997 to August 1998.
(2) Dr. Sobol served as the Executive Vice President and Chief Operating
Officer from June 1996 until August 1998.
(3) Dr. Zhang joined UroGen in October 1998. His annual salary is $160,000.
There were no grants of options to purchase the Company's Common Stock made
during the fiscal year ended December 31, 1998 to the officers named in the
Summary Compensation Table, however, the Board of Directors committed to issue
options to purchase 81,903 shares, 627,141 shares and 781,713 shares of Common
Stock to Mr. Quadros, Dr. Sobol and Dr. Zhang, respectively, once a new stock
option plan has been adopted.
There were no options to purchase the Company's Common Stock exercised
during the year ended December 31, 1998, and no unexercised options held as of
December 31, 1998 by the persons named in the Summary Compensation Table.
Change in Control Arrangements
The Company's 1995 Stock Option Plan authorizes the acceleration or payment
of awards and related shares in the event of a Change in Control as defined in
the Plan. Such acceleration or payment may cause part or all of the
consideration involved to be treated as a "parachute payment" under the Internal
Revenue Code of 1986 as amended (the "Code"), which may subject the recipient
thereof to a 20% excise tax and which may not be deductible by the participant's
employer.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
BAXTER TRANSACTIONS
In July 1998, UroGen executed various agreements with Baxter Healthcare
Corporation pursuant to which we acquired certain rights and assets from Baxter.
Under the terms of the agreements, UroGen obtained the rights to Baxter's
adenoviral-based gene transfer technologies and certain equipment in exchange
for 5,830 shares of non-voting convertible Series A Preferred Stock and
1,841,219 shares of Common Stock. The shares issued to acquire the gene transfer
technologies were valued at $5,455,505 based on the fair value of the stock on
the date of issuance and was charged to acquired in-process technology due to
the early stage of development of such technology. The value of the stock issued
for fixed assets was $343,937 based upon the fair value of those assets.
Baxter will provide funding to UroGen for continued research and
development of this technology as it relates to the treatment of hemophilia
under the Developmental Collaboration Agreement. Baxter will provide such
funding through the date on which the treatment of the first patient in a Phase
I clinical trial begins. This development funding is provided under a Credit
Agreement. The balance outstanding under the Credit Agreement as of December 31,
1998 was $1,044,275. Under the terms of the Credit Agreement, the amounts
outstanding under the Credit Agreement are due and payable on December 31 of
each year during the term of the agreement. At UroGen's option, the amounts may
be paid by issuing to Baxter the number of shares of Series B Preferred Stock
determined by dividing the outstanding amount under the Credit Agreement by one
thousand. The balance has been presented as a non-current liability on the
accompanying balance sheet due to the conversion feature and because we intend
to convert the debt rather than repay it with cash. Amounts outstanding under
the Credit Agreement do not accrue interest unless UroGen is in default, in
which case the amount due bears interest at prime plus 4%. In January 1999, we
issued 704 shares of Series B Preferred Stock to convert $704,000 outstanding
under the Credit Agreement. The remaining $340,276 will be converted at December
31, 1999.
UroGen entered into a Distribution Agreement with Baxter under which Baxter
will have an exclusive, worldwide right to market, sell and distribute all
products which may be developed under the Developmental Collaboration Agreement.
The term of the Distribution Agreement is the longer of ten years from the date
of regulatory approval of the first product or the expiration of the last to
expire of any related patents issued on or before ten years from the date of
regulatory approval.
UroGen, Baxter and certain founding shareholders entered into the Investor
Rights Agreement under which the shares held by these entities are subject to
certain restrictions on transferability of the shares until July 8, 2003 and
have certain registration rights. Additionally, under this agreement, Baxter
has the right to purchase up to twenty percent of any new securities issued and
has the obligation to purchase Series C Preferred Stock at a price of $1,000 per
share upon our achievement of the following milestones: (i) $2,000,000 upon
treatment of the first patient in a Phase I clinical trial for a product
developed under the Developmental Collaboration Agreement; (ii) $5,000,000 upon
commencement of Phase III clinical trials of a product developed under the
Developmental Collaboration Agreement; and (iii) $10,000,000 upon approval by
the Food and Drug Administration of a product developed under the Developmental
Collaboration Agreement.
Baxter has committed to provide an additional $400,000 in funding on terms
silimar to those of the offering of unsecured convertible notes payable which
closed in April 1999. UroGen may request such financing when and if needed.
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<PAGE>
MEDSTONE AGREEMENTS
UroGen was incorporated on June 30, 1995 as a wholly-owned subsidiary of
Medstone International, Inc. UroGen was formed from the medical biology and
small molecule pharmaceuticals divisions of Medstone, which were started in
1991. From 1991 until the distribution described below on February 9, 1996,
UroGen relied upon Medstone for financial support. UroGen also relied on
Medstone for assistance with personnel management and financial administration.
Upon completion of the Distribution, UroGen began to operate independently from
Medstone.
Prior to the Distribution, UroGen and Medstone entered into a Distribution
Agreement, Administrative Services Agreement and Contribution Agreement
(collectively, "the Intercompany Agreements"). The following are summaries of
the principal provisions of such agreements. These summaries are qualified in
their entirety by reference to the full text of such agreements, which were
filed by Urogen as exhibits to the Registration Statement on Form 10-SB filed on
January 5, 1996.
Contribution Agreement
Under the Contribution Agreement, Medstone transferred to UroGen certain
Medstone property, including certain intellectual property and other rights,
used in connection with UroGen's business and made a cash contribution of
$500,000 to UroGen.
Stock Distribution Agreement
On December 29, 1995, Medstone declared a dividend of all of the stock of
UroGen Corp. to be distributed to all Medstone stockholders. Each stockholder
of Medstone received, on February 9, 1996, one share of UroGen Common Stock for
each share of Medstone Common Stock held on the record date, December 29, 1995.
The Stock Distribution Agreement provided that in connection with the
transfer of assets and the assumption of liabilities relating to the separation
of the business of UroGen and Medstone, that UroGen and Medstone would execute
or cause to be executed various conveyancing and assumption instruments in such
forms as the parties to the Stock Distribution Agreement agreed.
Pursuant to the Stock Distribution Agreement, Medstone agreed to obtain all
consents, permits and authorizations necessary to transfer to UroGen any assets
associated with the UroGen business which had not been transferred by the
Distribution Date. In addition, Medstone agreed to obtain consents, permits and
authorizations necessary to permit UroGen to assume any liabilities associated
with the UroGen business which had not been assumed by UroGen by the
distribution date.
The Stock Distribution Agreement sets forth the respective obligations of
Medstone and UroGen with respect to liabilities for taxes and tax returns and
other tax related filings. In general, Medstone was responsible for tax filings
of UroGen and paying those taxes (other than taxes accrued on its financial
statements) attributable to any taxable period (or that portion of any taxable
period) ending on or before the Distribution Date. UroGen is be responsible for
filing its tax returns and paying its taxes attributable to periods (or portions
of any taxable periods) commencing on or after the date immediately following
the Distribution Date. In addition, the Stock Distribution Agreement requires
Medstone and UroGen to cooperate in preparing those filings which cover
overlapping taxable periods that include the distribution date.
The Stock Distribution Agreement also provided that each party agreed to
indemnify and hold the other harmless from certain liabilities, including claims
resulting from any breach of representations and
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<PAGE>
warranties made by the indemnifying party in connection with the Stock
Distribution.
Administrative Services Agreement
Under the Administrative Services Agreement, Medstone provided certain public
reporting assistance services to UroGen and, under this agreement, Medstone also
provided to UroGen the use of certain facilities. In consideration for such
services and the use of such facilities, UroGen paid to Medstone an hourly fee
of $100. Pursuant to the terms of the Administrative Services Agreement, UroGen
and Medstone contracted employee services from each other for a period not to
exceed two years following the Distribution Date. There were no payments to
Medstone during 1998 or 1997.
SIDNEY KIMMEL CANCER CENTER
Sidney Kimmel Cancer Center owns 339,000 shares of UroGen Common Stock and Dr.
Royston is Chief Executive Officer of SKCC. UroGen has entered into the
following transactions with SKCC:
In June 1996, UroGen and SKCC entered into an affiliation agreement with a
three year term. Under the affiliation agreement, SKCC agreed to provide the
following services: (i) to allow Dr. Royston to serve as UroGen's Chief
Executive Officer and devote part time executive services to UroGen; (ii) to
lease approximately 100 square feet of office space in SKCC's facility; (iii) to
allow UroGen to consult and confer with scientific staff of SKCC; and (iv) to
make available clerical support for up to ten hours per week at a compensation
rate of $10.00 per hour. In exchange UroGen agreed to make the following
payments: (i) cash consideration of $3,000 per month; conveyance of certain
equipment with a book value of approximately $42,000; and 363,000 shares of
UroGen Corp. Common Stock. The affiliation agreement was amended in May 1997 to
reduce the monthly cash consideration to $1,000 due to Dr. Royston's resignation
as Chief Executive Officer of UroGen.
In September 1997, the affiliation agreement was terminated and UroGen signed
a sublease agreement with SKCC for use of approximately 500 square feet of
office and laboratory space on a month to month basis. The monthly rent for the
space was $1,065.
In August 1998, UroGen and SKCC entered into a new sublease agreement for
approximately 4,800 square feet of office and laboratory space. The monthly
lease payment is approximately $14,800 plus our share of facility expenses. The
lease expires in May 2000.
In November 1997, UroGen entered into a license agreement with an individual
and SKCC under which UroGen obtained an exclusive right to certain technology
for commercial purposes. UroGen is obligated to pay royalties on its net sales
revenues and a percentage of revenues from sublicenses relating the technology
(the "Running Royalties"). Additionally, UroGen is required to make minimum
annual royalties of $30,000 for the duration of the agreement. The minimum
annual royalties may be credited against Running Royalties for that year. If
there are no Running Royalties to offset the annual royalty, one-half of the
annual royalty may be carried forward to offset Running Royalties from the
following year. Within thirty days of UroGen entering into an agreement with a
corporate partner or strategic alliance relationship related to this technology,
UroGen must pay a minimum of $12,500 per month to fund additional research.
OTHER TRANSACTIONS
In July 1998, we received $1,030,000 representing proceeds from the sale of
unsecured convertible notes payable which bear interest at 8% per annum and are
due on June 30, 1999, unless previously converted. The notes are convertible,
at the option of the holder, into Common Stock at $1.00 per share and
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<PAGE>
automatically converted into Common Stock immediately prior to the filing of
this registration statement to registered the resale of the underlying shares.
In addition, each note holder received a warrant to purchase a number of shares
of Common Stock of UroGen equal to one share for each $2.00 of principal under
the purchased note. The warrants are exercisable for seven years from issuance
and have an exercise price of $0.74 per share. The following UroGen officers and
directors participated in this transactions: Mr. Quadros, Dr. Sobol, Dr. Raschke
and Dr. Royston each purchased notes for $50,000 and received a warrant for
25,000 shares of Common Stock.
In April 1999, we received $400,000 representing proceeds from the sale of
unsecured convertible notes payable which bear interest at 8% per annum and are
due on March 31, 1999, unless previously converted. The notes are convertible,
at the option of the holder, into Common Stock at $0.30 per share and
automatically converted into Common Stock immediately prior to the filing of
this registration statement to registered the resale of the underlying shares.
In addition, each note holder received a warrant to purchase a number of shares
of Common Stock of UroGen equal to one share for each $0.30 of principal under
the purchased note. The warrants are exercisable for seven years from issuance
and have an exercise price of $0.30 per share. The following UroGen officers and
directors participated in this transactions: Mr. Quadros pruchased notes for
$10,000 and received a warrant for 33,333 shares of Common Stock. Dr. Raschke
purchased notes for $40,000 and received warrants for 133,333 shares of Common
Stock. Carin Sandvik purchased notes for $5,000 and received warrants for
16,667 shares of Common Stock. Dr. Royston purchased notes for $25,000 and
received a warrant for 83,333 shares of Common Stock.
In July 1997, UroGen issued warrants to purchase 200,000 shares of Common
Stock to Dr. Sobol. These warrants are exercisable at $0.05 per share (the fair
market value of the Common Stock on the date of grant) and expire on July 31,
2001.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the UroGen Corp. consists of 40,000,000 shares
of Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, $.001
par value, of which 40,000 shares are designated Series A Preferred Stock, $.01
par value, 10,000 shares are designated Series B Preferred Stock, and 17,000
shares are designated Series C Preferred Stock.
Common Stock
As of December 31, 1998, there were 9,378,538 shares of Common Stock
outstanding held of record by 1,115 registered shareholders.
Subject to preferences that may be applicable to any outstanding Preferred
Stock, holders of Common Stock are entitled to receive ratably such dividends as
may be declared by the Board of Directors out of funds legally available
therefor. We have not paid any cash dividends on Common Stock. Each holder of
Common Stock is entitled to one vote for each share held of record on all
matters submitted to a vote in the election of directors. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive rights and have no rights to convert
their Common Stock into any other securities and there are no redemption
provisions with respect to such shares. All of the outstanding shares of Common
Stock are fully paid and non-assessable.
The transfer agent and registrar for UroGen Corp. Common Stock is U.S. Stock
Transfer.
Preferred Stock
As of December 31, 1998, there were 5,830 shares of Series A Preferred Stock
outstanding. Holders of the Series A Preferred Stock are not entitled to
receive dividends with respect to the Series A Preferred, have a liquidation
preference amount of ten dollars ($10.00) per share prior to any distribution to
holders of Common Stock, and have no voting rights. The Series A Preferred
Stock is convertible to Common Stock on a 1000 to 1 basis, provided, however,
that no shares are convertible prior to July 8, 2001.
As of December 31, 1998, there were no shares of Series B Preferred Stock
issued and outstanding. It is anticipated that Series B Preferred Stock will be
issued only to Baxter related to amounts funded by Baxter under the Credit
Agreement . Holders of the Series B Preferred Stock are not entitled to receive
dividends, have a liquidation preference amount of one thousand dollars
($1,000.00) per share prior to any distribution to holders of Common Stock and
have no voting rights, except for a vote as to whether UroGen may issue
additional Series B Preferred Stock. The Series B Preferred Stock may be
converted to Common Stock or to Series A Preferred Stock at the option of the
holder, and converts automatically to Common Stock upon the earlier of (i) the
first business day following the treatment of the first patient under an Initial
New Drug Application for a Collaboration Product (as defined) commences in a
Phase I Clinical Trial (the "IND Milestone Date"), (ii) the date five years
after the last advance of funds by Baxter under the Credit Agreement between
Baxter and UroGen through and including the IND Milestone Date and (iii)
automatic conversion pursuant to the terms of the Credit Agreement (See "Certain
Relationships and Related Transactions - Baxter Transactions"). The Series B
Preferred Stock is convertible to Common Stock in an amount equal to (a) the
quotient of (i) the Liquidation Value (adjusted for Recapitalizations), divided
by (ii) one hundred and ten percent (110%) of the per share Fair Market Value
of UroGen Common Stock (as defined), multiplied by (b) the number of shares of
Series B Preferred converted. The Series B Preferred Stock is convertible into
Series A Preferred on a one for one basis. The "Liquidation Value" shall
initially be
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<PAGE>
$1,000 per share of Series B Preferred. In January 1999, 704 shares of Series B
Preferred were issued to Baxter to convert $704,000 outstanding under the Credit
Agreement.
As of December 31, 1998, there were no shares of Series C Preferred Stock
issued and outstanding. It is anticipated that Series C Preferred Stock will be
sold only to Baxter upon UroGen meeting certain specified milestones (See
"Certain Relationships and Related Transactions - Baxter Transactions").
Holders of the Series C Preferred Stock are not entitled to receive dividends,
have a liquidation preference amount of one thousand dollars ($1,000.00) per
share prior to any distribution to holders of Series A Preferred Stock and to
holders of Common Stock and have no voting rights, except as to the issuance of
additional Series C Preferred Stock. Each share of Series C Preferred may be
converted to Common Stock or to Series A Preferred Stock at the option of the
holder, and converts automatically upon the earlier of (i) the first business
day following the approval by the FDA of the right to market, sell or distribute
any product using the Mini-Ad Vector Technology for treatment of blood clotting
disorders in humans relating to hemophilia A, which has been developed pursuant
to the Development Agreement between Baxter and the Company, and (ii) the date
seven years after the achievement of the most recently achieved Series C
Milestones. The Series C Preferred Stock is convertible to Common Stock in an
amount equal to (a) the quotient of (i) the Liquidation Value (adjusted for
Recapitalizations), divided by (ii) one hundred and ten percent (110%) of the
per share Fair Market Value of the Company's Common Stock (as defined),
multiplied by (b) the number of shares of Series C Preferred converted. The
Series C Preferred Stock is convertible into Series A Preferred on a one for one
basis.
