<PAGE>
As filed with the Securities and Exchange Commission on February 10, 2000
Registration No. 333-81283
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 4 to
FORM SB-2
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
(858) 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 4,339,977 shares $0.22 954,793 $265 (3)
- ---------------------------------------------------------------------------------------------------------
</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 September 17, 1999.
(3) $298 has previously been paid.
- --------------------------------------------------------------------------------
______________
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.
4,339,977 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 of common
stock underlying the notes and warrants by their current holders.
On February 4, 2000, the closing price of our common stock, which is
quoted on the Electronic Bulletin Board under the symbol "UROG", was $5.28 per
share.
--------------
THE COMMON STOCK OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
-------------
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 FEBRUARY 10, 2000
<PAGE>
PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
and our Financial Statements and notes appearing elsewhere in this
prospectus.
-2-
<PAGE>
UROGEN CORP.
UroGen Corp. is a biotechnology company dedicated to the development of
innovative gene therapy products for the treatment of hemophilia, cancer and
other genetic disorders. Gene therapy is technology that uses genetic materials
as therapeutic agents to treat disease. Gene therapy seeks to restore, augment
or correct gene functions either by the addition of normal genes or by
neutralizing the activity of defective genes. An essential requirement of gene
therapy is a suitable delivery system for introducing therapeutic genes into
cells. Two major approaches which have been used are viral and non-viral
delivery systems, also called vectors.
Prior to July 1998, UroGen was a biotechnology company developing gene
therapy products for the diagnosis and treatment of prostate cancer. We had
licensed technology in this area and were evaluating gene delivery systems. In
July 1998, UroGen acquired equipment from the gene therapy unit of Baxter
Healthcare Corporation together with exclusive rights to gene delivery
technologies in exchange for 1,841,217 shares of our common stock and 5,830
shares of our Series A preferred stock. See "Certain Relationships and Related
Transactions - Baxter Agreements" for a description of this transaction. The
technology acquired from Baxter is based upon gene transfer systems derived from
a type of cold virus called an adenovirus. We believe this adenoviral system
provides superior gene transfer efficiency and expression compared to other gene
therapy approaches. Gene expression is the biological process the body employs
to make proteins from the genetic code of DNA. High levels of gene expression
mean that high levels of proteins are made. The gene transfer system has been
engineered to remove the original adenovirus genes which all then replaced with
therapeutic genes. These genetically engineered therapeutic viruses contain less
than 3% of the original adenovirus. We believe that removal of unwanted
adenoviral genes permits increased gene transfer capacity with a high level of
expression of the gene being delivered. In addition, there is improved safety
compared to standard gene transfer systems. Because these therapeutic viruses
are engineered to minimize the presence of adenoviral genes, they are termed
"Mini-Ad" vectors. These Mini-Ad vectors retain the ability to infect other
cells and the efficient gene transfer characteristics of original adenoviruses.
Importantly, we believe we have engineered capabilities into our Mini-Ad systems
which provide for sustained, high level expression of the gene being
transferred. 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
effective theraputic treatments.
The research performed at Baxter before we licensed the technology was
focused on the use of this delivery system to treat hemophilia and cancer. We
have continued our research and development of products for the treatment of
hemophilia and prostate cancer. Two gene therapy products are under development:
1) Factor VIII Mini-Ad Vector for the treatment of hemophilia; 2) Tumor killing
Interleukin-3 (IL-3) Adenoviral Vectors for the treatment of prostate cancer.
The Factor VIII Mini-Ad Vector for hemophilia is expected to provide a greater
duration of the normally occurring protein, Factor VIII, preventing chronic
bleeding and joint damage which are characteristic of this disorder. The IL-3
Adenoviral product is comprised of a mixture of two adenoviral vectors which
complement each other resulting in replication of the virus in tumor tissues,
leading to destruction of tumor cells, 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 molecular biology and small molecule pharmaceuticals
divisions of Medstone. UroGen operated as two divisions of Medstone from July 1,
1991 to December 29, 1996, when the operations of these divisions were
transferred into UroGen Corp. 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 (858) 450-5949.
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<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by UroGen None
Common stock offered by the selling stockholders 4,339,977 shares, including 1,879,166
shares issuable upon exercise of the
warrants
Common stock outstanding after the offering 18,586,243 shares
20,465,412 shares assuming all 1,879,166
shares are issued upon exercise of the
warrants
Use of proceeds Urogen will not receive proceeds from
the sale of the Shares offered. The warrants
include a net exercise provision. Accordingly,
we may not receive significant proceeds from
exercise of the warrants.
</TABLE>
The above number of shares outstanding after the offering is based on the shares
outstanding as of January 31, 2000. This number excludes:
. 3,076,842 shares subject to outstanding options at a weighted average
exercise price of $0.30 as of January 31, 2000.
. 2,574,627 shares issuable upon exercise of outstanding warrants, other
than those which are a subject of this prospectus, at a weighted average
exercise price of $0.65 per share as of January 31, 2000.
. An aggregate of 2,350,432 shares available for future issuance under our
stock option plans.
Summary Consolidated Financial Information
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Period
from July
Nine Months Ended 1, 1991 to
Year Ended December 31, September 30, September 30,
-------------------------------------------------- ------------------ -------------
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 $ - $ - $ - $ 67 $ 192 $ 909
Total costs and expenses ...... 7,858 497 522 75 398 2,453 4,906 15,513
Loss from operations........... (7,666) (303) (522) (75) (398) (2,386) (4,714) (14,604)
Other income................... - - 64 - - 1 - 65
Interest income (expense)...... (296) 4 14 - - (334) (167) (611)
Net loss....................... $(7,962) $ (299) $ (444) $ (75) $ (398) $(2,719) $(4,881) $ (15,150)
Net loss per share............. $ (1.00) $(0.04) $ (0.07) N/A N/A $ (0.27) $ (0.65)
Weighted average shares
outstanding................... 7,997 7,331 5,980 N/A N/A 10,237 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>
December 31 September 30,
------------------------------------------------------------
1998 1997 1996 1995 1994 1999
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data(1):
Working capital............................. $(1,274) 5 235 1 - $ 777
Total assets................................ 1,098 77 253 163 201 1,877
Long-term debt, net of current portion...... 1,044 - - - - 3,467
Stockholders deficit........................ (1,934) 9 237 163 201 (2,145)
</TABLE>
(1) In January 2000, we raised $8.3 million from the sale of common stock and
warrants.
-4-
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below and the other information
contained in this prospectus before deciding to invest in our common stock. The
risks described below are not the only ones facing our company. Additional risks
not presently known to us or which we currently consider immaterial may also
adversely affect our business. If any of the following risks actually happen,
our business, financial condition and operating results could be materially
adversely affected. In this case, the trading price of our common stock could
decline, and you could lose part or all of your investment.
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, including 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 prospectus. 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.
UROGEN RISKS
We will need substantial additional funding, which may not be available and may
limit our growth.
Our operations to date have consumed substantial amounts of cash. The
negative cash flow from operations is expected to continue and to accelerate for
at least the next three years. 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:
. the progress of our research and development programs;
. the progress of preclinical and clinical testing;
. the time and cost involved in obtaining regulatory approvals;
. the cost of filing, prosecuting, defending and enforcing patent claims
and other intellectual property rights;
. competing technological and market developments; and
. our ability to establish collaborative and other arrangements with
third parties, such as licensing and manufacturing agreements.
Baxter has committed to fund the development of our hemophilia product
under the Developmental Collaboration Agreement until we treat the first patient
in Phase I clinical trials, at which time they will pay us a $2 million
milestone payment. Additionally, in January 2000, we raised $8.3 million related
to the sale of common stock and warrants. We expect that our existing capital
resources and the amounts committed by Baxter will enable us to maintain our
current and planned operations for at least the next twelve months. We will need
to raise substantial additional capital to fund our operations. We intend to
seek this additional funding either through collaborative arrangements or
through public or private equity or debt financings. We cannot be certain that
additional
-5-
<PAGE>
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, 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 acquired in the
interim.
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 our ability to continue as a going concern based
upon 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
profitable operations depends on obtaining additional financing and achieving a
level of revenues to support our cost structure.
We are in the early stage of product development. Our technology requires
additional research and development, clinical testing and regulatory clearances
prior to marketing our products. If any of our potential products fail, our
business may not succeed.
Our products are in the early stages of development. They will require
additional research and development, clinical testing and regulatory clearances.
We currently do not sell any products and do not expect to have any products
commercially available for at least two years. Our proposed products are subject
to the risks of failure inherent in the development of gene therapy products
based on innovative technologies.
As a result, we are not able to predict whether our research and
development activities will result in any commercially viable products or
applications. In our industry, the majority of the potential products fail to
enter clinical studies, and the majority of products entering clinical studies
after achieving promising preclinical results are not commercialized
successfully.
We have limited manufacturing and marketing experience, which may impair the
sale of our products.
We cannot guarantee that we will be able to develop manufacturing or
marketing capabilities successfully, either on our own or through third parties.
To date, we have engaged only in the development of pharmaceutical technology
and products, and have more limited experience in manufacturing or procuring
products in commercial quantities or in marketing pharmaceutical products. We
have only limited experience in conducting clinical trials and other later-stage
phases of the regulatory approval process. We cannot be certain that we will be
able to engage successfully in any of these activities for any of the products
we attempt to commercialize.
-6-
<PAGE>
Our business is expanding rapidly and our business prospects may suffer if we
are not able to effectively manage the growth of our operations and successfully
integrate new personnel.
If we decide to establish a commercial-scale manufacturing facility, we
will require substantial additional funds and personnel and will be required to
comply with extensive regulations applicable to such a facility. This growth may
strain our management and operations. Our ability to manage growth depends on
the ability of our officers and key employees to:
. broaden our management team and to attract, hire and retain skilled
employees;
. implement and improve our operational, management information and
financial control systems:
. expand, train and manage our employee base; and
. develop additional expertise among existing management personnel.
We depend on future collaborations with others, which may be difficult to
obtain, and our revenues may depend on the efforts of third parties.
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 have entered into a
distribution agreement with Baxter Healthcare Corporation under which Baxter has
the exclusive right to market, sell and distribute the hemophilia product.
Therefore, any revenues we may receive from the hemophilia product are dependent
on the efforts of Baxter. To the extent that we enter into additional co-
promotion, distribution or other licensing arrangements, any revenues we receive
will depend on the efforts of the other parties in these arrangements.
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. If we are unable to establish these
arrangements, UroGen would need to raise additional capital to undertake these
activities at our own expense. In addition, we may encounter significant delays
in introducing our products into some markets or find that the development,
manufacture or sale of our products in these markets is adversely affected by
the absence of these collaborative agreements.
We are a development stage company with a limited operating history; We expect
continued losses and may never become profitable.
We are considered a development stage company because we have not yet
generated revenues from sales. From our inception in June 1995 through June 30,
1999, we have incurred cumulative losses of approximately $14.3 million, almost
all of which consisted of research and development and general and
administrative expenses. We expect our losses to increase in the future as we
begin our clinical trials and increase our research and development activities.
It is possible that we may never achieve significant revenues or become
profitable.
Even if we eventually generate revenues from sales, we expect to incur
significant operating losses over the next several years. Our ability to become
profitable and to achieve long-term success will depend on:
. the time and expense necessary to develop our proposed products
. whether and how quickly we can obtain regulatory approvals for proposed
products; and
. our success in bringing these products to market.
-7-
<PAGE>
See "Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Inability to protect our technologies through patent protection could allow
competitors to exploit our proprietary products and technologies.
We actively pursue patent protection for our proprietary products and
technologies. We hold one U.S. patent and currently have 7 U.S. patent
applications pending and several foreign patent applications pending. In
addition, we have numerous foreign patent applications pending corresponding to
our U.S. patents. However, our patents may not protect us against our
competitors. We may be required to file suit to protect our patents, and we
cannot be certain that we will have the resources necessary to pursue such
litigation or otherwise protect our patent rights.
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, we cannot be
certain that our position would be substantiated if challenged.
We also rely on trade secret protection for our unpatented proprietary
technology. However, trade secrets are difficult to protect. Others could
develop substantially equivalent information or gain access to our trade
secrets.
We have a policy requiring that our employees and consultants execute
proprietary information agreements upon commencement of employment or consulting
relationships. These agreements provide that all confidential information
developed or made known to the individual during the course of the relationship
must be kept confidential except in specified circumstances. However, these
agreements may not successfully protect our trade secrets or other proprietary
information.
Others could assert claims against us based on their patents. Claims
could seek damages as well as an injunction prohibiting clinical testing,
manufacturing and marketing of the product at issue. If any actions are
successful, in additional to any potential liability for damages, we could be
required to obtain a license in order to continue to manufacture or market the
product at issue. It is possible that any license required under any patent
would not be made available on acceptable terms, if at all. There has been, and
we believe that there will continue to be, significant litigation in the
pharmaceutical industry regarding patent and other intellectual property rights.
If we become involved in any litigation, a substantial portion of our financial
and personnel resources could be consumed, regardless of the outcome of
litigation. See "Business - Patents and Proprietary Rights."
Competition for highly-skilled personnel is intense and the success of our
business depends on our ability to attract and retain 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., the loss of whose services might
significantly delay our product development and commercialization efforts. We
do not have agreements with Mr. Quardros or Mr. Sobol which would assure
retention of their services for more than sixty days.
We will also need substantial additional expertise in the areas of
manufacturing, marketing and finance, among others, in order to achieve our
business objectives. Competition for qualified personnel is intense, and the
loss of key personnel or the inability to attract and retain the additional
skilled personnel required for the expansion of our business could damage our
business.
-8-
<PAGE>
INDUSTRY RISKS
Clinical trials are designed to test the safety and efficacy of our potential
products in human patients. Successful clinical trials depend on the complexity
of the potential product and the rate of patient enrollment. If the clinical
trials are not successful, we will incur additional expense and our potential
products may not be approved for sale.
