<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 8, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BONE CARE INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WISCONSIN 2830 39-1527471
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
ONE SCIENCE COURT
MADISON, WISCONSIN 53711
(608) 274-7533
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
CHARLES W. BISHOP, PH.D.,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BONE CARE INTERNATIONAL, INC.
ONE SCIENCE COURT
MADISON, WISCONSIN 53711
(608) 274-7533
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
JIM L. KAPUT, ESQ. PATRICK A. POHLEN, ESQ.
SIDLEY & AUSTIN COOLEY GODWARD LLP
ONE FIRST NATIONAL PLAZA FIVE PALO ALTO SQUARE
CHICAGO, ILLINOIS 60603 3000 EL CAMINO REAL
(312) 853-7000 PALO ALTO, CALIFORNIA 94306
(650) 843-5000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable 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. [_]
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,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, no par
value................. 3,450,000 $8.8125 $30,403,125 $8,969
Rights................. (3) N/A N/A N/A(3)
</TABLE>
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(1) Includes 450,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(c) under the Securities Act
of 1933, as amended.
(3) Each share includes one associated preferred stock purchase right
(collectively, the "Rights") to purchase 1/200 of a share of Series A
Junior Participating Preferred Stock, par value $.001 per share. Rights
initially are attached to and trade with the Common Stock of the
Registrant. The value attributable to such Rights, if any, is reflected in
the market price for the Common Stock.
--------------
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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 8, 1998
3,000,000 SHARES
[BCI LOGO]
BONE CARE INTERNATIONAL, INC.
COMMON STOCK
All of the 3,000,000 shares of Common Stock offered hereby are being sold by
Bone Care International, Inc. ("Bone Care" or the "Company"). The Company's
Common Stock is traded on the Nasdaq National Market under the symbol "BCII."
On January 7, 1998, the last reported sale price for the Common Stock was
$8.625 per share. See "Price Range of Common Stock."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS IN PURCHASING SHARES OF THE COMMON STOCK
OFFERED HEREBY.
-----------
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.
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<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
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<S> <C> <C> <C>
Per Share..................................... $ $ $
Total (3)..................................... $ $ $
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</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 450,000 shares of Common Stock solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
Price to Public will total $ , the Underwriting Discount will total
$ and the Proceeds to Company will total $ . See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of NationsBanc Montgomery Securities LLC on or about , 1998.
-----------
NationsBanc Montgomery Securities LLC
Donaldson, Lufkin & Jenrette
Securities Corporation
Robert W. Baird & Co.
Incorporated
, 1998
<PAGE>
[A FLOW CHART DEPICTING THE METABOLIC PROCESSES INVOLVED IN SECONDARY
HYPERPARATHYROIDISM ASSOCIATED WITH RENAL DYSFUNCTION]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN ACTIVITIES THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. THESE TRANSACTIONS MAY BE EFFECTED ON
NASDAQ OR OTHERWISE AND, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
The Company's name and logo are a tradename and trademark of the Company,
respectively. This Prospectus also includes trademarks of companies other than
the Company.
The Company is a Wisconsin corporation with its principal executive offices
located at One Science Court, Madison, Wisconsin 53711. Its telephone number is
(608) 274-7533.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus (i) assumes no exercise
of the Underwriters' over-allotment option and (ii) gives effect to the 2-for-1
split of the Company's outstanding Common Stock effected on November 14, 1997.
Unless otherwise noted or the context otherwise requires, references herein to
years refer to calendar years. References herein to fiscal years refer to the
Company's June 30 fiscal year end. Except for the historical information
contained herein, the discussion in this Prospectus contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995 that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed herein. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed in "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," as well as those discussed
elsewhere in this Prospectus.
THE COMPANY
Bone Care International, Inc. ("Bone Care" or the "Company") is a leader in
the discovery and development of improved vitamin D-hormone ("D-hormone")
therapies. D-hormones have a key role in secondary hyperparathyroidism leading
to metabolic bone diseases in several patient populations, including end stage
renal disease ("ESRD"), pre-dialysis and osteoporosis patients. D-hormones also
have a role in certain hyperproliferative diseases, including prostate, breast
and colon cancers, and psoriasis. In November 1997, the Company announced
results from its two pivotal Phase 3 trials for an oral formulation of its lead
product candidate, one-alpha D/2/, a synthetic D-hormone analog for the
treatment of secondary hyperparathyroidism associated with ESRD. The trials,
which were completed in August 1997, involved 124 patients at 16 study centers
in the United States. In these trials, oral one-alpha D/2/ effectively
controlled moderate to severe secondary hyperparathyroidism with no clinically
meaningful side effects in ESRD patients undergoing hemodialysis. Based on the
results of these trials, the Company intends to file a New Drug Application
("NDA") with the United States Food and Drug Administration ("FDA") in the
first quarter of 1998 for oral one-alpha D/2/ as a treatment for secondary
hyperparathyroidism associated with ESRD.
In July 1997, the Company initiated two pivotal Phase 3 trials for an
intravenous formulation of one-alpha D/2/ for the treatment of secondary
hyperparathyroidism associated with ESRD. Preliminary data currently available
from these trials are consistent with the results obtained from the completed
Phase 3 trials for oral one-alpha D/2/. Upon successful completion of these
trials, the Company intends to seek regulatory approval from the FDA for
intravenous one-alpha D/2/. In October 1997, the Company began recruiting
patients for two pivotal Phase 3 trials of oral one-alpha D/2/ for the
treatment of secondary hyperparathyroidism in pre-dialysis patients. The
Company is also planning to conduct Phase 2 trials for the use of oral one-
alpha D/2/ for the treatment of osteoporosis associated with secondary
hyperparathyroidism.
Secondary hyperparathyroidism is a chronic disease where the parathyroid
glands secrete excessive quantities of parathyroid hormone ("PTH") in response
to reduced kidney function or kidney failure. Secondary hyperparathyroidism, if
left untreated, leads to debilitating metabolic bone diseases, including
osteoporosis, osteomalacia, rickets and renal osteodystrophy, as well as
increased risk of fractures and severe bone pain. Moderate to severe secondary
hyperparathyroidism is associated with advanced renal insufficiency and ESRD
found in pre-dialysis and dialysis patients. Mild secondary hyperparathyroidism
is associated with modest reductions in renal function often found in
osteoporosis patients. According to the United States Health Care Financing
Administration ("HCFA"), in 1996, there were approximately 214,000 ESRD
patients in the United States. In addition, based on published reports, the
Company estimates that in the United States in 1996 there were at least 600,000
pre-dialysis patients and at least 2,000,000 patients with osteoporosis
associated with secondary hyperparathyroidism.
3
<PAGE>
Based on the role of D-hormones in controlling cellular growth and
differentiation, the Company is also developing D-hormone therapies to treat
certain hyperproliferative diseases. The Company is currently conducting a
Phase 1 trial of oral one-alpha D/2/ to treat terminal prostate cancer. The
Company is also investigating the use of other D-hormones and analogs for the
treatment of prostate, breast and colon cancers, and psoriasis.
Although currently marketed D-hormone therapies have demonstrated efficacy in
treating secondary hyperparathyroidism and certain hyperproliferative diseases,
the systemic (oral or intravenous) administration of those products frequently
produces toxic side effects at doses required for therapeutic effect. As a
result, the widespread and effective use of systemic D-hormone therapies has
been limited. Through the Company's collaborations with D-hormone research
institutions, as well as the Company's internal research and development
efforts, the Company has developed substantial expertise in the area of D-
hormone chemistry. The Company has leveraged that expertise to develop a
portfolio of D-hormones and analogs which the Company believes possess improved
safety and efficacy profiles compared to existing D-hormone therapies.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the 3,000,000 shares
Company...........................
Common Stock to be outstanding 11,722,482 shares(1)
after the offering................
Use of proceeds.................... For research and development activities,
commercialization activities, working
capital and general corporate purposes. See
"Use of Proceeds."
Nasdaq Stock Market symbol......... BCII
</TABLE>
- --------
(1) Based on 8,722,482 shares of Common Stock outstanding as of November 30,
1997. Excludes as of November 30, 1997: (i) 537,052 shares of Common Stock
issuable upon the exercise of outstanding options to purchase shares of
Common Stock at a weighted average exercise price of $2.92 per share and
(ii) 574,200 shares of Common Stock reserved for future grants under the
Company's 1996 Stock Option Plan (the "1996 Plan"). See "Management--Stock
Option Plans" and "Description of Capital Stock."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------------- ---------------
1993 1994 1995 1996 1997 1996 1997
------ ------ ------ ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Revenues............... $ 826 $ -- $ 15 $ 19 $ 39 $ 1 $ --
Operating expenses:
Cost of sales......... 158 -- -- 12 38 4 --
Research and
development.......... 426 329 535 1,158 2,885 369 1,002
General and
administrative....... 226 165 172 197 439 68 117
------ ------ ------ ------- ------- ------ -------
Total operating
expenses........... 810 494 707 1,367 3,362 441 1,119
------ ------ ------ ------- ------- ------ -------
Income (loss) from
operations............ 16 (494) (692) (1,348) (3,323) (440) (1,119)
Other income (expense),
net................... 22 9 (7) 90 529 144 111
Income tax expense..... (38) -- -- -- -- -- --
------ ------ ------ ------- ------- ------ -------
Net loss(1)............ $ -- $ (485) $ (699) $(1,258) $(2,794) $ (296) $(1,008)
====== ====== ====== ======= ======= ====== =======
Net loss per common
share(1).............. $ -- $(0.29) $(0.41) $ (0.26) $ (0.32) $(0.03) $ (0.12)
====== ====== ====== ======= ======= ====== =======
Weighted average common
shares outstanding(1). 1,698 1,698 1,698 4,894 8,713 8,707 8,722
====== ====== ====== ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
ACTUAL AS ADJUSTED(2)
------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents.......... $7,644 $31,467
Working capital....... 7,059 30,882
Total assets.......... 9,111 32,934
Total long-term
liabilities.......... -- --
Accumulated deficit... (6,539) (6,539)
Total shareholders'
equity............... 8,411 32,234
</TABLE>
- --------
(1) See Note 1 to Notes to Consolidated Financial Statements for an explanation
of the computation of net loss and net loss per common share.
(2) Adjusted to give effect to the receipt of the net proceeds from the sale of
3,000,000 shares of Common Stock offered by the Company hereby at an
assumed public offering price of $8.625 per share. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Accordingly, prospective investors should consider carefully
the following factors, together with the other information contained in this
Prospectus, in evaluating the Company and its business before purchasing
shares of the Common Stock offered hereby. This Prospectus contains forward-
looking statements that involve risk and uncertainty. Actual results and the
timing of certain events could differ materially from those projected in the
forward-looking statements as a result of the risk factors set forth below and
other factors discussed elsewhere in this Prospectus. See "Special Note
Regarding Forward-Looking Statements."
EARLY STAGE OF DEVELOPMENT
The Company is at an early stage of development and currently has no
revenues from product sales. The Company does not have regulatory approval
from the FDA or foreign regulatory authorities to market any product. All of
the Company's product candidates, other than one-alpha D/2/ for the treatment
of secondary hyperparathyroidism associated with ESRD, are at an early stage
of development and will require extensive research and development and
preclinical and clinical testing prior to commercialization. In addition, each
of the Company's product candidates are and will be subject to an extensive,
time consuming and costly regulatory approval or clearance process prior to
commercialization. There can be no assurance that any such product candidates
will prove safe and efficacious in clinical trials or that any clinical trials
will be completed on schedule, or at all. Furthermore, there can be no
assurance that the Company will obtain required regulatory approvals or
clearance for any of its product candidates, that the Company's product
candidates will be capable of being produced in commercial quantities at
reasonable cost or that any of the Company's products, if introduced, will
achieve market acceptance. Any failure of the Company to demonstrate safety,
achieve clinical efficacy, obtain regulatory approvals or successfully
manufacture or commercialize its products would have a material adverse effect
on the business, financial condition and results of operations of the Company.
DEPENDENCE ON ONE-ALPHA D/2/
The Company is dependent on its ability to obtain regulatory approval of
one-alpha D/2/ for the treatment of secondary hyperparathyroidism associated
with ESRD in order to generate operating revenue while it continues its
research and development and regulatory approval processes for the potential
uses of one-alpha D/2/ for other indications and other product candidates.
Although the Company has completed its Phase 3 clinical trials for oral one-
alpha D/2/ for patients with secondary hyperparathyroidism associated with
ESRD, the Company must apply for and obtain approval from the FDA prior to
commercially marketing one-alpha D/2/ in the United States. There can be no
assurance that further clinical trials will not be needed or that any such
clinical trials will lead to marketing approval by the FDA. While the Company
currently expects to file an NDA for oral one-alpha D/2/ in the first quarter
of 1998, there can be no assurance as to the timing of such filing or the
outcome or timing of the FDA's review of such filing. In addition, there can
be no assurance that one-alpha D/2/ for the treatment of secondary
hyperparathyroidism, if approved by the FDA, will achieve market acceptance.
See "Business--Government Regulation."
Furthermore, there can be no assurance that the Company will be successful
in its efforts to develop one-alpha D/2/ for other indications. Any additional
product candidates will require significant research and development,
preclinical and clinical testing, regulatory approval and commitment of
resources prior to commercialization. If one-alpha D/2/ is not successfully
manufactured or marketed, the Company may not have the financial resources to
continue research and development of other product candidates. The failure to
successfully develop, manufacture or market one-alpha D/2/ would have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, technological developments may result in
one-alpha D/2/ becoming obsolete or non-competitive before the Company is able
to recover any portion of the research and development and other expenses it
has incurred to clinically test and commercialize one-alpha D/2/. Any such
development could have a material adverse effect on the business, financial
condition and results of operations of the Company.
6
<PAGE>
HISTORY OF OPERATING LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY
Since its inception, the Company has been engaged in research and
development activities, has generated minimal revenues from operations and has
incurred significant operating losses. At September 30, 1997, the Company had
an accumulated deficit of approximately $6.5 million. Such losses have
resulted principally from costs incurred in research and development,
preclinical and clinical activities and from general and administrative costs
associated with the Company's operations. The Company expects that operating
losses will continue and increase for the foreseeable future as its research
and development, preclinical, clinical and marketing activities expand. The
Company's ability to achieve profitability will depend in part on its ability
to obtain regulatory approvals for its product candidates and successfully
manufacture and market any approved products either by itself or in
collaboration with third parties. There can be no assurance as to when the
Company will achieve profitability, or that profitability, if achieved, will
be sustained. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
The laboratory testing, preclinical testing and clinical trials of all new
drugs developed by the Company, and the manufacturing, labeling, storage,
sale, distribution, export or import, marketing, advertising and promotion of
any new products resulting therefrom, are subject to extensive and rigorous
regulation by federal, state and local governmental authorities in the United
States, the principal one of which is the FDA, and by similar agencies in
other countries. Any new drug product developed by the Company must receive
all relevant regulatory approvals before it may be marketed in a particular
country. In the United States, the FDA regulatory process, which includes
extensive preclinical studies and clinical trials of each product in order to
establish its safety and efficacy, is uncertain, can take many years and
requires the expenditure of substantial resources. Data obtained from
preclinical studies and clinical trials are susceptible to varying
interpretations which could delay, limit or prevent regulatory approval. In
addition, delays or data rejections may be encountered based upon changes in
regulatory policy during the period of product development and/or the period
of review of any application for regulatory approval of a new drug. Delays in
obtaining regulatory approvals would adversely affect the marketing of any
products developed by the Company, impose significant additional costs on the
Company, diminish any competitive advantages that the Company may attain and
adversely affect the Company's ability to generate revenues and profits. There
can be no assurance that, even after such time and expenditures, any required
regulatory approvals will be obtained for any new drug developed by the
Company, and failure to obtain such approvals could have a material adverse
effect on the Company's business, financial condition and results of
operations.
FDA regulatory approval, if granted, may entail limitations on the indicated
uses for which a new drug may be marketed that could limit the potential
market for such a product, and new drug approval, once granted, may be
withdrawn from a product for failure to comply with applicable post-approval
regulatory requirements, or if safety or other problems occur after initial
marketing. Manufacturers of approved new drug products must comply with
detailed regulations governing, among other things, labeling, advertising and
current Good Manufacturing Practices ("GMP"), requiring establishment of
quality control and quality assurance procedures and maintenance of
corresponding records. Manufacturing facilities are subject to inspection by
the FDA, including unannounced inspection. There can be no assurance that the
Company or its suppliers will be able to comply with applicable GMP
regulations. Failure to comply with applicable regulatory requirements can
result in, among other things, withdrawal of marketing approval, warning
letters, injunctions, recall or seizure of products, total or partial
suspension of production, FDA refusal to approve pending NDAs or supplements
to approved NDAs, refusal to permit products to be imported or exported,
refusal to allow the Company to enter into government supply contracts or
criminal prosecution.
The Company is also subject to numerous federal, state and local laws,
regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices, the experimental use of animals, the
environment and the use and disposal of hazardous substances used in
connection with the Company's discovery, research and development work,
including radioactive compounds and infectious disease agents. In addition,
the Company cannot predict the extent of government regulations or the impact
of new governmental regulations which might have an adverse effect on the
discovery, development, production and marketing of the Company's
7
<PAGE>
products, and there can be no assurance that the Company will not be required
to incur significant costs to comply with current or future laws or
regulations or that the Company will not be adversely affected by the cost of
such compliance. See "Business--Government Regulation."
UNCERTAINTY OF PATENT POSITIONS AND PROPRIETARY RIGHTS
The patent positions of pharmaceutical companies are often uncertain and
involve complex legal and factual questions, and the breadth of claims allowed
in pharmaceutical patents cannot be predicted. In addition, there is a
substantial backlog of pharmaceutical patent applications at the U.S. Patent
and Trademark Office (the "PTO") that may delay the review and the potential
issuance of patents. The Company's success will depend to a significant degree
on its ability to obtain patents and licenses to patent rights, to maintain
trade secrets and to operate without infringing on the proprietary rights of
others, both in the United States and in other countries.
To date, the Company has filed a number of patent applications in the United
States and other countries. The Company's issued patents and pending patent
applications relating to one-alpha D/2/ are methods-of-use patents which cover
only the use of certain compounds to treat specified conditions, rather than
composition-of-matter patents which would cover the chemical composition of
the active ingredient. The Company intends to continue to file applications as
appropriate for patents covering its products, uses and processes. There can
be no assurance that patents will issue from any of these applications, or
that competitors will not successfully challenge the Company's patents, if
issued, on the basis of validity and/or enforceability or circumvent, attack
or design around the Company's patent position. The failure of patents to
issue on pending applications or the finding of invalidity and/or
unenforceability of one of the Company's patents could result in increased
competition and could have a material adverse effect on the Company's
business, financial condition and results of operations.