The Preferred Stock may be issued from time to time in one or more additional
series. Our Board of Directors has authority to fix the designation, powers,
preferences and rights of each such additional series and the qualifications,
limitations and restrictions thereon and to increase or decrease the number of
shares of such series (but not below the number of shares of such series then
outstanding), without any further vote or action by the shareholders. Except in
accordance with the Baxter Transaction described below, we have no present plans
to issue any shares of Preferred Stock.
Stock Options
The 1995 Director Option Plan was adopted by the Board and approved by the
Shareholders in 1995, to provide automatic, nondiscretionary grants of options
to non-employee directors of the Company. A total of 100,000 shares of Common
Stock has been reserved for issuance under the Director Plan. The Director Plan
provides that each Non-employee director is automatically granted an option to
purchase 10,000 shares of UroGen Common Stock upon his or her initial election
or appointment as an Non-employee director. Subsequently, each non-employee
director who has served for at least six months will be granted an additional
option to purchase 5,000 shares of UroGen Common Stock on December 31 of each
year so long as he or she remains an non-employee director. The exercise price
of options granted to non-employee directors must be the fair market value of
UroGen Common Stock on the date of grant.
Options granted to non-employee directors have ten-year terms, subject to an
non-employee director's continued service as a director. Options granted to
non-employee directors vest over four years at the rate of twenty-five percent
per year. As of December 31, 1997, options to purchase 15,000 shares of Common
Stock to an non-employee director had been granted under The Director Option
Plan.
The 1995 Stock Plan authorizes the Board of Directors, or one or more
committees which the Board may appoint from among its members, to grant options
and rights to purchase Common Stock to officers, key employees consultants and
certain advisors to the Company. Options granted under the 1995 Stock Plan may
be either "incentive stock options" as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or nonstatutory stock options, as
determined by the Board or the Committee. The
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<PAGE>
1995 Stock Plan initially reserved 1,850,000 shares for issuance under the Plan
to be increased the first day of each year by the number of shares equal to two
percent of the Company's total outstanding common shares. As of December 31,
1998, there were outstanding options granted under the 1995 Stock Plan to
purchase 350,000 shares of the Company's Common Stock at $0.05 per share.
In March 1999, the Board adopted the 1999 Stock Plan, subject to shareholder
approval. The 1999 Stock Plan authorizes the Board of Directors, or one or more
committees which the Board may appoint from among its members, to grant options
and rights to purchase Common Stock to officers, key employees consultants and
certain advisors to the Company. Options granted under the 1999 Stock Plan may
be either "incentive stock options" as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or nonstatutory stock options, as
determined by the Board or the Committee. The 1999 Stock Plan initially
reserved 4,000,000 shares for issuance under the Plan to be increased the first
day of each year by the number of shares equal to two percent of the Company's
total outstanding common shares. Options to purchase 2,591,076 shares of the
Company's Common Stock at $0.32 per share have been issued to employees under
the 1999 Stock Plan.
Warrants
In April 1999, UroGen completed an offering of 8% Convertible Subordinated
Notes in which we raised $400,000. Each Note holder received a warrant to
purchase a number of shares of Common Stock equal to one share conversion share
resulting in warrants to purchase 1,333,333 shares of Common Stock. The Warrants
are exercisable for seven years from issuance and have an exercise price of
$0.30. The warrants include a provision whereby the holder may exercise via
surrender of debt or equity instruments of the Company.
In July 1998, the Company completed a $1,030,000 offering of 8% Convertible
Subordinated Notes. Each Note holder received a warrant to purchase a number of
shares of Common Stock equal to one share for each $2.00 of principal resulting
in warrants to purchase 515,000 shares of Common Stock. The Warrants are
exercisable for seven years from issuance and have an exercise price of $0.74.
The warrants include a provision whereby the holder may exercise via surrender
of debt or equity instruments of the Company.
A license agreement granted to the licensor a warrant to purchase
additional shares in the Company to maintain a fully-diluted ownership
percentage of two percent (2%) or increase its ownership percentage up to three
percent (3%). Such warrant rights are exercisable at prices ranging from $.03
to $.04 per share. Such warrant rights expire sixty days after the later of
March 5, 1999 or the first date on which the aggregate outstanding shares of the
Company equals or exceeds 15,000,000 shares on a fully diluted basis.
In 1997 the Company issued 200,000 warrants to purchase Common Stock to Robert
E. Sobol, who was the Chief Operating Officer of the Company at the time. These
warrants are exercisable at $.05 per share and expire on July 31, 2001.
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<PAGE>
PRINCIPAL SHAREHOLDERS AND SELLING SECURITYHOLDERS
The following table sets forth information with respect to the Principal
Shareholders and Selling Securityholders and the respective shares of Common
Stock beneficially owned by each Principal Shareholder and Selling
Securityholder after conversion of the Convertible Subordinated Notes, and
assuming the exercise in full of the warrants issued in connection with the
Convertible Subordinated Notes that may be offered pursuant to this Prospectus.
Because the Selling Securityholders may offer all or some portion of the shares
of Common Stock being offered pursuant to this Prospectus, no estimate can be
given as to the amount of the Common Stock that will be held by the Selling
Holders upon termination of any such sales.
<TABLE>
<CAPTION>
Shares Beneficially Shares Owned
Owned Prior to Sale (1) Number Assuming all Sold (1)
------------------------ -----------------------
Directors, Executive Officers, 5% Percent of Shares Percent
Stockholders and Selling Securityholder Number (%) Offered(2) Number (%)
- --------------------------------------- ----------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Victor W. Schmitt (3) 1,841,219 19.6% - 1,841,219 19.6%
Baxter Healthcare Corporation (3) 1,841,219 19.6% - 1,841,219 19.6%
Ivor Royston (4) 1,018,615 10.6% 245,282 773,333 8.2%
Peter Bernardoni (5)(6) 755,593 7.5% 725,593 30,000 0.3%
Technology Funding Venture Partner IV L.P. (5) 725,593 7.2% 725,593 - -
Paul D. Quadros (7) 531,785 5.6% 145,118 386,667 4.1%
William C. Raschke (8) 445,447 4.6% 345,447 100,000 1.1%
Robert E. Sobol (9) 428,342 4.4% 78,342 350,000 3.6%
Carin D. Sandvik (10) 33,388 * 33,388 - -
All executive officers and directors as a group
(9 persons) 2,487,577 45.1 1,573,170 3,481,219 36.1%
Ira M. Lechner IRA rollover 284,454 2.9% 284,454 - -
Stephen Kandel 245,282 2.5% 245,282 - -
Wailes and Harris Family Trust 200,329 2.1% 200,329 - -
Elliot Lepler MD, A Sole Proprietor, Profit
Sharing Plan 166,940 1.7% 166,940 - -
Susan Pryor and Richard Boner 166,940 1.7% 166,940 - -
Tom Neal 166,940 1.7% 166,940 - -
J. Nevins McBride, Jr. 156,685 1.6% 156,685 - -
Paul Patek 133,552 1.4% 133,552 - -
David Burwen 121,615 1.3% 121,615 - -
Ronald T. Davis 113,781 1.2% 113,781 - -
Dr. and Mrs. W.R. Furtick 100,164 1.1% 100,164 - -
Elliot Lepler 66,776 * 66,776 - -
Richard Maki 66,776 * 66,776 - -
Jack Roziner 66,776 * 66,776 - -
Gerald Sullivan 66,776 * 66,776 - -
Marcus Contardo 66,776 * 66,776 - -
Mike Weinberg 66,776 * 66,776 - -
Pacific Rim Capital 39,171 * 39,171 - -
Dorf Family Trust 39,171 * 39,171 - -
Norman Sokoloff 39,171 * 39,171 - -
James B. Glavin 39,171 * 39,171 - -
Dennis Family Trust 39,171 * 39,171 - -
Camelot Medical Group 39,171 * 39,171 - -
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Warren Kessler 39,171 * 39,171 - -
Elliot Feuerstein 39,171 * 39,171 - -
Jeff Sollender 39,171 * 39,171 - -
Frank Ruderman 39,171 * 39,171 - -
Alfred Mandel 31,337 * 31,337 - -
Blumberg Community Property 31,337 * 31,337 - -
</TABLE>
* less than 1%
(1) All such shares were held of record with sole voting and investment power,
subject to applicable community property laws, by the named individual
and/or by his or spouse, except as indicated in the following footnotes.
(2) For each selling securityholder, the number of shares beneficially owned
includes shares issuable upon exercise of warrants which shares are being
registered hereunder.
(3) Excludes 5,830 shares of non-voting Series A Preferred Stock convertible
subsequent to July 8, 2001 into 5,830,000 shares of Common Stock held by
Baxter Healthcare Corporation. Baxter Healthcare Corporation and Mr. Victor
W. Schmitt are entitled to exercise voting and investment power with
respect to all shares owned by Baxter Healthcare Corporation, and
therefore, are deemed to be beneficial owner of such shares.
(4) Includes 108,333 shares issuable upon exercise of presently outstanding
warrants.
(5) Includes 291,667 shares issuable upon exercise of presently outstanding
warrants held by Technology Funding Venture Partners IV, an Aggressive
Growth Fund, L.P. Technology Funding, Inc. and Technology Funding Ltd.
(together "Technology Funding"), of which Peter Bernardoni is an officer
and a partner, are the managing general partners of Technology Funding
Venture Partners IV, an Aggressive Growth Fund, L.P. Technology Funding and
Mr. Bernardoni are entitled to exercise voting and investment power with
respect to all shares owned by Technology Funding Venture Partners IV, an
Aggressive Growth Fund, L.P. and therefore are deemed to be beneficial
owner of such shares. Mr. Bernardoni also owns options to purchase 30,000
shares.
(6) Includes 30,000 shares issuable upon exercise of presently outstanding and
currently exercisable stock options.
(7) Includes 58,333 shares issuable upon exercise of presently outstanding
warrants.
(8) Includes 158,333 shares issuable upon exercise of presently outstanding
warrants.
(9) Includes 225,000 shares issuable upon exercise of presently outstanding
warrants.
(10) Includes 16,667 shares issuable upon exercise of presently outstanding
warrants.
-43-
<PAGE>
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds of the sale of the shares
offered hereby. The shares of Common Stock may be sold from time to time to
purchasers directly by the Selling Securityholders. Alternatively, the Selling
Securityholders may from time to time offer the Securities through brokers,
dealers or agents who may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers of the Securities for whom they may act as agent. The Selling
Securityholders and any such brokers, dealers or agents who participate in the
distribution of the Securities may be deemed to be "underwriters," and any
profits on the sale of the Securities by them and any discounts, commissions or
concessions received by any such brokers, dealers or agents might be deemed to
be underwriting discounts and commissions under the Securities Act. To the
extent the Selling Securityholders may be deemed to be underwriters, the Selling
Securityholders may be subject to certain statutory liabilities, including, but
not limited to, under Sections 11, 12 and 17 of the Securities Act and Rule 10b-
5 under the Exchange Act.
The Securities offered hereby may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
Securities may be sold by one or more of the following methods, without
limitation: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the Securities as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a broker
or dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; (d) an exchange
distribution in accordance with the rules of such exchange; (e) face-to-face
transactions between sellers and purchasers without a broker-dealer; (f) through
the writing of options; and (g) other. At any time a particular offer of the
Securities is made, a revised Prospectus or Prospectus Supplement, if required,
will be distributed which will set forth the aggregate amount and type of
Securities being offered and the terms of the offering, including the name or
names of any underwriters, dealers or agents, any discounts, commissions,
concessions and other items constituting compensation from the Selling
Securityholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers. Such Prospectus Supplement and, if necessary, a
post-effective amendment to the Registration Statement of which this Prospectus
is a part, will be filed with the Commission to reflect the disclosure of
additional information with respect to the distribution of the Securities. In
addition, the Securities covered by this Prospectus may be sold in private
transactions or under Rule 144 rather than pursuant to this Prospectus.
To the best knowledge of the Company, there are currently no plans,
arrangement or understandings between any Selling Securityholders and any
broker, dealer, agent or underwriter regarding the sale of the Securities by the
Selling Securityholders. There is no assurance that any Selling Securityholder
will sell any or all of the Securities offered by it hereunder or that any such
Selling Securityholder will not transfer, devise or gift such Securities by
other means not described herein.
The Selling Securityholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M which may limit the timing of purchases and sales of any of the Securities by
the Selling Securityholders and any other such person. Furthermore, Regulation M
of the Exchange Act may restrict the ability of any person engaged in the
distribution of the Securities to engage in market-making activities with
respect to the particular Securities being distributed for a period of up to
five business days prior to the commencement of such distribution. All of the
foregoing may affect the marketability of the Securities and the ability of any
person or entity to engage in market-making activities with respect to the
Securities.
-44-
<PAGE>
Pursuant to the Registration Rights Agreement entered into in connection
with the offer and sale of the Notes by the Company, each of the Company and the
Selling Securityholders will be indemnified by the other against certain
liabilities, including certain liabilities under the Securities Act, or will be
entitled to contribution in connection therewith.
The Company has agreed to pay substantially all of the expenses incidental
to the registration, offering and sale of the Securities to the public other
than commissions, fees and discounts of underwriters, brokers, dealers and
agents.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California.
EXPERTS
The financial statements as of December 31, 1998 and 1997 and for each of
the three fiscal years in the period ended December 31, 1998 included in this
Registration Statement have been so included in reliance on the report of Ernst
& Young LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
-45-
<PAGE>
UroGen Corp.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Audited Financial Statements:
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the three years ended December 31, 1998 and F-4
for the period from July 1, 1991 (inception) to December 31, 1998
Consolidated Statements of Stockholders'/Division's Equity for the for the period from
July 1, 1991 (inception) to December 31, 1998 F-5
Consolidated Statements of Cash Flows for the three years ended December 31, 1998 and F-6
for the period from July 1, 1991 (inception) to December 31, 1998
Notes to Financial Statements F-7
Unaudited Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998 F-18
Condensed Consolidated Statements of Operations for the three months ended
March 31, 1999 and 1998 and the period from July 1, 1991 (inception)
to March 31, 1999 F-19
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and 1998 and the period from July 1, 1991 (inception)
to March 31, 1999 F-20
Notes to Unaudited Condensed Consolidated Financial Statements F-21
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors
UroGen Corp.
We have audited the accompanying consolidated balance sheets of UroGen Corp. (a
development stage enterprise) as of December 31, 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998 and the period
from July 1, 1991 (inception) to December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
which 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of UroGen Corp. (a
development stage enterprise) at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998 and the period from July 1, 1991 (inception) to December
31, 1998, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company has reported
accumulated losses during the development stage aggregating $8,705,563 and
without additional financing, lacks sufficient working capital to fund
operations through December 1999, which raises substantial doubt about its
ability to continue as a going concern. Management's plans as to these matters
are described in Note 1. The 1998 financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
ERNST & YOUNG LLP
San Diego, California
March 25, 1999
F-2
<PAGE>
UROGEN CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
----------- --------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 314,983 $74,353
Accounts receivable from related party 348,718 -
Other current assets 20,173 -
---------- -------
Total current assets 683,874 74,353
Property and equipment, net 383,826 2,111
Other assets 30,052 1,065
---------- -------
$1,097,752 $77,529
========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 392,461 $ 68,824
Amounts due to stockholder 315,000
Accrued employee benefits 200,716 -
Other accrued liabilities 58,280 -
Notes payable 991,761 -
---------- ---------
Total current liabilities 1,958,218 68,824
Deferred compensation 28,987 -
Advance from related party 1,044,275 -
Commitments
Stockholders' equity:
Preferred Stock - $0.01 par value,
5,000,000 shares authorized:
Series A preferred stock, 5,830 and
none issued and outstanding 58 -
Common Stock - $0.001 par value,
40,000,000 shares authorized,
9,378,538 and 7,537,319 issued
and outstanding 9,379 7,538
Additional paid-in capital 6,782,920 751,584
Note receivable from stockholder (20,522) (7,242)
Deficit accumulated during
development stage (8,705,563) (743,175)
---------- ---------
Total stockholders' equity (1,933,728) 8,705
---------- ---------
$1,097,752 $ 77,529
========== =========
</TABLE>
See accompanying notes.