Extensive and costly clinical testing will be necessary to assess the
safety and efficacy of our potential products. The rate of completion of
clinical trials depends on, among other factors, the type, novelty and
complexity of the product and the rate of patient enrollment. Patient enrollment
is a function of many factors, including:
. the nature of the clinical trial protocols;
. the existence of competing protocols;
. size of the patient population;
. proximity of patients to clinical sites; and
. eligibility criteria for the study.
There are other companies conducting clinical trials in patients with
hemophilia. As a result, we must compete with them for clinical sites,
physicians and the limited number of patients with hemophilia who fulfill the
stringent requirements for participation in clinical trials. Delays in patient
enrollment will increase costs and delay the introduction of our potential
products, thereby harming our business and financial condition.
Even if we successfully enroll patients in our clinical trials, we cannot
guarantee they will respond to our potential products. We think it is prudent to
expect setbacks. If we do not comply with the U.S. Food and Drug Administration
regulations applicable to clinical trials, our trials could be delayed,
suspended or cancelled, or the FDA might not accept the results of our trials.
The FDA may suspend clinical trials at any time if it concludes that the
subjects participating in our trials are being exposed to unacceptable health
risks. Further, we cannot assure you that human clinical testing will show any
current or future product candidate to be safe and effective .
We face intense competition and must cope with rapid technological change, which
may adversely affect earnings and financial condition and/or render our
potential products obsolete.
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 than we do in the following areas:
. research and development;
. manufacturing;
. preclinical and clinical testing;
. obtaining regulatory approvals; and
. marketing
-9-
<PAGE>
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, 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 competitors.
We need to comply with significant government regulation to obtain product
approvals and to market products after approvals. Compliance with government
regulation can be a costly and time consuming process, with no assurance of
ultimate approval. If these approvals are not obtained, we will not be able to
sell our potential products.
Various agencies in the United States and abroad regulate the testing,
manufacturing, labeling, distribution, marketing and advertising of proposed
products and ongoing research and development activities. The U.S. Food and Drug
Administration, the U.S. National Institute of Health and comparable agencies
in foreign countries impose many requirements on the introduction of new
pharmaceutical products through lengthy and detailed clinical testing
procedures, and other costly and time consuming compliance procedures. These
requirements make it difficult to estimate when our potential products will be
commercially available, if at all.
Our potential products will require substantial clinical trials and FDA
review as new drugs. We cannot predict with certainty when we might submit any
of our proposed products currently under development for regulatory review. Once
we submit a product for review, we cannot guarantee that FDA or other regulatory
approvals will be granted on a timely basis, if at all.
If we are delayed or fail to obtain required approvals, our business and
results of operations would be damaged. If we fail to comply with regulatory
requirements, either prior to approval or in marketing our products after
approval, we could be subject to regulatory or judicial enforcement actions.
These actions could result in:
. product recalls or seizures;
. injunctions;
. civil penalties;
. criminal prosecution;
. refusal to approve new products and withdrawal of existing approvals;
and
. enhanced exposure to product liabilities.
If we sell our products outside the U.S., we will be subject to regulatory
requirements governing these sales. These requirements vary widely from country
to country and could delay introduction of our products in those countries.
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<PAGE>
The pricing of our product may depend on third-party payors, whose reimbursement
and/or cost control policies may limit the revenues from our products.
In both domestic and foreign markets, sales of our products, if any, will
depend, in part, on the extent to which third-party payors, including government
agencies such as Medicare, managed care providers and private health insurers
will reimburse users for the costs of our products and any related treatments.
If those who buy our products are not adequately reimbursed, they may forego or
reduce use.
Third-party payors are engaged in ongoing efforts to reduce the costs of
pharmaceutical products. In the United States, an increasing emphasis on managed
care and consolidation of hospital purchasing has and is expected to continue to
place pressure on pharmaceutical prices, and may reduce the prices we can charge
for our potential products. In many major foreign markets, pricing approval is
required before sales can commence and prices are often set by governmental
authorities. These price controls are subject to change at unpredictable times.
Market acceptance of our potential products will be severely curtailed if
adequate coverage and reimbursement levels are not provided by governmental
authorities and private third-party payors.
We face the risk of product liability claims which may affect our earnings and
financial condition; we do not currently have product liability insurance
coverage, which increases our financial exposure to these claims.
Our business will expose us to potential product liability risks that are
inherent in the testing, manufacturing and marketing of human therapeutic
products. Product liability results from harm to patients using our potential
product that was either not communicated as a potential side-effect, or was more
extreme that communicated. We currently have no clinical trial liability
insurance for our human clinical trials and will be required to obtain insurance
prior to beginning the trials. We will require all patients enrolled in the
clinical trials to sign consents which explain the risks involved with
participating in the trial. The consents, however, provide only a limited level
of protection and product liability insurance will be required. We may not be
able to obtain and maintain product liability 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, which would expose us to potential product liability.
Accidents related to hazardous materials used in our research and development
efforts, could subject us to significant liability.
Our research and development efforts involve the controlled use of
hazardous materials and biological hazardous materials, such as isopropyl
alcohol, ethanol and bromides. 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, we could be held liable for any damages that
result and any such liability could exceed our resources.
RISKS RELATED TO THIS OFFERING
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<PAGE>
Our stock is subject to "penny stock" regulations, which may limit your ability
to trade your shares.
Our stock is subject to certain rules promulgated under the Exchange Act which
impose additional disclosures and various sales practice requirements on broker-
dealers in connection with any trades involving a stock defined as "penny
stock". Penny stocks are generally defined as any non-exchange listed security
that has a market price of less than $5.00 per share, subject to certain
exceptions. Under the Exchange Act Rule 15g-9 broker-dealers must, prior to
selling a penny stock:
. Obtain from the investor information concerning the person's financial
situation, investment experience and investment objectives;
. Reasonably determine that transactions in penny stocks are suitable for
the investor and that the investor, or the investor's independent
advisor in the transactions, has sufficient knowledge and experience in
financial matters so as reasonably to be expected to be capable of
evaluating the risks of transactions in penny stock; and
. Deliver a written statement, which must be signed and returned to the
broker-dealer by the investor, setting forth among other things, the
basis on which the broker-dealer approved the investor's account for the
transaction.
If the penny stock rules are not followed by a broker-dealer, the investor has
no obligation to purchase the shares. The broker-dealer is also obligated to
provide certain information statements to investors in penny stocks. The
additional burdens imposed upon broker-dealers by these requirements may
discourage broker-dealers from effecting transactions in our common stock and
the ability of purchasers to resell our stock in the secondary market. 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.
There may be an adverse impact on the value of your investment from shares
eligible for future sale.
Sales of shares of our 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 our
common stock. The common stock being registered for resale in this prospectus
represents 24% of our total outstanding shares, assuming exercise of all of the
warrants being registered. 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.
Additionally, in January 2000 we sold 6,362,801 shares of common stock and
warrants to purchase and additional 1,773,899 shares of common stock. These
newly issued securities represent 44% of our total outstanding shares, assuming
exercise of all the warrants sold. We are required to file a registration
statement to register these shares of common stock and the shares of common
stock underlying the warrants issued in the January 2000 offering within 90 days
of the date of the offering. The resale of these shares may have an adverse
impact on the value of your investment.
-12-
<PAGE>
USE OF PROCEEDS
We will not receive proceeds from the sale of the common stock offered in this
prospectus. The maximum amount we could receive upon exercise of the warrants is
$501,100. However, the warrants include a "net exercise" provision where the
investors can elect to receive fewer shares upon exercise rather than pay the
exercise price in cash. Accordingly, we may not receive significant proceeds
from the exercise of the warrants. In addition, as the warrants can be exercised
at any time until June 30, 2005 and April 28, 2006 for the $1,030,000
offering and $400,000 offering, respectively, and are exercisable at the
option of the holder, we cannot predict when we might receive any cash proceeds.
Any amount we do receive will be used for general working capital purposes.
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 $0.33 $0.27
Third Quarter $0.33 $0.13
Fourth Quarter $0.60 $0.25
FISCAL YEAR ENDED December 31, 2000
First Quarter (through February 4, 2000) $6.38 $0.66
</TABLE>
On February 4, 2000, the last reported sale price of the common stock as
reported on the over-the-counter market was $5.28 per share. As of February 4,
2000, there were approximately 1,000 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 for at least the next five years, if ever.
-13-
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of September
30, 1999. We will not receive proceeds from this offering, therefore, there is
no change to the capitalization of the Company due to this offering. 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>
September 30,
1999
(in thousands)
--------------
<S> <C>
Advance from related party $ 3,392
Capital lease obligation, net of current position 75
Stockholders' deficit
Preferred Stock - $0.01 par value; 5,000,000 shares
authorized; issued and outstanding -
Common Stock - $0.001 par value; 40,000,000 shares
authorized; 12,097,999 issued and outstanding 12
Additional paid-in capital 9,268
Deficit accumulated during development stage (11,425)
--------
Total stockholders' deficit $ (2,145)
--------
Total capitalization $ 1,322
========
</TABLE>
(1) The number of shares of common stock issued and outstanding above excludes:
. 6,362,801 shares issued in January 2000.
. 3,076,842 shares subject to outstanding options at a weighted average
exercise price of $0.30 as of January 31, 2000.
. 4,453,793 shares issuable upon exercise of outstanding warrants, of
which 1,879,166 are being registered by this prospectus, at a weighted
average exercise price of $0.56 per share as of January 31, 2000.
. An aggregate of 2,350,432 shares available for future issuance under
our stock option plans.
See "Description of Capital Stock" and Notes to the Financial statements.
-14-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical financial data of UroGen Corp., and
UroGen's predecessor divisions of Medstone reflect UroGen's operating results as
a stand-alone entity during 1996, 1997, 1998 and the first nine months of 1999,
and UroGen's historical operation as divisions of Medstone for the prior
periods. The financial data as of September 30, 1999 and for the periods ended
September 30, 1999 and 1998 and for the period from July 1, 1991, our inception,
to September 30, 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 1997 and for each of the years in the three-year period ended December 31,
1998 have been derived from the audited financial statements of UroGen Corp.
included elsewhere in this prospectus. The financial data for all other periods
and dates have been derived from audited financial statements of the UroGen
divisions of Medstone which are not included in this prospectus. 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 in this prospectus.
<TABLE>
<CAPTION>
Period from
Six Months July 1, 1991
ended (inception) To
Year ended December 31, September 30, September 30,
------------------------------------------------ ------------------ --------------
1998 1997 1996 1995 1994 1999 1998 1999
-------- -------- -------- -------- -------- -------- -------- --------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues......................... $ 192 $ 194 $ - $ - $ - $ 67 $ 192 $ 909
------- ------- -------- -------- -------- -------- ------- ---------
Costs and expenses:
Cost of sales - - - - - - - 822
Research and development.......... 1,916 346 384 75 165 1,862 1,177 7,296
General and administrative........ 487 151 174 - 233 591 299 1,940
Write-off of acquired in-process
technology.................... 5,455 - - - - - 3,430 5,455
------- ------- -------- -------- -------- -------- ------- ---------
Total costs and expenses.... 7,858 497 22 5 98 2,453 4,906 15,513
------- ------- -------- -------- -------- -------- ------- ---------
Income from operations............ (7,666) (303) (522) (75) (398) (2,386) (4,714) (14,604)
Other income........................ - - 64 - - 1 65
Interest expense.................... (306) - - - - (349) (171) (655)
Interest income..................... 10 4 14 - - 15 3 44
------- ------- -------- -------- -------- -------- ------- ---------
Net loss............................ $(7,962) $ (299) $ (444) $ (75) $ (398) $ (2,719) (4,881) $ (15,150)
======= ======= ======== ======== ======== ======== ======= =========
Net loss per share.................... $ (1.00) $ 0.04) $ (0.07) N/A N/A $ (0.27) $ (0.65)
======= ======= ======== ======== =======
Weighted average shares outstanding... 7,997 7,311 5,980 N/A N/A 10,237 7,537
======= ======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
------------------------------------------------------ -------------
1998 1997 1996 1995 1994 1999
<S> ---- ---- ---- ---- ---- ------------
Balance Sheet Data (1): <C> <C> <C> <C> <C> <C>
Working capital.................................. $(1,274) 5 235 1 - $ (777)
Total assets..................................... 1,098 77 253 163 201 1,877
Long-term debt, net of current portion........... 1,044 - - - - 3,467
Stockholders' deficit............................ (1,934) 9 237 163 201 (2,145)
</TABLE>
(1) In January 2000, we raised $8.3 million related to the sale of common stock
and warrants.
-15-
<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 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 us on the date hereof, 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 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 and has
been in the development stage since inception. Our original mission was to
develop products to treat diseases in urology, with a particular interest in
prostate cancer. We had licensed technology that uses the IL-3 gene to treat
several types of cancer, but did not have technology to deliver the gene. On
July 8, 1998, we entered into an agreement with Baxter Healthcare Corporation in
which we acquired the exclusive rights to gene delivery technologies and
laboratory equipment. The gene delivery technology will be used to enhance our
existing technology and to develop products to deliver other genes. We believe
that the gene delivery technology provides a higher level of expression of the
gene being delivered compared to other gene therapy approaches. Prior to our
license of the technology, Baxter had been developing this technology for the
treatment of hemophilia and cancer and has continued to fund the development of
our Factor VIII product for hemophilia. See "Certain Relationships and Related
Transactions-Baxter Agreements".