Patent applications in the United States are maintained in secrecy until a
patent issues, and the Company cannot be certain that others have not filed
patent applications for compounds, uses or processes covered by the Company's
pending applications or that the Company was first to invent or discover the
compound, use or process that is the subject of such patent applications.
Competitors may have filed applications for, or may have received patents and
may obtain additional patents and proprietary rights relating to, compounds,
uses or processes that block or compete with those of the Company. The Company
is aware of a significant number of patent applications filed by and patents
issued to third parties relating to D-hormones. Should any of its competitors
have filed patent applications in the United States that claim compounds, uses
or processes also claimed by the Company, the Company may have to participate
in interference proceedings declared by the PTO in order to determine priority
of invention and, thus, the right to a patent for the compounds, uses or
processes in the United States, all of which could result in substantial cost
to the Company even if the outcome is favorable. In addition, litigation,
which could result in substantial cost to the Company, may be necessary to
enforce any patents issued to the Company or to determine the scope and
validity of the proprietary rights of third parties. There can be no assurance
that any patents issued to the Company or to licensors from whom the Company
has licensed rights will not be challenged, invalidated, found unenforceable
or circumvented, or that the rights granted thereunder will provide
proprietary protection or commercial advantage to the Company.
The commercial success of the Company depends significantly on its ability
to operate without infringing upon the patents and other proprietary rights of
third parties. There can be no assurance that the Company's compounds, uses or
processes do not and will not infringe upon the patents or other proprietary
rights of third parties. In the event of such infringement, the Company may be
enjoined from pursuing research, development or commercialization of its
products or may be required to obtain licenses to these patents or other
proprietary rights or to design around such patents. There can be no assurance
that the Company will be able to obtain any required license on commercially
reasonable terms, if at all. If such licenses are not obtained and the Company
is unable to design around such patents, the Company may be delayed or
prevented from pursuing the development of certain of its product candidates
which could have a material adverse effect on the business, financial
condition and results of operations of the Company.
8
<PAGE>
The Company also relies on proprietary information and trade secrets. There
can be no assurance that third parties will not independently develop
equivalent proprietary information or techniques, will not gain access to the
Company's trade secrets or disclose such trade secrets to the public, or that
the Company can maintain and protect unpatented proprietary information. The
Company requires its employees, consultants and advisors to execute
confidentiality agreements upon commencement of employment or consulting
relationships with the Company. There can be no assurance, however, that these
agreements will provide meaningful protection or adequate remedies for the
Company's proprietary information in the event of unauthorized use or
disclosure of such information, that the parties to such agreements will not
breach such agreements or that the Company's trade secrets will not otherwise
become known or be discovered independently by its competitors. See
"Business--Patents and Proprietary Technology."
UNCERTAINTY RELATED TO PRICING AND REIMBURSEMENT OF PRODUCTS
In both domestic and foreign markets, sales of the Company's products, if
any, will depend in part on the availability of reimbursement from third-party
payors such as government health administration authorities, private health
insurers, health maintenance organizations, pharmacy benefit management
companies and other organizations. Both the federal and state governments in
the United States and foreign governments continue to propose and pass
legislation designed to contain or reduce the cost of health care, and
regulations affecting the pricing of pharmaceuticals and other medical
products and services may change or be adopted before any of the Company's
product candidates are approved for marketing. In addition, third-party payors
are increasingly challenging the price and cost-effectiveness of medical
products and services. Significant uncertainty exists as to the reimbursement
status of newly approved health care products including pharmaceuticals. There
can be no assurance that the Company's products, if any, will be considered
cost-effective or that adequate third-party reimbursement will be available to
enable the Company to maintain price levels sufficient to realize a return on
its investment.
The initial indication for one-alpha D/2/ is for secondary
hyperparathyroidism associated with ESRD. The Company believes the majority of
ESRD patients in the United States are covered for reimbursement of health
care costs through Medicare and Medicaid, both of which are administered by
HCFA. The current reimbursement policy of HCFA is to provide reimbursement for
intravenously administered drugs but not orally administered drugs. As a
result, intravenous D-hormones are currently favored by dialysis centers,
because under a fee-for-service reimbursement arrangement, they are reimbursed
by Medicare and Medicaid. The Company believes, however, that as the current
trend to replace fee-for-service reimbursement plans with capitated
reimbursement plans continues, dialysis centers will increasingly favor orally
delivered D-hormones because of their lower cost. The Company's strategy to
develop an oral formulation of one-alpha D/2/ for treatment of secondary
hyperparathyroidism associated with ESRD before an intravenous formulation is
based on this assumption regarding trends in health care reimbursement. There
can be no assurance that the Company's assumptions are correct regarding
capitated reimbursement or regarding the timing of any change to a capitated
environment. In the event that fee-for-service reimbursement remains the
predominant model for dialysis centers, sales of oral one-alpha D/2/, assuming
regulatory approvals are received, could be materially adversely affected. The
ability of the Company to obtain third-party reimbursement for use of one-
alpha D/2/ would be dependent on the successful development of, receipt of
regulatory approval for, and commercialization of, an intravenous formulation.
See "Business--Products Under Development" and "--Pharmaceutical Pricing and
Reimbursement."
SIGNIFICANT COMPETITION; COMPETITION FROM NEW TECHNOLOGIES
Competition in the pharmaceutical and biotechnology industries is intense.
The Company faces competition from a variety of sources and believes that
several pharmaceutical and biotechnology companies are focused on the
development of D-hormone therapies, particularly as they relate to treatment
of secondary hyperparathyroidism and hyperproliferative diseases. The Company
also competes with other large pharmaceutical companies that produce D-
hormones and analogs for marketing in international marketplaces where
alternative treatments have been approved. Several companies also compete
indirectly with the Company
9
<PAGE>
for the same indications utilizing different therapeutic approaches. Many of
the Company's existing or potential competitors have substantially greater
financial, research and development, marketing and human resources than the
Company and are better equipped to develop, manufacture and market products.
Other companies may also prove to be significant competitors, particularly
through collaborative arrangements with large pharmaceutical and established
biotechnology companies. Several of these competitors have products that have
been approved or are in development and operate large, well-funded research
and development programs. The Company also faces intense competition from
other companies for marketing, distribution and collaborative development
agreements, for establishing relationships with academic and research
institutions, and for licenses to proprietary technology. In addition,
academic institutions, government agencies and other public and private
research organizations may also conduct research, seek patent protection and
establish collaborative arrangements for discovery, research, clinical
development and marketing of products similar to those of the Company. These
companies and institutions compete with the Company in recruiting and
retaining qualified scientific and management personnel as well as in
acquiring technologies complementary to the Company's programs.
Abbott Laboratories markets intravenous calcitriol (Calcijex(R)) and
Hoffmann-LaRoche, Inc. markets oral calcitriol (Rocaltrol(R)). Both drugs are
approved for the treatment of secondary hyperparathyroidism associated with
ESRD in the United States and certain European countries. A number of
companies market oral alfacalcidol, a synthetic analog of calcitriol, in
Europe under various trade names. Other companies, including Abbott
Laboratories, Amgen, Inc., Chugai Pharma Europe Ltd. and NPS Pharmaceuticals,
Inc. are also developing new therapies or have filed NDAs for the treatment of
secondary hyperparathyroidism associated with ESRD for the United States or
European markets.
Companies that complete clinical trials, obtain required regulatory
approvals and commence commercial sales of their products before their
competitors may achieve a significant competitive advantage. A number of
pharmaceutical and biotechnology companies are developing new products for the
treatment of the same diseases being targeted by the Company. In some
instances, competing products have already entered late-stage clinical trials
or have been submitted for regulatory review and approval. Abbott Laboratories
has filed an NDA for an intravenous formulation of an improved second
generation D-hormone analog to treat secondary hyperparathyroidism associated
with ESRD. This product is expected to compete with one-alpha D/2/. In
addition, Leo Pharmaceuticals is developing and marketing improved D-hormone
therapies for the treatment of certain hyperproliferative diseases and is
marketing alfacalcidol in Europe for the treatment of secondary
hyperparathyroidism associated with ESRD and osteoporosis associated with
secondary hyperparathyroidism.
There can be no assurance that the Company's competitors will not develop
more effective and/or affordable products, or achieve earlier patent
protection or product commercialization than the Company or that such
competitive products will not render the Company's products obsolete. See
"Business--Competition."
DEPENDENCE ON LICENSED PATENTS; POTENTIAL NEED FOR ADDITIONAL PARTNERS OR
COLLABORATORS
The Company has licensed rights under several process patents for the
manufacture of one-alpha D/2/ from the Wisconsin Alumni Research Foundation
("WARF"). WARF has agreed not to license to other parties the patents for the
manufacture of one-alpha D/2/ for use or sale anywhere in the world as long as
the license agreement is in effect, and, if one-alpha D/2/ is being sold in
the United States, the Company pays the annual royalties. The United States
Department of Agriculture ("USDA") holds certain rights to LR-103 under a
pending patent application and has granted the Company a worldwide exclusive
license to make, use and sell products covered under the rights held by the
USDA. The license expires on the last to expire of the licensed patents. The
license may be terminated by the USDA if these products are not brought by the
Company to practical application with the benefits being made available to the
public in the United States by April 7, 2002 or under certain other limited
circumstances. The Company's strategy for the further research, development
and commercialization of its product candidates and technologies may require
the Company to enter into various arrangements with corporate and academic
collaborators, licensors, licensees and others, and the Company may therefore
be dependent upon the subsequent success of these third parties in performing
their responsibilities.
10
<PAGE>
There can be no assurance that the Company will be able to enter into
collaborative, licensing or other arrangements that the Company deems necessary
or appropriate to develop and commercialize its product candidates, or that any
or all of the contemplated benefits from such collaborative, licensing or other
arrangements will be realized. Certain collaborative, licensing or other
arrangements that the Company may enter into in the future may place
responsibility on the Company's collaborative partners for preclinical and
clinical activities and for the preparation and submission of applications for
regulatory approval for potential products. Should any collaborative partner
fail to develop or commercialize successfully any product candidate to which it
has rights, the business, financial condition and results of operations of the
Company may be materially adversely affected. There can be no assurance that
collaborators will not pursue alternative product candidates either on their
own or in collaboration with others, including the Company's competitors, as a
means for developing treatments for the diseases sought to be addressed by the
Company's programs. See "Business--Patents and Proprietary Technology."
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FINANCING
The Company will require substantial funds after the offering for its
research and development programs, preclinical and clinical testing, operating
expenses, regulatory processes and manufacturing and marketing programs. The
Company's capital requirements will depend on numerous factors, including the
progress of its 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 any patent
claims and other intellectual property rights; competing technological and
market developments; changes and developments in the Company's existing
licensing relationships and the terms of any new collaborative, licensing, co-
promotion or distribution arrangements that the Company may establish; the
progress of commercialization and marketing activities; the cost of
manufacturing preclinical and clinical products; and other factors not within
the Company's control. The Company believes that the net proceeds of the
offering, together with its available cash and cash equivalents, should be
sufficient to fund its operations for at least the next eighteen months.
The Company may need to raise substantial additional capital to fund its
future operations. The Company may seek such additional funding through public
or private financing or collaborative, licensing and other arrangements with
partners. If additional funds are raised by issuing equity securities, further
dilution to existing shareholders may result, and future investors may be
granted rights superior to those of existing shareholders. There can be no
assurance however, that additional financing will be available when needed or
on acceptable terms. Insufficient funds may prevent the Company from
implementing its business strategy or may require the Company to delay, scale
back or eliminate certain of its research and development programs or to
license to third parties rights to commercialize products that the Company
would otherwise seek to develop itself. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
LIMITED MANUFACTURING CAPABILITIES; DEPENDENCE ON SUPPLIERS
The Company presently does not have the internal capability to manufacture
pharmaceutical products, and the Company currently uses third parties to
manufacture bulk drug compounds and formulate and package one-alpha D/2/. The
Company's dependence upon third parties for the manufacture of its product
candidates may adversely affect the Company's profit margins and its ability to
develop and commercialize its product candidates on a timely and competitive
basis. If the Company should encounter delays or difficulties with contract
manufacturers in producing, packaging or distributing its products, market
introduction and subsequent sales of such products would be adversely affected
and the Company may have to seek alternative sources of supply. No assurance
can be made that the Company will be able to enter into alternative supply
arrangements on commercially acceptable terms, if at all. No assurance can be
made that any manufacturers utilized by the Company will be able to provide the
Company with sufficient quantities of its products or that any products
supplied to the Company will meet the Company's specifications or delivery and
other requirements. If for any reason the Company is unable to obtain
sufficient quantities of any materials required to produce its products or the
Company is unable to obtain or retain third-party manufacturers on commercially
acceptable terms, it may not be able to commercialize its products as planned.
11
<PAGE>
Contract manufacturers that the Company may use must adhere to GMP
regulations enforced by the FDA through its facilities inspection program. FDA
certification of manufacturing facilities for compliance with GMP requirements
is a prerequisite to approval of an NDA for the drug. These regulations
require, among other things, that each manufacturer establish a quality
assurance program by which it monitors the manufacturing process and maintains
records evidencing compliance with FDA regulations and the manufacturer's
specifications and procedures. Failure to comply with these requirements can
result in, among other consequences, warning letters, withdrawal of marketing
approvals, injunctions, recalls or seizures of products, total or partial
suspension of production, FDA refusal to approve pending NDAs or supplements
to approved NDAs, refusal to permit products to be imported or exported,
refusal to allow the Company to enter into government supply contracts or
criminal prosecution. The processes used by the Company's suppliers of bulk
drug compounds have not been validated as being in compliance with GMP
regulations.
While the Company does not currently intend to manufacture any
pharmaceutical products itself, it may choose to do so in the future. Should
the Company decide to manufacture products itself, the Company would require
substantial additional resources to build and scale-up manufacturing
facilities. In addition, the Company would be subject to the regulatory
requirements described above, would be subject to similar risks regarding
delays or difficulties encountered in manufacturing any such pharmaceutical
products and would require substantial additional capital. There can be no
assurance that the Company will be able to manufacture any such products
successfully or in a cost-effective manner. See "Business--Manufacturing."
LACK OF SALES AND MARKETING EXPERIENCE
The Company currently has limited internal marketing and no sales personnel.
In order to market one-alpha D/2/ or any other products that it may develop,
the Company will have to substantially increase its marketing staff and
establish a sales force with technical expertise and develop distribution
capability. Significant expenditures would be required in order for the
Company to establish sales, marketing and distribution capabilities.
Alternatively, the Company may rely on the marketing or co-marketing and sales
capabilities of third party collaborators. To the extent the Company enters
into marketing or distribution arrangements with others, any revenues the
Company receives will depend on the efforts of third parties. There can be no
assurance that any third party will devote sufficient resources to the
Company's products or market the Company's products successfully. There can be
no assurance that the Company will be able to establish internal sales and
distribution capabilities or that it will be able to enter into marketing
arrangements with third parties on acceptable terms, or at all, or that it
will be successful in gaining market acceptance for any products that may be
developed by the Company. The Company's failure to establish successful
marketing and sales capabilities or enter into successful marketing
arrangements with third parties would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Marketing and Distribution."
NO ASSURANCE OF MARKET ACCEPTANCE
There can be no assurance that one-alpha D/2/, or any other product
developed by the Company, will achieve market acceptance, when and if approved
by the FDA or any other regulatory agency. The degree of market acceptance
will depend upon a number of factors, including the receipt and timing of
regulatory approvals and the establishment and demonstration in the medical
community of the clinical safety, efficacy and cost-effectiveness of the
Company's products and their advantages over existing technologies and
therapies. There can be no assurance that the Company will be able to
manufacture and market successfully its products even if they perform
successfully in clinical applications. Furthermore, there can be no assurance
that physicians or the medical community in general will accept and utilize
any products that may be developed by the Company.
PRODUCT LIABILITY
The Company's business exposes it to potential liabilities inherent in
testing, manufacturing and commercializing pharmaceuticals for human use. The
Company does not have product liability insurance for
12
<PAGE>
clinical use or commercial sale of any of its potential products, and the
Company does not intend to obtain such insurance until one-alpha D/2/ is
commercialized. There can be no assurance that the Company will be able to
obtain insurance coverage at acceptable costs, or at all, or that the Company
will not experience losses due to product liability claims. A product
liability claim, product recall or other claim or claims for uninsured
liabilities or for amounts exceeding the limits of the Company's insurance
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Product Liability."
DEPENDENCE ON AND ATTRACTION AND RETENTION OF KEY PERSONNEL
The Company is highly dependent upon its ability to attract and retain
qualified scientific, technical and managerial personnel. The success of the
Company will depend in large part on the continued services of its current
President and Chief Executive Officer, Dr. Charles W. Bishop. The loss or
interruption of his services could have a material adverse effect on the
business, financial condition and results of operations of the Company. There
is intense competition for qualified scientists, technicians and managerial
personnel from numerous pharmaceutical companies, as well as from academic and
government organizations, research institutions and other entities. There can
be no assurance that the Company will be able to attract and retain such
personnel on acceptable terms. Loss of the services of, or the failure to
recruit, key scientific, technical and managerial personnel could have a
material adverse effect on the Company's research and development programs.
Furthermore, the Company's anticipated growth and expansion into areas and
activities requiring additional expertise, such as marketing, will require the
addition of new personnel. The failure to attract and retain such personnel
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Management."
CONTROL BY EXISTING SHAREHOLDERS; DEFENSIVE MEASURES; SHAREHOLDERS RIGHTS PLAN
Upon completion of the offering and based on the number of shares
outstanding at November 30, 1997, executive officers and directors of the
Company will beneficially own (including shares of Common Stock issuable
within 60 days of November 30, 1997 upon exercise of stock options)
approximately 28.7% (27.6% if the over-allotment option is exercised) of the
shares of Common Stock and, as a result, will have significant control over
the Company. This concentration of ownership may have the effect of delaying,
deferring or preventing a change in control of the Company. In addition, the
Company's Amended and Restated Articles of Incorporation, as amended (the
"Articles of Incorporation"), and By-Laws (the "By-Laws") and certain sections
of the Wisconsin Business Corporation Law ("WBCL") may be deemed to have an
anti-takeover effect and may discourage takeover attempts not first approved
by the Board of Directors (including takeovers which some shareholders may
deem to be in their best interests). These provisions could delay or frustrate
the removal of incumbent directors or the assumption of control by an
acquiror, even if such removal or assumption of control would be beneficial to
shareholders. These provisions also could discourage or make more difficult a
merger, tender offer or proxy contest, even if such events would be beneficial
to the interest of shareholders. Such provisions include, among other things,
a classified Board of Directors serving staggered three-year terms and
provisions in the WBCL which may discourage certain types of transactions
involving an actual or potential change of control of the Company. The
Company's Board of Directors also has the authority to issue up to 2,000,000
shares of Preferred Stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the
shareholders. The rights of the holders of Common Stock will be subject to,
and may be materially adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. In addition, the Board of
Directors has adopted a shareholders rights plan which may be deemed to have
an anti-takeover effect and may discourage or prevent takeover attempts not
first approved by the Board of Directors (including takeovers which certain
shareholders may deem to be in their best interests). See "Description of
Capital Stock."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock has been, and is likely to be, highly
volatile as frequently occurs with publicly traded biotechnology,
biopharmaceutical and pharmaceutical companies. Factors such as the results
13
<PAGE>
of preclinical studies and clinical trials, announcements of technological
innovations or new products by the Company or its competitors, government
regulatory action affecting the Company's or its competitors' products in both
the United States and foreign countries, developments or disputes concerning
patent or proprietary rights, changes in reimbursement policies, development
of relationships with collaborative partners, changes in the recommendation of
securities analysts with respect to the Common Stock, and market conditions
for biotechnology, biopharmaceutical or pharmaceutical companies in general,
as well as period-to-period fluctuations in the Company's financial results
may cause the market price of the Common Stock to fluctuate substantially. See
"Price Range of Common Stock."