F-3
<PAGE>
UROGEN CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
July 1, 1991
For the Year Ended December 31, (inception) to
------------------------------------- December 31,
1998 1997 1996 1998
------------ ---------- ----------- --------------
<S> <C> <C> <C> <C>
Revenues $ 192,300 $ 193,500 $ - $ 841,380
Costs and expenses:
Cost of sales - - - 821,878
Research and development 1,915,548 345,592 347,698 5,434,668
Write-off of acquired
in-process technology 5,455,505 - - 5,455,505
General and administrative 487,501 151,315 174,472 1,346,953
----------- ---------- --------- ------------
Total costs and expenses 7,858,554 496,907 522,170 13,059,004
----------- ---------- --------- ------------
Loss from operations (7,666,254) (303,407) (522,170) (12,217,624)
Other income (expense) 300 - 63,776 64,076
Interest expense (306,106) (306,106)
Interest income 9,672 4,230 14,396 28,298
----------- ---------- --------- ------------
Net loss $(7,962,388) $ (299,177) $(443,998) $(12,431,356)
=========== ========== ========= ============
Basic and diluted loss
per share $ (1.00) $ (0.04) $ (0.07)
=========== ========== =========
Number of shares used in
the computation of basic
and diluted loss per share 7,997,319 7,311,573 5,979,528
=========== ========== =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
UROGEN CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS'/DIVISION EQUITY
-------------------------------------------------------
FOR THE PERIOD JULY 1, 1991 (INCEPTION) TO DECEMBER 31, 1998
------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Preferred Stock Common Stock Note Accumulated
---------------------- ----------------------- Additional Receivable During
Number of Number of paid-in From Development
shares Amount shares Amount Capital Stockholder Stage
---------- ---------- ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Advances from Medstone
July 1, 1991 to
December 31, 1995 - $ - - $ - $ - $ - $ -
Net loss July 1, 1991
to December 31, 1995 - - - - - - -
---------- --------- ---------- ---------- ---------- ----------- ------------
Balance at December 31, 1995 - - - - - - -
Capital contribution by
Medstone - - - - - - -
Distribution of stock
dividend and net
assets February 9, 1996 5,616,528 5,617 657,465 - -
Distribution of Common Stock
for services at $.05 per share 363,000 363 17,787 - -
Net loss - - - - - - (443,998)
---------- --------- ---------- ---------- ---------- ----------- ------------
Balance at December 31, 1996 5,979,528 5,980 675,252 - (443,998)
Issuance of Common Stock
for cash upon exercise of
options at $.05 per share 1,410,000 1,410 69,090 - -
Issuance of Common Stock
for cash and note receivable
at $.05 per share 147,791 148 7,242 (7,242) -
Net loss - - - - - - (299,177)
---------- --------- ---------- ---------- ---------- ----------- ------------
Balance at December 31, 1997 7,537,319 7,538 751,584 (7,242) (743,175)
Issuance of Preferred and
Common Stock for equipment
and acquired in-process
technology, net of
issuance costs of $83,366 5,830 58 1,841,219 1,841 5,714,176
Issuance of detachable
warrants for Common
Stock 305,910
Interest and other related
to note receivable
from stockholder 11,250 (13,280)
Net loss - - - - - - (7,962,388)
---------- --------- ---------- ---------- ---------- ----------- ------------
Balance at December 31, 1998 5,830 $ 58 9,378,538 $ 9,379 $6,782,920 $ (20,522) $ (8,705,563)
========== ========= ========== ========== ========== =========== ============
<CAPTION>
Advances Divisional
from Accumulated
Medstone (Deficit) Total
---------- ----------- -----------
<S> <C> <C> <C>
Advances from Medstone
July 1, 1991 to
December 31, 1995 $ 3,888,875 - $ 3,888,875
Net loss July 1, 1991
to December 31, 1995 - (3,725,793) (3,725,793)
----------- ----------- -----------
Balance at December 31, 1995 3,888,875 (3,725,793) 163,082
Capital contribution by
Medstone 500,000 - 500,000
Distribution of stock
dividend and net
assets February 9, 1996 (4,388,875) 3,725,793 -
Distribution of Common
Stock for services at
$.05 per share - - 18,150
Net loss - - (443,998)
----------- ----------- -----------
Balance at December 31,1996 - - 237,234
Issuance of Common Stock
for cash upon exercise of
options at $.05 per share - - 70,500
Issuance of Common Stock
for cash and note
receivable
at $.05 per share - - 148
Net loss - - (299,177)
----------- ----------- -----------
Balance at December 31, 1997 - - 8,705
Issuance of Preferred and
Common Stock for fixed
assets and acquired in-
process technology, net of
issuance costs of $83,366 - - 5,716,075
Issuance of detachable
warrants for Common
Stock - - 305,910
Interest and other related
to note receivable for
Common Stock - (2,030)
Net loss - - (7,962,388)
----------- ----------- -----------
Balance at December 31, 1998 $(1,933,728)
===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
UROGEN CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------
<TABLE>
<CAPTION>
July 1, 1991
(inception) to
For the Year Ended December 31, December 31,
-------------------------------------
1998 1997 1996 1998
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Net loss $(7,962,388) $( 299,177) $( 443,998) $(12,431,356)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Write-off of in-process
technology acquired with stock 5,455,505 - - 5,455,505
Expenses paid via advances
from related party 695,557 - - 695,557
Depreciation and amortization 25,715 828 120,158 520,327
Non-cash distribution of
common stock - - 18,150 18,150
Non-cash outside service cost - - 106,000 106,000
Gain (loss) on disposal of
fixed assets - - (63,776) (81,807)
Amortization of debt discount 265,640 - - 265,640
Change in assets and
liabilities:
Other current assets (20,173) - - (20,173)
Other assets (28,987) (1,065) - (30,052)
Accounts payable 323,637 53,364 15,460 392,461
Amounts due to stockholder 315,000 - - 315,000
Other current liabilities 258,996 - - 258,996
Deferred compensation 28,987 - - 28,987
----------- ---------- ---------- ------------
Net cash used in
operating activities (642,511) (246,050) (248,006) (4,506,765)
Cash flows from investing
activities:
Purchase of property and
equipment (63,493) (500) (2,739) (578,999)
----------- ---------- ---------- ------------
Net cash used in
investing activities (63,493) (500) (2,739) (578,999)
Cash flows from financing
activities:
Proceeds from notes payable 1,030,000 - - 1,030,000
Stock issuance costs (83,366) - - (83,366)
Proceeds from issuance of
common stock upon exercise
of options - 70,500 - 70,500
Proceeds from sale of
common stock - 148 - 148
Net advances from Medstone - - - 3,883,465
Capital contribution of cash
by Medstone - - 500,000 500,000
----------- ---------- ---------- ------------
Net cash provided by
financing activities 946,634 70,648 500,000 5,400,747
----------- ---------- ---------- ------------
Net increase(decrease) in
cash and equivalents 240,630 (175,902) 249,255 314,983
----------- ---------- ---------- ------------
Cash and equivalents,
beginning of period 74,353 250,255 1,000 -
----------- ---------- ---------- ------------
Cash and equivalents,
end of period $ 314,983 $ 74,353 $ 250,255 $ 314,983
=========== ========== ========== ============
</TABLE>
See Note 11 for supplemental cash flow information.
See accompanying notes.
F-6
<PAGE>
UROGEN CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
December 31, 1998
-----------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
UroGen Corp. (the "Company"), a Delaware corporation, was incorporated on June
30, 1995, as a wholly-owned subsidiary of Medstone International, Inc.
("Medstone"). The Company was formed from the medical biology and small molecule
pharmaceuticals divisions of Medstone to continue the effort, started in 1991,
to develop pharmaceuticals to treat diseases in urology, with a particular
interest in prostate cancer. UroGen operated as two divisions of Medstone from
July 1, 1991 to December 29, 1995.
DISTRIBUTION AND CAPITALIZATION
On December 29, 1995, Medstone declared a dividend of all of the stock of UroGen
Corp. to be distributed to all Medstone stockholders. Each stockholder of
Medstone received, on February 9, 1996, one share of UroGen Common Stock for
each share of Medstone Common Stock held on the Record Date, December 29, 1995.
The distribution resulted in the receipt by record holders of Medstone Common
Stock of all of UroGen's outstanding Common Stock. Upon completion of the
Distribution, there were 5,616,528 shares of UroGen Common Stock outstanding.
The distribution occurred on February 9, 1996, on which date Medstone also
contributed to the capital of UroGen Corp. $500,000 cash. For financial
reporting purposes, the distribution and contribution to capital have been
considered effective as of January 1, 1996, and the operations of the business
have been considered those of UroGen Corp. effective that date.
Additionally, effective January 1, 1996, Medstone executed a forgiveness of all
intercompany advances resulting from the prior divisional funding of operations
between Medstone and UroGen.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of UroGen Corp. and
its wholly-owned subsidiary. All significant intercompany transactions and
balances have been eliminated in consolidation.
The accompanying financial statements for the year ended December 31, 1998 have
been prepared assuming the Company will continue as a going concern. However,
the Company incurred net losses of $7,962,388 during 1998 and has a deficit
accumulated during the development stage of $8,705,563 at December 31, 1998.
During 1999, management intends to raise additional debt and/or equity financing
to fund future operations and to provide additional working capital. However,
there is no assurance that such financing will be consummated or obtained in
sufficient amounts necessary to meet the Company's needs.
The accompanying financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classifications of liabilities that may result from the
possible inability of the Company to continue as a going concern.
F-7
<PAGE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost. Depreciation is computed
using the straight-line method over the useful lives of the assets, estimated at
three to five years.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option grants to employees in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and, accordingly,
recognizes no compensation expense for the stock option grants to employees.
NET LOSS PER SHARE
Net loss per share is computed on the basis of the weighted average number of
common shares outstanding during the periods presented. Loss per share assuming
dilution is computed on the basis of the weighted-average number of common
shares outstanding and the dilutive effect of all common stock equivalents and
convertible securities. Net loss per share assuming dilution for the years ended
December 31, 1998, 1997 and 1996 is equal to net loss per share due to the fact
that the effect of common stock equivalents outstanding during the periods,
including stock options, warrants and convertible debt, are antidilutive.
INCOME TAXES
The Company provides for income taxes under the principles of Statement of
Financial Accounting Standards No. 109, which requires that provision be made
for taxes currently due and for the expected future tax effects of temporary
differences between book and tax bases of assets and liabilities.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
COMPREHENSIVE INCOME
During 1998, the Company adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 requires that all
components of comprehensive income, including net income, be reported in the
financial statements in the period in which they are recognized. Comprehensive
income is defined as the change in equity during a period from transactions and
other events and circumstances from non-owner sources. Net income and other
comprehensive income, including foreign currency translation adjustments, and
unrealized gains and losses on investments, shall be reported, net of their
related tax effect, to arrive at comprehensive income. Comprehensive income
(loss) was not different than net income (loss) in 1997 or 1998.
USE OF ESTIMATES
The preparation of financial statements in accordance 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.
RECLASSIFICATIONS
Certain reclassifications of prior year balances have been made to conform to
the current year presentation.
F-8
<PAGE>
2. ACQUISITION OF TECHNOLOGY AND RELATED AGREEMENTS
In July 1998, the Company executed various agreements with Baxter Healthcare
Corporation pursuant to which the Company acquired certain rights and assets
from Baxter. Under the terms of the agreements, the Company obtained the rights
to Baxter's adenoviral-based gene transfer technologies and certain equipment in
exchange for 5,830 shares of non-voting convertible Series A Preferred Stock and
1,841,219 shares of Common Stock of the Company. The shares issued to acquire
the gene transfer technologies were valued at $5,455,505 based on the fair value
of the stock on the date of issuance and was charged to acquired in-process
technology due to the early stage of development of such technology. The value
of the stock issued for fixed assets was $343,937 based upon the fair value of
those assets.
Baxter will provide funding to the Company for continued research and
development of this technology as it relates to the treatment of hemophilia
under the Developmental Collaboration Agreement. Baxter will provide such
funding through the date on which the treatment of the first patient in a Phase
I clinical trial begins. This development funding is provided under a Credit
Agreement. The balance outstanding under the Credit Agreement as of December 31,
1998 was $1,044,275. Under the terms of the Credit Agreement, the amounts
outstanding under the Credit Agreement are due and payable on December 31 of
each year during the term of the agreement. At the Company's option, the amounts
may be paid by issuing to Baxter the number of shares of Series B Preferred
Stock determined by dividing the outstanding amount under the Credit Agreement
by one thousand. The balance has been presented as a non-current liability on
the accompanying balance sheet due to the conversion feature and because the
Company intends to convert the debt rather than repay it with cash. Amounts
outstanding under the Credit Agreement do not accrue interest unless the Company
is in default, in which case the amount due bears interest at prime plus 4%. In
January 1999, the Company issued 704 shares of Series B Preferred Stock to
convert $704,000 outstanding under the Credit Agreement. The remaining $340,276
will be converted at December 31, 1999.
The Company entered into a Distribution Agreement with Baxter whereby Baxter
will have an exclusive, worldwide right to market, sell and distribute all
products which may be developed under the Developmental Collaboration Agreement.
The term of the Distribution Agreement is the longer of ten years from the date
of regulatory approval of the first product or the expiration of the last to
expire of any related patents issued on or before ten years from the date of
regulatory approval.
The Company, Baxter and certain founding shareholders (the "Founders") entered
into the Investor Rights Agreement under which the shares held by these entities
are subject to certain restrictions on transferability of the shares until July
8, 2003 and have certain registration rights. Additionally, under this
agreement, Baxter has the right to purchase up to twenty percent of any
F-9
<PAGE>
new securities issued and has the obligation to purchase Series C Preferred
Stock at a price of $1,000 per share upon the Company's achievement of the
following milestones: (i) $2,000,000 upon treatment of the first patient in a
Phase I clinical trial for a product developed under the Developmental
Collaboration Agreement; (ii) $5,000,000 upon commencement of Phase III clinical
trials of a product developed under the Developmental Collaboration Agreement;
and (iii) $10,000,000 upon approval by the Food and Drug Administration of a
product developed under the Developmental Collaboration Agreement.
F-10
<PAGE>
3. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Equipment $ 372,276 $ 3,239
Furniture and fixtures 16,063 -
Leasehold improvements 22,330 -
------------ ------------
410,669 3,239
Accumulated depreciation 26,843 1,128
------------ ------------
$ 383,826 $ 2,111
============ ============
</TABLE>
4. NOTES PAYABLE
In July 1998, the Company received $1,030,000, representing proceeds from the
sale of unsecured convertible notes payable, which bear interest at 8% per annum
and are due on June 30, 1999, unless previously converted. The notes are
convertible, at the option of the holder, into common stock at $1.00 per share,
and automatically convert into common stock immediately prior to the filing of
any registration statement to register the resale of the underlying shares.
In addition, each note holder received a warrant to purchase a number of shares
of common stock of the Company equal to one share for each $2.00 of principal
under the purchased note. The warrants are exercisable for seven years from
issuance and have an exercise price of $0.74 per share. The fair value of the
warrants is being amortized to interest expense over the term of the notes.
Amortization during the year ended December 31, 1998 was $265,640.
5. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of Preferred Stock $0.01 par
value. As of December 31, 1998, 40,000, 10,000 and 17,000 shares were designated
Series A, Series B and Series C, respectively.
As of December 31, 1998, there were 5,830 shares of Series A Preferred Stock
outstanding. Holders of the Series A Preferred Stock are not entitled to receive
dividends, have a liquidation preference amount of ten dollars ($10.00) per
share and have no voting rights. The Series A Preferred Stock is convertible to
Common Stock on a 1000 to 1 basis; provided, however, that no shares are
convertible prior to July 8, 2001.
As of December 31, 1998, there were no shares of Series B Preferred Stock issued
and outstanding. It is anticipated that Series B Preferred Stock will be issued
only to Baxter in payment for amounts funded by Baxter under the Credit
Agreement. Holders of the Series B Preferred Stock are not entitled to receive
F-11
<PAGE>
dividends, have a liquidation preference amount of one thousand dollars
($1,000.00) per share prior to any distribution to holders of Series A Preferred
Stock and holders of Common Stock and have no voting rights, except for a vote
as to whether the Company may issue additional Series B Preferred Stock. The
Series B Preferred Stock may be converted into Common Stock or to Series A
Preferred Stock at the option of the holder, and converts automatically to
Common Stock upon the earlier of (i) the first business day following the
treatment of the first patient under an Initial New Drug Application for a
Collaboration Product (as defined) commences in a Phase I Clinical Trial (the
"IND Milestone Date"), (ii) the date five years after the last advance of funds
by Baxter under the Credit Agreement between Baxter and the Company through and
including the IND Milestone Date and (iii) automatic conversion pursuant to the
terms of the Credit Agreement. The Series B Preferred Stock is convertible to
Common Stock in an amount equal to (a) the quotient of (i) the Liquidation Value
(adjusted for recapitalizations), divided by (ii) one hundred and ten percent
(110%) of the per share Fair Market Value of the Company's Common Stock (as
defined), multiplied by (b) the number of shares of Series B Preferred
converted. The Series B Preferred Stock is convertible into Series A Preferred
on a one for one basis. The "Liquidation Value" is initially $1,000 per share of
Series B Preferred. In January 1999, 704 shares of Series B Preferred Stock were
issued to Baxter to convert $704,000 outstanding under the Credit Agreement.
As of December 31, 1998, there were no shares of Series C Preferred Stock issued
and outstanding. It is anticipated that Series C Preferred Stock will be sold
only to Baxter upon UroGen meeting certain specified milestones (the "Series C
Milestones"). Holders of the Series C Preferred Stock are not entitled to
receive dividends, have a liquidation preference amount of one thousand dollars
($1,000.00) per share prior to any distribution to holders of Series A Preferred
Stock and to holders of Common Stock and have no voting rights, except as to the
issuance of additional Series C Preferred Stock. Each share of Series C
Preferred may be converted into Common Stock or to Series A Preferred Stock at
the option of the holder, and converts automatically to Common Stock upon the
earlier of (i) the first business day following the approval by the FDA of the
right to market, sell or distribute any product using the Mini-Ad Vector
Technology for treatment of blood clotting disorders in humans relating to
Hemophilia A, which product has been developed pursuant to the Developmental
Collaboration Agreement between Baxter and the Company and (ii) the date seven
years after the achievement of the most recently achieved Series C Milestone.