In exchange for the exclusive license to the gene delivery technology and
equipment, we issued 1,841,219 shares of common stock and 5,830 shares of Series
A preferred stock to Baxter. The assets acquired from Baxter were valued based
on the fair market value of our common stock on the date of the agreement. We
obtained an appraisal of the value of the equipment acquired. Based upon the
very early stage of development of the technology, the value of the technology
was charged to acquired in-process technology.
Our current activities consist of the development of the gene transfer
system in our Factor VIII Mini-Ad product for hemophilia. If we are successful
in raising sufficient capital, we plan to develop the system for our Tumor
Killing IL-3 product to treat prostate cancer. We expect to incur increasing
research and development expenditures as we focus our efforts on further
development of these products. We expect no significant revenues and to incur
significant operating losses for at least the next five years.
RECENT EVENTS
In January 2000, we received $8.3 million from the sales of 6,362,801 shares
of common stock and warrants for an additional 1,773,899 shares of common stock.
The warrants are exercisable for five years from issuance and have an exercise
price of $0.75 per share.
In April 1999, we received $400,000 from the sale of unsecured convertible
notes payable. These notes 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 a conversion, resulting in
the issuance of 1,333,333 shares of common stock. The filing also caused the
automatic conversion of $1,030,000 of notes issued in July 1998 into 1,030,000
shares of common stock. In addition, the interest accrued on both series of
notes converted into 97,478 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. 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 sustained if challenged. Such a
conflict could also result in a significant reduction of the coverage in 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 be on commercially favorable terms.
RESULTS OF OPERATIONS
Revenues
UroGen has generated revenues to date of $908,581 from contract research
agreements and grants. Total revenues for the years ended December 31, 1996,
1997 and 1998 and these nine months ended September 30, 1998 and 1999 were
$192,300, $193,500 none, $192,300 and $67,201, respectively. 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. Product revenues are dependent on the success
of our clinical trials. See "Risk Factors - we face risks and uncertainties
related to conducting clinical trials".
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 nine months
ended September 30, 1998 and 1999 were $347,698, $345,592, $7,371,053,
$4,606,380 and $1,861,892, 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 estimate that it
will take five more years and approximately $30 million dollars to complete the
development of the Factor VIII product and obtain regulatory approvals, if we
are able to obtain approvals. See "Risk Factors - We face risks and
uncertainties related to conducting clinical trials. If the clinical trials are
not successful, we will incur additional expense and our potential products may
not be approved for sale."
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. We are
currently in the process of developing a facility to manufacture the materials
for Phase I and Phase II clinical trials for our hemophilia product. We estimate
that the costs to develop the facility and manufacture materials for Phase I
clinical trials will be approximately $4.4 million dollars, which will be funded
by Baxter under the developmental collaboration agreement. We are unable to
estimate the costs to develop manufacturing facilities for Phase III clinical
trials and for commercial quantities of our potential products and the costs to
develop marketing capabilities, because we have not determined whether we will
build these capabilities within the company or enter into collaborative
arrangement with others to perform these functions.
General and administrative expenses
General and administrative expenses during the years ended December 31, 1996,
1997 and 1998 and the nine months ended September 30, 1998 and 1999 were
$174,472, $151,315, $487,501, $299,501 and $591,777, 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 as the
level of our operations has increased and we expect general and administrative
expenses to continue to increase to support our increasing research and
development activities.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion compares activity for the nine months ended September
30, 1999 to the year ended December 31, 1998 because comparison to the nine
months ended September 30, 1998 is not considered to be appropriate due to
changes in operations resulting from the consummation of the Baxter transaction
on July 8, 1998. Net cash used by operating activities was $642,511 during the
year ended December 31, 1998 and $2,915,335 during the nine months ended
September 30, 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, expenses paid through advances from
Baxter and amortization of debt discount. Net cash used by investing activities
of $63,493 during 1998 and $65,048 for the nine months ended September 30, 1999
consists of the purchase of furniture and equipment. Net cash provided by
financing activities of $946,634 during 1998 consists of proceeds from the notes
payable, proceeds from additional notes payable described below of $1,030,000
offset by expenses paid to raise capital. Net cash provided by financing
activities for the nine months ended September 30, 1999 of $3,823,399 consists
primarily of amounts received from Baxter for development of the hemophilia
product, proceeds from additional notes payable described below and repayment of
a note
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<PAGE>
receivable from a stockholder.
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. Medstone funded
all of UroGen's operations from July 1, 1991, our 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. In
January 2000, we raised $8.3 million from the sale of common stock and warrants
for common stock. UroGen has incurred net losses of $15,150,520 since its
inception through September 30, 1999, 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 may not be successful and we
may never 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.
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 a purchase of Series C preferred
stock.
We anticipate our existing capital resources, including funds received from
Baxter under the Developmental Collaboration Agreement, will enable us to
maintain our current and planned operations for at least the next twelve months.
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 our ability to continue as a going concern based on
certain existing conditions. Successful completion of our development program
and the transition, ultimately, to attaining profitable operations are dependent
upon obtaining additional financing adequate to fund our research and
development activities, and achieving a level of revenues adequate to support
our cost structure.
-18-
<PAGE>
TECHNOLOGY LICENSES
UroGen entered into a license agreement with The Immune Response Corporation
in March 1997, which was subsequently amended in January 1999, whereby we
licensed from IRC tumor radiosensitization gene therapy technology. 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 UroGen's first product related to the
technology licensed from IRC. 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 licensed
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, which amount is payable during 1999.
In November 1997, UroGen entered into a license agreement with Dr. Daniel
Mucola and Sidney Kimmel Cancer Center under which we obtained an exclusive
right to technology which makes cancer cells more vulnerable to many existing
therapies. UroGen is obligated to pay royalties on its net sales revenues and a
percentage of revenues from sublicenses relating the technology. Additionally,
UroGen is required to pay minimum annual royalties of $30,000 for the duration
of the agreement. The minimum annual royalties may be credited against royalties
based on revenues for that year. If there are no revenue-based royalties to
offset the annual royalty, one-half of the minimum annual royalty may be carried
forward to offset royalties for the following year. In addition, 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 SKCC fund additional research. The license ends when the
patents to the related technology expire.
In September 1996, UroGen entered into a license agreement with the Regents
of the University of California to license rights to patents in the field of
diagnosis of cancer using very sensitive molecular biology techniques that
detect the presence of cancer cells. We are required to pay an annual license
maintenance fee of $10,000 until we start selling licensed product. We are also
required to pay milestone fees of $25,000 upon filing an Investigative Device
Exemption 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 must also pay to the UC Regents royalties on its net
sales revenues of licensed products or royalties from sublicenses. 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 may be credited against revenue-based royalties 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.
We have experienced no problems or delays related to the Year 2000 issue to
date and do not expect to experience any.
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<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At September 30, 1999, our cash and cash equivalents were invested in liquid
checking and money market accounts, which do 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.
We do not conduct business with foreign entities, and does not have
any foreign exchange risk.
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<PAGE>
GENE THERAPY TECHNOLOGY
UroGen's business is based on the technology described in this section. For a
complete discussion of UroGen's business, see the Business section below.
Gene therapy is a technology that uses genetic materials as therapeutic agents
to treat various diseases. Gene therapy seeks to restore or correct defective
gene functions or to enhance normal gene activity. Gene therapy involves two
major components: the genetic material needed to treat the disease and the
system to deliver this material to the therapeutic site.
An essential requirement of gene therapy is a suitable delivery system for
introducing therapeutic genes. The two major approaches that have been used to
deliver genes are viral and non-viral delivery systems, called vectors.
Different disease targets and routes of administration generally require
delivery systems with differing characteristics. Viral delivery systems are
generally more efficient than non-viral systems.
Adenoviral vectors, derived from a common cold virus, are one of the most
common vectors being used today. Adenoviral vectors can infect and express genes
in non-dividing as well as dividing cells. Therefore, adenoviral vectors can
deliver genes to a wide variety of cells and tissues. UroGen has developed
improved adenoviral gene delivery systems for therapeutic applications.
BUSINESS
UroGen Corp. is focused on the development of innovative gene therapy products
for the treatment of hemophilia, cancer and other genetic disorders.
UroGen's gene delivery systems are derived from a type of cold virus termed an
adenovirus that we believe provides superior gene transfer efficiency and
expression compared to other gene therapy approaches. The gene transfer system
has been engineered to remove the original adenovirus genes which are then
replaced with therapeutic genes. These genetically engineered therapeutic
viruses contain less than 3% of the original adenovirus. We believe that removal
of unwanted adenoviral genes permits increased gene transfer capacity with a
higher level of gene expression and improved safety compared to standard gene
transfer systems. Because these therapeutic viruses are engineered to minimize
the presence of adenoviral gene parts, they are termed "Mini-Ad" viruses. These
Mini-Ad viruses retain the ability to infect cells and the efficient gene
transfer characteristics of the original adenoviruses. 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
gene therapy products are under development: 1) Factor VIII Mini-Ad Vector for
the treatment of hemophilia; 2) Complementary Oncolytic Interleukin-3 (IL-3)
Adenoviral Vectors 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, which is the protein that prevents the
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<PAGE>
chronic bleeding and joint damage characteristic of this disorder. The IL-3
Adenoviral product is comprised of a mixture of two adenoviruses which
complement each other resulting in viral replication and propagation only in
target tissues, leading to tumor cell destruction, radiation sensitization and
anti-tumor immune responses for the treatment of prostate cancer.
RESEARCH AND DEVELOPMENT
The Mini-Ad System
The Mini-Ad system is an adenoviral gene delivery system. The system is
derived from a type of cold virus called an adenovirus. The adenovirus has been
engineered to remove the original virus genes that are replaced with therapeutic
genes. These genetically engineered viruses contain less than 3% of the original
adenovirus. We believe that the removal of the majority of the unwanted
adenoviral genes permits increased ability to transfer the therapeutic genes and
permits a high level of expression of the therapeutic genes.
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<PAGE>
Factor VIII Mini-Ad Vector for Hemophilia A / Liver Directed GeneTherapy
Hemophilia is a bleeding disorder caused by abnormalities in the gene
that produces the protein controlling blood clotting, which is called Factor
VIII. Factor VIII is normally produced in the liver. The ease of delivery and
affinity of adenoviruses for the liver makes adenoviral-based therapies a
logical delivery system to deliver Factor VIII genes. Intravenous injection of
adenoviruses results in delivery of the virus to liver cells. The first Mini-Ad
product under development is for the delivery of the Factor VIII gene for the
treatment of hemophilia A. As the liver is one of the major organs for natural
Factor VIII production, the virus has been engineered to increase Factor VIII
production in this organ. In studies which have been performed on normal and
hemophiliac mice, intravenous injection of this Mini-Ad vector resulted in
Factor VIII concentrations that are twenty to thirty times the level necessary
to prevent bleeding.
Our Developmental Collaboration Agreement with Baxter Healthcare
Corporation provides for Baxter to fund the development of the Factor VIII Mini-
Ad product until we treat the first patient in the Phase I clinical trial, at
which time Baxter is required to make a milestone payment of $2 million to
maintain their distribution rights. Baxter will receive Series C preferred stock
for the $2 million milestone payment. Baxter is required to make additional
milestone payments if we begin Phase III clinical trials and if we obtain FDA
approval on the Factor VIII product (see Certain Relationships and Related
Transactions").
We believe that there may be additional product opportunities for this
liver directed gene delivery technology. Diseases resulting from abnormal
function or biochemistry of the liver are among the leading causes of sickness
and death. There are several common genetic liver diseases for which effective
gene therapy to replace defective genes would replace current conventional
therapies, which are either cumbersome or not very effective.
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<PAGE>
Tumor Killing IL-3 Viral Vector for Prostate Cancer
Cancer of the prostate gland is the most common cancer among men. It
currently occurs in approximately one in six men and has an annual incidence in
the United States of 187,000 new cases. Our tumor killing IL-3 gene delivery
vector has demonstrated intrinsic anti-tumor killing activity in animal models.
In addition, we believe the product will result in expression of the IL-3 gene,
which sensitizes tumors to the effects of radiation, providing improved
treatment of disease within the prostate, and simultaneously generating anti-
tumor immunity capable of destroying cancerous lesions. We believe that a
significant advantage of our tumor killing IL-3 viral vector product may be its
ability to have 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 tumors. Successful treatment of
prostate cancer requires complete eradication of tumors within the prostate and
the elimination of undetected tumor cells, which have migrated from the prostate
in approximately fifty percent of patients at the time of initial diagnosis. Our
first tumor killing IL-3 viral vector product is designed to be injected into
tumors and administered in combination with radiation for the treatment of
prostate cancer.
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<PAGE>
The tumor killing IL-3 viral product is comprised of a mixture of two
adenoviruses that complement each other to permit viral replication that kills
tumor cells. In this system, one virus contains certain viral genes that are
only active in prostate cells, and the second virus contains the remainder of
the viral genes necessary for the virus to replicate. The viruses complement
each other, resulting in viral replication and propagation in tumor tissues
leading to tumor cell killing. Adenoviruses kill the cells in which they
replicate. Importantly, we believe the controlled virus can be engineered to
carry and express additional therapeutic genes such as IL-3.
Preliminary studies with vectors incorporating a prostate specific
antigen (PSA) promoter have cured prostate tumors in animal models following
injection into tumors.
Our viruses may be further engineered to express therapeutic genes that can
enhance 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 tumor cells. In animal tumor models, the
combination of IL-3 gene therapy with radiotherapy was synergistic resulting in
enhanced efficacy of local radiotherapy and generating anti-tumor immunity. We
used IL-3 gene transfer into mouse tumors as a model in these studies. The
tumors injected with IL-3 were more sensitive than unmodified tumors to
irradiation, and after radiation therapy they developed anti-tumor
immune responses. In this study, radiation caused unmodified tumors to regress
only temporarily, and then began progressing again after 10 days. In contrast,
IL-3 gene modified tumors continued to regress after irradiation and complete
tumor remission was achieved. These cured mice developed immunity to
unmodified tumor and were resistant to injection with unmodified tumor cells
three months later in five out of five animals tested. The dose of tumor cells
studied caused tumors in one hundred percent of non-immunized animals.