DILUTION; NO DIVIDENDS
Upon completion of the offering, purchasers of shares of Common Stock in the
offering will incur immediate and substantial dilution of $5.985 in the per
share net tangible book value of their Common Stock. See "Dilution." The
Company has never declared or paid cash dividends on its Common Stock and does
not intend to declare or pay any cash dividends to its shareholders in the
foreseeable future. See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering and based on the number of shares
outstanding at November 30, 1997, the Company will have a total of 11,722,482
shares of Common Stock outstanding (12,172,482 shares if the over-allotment
option is exercised in full). Of these shares, 11,470,640 shares of Common
Stock, including the 3,000,000 shares of Common Stock offered hereby
(11,920,640 shares if the over-allotment option is exercised in full), will be
freely tradeable without restriction or registration under the Securities Act
by persons other than "affiliates" of the Company, as defined under the
Securities Act. The remaining 251,842 shares of Common Stock outstanding are
"restricted securities" as that term is defined by Rule 144 under the
Securities Act. All of such shares of restricted securities are currently
eligible for sale under Rule 144 (subject to the conditions thereof). The
Company has obtained from all of the executive officers and directors and
certain shareholders of the Company holding in the aggregate 3,301,674 shares
of Common Stock and exercisable options to purchase an aggregate of 88,182
shares of Common Stock, agreements not to directly or indirectly offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, establish an open put equivalent position or otherwise dispose of
any Common Stock or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock for a period of 90 days from the
date of the final Prospectus without the prior written consent of NationsBanc
Montgomery Securities LLC. See "Underwriting."
As of November 30, 1997, options to purchase a total of 537,052 shares of
Common Stock pursuant to the Company's stock option plans were outstanding at
a weighted average exercise price of $2.92 per share, of which options to
purchase 119,136 shares of Common Stock were then exercisable. An additional
574,200 shares of Common Stock were reserved for future option grants under
the 1996 Plan. The Company has an effective registration statement on Form S-8
under the Securities Act registering shares of Common Stock subject to stock
options granted under its stock option plans. See "Management--Stock Option
Plans" and "Underwriting." Sales of substantial amounts of Common Stock in the
public market, or the perception that such sales could occur, could adversely
affect the trading price of the Common Stock and could impair the Company's
future ability to raise capital through an offering of Common Stock or other
equity securities. See "Shares Eligible For Future Sale."
14
<PAGE>
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Certain statements under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this Prospectus constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 (the "Litigation Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, those described under "Risk Factors," including
the Company's early stage of development, the Company's dependence on its
ability to obtain regulatory approval of one-alpha D/2/, the uncertainty of
the Company's future profitability, the uncertainty of regulatory approvals of
any drugs developed by the Company, the uncertainty of the Company's patent
positions and proprietary rights, the uncertainty related to pricing and
reimbursement of the Company's products, the intense competition in the
pharmaceutical and biotechnology industries, the Company's potential need for
additional partners or collaborators, the Company's future capital needs and
uncertainty of additional financing, the Company's limited manufacturing
capabilities and lack of sales and marketing experience. Certain of these
factors are discussed in more detail elsewhere in this Prospectus, including,
without limitation under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Given these uncertainties, prospective investors
are cautioned not to place undue reliance on such forward-looking statements.
The Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be $23,822,500 ($27,470,875 if the over-
allotment option is exercised in full) at an assumed public offering price of
$8.625 per share after deducting the underwriting discounts and estimated
offering expenses payable by the Company.
The Company intends to use approximately $12,000,000 of the net proceeds of
the offering to fund research and development, including preclinical and
clinical activities in support of regulatory approvals and $10,000,000 for
commercialization activities for one-alpha D/2/ for treatment of secondary
hyperparathyroidism associated with ESRD. The balance of the net proceeds of
the offering are expected to be used for working capital and general corporate
purposes. These corporate purposes may include the acquisition of
complementary licenses, products, technologies or companies. The Company has
no present understandings, commitments or arrangements with respect to the
purchase of any licenses, products, technologies or companies and the amount
and timing of these expenditures will depend on numerous factors, including
the progress of the Company's research programs and its ability to attract
additional partners. Pending application of the net proceeds of the offering
as described above, the Company intends to invest such proceeds in short-term,
investment-grade, interest-bearing financial instruments.
The Company believes that the net proceeds of the offering, together with
its available cash and cash equivalents, should be sufficient to fund its
operations for at least the next 18 months. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
16
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"BCII." The Common Stock was traded on the Nasdaq SmallCap Market from May 6,
1996 to December 26, 1997. The table below sets forth for the fiscal periods
indicated the high and low sales prices per share as reported on the Nasdaq
SmallCap Market and Nasdaq National Market, as applicable.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
FISCAL YEAR ENDED JUNE 30, 1996
Fourth Quarter (May 9, 1996 through June 30, 1996)........ $ 4.50 $2.31
FISCAL YEAR ENDED JUNE 30, 1997
First Quarter............................................. $ 3.75 $3.00
Second Quarter............................................ 4.00 3.00
Third Quarter............................................. 6.63 3.63
Fourth Quarter............................................ 7.00 5.75
FISCAL YEAR ENDING JUNE 30, 1998
First Quarter............................................. $11.50 $6.50
Second Quarter............................................ 12.62 9.75
Third Quarter (through January 7, 1998)................... 10.19 7.75
</TABLE>
As of November 30, 1997, the Common Stock was held by approximately 2,100
shareholders of record or through nominee or street name accounts with
brokers. On January 7, 1998, the last reported sale price of the Common Stock
on the Nasdaq National Market was $8.625 per share.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not intend to declare or pay any cash dividends in the
foreseeable future. The Company currently intends to retain any earnings to
finance the continued development and growth of its business.
17
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1997 the actual
capitalization of the Company and the capitalization of the Company as
adjusted to reflect the sale of 3,000,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $8.625 per share
after deducting underwriting discounts and estimated offering expenses payable
by the Company. See "Use of Proceeds." This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's Consolidated Financial Statements
and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-----------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents.................................... $ 7,644 $31,467
======= =======
Total debt................................................... $ -- $ --
Shareholders' equity:
Preferred stock, $.001 par value 2,000,000 shares
authorized;
none issued and outstanding, actual and as adjusted....... -- --
Common stock, no par value, 28,000,000 shares authorized;
8,722,382 shares issued and outstanding, actual;
11,722,382 shares issued and outstanding, as adjusted(1).. 11,394 11,394
Additional paid-in capital................................. 3,556 27,379
Accumulated deficit........................................ (6,539) (6,539)
------- -------
Total shareholders' equity............................... 8,411 32,234
------- -------
Total capitalization................................... $ 8,411 $32,234
======= =======
</TABLE>
- --------
(1) Excludes as of September 30, 1997: (i) 537,152 shares of Common Stock
issuable upon the exercise of outstanding options to purchase shares of
Common Stock at a weighted average exercise price of $2.92 per share and
(ii) 574,200 shares of Common Stock reserved for future grants under the
1996 Plan. See "Management--Stock Option Plans" and "Description of
Capital Stock."
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<PAGE>
DILUTION
The net tangible book value of the Company as of September 30, 1997 was
$7,177,774, or $0.82 per share of Common Stock. Net tangible book value per
share of Common Stock is determined by dividing the net tangible book value
(total tangible assets less total liabilities) by the 8,722,382 shares of
Common Stock outstanding as of such date. After giving effect to the sale of
3,000,000 shares of Common Stock offered hereby at an assumed public offering
price of $8.625 per share, and after deducting the underwriting discounts and
estimated offering expenses payable by the Company, the pro forma net tangible
book value of the Company as of September 30, 1997 would have been
approximately $31,000,274, or $2.64 per share. This represents an immediate
increase in net tangible book value of $1.82 per share to existing
shareholders and an immediate dilution of $5.985 per share to purchasers of
Common Stock in the offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price.................................. $8.625
Net tangible book value before offering...................... $0.82
Increase attributable to new investors....................... 1.82
-----
Pro forma net tangible book value after offering............... 2.64
------
Dilution to new investors...................................... $5.985
======
</TABLE>
If the over-allotment option is exercised in full after giving effect to the
offering, the increase in net tangible book value per share attributable to
new investors would be $2.03 per share, the pro forma net tangible book value
per share after the offering would be $2.85 per share and the dilution to new
investors would be $5.775 per share.
The above calculations exclude as of September 30, 1997: (i) 537,152 shares
of Common Stock issuable upon the exercise of outstanding options to purchase
shares of Common Stock at a weighted average exercise price of $2.92 per share
and (ii) 574,200 shares of Common Stock reserved for future grants under the
1996 Plan. See "Management--Stock Option Plans" and "Description of Capital
Stock."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto included elsewhere in
this Prospectus. The consolidated statements of operations data set forth
below for each of the years ended June 30, 1995, 1996 and 1997 and the
consolidated balance sheet data as of June 30, 1996 and 1997 are derived from,
and are qualified by reference to, the audited Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus and should
be read in conjunction with those Consolidated Financial Statements and Notes.
The consolidated statements of operations data for each of the years ended
June 30, 1993 and 1994 and the consolidated balance sheet data as of June 30,
1993, 1994 and 1995 are derived from audited Consolidated Financial Statements
of the Company not included herein. The consolidated statements of operations
data for the three-month periods ended September 30, 1996 and 1997, and the
consolidated balance sheet data as of September 30, 1997 are derived from, and
are qualified by reference to, the unaudited interim Consolidated Financial
Statements of the Company included elsewhere in this Prospectus, and should be
read in conjunction with the Consolidated Financial Statements and Notes
thereto. See "Bone Care International, Inc. Index to Financial Statements."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
---------------------------------------- ---------------
1993 1994 1995 1996 1997 1996 1997
------ ------ ------ ------- ------- ------ -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Revenues............... $ 826 $ -- $ 15 $ 19 $ 39 $ 1 $ --
Operating expenses:
Cost of sales.......... 158 -- -- 12 38 4 --
Research and
development........... 426 329 535 1,158 2,885 369 1,002
General and
administrative........ 226 165 172 197 439 68 117
------ ------ ------ ------- ------- ------ -------
Total operating
expenses............ 810 494 707 1,367 3,362 441 1,119
------ ------ ------ ------- ------- ------ -------
Income (loss) from
operations............ 16 (494) (692) (1,348) (3,323) (440) (1,119)
Other income (expense),
net................... 22 9 (7) 90 529 144 111
Income tax expense..... (38) -- -- -- -- -- --
------ ------ ------ ------- ------- ------ -------
Net loss (1)........... $ -- $ (485) $ (699) $(1,258) $(2,794) $ (296) $(1,008)
====== ====== ====== ======= ======= ====== =======
Net loss per common
share (1)............. $ -- $(0.29) $(0.41) $ (0.26) $ (0.32) $(0.03) $ (0.12)
====== ====== ====== ======= ======= ====== =======
Weighted average common
shares outstanding
(1)................... 1,698 1,698 1,698 4,894 8,713 8,707 8,722
====== ====== ====== ======= ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997
------ ------ ------- ------- ------- -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Cash and cash
equivalents........... $ 586 $ 200 $ 23 $11,061 $ 8,532 $ 7,644
Working capital........ 584 198 (427) 11,004 8,103 7,059
Total assets........... 1,771 1,280 1,029 12,261 9,900 9,111
Total long-term
liabilities........... -- -- -- -- -- --
Accumulated deficit.... (294) (779) (1,478) (2,736) (5,530) (6,539)
Total shareholders'
equity................ 1,743 1,258 559 12,182 9,420 8,411
</TABLE>
- --------
(1) See Note 1 to Notes to Consolidated Financial Statements for an
explanation of the computation of net loss and net loss per common share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion below contains certain forward-looking statements that are
based on the beliefs of the Company's management, as well as assumptions made
by, and information currently available to, the Company's management. The
Company's future results, performance or achievements could differ materially
from those expressed in, or implied by, any such forward-looking statements.
See "Risk Factors" for a discussion of factors that could cause or contribute
to such material differences. The following presentation of Management's
Discussion and Analysis of Financial Condition and Results of Operations
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus and any
other financial information included therein.
OVERVIEW
The Company is a leader in the discovery and development of improved D-
hormone therapies. D-hormones have a key role in secondary hyperparathyroidism
leading to metabolic bone diseases in several patient populations, including
ESRD, pre-dialysis and osteoporosis patients. D-hormones also have a role in
certain hyperproliferative diseases, including prostate, breast and colon
cancers, and psoriasis. Through the Company's collaborations with leading D-
hormone research institutions, as well as the Company's internal research and
development efforts, the Company has developed substantial expertise in the
area of D-hormone chemistry. The Company has leveraged that expertise to
develop a portfolio of D-hormones and analogs which the Company believes
possess improved safety and efficacy profiles compared to existing D-hormone
therapies.
The Company was formed in 1984 as a wholly-owned subsidiary of Lunar
Corporation ("Lunar"). In October 1995, Lunar exchanged all of its assets
related to D-hormone research and product candidates and its ownership in
Continental Assays Corporation (a subsidiary having expertise in analytical
chemistry related to D-hormones) for additional shares of Common Stock. In
April 1996, the Board of Directors of Lunar declared a dividend of one share
of Common Stock for every two shares of Lunar common stock, thereby
distributing all of the Common Stock of the Company then held by Lunar to the
shareholders of Lunar. In May 1996, the Company became a separate, publicly
held corporation upon the distribution of the dividend (the "Distribution").
Since its inception, the Company has been engaged in research and
development activities, has generated minimal revenues from operations and has
incurred significant operating losses. At September 30, 1997, the Company had
an accumulated deficit of approximately $6.5 million. Such losses have
resulted principally from costs incurred in research and development,
preclinical and clinical activities and from general and administrative costs
associated with the Company's operations. The Company expects that operating
losses will continue and increase for the foreseeable future as its research
and development, preclinical, clinical and marketing activities expand. The
Company's results may vary significantly from period to period depending on
several factors, such as the timing of certain expenses and the progress of
the Company's research and development efforts.
The Company is at an early stage of development and currently has no
revenues from product sales. The Company does not have regulatory approval
from the FDA or foreign regulatory authorities to market any product. All of
the Company's product candidates, other than one-alpha D/2/ for the treatment
of secondary hyperparathyroidism associated with ESRD, are at an early stage
of development and will require extensive research and development and
preclinical and clinical testing prior to commercialization. The Company's
ability to achieve profitability will depend in part on its ability to obtain
regulatory approvals for its product candidates and successfully manufacture
and market any approved products either by itself or in collaboration with
third parties. There can be no assurance as to when the Company will achieve
profitability, or that profitability, if achieved, will be sustained.
21
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
Research and development expenses increased to $1,002,517 in the three
months ended September 30, 1997 from $369,364 in the three months ended
September 30, 1996. The increase is primarily due to higher expenditures for
clinical trials of one-alpha D/2/ for treating secondary hyperparathyroidism
associated with ESRD. General and administrative expenses increased by $49,407
to $117,300 in the three months ended September 30, 1997 from $67,893 in the
three months ended September 30, 1996. Such increases were incurred to support
expanded research and development activities. Interest income decreased to
$111,339 in the three months ended September 30, 1997 from $144,515 in the
three months ended September 30, 1996. This decrease is due to lower invested
cash balances.
FISCAL YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1996
The Company's D-hormone-related research and development expenses totaled
$2,885,127 in fiscal 1997 compared to $1,157,914 in fiscal year 1996. The
increase is due primarily to higher expenditures on one-alpha D/2/ clinical
trials for secondary hyperparathyroidism associated with ESRD. This increase
is also due in part to the Company assuming research and development expenses
for D-hormone analogs contributed by Lunar in October 1995. General and
administrative expenses increased $242,461 to $438,831 in fiscal 1997 from
$196,370 in fiscal 1996. The increase was incurred to support expanded
research and development activities. Interest income increased by $425,182 to
$528,492 in fiscal 1997 compared to $103,310 in fiscal year 1996. The increase
is primarily the result of interest earned on capital contributions made in
fiscal 1996 by Lunar and Draxis Health Care, Inc., ("Draxis") the Company's
shareholders at the time of the contributions. No interest expense was
incurred in fiscal 1997 compared to $13,495 in fiscal 1996 due to the
cancellation of loans from Lunar to the Company during fiscal 1996. The
Company reported a net loss of $2,794,345 in fiscal 1997 compared to a net
loss of $1,257,767 in fiscal 1996. The increase in the net loss is
attributable to increased expenses associated with expanded research and
development activities offset by increased interest income.
FISCAL YEARS ENDED JUNE 30, 1996 AND JUNE 30, 1995
The Company's D-hormone related research and development expenses totaled
$1,157,914 in fiscal year 1996 compared to $535,195 in fiscal year 1995. The
increase is due primarily to higher expenditures on one-alpha D/2/ clinical
trials for secondary hyperparathyroidism associated with ESRD. General and
administrative expenses increased to $196,370 in fiscal 1996 from $171,788 in
fiscal 1995. Interest expense was $13,495 in fiscal year 1996 compared to
$9,344 fiscal year 1995. Interest expense during these periods relates
exclusively to loans made by Lunar to the Company. Interest income was
$103,310 in fiscal year 1996 and $2,588 in fiscal year 1995. The increase is
primarily the result of interest earned on capital contributions. In October
1995, in exchange for additional shares of Common Stock, Lunar canceled
outstanding loans of $634,683. The Company reported a net loss of $1,257,767
in fiscal 1996 compared to a net loss of $698,739 in fiscal 1995. The increase
in the net loss is attributable to increased expenses associated with expanded
research and development activities offset by increased interest income.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through a combination
of capital contributions and collaborative licensing and research agreements.