The Series C Preferred Stock is convertible to Common Stock in an amount equal
to (a) the quotient of (i) the Liquidation Value (adjusted for
Recapitalizations), divided by (ii) one hundred and ten percent (110%) of the
per share Fair Market Value of the Company's Common Stock (as defined),
multiplied by (b) the number of shares of Series C Preferred converted. The
Series C Preferred Stock is convertible into Series A Preferred on a one for one
basis.
COMMON STOCK
The Company is authorized to issue 40,000,000 shares of Common Stock $0.001 par
value. As of December 31, 1998, there are 9,378,538 shares issued and
outstanding.
In February 1997, the Company entered into a License Agreement with The Immune
Response Corporation (the IRC License), a public biotechnology company. The
Company obtained an exclusive license to use certain patented technologies to
develop and commercialize products based upon the licensed patent rights. The
IRC License requires the Company to pay future cash royalties to the licensor
based upon net sales. In connection with this agreement, the Company entered
into a Stock and Warrant Purchase Agreement with IRC whereby the Company issued
147,791 shares of Common Stock at $.05 per share for total proceeds of $7,390.
See description of the Immune Response Corporation warrant below.
WARRANTS
Holders of the convertible notes payable also hold warrants to purchase 515,000
shares of Common Stock at an exercise price of $0.74 per share (Note 4).
F-12
<PAGE>
The Company granted to IRC a warrant to purchase additional shares in the
Company to maintain a fully-diluted ownership percentage of two percent (2%) or
increase its ownership percentage up to three percent (3%). Such warrant rights
are exercisable at prices ranging from $.03 to $.04 per share. Such warrant
rights expire sixty days after the later of March 5, 1999 or the first date on
which the aggregate outstanding shares of the Company equals or exceeds
15,000,000 shares on a fully diluted basis.
In 1997 the Company issued warrants to purchase 200,000 shares of Common Stock
to an officer of the Company. These warrants are exercisable at $.05 per share
and expire on July 31, 2001.
STOCK OPTIONS
The 1995 Director Option Plan (the "Director Plan") was adopted by the Board and
approved by the stockholders in 1995, to provide automatic, nondiscretionary
grants of options to non-employee directors of the Company. A total of 100,000
shares of Common Stock have been reserved for issuance under the Director Plan.
The Director Plan provides that each non-employee director is automatically
granted an option to purchase 10,000 shares of UroGen Common Stock upon his or
her initial election or appointment as a non-employee director. Subsequently,
each non-employee director who has served for at least six months will be
granted an additional option to purchase 5,000 shares of UroGen Common Stock on
December 31 of each year so long as he or she remains a non-employee director.
The exercise price of options granted to non-employee directors must be the fair
market value of UroGen Common Stock on the date of grant.
Options granted to non-employee directors have a ten-year term, subject to a
non-employee director's continued service as a director. The initial options
granted to non-employee directors vest over three years at the rate of one-third
per year and the annual options vest one year from the date of grant. As of
December 31, 1998, options to purchase 35,000 shares of Common Stock to non-
employee directors had been granted under The Director Option Plan and options
to purchase 20,000 shares were vested.
The 1995 Stock Plan was adopted by the Board of Directors (the "Board") and
authorized by the Stockholders in 1995 and authorizes the Board or one or
more committees which the Board may appoint from among its members (the
"Committee"), to grant options and rights to purchase Common Stock to officers,
key employees consultants and certain advisors to the Company. Options granted
under the 1995 Stock Plan may be either "incentive stock options" as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
nonstatutory stock options, as determined by the Board or the Committee. The
1995 Stock Plan initially reserved 1,850,000 shares for issuance under the Plan
to be increased the first day of each year by the number of shares equal to two
percent of the Company's total outstanding common shares. Options granted
pursuant to the 1995 Stock Plan above have exercise periods of ten years and
vest over one to four years.
As of December 31, 1998, management and the Board had committed to issue options
to purchase 2,391,183 shares of Common Stock to employees under a new stock
option plan once adopted by the Board.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee and director stock options and warrants, because,
as discussed below, the alternative fair value accounting provided
F-13
<PAGE>
for under SFAS 123, "Accounting for Stock-based Compensation," requires use of
option valuation models that were not developed for use in valuing employee and
director stock options and warrants. Under APB 25, when the exercise price of
the Company's employee stock options equals the market price or fair value of
the underlying stock on the date of grant, no compensation expense is
recognized.
The following table summarizes the activity of the Company's stock options:
<TABLE>
<CAPTION>
Employee Director Weighted
Stock Stock Average
Options Options Exercise Price
----------- -------- --------------
<S> <C> <C> <C>
Balance at December 31, 1995 1,160,000 - $0.05
Granted 250,000 15,000 $0.05
Exercised - - -
Canceled - - -
Expired - - -
----------- -------- --------------
Balance at December 31, 1996 1,410,000 15,000 $0.05
Granted 350,000 5,000 $0.05
Exercised (1,410,000) - $0.05
Canceled - - -
Expired - - -
----------- -------- --------------
Balance at December 31, 1997 350,000 20,000 $0.05
Granted - 15,000 $0.33
Exercised - - -
Canceled - - -
Expired - - -
----------- -------- --------------
Balance at December 31, 1998 350,000 35,000 $0.06
=========== ======== ==============
</TABLE>
In January 1997, four officers of the Company exercised options to purchase a
total of 1,410,000 shares of Common Stock at $.05 per share for total cash
proceeds of $70,500.
The following Common Stock is reserved for future issuance at December 31, 1998:
Stock options
Granted and outstanding 385,000
Reserved for future grants 672,668
---------
1,057,668
Warrants 848,748
Series A Preferred Stock 5,830,000
Convertible debt 1,030,000
---------
8,766,416
=========
F-14
<PAGE>
<TABLE>
<CAPTION>
Options outstanding as of December 31, 1998:
Weighted
Weighted Average
Average Weighted Exercise
Contractual Average Price of
Exercise Options Life in Exercise Options Options
Price Outstanding Years Price Exercisable Exercisable
- -------------- ------------- ------------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 0.05 370,000 8.23 $0.05 210,553 $0.05
$0.33 15,000 10.00 $0.33 - -
</TABLE>
Pro forma information regarding net loss and net loss per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1998
and 1997: a risk-free interest rate of 6%, a dividend yield of 0%, a volatility
factor of the expected market price of the Company's common stock of 65% and
50%, respectively, and an expected life of the option of two to five years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
1998 1997
------------ -----------
Pro forma net loss $(7,964,255) $(307,352)
Pro forma net loss per share $ (1.00) $ (0.04)
The pro forma results above for 1998 and 1997 are not likely to be
representative of the effects of applying SFAS 123 on reported net income or
loss for future years as these amounts reflect the expense for less than four
years of vesting.
6. INCOME TAXES
Prior to the distribution of UroGen Common Stock by Medstone, income taxes had
been allocated to the Company on a "separate return" basis whereby such amounts
were determined as if the Company were a separate taxable entity. However, the
Company's net operating losses and research and development credits incurred
through December 31, 1995 were included in the consolidated tax returns of
Medstone and were fully utilized. As a result, the Company's available net
operating losses and research and development credits to offset future taxable
income are limited to amounts incurred during the three-year period ended
December 31, 1998. The Company has established a valuation allowance to fully
offset its deferred tax assets in accordance with Statements of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Accordingly, no
benefit for the Company's deferred tax assets has been recognized, as its
realization is uncertain.
F-15
<PAGE>
Deferred tax assets are comprised of the following:
December 31, December 31,
1998 1997
------------- -------------
Loss carryforwards $ 1,284,000 $ 279,000
Research and development credit carryforwards 99,000 29,000
Capitalized research and development 2,149,000 -
Other, net 63,000 8,000
------------ -------------
Total deferred tax assets 3,595,000 316,000
Valuation allowance (3,595,000) (316,000)
------------ -------------
Net deferred tax assets $ - $ -
============ =============
As of December 31, 1998, the Company has Federal and state net operating loss
carryforwards of approximately $3,146,000 and $3,184,000, respectively, which
will begin to expire in 2011 and 2001, respectively, unless previously utilized.
The company has Federal and state research and development credit carryforwards
of approximately $75,000 and $37,000, respectively, which will begin to expire
in 2011 unless previously utilized.
Under Internal Revenue Code Sections 382 and 383, the Company's use of its net
operating loss and tax credit carryforwards could be limited in the event of
certain cumulative changes in the Company's stock ownership.
7. REVENUES
For the year ended December 31, 1998, $143,500 of the revenues was from a
research agreement, and $48,800 was from a research grant.
8. RELATED PARTY BALANCES AND TRANSACTIONS
During 1996, the Company issued 339,000 shares of Common Stock valued at $.05
per share and transferred property and equipment with a book value of $42,224 to
a research organization, which is also a stockholder, in connection with the
execution of an Affiliation Agreement and for services rendered. Additionally,
during 1998, 1997 and 1996, the Company paid the research organization $115,493,
$53,741 and $67,000, respectively, for rent, license fees and services (Note 9).
During 1998, 1997 and 1996, the Company paid four stockholders/officers a total
of $81,250, $222,379 and $134,000, respectively, for consulting services.
9. COMMITMENTS
FACILITIES
The Company entered into a sublease agreement with an affiliated research
organization under which the Company leases approximately 4,800 square feet of
office and laboratory space through May 2000. Future minimum rent payments under
this agreement are $168,552 for 1999 and $70,230 for 2000. For
F-16
<PAGE>
the years ended December 31, 1998, 1997 and 1996, rent expense was approximately
$93,000, $36,000 and $67,000, respectively.
LICENSES
The Company entered into the IRC License in March 1997, which was amended in
January 1999. Under the IRC License, the Company is obligated to make a
milestone payment to Immune Response Corporation of $200,000 upon the approval
by the Food and Drug Administration or the governing health authority of any
other country of its first product related to the licensed technology. This fee
can be offset against future royalty payments. The Company is obligated to pay
royalties on its net sales revenue and a percentage of all revenues received
from sublicenses relating to the tumor radiosensitization gene therapy
technology. Additionally, the Company agreed in the January 1999 amendment to
reimburse IRC for past patent expenses relating to the licensed technology in
the amount of $59,400 payable during 1999.
In November 1997, the Company entered into a license agreement with an
individual and an affiliated research organization (Note 8) under which the
Company obtained an exclusive right to certain technology for commercial
purposes. The Company is obligated to pay royalties on its net sales revenues
and a percentage of revenues from sublicenses relating the technology (the
"Running Royalties"). Additionally, the Company is required to make minimum
annual royalties of $30,000 for the duration of the agreement. The minimum
annual royalties may be credited against Running Royalties, as defined, for that
year. If there are no Running Royalties to offset the annual royalty, one-half
of the annual royalty may be carried forward to offset Running Royalties from
the following year. Within thirty days of the Company entering into an agreement
with a corporate partner or strategic alliance relationship related to this
technology, the Company shall pay a minimum of $12,500 per month to fund
additional research.
In September 1996, the Company entered into a license agreement with the Regents
of the University of California to license rights to certain patents and
continuing applications thereof in the field of diagnosis of metastases by
nucleic acid amplification. The Company is required to pay an annual license
maintenance fee of $10,000 until the Company is selling licensed product. The
Company is also required to pay milestone fees of $25,000 upon filing an Initial
New Drug Application on a licensed product or method with the Food and Drug
Administration and $50,000 upon marketing approval of a licensed product or
method by the FDA. The Company will pay royalties on its net sales revenues of
licensed products or methods. A minimum annual royalty of $50,000 is payable
beginning with the year of first commercial sale of licensed product, but no
later than the fifth year of the agreement. The minimum annual royalty will be
credited against earned royalty due for the year in which the annual minimum
payment was made.
10. PROFIT SHARING PLAN
In 1998, the Company established a savings plan which covers all employees
working more than 1,000 hours per year which has been established pursuant to
the provisions of Section 401(k) of the Internal Revenue Code. Contributions to
the plan are discretionary and vest over a four-year period. Employer
contributions during the year ended December 31, 1998 were $13,960.
11. SUPPLEMENTAL CASH FLOW INFORMATION
As more fully described in Note 2, in 1998 the Company acquired certain
technology and equipment in exchange for 5,830 shares of Series A Preferred
Stock and 1,841,219 shares of Common Stock of the Company valued at $5,799,442.
The equipment acquired was valued at $343,937 based on an appraisal.
During the third quarter of 1998, a portion of the Company's operations were
located at Baxter's facility. The costs incurred for such operations of
$695,557 were reimbursed to Baxter via the Credit Agreement (Note 2).
F-17
<PAGE>
UROGEN CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31
1999 1998
---------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 664,973 $ 314,983
Accounts receivable from related party - 348,718
Other current assets 2,703 20,173
--------------- -------------
Total current assets 667,676 683,874
Property and equipment, net 376,794 383,826
Other assets 82,295 30,052
--------------- -------------
$ 1,126,765 $ 1,097,752
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 335,334 $ 392,461
Amounts due to stockholder - 315,000
Accrued employee benefits 165,536 200,716
Other accrued liabilities 90,218 58,280
Notes payable 1,030,000 991,761
--------------- -------------
Total current liabilities 1,621,088 1,958,218
Deferred compensation 71,130 28,987
Advance from related party 1,432,222 1,044,275
Commitments
Stockholders' equity:
Preferred Stock - $0.01 par value, 5,000,000 shares authorized:
Series A Preferred Stock, 6,534 and 5,830
issued and outstanding 58 58
Series B Preferred Stock, 704 and none
issued and outstanding 7 -
Common Stock - $0.001 par value, 40,000,000
shares authorized; 9,408,755 and 9,378,538
issued and outstanding 9,409 9,379
Additional paid-in capital 7,488,394 6,782,920
Note receivable from stockholder - (20,522)
Deficit accumulated during development stage (9,495,543) (8,705,563)
--------------- -------------
Total stockholders' equity (1,997,675) (1,933,728)
--------------- -------------
$ 1,126,765 $ 1,097,752
=============== =============
</TABLE>
See accompanying notes.
F-18
<PAGE>
UROGEN CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 1, 1991
---------------------------------- (INCEPTION) TO
MARCH 31, MARCH 31, MARCH 31,
1999 1998 1999
------------- ---------- ----------
<S> <C> <C> <C>
Revenue $ - $ 120,550 $ 841,380
------------- ----------- ------------
Costs and expenses:
Cost of sales - - 821,878
Research and development 539,276 145,830 5,973,944
Write-off of acquired in-process technology - - 5,455,505
Selling, general and administrative 195,449 93,517 1,542,402
------------- ----------- ------------
Total costs and expenses 734,725 239,347 13,793,729
------------- ----------- ------------
Loss from operations (734,725) (118,797) (12,952,349)
Other income (expense) 905 - 64,981
Interest expense (58,839) - (364,945)
Interest income 2,689 477 30,987
------------- ----------- ------------
Net loss $ (789,970) $ (118,320) $(13,221,326)
============= =========== ============
Basic and diluted loss per share $ (0.08) $ ( 0.02)
============= ===========
Number of shares used in the computation of basic and
diluted loss per share 9,382,705 7,537,319
============= ===========
</TABLE>
See accompanying notes.
F-19
<PAGE>
UROGEN CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 1, 1991
FOR THE THREE MONTHS ENDED (INCEPTION) TO
MARCH 31, MARCH 31,
1999 1998 1999
------------ ----------- --------------
<S> <C> <C>
Net loss $ (789,970) $ (118,320) $ (13,221,326)
Adjustments to reconcile net loss to net cash used
In operating activities:
Write-off of in-process technology acquired with stock - - 5,455,505
Expenses paid via advances from related party - - 695,557
Depreciation and amortization 28,004 246 548,331
Distribution of common stock for services - - 18,150
Non-cash outside service cost - - 106,000
Gain (loss) on disposal of fixed assets - - (81,807)
Amortization of debt discount 38,752 - 304,392
Change in assets and liabilities:
Accounts receivable - (71,750) -
Other current assets 17,470 - (2,703)
Other assets (52,243) - (82,295)
Accounts payable (57,127) 165,615 335,334
Amounts due to stockholder (315,000) - -
Other current liabilities (3,242) - 255,754
Deferred compensation 42,143 - 71,130
------------ ----------- ---------------
Net cash used in operating activities (1,091,213) (24,209) (5,597,978)
Cash flows from investing activities:
Purchase of property and equipment (20,972) - (599,971)
------------- ----------- --------------
Net cash used in investing activities (20,972) - (599,971)
Cash flows from financing activities:
Advances from related party 1,440,664 - 1,440,664
Repayment of note receivable from stockholder 20,000 - 20,000
Proceeds from notes payable - - 1,030,000
Stock issuance costs - - (83,366)
Proceeds from issuance of common stock upon exercise 1,511 - 72,011
of options
Proceeds from sale of Common Stock - - 148
Net advances from Medstone - - 3,883,465
Capital contribution by Medstone - - 500,000
------------ ----------- --------------
Net cash provided by financing activities 1,462,175 - 6,862,922
------------ ----------- --------------
Net increase (decrease) in cash and equivalents 349,990 (24,209) 664,973
Cash and equivalents, beginning of period 314,983 74,353 -
------------ ----------- --------------
Cash and equivalents, end of period $ 664,973 $ 50,144 $ 664,973
============ =========== ==============
</TABLE>
See accompanying notes.