We believe our multiple-activity tumor killing, radiation sensitizing, and
immune therapy approach is well suited for the treatment of prostate cancer,
which requires elimination of tumors both within the prostate and at distant
sites where the tumor has spread.
Approximately 79% 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 in the process of developing a manufacturing facility to
produce materials for clinical trials for our hemophilia product. We have
retained consultants with experience in designing, construction and completing
validation for manufacturing operations which comply with the FDA's Good
Manufacturing Practices regulations. We have entered into a facility lease for
the manufacturing operations. We completed construction and validation of the
manufacturing facility in January 2000.
We have not yet determined whether we will establish relationships with third
party manufacturers or establish expanded facilities for future manufacturing
needs. Commercial-scale manufacturing will require significant
improvements in our current manufacturing techniques, as well as rigorous
process controls. Companies often encounter manufacturing difficulties during
the course of implementing processes for commercial manufacturing
including:
. Problems involving production yields;
. quality control and assurance; and
. shortages of qualified personnel
Manufacturing facilities will be required to be registered with the FDA and
will be subject to inspections confirming compliance with the FDA's Good
Manufacturing Practices regulations. We cannot be sure that we will be able to
produce clinical or commercial quantities of our potential products in
compliance with application regulations or at an acceptable cost.
If we decide to establish relationships with third parties to manufacture our
potential products, we will be dependent on these third parties, which may
adversely affect our profit margins and our ability to develop and commercialize
products on a timely and competitive basis. Further, manufacturing or quality
control problems may arise and third party manufacturers may not be able to
maintain the necessary governmental licenses and approvals to continue
manufacturing our potential products. If we fail to establish relationships with
third parties for our manufacturing requirements on commercially acceptable
terms, we would be required to develop our own manufacturing facility, which
would require a significant amount of time and financial resources. See "Risk
Factors - Our management has limited manufacturing experience"
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 own 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 which
expires in 2010, and several other pending patent applications that relate to
genetic therapies and molecular diagnostics.
We have filed a series of United States and foreign patent applications for
the Mini-Ad and Tumor Killing Vector systems. These applications cover all
fields of use for the Mini-Ad system. We have obtained from the Immune Response
Corporation exclusive world-wide rights to a patent application covering the use
of cytokines like IL-3 used in combination with radiation for enhancing the
effects of radiation and stimulating anti-tumor immunity in the treatment of
certain cancers.
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. 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 these patents
do not 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 these claims
are ultimately determined to be valid, we may be required to obtain licenses to
one or more of these 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 result 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>
Government Regulation
The production and marketing of our proposed products and our research
and development activities are subject to regulation for safety, effectiveness
and quality by numerous governmental authorities in the United States and other
countries. In the United States, drugs are subject to rigorous FDA regulations.
The Federal Food, Drug, and Cosmetic Act, as amended, the regulations
promulgated thereunder, and other federal and state statutes and regulations
govern, among other things, the testing, manufacture, safety, effectiveness,
labeling, storage, record keeping, advertising and promotion of our products.
Product development and approval within this regulatory framework take a number
of years and involve the expenditure of substantial resources.
The steps required before our proposed products may be marketed in the United
States include:
. preclinical laboratory tests, in vivo preclinical studies and formulation
studies,
. the submission to the FDA of an Initial New Drug application for human
clinical testing, which must become effective before human clinical trials
commence,
. adequate and well-controlled human clinical trials to establish the safety
and effectiveness of the drug,
. the submission to the FDA of a Product License Application (for a biologic)
or a New Drug Application (for a drug), and
. the FDA approval of the Product License Application or New Drug Application
prior to any commercial sale or shipment of the drug.
In addition to obtaining FDA approval for each product and indication, each
domestic manufacturing establishment must be registered with, and approved by,
the FDA. Domestic manufacturing establishments are subject to biennial
inspections by the FDA and must comply with the FDA's good manufacturing
practices for both drugs and devices. To supply products for use in the United
States, foreign manufacturing establishments, including third party facilities,
must comply with the FDA's good manufacturing practices and are subject to
periodic inspection by the FDA or by corresponding regulatory agencies in
countries under reciprocal agreements with the FDA. In addition to FDA
regulation, we are is also subject to a variety of additional governmental
regulations under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Energy Reorganization Act
of 1974, the Resource Conservation and Recovery Act and other current and future
federal, state and local regulations.
Preclinical tests include laboratory evaluation of product chemistry and
formulation, as well as animal studies to assess the potential safety and
effectiveness of the product. Compounds must be adequately manufactured and
preclinical safety tests must be conducted by laboratories that comply with FDA
good laboratory practices regulations. The results of the preclinical tests are
submitted to the FDA as part of an Initial New Drug application and are reviewed
by the FDA prior to the commencement of human clinical trials. There can be no
assurance that submission of an Initial New Drug application will result in FDA
authorization to commence clinical trials.
Clinical trials involve the administration of the investigational new drug to
healthy volunteers or to patients, under the supervision of qualified principal
investigators. Clinical trials must be conducted in accordance with the FDA's
good clinical practices under protocols that detail the objectives of the study,
the parameters to be used to monitor safety and the effectiveness criteria to be
evaluated. Each protocol must be submitted to the FDA for clearance as part of
the Initial New Drug application. Further, each clinical trial must be conducted
under the auspices of an independent Institutional Review Board ("IRB") at the
institution at which the trial will be conducted. The Institutional Review Board
will consider, among other things, ethical factors, the safety of human
subjects, informed consent and the possible liability of the institution.
Clinical trials are typically conducted in three sequential phases, but the
phases often overlap. In Phase I, the initial introduction of the drug into
healthy subjects or patients, the drug is tested for safety (adverse effects),
dosage tolerance, absorption, distribution, metabolism, excretion and
pharmacodynamics (clinical pharmacology). Phase II involves studies in a limited
patient population to
. determine the effectiveness of the drug for specific, targeted
indications,
. determine dosage tolerance and optional dosage and
. identify possible adverse effects and safety risks.
When a compound is found to be effective and to have an acceptable safety
profile in Phase II evaluations, Phase III trials are undertaken to further
evaluate clinical effectiveness and to further test for safety within an
expanded patient population at geographically dispersed clinical study sites.
Phase I, Phase II or Phase III testing may not be completed within any specific
time period, if at all, with respect to any of our products. Furthermore, we or
the FDA may suspend clinical trials at any time if it is believed that the
patients are being exposed to an unacceptable health risk.
Among other things, the results of the preclinical and clinical studies, along
with manufacturing information, are submitted to the FDA in the form of a
Product License Application or a New Drug Application for approval of the
marketing and commercial shipment of the drug. Upon accepting a company's
marketing approval applications, the FDA generally convenes an Advisory
Committee to review clinical trial results and make a non-binding recommendation
concerning the drug's approval. After considering the Advisory Committee
recommendation and other information, the FDA may or may not issue an approval
letter. This letter sets out the specific terms and conditions that the company
must satisfy in order to receive final approval to market. The testing and
approval process is likely to require substantial time and effort and there can
be no assurance that any approval will be granted on a timely basis, if at all.
The FDA may deny a Product License Application or an New Drug Application if
applicable regulatory criteria are not satisfied, require additional testing or
information, or require postmarketing testing and surveillance to monitor the
safety of the company's products if they do not view the Product License
Application or the New Drug Application as containing adequate evidence of the
safety and effectiveness of the drug. Notwithstanding the submission of data,
the FDA may ultimately decide that the application does not satisfy regulatory
criteria for approval. Moreover, if regulatory approval is granted, such
approval will entail limitations on the indicated uses for which it may be
marketed. Finally, approvals may be withdrawn if compliance with regulatory
standards is not maintained or if problems occur following initial marketing.
Under the Orphan Drug Act, the FDA may designate drug products as orphan drugs
if there is no reasonable expectation of recovery of the costs of research and
development from sales in the United States or if these drugs are intended to
treat a rare disease or condition, which is defined as a disease or condition
that affects less than 200,000 persons in the United States. If certain
conditions are met, designation as an orphan drug confers upon the sponsor
marketing exclusivity for seven years following FDA approval of the product,
meaning that the FDA cannot approve another version of the same product for the
same use during the seven-year period. The market exclusivity provision does
not, however, prevent the FDA from approving a different orphan drug for the
same use or the same orphan drug for a different use. We believe that some of
our potential products may qualify for orphan drug designation. Our potential
products may not ultimately receive orphan drug designation, or the benefits
currently provided by an orphan drug designation may be amended or eliminated.
The Orphan Drug Act has been controversial, and many legislative proposals have
from time to time been introduced in Congress to modify various aspects of the
Orphan Drug Act, particularly the market exclusivity provisions. New legislation
may be introduced in the future that may adversely impact the availability or
attractiveness of orphan drug status for any of our potential products.
Among the conditions for FDA approval is the requirement that the prospective
manufacturer's quality control and manufacturing procedures conform to good
manufacturing practices. In complying with standards set forth in these
regulations, manufacturers must continue to expend time, money and effort in the
area of production and quality control to ensure full technical compliance. The
FDA stringently applies regulatory standards for manufacturing.
Both of our potential products are in preclinical testing. We anticipate that
it will take between five to ten years for both of our potential products to
complete clinical trials and, if the trials are successful, be approved by the
FDA.
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 the most significant competitive
factors in the Gene Therapy Field are the effectiveness and safety of a product
due to the relatively early stage of the industry.
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 ours. 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
As of December 31, 1999 UroGen had 24 employees, including 20 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 are
currently negotiating lease terms for our office and laboratory space subsequent
to May 2000. Additionally, we lease approximately 8,600 square feet of office
and laboratory space for our manufacturing operations in San Diego, California.
The term of the lease expires in August, 2004. We believe our existing
facilities will be sufficient to meet our anticipated operating needs through
May 2000.
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, 1999 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 53 Chairman of the Board of Directors
Robert E. Sobol, M.D. 47 President, Chief Executive Officer and
Director
Wei-Wei Zhang. M.D, PhD 42 Senior Vice President, Chief
Scientific Officer and Director
William Raschke, PhD 53 Vice President
Carin D. Sandvik 36 Controller, Chief Accounting Officer
and Corporate Secretary
Peter F. Bernardoni 40 Director
Ivor Royston, M.D. 54 Director
Victor W. Schmitt 51 Director
</TABLE>
PAUL D. QUADROS has been Chairman of the Board and our 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
Chairman of the Board, Chief Financial Officer and Secretary since our
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 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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<PAGE>
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.
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 UroGen 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 the Gene
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 was a member of the team that developed
adenovirus-mediated tumor suppressor gene therapy of cancer (Adp53) from lab to
clinic.
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 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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<PAGE>
Institute in Developmental Biology and Immunology.
CARIN D. SANDVIK has served as the Company's Controller, Chief Accounting
Officer and Corporate Secretary since joining UroGen in October 1998. Prior to
joining UroGen, 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 our 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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<PAGE>
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 UroGen's 1995
Directors' Option 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 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 the
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 executive
compensation policy, determines the salary and bonuses of the 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 our independent
accountants and is primarily responsible for approving the services performed by
our independent accountants and for reviewing and evaluating our 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.
Indemnification
Our certificate of incorporation and bylaws contain certain provisions
relating to the limitations of liability and indemnification of directors and
officers. The certificate of incorporation provides that our directors shall not
be personally liable to UroGen or its stockholders for monetary damages for any
breach of fiduciary duty as a director, except for liability:
. For any breach of the director's duty of loyalty to us or our
stockholders;
. For acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. In respect of certain unlawful payments of dividends or unlawful stock
repurchases or redemption as provided in Section 174 of the Delaware
General Corporation Law, or
. For any transaction from which the director derives any improper
personal benefit.
Our certificate of incorporation also provides that if Delaware law is
amended after the approval by our stockholders of the certificate of
incorporation to authorise corporate action further eliminating or limiting the
personal liability of directors, than the liability of our directors shall be
eliminated or limited to the fuller extent permitted by Delaware law. The
foregoing provisions of the certificate of incorporation are not intended to
limit the liability of directors or officers for any violation of applicable
federal securities laws. In addition, as permitted by Section 145 of the
Delaware General Corporation Law, our bylaws provide that:
. We are required to indemnify our directors and executive officers to the
fullest extent permitted by Delaware law;
. We may, in our discretion, indemnify other officers, employees and
agents as provided by Delaware law;
. To the fullest extent permitted by Delaware law, but subject to various
exceptions, we are required to advance all expenses incurred by our
directors and executive officers in connection with a legal proceeding;
. The right conferred in the bylaws are not exclusive;
. We are authorised to enter into indemnification agreement with our
directors, officers, employees and agents; and
. We may not retroactively amend the bylaw provisions relating to
indemnity.
Our bylaws provide that we shall indemnify our directors to the fullest
extent permitted by Delaware law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law.
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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 UroGen'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 UroGen'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
UroGen'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. 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, which may subject the recipient
thereof to a 20% excise tax and which may not be deductible.
Employment Agreement
In April 1997, Paul D. Quadros entered into an employment agreement with
UroGen which provides for a monthly base salary of $10,000 and health insurance
and other benefits as UroGen customarily provides to its employees. If Mr.
Quadros is terminated by UroGen without cause, Mr. Quadros is entitled to
receive his base salary and benefits for six months from the date of
termination, and one-half of his base salary and benefits for months six through
twelve after termination. Mr. Quadros is required to give the Company sixty days
written advance notice of his intent to resign.