In fiscal 1996 the Company received capital contributions of $10,000,000 and
$60,000 from Lunar and Draxis, respectively. Additionally, Lunar reimbursed an
advance from the Company in the amount of $634,683 for general advances and
$725,000 for tax benefits prior to the Distribution. Since inception through
1993 the Company received $4,700,000 for various licensing and research
agreements relating to one-alpha D/2/. All of those third party collaborative
research and licensing agreements have either expired or been terminated.
Net cash used in operating activities increased to $2,191,262 for fiscal
year 1997 from $1,111,536 in fiscal 1996. The increase was due primarily to
increased research and development activities, including clinical trials of
one-alpha D/2/ and preclinical development of other D-hormones.
22
<PAGE>
Cash and cash equivalents were $7,644,033 and $8,531,714 at September 30,
1997 and June 30, 1997, respectively. The decrease in cash and cash
equivalents is primarily due to expenditures related to research and
development activities, including clinical trials of one-alpha D/2/ and
preclinical development of other D-hormones. Cash and cash equivalents are
currently invested primarily in a government securities money market fund.
The Company will require substantial funds after the offering for its
research and development programs, preclinical and clinical testing, operating
expenses, regulatory processes and manufacturing and marketing programs. The
Company's capital requirements will depend on numerous factors, including the
progress of its 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 any patent
claims and other intellectual property rights; competing technological and
market developments; changes and developments in the Company's existing
licensing relationships and the terms of any new collaborative, licensing, co-
promotion or distribution arrangements that the Company may establish; the
progress of commercialization and marketing activities; the cost of
manufacturing preclinical and clinical products; and other factors not within
the Company's control. The Company believes that the net proceeds of the
offering, together with its available cash and cash equivalents, should be
sufficient to fund its operations for at least the next eighteen months. See
"Risk Factors--Future Capital Needs and Uncertainty of Additional Financing."
At September 30, 1997, the Company had state tax net operating loss
carryforwards of approximately $5,746,000 and state research and development
tax credit carryforwards of approximately $88,000, which will begin expiring
in 2009 and federal net operating loss carryforwards of approximately
$3,938,000 and research and development tax credit carryforwards of
approximately $229,000, which will begin expiring in 2012. During the period
from June 30, 1990 to May 8, 1996, Lunar realized certain federal income tax
savings that were attributable to losses incurred by the Company. As part of a
tax disaffiliation agreement, Lunar paid the Company $725,000 for the benefit
of these tax savings.
23
<PAGE>
BUSINESS
GENERAL
The Company is a leader in the discovery and development of improved D-
hormone therapies. D-hormones have a key role in secondary hyperparathyroidism
leading to metabolic bone diseases in several patient populations, including
ESRD, pre-dialysis and osteoporosis patients. D-hormones also have a role in
certain hyperproliferative diseases, including prostate, breast and colon
cancers, and psoriasis. In November 1997, the Company announced results from
its two pivotal Phase 3 trials for an oral formulation of its lead product
candidate, one-alpha D/2/, a synthetic D-hormone analog for the treatment of
secondary hyperparathyroidism associated with ESRD. The trials, which were
completed in August 1997, involved 124 patients at 16 study centers in the
United States. In these trials, oral one-alpha D/2/ effectively controlled
moderate to severe secondary hyperparathyroidism with no clinically meaningful
side effects in ESRD patients undergoing hemodialysis. Based on the results of
these trials, the Company intends to file an NDA with the FDA in the first
quarter of 1998 for oral one-alpha D/2/ as a treatment for secondary
hyperparathyroidism associated with ESRD.
In July 1997, the Company initiated two pivotal Phase 3 trials for an
intravenous formulation of one-alpha D/2/ for the treatment of secondary
hyperparathyroidism associated with ESRD. Preliminary data currently available
from these trials are consistent with the results obtained from the completed
Phase 3 trials for oral one-alpha D/2/. Upon successful completion of these
trials, the Company intends to seek regulatory approval from the FDA for
intravenous one-alpha D/2/. In October 1997, the Company began recruiting
patients for two pivotal Phase 3 trials of oral one-alpha D/2/ for the
treatment of secondary hyperparathyroidism in pre-dialysis patients. The
Company is also planning to conduct Phase 2 trials for the use of oral one-
alpha D/2/ for the treatment of osteoporosis associated with secondary
hyperparathyroidism.
Secondary hyperparathyroidism is a chronic disease where the parathyroid
glands secrete excessive quantities of PTH in response to reduced kidney
function or kidney failure. Secondary hyperparathyroidism, if left untreated,
leads to debilitating metabolic bone diseases, including osteoporosis,
osteomalacia, rickets and renal osteodystrophy, as well as increased risk of
fractures and severe bone pain. Moderate to severe secondary
hyperparathyroidism is associated with advanced renal insufficiency and ESRD
found in pre-dialysis and dialysis patients. Mild secondary
hyperparathyroidism is associated with modest reductions in renal function
often found in osteoporosis patients. According to HCFA, in 1996, there were
approximately 214,000 ESRD patients in the United States. In addition, based
on published reports, the Company estimates that in the United States in 1996
there were at least 600,000 pre-dialysis patients and at least 2,000,000
patients with osteoporosis associated with secondary hyperparathyroidism.
Based on the role of D-hormones in controlling cellular growth and
differentiation, the Company is also developing D-hormone therapies to treat
certain hyperproliferative diseases. The Company is currently conducting a
Phase 1 trial of oral one-alpha D/2/ to treat terminal prostate cancer. The
Company is also investigating the use of other D-hormones and analogs for the
treatment of prostate, breast and colon cancers, and psoriasis.
Although currently marketed D-hormone therapies have demonstrated efficacy
in treating secondary hyperparathyroidism and certain hyperproliferative
diseases, the systemic administration of those products frequently produces
toxic side effects at doses required for therapeutic effect. As a result, the
widespread and effective use of systemic D-hormone therapies has been limited.
Through the Company's collaborations with D-hormone research institutions, as
well as the Company's internal research and development efforts, the Company
has developed substantial expertise in the area of D-hormone chemistry. The
Company has leveraged that expertise to develop a portfolio of D-hormones and
analogs which the Company believes possess improved safety and efficacy
profiles compared to existing D-hormone therapies.
24
<PAGE>
SCIENTIFIC OVERVIEW
D-hormones have important roles in parathyroid function, calcium and
phosphorus metabolism, and cellular growth and differentiation. D-hormones are
produced in biological processes primarily involving vitamin D/3/ or vitamin
D/2/. Vitamin D/3/ is produced in human skin during exposure to sunlight.
Vitamin D/2/ is produced in plants during exposure to sunlight and is
available through dietary sources. Vitamins D/3/ and D/2/ (collectively
referred to as "vitamin D") are metabolized into three different D-hormones in
two sequential steps involving the liver and then the kidneys. Vitamin D/3/ is
metabolized into the D-hormone one-alpha,25-dihydroxyvitamin D/3/
("calcitriol"). Vitamin D/2/ is metabolized into the two D-hormones, one-
alpha,25-dihydroxyvitamin D/2/ and one-alpha,24-dihydroxyvitamin D/2/. In
diseased or aged kidneys, sufficient quantities of D-hormones often cannot be
produced.
Production of D-hormones by the kidneys is stimulated by PTH, which is
secreted into the bloodstream by the parathyroid glands. D-hormone receptors
located in the parathyroid glands monitor blood levels of D-hormones. The
parathyroid glands increase PTH secretion markedly when blood levels of D-
hormones are low and decrease PTH secretion as blood levels of D-hormones
rise. After secretion from the parathyroid glands, PTH circulates in the blood
to the kidneys where it activates an enzyme which produces D-hormones.
D-hormones increase blood levels of calcium and phosphorus, the key
components of bone, by stimulating the small intestine to absorb these
minerals from ingested food and by stimulating the kidneys to reabsorb calcium
from urine. D-hormones also stimulate osteoblasts (bone-building cells) to
increase the deposition of calcium and phosphorous in bone. When blood levels
of D-hormones are low, intestinal absorption of calcium and phosphorus and
kidney reabsorption of calcium are reduced. Bone formation is also reduced.
PTH normalizes blood levels of calcium and phosphorus and bone formation by
stimulating the increase of D-hormone production. However, when D-hormone
production is insufficient, as in renal disease, PTH normalizes blood calcium
and phosphorus by causing the release of calcium and phosphorus from bone into
the blood.
In progressive renal disease, the kidneys become unable to produce
sufficient quantities of D-hormones, leading to secondary hyperparathyroidism
and associated bone disease. Secondary hyperparathyroidism is a chronic
disease in which the parathyroid glands secrete excessive quantities of PTH.
Elevated blood levels of PTH lead to excessive release of calcium and
phosphorus from bones, causing debilitating metabolic bone diseases, such as
osteoporosis, osteomalacia, rickets and renal osteodystrophy. A recent
published report concluded that, compared to the general population, the risk
of hip fracture is 3.5 times higher in the United States population of ESRD
patients. Secondary hyperparathyroidism and associated bone disease can be
controlled, and possibly prevented or reversed, by D-hormone replacement
therapy.
In addition to having a role in parathyroid function, D-hormones have a role
in controlling the normal growth and differentiation of skin, prostate,
breast, and colon cells, all of which contain D-hormone receptors. Psoriasis,
a condition in which skin cells grow too rapidly and remain immature
(undifferentiated), can be effectively managed with topical D-hormone therapy.
Likewise, clinical and preclinical research suggests that the uncontrolled
cell growth in prostate, breast and colon cancers can be managed by D-hormone
therapy.
Calcitriol is approved for systemic treatment of secondary
hyperparathyroidism associated with ESRD and/or metabolic bone diseases in the
United States and Europe. Alfacalcidol, a synthetic analog of calcitriol, is
approved for oral treatment of secondary hyperparathyroidism associated with
ESRD and/or metabolic bone diseases in Europe. Calcitriol and two synthetic
analogs, tacalcitol and calcipotriol, are approved in Europe for the topical
treatment of psoriasis. In addition, calcipotriol has been approved for
topical treatment of psoriasis in the United States.
Although currently marketed D-hormone replacement therapies have
demonstrated efficacy, systemically administered D-hormone replacement
therapies frequently cause toxic side effects at doses required for
therapeutic effects. The principal side effects observed are hypercalcemia,
hyperphosphatemia and hypercalciuria, all of which are caused by excessive
intestinal absorption of calcium and phosphorus. The most
25
<PAGE>
serious of these side effects is hypercalcemia (high blood calcium), which
increases the risk of calcification of soft tissues, including the heart,
arteries, and kidneys, and can cause cardiac arrest. In addition,
hypercalcemia can lead to other complications including gastrointestinal
problems and mental disorders including depression. Hyperphosphatemia (high
blood phosphorus) directly stimulates secretion of PTH, thereby exacerbating
secondary hyperparathyroidism. Hypercalciuria (high urine calcium) can
increase the risk of calcification of the kidneys and the formation of kidney
stones, and can hasten kidney failure. In order to control these side effects,
patients often must be temporarily or permanently withdrawn from current D-
hormone therapies. As a result of these side effects, the widespread and
effective use of currently marketed oral or intravenous D-hormone therapies
has been limited.
PRODUCTS UNDER DEVELOPMENT
The Company is developing D-hormone therapies which the Company believes
have improved safety and efficacy profiles. The following table summarizes the
Company's product candidates by indication and development status.
<TABLE>
<CAPTION>
INDICATION PRODUCT CANDIDATE DEVELOPMENT STATUS(1)
----------------------------- ---------------------------- ----------------------
<S> <C> <C>
Secondary Hyperparathyroidism
ESRD One-alpha D/2/ (oral) Phase 3 completed
(NDA filing intended
first quarter of
1998)
One-alpha D/2/ (intravenous) Phase 3
Pre-dialysis One-alpha D/2/ (oral) Phase 3
Osteoporosis One-alpha D/2/ (oral) Phase 2
Hyperproliferative Diseases
Advanced Prostate Cancer One-alpha D/2/ (oral) Phase 1
Advanced Prostate, Breast LR-103 Preclinical
and Colon Cancers
Psoriasis Lead compound Research
</TABLE>
- --------
(1) "Research" indicates discovery and initial synthetic chemistry.
"Preclinical" indicates formulation, pharmacology and toxicity testing in
animals.
"Phase 1" indicates initial clinical testing in humans to establish safety.
"Phase 2" indicates further clinical testing in humans to establish
efficacy.
"Phase 3" indicates pivotal, well-controlled clinical testing to establish
safety and efficacy.
SECONDARY HYPERPARATHYROIDISM
Overview
Hyperparathyroidism refers to conditions in which the parathyroid glands
secrete excessive quantities of PTH into the bloodstream. In primary
hyperparathyroidism, one or more of the four parathyroid glands fails to
properly regulate PTH secretion, usually due to one or more tumors in the
glands. In secondary hyperparathyroidism, the parathyroid glands secrete
excessive quantities of PTH in response to reduced kidney function or kidney
failure. Mild secondary hyperparathyroidism is associated with modest
reductions in renal function and contributes to osteoporosis. Moderate to
severe secondary hyperparathyroidism is associated with advanced renal
insufficiency and ESRD which are found in pre-dialysis and dialysis patients.
26
<PAGE>
One-alpha D/2/ for Secondary Hyperparathyroidism Associated with ESRD
The Company is developing oral and intravenous formulations of one-alpha
D/2/ as treatments for secondary hyperparathyroidism associated with ESRD.
One-alpha D/2/ is a synthetic D-hormone analog derived from vitamin D/2/.
After oral or intravenous administration, one-alpha D/2/ is metabolized by the
liver into the two D-hormones naturally produced from vitamin D/2/, without
being metabolized by the kidneys. Based on data obtained from its clinical
trials, the Company believes that one-alpha D/2/ is as active as currently
marketed D-hormone replacement therapies and has an improved safety profile.
The Company believes that the improved safety profile of one-alpha D/2/
enables it to be more consistently administered to patients at higher doses
than currently marketed D-hormone replacement therapies, resulting in improved
control of secondary hyperparathyroidism.
Secondary hyperparathyroidism is most severe in patients with ESRD.
According to HCFA, there were approximately 214,000 ESRD patients in the
United States at the end of 1996. This patient population, sustained primarily
by renal dialysis, increased by approximately 7% in 1996. In ESRD there is
extensive, irreversible loss of cells of the proximal nephron, the site in the
kidneys where D-hormones are produced. Impaired production of D-hormones leads
to low blood levels of D-hormones. Low blood levels of D-hormones cause the
small intestine to absorb less dietary calcium and the kidneys to reabsorb
less calcium from urine, often resulting in hypocalcemia (low blood calcium).
Low blood levels of D-hormones also decrease osteoblastic activity, causing
reduced bone formation. The parathyroid glands respond to low blood levels of
D-hormones and calcium by secreting PTH into the bloodstream. Ordinarily, PTH
stimulates production of D-hormones by the kidneys. However, in ESRD the
kidneys cannot respond to PTH stimulation. Without increased D-hormone
production, the parathyroid glands secrete escalating quantities of PTH.
Chronically elevated and rising blood levels of PTH stimulate a prolonged
release of calcium and phosphorus from bone, leading to debilitating metabolic
bone diseases, including osteoporosis, osteomalacia, rickets and renal
osteodystrophy. Advanced bone disease is associated with an increased risk of
fracture and is often accompanied by severe bone pain, most commonly arising
in the lower back, hips, legs and joints.
[A FLOW CHART DEPICTING THE METABOLIC PROCESSES INVOLVED IN SECONDARY
HYPERPARATHYROIDISM ASSOCIATED WITH RENAL DYSFUNCTION]
Moderate to severe secondary hyperparathyroidism is exacerbated by
hyperphosphatemia. Phosphorus derived from dietary sources (principally meat
and dairy products) accumulates in the blood due to its insufficient
elimination by dysfunctional kidneys. Excessive blood phosphorus directly
inhibits the production of D-hormones and stimulates the parathyroid glands to
secrete PTH. To control or reduce blood phosphorus, nephrologists routinely
encourage their patients to adhere to low phosphorus diets and to ingest
calcium carbonate or calcium acetate tablets with meals. These calcium
preparations bind dietary phosphorus, reducing its absorption by the intestine
and thereby helping to lower blood phosphorus levels. Calcium-based phosphate
binders, however, promote hypercalcemia in patients receiving D-hormone
replacement therapies.
27
<PAGE>
D-hormone replacement is standard therapy for secondary hyperparathyroidism
associated with ESRD. The goals of D-hormone replacement therapy are (1) to
normalize blood calcium levels, (2) to control (normalize or reduce) blood PTH
levels and (3) to treat or prevent metabolic bone diseases. Treating and
preventing metabolic bone diseases is increasingly important as improvements
in kidney dialysis increase the life expectancy of ESRD patients. D-hormone
replacement therapies currently marketed in the United States and Europe for
the treatment of secondary hyperparathyroidism associated with ESRD are
Rocaltrol (oral calcitriol) and Calcijex (intravenous calcitriol).
Alfacalcidol, an oral synthetic analog of calcitriol, is marketed under
numerous brand names in Europe. The Company estimates that total sales of
these products in the United States in the first nine months of 1997 were
approximately $109 million.
Oral and intravenous calcitriol and oral alfacalcidol have limited
effectiveness for treating secondary hyperparathyroidism associated with ESRD
because they frequently cause toxic side effects (hypercalcemia and
hyperphosphatemia) at doses required for therapeutic effect. Episodes of
hypercalcemia and/or hyperphosphatemia are unpredictable and force temporary
or permanent interruptions in therapy, resulting in less effective control of
PTH secretion. Furthermore, in an effort to control blood phosphorus and
reduce episodes of hyperphosphatemia, calcium-based phosphate binders are
often administered at higher doses. However, calcitriol and alfacalcidol
greatly stimulate intestinal absorption of calcium derived from those binders,
increasing blood calcium levels and the frequency of episodes of
hypercalcemia. In an attempt to mitigate the negative effects of calcium-based
binders, nephrologists temporarily switch their patients from calcium-based
binders to aluminum-based binders. However, aluminum from these alternate
binders is readily absorbed through the intestine and accumulates in bone,
potentially causing low turnover bone disease. When calcitriol and
alfacalcidol are administered in lower, less toxic doses, their effectiveness
in controlling secondary hyperparathyroidism decreases. Removal of the
parathyroid glands is standard treatment for patients with severe secondary
hyperparathyroidism whose disease cannot be managed with D-hormone replacement
therapy. However, removal of the parathyroid glands does not cure existing
metabolic bone disease or the underlying deficiency of D-hormones.