F-20
<PAGE>
UROGEN CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------
MARCH 31, 1999
--------------
1. The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments, consisting only of normal recurring
adjustments, which are necessary to state fairly the consolidated financial
position, results of operations, and cash flows of UroGen Corp. as of and
for the periods indicated. UroGen presumes that users of the interim
financial information have read or have access to the Company's audited
consolidated financial statements and Management's Discussion and Analysis
of Financial Condition and Results of Operations for the year ended
December 31, 1998 and that the adequacy of additional disclosure needed for
a fair presentation, except in regard to material contingencies or recent
significant events, may be determined in that context. Accordingly,
footnote and other disclosures which would substantially duplicate the
disclosures contained in Form 10-KSB for the year ended December 31, 1998
filed on March 31, 1999 by the Company have been omitted. The financial
information herein is not necessarily representative of a full year's
operations.
2. The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company incurred net losses
of $789,970 during the three months ended March 31, 1999 and has a deficit
accumulated during its development stage of $9,495,543 at March 31, 1999.
While management intends to raise additional debt and/or equity financing
to fund future operations and to provide additional working capital, cash
raised through the sale of the unsecured notes (Note 4) as well as funds
provided by Baxter Healthcare Corporation ("Baxter") are expected to
finance the Company's operations through February 2000.
The accompanying financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and
classification of assets or the amounts and classifications of liabilities
that may result from the possible inability of the Company to continue as a
going concern.
3. In accordance with the Financial Accounting Standards Board's Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share, net
loss per share is based on the average number of shares of Common Stock
outstanding during the three-month periods ended March 31, 1999 and 1998.
Equivalent shares arising from convertible preferred stock, convertible
debt, warrants for Common Stock and outstanding stock options have not been
included in the computation of net loss per share as their effect would be
antidilutive.
4. In April 1999, the Company closed a financing in which we received $400,000
representing proceeds from the sale of unsecured convertible notes payable,
which bear interest at 8% per annum and are due on March 30, 2000, unless
previously converted. The notes are convertible, at the option of the
holder , into Common Stock at $0.30 per share, and automatically convert
into Common Stock immediately prior to the filing of any registration
statement to register the resale of the underlying shares.
In addition, each note holder received a warrant to purchase the same
number of shares of Common Stock as their notes convert into. The warrants
are exerciseable for seven years from issuance and have an exercise price
of $0.30 per share.
F-21
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, in connection with the offer made by this Prospectus, and, if given
or made, such information or representations must not be relied upon as having
been authorized by the corporation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has been no change in the affairs of the corporation since the date
hereof. This Prospectus does not constitute an offer or solicitation by anyone
in any jurisdiction in which such offer or solicitation is not authorized or in
which the person making such offer or solicitation is not authorized to do so or
to anyone to whom it is unlawful to make such offer or solicitation in such
jurisdiction.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information.................................................. 2
Prospectus Summary..................................................... 3
The Offering........................................................... 3
The Company............................................................ 4
Risk Factors........................................................... 6
Use of Proceeds........................................................ 14
Price Range of Common Stock............................................ 14
Dividend Policy........................................................ 14
Capitalization......................................................... 15
Selected Consolidated Financial Data................................... 16
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 17
Business............................................................... 22
Management............................................................. 29
Certain Relationships and Related Transactions......................... 35
Description of Capital Stock........................................... 39
Directors, Executive Officers, 5% Stockholders and Selling
Securityholders....................................................... 42
Plan of Distribution................................................... 44
Legal Matters.......................................................... 45
Experts................................................................ 45
Index to Consolidated Financial Statements............................. F-1
</TABLE>
UroGen Corp.
4,284,894 SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
June 22, 1999
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by the
Registrant in connection with the sale and distribution of the securities being
registered hereby. Normal commission expenses and brokerage fees are payable
individually by the Selling Securityholders. All amounts are estimated except
the Securities and Exchange Commission registration fee.
<TABLE>
<CAPTION>
Amount
------
<S> <C>
SEC registration fee............................................... $ 347
Accounting fees and expenses....................................... 5,000
Legal fees and expenses............................................ 10,000
Printing expenses.................................................. 4,000
Miscellaneous fees and expenses.................................... 3,000
-------
Total.............................................................. $22,347
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law, the Registrant has
broad powers to indemnify its directors and officers against liabilities they
may incur in such capacities, including liabilities under Securities Act. The
Registrant's Bylaws provide that the Registrant will indemnify its directors and
executive officers and may indemnify other officers to the fullest extent
permitted by law. Under its Bylaws, indemnified parties are entitled to
indemnification for negligence, gross negligence and otherwise to the fullest
extent permitted by law. The Bylaws also require the Registrant to advance
litigation expenses in the case of stockholder derivative actions or other
actions. The indemnified party is required to repay such advances if it is
ultimately determined that the indemnified party is not entitled to
indemnification.
In addition, the Registrant's Certificate of Incorporation provides that,
pursuant to Delaware law, it directors shall not be liable for monetary damages
for breach of the directors' fiduciary duty of care to the Registrant and its
stockholders. This provision in the Certificate of Incorporation does not
eliminate the duty of care, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director is subject to liability for
breach of the director's duty of loyalty to the Registrant for acts or omissions
not in good faith or involving intentional misconduct, for knowing violation of
law, for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as federal securities laws or state
or federal environmental laws.
The Registrant has entered into indemnity agreements with each of it directors
and executive officers. Such indemnity agreements contain provisions that are
in some respects broader than the specific indemnification provisions contained
in Delaware law.
The foregoing summaries are necessarily subject to the complete text of the
statute, the Articles, the Bylaws and agreements referred to above and are
qualified in their entirety by reference thereto.
II-1
<PAGE>
Reference is made to the form of Note and Warrant Purchase Agreements included
below as Exhibits 10.9 and 10.11 for provisions regarding indemnification of the
Company's officers, directors and controlling persons against liabilities,
including liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since the distribution of the Company's stock in February 1996, the Company
has issued the following unregistered securities:
(1) In June 1996, the Company issued 363,000 shares of Common Stock at a
price of $0.05 per share to Sidney Kimmel related to an Affiliation
Agreement (see "Certain Relationships and Related Transactions").
(2) In March 1997, the Company issued 147,791 shares of Common Stock at a
price of $0.05 per share to The Immune Response Corporation related to a
License Agreement (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations"). The Company also issued The Immune
Response Corporation a warrant to purchase additional shares to maintain
a fully-diluted ownership percentage of two percent (2%) or increase its
ownership to three percent (3%) with exercise prices ranging from $0.03
to $0.04 per share.
(3) In August 1997, the Company issued a warrant to purchase 200,000 shares
of Common Stock to an officer of the Company. The warrant is exercisable
at $0.05 per share and expires on July 31, 2001.
(4) In July 1998 and April 1999, the Company issued Convertible Subordinated
Notes which are convertible into 1,030,000 and 1,333,333 shares of Common
Stock, respectively. Holders of the Convertible Subordinated Notes also
received warrants to purchase 515,000 and 1,333,333 shares of common
stock at $0.74 and $0.30, respectively. (See "Certain relationships and
related transactions").
(5) In July 1998, the Company issued 1,841,219 shares of Common Stock and
1,841 shares of Series A Preferred Stock to Baxter Healthcare Corporation
related to the purchase of exclusive rights to certain technologies and
certain related equipment (see "Certain Relationships and Related
Transactions").
(6) In January 1999, the Company issued 704 shares of Series B Preferred
Stock to Baxter Healthcare Corporation to convert amounts funded under
the Developmental and Collaboration Agreement (see "Certain Relationships
and Related Transactions").
UroGen Corp. relied on the exemption from registration provided by Rule 506 of
Regulation D, and Section 4(2) under the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Exhibit No. DESCRIPTION
2.1 Distribution Agreement between the Company and Medstone
International Inc.*
2.2 Asset Purchase Agreement, dated as of February 28, 1998,
UroGen and Baxter Healthcare Corporation*
2.3 Amendment to Asset Purchase Agreement, dated as of May 27,
1998, between UroGen and Baxter.*
3.1 Certificate of Incorporation of the Company*
3.2 Bylaws of the Company*
3.3 Certificate of Designation of Preferences and Rights of Series
A Preferred Stock of UroGen.*
3.4 Certificate of Designation of Preferences and Rights of Series
B Preferred Stock of UroGen.*
3.5 Certificate of Designation of Preferences and Rights of Series
C Preferred Stock of UroGen.*
5.1 Opinion of Wilson Sonsini Goodrich & Rosati as to the legality
of securities being registered
10.1 Contribution Agreement between the Company and Medstone
International, Inc. dated October 31, 1995*
10.2 Form of Indemnification Agreement*
10.3 UroGen Corp. 1995 Stock Plan*
10.4 UroGen Corp. 1995 Director Option Plan*
II-2
<PAGE>
10.5 License Agreement, dated March 5, 1997, between UroGen and The
Immune Response Corporation.*
10.6 Amendment to License Agreement, dated January 29, 1999, between
UroGen and The Immune Response Corporation.*
10.7 License Agreement, dated November 5, 1997, by and among UroGen,
Sidney Kimmel Cancer Center and Daniel A. Mercola, M.D., Ph.D.*
10.8 License Agreement, dated September 20, 1996 between UroGen and
The Regents of the University of California.*
10.9 Form of Note and Warrant Purchase Agreement, dated July 8, 1998
between UroGen and various investors.*
10.10 Warrant Certificate, dated July 31, 1997, between UroGen and
Robert E. Sobol.*
10.11 Distribution Agreement, dated July 8, 1998, by and among Urogen
and Baxter.*
10.12 Investor Rights Agreement, dated July 8, 1998, between UroGen
and Baxter.*
10.13 Developmental Collaboration Agreement, dated July 8, 1998
between UroGen and Baxter.*
10.14 Credit Agreement, dated July 8, 1998, between UroGen and
Baxter.*
10.15 Technology License Agreement, dated July 8, 1998, between
UroGen and Baxter.*
10.16 Form of Note and Warrant Purchase Agreement, dated April 28,
1999 between UroGen and various investors.
10.17 UroGen Corp. 1999 Stock Plan
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Wilson Sonsini Goodrich & Rosati (included in the
opinion filed as Exhibit 5.1 hereto)
24.1 Power of Attorney (contained on page II-5 hereto)
27 Financial Data Schedule*
__________________________________________
* Previously filed.
(b) Financial Statement Schedules
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to the Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement
(or the most recent post-effective amendment thereof)
which,
II-3
<PAGE>
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the
maximum aggregate offering price, set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Act,
each such 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.
(3) To remove from registration by means of a post-offering amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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 Act and is, therefore, unenforceable. In the event that such 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 Act and will be
governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on the 16th day of
June, 1999.
UROGEN CORP.
By: /s/ ROBERT E. SOBOL
--------------------------------------------
President, Chief Executive Officer, and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below appoints Paul D. Quadros, Robert E. Sobol and Carin D. Sandvik, and each
of them his/her true and lawful attorneys-in-fact and agent with full power of
substitution and resubstitution, for him/her and in his/her name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, including any post-effective amendments as well as any
related registration statement (or amendment thereto) filed in reliance upon
Rule 462(b) under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agents or any of
them, or their or his substitute or substitutes, 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 dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------------- --------------------------------------------------- -------------------------
<S> <C> <C>
/s/ PAUL D. QUADROS Chairman of the Board, Chief Financial Officer
- ----------------------------------------- and Director (Principal Financial Officer) June 16, 1999
/s/ ROBERT E. SOBOL President, Chief Executive Officer and Director June 16, 1999
- -----------------------------------------
/s/ WEI WEI ZHANG Senior Vice President, Chief Scientific Officer
- ----------------------------------------- and Director June 16, 1999
/s/ CARIN D. SANDVIK Corporate Controller and Corporate Secretary
- ----------------------------------------- (Principal Accounting Officer) June 16, 1999
/s/ PETER E. BERNARDONI Director June 16, 1999
- -----------------------------------------
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------------- --------------------------------------------------- -------------------------
<S> <C> <C>
/s/ IVOR ROYSTON Director June 16, 1999
- -----------------------------------------
/s/ VICTOR W. SCHMITT Director June 16, 1999
- -----------------------------------------
</TABLE>
II-6
<PAGE>
EXHIBIT 5.1
June 21, 1999
UroGen Corp.
10835 Altman Row, Suite 150
San Diego, California 92121
Re: UroGen Corp. Registration Statement on Form SB-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form SB-1 to be filed
by UroGen Corp. (the "Company") with the Securities and Exchange Commission on
or about June 22, 1999 (the "Registration Statement") in connection with the
registration under the Securities Act of 1933, as amended, of 2,436,561 shares
of Common Stock of the Company currently outstanding and 1,848,333 shares of
Common Stock of the Company issuable upon exercise of warrants (collectively,
the "Shares").
It is our opinion that, upon completion of the proceedings being taken
or contemplated by us, as your counsel, to be taken, and upon the completion of
the proceedings being taken in order to permit such transactions to be carried
out in accordance with securities laws of various states, where required, the
Shares, when issued, if applicable and sold in the manner referred to in the
Registration Statement, will be legally and validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement, and further consent to the use of our name wherever
appearing in the Registration Statement, including the Prospectus constituting a
part thereof, and any amendment thereto.
Very truly yours,
/s/ WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
EXHIBIT 10.16
UROGEN CORPUROGEN CORP.
NOTE AND WARRANT PURCHASE AGREEMENT
THIS NOTE AND WARRANT PURCHASE AGREEMENT (the "Agreement") is made as of April
28, 1999 by and among UroGen Corp., a Delaware corporation (the "Company"), with
its principal office at 10835 Altman Row, Suite 150, San Diego, California 92121
and the investors whose names appear on the Schedule of Investors attached
hereto as Exhibit A (the "Investors").
---------
ARTICLE I
Purchase of Notes and Warrants
1.1 Notes. Subject to the terms and conditions hereof, the Company will
-----
issue and sell to the Investors, and the Investors will each purchase from the
Company, subordinated unsecured convertible promissory notes in substantially
the form attached hereto as Exhibit B (each, a "Note," and collectively, the
---------
"Notes") in the principal amount set forth opposite each Investor's name on the
Schedule of Investors. Each Note shall be convertible into shares of Company's
Common Stock (such shares, the "Conversion Shares") on the terms set forth
therein.
1.2 Warrants. In consideration of the Investors purchasing the Notes,
--------
subject to the terms and conditions hereof, the Company will issue to each
Investor, and each Investor will acquire, severally and not jointly, from the
Company, a warrant or warrants in substantially the form attached hereto as
Exhibit C (each, a "Warrant," and collectively, the "Warrants") exercisable for
- ---------
that number of shares of the Company's Common Stock (such shares, the "Warrant
Shares") set forth opposite such Investor's name on the Schedule of Investors.
1.3 Allocation of Purchase Price. The purchase price payable by each
----------------------------
Investor for the Note and Warrant to be purchased hereunder (the "Purchase
Price") shall be equal to the principal amount of the Note set forth opposite
such Investor's name on the Schedule of Purchasers. The Purchase Price paid by
each Investor shall be allocated as follows: (i) ninety-nine percent (99%) of
the Purchase Price shall be allocated to the Note received by such Investor, and
(ii) one percent (1%) of the Purchase Price shall be allocated to the Warrant
received by such Investor.
1.4 Obligations of Investors. The obligations of the Investors hereunder
------------------------
are several and not joint.
ARTICLE II
Closing and Delivery
2.1 Place and Date of Closing. The initial closing of the transactions
-------------------------
provided for herein (the "Closing") will be held at the offices of Wilson
Sonsini Goodrich & Rosati, 650 Page Mill
<PAGE>
Road, Palo Alto, California 94304 at 10:00 a.m. on April 28, 1999 (the "Closing
Date") or at such other time and place as the parties shall mutually agree.
2.2 Subsequent Closings. The Company may, at its option, schedule
-------------------
additional closings (the "Additional Closings") after the first Closing has been
completed on such date or dates as the Company may determine, but not later than
April, 30,1999. The date of each Additional Closing is hereinafter referred to
as an "Additional Closing Date." The first Closing and each Additional Closing
are sometimes referred to herein individually as a "Closing," and the first
Closing Date and each Additional Closing Date are sometimes referred to herein
individually as a "Closing Date." At each Additional Closing, the Company shall
prepare a revised Schedule of Investors to include any additional Investors, and
each such additional Investor shall execute a signature page to this Agreement.