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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 the 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:
. $2,000,000 upon treatment of the first patient in a Phase I clinical
trial for a product developed under the Developmental Collaboration
Agreement;
. $5,000,000 upon commencement of Phase III clinical trials of a product
developed under the Developmental Collaboration Agreement; and
. $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
similar to those of the offering of unsecured convertible notes payable which
closed in April 1999. UroGen may request this financing when and if needed.
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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. The
following are summaries of the material provisions of the agreements. These
summaries are qualified in their entirety by reference to the full text of the
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 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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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 services
and the use of 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:
. to allow Dr. Royston to serve as UroGen's Chief Executive Officer and
devote part time executive services to UroGen;
. to lease approximately 100 square feet of office space in SKCC's facility;
. to allow UroGen to consult and confer with scientific staff of SKCC; and
. 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:
. cash consideration of $3,000 per month;
. conveyance of certain equipment with a book value of approximately $42,000;
and
. 339,000 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 Dr. Daniel
Mercola and SKCC under which UroGen obtained an exclusive right to certain
technology.UroGen is obligated to pay royalties on its net sales revenues and a
percentage of revenues from sublicenses relating the technology. 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 revenue-
based royalties for that year. If there are no revenue-based royalties to offset
the annual royalty, one-half of the annual royalty may be carried forward to
offset revenue-based 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 August 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.
In July 1998, we received $1,030,000 representing proceeds from the sale of
unsecured convertible notes payable which bore interest at 8% per annum and were
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, 2000, 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 purchased 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.
. Dr Raschke and his spouse also received a Finder's Fee for amounts
raised in this offering of $9,250 in cash and warrants for 30,833 shares
of common stock exercisable at $0.30 per share for seven years.
In January 2000, we completed an offering of 6,362,801 shares common stock and
warrants to purchase 1,773,899 shares of common stock for $8.3 million. Victor
W. Schmitt, a director of the company, purchased 33,113 shares of common stock
and a warrant exercisable for 16,556 shares of common stock at an aggregate
purchase price of $25,000.
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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 January 31, 2000, there were 8,586,243 shares of Common Stock
outstanding held of record by approximately 1,000 registered holders.
Subject to preferences that may be applicable to any outstanding Preferred
Stock, holders of Common Stock are entitled to receive ratably the dividends
which may be declared by the Board of Directors out of funds legally available.
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
these 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 January 31, 2000, 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 January 31, 2000, there were 2,998,000 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:
. 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 date five years after the last advance of funds by Baxter under the
Credit Agreement between Baxter and UroGen through and including the date
a Phase I Clinical Trial commences and
. 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:
. the quotient of the Liquidation Value (adjusted for Recapitalizations),
divided by one hundred and ten percent (110%) of the per share Fair Market
Value of UroGen Common Stock (as defined), multiplied by
. 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 $1,000 per share of Series B
Preferred.
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<PAGE>
As of January 31, 2000, 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:
. 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 Urogen and
. 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:
. the quotient of the Liquidation Value (adjusted for Recapitalizations),
divided by one hundred and ten percent (110%) of the per share Fair
Market Value of the Company's Common Stock (as defined), multiplied by
. 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 additional series and the qualifications,
limitations and restrictions thereon and to increase or decrease the number of
shares of series, but not below the number of shares of the 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, 1999, options to purchase 30,000 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, or nonstatutory stock options, as determined
by the Board or the Committee. The
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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, 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. As of January 31, 2000, options to purchase 3,026,842 shares of
Common Stock at an average exercise price of $0.30 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 Urogen.
In July 1998, we 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 Urogen.
A license agreement granted to the licensor a warrant to purchase
additional shares of Urogen common stock to maintain a fully-diluted ownership
percentage of two percent (2%) or increase its ownership percentage up to three
percent (3%). The warrant rights were exercisable at prices ranging from $.03 to
$.04 per share. This warrant was exercised in May 1999.
In 1997 Urogen issued 200,000 warrants to purchase common stock to Robert E.
Sobol, who was the Chief Operating Officer at the time. These warrants are
exercisable at $.05 per share and expire on July 31, 2001.
In September 1999, Urogen issued a warrant for 250,000 shares of common stock
to the lessor related to an equipment lease line. The warrants are exercisable
at $0.30 per share and expire in August 2007.
In Janaury 2000, UroGen issued warrants to purchase an aggregate of 1,773,899
shares of common stock to various investors related to an offering of 6,362,801
shares of common stock which raised $8.3 million. The warrants have a five year
term and are exercisable at $0.75 per share.
-39-
<PAGE>
PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the principal
stockholders of UroGen and selling stockholders and the shares of common stock
beneficially owned by them as of January 31, 2000, and assumes the exercise in
full of the warrants issued in connection with the convertible subordinated
notes. All of these 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 footnotes below. For each
selling stockholder, the number of shares beneficially owned includes shares
issuable upon exercise of the warrants for which the underlying shares are
covered by this prospectus. Because the selling stockholders 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 stockholders upon termination of any sales. None of
the non-officer/director selling stockholders has had any position, office or
other material relationship with us in the past three years.
<TABLE>
<CAPTION>
Shares Beneficially Shares Owned
Owned Prior to Sale Number Assuming all Sold
------------------------ -----------------------
Directors, Executive Officers, 5% Percent of Shares Percent
Stockholders and Selling Stockholder Number (%) Offered Number (%)
- --------------------------------------- ----------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Victor W. Schmitt (1) 1,841,219 8.7% - 1,841,219 8.7%
Baxter Healthcare Corporation (1) 1,841,219 8.7% - 1,841,219 8.7%
Ivor Royston 1,019,963 4.8% 246,630 773,333 3.7%
Peter Bernardoni (2) 760,032 3.6% 730,032 30,000 *
Technology Funding Venture Partner IV L.P. (2) 730,032 3.5% 730,032 - -
Paul D. Quadros (4) 564,615 2.7% 146,005 418,610 2.0%
William C. Raschke (4) 610,304 2.9% 378,088 232,216 1.1%
Robert E. Sobol (3) (4) 673,508 3.2% 78,923 594,585 2.8%
Wei-Wei Zhang (4) 304,868 1.4% - 304,868 1.4%
Carin D. Sandvik (4) 111,541 * 33,541 78,000 *
All executive officers and directors as a group
(9 persons) 5,891,050 27.8 1,613,219 4,277,831 20.2%
Artis Master Fund 2,083,509 9.8% - 2,083,509 9.8%
Steven Alexander Consultants, LLC 1,294,700 6.1% - 1,294,700 6.1%
Ira M. Lechner IRA rollover 286,092 1.4% 286,092 - -
DB Alex Brown LLC FBO 246,630 1.2% 246,630 - -
Stephen J. Kandel
Wailes and Harris Family Trust 201,249 1.0% 201,249 - -
Elliot Lepler MD, A Sole Proprietor, Profit
Sharing Plan 167,707 * 167,707 - -
Susan Pryor and Richard Boner 167,707 * 167,707 - -
Tom Neal 167,707 * 167,707 - -
J. Nevins McBride, Jr. 157,847 * 157,847 - -
Paul Patek 134,166 * 134,166 - -
David Burwen 122,329 * 122,329 - -
Ronald T. Davis 114,436 * 114,436 - -
Dr. and Mrs. W.R. Furtick 100,625 * 100,625 - -
Elliot Lepler 67,082 * 67,082 - -
Richard Maki 67,082 * 67,082 - -
Jack Roziner 67,082 * 67,082 - -
Gerald Sullivan 67,082 * 67,082 - -
Marcus Contardo 67,082 * 67,082 - -
Mike Weinberg 67,082 * 67,082 - -
Pacific Rim Capital 39,462 * 39,462 - -
Dorf Family Trust 39,462 * 39,462 - -
Norman Sokoloff 39,462 * 39,462 - -
James B. Glavin 39,462 * 39,462 - -
Dennis Family Trust 39,462 * 39,462 - -
Camelot Medical Group 39,462 * 39,462 - -
</TABLE>
-40-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Warren Kessler 59,462 * 39,462 - -
Elliot Feuerstein 59,462 * 39,462 - -
Jeff Sollender 59,462 * 39,462 - -
Frank Ruderman 59,462 * 39,462 - -
Alfred Mandel 31,569 * 31,569 - -
Blumberg Community Property 31,569 * 31,569 - -
</TABLE>
* less than 1%
(1) 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. Excludes 2,998 shares of non-voting Series B
Preferred Stock convertible into common stock at market value at the date
of conversion. 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 these shares.
(2) 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., 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 these shares. Mr. Bernardoni
also owns currently exercisable options to purchase 30,000 shares.
(3) Includes 200,000 shares issuable upon exercise of presently outstanding
warrants, which are not being offered by this prospectus.
(4) Includes options for common stock exercisable within 60 days.
-41-
<PAGE>
PLAN OF DISTRIBUTION
Urogen will not receive any of the proceeds of the sale of the shares
offered in this prospectus. 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 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;
. purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus;
. ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
. an exchange distribution in accordance with the rules of such exchange;
. face-to-face transactions between sellers and purchasers without a
broker-dealer;
. through the writing of options; and
. 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. The 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 of our knowledge, 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 in this prospectus.
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.
-42-
<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.
Urogen 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.
WHERE YOU CAN FIND MORE INFORMATION
Urogen is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy and information statements, and other information with the Securities and
Exchange 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.
Urogen has filed with the Commission a Registration Statement on Form SB-2
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 Urogen, 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.
-43-
<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 September 30, 1999
and December 31, 1998 F-18
Condensed Consolidated Statements of Operations for the three and nine month periods ended
September 30, 1999 and 1998 and the period from July 1, 1991 (inception)
to September 30, 1999 F-19
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998 and the period from July 1, 1991 (inception)
to September 30, 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 at $0.63 and $630,
respectively, net of
issuance costs of $83,366 5,830 58 1,841,219 1,841 5,714,176
Issuance of Warrants for Common
Stock valued at $0.59 per
share 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 at $0.63
and $630, respectively, net of
issuance costs of $83,366 - - 5,716,075
Issuance of detachable
warrants for Common
Stock valued at $0.59 per
share - - 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 upon a discounted
cash flow analysis with a discount rate of 50%, estimated research and
development costs for six years and product revenues beginning in year seven,
after the assumed completion of clinical trials and product approval by the FDA.
The value of the technology was charged to acquired in-process technology
because technological feasibility had not been achieved nor had alternative
future uses for the technology been identified. 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 through the expected date of
conversion 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 March 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, the fair value of the shares
on the date of issuance as determined by the Board of Directors, 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).
Cash paid for income taxes was $800 for each of the three years ended December
31, 1998. There was no cash paid for interest expense during the three years
ended December 31, 1998.
F-17
<PAGE>
UROGEN CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31
1999 1998
------------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,157,999 $ 314,983
Accounts receivable from related party - 348,718
Other current assets 22,821 20,173
------------ -----------
Total current assets 1,180,820 683,874
Property and equipment, net 477,878 383,826
Other assets 218,552 30,052
------------ -----------
$ 1,877,250 $ 1,097,752
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 222,944 $ 392,461
Amounts due to stockholder - 315,000
Accrued employee benefits 74,394 200,716
Other accrued liabilities 63,610 58,280
Current portion of capital lease obligation 43,072 -
Notes payable - 991,761
------------ -----------
Total current liabilities 404,020 1,958,218
Deferred compensation 150,644 28,987
Advance from related party 3,391,816 1,044,275
Capital lease obligation, net of current portion 75,423
Commitments
Stockholders' equity:
Preferred Stock - $0.01 par value, 5,000,000
shares authorized:
Series A Preferred Stock, 5,830 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; 12,097,999 and 9,378,538
issued and outstanding 12,097 9,379
Additional paid-in capital 9,267,909 6,782,920
Note receivable from stockholder - (20,522)
Deficit accumulated during development stage (11,424,724) (8,705,563)
------------ -----------
Total stockholders' equity (2,144,653) (1,933,728)
------------ -----------
$ 1,877,250 $ 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 Nine Months Ended July 1, 1991
------------------ ----------------- (inception) to
September 30, September 30, September 30, September 30, September 30,
1999 1998 1999 1998 1999
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenue $ 16,389 $ - $ 67,201 $ 192,300 $ 908,581
------------ ------------ ------------ ------------ -------------
Costs and expenses:
Cost of sales - - - - 821,878
Research and development 714,908 807,204 1,861,892 1,176,680 7,296,560
Write-off of acquired in-process
technology - 3,429,700 - 3,429,700 5,455,505
Selling, general and administrative 185,751 164,068 591,777 299,501 1,938,733
------------ ------------ ------------ ------------ -------------
Total costs and expenses 900,659 4,400,972 2,453,669 4,905,881 15,512,676
------------ ------------ ------------ ------------ -------------
Loss from operations (884,270) (4,400,972) (2,386,468) (4,713,581) (14,604,095)
Other income (expense) - - 905 - 64,981
Interest expense - (170,790) (348,890) (170,790) (654,996)
Interest income 7,454 2,057 15,292 3,031 43,590
------------ ------------ ------------ ------------ -------------
Net loss $ (876,816) $(4,569,705) $(2,719,161) $(4,881,340) $(15,150,520)
============ ============ ============ ============ =============
Basic and diluted loss per share $ (0.07) $ (0.61) $ (0.27) $ ( 0.65)
============ ============ ============ ============
Number of shares used in the
computation of basic and diluted
loss per share 12,097,999 7,537,319 10,237,493 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 nine months ended (inception) to
September 30, September 30,
1999 1998 1999
------------ ------------- --------------
<S> <C> <C> <C>
Net loss $(2,719,161) $(4,881,340) $(15,150,520)
Adjustments to reconcile net loss to net cash used
In operating activities:
Write-off of in-process technology acquired with stock - 3,429,700 5,455,505
Expenses paid via advances from related party - 465,093 695,557
Depreciation and amortization 89,491 741 609,818
Distribution of common stock for services 2,900 - 21,050
Accrued interest paid through issuance of
Common Stock 42,563 42,563
Non-cash outside service cost - - 106,000
Gain (loss) on disposal of fixed assets - - (81,807)
Amortization of debt discount 305,428 152,955 571,068
Change in assets and liabilities:
Other current assets (2,648) (12,466) (22,821)
Other assets (188,500) (218,552)
Accounts payable (163,508) 216,154 228,953
Amounts due to stockholder (315,000) 315,000 -
Other current liabilities (88,557) 104,224 170,439
Deferred compensation 121,657 - 150,644
----------- ----------- ------------
Net cash used in operating activities (2,915,335) (209,939) (7,422,103)
Cash flows from investing activities:
Purchase of property and equipment (65,048) (2,306) (644,044)
----------- ----------- ------------
Net cash used in investing activities (65,048) (2,306) (644,044)
Cash flows from financing activities:
Advances from related party 3,401,670 - 3,401,670
Repayment of note receivable from stockholder 20,000 - 20,000
Proceeds from notes payable 400,000 1,030,000 1,430,000
Stock issuance costs (83,366) (83,366)
Proceeds from issuance of common stock upon
exercise of options and warrants 1,729 - 72,229
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 3,823,399 946,634 9,224,146
----------- ----------- ------------
Net increase (decrease) in cash and equivalents 843,016 734,389 1,157,999
Cash and equivalents, beginning of period 314,983 74,353 -
----------- ----------- ------------
Cash and equivalents, end of period $ 1,157,999 $ 808,742 $ 1,157,999
=========== =========== ============
</TABLE>
See accompanying notes.