The Company is developing oral and intravenous formulations of one-alpha
D/2/ as treatments for secondary hyperparathyroidism associated with ESRD. The
oral product is a soft gelatin capsule designed to be administered by medical
professionals to hemodialysis patients in the clinic, or self-administered
daily by peritoneal dialysis patients at home. The Company's intravenous
product is a sterile aqueous solution designed to be administered to patients
only at hemodialysis. The Company is developing the oral formulation in
advance of the intravenous formulation based primarily on the Company's
expectation that the current fee-for-service reimbursement plan, which favors
the use of intravenous one-alpha D/2/, will be replaced with a capitated
reimbursement plan which favors the less costly oral one-alpha D/2/. Further,
the Company is developing oral one-alpha D/2/ to treat secondary
hyperparathyroidism in pre-dialysis and osteoporosis patients where
intravenous therapy is inappropriate. See "Risk Factors--Uncertainty Related
to Pricing and Reimbursement of Products."
Oral One-alpha D/2/ for Secondary Hyperparathyroidism Associated with ESRD.
In November 1997, the Company announced results from its two pivotal Phase 3
trials for oral one-alpha D/2/ for the treatment of secondary
hyperparathyroidism associated with ESRD. The trials, which were completed in
August 1997, involved 124 patients at 16 study centers in the United States.
Each trial consisted of an 8-week washout period, followed sequentially by a
16-week period in which patients received open-label treatment with oral one-
alpha D/2/ at hemodialysis, and an 8-week period in which the patients were
assigned in random, double-blinded fashion, to continued treatment with either
oral one-alpha D/2/ or placebo. The study endpoint for efficacy was the
observed change in blood PTH levels from post-washout baseline to the end of
each treatment period. Endpoints for safety were the corresponding changes in
blood levels of calcium and phosphorus. A total of 124 patients initially
receiving 10 mcg per hemodialysis and thereafter 0 mcg 20 mcg per dose three
times per week began treatment with oral one-alpha D/2/, of whom 110 completed
the full 24 weeks of treatment. Dosages were individually titrated. After 16
weeks of open-label treatment, observed blood PTH reductions exceeded 50% in
both trials and were clinically and statistically significant (p<0.01). In
addition, blood PTH reached target levels in 83% of treated patients during
the 16-week open-label treatment period. At the end of the eight additional
weeks of blinded treatment, patients receiving oral one-alpha D/2/ had mean
blood PTH levels approximately 50% below
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those receiving placebo. Differences in mean blood PTH levels between oral one-
alpha D/2/ and placebo treatments were clinically and statistically significant
(p<0.01). In both studies, oral one-alpha D/2/ normalized blood calcium and did
not increase blood phosphorus. Side effects attributable to oral one-alpha D/2/
administration, such as hypercalcemia and hyperphosphatemia, were infrequent
and clinically insignificant. The Company believes these trials demonstrated
that oral one-alpha D/2/ is a safe and effective therapy for secondary
hyperparathyroidism associated with ESRD and that the results compare favorably
with efficacy and safety data reported in published controlled trials involving
calcitriol and alfacalcidol. The Company intends to file an NDA with the FDA in
the first quarter of 1998 for oral one-alpha D/2/ as a treatment for secondary
hyperparathyroidism associated with ESRD. There can be no assurance that the
NDA will be filed on a timely basis or that oral one-alpha D/2/ will ultimately
be approved for marketing by the FDA for such indication. See "Risk Factors--
Dependence on One-alpha D/2/" and "--Government Regulation; No Assurance of
Regulatory Approval."
Intravenous One-alpha D/2/ for Secondary Hyperparathyroidism Associated with
ESRD. In July 1997, the Company extended its trials of one-alpha D/2/ and
initiated two pivotal Phase 3 trials for intravenous one-alpha D/2/ for the
treatment of secondary hyperparathyroidism associated with ESRD. Each trial
consists of an 8-week washout period, followed by a 12-week period in which
patients receive open-label treatment with intravenous one-alpha D/2/ at
hemodialysis. The study endpoint for efficacy is the observed change in blood
PTH levels from post-washout baseline to the end of the treatment period.
Endpoints for safety are the corresponding changes in blood levels of calcium
and phosphorus. These trials, which involve 70 patients who completed the Phase
3 trials for oral one-alpha D/2/, are fully enrolled and 26 patients had
completed the full 12 weeks of treatment as of December 15, 1997. Preliminary
data currently available from these trials are consistent with the results
obtained from the completed Phase 3 trials for oral one-alpha D/2/. Upon
completion of these trials, the Company intends to seek regulatory approval
from the FDA for intravenous one-alpha D/2/ as a treatment for secondary
hyperparathyroidism associated with ESRD. There can be no assurance that
intravenous one-alpha D/2/ will ultimately be approved for marketing by the FDA
for such indication. See "Risk Factors--Dependence on One-alpha D/2/" and "--
Government Regulation; No Assurance of Regulatory Approval."
One-alpha D/2/ for Secondary Hyperparathyroidism in Pre-Dialysis Patients
The Company is developing oral one-alpha D/2/ as a treatment for secondary
hyperparathyroidism in pre-dialysis patients. Chronic renal disease is
characterized by progressive reductions in kidney function leading eventually
to kidney failure and the need for dialysis. Secondary hyperparathyroidism
begins to develop in patients with modest reductions in kidney function and
becomes more severe in proportion to the degree of renal insufficiency. Based
on the second National Health Nutrition Examination Survey, it has been
projected that there were at least 600,000 "pre-dialysis" patients in the
United States in 1990. These patients are at risk of developing associated
metabolic bone diseases and would benefit from D-hormone replacement therapy.
However, there are currently no FDA-approved D-hormone replacement therapies
for secondary hyperparathyroidism in pre-dialysis patients in the United
States. Off-label use of intravenous calcitriol is inappropriate for use in
pre-dialysis patients because its administration requires painful daily
percutaneous injections at home without medical supervision. Off-label use of
oral calcitriol, as well as oral alfacalcidol, at doses required for
therapeutic effect, frequently causes hypercalcemia and hypercalciuria which
can calcify the soft tissue of the kidneys and hasten kidney failure. As a
result, pre-dialysis patients are seldom treated for secondary
hyperparathyroidism.
There is evidence from published clinical research suggesting that early
intervention with D-hormone replacement therapy can slow the progression of
secondary hyperparathyroidism in pre-dialysis patients. In untreated patients,
the parathyroid glands become progressively enlarged, causing further increases
in PTH secretion and requiring higher doses of D-hormone replacement therapies
for effective control. Sufficiently high doses of currently marketed D-hormone
replacement therapies often cannot be administered due to dose-limiting side
effects.
Based on the Company's clinical experience with one-alpha D/2/, in October
1997 the Company began recruiting pre-dialysis patients for two pivotal Phase 3
trials for oral one-alpha D/2/ for the treatment of secondary
hyperparathyroidism. The trials will involve up to 140 patients at several
centers in the United States. These trials will consist of an 8-week baseline
(pre-treatment) period, followed by a 24-week period in which the
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patients will be assigned in random, double-blinded fashion, to treatment with
either oral one-alpha D/2/ or placebo. The study endpoint for efficacy is the
change in blood PTH levels from baseline to the end of the treatment period.
Endpoints for safety are the corresponding changes in blood levels of calcium
and phosphorus. There can be no assurance that oral one-alpha D/2/ will prove
safe and effective in treating secondary hyperparathyroidism in pre-dialysis
patients. See "Risk Factors--Dependence on One-alpha D/2/" and "--Government
Regulation; No Assurance of Regulatory Approval."
One-alpha D/2/ for Osteoporosis Associated with Secondary Hyperparathyroidism
The Company is investigating the use of oral one-alpha D/2/ for the
treatment of osteoporosis associated with secondary hyperparathyroidism.
Osteoporosis is a metabolic bone disease generally associated with aging and
characterized by excessive loss of bone mineral, resulting in decreased bone
density over time. Demineralization weakens bone so that minor physical stress
can cause debilitating fractures, usually in the wrists, hips and spine. These
fractures often result in disfigurement, decreased mobility and, in some
cases, extensive hospitalization and chronic nursing home care. The Company
believes that there are currently at least two million patients in the United
States who have osteoporosis associated with secondary hyperparathyroidism.
Reduced blood levels of D-hormones have been documented in many elderly
patients with osteoporosis, caused by insufficient activity of the renal
enzyme which produces D-hormones. In postmenopausal women, this enzyme is
indirectly suppressed by estrogen deficiency. In elderly men and women, the
enzyme is often impaired due to age-related reductions in kidney function. As
in more severe renal insufficiency, decreased production of D-hormones
increases the risk that an individual will develop metabolic bone disease.
Decreased blood levels of D-hormones reduce intestinal calcium absorption and
bone formation, and stimulate the secretion of PTH, causing mild secondary
hyperparathyroidism. Elevated blood levels of PTH increase the rate of bone
metabolism which, with reduction in bone formation, decrease bone mass.
Prolonged loss of bone leads to osteoporosis.
A likely role for D-hormones in osteoporosis has prompted many clinical
investigations of D-hormone replacement therapies as potential osteoporosis
treatments. Controlled clinical trials conducted by third parties have
demonstrated that oral calcitriol and oral alfacalcidol increase or stabilize
bone mass and reduce fracture rates. Positive results from these clinical
trials have been the basis for approval of these therapies in Europe, Japan
and other geographic markets. However, in the United States there are
currently no FDA-approved D-hormone replacement therapies for the treatment of
osteoporosis. Trials conducted in the United States with oral calcitriol have
produced mixed results, possibly due to the substantial variation in doses of
calcitriol between study sites. Higher doses of calcitriol produced increases
in vertebral and total body bone mass, whereas lower doses showed little
effect. Lower doses were used in these trials due to the unacceptable
frequency of hypercalcemia and hypercalciuria at higher, potentially
therapeutic doses. These results suggest that D-hormone replacement therapies
with improved safety profiles may enable more consistent administration of
higher doses for improved therapeutic effects in osteoporosis associated with
secondary hyperparathyroidism.
In 1992, the Company completed a Phase 2 trial in the United States to
evaluate oral one-alpha D/2/ as a treatment for postmenopausal osteoporosis.
The trial involved 60 patients who were assigned in random, double-blinded
fashion to treatment with either oral one-alpha D/2/ or placebo for up to two
years. The study endpoints for efficacy were the observed changes in vertebral
and femoral neck bone mineral density from baseline to the end of one year or
two years of treatment. Endpoints for safety were the corresponding changes in
blood and urine calcium. Fifty-five patients completed one year of treatment
and 41 completed two years of treatment. Vertebral bone density increased with
oral one-alpha D/2/ and decreased with placebo over the two-year study, with
the difference being statistically significant (p<0.05). Similar changes were
observed in femoral neck bone mineral density with statistically significant
differences observed after 18 and 24 months of treatment (p<0.05). Overall,
side effects with oral one-alpha D/2/ were clinically insignificant and well
managed by appropriate adjustments in dose. Although observed changes in bone
mineral density in the oral one-alpha D/2/ treatment group as compared to
placebo were statistically significant, the Company and its corporate
collaborators concluded that the data from the trial did not provide a
sufficient basis for initiating pivotal Phase 3 trials with oral one-alpha
D/2/ as a treatment of postmenopausal osteoporosis. As a result of the data,
the Company and its corporate collaborators did not pursue further development
of one-alpha D/2/ for postmenopausal osteoporosis. At a later
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date, however, a subgroup analysis of the trial performed by the Company
suggested a slight improvement in bone mineral density in patients with the
higher baseline PTH levels. Based on that subgroup analysis and published
reports that D-hormones have greater efficacy in patients with secondary
hyperparathyroidism, the Company plans to initiate additional Phase 2 trials
for oral one-alpha D/2/ for the treatment of osteoporosis associated with
secondary hyperparathyroidism.
HYPERPROLIFERATIVE DISEASES
Overview
D-hormones have an important role in controlling cellular growth and
differentiation of certain prostate, breast, colon and skin cells. Although
the mechanism of action is not fully understood, D-hormones help regulate the
growth of cells derived from tissues which contain D-hormone receptors. The
Company's preliminary studies in vitro, as well as research conducted by third
parties, suggest that such cells show substantially reduced growth rates when
exposed to D-hormones and D-hormone analogs. The Company is investigating the
use of improved D-hormone therapies to treat certain hyperproliferative
diseases involving those cells, including prostate, breast, and colon cancers,
and psoriasis.
One-alpha D/2/ for Advanced Prostate Cancer
Prostate cancer is the most common solid tumor diagnosed in men in the
United States. The American Cancer Society estimates that in the United States
in 1997 approximately 209,900 men were diagnosed with prostate cancer, and
41,800 men died from prostate cancer. Although pharmacological or surgical
castration temporarily controls this disease, prostate cancer eventually
develops into androgen-independent disease, for which no therapy exists.
Calcitriol and certain D-hormone analogs have been shown in vitro to both
inhibit the growth of prostate cancer cells as well as promote permanent
changes in these cells which eliminate their characteristic uncontrolled
growth.
In November 1996, the Company initiated a Phase 1 trial of oral one-alpha
D/2/ in patients with androgen-independent prostate cancer. The ongoing trial
is designed to determine the maximum tolerable dose of oral one-alpha D/2/ by
evaluating safety endpoints such as hypercalcemia. As of December 15, 1997, a
total of 14 patients have been treated with one-alpha D/2/. The drug has been
generally well tolerated at escalating doses. Preliminary evidence of disease
stabilization has been observed in some patients.
LR-103 for Advanced Prostate, Colon and Breast Cancers
The Company is investigating the use of LR-103 for the treatment of advanced
prostate, colon and breast cancers. LR-103 is a naturally produced D-hormone
derived from vitamin D/2/, the human uses for which were discovered by the
Company. In preclinical studies, the Company has determined that LR-103 is
characterized by lower toxicity than calcitriol. The Company's research in
vitro has demonstrated that LR-103 has potent antiproliferative effects on
cells which contain D-hormone receptors, including prostate, breast and colon
cancer cells. The Company believes that LR-103 may be a promising oral therapy
for hyperproliferative diseases.
Psoriasis
The Company is investigating the use of oral D-hormones and D-hormone
analogs to treat psoriasis. Psoriasis is a chronic disease characterized by
thickened, scaly, and reddened patches of skin. According to the National
Psoriasis Foundation, psoriasis affected at least 1.2 million people in the
United States in 1996. There is currently no cure for psoriasis and current
treatments are focused on clearing the associated skin lesions for a period of
time.
Microscopic examination of psoriatic lesions reveals an increase in the
number of basal or dividing skin cells which possess D-hormone receptors.
Published reports from controlled clinical studies conducted by third parties
have shown that topically administered D-hormones and analogs which bind
strongly to D-hormone
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receptors achieved significant improvement in psoriatic lesions. Calcitriol
and two synthetic analogs of calcitriol, tacalcitol and calcipotriol, are
approved as topical treatments for psoriasis in Europe. Calcipotriol has been
approved as a topical treatment for psoriasis in the United States. There
currently are no FDA-approved D-hormone therapies for the systemic treatment
of psoriasis.
All of the Company's potential products, other than one-alpha D/2/ for
treatment of secondary hyperparathyroidism associated with ESRD are at an
early stage of development. There can be no assurance that any of the
Company's potential products will demonstrate sufficient safety and efficacy
to justify their further development. Even if the Company is able to
demonstrate safety and efficacy and complete product development, there can be
no assurance that regulatory approvals will be obtained or that any such
products can be successfully manufactured and commercialized. Any products
which may be developed from such efforts are not expected to be commercially
available for the foreseeable future. See "Risk Factors--Early Stage of
Development," "--Dependence on One-alpha D/2/" and "--Government Regulation;
No Assurance of Regulatory Approval."
MANUFACTURING
The Company currently has no manufacturing capabilities. To date, the
Company has contracted and intends to contract with third parties for the
production of bulk drug compounds and for the subsequent manufacturing and
packaging of finished drug products. The Company purchases bulk quantities of
one-alpha D/2/ from an FDA-inspected and approved supplier of bulk drug
compounds. This supplier is scaling up the GMP production of one-alpha D/2/ to
a level sufficient to support commercialization of finished drug products in
North America. The Company uses several FDA-inspected manufacturers to
produce, formulate and package one-alpha D/2/ as finished drug products
including soft-gelatin capsules suitable for oral administration and sterile
aqueous solutions suitable for intravenous administration. No assurance can be
provided that the Company will be able to obtain future supplies of one-alpha
D/2/ on favorable terms and in quantities necessary for commercialization, if
and when it receives marketing approval from the FDA. Further, no assurance
can be provided that the Company will be able to obtain other compounds or
continue to obtain production, formulation or packaging services on favorable
terms.
In addition, the Company's dependence on third parties for the manufacture
of one-alpha D/2/ or for any other products may adversely affect the Company's
profit margins and its ability to deliver products on a timely basis. The
Company may encounter significant delays in obtaining supplies from third
party manufacturers or experience interruptions in its supplies. The effects
of such delays or interruptions would be more severe if the Company relies on
a single source of supply as is presently the case for bulk one-alpha D/2/. If
the Company is unable to obtain adequate supplies of any of its products, its
business, financial condition and results of operations would be materially
adversely affected.
All contractors utilized by the Company have FDA-inspected facilities that
operate under GMP. In the event the Company were to establish its own
manufacturing facility, the Company may require additional funds and would be
required to hire and train additional personnel and comply with the extensive
GMP regulations applicable to such a facility. See "Risk Factors--Limited
Manufacturing Capabilities; Dependence on Suppliers" and "--Future Capital
Needs and Uncertainty of Additional Financing."
MARKETING AND DISTRIBUTION
The initial market identified for one-alpha D/2/, for treatment of secondary
hyperparathyroidism associated with ESRD, is a niche market in the United
States involving a limited number of large service providers who treat the
majority of patients in readily identifiable centers. According to HCFA, there
were approximately 214,000 ESRD patients in the United States in 1996.
Approximately 85% of ESRD patients receive hemodialysis treatments three times
a week at a dialysis center with the remaining 15% receiving self-administered
peritoneal dialysis treatments at home. Currently, the top five United States
hemodialysis service companies provide dialysis services to over 45% of the
entire hemodialysis patient population and operate over 50% of the dialysis
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centers in the United States. Consequently, the Company believes that the
marketing and sale of one-alpha D/2/ for treatment of secondary
hyperparathyroidism associated with ESRD in the United States could be
accomplished with approximately 30 sales and marketing personnel.
The Company currently has limited internal marketing and no sales personnel.
The Company is evaluating various marketing alternatives for one-alpha D/2/
including entering into a marketing alliance with one or more pharmaceutical
companies or establishing its own sales force. The Company currently intends
to seek one or more collaborative partners to develop, market and distribute
one-alpha D/2/ for secondary hyperparathyroidism associated with ESRD outside
the United States. The Company or any such collaborative partners would be
required to obtain regulatory approval in any country where sales would occur.
No assurance can be given that the Company will be able to market one-alpha
D/2/, if approved, on its own or find a suitable partner to develop, market
and distribute one-alpha D/2/ in the United States or internationally.