2.3 Delivery. At the Closing, the Company will deliver to each Investor
--------
(i) a Note in the principal amount set forth opposite such Investor's name on
the Schedule of Investors and (ii) a Warrant to purchase the number of Warrant
Shares set forth opposite such Investor's name on the Schedule of Investors.
Each Investor shall deliver to the Company the principal amount set forth
opposite such Investor's name on the Schedule of Investors by check or by wire
transfer.
ARTICLE III
Representations and Warranties of the Company
The Company hereby represents and warrants to each Investor as follows:
3.1 Organization and Standing. The Company is a corporation duly
-------------------------
organized and validly existing under, and by virtue of, the laws of the State of
Delaware and is in good standing under such laws. The Company has the requisite
corporate power to own and operate its properties and assets, and to carry on
its business as presently conducted and as proposed to be conducted.
3.2 Corporate Power. The Company will have at the Closing all requisite
---------------
legal and corporate power to execute and deliver this Agreement, to issue the
Notes, the Warrants, the Conversion Shares and the Warrant Shares and to carry
out and perform its obligations under the terms of this Agreement.
3.3 Authorization. All corporate action on the part of the Company, its
-------------
officers, directors and stockholders that is necessary for the authorization,
execution and delivery of this Agreement by the Company, for the performance of
the Company's obligations hereunder, and for the authorization, issuance and
delivery of the Notes, the Warrants, the Conversion Shares and the Warrant
Shares, has been taken or will be taken prior to the Closing. This Agreement,
the Notes and the Warrants, when executed and delivered, shall constitute the
legal and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject to
-2-
<PAGE>
judicial principles respecting election of remedies or limiting the availability
of specific performance, injunctive relief, and other equitable remedies, and
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect generally relating to or affecting creditors' rights.
3.4 Capitalization.
--------------
(a) As of the date hereof, the authorized capital stock of the
Company consists of 40,000,000 shares of common stock ("Common Stock"), of which
9,378,538 shares will be issued and outstanding immediately prior to the first
Closing; and 5,000,000 shares of preferred stock ("Preferred Stock"), of which
40,000 shares have been designated Series A Preferred Stock, of which 5,830
shares are issued and outstanding; 10,000 shares have been designated Series B
Preferred Stock, of which 704 shares are issued and outstanding; and 17,000
shares have been designated Series C Preferred Stock, of which no shares are
issued or outstanding. Series A Preferred Stock converts to Common Stock on a
1000 to 1 basis; Series B and C Preferred Stock convert to Common Stock based
upon the fair market value of the Common Stock at the date of conversion. All
issued and outstanding shares of Common Stock and Preferred Stock have been duly
authorized, validly issued and fully paid and non-assessable and have been
issued in accordance with the registration and qualification provisions of the
Securities Act of 1933, as amended (the "Securities Act"), and relevant state
securities laws, or pursuant to valid exemptions therefrom. The Company has
agreed to repay certain indebtedness to Baxter Healthcare Corporation, under a
Credit Agreement dated July 8, 1998, in shares of Series B Preferred Stock. In
addition, Baxter is obligated to purchase shares of Series C Preferred Stock
upon the Company's achievement of certain milestones.
(b) As of the date hereof, the Company has reserved 5,172,668 shares
of Common Stock for issuance to employees, officers, directors and consultants
of the Company as may be determined by the Company's Board of Directors from
time to time under the Company's 1995 Stock Plan, as amended and 1999 Stock Plan
(the "Option Plans"). As of the date hereof, 2,996,183 stock options are
outstanding. There are no outstanding rights, options, warrants, preemptive
rights, conversion rights, rights of first refusal or similar rights or
agreements, oral or written, for the purchase or acquisition from the Company of
any shares of its capital stock or any other securities, except for outstanding
options under the Option Plans and the following warrants: (i) in connection
with a License Agreement with an unaffiliated company (the "Third Party"), the
Company issued a warrant to the Third Party which permits the Third Party to
maintain a fully-diluted ownership interest of two percent (2%) or to increase
its ownership interest to three percent (3%) at a price ranging from $0.03 to
$0.04 per share; this warrant expires in May 1999; (ii) in 1997, the Company
issued a warrant to purchase 200,000 shares of Common Stock at $0.05 per share
to an officer of the Company; this warrant expires in July 2001; (iii) in July
1998, the Company issued convertible debt, which is convertible to 1,030,000
shares of Common Stock, with warrants to purchase 515,000 shares of Common
Stock. The debt is convertible at the options of the holder and automatically
converts immediately prior to the filing of any registration statement to
register the resale of the
-3-
<PAGE>
underlying shares. The warrants are exercisable for seven years from issuance
and have an exercise price of $0.74 per share.
3.5 Validity of Securities; Reservation of Shares. The Notes and Warrants,
---------------------------------------------
when issued, sold and delivered in accordance with the terms of this Agreement,
the Conversion Shares, when issued, sold and delivered in accordance with the
terms of the Notes, and the Warrant Shares, when issued, sold and delivered in
accordance with the terms of the Warrants, will be duly authorized, validly
issued, fully paid and nonassessable and will be free and clear of any liens or
encumbrances; provided, however, that each of the Notes, the Warrants, the
-------- -------
Conversion Shares or the Warrant Shares may be subject to restrictions on
transfer to the extent provided herein or under state and/or federal securities
laws. Based in part upon the representations of the Investors in this Agreement,
the offer, sale and issuance of the Notes and the Warrants (and the Conversion
Shares and Warrant Shares) will be in compliance with all applicable federal and
state securities laws. The Company has reserved 1,333,333 and 1,333,333 shares
of Common Stock, respectively, for issuance upon conversion of the Notes and
exercise of the Warrants issued hereunder. The Company covenants that, so long
as any Notes or Warrants remain outstanding, it will at all times reserve and
keep available, solely for issuance to the holders of the Notes and Warrants in
accordance with this Agreement, shares of Common Stock issuable upon conversion
of the Notes and exercise of the Warrants. If at any time the number of
authorized but unissued shares of Common Stock is not sufficient to effect the
issuances contemplated by this Agreement, the Company will take such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
3.6 Governmental Consent, etc. No consent, approval or authorization of or
--------------------------
designation, declaration or filing with any state or federal governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement or the offer, sale or issuance of the
Notes and Warrants (and the Conversion Shares and Warrant Shares), or the
consummation of any other transaction contemplated hereby, except the
qualification (or the taking of such action as may be necessary to secure an
exemption from qualification, if available), under the California Corporate
Securities Law and other applicable Blue Sky laws, of the offer and sale of the
Notes and Warrants (and the Conversion Shares and Warrant Shares), which
qualification, if required, will be accomplished in a timely manner prior to or
promptly upon completion of the Closing.
3.7 SEC Documents; Parent Financial Statements. The Company has
------------------------------------------
furnished or made available to the Investors true and complete copies of all
reports or registration statements filed by it with the U.S. Securities and
Exchange Commission (the "SEC") under the Securities Act or the Securities
Exchange Act of 1934 (the "Exchange Act") since January 1, 1996, all in the form
so filed (all of the foregoing being collectively referred to as the "SEC
Documents"), which are all the documents (other than preliminary materials) that
the Company was required to file with the SEC since such date. As of their
respective filing dates, the SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and
-4-
<PAGE>
none of the SEC Documents 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 made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a document
subsequently filed with the SEC. The financial statements of the Company,
including the notes thereto, included in the SEC Documents (the "Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated in the
notes thereto or, in the case of unaudited statements, as permitted by Form 10-Q
of the SEC) and present fairly the consolidated financial position of the
Company at the dates thereof and the consolidated results of its operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal recurring adjustments). There has been no change in the
Company's accounting policies except as described in the notes to the Financial
Statements.
3.8 No Material Adverse Change. Since the date of the balance sheet
--------------------------
included in the Company's most recently filed report on Form 10-Q or Form 10-K,
the Company has conducted its business in the ordinary course and there has not
occurred: (a) any material adverse change in the financial condition,
liabilities, assets or business of the Company; (b) any amendment or change in
the Certificate of Incorporation or Bylaws of the Company; or (c) any damage to,
destruction or loss of any assets of the Company (whether or not covered by
insurance) that materially and adversely affects the financial condition or
business of the Company.
3.9 Litigation. There is no action, suit, proceeding, claim, arbitration
----------
or investigation pending, or as to which the Company has received any notice of
assertion against the Company, which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay any of the transactions contemplated
by this Agreement.
ARTICLE IV
Representations and Warranties of the Investors
Each Investor represents and warrants to the Company, as of the Closing
Date and upon conversion of any Notes or exercise of any Warrants, as follows
(the Notes, the Warrants, the Conversion Shares and the Warrant Shares are
collectively referred to as the "Securities"):
4.1 Authorization. All action on the part of the Investor for the
-------------
authorization, execution, delivery and performance by the Investor of this
Agreement has been taken, and this Agreement constitutes a valid and binding
obligation of the Investor, enforceable in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization, or similar
laws relating to or affecting the enforcement of creditors' rights.
-5-
<PAGE>
4.2 Experience/Risk. The Investor is experienced in evaluating and
---------------
investing in new companies such as the Company. The Investor is a sophisticated
investor with such knowledge and experience in financial and business matters so
as to be capable of evaluating the merits and risks of a prospective investment
in the Securities and of bearing the economic risks of such investment.
4.3 Investment. The Investor is acquiring the Securities for investment
----------
for its own account and not with a view to, or for resale in connection with,
any distribution. The Investor understands that the Securities to be acquired
have not been registered under the Securities Act by reason of a specific
exemption from the registration provisions of the Securities Act which depends
upon, among other things, the bona fide nature of the investment intent as
expressed herein.
4.4 Restricted Securities. The Investor acknowledges that the Securities
---------------------
must be held indefinitely unless subsequently registered under the Securities
Act or unless an exemption from such registration is available. The Investor is
aware of the provisions of Rule 144 promulgated under the Securities Act, which
permits limited resale of securities purchased in a private placement subject to
the satisfaction of certain conditions, including, in case the Investor has held
the Securities for less than two years or is an affiliate of the Company, among
other things: the availability of certain current public information about the
Company, the resale occurring not less than one year after a party has purchased
and paid for the Securities to be sold, the sale being through a "broker's
transaction" or in transactions directly with a "market maker," and the number
of Securities being sold during any three-month period not exceeding specified
limitations.
4.5 Limited Public Market. The Investor understands that only an extremely
---------------------
limited public market now exists for the Common Stock, that no public market
exists for the other Securities issued by the Company and that a public market
for the Company's Common Stock may not develop sufficiently to permit the resale
of the Securities or that any such public market will be sustained.
4.6 Access to Data. The Investor has had an opportunity to discuss the
--------------
Company's business, management and financial affairs with the Company's
management. The Investor understands that such discussions, as well as the
written information issued by the Company, were intended to describe the aspects
of the Company's business and prospects which it believes to be material but
were not necessarily a thorough or exhaustive description.
4.7 Accredited Investor Status. Investor presently does and will as of the
--------------------------
Closing Date qualify as an "accredited investor" within the meaning of
Regulation D (17 C.F.R. (S) 230.501) of the rules and regulations promulgated
under the Act.
4.8 Government Consents. No consent, approval or authorization of or
-------------------
designation, declaration or filing with any state, federal or foreign
governmental authority on the part of Investor is required in connection with
the valid execution and delivery of this Agreement by Investor and the
consummation by Investor of the transactions contemplated hereby.
-6-
<PAGE>
4.9 Legends. Each certificate representing the Securities shall be
-------
endorsed with the following legend (in addition to any legend required under
applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH SALE
OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENT OF SAID ACT. COPIES OF THE AGREEMENT
COVERING THE ACQUISITION OF THESE SECURITIES AND RESTRICTING
THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE
BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF
THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
CORPORATION.
The Company need not record a transfer of Securities, unless the conditions
specified in the foregoing legends are satisfied. The Company may also instruct
its transfer agent not to record the transfer of any of the Securities unless
the conditions specified in the foregoing legends are satisfied.
ARTICLE V
Transfer Restrictions; Rights as Stockholder
5.1 Restrictions on Transfer. Each Investor acknowledges that the
------------------------
Securities may not be transferred or assigned in whole or in part without (i)
the prior written consent of the Company and (ii) compliance with applicable
federal and state securities laws; provided, however, that the Securities may be
-------- -------
transferred without the prior written consent of the Company in the following
transactions:
(a) A transfer of Securities in whole by a holder who is a natural
person during such holder's lifetime or on death by will or intestacy to such
holder's immediate family or to any custodian or trustee for the account of such
holder or such holder's immediate family. As used herein, "immediate family"
shall mean spouse, lineal descendant, father, mother, brother, or sister of the
holder.
(b) A transfer of Securities in whole to the Company or to any
stockholder of the Company.
(c) A transfer of Securities in whole or in part to a person who, at
the time of such transfer, is, or is an affiliate of, an officer or director of
the Company.
-7-
<PAGE>
(d) A transfer of Securities in whole but not in part pursuant to and
in accordance with the terms of any merger, consolidation, reclassification of
shares or capital reorganization of a corporate stockholder or pursuant to a
sale of all or substantially all of the stock or assets of a corporate
stockholder.
(e) A transfer of Securities in accordance with Rule 144 under the
Securities Act.
(f) A transfer of Securities by a holder which is a limited or
general partnership to any of its partners or former partners.
5.2 No Rights or Liability as a Stockholder. Neither the Notes nor the
---------------------------------------
Warrants shall entitle the holder thereof to any voting rights or other rights
as a stockholder of the Company. No provisions of the Notes or the Warrants, in
the absence of affirmative action by the holder thereof to purchase Conversion
Shares and/or Warrant Shares, and no enumeration herein of the rights or
privileges of the holder hereof, shall give rise to any liability of such holder
as a stockholder of the Company.
ARTICLE VI
Registration Rights
6.1 Registrable Securities. The shares of Common Stock issued or issuable
----------------------
upon conversion of the Notes and exercise of the Warrants shall be deemed
"Registrable Securities" and the holders of such shares (the "Holders") shall be
entitled to registration rights with respect thereto as set forth in this
Article VI.
6.2 Registration. The Company shall use its commercially reasonable
------------
efforts to cause the Registrable Securities held by each Holder to be registered
under the Securities Act so as to permit the resale thereof, and in connection
therewith shall use all commercially reasonable efforts to prepare and file with
the Securities and Exchange Commission (the "SEC") on or before June 30, 1999,
and shall use its commercially reasonable efforts to cause to become effective
as soon as practicable thereafter, a registration statement under the Securities
Act covering the Registrable Securities; provided, however, that each Holder
-------- -------
shall provide all such information and materials to the Company and take all
such action as may be required in order to permit the Company to comply with all
applicable requirements of the SEC and to obtain any desired acceleration of the
effective date of such registration statement. Such provision of information
and materials is a condition precedent to the obligations of the Company to such
Holder pursuant to this Article VI. The Company shall not be required to effect
more than one (1) registration under this Article VI.
6.3 Company Obligations. The Company shall (i) keep the registration
-------------------
statement filed in accordance with Section 6.2 hereof effective until the
earlier of (A) One Hundred Eighty days after the registration statement is
declared effective by the SEC or (B) such time as all Registrable Securities
included in such registration have been sold thereunder; (ii) forthwith prepare
and file with
-8-
<PAGE>
the SEC such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all securities proposed to be registered in such registration statement;
(iii) furnish to each Holder such number of copies of any prospectus (including
any preliminary prospectus and any amended or supplemented prospectus) in
conformity with the requirements of the Securities Act, and such other
documents, as each Holder may reasonably request in order to effect the offering
and sale of the shares of the Registrable Securities to be offered and sold, but
only while the Company shall be required under the provisions hereof to cause
the registration statement to remain current; (iv) provide a CUSIP number,
transfer agent and registrar for all Registrable Securities; and (v) use its
commercially reasonable efforts to register or qualify the shares of the
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such jurisdictions as each Holder shall
reasonably request (provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such jurisdiction where it
has not been qualified).
6.4 Underwriting. If the distribution of the Registrable Securities
------------
covered by a registration pursuant to this Article VI is to be effected by means
of a firm commitment underwriting, the right of any Holder to include
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.