F-20
<PAGE>
UROGEN CORP.
(A Development Stage Enterprise)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------
September 30, 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
$2,719,161 during the nine months ended September 30, 1999 and has a deficit
accumulated during its development stage of $11,424,724 at September 30,
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 5) as
well as funds provided by Baxter Healthcare Corporation ("Baxter") are
expected to finance the Company's operations through October 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. The following summarizes non-cash investing and financing activities
during the nine months ended September 30, 1999:
Conversion of advance from related party to preferred stock $ 704,000
Conversion of notes payable to common stock 1,430,000
F-21
<PAGE>
4. 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 nine-month periods ended September 30, 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.
5. In April 1999, the Company closed a financing in which we received $400,000
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.
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. The warrants were valued at $266,667, which was recorded as
a discount to the notes payable. The discount was fully amortized to
interest expense upon the conversion of the notes to Common Stock on June
22, 1999 (Note 6).
6. On June 22, 1999 the Company filed a registration statement with the
Securities and Exchange Commission to register for resale the shares
underlying the unsecured convertible notes payable and the related warrants
issued in July 1999 and April 1999. Immediately prior to filing the
registration statement, the unsecured convertible notes payable and accrued
interest automatically converted into 2,460,811 shares of common stock of
UroGen Corp.
7. In September 1999, the Company entered into a facility operating lease for
approximately 8,600 square feet for manufacturing operations. The lease
expires in August 2004. Future minimum lease payments are $50,415 for
1999; $203,676 for 2000; $209,788 for 2001; $216,084 for 2002; $222,560 for
2003; and $151,312 for 2004.
8. In September 1999, the Company entered into a $250,000 capital lease line
under which it will lease furniture and equipment for manufacturing
operations. The term of the lease is thirty-six months and the line is
secured by all of the company's equipment. In connection with the lease, the
Company issued warrants to the lessor for 250,000 shares of common stock.
The warrants are exercisable at $0.30 per share and expire in August 2007.
As of September 30, 1999 the balance under the lease was $118,495.
9. In January 2000, the Company raised $8.3 millions from the sale of 6,362,801
share of common stock and warrants for an additional 1,773,899 shares of
common stock. The warrants are exercisable for five years from issuance and
have an exercise price of $0.75 per share.
F-22
<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>
Prospectus Summary................................................... 2
UroGen Corp.......................................................... 3
The Offering......................................................... 4
Risk Factors......................................................... 5
Use of Proceeds...................................................... 13
Price Range of Common Stock.......................................... 13
Dividend Policy...................................................... 13
Capitalization....................................................... 14
Selected Consolidated Financial Data................................. 15
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 16
Business............................................................. 21
Management........................................................... 27
Certain Relationships and Related Transactions....................... 33
Description of Capital Stock......................................... 37
Principal stockholders and selling stockholders...................... 40
Plan of Distribution................................................. 42
Legal Matters........................................................ 43
Experts.............................................................. 43
Where you can find more information.................................. 43
Index to Consolidated Financial Statements........................... F-1
</TABLE>
UroGen Corp.
4,339,977 SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
PROSPECTUS
- --------------------------------------------------------------------------------
February 10, 2000
================================================================================
<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............................................... $ 265
Accounting fees and expenses....................................... 9,000
Legal fees and expenses............................................ 25,000
Printing expenses.................................................. 15,000
Miscellaneous fees and expenses.................................... 3,000
-------
Total.............................................................. $52,265
=======
</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, the fair value as determined by the Board of
Directors, 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, the fair value as determined by the Board of
Directors, 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, the fair value as determined by the Board of
Directors, and expires on July 31, 2001.
(4) In July 1998 and April 1999, the Company received $1,030,000 and
$400,000, respectively and issued convertible subordinated notes to
thirty-five private investors. These notes were 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
5,830 shares of Series A Preferred Stock to Baxter Healthcare Corporation
related to the purchase of exclusive rights to certain technologies and
certain related equipment with an estimated fair value of $5,455,505 (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 $704,000 funded under
the Developmental and Collaboration Agreement (see "Certain Relationships
and Related Transactions").
(7) In January 2000, the Company issued 6,362,801 shares of Common Stock and
warrants for 1,773,899 shares of Common Stock to twenty-two institutional
and private accredited investors for $8,308,588. The warrants are
exercisable for five years and have an exercise price of $0.74 per
share.
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, for
each of the above issuances.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Exhibit No. DESCRIPTION
2.1 Distribution Agreement between the Company and Medstone
International Inc.(1)
2.2 Asset Purchase Agreement, dated as of February 28, 1998,
UroGen and Baxter Healthcare Corporation(2)
2.3 Amendment to Asset Purchase Agreement, dated as of May 27,
1998, between UroGen and Baxter.(2)
3.1 Certificate of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
3.3 Certificate of Designation of Preferences and Rights of Series
A Preferred Stock of UroGen.(2)
3.4 Certificate of Designation of Preferences and Rights of Series
B Preferred Stock of UroGen.(2)
3.5 Certificate of Designation of Preferences and Rights of Series
C Preferred Stock of UroGen.(2)
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(1)
10.2 Form of Indemnification Agreement(1)
10.3 UroGen Corp. 1995 Stock Plan(1)
10.4 UroGen Corp. 1995 Director Option Plan(1)
II-2
<PAGE>
10.5 License Agreement, dated March 5, 1997, between UroGen and The
Immune Response Corporation.(3)
10.6 Amendment to License Agreement, dated January 29, 1999, between
UroGen and The Immune Response Corporation.(3)
10.7 License Agreement, dated November 5, 1997, by and among UroGen,
Sidney Kimmel Cancer Center and Daniel A. Mercola, M.D.,
Ph.D.(3)
10.8 License Agreement, dated September 20, 1996 between UroGen and
The Regents of the University of California.(3)
10.9 Form of Note and Warrant Purchase Agreement, dated July 8, 1998
between UroGen and various investors.(3)
10.10 Warrant Certificate, dated July 31, 1997, between UroGen and
Robert E. Sobol.(3)
10.11 Distribution Agreement, dated July 8, 1998, by and among Urogen
and Baxter.(2)
10.12 Investor Rights Agreement, dated July 8, 1998, between UroGen
and Baxter.(2)
10.13 Developmental Collaboration Agreement, dated July 8, 1998
between UroGen and Baxter.(2)
10.14 Credit Agreement, dated July 8, 1998, between UroGen and
Baxter.(2)
10.15 Technology License Agreement, dated July 8, 1998, between
UroGen and Baxter.(2)
10.16 Form of Note and Warrant Purchase Agreement, dated April 28,
1999 between UroGen and various investors.(3)
10.17 UroGen Corp. 1999 Stock Plan(3)
10.18 Form of Common Stock and Warrant Purchase Agreement between
UroGen and various investors
10.19 Form of Common Stock Purchase Agreement between UroGen and
various investors
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(4)
__________________________________________
(1) Previously filed with the Company's Application For Registration on
Form 10-SB dated February 9, 1996.
(2) Previously filed with the Company's Current Report on Form 8-K dated
July 23, 1998
(3) Previously filed with the Company's Annual Report on Form 10-KSB/A
dated May 24, 1999.
(4) Previously filed with the Company's Annual Report on Form 10-KSB dated
March 31, 1999 and the Company's Quarterly Report on Form 10-QSB dated November
--------
4, 1999
- -
(b) Financial Statement Schedules
All schedules have been omitted because the information required to be set
forth in the schedules is not applicable or is shown in the financial statements
or notes to the financial statements.
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 file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end 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 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
In accordance with 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-2 and has authorized this Amendment to
Registration Statement to be signed on its behalf by the undersigned, in the
City of San Diego, State of California, on the 10/th/ day of February 2000.
UROGEN CORP.
By: *
--------------------------------------
President, Chief Executive Officer, and Director
In accordance with 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/ * Chairman of the Board, Chief Financial Officer
- ----------------------------------------- and Director (Principal Financial Officer) February 10, 2000
/s/ * President, Chief Executive Officer and Director February 10, 2000
- -----------------------------------------
/s/ * Senior Vice President, Chief Scientific Officer
- ----------------------------------------- and Director February 10, 2000
/s/ CARIN D. SANDVIK Corporate Controller and Corporate Secretary
- ----------------------------------------- (Principal Accounting Officer) February 10, 2000
/s/ * Director February 10, 2000
- -----------------------------------------
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------------- --------------------------------------------------- -------------------------
<S> <C> <C>
/s/ * Director February 10, 2000
- -----------------------------------------
/s/ * Director February 10, 2000
- -----------------------------------------
</TABLE>
* By: /s/ CARIN D. SANDVIK
------------------------------------
Carin D. Sandvik, attorney-in fact
II-6
<PAGE>
EXHIBIT 5.1
February 10, 2000
UroGen Corp.
10835 Altman Row, Suite 150
San Diego, California 92121
Re: UroGen Corp. Registration Statement on Form SB-2
Ladies and Gentlemen:
We have examined the Registration Statement on Form SB-2 filed by
UroGen Corp. (the "Company") with the Securities and Exchange Commission on or
about June 22, 1999, as subsequently amended, (the "Registration Statement") in
connection with the registration under the Securities Act of 1933, as amended,
of 2,460,811 shares of Common Stock of the Company currently outstanding and
1,879,166 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 when sold in the manner referred to in
the Registration Statement, will be duly authorized, 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,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson Sonsini, Goodrich & Rosati
<PAGE>
EXHIBIT 10.18
UROGEN CORP.
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
THIS COMMON STOCK AND WARRANT PURCHASE AGREEMENT (the "Agreement") is
made as of January 21, 2000 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 Common Stock and Warrants
1.1 Units. Subject to the terms and conditions hereof, the Company
-----
will issue and sell to each Investor, and each Investor will each purchase from
the Company, severally, the number of investment units (the "Units") set forth
opposite such Investor's name on the Schedule of Investors. Each Unit consists
of two (2) shares (the "Shares") of the Company's Common Stock (the "Common
Stock"), and the right to purchase one share of Common Stock at $0.75 per share.
The foregoing rights shall be aggregated for each Investor and represented by a
warrant (each a "Warrant," and collectively, the "Warrants") to purchase such
shares (the "Warrant Shares"), in substantially the form attached hereto as
Exhibit B. The maximum aggregate number of Units issuable hereunder is
- ---------
1,456,954 Units.
1.2 Allocation of Purchase Price. The purchase price payable by each
----------------------------
Investor for the Units to be purchased hereunder (the "Purchase Price") shall be
equal to the number of Units to be purchased by that Investor multiplied by
$1.51, as set forth opposite such Investor's name on the Schedule of Purchasers.
The Purchase Price paid for each Unit shall be allocated as follows: (i) $0.75
of each Unit shall be allocated to each Share contained in such Unit, and (ii)
$0.01 of each Unit shall be allocated to the right to purchase one share of
Common Stock represented by the Warrant.
1.3 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 Road, Palo Alto, California
94304 at 10:00 a.m. on January 21, 2000 (the "Closing Date") or at such other
time and place as the parties shall mutually agree.
<PAGE>
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
February 29, 2000. 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 certificate representing the number of Shares 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 Purchase
Price 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 Common Stock, the Warrants 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 Common Stock, the Warrants and the Warrant Shares,
has been taken or will be taken prior to the Closing. This Agreement 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 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.
-2-
<PAGE>
3.4 Capitalization.
--------------
(a) As of December 31, 1999, the authorized capital stock of the
Company consisted of 40,000,000 shares of Common Stock, of which 12,104,101
shares were issued and outstanding; 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 were issued and outstanding; 10,000
shares have been designated Series B Preferred Stock, of which 2,998 shares were
issued and outstanding; and 17,000 shares have been designated Series C
Preferred Stock, of which no shares were issued or outstanding. The Series A
Preferred Stock converts to Common Stock on a 1,000-to-1 basis. The 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 and validly
issued, and are fully paid and non-assessable. 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. As of December 31,
1999, the amount of such indebtedness was $1,876,003, which will convert into
1,876 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 December 31, 1999, the Company had 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 December 31, 1999, options to
purchase 3,341,183 shares of Common Stock were outstanding. As of December 31,
1999, there were 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 1997, the Company issued a
warrant, expiring in July 2001, to purchase 200,000 shares of Common Stock at
$0.05 per share to an officer of the Company; (ii) in July 1998, in connection
with the issuance of convertible debt, the Company issued warrants, expiring in
July 2005, to purchase 515,000 shares of Common Stock at $0.74 per share; (iii)
in April 1999, in connection with the issuance of additional convertible debt,
the Company issued warrants, expiring in April 2006, to purchase 1,333,333
shares of Common Stock at $0.30 per share; (iv) in October 1999, in connection
with a capital lease line, the Company issued warrants, expiring in October
2006, to purchase 250,000 shares of Common Stock at $0.30 per share; (v) in
connection with a guaranty provided by Baxter, the Company has committed to
issue warrants to Baxter, expiring in January 2007, to purchase 500,000 shares
of Common Stock at $0.30 per share.