The Company intends to develop one-alpha D/2/, LR-103 and selected second-
generation D-hormone compounds for other indications. The aggregate target
population for these other indications greatly exceeds the ESRD patient
population. The Company is evaluating marketing alternatives for the
commercialization of one-alpha D/2/, LR-103 and selected second-generation D-
hormone compounds in those target populations.
To the extent the Company enters into marketing, distribution or co-
promotion arrangements with third parties, any revenue the Company receives
will depend on the efforts of such third parties. There can be no assurance
that any third party will devote significant resources to the Company's
products or market such products successfully or that any such arrangement
will be on terms favorable to the Company. The Company's failure to either
establish its own marketing capabilities or to enter into successful marketing
arrangements with third parties would have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Lack of Sales and Marketing Experience."
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused on the discovery
and development of novel D-hormones and analogs which possess improved safety
and efficacy profiles. The Company conducts the majority of its research and
development activities through its own staff and facilities. As of January 7,
1998, the Company had 18 employees engaged in research and development, four
of whom have Ph.D. degrees. The Company's research and development program
encompasses the early stages of product discovery and development through the
receipt of FDA clearance or approval, and the expansion of new product uses
and applications. The Company has assembled a team of scientists and clinical,
regulatory and quality assurance personnel with a variety of complementary
skills and experiences, and conducts a broad-based research program in its
facilities. The Company's subsidiary, Continental Assays Corporation, has
developed assay procedures for measuring the levels of blood-borne metabolites
of D-hormones. Such assays provide support to the Company's research and
development of one-alpha D/2/ and other product candidates. The Company also
employs academic institutions and independent consultants to aid in research
and the product development process.
The Company anticipates incurring significant research and development
expenses in the next few years as the Company initiates commercial sales,
continues its efforts to develop its present technologies, begins to move
other products to the clinical testing stage and identifies future products
for development. The Company's aggregate research and development expenses
totaled approximately $0.5 million, $1.2 million and $2.9 million for the
fiscal years ended June 30, 1995, 1996 and 1997, respectively.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success will depend in part on its ability to develop
patentable products and technologies and obtain patent protection for its
products and technologies both in the United States and other countries.
Composition of matter patents covering one-alpha D/2/ have expired and
cannot be renewed or extended. The Company owns United States patents covering
the use of one-alpha D/2/ for the prevention and treatment of
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secondary hyperparathyroidism and metabolic bone disease, including renal
osteodystrophy. A corresponding patent for the use of one-alpha D/2/ for the
prevention and treatment of secondary hyperparathyroidism associated with ESRD
is pending before the European Patent Office and a corresponding patent for
the use of one-alpha D/2/ for the prevention and treatment of metabolic bone
disease has been issued by the European Patent Office. Patent applications for
similar coverage are pending in other countries, including Japan. The Company
also has received a notice of allowance for a United States patent for the use
of one-alpha D/2/ and other proprietary D-hormone compounds for treating
prostate cancer. The Company has filed international counterpart patent
applications through the Patent Cooperation Treaty and has designated Europe
and other geographic markets including Japan for national filing.
The Company's issued patents and pending patent applications relating to
one-alpha D/2/ are method-of-use patents. A method-of-use patent encompasses
the use of a composition to treat a specified condition but does not encompass
the composition itself, the method of making the composition or the compound
used in the composition. A method-of-use patent provides less protection than
a composition-of-matter patent if other companies market or make the compound
for other uses because of the possibility of off-label use.
The Company has a license from WARF to practice several of WARF's process
patents for the synthesis of one-alpha D/2/. Under this license, which extends
at least through July 2, 2013 and expires upon the expiration of the last to
expire of the licensed patents, WARF has agreed not to license to other
parties the patents for the manufacture of one-alpha D/2/ for use or sale
anywhere in the world as long as the license agreement is in effect and, if
one-alpha D/2/ is being sold in the United States, the Company pays the annual
license fee. The Company also has its own patent applications pending in the
United States, before the European Patent Office and in other geographic
markets, including Japan, for methods of synthesizing one-alpha D/2/.
The Company has issued patents and has pending patent applications in other
countries relating to other D-hormones. Patents and pending applications
include claims to compositions, compounds, methods of synthesizing the
compositions and compounds, methods of use and methods of delivery of active
D-hormones and D-hormone analogs.
There can be no assurance that any of the Company's pending patent
applications will result in the issuance of patents or that competitors will
not successfully challenge the Company's patents, if issued, on the basis of
validity and/or enforceability or circumvent, attack or design around the
Company's patent position. The failure of patents to issue on pending
applications and the finding of invalidity and/or unenforceability of one of
the Company's patents could result in increased competition and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The patent positions of companies in the pharmaceutical industry are highly
uncertain, involve complex legal and factual questions. The patents of these
companies have been and continue to be the subject of litigation. In addition,
the breadth of claims allowed in such patents is unpredictable. Patent
applications in the United States are maintained in secrecy until a patent
issues, and the Company cannot be certain that others have not filed patent
applications for compounds, uses or processes covered by the Company's pending
applications or that the Company was the first to invent the compound, use or
process that is the subject of such patent applications. Competitors may have
filed applications for, or may have received patents and may obtain additional
patents and proprietary rights relating to compounds, uses, or processes that
block or compete with those of the Company. For example, the Company is aware
of a significant number of patent applications filed by and patents issued to
third parties relating to D-hormones and D-hormone analogs. There can be no
assurance that any such patents or patent applications will not have a
material adverse effect on the use, research, development, marketing and
future role of products. Should any of the Company's competitors file patent
applications in the United States that claim compounds, uses or processes also
claimed by the Company, the Company may have to participate in interference
proceedings declared by the PTO in order to determine priority of invention
and thus the right to a patent for the compounds, uses or processes in the
United States, which could result in substantial cost to the Company even if
the outcome is favorable. There can be no assurance that any patents issued to
the Company or to licensors from whom the Company has licensed rights will not
be
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challenged, invalidated, circumvented or found unenforceable, or that the
rights granted thereunder will provide proprietary protection or commercial
advantage to the Company.
In addition, the Company's product candidates or technology may give rise to
claims that they infringe on the proprietary rights of others. Litigation may
be necessary to defend against such third party claims or assert claims of
infringement, to enforce patents issued to the Company, to protect trade
secrets owned or licensed by the Company, or to determine the scope and
validity of proprietary rights of third parties. Although no third party has
asserted that the Company is infringing such third party's proprietary rights
at this time, there can be no assurance that litigation asserting such claims
will not be initiated, that the Company would prevail in such litigation or
that any license required under any such patents or rights would be made
available on terms acceptable to the Company, if at all. Any such claims
against the Company, with or without merit, as well as claims initiated by the
Company against third parties, can be time consuming and expensive to defend
or prosecute. Failure to favorably resolve such claims, either through
litigation or by obtaining necessary licenses, could result in delays in
product development or commercialization while the Company attempts to design
around such third party patents or proprietary rights, or an inability to
pursue the use, development, manufacture or sale of products.
The Company also relies on proprietary information and trade secrets. There
can be no assurance that third parties will not independently develop
equivalent or substantially equivalent proprietary information or techniques,
will not gain access to the Company's trade secrets or disclose such trade
secrets to the public or that the Company can maintain and protect unpatented
proprietary information technology. The Company requires its employees,
consultants, and advisors to execute confidentiality agreements upon the
commencement of an employment or a consulting relationship or with the
Company. There can be no assurance, however, that these agreements will
provide meaningful protection or adequate remedies for the Company's
proprietary information in the event of unauthorized use or disclosure of such
information, that the parties to such agreements will not breach such
agreements or that the Company's trade secrets will not otherwise become known
or be discovered independently by its competitors.
The USDA holds certain rights to LR-103 under a pending patent application
and has granted the Company a worldwide exclusive license to make, use and
sell products covered under the rights held by the USDA. The license expires
on the last to expire of the licensed patents. The license may be terminated
by the USDA if these products are not brought by the Company to practical
application with the benefits being made available to the public in the United
States by April 7, 2002 or under certain other limited circumstances.
The Company has granted Draxis a license to use and sell in Canada one-alpha
D/2/ for osteoporosis and other metabolic bone diseases. The Company has also
granted Draxis a license in Canada to all know-how developed by or on behalf
of the Company relating to the use of one-alpha D/2/ for those indications.
See "Risk Factors--Uncertainty of Patent Positions and Proprietary Rights."
GOVERNMENT REGULATION
Regulation by governmental entities in the United States and other countries
will be a significant factor in the development, production and marketing of
any new drug products developed by the Company. Pharmaceutical products are
subject to rigorous regulation under the Federal Food, Drug and Cosmetic Act
("FDCA") by the FDA in the United States and similar health authorities in
foreign countries under laws and regulations that govern, among other things,
testing for safety and effectiveness, manufacturing, labeling, storage, record
keeping, import, export, advertising, promotion, marketing and distribution of
such products. Product development and approval within this regulatory
framework is uncertain, can take a number of years and requires the
expenditure of substantial resources. Any failure to obtain regulatory
approval, or any delay in obtaining such approvals, could adversely affect the
marketing of products under development by the Company, the Company's ability
to receive product or royalty revenues, and its liquidity and capital
resources.
The premarket approval regulatory requirements that must be met before a new
drug product may be marketed in the United States include: (i) preclinical
laboratory tests and preclinical laboratory animal studies;
35
<PAGE>
(ii) the submission to the FDA of an Investigational New Drug application
("IND") to obtain the FDA's consent to conduct proposed clinical trials; (iii)
adequate and well-controlled clinical trials to establish the safety and
efficacy of the new drug product; (iv) the submission to the FDA of an NDA and
(v) FDA review and approval of the NDA.
Preclinical tests include laboratory evaluation of a new drug, as well as
laboratory animal studies to assess its potential safety and efficacy in
humans. Preclinical tests must be conducted by laboratories that comply with
FDA regulations regarding Good Laboratory Practices. The results of the
preclinical tests, together with manufacturing and chemistry information
regarding the new drug, must be submitted to the FDA as part of an IND, which
must become effective before clinical trials may commence. The IND will
automatically become effective 30 days after receipt by the FDA unless the FDA
indicates prior to the end of such 30-day period that the proposed protocol
raises concerns that must be resolved to the satisfaction of the FDA before the
trials may proceed as outlined in the IND. In such case, there can be no
assurance that such resolution will be achieved in a timely fashion, if at all.
In addition, the FDA may impose a clinical hold on ongoing clinical trials, if
for example, safety concerns are presented, in which case the study cannot
recommence without FDA authorization under terms sanctioned by the agency.
Clinical trials involve the administration of an investigational new drug
product to healthy volunteers or to patients having the disease or condition
for which the drug is intended, under the supervision of qualified principal
investigators. Clinical trials are conducted in accordance with the FDA's Good
Clinical Practice standards under protocols that detail the objectives of the
trial, inclusion and exclusion criteria, the parameters and endpoints to be
used to evaluate safety and efficacy, the control to be used (usually a placebo
control), the method for random administration to test drug and control patient
groups, double-blinding procedures and methods for the biostatistical analysis
of the study results.
Each protocol must be submitted to the FDA as part of the IND. Further, each
clinical trial must be reviewed and approved by an independent Institutional
Review Board ("IRB") at the academic or medical institution at which the trial
will be conducted. The IRB will consider, among other things, ethical factors,
the safety of human subjects and the possible liability of the institution. The
IRB may require changes in a protocol, and there can be no assurance that the
submission of an IND will permit a study to be initiated or completed.
Clinical trials generally are conducted in three sequential phases, but the
phases may overlap. In Phase 1, the initial introduction of the new drug
product into healthy human subjects or patients, the drug is tested to assess
safety (adverse effects), absorption, metabolism, excretion, pharmacokinetics,
pharmacodynamics and pharmacological actions associated with increasing doses.
Phase 2 usually involves studies in a limited patient population with the
disease or condition for which the drug is intended to (i) determine the
efficacy of the potential product for specific, targeted indications, (ii)
determine dosage tolerance and optimum dosage and (iii) further identify
possible adverse reactions and safety risks. If a compound is found to be
effective and to have an acceptable safety profile in Phase 2 evaluations,
Phase 3 trials are undertaken to evaluate further clinical efficacy and safety
within a broader patient population having the disease or condition, generally
at multiple, geographically dispersed clinical sites. There can be no assurance
that Phase 1, Phase 2 or Phase 3 testing will be completed successfully within
any specific time period, if at all, with respect to any of the Company's
products subject to such testing. Phase 4 clinical trials are studies conducted
after approval to document clinical benefit in the case of fast track
accelerated approval conditions (see below), or to gain additional experience
from the treatment of patients with the disease for which the drug is used.
The results of preclinical studies and clinical trials of a new drug, if
successful, must be submitted to the FDA in an NDA to seek FDA approval to
market and commercialize the drug product for a specified use. FDA approval of
the NDA is required before marketing may begin in the United States. The NDA
must also include data relating to the new drug product's chemistry and
pharmacology, and methods and quality assurance and control procedures used in
the manufacture of the new drug product. The FDA reviews all NDAs submitted to
assess whether they are complete for review, and may request additional
information rather than accepting an NDA for filing. In such an event, the NDA
must be resubmitted with the additional information and, again, is
36
<PAGE>
subject to review before filing. Once the submission is accepted for filing,
the FDA begins an in-depth review of the NDA. Under the FDCA, the FDA has 180
days in which to review the NDA and respond to the applicant. The review
process is often significantly extended by FDA requests for additional
information or clarification regarding information already provided in the
submission. Nonetheless, because of the Prescription Drug User Fee Act (see
below), the FDA has adhered more closely to the 180-day statutory review time
frame. The FDA may refer the application to the appropriate advisory
committee, typically a panel of clinicians, for review, evaluation and a
recommendation as to whether the application should be approved. However, the
FDA is not bound by the recommendation of an advisory committee.
The FDA also requires a pre-approval inspection of the plant or facility at
which the new drug product will be manufactured, to determine that the
applicable manufacturing methods and controls used to produce the drug product
are in compliance with the agency's GMP regulations. Such regulations mandate,
among other things, quality control and quality assurance procedures and the
maintenance of corresponding records and other documentation. If FDA
evaluations of the NDA and the manufacturing facilities are favorable, the FDA
may issue either an approval letter or an approvable letter, which usually
contains a number of conditions that must be met in order to secure final
approval of the NDA. When and if those conditions (typically, labeling
requirements) have been met to the FDA's satisfaction, the FDA will issue an
approval letter, authorizing commercial marketing of the product for certain
indications. As a condition of NDA approval, the FDA may require postmarketing
testing (Phase 4 studies) and surveillance to monitor the drug's safety or
efficacy. If the FDA's evaluation of the NDA submission or manufacturing
facilities is not favorable, the FDA may refuse to approve the NDA or issue a
not approvable letter, outlining the deficiencies in the submission and often
requiring additional testing or information. Notwithstanding the submission of
any requested additional data or information in response to an approvable or
not approvable letter, the FDA ultimately may decide that the application does
not satisfy the regulatory criteria for approval. Once granted, product
approvals may be withdrawn if compliance with regulatory standards is not
maintained or safety or other problems associated with the drug occur
following initial marketing.
Before the Company's products can be marketed outside of the United States,
they are subject to regulatory approval similar to FDA requirements in the
United States, although the requirements governing the conduct of clinical
trials and other premarket approval requirements vary widely from country to
country, and the time spent in gaining approval varies from that required for
FDA approval. No action can be taken to market any drug product in a country
until an appropriate application has been approved by the regulatory
authorities in that country. FDA approval does not assure approval by other
regulatory authorities and there can be no assurance that foreign regulatory
approvals will be granted. In some countries, the sale price of a drug product
must also be approved. The pricing review period often begins after market
approval is granted. Even if a foreign regulatory authority approves any of
the Company's products, no assurance can be given that it will approve
satisfactory prices for the products.
The Prescription Drug User Fee Act program, reauthorized by the FDA
Modernization Act of 1997, requires the payment of a substantial application
fee for each NDA filed for a new prescription drug (at present approximately
$250,000), and annual establishment and product fees for each marketed
prescription drug for which an NDA is approved. These fees are used by the FDA
to hire additional personnel to review NDA's, in order to expedite agency
review of such applications with the goal of meeting the 180-day statutory
review deadline. The FDA files annual reports with Congress on its progress in
attaining this goal for applications reviewed during the previous government
fiscal year. Review times for NDA's have been reduced substantially as a
result of this program. A small business (having fewer than 500 employees),
such as the Company, is granted a waiver of the application fee for the first
NDA it submits to the FDA, but must pay the full application fee for all
subsequent applications.
The FDA Modernization Act of 1997 also codified the FDA's "fast track"
procedures, applicable to new drugs intended for the treatment of a serious or
life-threatening condition which demonstrate the potential to address unmet
medical needs for such conditions. Such a new drug can be designated as a
"fast track product" and reviewed and approved in an accelerated time frame,
usually on the basis of Phase 1 and 2 clinical trials,
37
<PAGE>
which can utilize surrogate endpoints. However, there can be no assurance that
any given new drug will be designated as a fast track product by the FDA. The
applicant may be requested by the FDA, as a condition of fast track approval,
to conduct and submit to FDA the results of one or more larger post-approval
Phase 4 studies that verify the clinical benefit of the drug for its intended
use in the relevant patient population. Failure to conduct a required Phase 4
study with due diligence could result in withdrawal of approval of a new drug
approved under "fast track" conditions.
Manufacturing facilities in the United States are subject to periodic
inspection by the FDA and state authorities, and must comply with GMP
regulations. Failure to comply with GMP or other applicable regulatory
requirements (such as labeling and advertising rules and standards) may result
in, among other things, withdrawal of marketing approval, warning letters,
injunctions, recall or seizure of products, total or partial suspension of
production, FDA refusal to approve pending new drug applications or supplements
to approved applications, refusal to permit products to be imported or
exported, refusal to allow the Company to enter into government supply
contracts or criminal prosecution.
The Company's research and development processes involve the controlled use
of hazardous materials, chemicals and radioactive materials, and produce waste
products. The Company is subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
such materials and waste products. Although the Company believes that its
safety procedures for handling and disposing of such materials comply with the
standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be eliminated completely.
In the event of such an accident, the Company could be held liable for any
damages that result and any such liability could exceed the resources of the
Company. Although the Company believes that it is in compliance in all material
respects with applicable environmental laws and regulations, there can be no
assurance that it will not be required to incur significant costs to comply
with environmental laws and regulations in the future, or that any of the
operations, business or assets of the Company will not be materially adversely
affected by current or future environmental laws or regulations. See "Risk
Factors--Government Regulation; No Assurance of Regulatory Approval."