(a) The Company (together with all Holders proposing to distribute
their securities through such underwriting) shall enter into an underwriting
agreement in customary form with a managing underwriter of nationally recognized
standing selected for such underwriting by the Company but subject to the
approval of a majority in interest of the Holders, which approval shall not
unreasonably be withheld. Notwithstanding any other provision of this Article
VI, if the managing underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, then the underwriters may
limit the number of shares of Registrable Securities that may be included in the
registration and underwriting, provided that no shares other than Registrable
Securities are included in such registration and underwriting. The shares so
limited shall be allocated among Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Holders at the time of filing the registration statement. No Registrable
Securities excluded from the underwriting by reason of the managing
underwriter's marketing limitation shall be included in such registration. If
any Holder disapproves of the terms of the underwriting, such person may elect
to withdraw therefrom by written notice to the Company and the managing
underwriter. The Registrable Securities and/or other securities so withdrawn
from such underwriting shall also be withdrawn from registration; provided,
--------
however, that if by the withdrawal of such Registrable Securities a greater
- -------
number of Registrable Securities held by other Holders may be included in such
registration (up to the maximum of any limitation imposed by the underwriters),
then the Company shall offer to all Holders who have included Registrable
Securities
-9-
<PAGE>
in the registration the right to include additional Registrable Securities in
the same proportion used in determining the underwriter limitation as set forth
above.
(b) If the managing underwriter has not limited the number of
Registrable Securities to be underwritten in any registration requested pursuant
to Section 6.2, the Company may include securities for its own account or for
the account of others in such registration if the managing underwriter so agrees
and if the number of Registrable Securities held by Holders which would
otherwise have been included in such registration and underwriting will not
thereby be limited. The inclusion of such shares shall be on the same terms as
the registration of shares held by the Holders. In the event that the managing
underwriter excludes some of the securities to be registered pursuant to Section
6.2, the securities to be sold for the account of the Company and any other
holders shall be excluded in their entirety prior to the exclusion of any
Registrable Securities.
6.5 Selling Procedures. Any sale of Registrable Securities pursuant to
------------------
the registration statement filed in accordance with Section 6.2 hereof shall be
subject to the following conditions and procedures:
(a) Updating the Prospectus. If the distribution of the Registrable
-----------------------
Securities covered by a registration pursuant to this Article VI is not to be
effected by means of a firm commitment underwriting, and if the Company informs
the selling Holder that the registration statement or final prospectus then on
file with the SEC is not current or otherwise does not comply with the
Securities Act, the Company shall use commercially reasonable efforts to provide
to the selling Holder a current prospectus that complies with the Securities Act
on or before the date of the intended sale of the Registrable Securities;
provided, however, that no more than once during any one hundred eighty-day
- -------- -------
period (the "Information Delay Period"), the Company shall have the right to
delay the preparation of a current prospectus that complies with the Securities
Act for up to twenty-five (25) days, if the Board of Directors of the Company or
an executive officer of the Company designated by the Board of Directors, acting
in good faith, determines that there exists material nonpublic information about
the Company which the Board or such officer does not wish to disclose in a
registration statement (due to the fact that such disclosure may not be in the
best interests of the Company's stockholders) which information would otherwise
be required by the Securities Act to be disclosed in the registration statement
to be filed pursuant to Section 6.2 above;
(b) General. Notwithstanding the foregoing, the Company shall notify
-------
each Holder (A) of any request by the SEC or any other federal or state
governmental authority during the period of effectiveness of the registration
statement for amendments or supplements to the registration statement or related
prospectus or for additional information relating to the registration statement,
(B) of the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of the registration
statement or the initiation of any proceedings for that purpose, (C) of the
receipt by the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such
-10-
<PAGE>
purpose, or (D) of the happening of any event which makes any statement made in
the registration statement or related prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material respect or
which requires the making of any changes in the registration statement or
prospectus so that, in the case of the registration statement, it will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and that in the case of the prospectus, it will not contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. In such event, the Company may suspend
use of the prospectus on written notice to each Holder, in which case each
Holder shall not dispose of Registrable Securities covered by the registration
statement or prospectus until copies of a supplemented or amended prospectus are
distributed to the Holders or until the Holders are advised in writing by the
Company that the use of the applicable prospectus may be resumed. The Company
shall use its commercially reasonable efforts to ensure that the use of the
prospectus may be resumed as soon as practicable. The Company shall use its
commercially reasonable efforts to obtain the withdrawal of any order suspending
the effectiveness of the registration statement, or the lifting of any
suspension of the qualification (or exemption from qualification) of any of the
securities for sale in any jurisdiction. The Company shall, upon the occurrence
of any event contemplated by clause (D), forthwith prepare a supplement or post-
effective amendment to the registration statement or a supplement to the related
prospectus or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of the
Registrable Securities being sold thereunder, such prospectus will not contain
an untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
6.6 Expenses. The Company shall pay all of the out-of-pocket expenses
--------
incurred, other than underwriting or selling discounts and commissions, in
connection with the registration of Registrable Securities pursuant to this
Article VI including, without limitation, all SEC, National Association of
Securities Dealers, Inc. and blue sky registration and filing fees, printing
expenses, transfer agents' and registrars' fees, and the reasonable fees and
disbursements of the Company's outside counsel and the Company's independent
accountants.
6.7 Indemnification.
---------------
(a) In connection with any registration pursuant to this Article VI,
the Company will indemnify each Holder, each of its officers and directors and
partners, and each person controlling such Holder within the meaning of Section
15 of the Securities Act, with respect to which registration has been effected
pursuant to this Agreement, against all expenses, claims, losses, damages or
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereto, incident to
-11-
<PAGE>
any such registration, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, or any violation by the Company of the Securities Act, the Exchange
Act, state securities laws or any rule or regulation promulgated under such laws
applicable to the Company in connection with any such registration, and the
Company will reimburse each such Holder, each of its officers and directors, and
each person controlling such Holder, for any legal and any other expenses
reasonably incurred, as such expenses are incurred, in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon information furnished to the Company by such
Holder or controlling person, provided, however, that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any such
untrue statement, alleged untrue statement, omission or alleged omission made in
a preliminary prospectus on file with the Commission at the time the
registration statement becomes effective or the amended prospectus is filed with
the Commission pursuant to Rule 424(b) (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any Holder, if a copy of the Final
Prospectus was not furnished to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the Securities Act,
and if the Final Prospectus would have cured the defect giving rise to the loss,
liability, claim or damage.
(b) Each Holder will indemnify the Company, each of its directors and
officers, other holders of the Company's securities covered by such registration
statement, each person who controls the Company within the meaning of Section 15
of the Securities Act, and each other such Holder, each of its officers and
directors and each person controlling such Holder within the meaning of Section
15 of the Securities Act, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
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
any violation by the Holder of the Securities Act, the Exchange Act, state
securities laws or any rule or regulation promulgated under such laws applicable
to the Holder, and will reimburse the Company, such other Holders, such
directors, officers, persons, underwriters or control persons for any legal or
any other expenses reasonably incurred, as such expenses are incurred, in
connection with investigating or defending any such claim, loss, damage,
liability or action, but in the case of the Company or the other Holders or
their officers, directors or controlling persons, to the extent that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance information furnished to the Company by such Holder.
Notwithstanding the foregoing, the liability of each Holder under this
subsection 6.7(b) shall be limited in an amount equal to the public offering
price of the shares sold by such Holder, unless such liability arises out of or
is based on willful misconduct or fraud by such Holder.
-12-
<PAGE>
(c) Each party entitled to indemnification under this Section 6.7 (an
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Agreement unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action,
and provided further that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or there are separate
and different defenses; provided, that the Indemnifying Party shall remain
liable for reasonable legal expenses of one counsel for the Indemnified Party.
No Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party (whose consent shall not be
unreasonably withheld), consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that provisions
relating to indemnification and contribution contained in an underwriting
agreement entered into in connection with an underwritten public offering
pursuant to Section 6.4 are in conflict with the foregoing provisions, the
provisions in the underwriting agreement control.
ARTICLE VII
Miscellaneous
7.1 Waivers and Amendments. With the written consent of the holders of a
----------------------
majority of the Conversion Shares issued or issuable upon conversion of all
outstanding Notes, the obligations of the Company and the rights of the holders
of the Securities under this Agreement may be waived (either generally or in a
particular instance, either retroactively or prospectively and either for a
specified period of time or indefinitely), and with the same consent the
Company, when authorized by resolution of its board of directors, may enter into
a supplementary agreement for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement,
the Notes or the Warrants; provided, however, that (i) all persons affected by
-------- -------
such waiver or supplemental agreement are treated in the same manner, unless the
record or beneficial holders of all of the Securities consent to such amendment
or supplemental agreement, and (ii) no such waiver or supplemental agreement
shall reduce the above percentage of holders of Conversion Shares which is
required to consent to any waiver or supplemental agreement, without the consent
of
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<PAGE>
the record or beneficial holders of all of the Securities. Upon the effectuation
of each such waiver, consent, agreement, amendment or modification the Company
shall promptly give written notice thereof to the record holders of the
Securities who have not previously consented thereto in writing. Neither this
Agreement nor any provisions hereof may be changed, waived, discharged or
terminated orally, but only by a signed statement in writing.
7.2 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California as such laws are applied to agreements
between California residents entered into and to be performed entirely within
California.
7.3 Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive the execution and delivery of this Agreement and the
sale of the Notes and Warrants.
7.4 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
7.5 Entire Agreement. This Agreement and the other documents delivered
----------------
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
7.6 Severability. In case any provision of this Agreement shall be
------------
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
7.7 California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
-----------------------------------
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
7.8 Titles and Subtitles. The titles of the paragraphs and subparagraphs
--------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.9 Delays or Omissions. It is agreed that no delay or omission to
-------------------
exercise any right, power or remedy accruing to the Investor, upon any breach or
default of the Company under this Agreement, the Notes or the Warrants, shall
impair any such right, power or remedy, nor shall it be construed to be a waiver
of any such breach or default, or any acquiescence therein, or of or in any
-14-
<PAGE>
similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. It is further agreed that any waiver,
permit, consent or approval of any kind or character by the Investor of any
breach or default under this Agreement, or any waiver by the Investor of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in writing and that all
remedies, either under this Agreement, or by law or otherwise afforded to the
Investor, shall be cumulative and not alternative.
7.10 Notices. Any notice or report required in this Agreement or
-------
permitted to be given shall be given by depositing the same in the United States
mail, postage prepaid and addressed to the parties as follows: (i) if to the
Company, to the attention of the President at the Company's principal address
set forth on the first page hereof, with a copy to Herbert P. Fockler, Wilson
Sonsini Goodrich & Rosati, 650 Page Mill Road, Palo Alto, California 94304, and
(ii) if to an Investor, to such Investor at such Investor's address as set forth
on the Schedule of Investors.
7.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
[This space intentionally left blank]
-15-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Note and Warrant Purchase
Agreement to be duly executed and delivered as of the date first written above.
THE COMPANY: UROGEN CORP.
By:___________________________________
Robert E. Sobol, M.D.
President & Chief Executive Officer
THE INVESTORS: INVESTOR
By:___________________________________
Name:______________________________
Title:_____________________________
[Signature Page to Note and Warrant Purchase Agreement]
<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Number of
Name and Address of Investor Amount of Note Warrant Shares
<S> <C> <C>
$
$
TOTAL $
</TABLE>
-A1-
<PAGE>
EXHIBIT B
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. IT MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT, OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT. A
COPY OF THE AGREEMENT COVERING THE ISSUANCE OF THIS NOTE MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
CORPORATION.
CONVERTIBLE PROMISSORY NOTE
---------------------------
No. N- April 28, 1999
$
FOR VALUE RECEIVED, UroGen Corporation (the "Company") promises to pay to
("Lender"), at the Lender's principal office, the principal sum of _________
Dollars ($_____), or such lesser amount as may actually be advanced to the
Company hereunder. This note shall bear interest at the lesser of: (i) a simple
rate of Eight Percent (8%) per annum, or (ii) the maximum interest rate
permitted by law, compounded annually. All principal and unpaid and accrued
interest shall be due and payable in full on March 31, 2000 (the "Maturity
Date"), unless earlier converted into shares of Common Stock as set forth below;
provided, however, that all principal and unpaid and accrued interest shall be
- -------- -------
due and payable in full upon the occurrence of an Event of Default. In the
event the Company pays any interest on this note and it is subsequently
determined that such interest rate was in excess of the then maximum interest
rate permitted by law, then that portion of the interest payment representing an
amount in excess of the then maximum legal rate shall be deemed a payment of
principal and applied against the principal of this note.
This note is issued by the Company pursuant to a Note and Warrant Purchase
Agreement dated April 28, 1999 (the "Agreement"), and is one of a series of
notes (collectively, the "Notes") issued to certain of the Company's investors
(the "Investors"). Any term of this Note, including without limitation the
Maturity Date hereof, may be amended in accordance with Section 7.1 of the
Agreement. Capitalized terms not otherwise defined herein shall have the same
meanings given to such terms in the Agreement.
-B1-
<PAGE>
The entire unpaid principal sum of this Note and any accrued but unpaid
interest shall become immediately due and payable upon (i) the commission of any
act of bankruptcy by the Company, (ii) the execution by the Company of a general
assignment for the benefit of creditors, (iii) the filing by or against the
Company of any petition in bankruptcy or any petition for relief under the
provisions of the federal bankruptcy act or any other state or federal law for
the relief of debtors and the continuation of such petition without dismissal
for a period of sixty (60) days or more, (iv) the appointment of a receiver or
trustee to take possession of the property or assets of the Company and the
continuation of such appointment without dismissal for a period of sixty (60)
days or more, (v) the default in the remittance of any payment when such payment
becomes due and payable on this Note and the continuance of such default for a
period of ten (10) days, or (vi) the acceleration of any Senior Indebtedness (as
defined below) as a result of an event of default on such Senior Indebtedness
(each, an "Event of Default").
The holder of this Note has the right, at the holder's option (the
"Conversion Option"), at any time before this Note is paid, to convert all
indebtedness evidenced by this Note into fully paid and non-assessable shares of
Common Stock at the rate of one share of Common Stock for each $0.30 in
principal and accrued and unpaid interest (the "Conversion Price"), subject to
adjustment for any stock split, stock dividend, combination or recapitalization
of the Common Stock, but only on surrender of this Note for conversion at the
principal office of the Company, accompanied by written notice of election to
convert. No partial conversion of this Note shall be permitted. As soon as
practicable after full conversion of this Note, the Company at its expense will
cause to be issued in the name of, and delivered to, the holder of the Note, a
certificate or certificates for the number of shares of Common Stock to which
the holder shall be entitled on such conversion, together with any other
securities and property to which the holder is entitled on such conversion under
the terms of this Note. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date that the Note shall have
been surrendered for conversion, accompanied by written notice of election to
convert. No fractional shares will be issued on conversion of this Note. If on
any conversion of this Note a fraction of a share would result, the Company will
round down such fractional interest and pay the excess amount of the Note in
cash.
All indebtedness evidenced by this Note shall automatically be converted
into shares of Common Stock at the above rate immediately prior to the filing of
any registration statement pursuant to Article VI of the Agreement.
If at any time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Note) or merger or consolidation of the Company
with or into another corporation, or the sale of the Company's properties and
assets as, or substantially as, an entirety to any other person, then, as part
of such reorganization, merger, consolidation or sale, lawful provision shall be
made so that the holder of this Note shall thereafter be entitled to receive
upon conversion of this Note, during the period specified in this Note, and upon
such conversion, the number of shares of stock or other securities or property
of the Company, or of the successor corporation resulting from such merger or
-B2-
<PAGE>
consolidation, to which a holder of the Common Stock deliverable upon conversion
of this Note would have been entitled on such capital reorganization, merger,
consolidation, or sale if this Note had been converted immediately before that
capital reorganization, merger, consolidation, or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Note with respect to the rights of the holder after the reorganization,
merger, consolidation or sale to the end that the provisions of this Note
(including adjustment of the Conversion Price then in effect) shall be
applicable after that event as nearly equivalent as may be practicable. The form
of this Note need not be changed because of any adjustment in the Conversion
Price or in the number of shares of Common Stock issuable upon its conversion.
The Company may, without penalty, at its own option, prepay in whole or in
part, from time to time, the principal sum, plus interest accrued to date of
payment, of this Note by giving written notice ("Notice") to the Noteholder of
such intent to prepay the note and specifying the date of such prepayment
("Redemption Date") not less than thirty (30) days prior to the Redemption Date.
Notice shall be given by mail to the holder at its last known address. If this
Note shall be called for prepayment and Notice is given, interest shall cease to
accrue from and after the prepayment date on this Note or the part thereof so
called for prepayment (unless default shall be made in the payment of the
prepayment price upon presentation and surrender hereof). If this Note shall be
called for prepayment and Notice is given, the holder may exercise its
Conversion Option until the end of the business day immediately preceding the
Redemption Date, after which time the Conversion Option will terminate.