(c) Validity of Securities; Reservation of Shares. The Shares
---------------------------------------------
and Warrants, when issued, sold and delivered in accordance with the terms of
this Agreement, 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 Shares, the Warrants or the
-------- -------
Warrant Shares may be subject to restrictions on transfer to the extent provided
herein or under state
-3-
<PAGE>
and/or federal securities laws. Based in part upon the representations of the
Investors in this Agreement, the offer, sale and issuance of the Shares and the
Warrants (and the Warrant Shares) will be in compliance with all applicable
federal and state securities laws. The Company has reserved 1,456,954 shares of
Common Stock for exercise of the Warrants issued hereunder. The Company
covenants that, so long as any Warrants remain outstanding, it will at all times
reserve and keep available, solely for issuance to the holders of the Warrants
in accordance with this Agreement, sufficient shares of Common Stock issuable
upon 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.
3.5 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
Shares and the Warrants (and the Warrant Shares), or the consummation of any
other transaction contemplated hereby (excluding Article VI hereof), 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
Shares and Warrants (and the Warrant Shares), which qualification, if required,
will be accomplished in a timely manner prior to or promptly upon completion of
the Closing.
3.6 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 of 1933 (the
"Securities Act") or the Securities Exchange Act of 1934 (the "Exchange Act")
since January 1, 1999, 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 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.
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<PAGE>
3.7 No Material Adverse Change. Since the date of the balance sheet
--------------------------
included in the Company's most recently filed report on Form 10-QSB or Form 10-
KSB, 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.
3.8 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 exercise of any Warrants, as follows (the Shares, the
Warrants 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.
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 that
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
-5-
<PAGE>
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 Common Stock may not develop or be sustained sufficiently to
permit the resale of the Securities.
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. The Investor currently 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 Securities 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 the Investor is required in connection
with the valid execution and delivery of this Agreement by the Investor and the
consummation by the Investor of the transactions contemplated hereby.
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, and may instruct its transfer agent not to record,
a transfer of Securities, unless the conditions specified in the foregoing
legend are satisfied.
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<PAGE>
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.
(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.
(g) A transfer of Securities which is registered under the Securities
Act.
5.2 No Rights or Liability as a Stockholder. The Warrants shall not
---------------------------------------
entitle the holder thereof to any voting rights or other rights as a stockholder
of the Company. No provisions of the Warrants, in the absence of affirmative
action by the holder thereof to purchase 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.
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<PAGE>
ARTICLE VI
Registration Rights
6.1 Registrable Securities. The Shares and the Warrant Shares 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 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 90 days after
the date hereof, and shall use 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) for the Shares and the
-------------------
Warrant Shares, keep the registration statement filed in accordance with Section
6.2 hereof effective until the earlier of (A) two years after the registration
statement has been declared effective by the SEC or (B) such time as no Holders
shall own any Shares; (ii) forthwith prepare and file with 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). The Company
agrees to pay to each Holder an amount equal to $0.00075 per Unit held by such
Holder for each day that the Company has failed to have filed a registration
statement as required by Section 6.2 hereof beyond 90 days after the date
hereof.
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<PAGE>
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 Holder may elect
to withdraw therefrom by written notice to the Company and the managing
underwriter. The Registrable 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 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
for the Registrable Securities, subject to the following sentence. 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:
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<PAGE>
(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 Holders 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 Holders 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 forty-five (45) days, if the Board of Directors of the Company,
acting in good faith, determines that there exists material nonpublic
information about the Company which the Board 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 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
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<PAGE>
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 reimburse, in an amount not to exceed
--------
$25,000, the out-of-pocket expenses of the Holders 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 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.
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<PAGE>
(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 other 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, 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.
(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 such underwriting agreement shall control.
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<PAGE>
ARTICLE VII
Additional Covenants of the Investors
7.1 Voting. Until such time as an Investor holds securities of the
------
Company representing less than 5% of the total outstanding voting stock of the
Company, such Investor shall: (i) take such all action necessary or appropriate
such that all voting stock owned by such Investor and its affiliates are voted
(in person or by proxy) (A) for the nominees to the Company's Board of Directors
nominated and recommended to the Company's stockholders by the Company
management, and (B) on all other matters to be voted on by the Company's
stockholders, in such manner as is recommended by the Company's management to
the stockholders; and (ii) be present, in person or by proxy, at all duly held
meetings of the stockholders of the Company so that all voting stock held by
such Investor may be counted for purposes of determining the presence of a
quorum at such meetings.
7.2 Voting Trusts. Except as consented to by the Company in writing, no
-------------
Investor shall deposit any voting stock of the Company owned by it in a voting
trust or subject any such stock to any similar arrangement or agreement with
respect to the voting of such stock.
7.3 Solicitation of Proxies. Without the Company's prior written consent,
-----------------------
no Investor shall solicit proxies with respect to any voting stock of the
Company, nor become a "participant" in any "election contest" as such terms are
used in Rule 14a-11 of Regulation 14A under the Exchange Act relating to the
election of directors of the Company.
7.4 Acts in Concert with Others. Except as permitted in writing by the
---------------------------
Company, no Investor shall join any group or otherwise act in concert with any
third person for the purpose of acquiring, holding or disposing of voting stock
of the Company.
ARTICLE VIII
Miscellaneous
8.1 Waivers and Amendments. With the written consent of the holders of a
----------------------
majority of the Shares and Warrant Shares, the obligations of the Company and
the rights of the holders of Securities under this Agreement or the Warrants 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 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 Securities consent to
such amendment or supplemental agreement, and (ii) no such waiver or
supplemental agreement shall reduce the above percentage of holders of Shares
and Warrant Shares which is required to consent to any waiver or supplemental
agreement, without the consent of the record or beneficial holders of all
Securities. Upon the effectuation of each such waiver, consent, agreement,
amendment or modification the Company shall promptly give written notice thereof
-13-
<PAGE>
to the record holders of 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.
8.2 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.
8.3 Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive the execution and delivery of this Agreement and the
sale of the Shares and the Warrants.
8.4 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.
8.5 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.
8.6 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.
8.7 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.
8.8 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.
8.9 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 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 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
-14-
<PAGE>
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.
8.10 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.
8.11 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 Common Stock 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 and Chief Executive Officer
THE INVESTORS: INVESTOR
By:________________________________________
Name: ((FirstName)) ((LastName))
--------------------------
Title:__________________________________
[Signature Page to Common Stock and Warrant Purchase Agreement]
<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
Name and Address of Investor Aggregate Number of Number of Number of
Purchase Units Shares of Warrant
Price Common Shares
Stock
<S> <C> <C> <C> <C>
Aries Domestic Fund, L.P. $ 256,767.95 170,045 340,090 170,045
787 7/th/ Avenue, 48/th/ Floor
New York, NY 10019
Attn: David M. Tanen
Aries Domestic Fund II, L.P. $ 39,933.46 26,446 52,892 26,446
787 7/th/ Avenue, 48/th/ Floor
New York, NY 10019
Attn: David M. Tanen
The Aries Master Fund $ 565,801.53 374,703 749,406 374,703
Attn: David M. Tanen
Lindsay A. Rosenwald, M.D. $ 49,999.12 33,112 66,224 33,112
441 West End Avenue, #8A
New York, NY 10024
Mark C. Rogers, M.D. $ 24,999.50 16,556 33,112 16,556
787 7/th/ Avenue, 48/th/ Floor
New York, NY 10019
Wayne Rubin $ 12,499.78 8,278 16,556 8,278
1022 Loft Road
Woodmere, NY 11598
David Jaroslawicz $ 49,999.12 33,112 66,224 33,112
140 Riverside Drive, 10H
New York, NY 10024
EGM Medical Technology Fund, $ 150,000.30 99,338 198,676 99,338
L.P.
1 Embarcadero Center, Suite 2410
San Francisco, CA 94111
Attn: Marc Pentopoulus
</TABLE>
-A1-
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Investor Aggregate Number Number of Number of
Purchase of Shares of Warrant
Price Units Common Shares
Stock
<S> <C> <C> <C> <C>
EGM Medical Technology $ 100,000.20 66,225 132,451 66,225
Offshore Fund
1 Embarcadero Center, Suite 2410
San Francisco, CA 94111
Attn: Marc Cohen
Stephen Alexander Consultants, $ 400,000.00 264,901 529,801 264,901
LLC
611 Druid Road East, Suite 200
Clearwater, FL 33756
Attn: Paul Watson
Perceptive Life Sciences, L.P. $ 100,000.50 66,225 132,451 66,225
850 Third Avenue, 8/th/ Floor
New York, NY 10022
Attn: Joseph Edelman
Wayne Rothbaum $ 277,085.00 183,500 367,000 183,500
215 West 95/th/ Street, Apt. 17D
New York, NY 10025
Mitchell Silber $ 226,500.00 150,000 300,000 150,000
345 East 69/th/ Street, PH-A
New York, NY 10021
Steven Oliveira $ 125,000.00 82,781 165,563 82,781
4 Piper Court
Blauvelt, NY 10913
Joseph E. Edelman $ 100,000.50 66,225 132,451 66,225
322 Central Park West, #3C
New York, NY 10025
Sven Borho $ 75,000.00 49,669 99,338 49,669
5 East 22/nd/ Street, 18B
New York, NY 10010
John Nicholson $ 25,001.00 16,557 33,114 16,557
21 East 87/th/ Street, 12D
New York, NY 10128
</TABLE>
-A2-
<PAGE>
<TABLE>
<CAPTION>
Name and Address of Investor Aggregate Number Number of Number of
Purchase of Shares of Warrant
Price Units Common Shares
Stock
<S> <C> <C> <C> <C>
Joshua Stern $ 25,000.00 16,556 33,113 16,556
350 West 24/th/ Street, Apt. #21D
New York, NY 10011
Mark Simon $ 50,000.00 33,113 66,226 33,113
650 Park Avenue, Apt. 20A
New York, NY 10021
Victor W. Schmitt $ 25,000.00 16,556 33,113 16,556
714 Birch Road
Lake Bluff, IL 60044
TOTAL $2,678,587.96
</TABLE>
-A3-
<PAGE>
EXHIBIT B
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-((Number)) Warrant to Purchase Shares
of Common Stock
(Subject to Adjustment)
UROGEN CORP.
------------
COMMON STOCK PURCHASE WARRANT
Void after January 21, 2005
UroGen Corp., a Delaware corporation (the "Company"), hereby certifies that, for
value received, ((FirstName)) ((LastName)), 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 January 21, 2005
(the "Expiration Time"), ((Numberofshares)) 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 Common Stock and Warrant Purchase
Agreement by and among the Company and certain of the Company's investors dated
as of the Original Issuance Date.
(b) The term "Company" shall mean Urogen Corp. and any corporation that
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 a majority 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 "Original Issuance Date" shall mean January 21, 2000.
(f) The term "Warrant" shall mean this Warrant.
(g) The term "Warrant Price" shall mean $0.75 per share.
(h) The term "Warrant Shares" shall mean the shares of Common Stock or
other securities of the Company issuable upon exercise of this Warrant, subject
to adjustment hereunder from time to time.
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 that 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
-C2-
<PAGE>
issuable upon such exercise of the Warrant which when multiplied by the Market
Price (as set forth below) is equal to the aggregate Warrant 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 average of the closing or
last sale prices, respectively, reported for the twenty (20) business days
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 average of the means of the closing bid and asked
prices reported for the twenty (20) business days immediately preceding the
Determination Date;
(iii) If the Company's Common Stock is not traded on an
exchange, on the Nasdaq National Market System or in the over-the-counter
market, then the fair market value of the Common Stock as of the day immediately
preceding the Determination Date, as determined by the Company's board of
directors in good faith.
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, 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 Warrant Share, equal to such fraction of the
Market Price of one full share of Common Stock.
5. Adjustment of Warrant Price and Number of Warrant Shares.
--------------------------------------------------------
Notwithstanding anything to the contrary in this Warrant:
(a) Adjustments. The Warrant Price per share shall be subject to
-----------
adjustment from time to time as follows:
(i) Stock Splits and Stock Dividends. If the number of shares
--------------------------------
of Common Stock outstanding at any time after the Original Issuance Date is
increased by a stock dividend payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, then, on the date such
payment is made or such change is effective, the Warrant
-C3-
<PAGE>
Price per share shall be proportionately decreased and the number of Warrant
Shares shall be increased in proportion to such increase of outstanding shares.
Such adjustment shall become effective at the close of business on the date the
dividend, subdivision or split-up becomes effective.
(ii) Reverse Stock Splits. If the number of shares of Common
--------------------
Stock outstanding at any time after the Original Issuance Date is decreased by a
combination of the outstanding shares of Common Stock, then, on the effective
date of such combination, the Warrant Price per share shall be proportionately
increased and the number of Warrant Shares shall be decreased in proportion to
such decrease in outstanding shares. Such adjustment shall become effective at
the close of business on the date the combination becomes effective.