PHARMACEUTICAL PRICING AND REIMBURSEMENT
In both domestic and foreign markets, sales of the Company's products, if
any, will depend in part on the availability of reimbursement from third-party
payors such as government health administration authorities, private health
insurers, health maintenance organizations, pharmacy benefit management
companies and other organizations. Both the federal and state governments in
the United States and foreign governments continue to propose and pass
legislation designed to contain or reduce the cost of health care, and
regulations affecting the pricing of pharmaceuticals and other medical products
and services may change or be adopted before any of the Company's product
candidates are approved for marketing. In addition, third-party payors are
increasingly challenging the price and cost-effectiveness of medical products
and services. Significant uncertainty exists as to the reimbursement status of
newly approved health care products including pharmaceuticals. There can be no
assurance that the Company's products, if any, will be considered cost-
effective or that adequate third-party reimbursement will be available to
enable the Company to maintain price levels sufficient to realize a return on
its investment.
The initial indication for one-alpha D/2/ is for secondary
hyperparathyroidism associated with ESRD. The Company believes the majority of
ESRD patients in the United States are covered for reimbursement of health care
costs through Medicare and Medicaid, both of which are administered by HCFA.
The current reimbursement policy of HCFA is to provide reimbursement for
intravenously administered drugs but not orally administered drugs. As a
result, intravenous D-hormones are currently favored by dialysis centers,
because under a fee-for-service reimbursement arrangement, they are reimbursed
by Medicare and Medicaid. The Company believes, however, that as the current
trend to replace fee-for-service reimbursement plans with capitated
reimbursement plans continues, dialysis centers will increasingly favor orally
delivered D-hormones because of their lower cost. The Company's strategy to
develop an oral formulation of one-alpha D/2/ for treatment of secondary
38
<PAGE>
hyperparathyroidism associated with ESRD before an intravenous formulation is
based on this assumption regarding trends in health care reimbursement. There
can be no assurance that the Company's assumptions are correct regarding
capitated reimbursement or regarding the timing of any change to a capitated
environment. In the event that fee-for-service reimbursement remains the
predominant model for dialysis centers, sales of oral one-alpha D/2/, assuming
regulatory approvals are received, could be materially adversely affected. The
ability of the Company to obtain third-party reimbursement for use of one-alpha
D/2/ would be dependent on the successful development of, receipt of regulatory
approval for, and commercialization of, an intravenous formulation. See "Risk
Factors--Uncertainty Related to Pricing and Reimbursement of Products."
COMPETITION
Competition in the pharmaceutical and biotechnology industries is intense.
The Company faces competition from a variety of sources and believes that
several pharmaceutical or biotechnology companies are focused on the
development of D-hormone therapies, particularly as they relate to treatment of
secondary hyperparathyroidism and hyperproliferative diseases. The Company also
competes with other large pharmaceutical companies that produce D-hormones for
marketing in international marketplaces where alternative treatments have been
approved by their respective regulatory bodies. Several companies also compete
indirectly with the Company for the same indications utilizing different
therapeutic approaches. Many of the Company's existing or potential competitors
have substantially greater financial, research and development, marketing and
human resources than the Company and are better equipped to develop,
manufacture and market products. Other companies may also prove to be
significant competitors, particularly through collaborative arrangements with
large pharmaceutical and established biotechnology companies. Several of these
competitors have products that have been approved or are in development and
operate large, well-funded research and development programs. The Company also
faces intense competition from other companies for marketing, distribution and
collaborative development agreements, for establishing relationships with
academic and research institutions, and for licenses to proprietary technology.
In addition, academic institutions, government agencies and other public and
private research organizations may also conduct research, seek patent
protection and establish collaborative arrangements for discovery, research,
clinical development and marketing of products similar to those of the Company.
These companies and institutions compete with the Company in recruiting and
retaining qualified scientific and management personnel as well as in acquiring
technologies complementary to the Company's programs.
Abbott Laboratories markets intravenous calcitriol (Calcijex(R)) and
Hoffmann-LaRoche, Inc. markets oral calcitriol (Rocaltrol(R)). Both drugs are
approved for the treatment of secondary hyperparathyroidism associated with
ESRD in the United States and certain European countries. A number of companies
market oral one-alpha D/3/ in Europe under various trade names. Other
companies, including Abbott Laboratories, Amgen, Inc., Chugai Pharma Europe
Ltd. and NPS Pharmaceuticals, Inc. are also developing new therapies or have
filed NDAs for the treatment of secondary hyperparathyroidism associated with
ESRD for the United States or European markets.
Companies that complete clinical trials, obtain required regulatory approvals
and commence commercial sales of their products before their competitors may
achieve a significant competitive advantage. Accordingly, the relative speed
with which the Company can develop products, complete preclinical testing and
clinical trials and regulatory approval processes, and supply commercial
quantities of products to the market are expected to be important competitive
factors. A number of pharmaceutical and biotechnology companies are developing
new products for the treatment of the same diseases being targeted by the
Company. In some instances, competing products have already entered late-stage
clinical trials or have been submitted for regulatory review and approval.
Abbott Laboratories has filed an NDA for an intravenous formulation of an
improved second generation D-hormone analog to treat secondary
hyperparathyroidism associated with ESRD. This product is expected to compete
with one-alpha D/2/. In addition, Leo Pharmaceuticals is developing and
marketing improved D-hormone therapies for the treatment of certain
hyperproliferative diseases and is marketing alfacalcidol, a synthetic analog
of calcitriol, in Europe for the treatment of secondary hyperparathyroidism
associated with ESRD and osteoporosis associated with secondary
hyperparathyroidism.
39
<PAGE>
The Company believes that its ability to compete successfully will be based
on its ability to create and maintain scientifically advanced technology,
develop proprietary products with improved safety and efficacy profiles over
existing therapies, attract and retain scientific personnel, obtain patent or
other protection for its products, obtain required regulatory approvals and
manufacture and successfully market its products either alone or through third
parties, and obtain adequate third party reimbursement. Many of the Company's
competitors have substantially greater financial, research and development,
marketing and human resources than the Company. There can be no assurance that
the Company's competitors will not develop more effective and/or affordable
products, or achieve earlier patent protection or product commercialization
than the Company or that such competitive products will not render the
Company's products obsolete. See "Risk Factors--Significant Competition;
Competition From New Technologies."
PRODUCT LIABILITY
The Company's business exposes it to potential liabilities inherent in
testing, manufacturing and commercializing pharmaceuticals for human use. The
Company does not have product liability insurance for clinical use or
commercial sale of any of its potential products, and the Company does not
intend to obtain such insurance until one-alpha D/2/ is commercialized. There
can be no assurance that the Company will be able to obtain insurance coverage
at acceptable costs, or at all, or that the Company will not experience losses
due to product liability claims. A product liability claim, product recall or
other claim or claims for uninsured liabilities or for amounts exceeding the
limits of the Company's insurance could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Product Liability."
PROPERTIES
The Company currently leases approximately 3,000 square feet of office,
laboratory and warehouse space in Madison, Wisconsin from Lunar for a monthly
fee of $2,000. The Company has also entered into a new lease, effective
January 1, 1998, for 10,000 square feet of office and laboratory space in
Madison, Wisconsin. This new lease expires on November 30, 2000. Obligations
under the lease from Lunar will terminate upon the Company's relocation to its
new facilities during the first quarter of 1998. The Company believes its new
facility will be adequate to meet its needs for the foreseeable future.
LEGAL PROCEEDINGS
The Company may be a defendant from time to time in actions arising out of
its ordinary business operations. There are no pending legal proceedings
involving the Company as a defendant.
EMPLOYEES
As of January 7, 1998, the Company, including its subsidiary Continental
Assays Corporation, had 22 full-time employees, including 18 in research and
development and four in administration. Four of the Company's employees have
Ph.D. degrees. None of the Company's employees is represented by a union. The
Company considers its employee relations to be good.
40
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company as of November 30, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard B. Mazess,
Ph.D.(1).................. 58 Chairman of the Board
Charles W. Bishop, Ph.D.... 46 President, Chief Executive Officer and Director
Robert A. Beckman(2)....... 43 Director
John Kapoor, Ph.D.(1)(2)... 54 Director
Martin Barkin, M.D......... 61 Director
Dale W. Gutman............. 44 Vice President--Finance
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Richard B. Mazess, Ph.D., the Company's founder, has served as a director of
Bone Care since 1984. Dr. Mazess served as President of Bone Care from its
inception in 1984 through February 1996, and has served as its Chairman of the
Board since February 1996. Dr. Mazess has been President and a director of
Lunar since its inception in 1980. Lunar develops and sells x-ray and
ultrasound bone densitometers for the diagnosis and monitoring of osteoporosis
and other metabolic bone diseases. Lunar also develops and sells medical
imaging equipment used by orthopedists and radiologists for imaging
extremities. Dr. Mazess became Professor Emeritus of Medical Physics at the
University of Wisconsin--Madison in 1985, and has been on the faculty of the
Department of Medical Physics since 1968.
Charles W. Bishop, Ph.D., joined Bone Care in 1987 as Project Director and
was named Vice President in 1990, and President and Chief Executive Officer in
February 1996. Dr. Bishop has been a director of Bone Care since 1989. Dr.
Bishop received a Ph.D. degree in Nutritional Biochemistry from Virginia
Polytechnic Institute and completed a four-year National Institutes of Health
Postdoctoral Fellowship in Vitamin D Biochemistry at the University of
Wisconsin--Madison.
Robert A. Beckman has been a director of Bone Care since 1989 and was Vice
President of Finance for the period May 1996 through November 1996. Mr.
Beckman has been Vice President of Finance for Lunar since 1987.
John Kapoor, Ph.D., has been a director of Bone Care since 1990. Dr. Kapoor
has been President and owner of EJ Financial Enterprises, a private financial
and investment firm, since 1990. Since 1991, Dr. Kapoor has been a director of
Akorn, Inc., an opthalmic and pharmaceutical product manufacturer and
distributor, and has been acting Chief Executive Officer since June 1996. Dr.
Kapoor also serves as a director of Unimed Pharmaceuticals, Inc., Option Care,
Inc., Neopharm, Inc. and Integrated Surgical Systems, Inc.
Martin Barkin, M.D., has been a director of Bone Care since 1993. Dr. Barkin
has been President and Chief Executive Officer of Draxis Health, Inc., a
pharmaceutical company, since 1992. Dr. Barkin formerly was a partner and
National Practice Leader for Health Care at KPMG Peat Marwick, independent
certified public accountants, from 1991 to 1992 and Deputy Minister of Health
for the Province of Ontario from 1987 to 1991. Dr. Barkin is also a director
of Dyna Care, Inc.
Dale W. Gutman joined Bone Care in December 1996 as Vice President of
Finance. From 1986 to December 1996, Mr. Gutman served as Vice President and
Corporate Controller of the Chas. Levy Company, a distributor of magazines and
books to independent and mass market retailers throughout the United States.
Mr. Gutman is a Certified Public Accountant.
41
<PAGE>
BOARD COMPOSITION
The Board of Directors of the Company consists of five members. Pursuant to
the Articles of Incorporation, the Board is divided into three classes with
each member of a class serving for a term of three years. The terms of Dr.
Mazess and Dr. Kapoor expire at the Company's 1998 annual meeting of
shareholders. The term of Dr. Barkin expires at the Company's 1999 annual
meeting of shareholders. The terms of Dr. Bishop and Mr. Beckman expire at the
Company's 2000 annual meeting of shareholders. Each director serves a term
expiring at the annual meeting of shareholders in the year indicated above and
until his successor shall have been elected and qualified. Executive officers
of the Company are elected annually and serve until their earlier resignation
or removal.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a Compensation
Committee as permitted by the Company's By-Laws. The Audit Committee, composed
of non-employee directors, is responsible for oversight of the audit of the
corporate accounts conducted by the Company's independent public accountants
whom it recommends for selection by the Board. The Audit Committee reviews the
scope of the audit with such accountants and their related fees. The
Compensation Committee, composed of non-employee directors, determines the
compensation and benefits for officers (other than stock options granted under
the 1996 Plan), and makes recommendations to the Board concerning compensation
arrangements for the President and Chief Executive Officer and for members of
the Board of Directors. The Company does not have a nominating committee of
the Board. Under the By-Laws, the Board may establish additional committees as
it deems advisable.
DIRECTOR COMPENSATION
Officers of the Company do not receive any additional compensation for
serving as members of the Board. In August 1997, Messrs. Barkin, Beckman and
Kapoor were each granted non-qualified options under the 1996 Plan to purchase
9,000 shares of Common Stock at an exercise price of $7.50 per share, the fair
market value on the grant date. These options expire ten years after their
grant date and become exercisable in equal one-third annual increments on the
first three anniversaries of the grant date. In September 1997, the Board
determined that non-employee directors shall annually receive non-qualified
stock options to purchase 9,000 shares of Common Stock pursuant to the 1996
Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended June 30, 1997, Dr. Mazess served on the
Compensation Committee of the Board of Directors. Dr. Mazess was President of
the Company since its inception in 1986 through February 1996. In addition,
Dr. Mazess has served as the President and as a director of Lunar since 1980.
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<PAGE>
EXECUTIVE OFFICER COMPENSATION
The following table sets forth certain compensation during the fiscal years
ended June 30, 1997, 1996 and 1995 for Charles W. Bishop, Ph.D., the Company's
President and Chief Executive Officer. No other executive officer of the
Company earned more than $100,000 during any of the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------- ------------
SECURITIES
NAME AND PRINCIPAL FISCAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION (3)
- ------------------ ------ -------- ------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Charles W. Bishop,
Ph.D................... 1997 $143,846 $2,250 10,000 $2,116
President and Chief 1996 133,847 2,250(1) 140,000 1,966
Executive Officer 1995 128,563 3,000(1) 7,500(2) 1,828
</TABLE>
- --------
(1) Compensation received from Lunar Corporation Bonus Program.
(2) Represents stock options granted under the Lunar Corporation Amended and
Restated Stock Option Plan.
(3) Amounts shown consist of Company contributions to a defined contribution
plan.
STOCK OPTION GRANTS IN FISCAL YEAR 1997
The following table sets forth information with respect to individual stock
option grants during the fiscal year ended June 30, 1997 to Dr. Bishop.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT
ASSUMED
ANNUAL RATES OF
APPRECIATION
FOR
INDIVIDUAL GRANTS OPTION TERM(3)
----------------------------------------------- ---------------
PERCENTAGE
NUMBER OF OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED
OPTIONS DURING
GRANTED FISCAL EXERCISE PRICE EXPIRATION
NAME (#)(1) YEAR 1997 (PER SHARE)(2) DATE 5% 10%
- ---- ---------- ---------- -------------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Charles W. Bishop,
Ph.D................... 10,000 18.9% $5.75 6/17/07 $36,150 $91,650
</TABLE>
- --------
(1) All stock options were granted under the 1996 Plan. These options are
nonqualified and vest 20% each year on the first five anniversaries of the
grant date.
(2) The exercise price equals 100% of fair market value as of the grant date.
(3) The dollar amounts under these columns are the result of calculations at
the 5% and 10% assumed annual growth rates mandated by the Securities and
Exchange Commission and, therefore, are not intended to forecast possible
future appreciation, if any, in the Common Stock price. The calculations
were based on the exercise prices and the 10-year term of the options. No
gain to the optionees is possible without an increase in stock price,
which will benefit all shareholders proportionately. The "Potential
Realizable Value" to all shareholders as a group which would result from
the application of the same assumptions to the 8,722,382 shares of Common
Stock outstanding at June 30, 1997, at the closing price of $6.50 per
share of Common Stock on June 30, 1997, as reported by the Nasdaq Stock
Market is an incremental gain of $35,674,542 and $90,363,878 for 5% and
10%, respectively.
43
<PAGE>
FISCAL YEAR END STOCK OPTION VALUES
The following table sets forth information on the number of unexercised
stock options held by Dr. Bishop and the value of his unexercised stock
options as of June 30, 1997. Dr. Bishop did not exercise any stock options
during the fiscal year ended June 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY STOCK
STOCK OPTIONS AT FISCAL OPTIONS AT FISCAL YEAR
YEAR END (#) END(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles W. Bishop, Ph.D..... 51,691 122,000 $226,923 $499,180
</TABLE>
- --------
(1) Based upon the closing price of the Common Stock of $6.50 on June 30,
1997, as reported by the Nasdaq Stock Market, minus the exercise price.
STOCK OPTION PLANS
Incentive Stock Option Plan. The Company adopted the Incentive Stock Option
Plan (the "ISO Plan"; and, together with the 1996 Plan, the "Stock Option
Plans") in January 1989. Stock options to purchase 126,352 shares of Common
Stock were outstanding under the ISO Plan as of November 30, 1997. The
weighted average exercise price per share of such options is $2.11. In June
1990, the Board of Directors of the Company agreed not to grant any new
options under the ISO Plan. The Company has not made any subsequent grants,
except for a grant in March 1996 of replacement stock options to purchase
78,970 shares in exchange for the forfeiture of an equal amount of previously
granted stock options.
1996 Stock Option Plan. The 1996 Plan was initially adopted as of February
1, 1996. Under the 1996 Plan, a total of 1,000,000 shares of Common Stock were
made available for grant.
Only nonqualified stock options may be granted under the 1996 Plan. The
option price per share of Common Stock purchasable upon exercise of an option
is 100% of the fair market value of a share of Common Stock on the date of
grant of such stock option. The 1996 Plan is administered by the Board of
Directors of the Company and has the authority, subject to the terms of the
1996 Plan, to establish eligibility guidelines, select officers, key
employees, consultants, and non-employee directors for participation in the
1996 Plan and determine the number of shares of Common Stock subject to a
stock option, the exercise price for such shares of Common Stock, the time and
conditions of vesting or exercise, and all other terms and conditions of the
stock options. To the extent required under Section 162(m) of the Internal
Revenue Code of 1986, and the rules and regulations thereunder, the maximum
number of shares of Common Stock with respect to which options may be granted
during any calendar year to any person is 200,000, subject to adjustment for
changes in the Company's capitalization.
The 1996 Plan may be amended by the Board of Directors in any respect,
except that no amendment may be made without shareholder approval if such
amendment would increase the maximum number of shares of Common Stock
available under the 1996 Plan (other than certain adjustments for changes in
the Company's capitalization) or would otherwise require shareholder approval.
The 1996 Plan will terminate on February 1, 2006, unless earlier terminated by
the Board of Directors.
In the event of a change in control of the Company, any stock option not
previously exercisable in full will become fully exercisable. A change in
control generally is the acquisition, subject to certain exceptions, by any
person of beneficial ownership of 50% or more of the outstanding shares of
Common Stock, a change in the majority of the Board of Directors and approval
by the shareholders of a reorganization, merger, consolidation, or sale of all
or substantially all of the assets of the Company unless certain conditions
are satisfied. This provision could raise the cost to a potential acquiror of
engaging in a transaction that would constitute such a change in control and,
therefore, could affect the willingness of an acquiror to propose such a
transaction or the terms thereof.