The indebtedness evidenced by this Note is hereby expressly subordinated,
to the extent and in the manner hereinafter set forth, in right of payment to
the prior payment in full of all the Company's Senior Indebtedness. The term
"Senior Indebtedness" shall mean the principal of (and premium, if any) and
unpaid interest on, (i) indebtedness of the Company or with respect to which the
Company is a guarantor, whether outstanding on the date hereof or hereafter
created, to banks, insurance companies or other lending institutions, regularly
engaged in the business of lending money, which is for money borrowed by the
Company or a subsidiary of the Company, whether or not secured, and (ii) any
deferrals, renewals or extensions of any such indebtedness or any debentures,
notes or other evidence of indebtedness issued in exchange for such Senior
Indebtedness. Upon any receivership, insolvency, assignment for the benefit of
creditors, bankruptcy, reorganization, or arrangements with creditors (whether
or not pursuant to bankruptcy or other insolvency laws), sale of all or
substantially all of the assets, dissolution, liquidation, or any other
marshaling of the assets and liabilities of the Company or in the event this
Note shall be declared due and payable upon the occurrence of an Event of
Default, (i) no amount shall be paid by the Company in respect of the principal
of or interest on this Note at the time outstanding, unless and until the
principal of and interest on the Senior Indebtedness then outstanding shall be
paid in full, and (ii) no claim or proof of claim shall be filed with the
Company by or on behalf of the Lender which shall assert any right to receive
any payments in respect of the principal of and interest on this Note except
subject to the payment in full of the principal of and interest on all of the
Senior Indebtedness then outstanding. In the event of an event of default which
has been declared in writing with respect to
-B3-
<PAGE>
any Senior Indebtedness or in the instrument under which it is outstanding,
permitting the holder to accelerate the maturity thereof, then, unless and until
such event of default shall have been cured or waived or shall have ceased to
exist, or all Senior Indebtedness shall have been paid in full, no payment shall
be made in respect of the principal of or interest on this Note, unless within
twelve months after the happening of such event of default, the maturity of such
Senior Indebtedness shall not have been accelerated. In the case that cash,
securities or other property otherwise payable or deliverable to the Lender
shall have been applied to the payment of Senior Indebtedness, then and in each
such case, upon the payment in full of all Senior Indebtedness, the Lender shall
be subrogated to the rights of the holders of Senior Indebtedness to receive all
further payments and distributions made on Senior Indebtedness until all
principal of and interest on this Note shall have been paid in full; and no such
payments or distributions to the Lender by reason of such subrogation of cash,
securities or other property which otherwise would be payable or distributable
to the holders of Senior Indebtedness shall, as between the Company and its
creditors (other than the holders of Senior Indebtedness), on the one hand, and
the Lender, on the other, be deemed to be a payment by the Company on account of
this Note.
Nothing contained in this Note shall impair, as between the Company and the
Lender, the obligation of the Company, which is absolute and unconditional, to
pay to the Lender the principal hereof and interest hereon as and when the same
become due and payable, or shall prevent the Lender, upon default hereunder or
under this Note, from exercising all rights, powers and remedies otherwise
provided herein or therein or by applicable law, all subject to the rights, if
any, of the holders of Senior Indebtedness to receive cash, securities or other
properties otherwise payable or deliverable to the Lender.
If any action is instituted to collect this Note or enforce any terms
hereof, the Company promises to pay all legal fees and other expenses reasonably
incurred by the Lender in connection therewith.
The Company hereby waives notice of default, presentment or demand for
payment, protest or notice of nonpayment or dishonor and all other notices or
demands relative to this instrument.
This Note is not transferable by the holder hereof, except in accordance
with Section 5.1 of the Agreement.
[This space intentionally left blank]
-B4-
<PAGE>
This Note shall be construed in accordance with the laws of the State of
California as applied to agreements among California residents entered into and
to be performed entirely within California.
UROGEN CORP.
By:___________________________________
Robert E. Sobol, M.D.
President & Chief Executive Officer
[Signature Page for Promissory Note]
<PAGE>
EXHIBIT C
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON THE EXERCISE HEREOF HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR STATE
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT ONLY AND NOT
WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT AND IS IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE SHARES ISSUABLE UPON THE
EXERCISE HEREOF ARE SUBJECT TO CERTAIN RESTRICTIONS ON THEIR TRANSFER PURSUANT
TO TERMS SET FORTH IN THIS WARRANT.
No. W- Warrant to Purchase Shares
of Common Stock
(Subject to Adjustment)
UROGEN CORP.
------------
COMMON STOCK PURCHASE WARRANT
Void after April 28, 2006
UroGen Corp., a Delaware corporation (the "Company"), hereby certifies
that, for value received, ____________, or its permitted assigns, is entitled,
subject to the terms set forth below, to purchase from the Company at any time
or from time to time before 5:00 p.m. Pacific time, on April 28, 2006 (the
"Expiration Time"), _____ fully paid and nonassessable shares of Common Stock of
the Company at a purchase price per share equal to the Warrant Price (as defined
herein) and otherwise in accordance with the terms hereof. The number and
character of such shares of Common Stock and the Warrant Price therefor are
subject to adjustment as provided below.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "Agreement" shall mean the Note and Warrant Purchase Agreement
by and among the Company and certain of the Company's investors dated as of the
date hereof.
(b) The term "Company" includes any corporation which shall succeed to or
assume the obligations of the Company hereunder.
-C1-
<PAGE>
(c) The term "Control Transaction" shall mean (i) the sale by the Company
of all or substantially all of its assets or (ii) any transaction or series of
related transactions by the Company (including, without limitation, any
reorganization, merger or consolidation) which results in the transfer of at
least fifty percent (50%) of the outstanding voting power of the Company;
provided, however, that a reorganization, merger or similar transaction shall
- -------- -------
not be deemed a Control Transaction if the stockholders of the Company
immediately prior to such transaction maintain beneficial ownership and voting
control of all of the outstanding voting securities of the surviving entity in
the same relative proportions as they did prior to such transaction.
(d) The term "holder" shall mean the holder of this Warrant or any
permitted transferee or assignee thereof.
(e) The term "Warrant" shall mean this Warrant.
(f) The term "Warrant Price" shall be equal to $0.30.
(g) The term "Warrant Shares" shall mean the shares of Common Stock or
other securities of the Company issuable upon exercise of this Warrant.
1. Initial Exercise Date; Expiration. This Warrant may be exercised in
---------------------------------
full at any time prior to the Expiration Time, and shall expire immediately
thereupon. Notwithstanding the foregoing, this Warrant shall expire and no
longer be exercisable immediately prior (and subject to) the closing of any
Control Transaction. The Company shall provide the holder of this Warrant with
at least 15 days prior notice of the occurrence of any event which would
constitute a Control Transaction.
2. Exercise of Warrant.
-------------------
(a) This Warrant may be exercised in full by the holder hereof by
surrender of this Warrant, with the form of subscription attached hereto duly
executed by such holder, to the Company at its principal office, accompanied by
payment in accordance with Section 2(b) hereof, of the aggregate Warrant Price
of the Warrant Shares to be purchased hereunder.
(b) In lieu of payment in cash, payment of the aggregate Warrant Price
upon exercise of the Warrant may be made by (i) surrender to the Company of debt
or equity securities of the Company having a fair market value equal to the
aggregate exercise price of the Warrant Shares being purchased upon such
exercise (provided that for purposes of this subparagraph, the fair market value
of the Common Stock shall equal the Market Price of the Common Stock as set
forth below, and the fair market value of any note or other debt security shall
be deemed to be equal to the aggregate outstanding principal amount thereof plus
all accrued and unpaid interest thereon) or (ii) delivery of a written notice to
the Company that the holder is exercising the Warrant by authorizing the Company
to withhold from issuance a number of Warrant Shares issuable upon such exercise
of the Warrant which when multiplied by the Market Price (as set forth below) is
equal to
-C2-
<PAGE>
the aggregate exercise price of the Warrant Shares being purchased upon such
exercise (and such withheld shares shall no longer be issuable under this
Warrant).
(c) The Market Price of the Company's Common Stock as of a particular
date (the "Determination Date") shall be calculated as follows:
(i) If the Company's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") National Market System, then the closing or last sale
price, respectively, reported for the business day immediately preceding the
Determination Date;
(ii) If the Company's Common Stock is not traded on an exchange
or on the Nasdaq National Market System but is traded in the over-the-counter
market, then the mean of the closing bid and asked prices reported for the
business day immediately preceding the Determination Date;
(iii) If the Determination Date is the date on which the Common
Stock is first sold to the public by the Company in a firm commitment public
offering under the Securities Act of 1933, as amended (the "Securities Act")
then the initial public offering price (before deducting commissions, discounts
or expenses) at which the Common Stock is sold in such offering.
3. When Exercise Effective. The exercise of this Warrant shall be deemed
-----------------------
to have been effected immediately prior to the close of business on the business
day on which the holder surrenders this Warrant to the Company and satisfies all
of the requirements of Section 2, and at such time the person in whose name any
certificate for Warrant Shares shall be issuable upon such exercise, as provided
in Section 2, shall be deemed to be the record holder of such Warrant Shares for
all purposes.
4. Delivery on Exercise. As soon as practicable after the exercise of
--------------------
this Warrant and in any event within fifteen (15) days thereafter, the Company
at its expense will cause to be issued in the name of and delivered to the
holder hereof, or as such holder may direct, a certificate or certificates for
the number of fully paid and nonassessable full Warrant Shares as to which such
holder shall be entitled on such exercise, together with cash, in lieu of any
fraction of a share, equal to such fraction of the Market Price of one full
share.
5. Adjustment of Purchase Price and Number of Shares. The character and
-------------------------------------------------
number of Warrant Shares, and the Warrant Price therefor, are subject to
adjustment upon the occurrence of the following events:
5.1 Adjustment for Stock Splits, Stock Dividends, Recapitalizations, etc.
---------------------------------------------------------------------
The Warrant price and the number of Warrant Shares shall be appropriately
adjusted to reflect any stock dividend, stock split, combination of shares,
reclassification, recapitalization or other similar event affecting the
outstanding shares of Common Stock generally. For example if there should be a
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<PAGE>
2-for-1 stock split of the Common Stock, the Warrant Price would be divided by
two and number of Warrant shares would be doubled.
5.2 Adjustment for Other Dividends and Distributions. In case the
------------------------------------------------
Company shall make or issue, or shall fix a record date for the determination of
eligible holders entitled to receive, a dividend or other distribution with
respect to the Company's Common Stock payable in securities or assets of the
Company (excluding cash dividends), then in each case, the holder of this
Warrant on exercise hereof at any time after the consummation, effective date or
record date of such event, shall receive, in addition to the Warrant Shares
issuable upon such exercise prior to such date, the securities or such other
assets of the Company to which such holder would have been entitled upon such
date if such holder had exercised this Warrant immediately prior thereto (all
subject to further adjustment as provided in this Warrant).
6. No Impairment. The Company (a) will not increase the par value of any
-------------
shares of stock receivable on the exercise of this Warrant above the amount
payable therefor on such exercise, (b) will at all times reserve and keep
available a number of its authorized shares of Common Stock, free from all
preemptive rights therein, which will be sufficient to permit the exercise of
this Warrant, and (c) shall take all such action as may be necessary or
appropriate in order that all Warrant Shares as may be issued pursuant to the
valid exercise of this Warrant will, upon issuance, be duly and validly issued,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof.
7. Exchange of Warrants. Subject to the provisions of Section 8 below,
--------------------
on surrender for exchange of this Warrant, properly endorsed, to the Company,
the Company at its expense will issue and deliver to or on the order of the
holder thereof a new Warrant of like tenor, in the name of such holder or as
such holder may direct, calling in the aggregate on the face thereof for the
number of Warrant Shares called for on the face of the Warrant so surrendered.
8. Replacement of Warrants. On receipt by the Company of evidence
-----------------------
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
9. Investment Intent. The holder hereof, by accepting this Warrant,
-----------------
covenants and agrees that, at the time of exercise hereof, and at the time of
any proposed transfer of the Warrant Shares, such holder will deliver to the
Company a written statement that the securities acquired by the holder upon
exercise hereof are for the account of the holder for investment and are not
acquired with a view to, or for sale in connection with, any distribution
thereof (or any portion thereof) and with no present intention (at any such
time) of offering and distributing such securities (or any portion thereof), and
make other representations which the Company may reasonably require in
-C4-
<PAGE>
order to comply with the restrictions of state and federal securities laws
relating to the sale and disposition on "restricted securities," as that term is
defined in Rule 144 of the Securities Act.
10. Transfer Restrictions. The holder hereof acknowledges that the
---------------------
Warrants and Warrant Shares may not be transferred except in accordance with
Section 5.1 of the Agreement.
11. Notices. All notices referred to in this Warrant shall be in writing
-------
and shall be delivered personally (including by express courier) or by certified
or registered mail, return receipt requested, postage prepaid and will be deemed
to have been given when so delivered or mailed (i) to the Company, at its
principal executive offices and (ii) to the holder of this Warrant, at such
holder's address as it appears in the records of the Company (unless otherwise
indicated by such holder).
12. Miscellaneous. This Warrant and any term hereof may be changed,
-------------
waived, discharged or terminated in accordance with Section 7.1 of the
Agreement. This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of California. The headings in
this Warrant are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof.
[This Space Intentionally Left Blank]
-C5-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and
attested by its duly authorized officers and to be dated April 28, 1999.
UROGEN CORP.
By:___________________________________
Robert E. Sobol, M.D.
President & Chief Executive Officer
[Signature Page to Purchase Warrant]
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: UroGen Corp.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ____________* shares of Common Stock of UroGen Corp. and
herewith:
(Check one)
[_] makes payment of $_________ therefor; or
[_] surrenders __________ shares of __________ stock or $ __________ of
aggregate indebtedness; or
[_] elects to "net exercise" the Warrant pursuant to Section 2(b)(ii) of
the Warrant and authorizes UroGen Corp. to withhold from issuance the
appropriate number of Warrant Shares as specified therein.
_____________________________________________
(Signature must conform in all respects to name of
holder
as specified on the face of the Warrant)
_____________________________________________
_____________________________________________
(Address)
Dated:
___________________________
*Insert here the number of shares as to which the Warrant is being exercised.
<PAGE>
EXHIBIT 10.17
UROGEN CORP.
1999 STOCK PLAN
1. Purposes of the Plan. The purposes of this 1999 Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions of
substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall be
-------------
administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means Urogen Corp., a Delaware corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by the
----------
Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
--------
<PAGE>
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common Stock
-----------------
determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to qualify
-------------------------
as an Incentive Stock Option.
-2-
<PAGE>
(p) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1999 Stock Plan.
----
(y) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
----------
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
-------------
(cc) "Service Provider" means an Employee, Director or Consultant.
----------------
-3-
<PAGE>
(dd) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 4,000,000 Shares, increased on the first day of each new
fiscal year of the Company from and including the 2000 fiscal year by a number
of Shares equal to 2% of the number of Shares outstanding as of the last
business day preceding each such first day of each new fiscal year. The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. The Plan may be administered
------------------------------
by different Committees with respect to different groups of Service Providers.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
----------
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
-4-
<PAGE>
(iv) Other Administration. Other than as provided above, the Plan
--------------------
shall be administered by (A) the Board or (B) a Committee, which committee shall
be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan,
---------------------------
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option or Stock Purchase Right granted hereunder.
Such terms and conditions include, but are not limited to, the exercise price,
the time or times when Options or Stock Purchase Rights may be exercised (which
may be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option
or Stock Purchase Right or the shares of Common Stock relating thereto, based in
each case on such factors as the Administrator, in its sole discretion, shall
determine;
(vi) to reduce the exercise price of any Option or Stock Purchase
Right to the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option or Stock Purchase Right shall have declined
since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
-5-
<PAGE>
(xi) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or Stock Purchase Right
previously granted by the Administrator;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
----------------------------------
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either an
Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any calendar year (under all plans of the
Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be
treated as Nonstatutory Stock Options. For purposes of this Section 6(a),
Incentive Stock Options shall be taken into account in the order in which they
were granted. The Fair Market Value of the Shares shall be determined as of the
time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall confer
upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 1,000,000 Shares.
-6-
<PAGE>
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 1,000,000
Shares, which shall not count against the limit set forth in subsection (i)
above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
------------
effective upon its adoption by the Board. It shall continue in effect for a
term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
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<PAGE>
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price of less than 100% of the Fair Market Value per Share on
the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
-8-
<PAGE>
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
-----------------------------------------------
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. Unless the Administrator provides otherwise, vesting
of Options granted hereunder shall be tolled during any unpaid leave of absence.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence
of a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
-9-
<PAGE>
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or
administrator of the Optionee's estate or, if none, by the person(s) entitled to
exercise the Option under the Optionee's will or the laws of descent or
distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
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<PAGE>
(b) Repurchase Option. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities
-11-
<PAGE>
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with
--------------------
or into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be assumed
or an equivalent option or right substituted by the successor corporation or a
Parent or Subsidiary of the successor corporation. In the event that the
successor corporation refuses to assume or substitute for the Option or Stock
Purchase Right, the Optionee shall fully vest in and have the right to exercise
the Option or Stock Purchase Right as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an
Option or Stock Purchase Right becomes fully vested and exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For
the purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
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<PAGE>
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder approval
--------------------
of any Plan amendment to the extent necessary and desirable to comply with
Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
-13-
<PAGE>
18. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-14-
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 25, 1999 in the Registration Statement (Form SB-1)
and related Prospectus of UroGen Corp. for the registration of 4,284,894 shares
of its common stock.
/s/ ERNST & YOUNG LLP
San Diego, California
June 15, 1999