(iii) Reorganization; Reclassification. Subject to the
--------------------------------
expiration provisions of Section 1 hereof, in the case, at any time after the
Original Issuance Date, of any capital reorganization, or any reclassification
of the stock of the Company (other than as a result of a stock dividend or
subdivision, split-up or combination of shares), the consolidation or merger of
the Company with or into another person (other than a consolidation or merger in
which the Company is the continuing entity and which does not result in any
change in the Common Stock), or a sale or transfer of all or substantially all
of the Company's assets, this Warrant shall, after such reorganization,
reclassification, consolidation, merger or sale, be exercisable for the kind and
aggregate number of shares of stock or other securities or property of the
Company or other entity to which the Holder would have been entitled if,
immediately prior to such reorganization, reclassification, consolidation,
merger or sale, such Holder had exercised this Warrant in full (subject to all
adjustments under this Section 5). The provisions of this clause (vi) shall
similarly apply to successive reorganizations, reclassifications,
consolidations, mergers or sales.
(iv) All calculations under this Subsection (a) shall be made
to the nearest cent or to the nearest one hundredth (1/100) of a share, as
appropriate.
(b) Minimal Adjustments. No adjustment in the Warrant Price per share
-------------------
need be made if such adjustment would result in a change in the Warrant Price
per share of less than $0.01. Any adjustment of less than $0.01 which is not
made shall be carried forward and shall be made at the time of and together with
any subsequent adjustment which, on a cumulative basis, amounts to an adjustment
of $0.01 or more in the Warrant Price per share.
6. Notice of Adjustments. Whenever the number of Warrant Shares or the
---------------------
Warrant Price per share shall be adjusted pursuant to Section 5 hereof, the
Company shall provide notice by first class mail to the holder of this Warrant
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated,
and the number of Warrant Shares and the Warrant Price per share after giving
effect to such adjustment.
7. 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
-C4-
<PAGE>
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.
8. Exchange of Warrants. Subject to the provisions of Section 9 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.
9. Replacement of Warrants. On receipt by the Company of evidence
-----------------------
reasonably satisfactory to it 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.
10. 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 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.
11. 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.
12. Notices. All notices referred to in this Warrant shall be in writing
-------
and shall be delivered personally (including by express courier) or by first
class mail, 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).
13. 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.
-C5-
<PAGE>
[This Space Intentionally Left Blank]
-C6-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and
attested by its duly authorized officers and to be dated January 21, 2000.
UROGEN CORP.
By:_________________________________________
Robert E. Sobol, M.D.
President and 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 rights 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 of UroGen Corp. 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 10.19
UROGEN CORP.
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT (the "Agreement") is made as of
January 21, 2000 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 Common Stock
1.1 Common Stock. Subject to the terms and conditions hereof, the
------------
Company will issue and sell to each Investor, and each Investor will each
purchase from the Company, severally, the number of shares (the "Shares") of the
Company's Common Stock (the "Common Stock") set forth opposite such Investor's
name on the Schedule of Investors, at a purchase price of $2.00 per Share. The
maximum aggregate number of Shares issuable hereunder is 2,000,000 Shares.
1.2 Purchase Price. The purchase price payable by each Investor for
--------------
the Shares to be purchased hereunder (the "Purchase Price") shall be equal to
the number of Shares to be purchased by that Investor multiplied by $2.00, as
set forth opposite such Investor's name on the Schedule of Purchasers.
1.3 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 Road, Palo Alto, California
94304 at 10:00 a.m. on January 21, 2000 (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
February 29, 2000. 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
<PAGE>
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 a certificate representing the number of Shares set forth opposite such
Investor's name on the Schedule of Investors. Each Investor shall deliver to the
Company the Purchase Price 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 Common Stock 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 Common Stock, has been taken or will be taken prior
to the Closing. This Agreement, 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 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 December 31, 1999, the authorized capital stock of the
Company consisted of 40,000,000 shares of Common Stock, of which 12,104,101
shares were issued and outstanding; 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 were issued and outstanding; 10,000
shares have been designated Series B Preferred Stock, of which 2,998 shares were
issued and outstanding; and 17,000 shares have been designated Series C
Preferred Stock, of which no shares were issued or outstanding. The Series A
Preferred Stock converts to Common Stock on a 1,000-to-1 basis. The Series B
and C Preferred Stock convert to Common
-2-
<PAGE>
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 and validly issued, and are fully paid and non-
assessable. 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. As of December 31, 1999, the amount of such
indebtedness was $1,876,003, which will convert into 1,876 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 December 31, 1999, the Company had 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 December 31, 1999, options to
purchase 3,341,183 shares of Common Stock were outstanding. As of December 31,
1999, there were 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 1997, the Company issued a
warrant, expiring in July 2001, to purchase 200,000 shares of Common Stock at
$0.05 per share to an officer of the Company; (ii) in July 1998, in connection
with the issuance of convertible debt, the Company issued warrants, expiring in
July 2005, to purchase 515,000 shares of Common Stock at $0.74 per share; (iii)
in April 1999, in connection with the issuance of additional convertible debt,
the Company issued warrants, expiring in April 2006, to purchase 1,333,333
shares of Common Stock at $0.30 per share; (iv) in October 1999, in connection
with a capital lease line, the Company issued warrants, expiring in October
2006, to purchase 250,000 shares of Common Stock at $0.30 per share; (v) in
connection with a guaranty provided by Baxter, the Company has committed to
issue warrants to Baxter, expiring in January 2007, to purchase 500,000 shares
of Common Stock at $0.30 per share.
(c) Validity of Securities; Reservation of Shares. The Shares,
---------------------------------------------
when issued, sold and delivered in accordance with the terms of this Agreement,
will be duly authorized, validly issued, fully paid and nonassessable and will
be free and clear of any liens or encumbrances; provided, however, that the
-------- -------
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 Shares will be in compliance with all applicable federal and state
securities laws.
3.5 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
Shares, or the consummation of any other transaction contemplated hereby
(excluding Article VI hereof), 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
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<PAGE>
the Shares, which qualification, if required, will be accomplished in a timely
manner prior to or promptly upon completion of the Closing.
3.6 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 of 1933 (the
"Securities Act") or the Securities Exchange Act of 1934 (the "Exchange Act")
since January 1, 1999, 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 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.
3.7 No Material Adverse Change. Since the date of the balance sheet
--------------------------
included in the Company's most recently filed report on Form 10-QSB or Form 10-
KSB, 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.
3.8 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.
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<PAGE>
ARTICLE IV
Representations and Warranties of the Investors
Each Investor represents and warrants to the Company, as of the
Closing Date, as follows:
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.
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 Shares 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 Shares 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 that 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 Shares
---------------------
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 Shares 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 Shares to be sold, the sale being through a "broker's
transaction" or in transactions directly with a "market maker," and the number
of Shares 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, and that a
public market for the Common Stock may not develop or be sustained sufficiently
to permit the resale of the Shares.
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.
-5-
<PAGE>
4.7 Accredited Investor Status. The Investor currently 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 Securities 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 the Investor is required in connection
with the valid execution and delivery of this Agreement by the Investor and the
consummation by the Investor of the transactions contemplated hereby.
4.9 Legends. Each certificate representing the Shares 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, and may instruct its transfer agent not to record,
a transfer of Shares, unless the conditions specified in the foregoing legend
are satisfied.
ARTICLE V
Transfer Restrictions; Rights as Stockholder
5.1 Restrictions on Transfer. Each Investor acknowledges that the
------------------------
Shares 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 Shares 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.
-6-
<PAGE>
(b) A transfer of Shares in whole to the Company or to any
stockholder of the Company.
(c) A transfer of Shares 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.
(d) A transfer of Shares 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 Shares in accordance with Rule 144 under the
Securities Act.
(f) A transfer of Shares by a holder which is a limited or
general partnership to any of its partners or former partners.
(g) A transfer of Shares which is registered under the
Securities Act.
ARTICLE VI
Registration Rights
6.1 Registrable Securities. The Shares 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 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 90 days after
the date hereof, and shall use 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) two years after the registration statement has been declared
effective by the SEC or (B) such time as no Holders shall own any Shares; (ii)
forthwith prepare and file with 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
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<PAGE>
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). The Company agrees to pay to each Holder an amount
equal to $0.001 per Share held by such Holder for each day that the Company has
failed to have filed a registration statement as required by Section 6.2 hereof
beyond 90 days after the date hereof.
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 Holder may elect
to withdraw therefrom by written notice to the Company and the managing
underwriter. The Registrable 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 in the
registration the right to include additional Registrable Securities in the same
proportion used in determining the underwriter limitation as set forth above.
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<PAGE>
(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
for the Registrable Securities, subject to the following sentence. 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 Holders 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 Holders 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 forty-five (45) days, if the Board of Directors of the
Company, acting in good faith, determines that there exists material nonpublic
information about the Company which the Board 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 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
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<PAGE>
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 reimburse, in an amount not to exceed
--------
$25,000, the out-of-pocket expenses of the Holders 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 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
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<PAGE>
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 other 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, 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.
(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
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<PAGE>
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 such underwriting agreement shall control.
ARTICLE VII
Additional Covenants of the Investors
7.1 Voting. Until such time as an Investor holds securities of the
------
Company representing less than 5% of the total outstanding voting stock of the
Company, such Investor shall: (i) take such all action necessary or appropriate
such that all voting stock owned by such Investor and its affiliates are voted
(in person or by proxy) (A) for the nominees to the Company's Board of Directors
nominated and recommended to the Company's stockholders by the Company
management, and (B) on all other matters to be voted on by the Company's
stockholders, in such manner as is recommended by the Company's management to
the stockholders; and (ii) be present, in person or by proxy, at all duly held
meetings of the stockholders of the Company so that all voting stock held by
such Investor may be counted for purposes of determining the presence of a
quorum at such meetings.
7.2 Voting Trusts. Except as consented to by the Company in writing, no
-------------
Investor shall deposit any voting stock of the Company owned by it in a voting
trust or subject any such stock to any similar arrangement or agreement with
respect to the voting of such stock.
7.3 Solicitation of Proxies. Without the Company's prior written consent,
-----------------------
no Investor shall solicit proxies with respect to any voting stock of the
Company, nor become a "participant" in any "election contest" as such terms are
used in Rule 14a-11 of Regulation 14A under the Exchange Act relating to the
election of directors of the Company.
7.4 Acts in Concert with Others. Except as permitted in writing by the
---------------------------
Company, no Investor shall join any group or otherwise act in concert with any
third person for the purpose of acquiring, holding or disposing of voting stock
of the Company.
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<PAGE>
ARTICLE VIII
Miscellaneous
8.1 Waivers and Amendments. With the written consent of the holders of a
----------------------
majority of the Shares, the obligations of the Company and the rights of the
holders of Shares 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;
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 Shares consent to such amendment or supplemental agreement, and
(ii) no such waiver or supplemental agreement shall reduce the above percentage
of holders of Shares which is required to consent to any waiver or supplemental
agreement, without the consent of the record or beneficial holders of all
Shares. 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 Shares 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.
8.2 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.
8.3 Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive the execution and delivery of this Agreement and the
sale of the Shares.
8.4 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.
8.5 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.
8.6 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.
8.7 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
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<PAGE>
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.
8.8 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.
8.9 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, 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 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.
8.10 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.
8.11 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]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Common Stock 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 and Chief Executive Officer
THE INVESTORS: INVESTOR
By:
______________________________________
Name: ((FirstName)) ((LastName))
--------------------------
Title:
__________________________
[Signature Page to Common Stock Purchase Agreement]
<PAGE>
EXHIBIT A
SCHEDULE OF INVESTORS
Name and Address of Investor Aggregate Purchase Number of Shares of
Price Common Stock
Aries Domestic Fund, L.P. $ 867,052.00 433,526
787 7/th/ Avenue, 48/th/ Floor
New York, NY 10019
Attn: David M. Tanen
Aries Domestic Fund II, L.P. $ 134,848.00 67,424
787 7/th/ Avenue, 48/th/ Floor
New York, NY 10019
Attn: David M. Tanen
The Aries Master Fund $1,910,600.00 955,300
Attn: David M. Tanen
Lindsay A. Rosenwald, M.D. $ 50,000.00 25,000
441 West End Avenue, #8A
New York, NY 10024
Mark C. Rogers, M.D. $ 25,000.00 12,500
787 7/th/ Avenue, 48/th/ Floor
New York, NY 10019
Wayne Rubin $ 12,500.00 6,250
1022 Loft Road
Woodmere, NY 11598
EGM Medical Technology Fund, L.P. $ 270,000.00 135,000
1 Embarcadero Center, Suite 2410
San Francisco, CA 94111
Attn: Marc Pentopoulus
EGM Medical Technology Offshore Fund $ 180,000.00 90,000
1 Embarcadero Center, Suite 2410
San Francisco, CA 94111
Attn: Marc Cohen
-A1-
<PAGE>
Name and Address of Investor Aggregate Number of Shares of
Purchase Price Common Stock
Stephen Alexander Consultants, LLC $1,000,000.00 500,000
611 Druid Road East, Suite 200
Clearwater, FL 33756
Attn: Paul Watson
Clearwater Offshore Fund, Ltd. $1,100,000.00 550,000
c/o Oceanic New World Trust
Euro-Canadian Centre
Marlborough Street
P.O. Box N-4465
Nassau, Bahamas
Attn: Hans F. Heye
Marc A. Pentopoulus $ 80,000.00 40,000
1831 Pacific Avenue, #202
San Francisco, CA 94109
TOTAL $5,630,000.00
-A2-
<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 Amendment No. 4 to the Registration
Statement (Form SB-2) and related Prospectus of UroGen Corp. for the
registration of 4,339,977 shares of its common stock.
/s/ ERNST & YOUNG LLP
San Diego, California
February 10, 2000