As of November 30, 1997, 15,100 shares of Common Stock have been issued upon
the exercise of options granted under the 1996 Plan, options to purchase
410,700 shares of Common Stock at a weighted average exercise price of $3.16
were outstanding and 574,200 shares of Common Stock were reserved for future
grants.
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LIABILITY AND INDEMNIFICATION
Under the Company's By-Laws and the WBCL, directors and officers of the
Company are entitled to mandatory indemnification from the Company against
certain liabilities and expenses (a) to the extent such officers or directors
are successful in the defense of a proceeding and (b) in proceedings in which
the director or officer is not successful in the defense thereof, unless it is
determined the director or officer breached or failed to perform his duties to
the Company and such breach or failure constituted: (i) a willful failure to
deal fairly with the Company or its shareholders in connection with a matter
in which the director or officer had a material conflict of interest, (ii) a
violation of criminal law, unless the director or officer had reasonable cause
to believe his or her conduct was lawful or had no reasonable cause to believe
his or her conduct was unlawful, (iii) a transaction from which the director
or officer derived an improper personal profit, or (iv) willful misconduct.
The Company's By-Laws provide that the Company may purchase and maintain
insurance on behalf of an individual who is a director or officer of the
Company against liability asserted against or incurred by such individual in
his or her capacity as a director or officer regardless of whether the Company
is required or authorized to indemnify or allow expenses to the individual
against the same liability under the By-Laws. The Company has obtained such
insurance for directors and officers.
Under Section 180.0828 of the WBCL, a director of a corporation is not
subject to personal liability to the corporation, its shareholders, or any
person asserting rights on behalf thereof for damages, settlements, fees,
fines, penalties or other monetary liabilities arising from breach of, or
failure to perform any duty resulting solely from such person's status as a
director, unless the person asserting liability proves that the breach or
failure constituted: (i) a willful failure to deal fairly with the corporation
or its shareholders in connection with a matter in which the director had a
material conflict of interest, (ii) a violation of criminal law, unless the
director had reasonable cause to believe his or her conduct was lawful or had
no reasonable cause to believe his or her conduct was unlawful, (iii) a
transaction from which the director derived an improper personal profit, or
(iv) willful misconduct. These provisions pertain only to breaches of duty by
directors as directors and not in any other corporate capacity, such as
officers. As a result of such provisions, shareholders may be unable to
recover monetary damages against directors for actions taken by them which
constitute negligence or gross negligence or which are in violation of their
fiduciary duties, although it may be possible to obtain injunctive or other
equitable relief with respect to such actions. If equitable remedies are found
not to be available to shareholders in any particular case, shareholders may
not have any effective remedy against the challenged conduct.
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CERTAIN TRANSACTIONS
RELATIONSHIP WITH LUNAR
On May 8, 1996, Lunar, which then held 97.3% of the issued and outstanding
shares of the Company's Common Stock, distributed to its shareholders of
record as of April 24, 1996, all of the shares of Company Common Stock then
owned by Lunar in a transaction intended to qualify as a tax-free
distribution. As a result of the Distribution, the Company became a separate
publicly-owned company.
In connection with the Distribution, the Company and Lunar entered into a
distribution agreement dated as of April 16, 1996 (the "Distribution
Agreement") providing for, among other things, the principal corporate
transactions required to effect the Distribution, the conditions to the
Distribution, the allocation between the Company and Lunar of certain
liabilities and certain other agreements governing the relationship between
the Company and Lunar with respect to or in connection with the Distribution.
In addition, the Company and Lunar entered into a tax disaffiliation
agreement dated as of April 16, 1996 which provided for, among other things, a
contribution of $725,000 by Lunar to the Company completed prior to the
Distribution to reflect federal income tax savings previously realized by
Lunar that were attributable to losses incurred by the Company prior to the
Distribution and cross indemnification by each party for certain tax
liabilities. Prior to the Distribution, Lunar entered into a transition
agreement (the "Transition Agreement") with the Company pursuant to which Dr.
Mazess, Mr. Beckman and other employees of Lunar would perform certain
services and provide certain assistance to the Company. Such services include
legal, treasury, financial, accounting, insurance administration, employee
benefit and other services. As compensation for the various services provided
to the Company pursuant to the Transition Agreement, the Company paid Lunar a
monthly fee of $7,000, plus certain expenses, for services provided through
June 30, 1997. Payments made to Lunar during fiscal year 1997 aggregated
$135,000. To reflect changes in the level of such services, the base monthly
fee was reduced effective July 1, 1997 to $5,000 per month. Under the
Transition Agreement, Lunar leases to the Company for a monthly fee of $2,000
approximately 3,000 square feet in Lunar's principal offices in Madison,
Wisconsin. Lease obligations under the Transition Agreement will terminate
upon the Company's relocation to its new facilities during the first quarter
of 1998. The Transition Agreement runs until May 8, 1999; however, the Company
may terminate the Transition Agreement prior to the completion of the term by
giving Lunar 90 days written notice. See Note 4 of "Notes to Consolidated
Financial Statements."
Dr. Mazess, the Chairman of the Board of the Company, is also the Chairman
of the Board, President and Chief Executive Officer of Lunar and is the
beneficial owner of approximately 33% of the outstanding common stock of
Lunar. Mr. Beckman, a director of the Company, is also Vice President of
Finance of Lunar.
RELATIONSHIP WITH TAYLOR PHARMACEUTICALS, INC.
In November 1996, the Company entered into an agreement (the "Development
Agreement") with Taylor Pharmaceuticals, Inc. ("Taylor"), whereby Taylor will
assist in the formulation and manufacture of the intravenous formulation of
the Company's lead compound, one-alpha D/2/. Taylor is a wholly-owned
subsidiary of Akorn, Inc. Dr. Kapoor, a director of the Company, is a director
and acting Chief Executive Officer of Akorn, Inc. Dr. Kapoor currently has a
beneficial ownership interest of approximately 24% of Akorn, Inc. The
Development Agreement calls for payments by the Company of approximately
$500,000 to formulate one-alpha D/2/ into a safe, stable liquid presentation
and to provide the Company with specified quantities. The Development
Agreement was negotiated at arm's length after obtaining competitive bids.
Payments during the fiscal year ended June 30, 1997 aggregated $244,167.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of November 30, 1997 and as
adjusted to reflect the sale by the Company of the Common Stock offered
hereby, by (i) each director of the Company, (ii) each executive officer of
the Company who is named in the summary compensation table included in this
Prospectus, (iii) all directors and executive officers of the Company as a
group and (iv) each person known by the Company to be the beneficial owner of
more than 5% of the Common Stock of the Company.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
BENEFICIALLY
OWNED(1)
-----------------
SHARES BEFORE AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------ ------------------ -------- --------
<S> <C> <C> <C>
Richard B. Mazess, Ph.D. (2) ............. 2,932,710 33.6% 25.0%
313 West Beltline Highway
Madison, WI 53713
T. Rowe Price Associates (3) ............. 905,800 10.4 7.7
100 E. Pratt Street
Baltimore, MD 21202
RCM Capital Management L.L.C. (4) ........ 876,000 10.0 7.5
4 Embarcadero Center, Suite 3000
San Francisco, CA 94111
Mellon Bank Corporation (5) .............. 466,000 5.3 4.0
One Mellon Bank Center
Pittsburgh, PA 15258
Martin Barkin, M.D. (6) .................. 236,842 2.7 2.0
Robert A. Beckman (7) .................... 36,527 * *
Charles W. Bishop, Ph.D. (8) ............. 60,527 * *
John Kapoor, Ph.D......................... 123,250 1.4 1.1
All directors and executive officers as a
group (6 persons) (9) ................... 3,389,856 38.5 28.7
</TABLE>
- --------
* Less than one percent (1%)
(1) Except as indicated below, the percentage beneficially owned represents
shares of Common Stock held of record and beneficially as of November 30,
1997 and all shares of Common Stock are held with sole voting and
investment power. Percentage amounts are based upon an aggregate of
8,722,482 shares issued and outstanding as of November 30, 1997
(11,722,482 shares of Common Stock outstanding upon completion of the
offering) and shares of Common Stock issuable within 60 days of November
30, 1997 upon exercise of stock options.
(2) Includes 1,433,950 shares of Common Stock held by Dr. Mazess in joint
tenancy with his wife and 587,500 shares of Common Stock held by Dr.
Mazess as custodian for his daughters.
(3) Based on a Schedule 13G dated January 10, 1997 furnished to the Company,
T. Rowe Price Associates, an investment adviser registered under Section
203 of the Investment Advisers Act of 1940, had sole voting power with
respect to 40,800 shares of Common Stock and sole dispositive power with
respect to 905,800 shares of Common Stock. T. Rowe Price SmallCap Value
Fund Inc., an investment company registered under Section 8 of the
Investment Company Act of 1940, has sole voting power with respect to
650,000 shares of Common Stock and sole dispositive power with respect to
no shares of Common Stock.
(4) Based on a Schedule 13G dated January 30, 1997 furnished to the Company,
RCM Capital Management L.L.C., an investment adviser registered under
Section 203 of the Investment Advisers Act of 1940, had sole voting power
with respect to 746,000 shares of Common Stock and sole dispositive power
with respect
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<PAGE>
to 876,000 shares of Common Stock. RCM Limited L.P. is the managing agent
of RCM Capital Management L.L.C. and RCM General Corporation is the general
partner of RCM Limited L.P. and may be deemed to be the beneficial owner of
such securities to the extent that RCM Capital Management L.L.C. is deemed
to be the beneficial owner of such securities. Based on a Schedule 13G
dated February 7, 1997 furnished by Dresdner Bank AG to the Company, RCM
Capital Management L.L.C. is a wholly-owned subsidiary of Dresdner Bank AG
and Dresdner Bank AG may be deemed to be the beneficial owner of such
securities to the extent that RCM Capital Management L.L.C. is deemed to be
the beneficial owner of such securities.
(5) Based on a Schedule 13G dated January 24, 1997 furnished to the Company,
Mellon Bank Corporation had sole voting power with respect to 466,000
shares of Common Stock, sole dispositive power with respect to 56,000
shares of Common Stock and shared dispositive power with respect to
410,000 shares of Common Stock. Such shares are beneficially owned by
Mellon Bank, N.A. and The Dreyfus Corporation, each a direct or indirect
subsidiary of Mellon Bank Corporation.
(6) All of the shares of Common Stock are owned by Draxis, of which Dr. Barkin
is Chief Executive Officer and over which he may be deemed to have voting
and investment power.
(7) Includes 36,491 shares of Common Stock issuable within 60 days upon
exercise of stock options, and 36 shares of Common Stock held by Mr.
Beckman as custodian for his children.
(8) Includes 51,691 shares of Common Stock issuable within 60 days upon
exercise of stock options and 2,800 shares of Common Stock held by Dr.
Bishop as custodian for his children.
(9) Includes 88,182 shares of Common Stock issuable within 60 days upon
exercise of stock options.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 28,000,000 shares of
Common Stock, no par value, and 2,000,000 shares of Preferred Stock, par value
$.001 per share. The Board of Directors of the Company has designated 140,000
shares of the Preferred Stock as Series A Junior Participating Preferred Stock
in connection with the Rights described below. The following summary
description of the capital stock of the Company is qualified in its entirety
by reference to the Articles of Incorporation and the By-Laws of the Company,
which are filed as exhibits to the Registration Statement on Form S-1 (the
"Registration Statement") filed by the Company with the Securities and
Exchange Commission (the "Commission").
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders. Holders of Common Stock do not
have cumulative voting rights in the election of directors and have no
preemptive, subscription or redemption rights. All outstanding shares of
Common Stock are validly issued, fully paid and nonassessable, except for
certain statutory liabilities which may be imposed by Section 180.0622 of the
WBCL for unpaid employee wages. Section 180.0622 of the WBCL provides that
shareholders of every corporation are personally liable to an amount equal to
the par value of the shares owned by them and to the consideration for which
their shares without par value were issued, for all debts owing to employees
for services performed for such corporation, but not exceeding six months'
service in the case of any individual employee. The Common Stock has no par
value. Holders of Common Stock are entitled to such dividends as may be
declared by the Board of Directors out of funds legally available therefor.
See "Dividend Policy." Upon liquidation, dissolution or winding-up of the
Company, the assets legally available for distribution to shareholders are
distributable ratably among the holders of Common Stock at that time
outstanding subject to prior distribution rights of creditors of the Company.
PREFERRED STOCK
The Articles of Incorporation provides that the Board of Directors of the
Company is authorized, subject to certain limitations prescribed by law or the
rules of The Nasdaq Stock Market, to issue, without further shareholder
approval, up to 2,000,000 shares of Preferred Stock of the Company, to
determine with respect to the Preferred Stock the preferences, limitations and
relative rights, in whole or in part, before the issuance of any shares of
Preferred Stock, to create one or more series of Preferred Stock, and, with
respect to any series, to determine the number of shares of the series, the
distinguishing designation and the preferences, limitations and relative
rights, in whole or in part, before the issuance of any shares of that series.
In connection with the adoption of the Company's shareholders rights plan, the
Board of Directors of the Company designated 140,000 shares as the Series A
Junior Participating Preferred Stock. See "--Rights Agreement."
RIGHTS AGREEMENT
The Board of Directors has adopted a shareholders rights plan. Under the
shareholders rights plan, each share of Common Stock has associated with it
one preferred share purchase right (a "Right"). The terms of the Preferred
Rights are set forth in a Rights Agreement (the "Rights Agreement") between
the Company and Norwest Bank Minnesota, N.A. The following summary description
of the Rights and the Rights Agreement is qualified in its entirety by
reference to the Rights Agreement, which is filed as an exhibit to the
Registration Statement.
Under certain circumstances described below, each Right would entitle the
holder thereof to purchase one two-hundredth of a share of Series A Junior
Participating Preferred Stock for a price of $12.50 per one two-hundredth of a
share, subject to adjustment. The Rights are not presently exercisable and are
transferable only with the related shares of Common Stock. The Rights will not
become exercisable or be evidenced by separate certificates or trade
separately from the Common Stock prior to the occurrence of certain triggering
events
49
<PAGE>
described below. In such an event, separate Rights certificates would be
issued and distributed representing one Right for each share of Common Stock.
There is no present market for the Rights separate from the Common Stock and
the Company cannot predict whether a trading market would develop with respect
to the Rights if the Rights ever become exercisable.
The Rights would become exercisable at the specified exercise price upon the
earliest to occur of (i) 10 business days after the first public announcement
that any person or group (other than an Exempt Person, as defined below) has
acquired beneficial ownership of 15% or more of the Company's outstanding
shares of Common Stock (an "Acquiring Person") and (ii) 10 business days
(unless delayed by the Board of Directors) after any person or group (other
than an Exempt Person) has commenced, or announced the intention to commence,
a tender or exchange offer which would, upon its consummation, result in such
person or group being the beneficial owner of 15% or more of the outstanding
shares of Common Stock (the earliest of such date is the "Distribution Date").
Rights certificates will be distributed as soon as practicable after the
Distribution Date. Notwithstanding the foregoing, Rights may not be exercised
following the occurrence of an event described below under the caption "Flip-
In" prior to the expiration of the Company's right to redeem the Rights. An
"Exempt Person" includes the Company, Dr. Mazess and certain persons and
entities related to or affiliated with the Company or Dr. Mazess.
Flip-In. After the Rights become exercisable and a person or group has
become an Acquiring Person, the holders of the Rights (other than an Acquiring
Person and certain transferees therefrom) would be entitled to purchase shares
of Common Stock at a 50% discount. After the occurrence of a "Flip-In" event,
the Rights of an Acquiring Person and such transferees become void.
Flip-Over. In the event that, on or after the date on which an Acquiring
Person has become such: (i) the Company merges into or consolidates with an
Interested Shareholder (as defined below) or, unless all holders of the
outstanding shares of Common Stock are treated the same, any other person
(with limited designated exceptions), (ii) an Interested Shareholder or,
unless all holders of the outstanding shares of Common Stock are treated the
same, any other person (with limited designated exceptions) merges into the
Company or (iii) the Company sells or transfers 50% or more of its
consolidated assets or earning power to an Interested Shareholder or, unless
all holders of the outstanding shares of Common Stock are treated the same,
any other person (with limited designated exceptions), the holders of the
Rights (other than Rights which have become void) would be entitled to
purchase common shares of the acquiror (or a person affiliated therewith) at a
50% discount. In general, an "Interested Shareholder" is an Acquiring Person
and certain persons affiliated, associated or acting on behalf of or in
concert therewith.
Redemption of Rights. The Rights may be redeemed, in whole but not in part,
at a redemption price of $.005 per Right, subject to adjustment, at the
direction of the Board, at any time prior to the earliest of (i) 10 business
days after the first public announcement that any person or group has become
an Acquiring Person, (ii) the occurrence of any transaction described under
the caption "Flip-Over" and (iii) April 13, 2006. Under certain circumstances
set forth in the Rights Agreement, redemption requires that disinterested
directors be in office and that the decision to redeem the Rights have the
concurrence of at least a majority of the disinterested directors after the
occurrence of an event. Such circumstances include redeeming the Rights (i) at
a time at which there is an Acquiring Person or (ii) after the first public
announcement that a person or group has become an Acquiring Person but prior
to the occurrence of a transaction described under the caption "Flip-Over,"
but only (i) if the person who is the Acquiring Person shall have reduced its
beneficial ownership of the then outstanding shares of Common Stock to less
than 10% or (ii) in connection with any transaction described under the
caption "Flip-Over" which does not involve an Interested Shareholder and in
which all holders of the Common Stock are treated the same.
Exchange of Shares for Rights. At any time after any person or group shall
have become an Acquiring Person and before any person (other than an Exempt
Person), together with its affiliates and associates, shall have become the
beneficial owner of 50% or more of the outstanding shares of Common Stock, the
Board of
50
<PAGE>
Directors may, at its option, exchange all or any part of the Rights (other
than Rights which have become void) for shares of Common Stock at the exchange
rate of one share of Common Stock (or one two-hundredth of a Preferred Share)
per Right, subject to adjustment.
The Rights have certain antitakeover effects. See "Certain Anti-takeover
Effects of Certain Provisions of Articles of Incorporation, By-laws, the
Rights and Wisconsin Law."
TERMS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
The Series A Junior Participating Preferred Stock (the "Preferred Shares")
which would be issuable upon exercise of the Rights (should the Rights become
exercisable) would not be redeemable. Each Preferred Share would entitle the
holder thereof to receive a preferential quarterly dividend equal to 200 times
the aggregate per share amount of all cash dividends, plus 200 times the
aggregate per share amount (payable in kind) of all non-cash dividends and
other distributions (other than in shares of Common Stock), declared on the
Common Stock during such quarter, adjusted to give effect to any dividend on
the Common Stock payable in shares of Common Stock or any subdivision,
combination or reclassification of the Common Stock (a "Dilution Event"). Each
Preferred Share would entitle the holder thereof to 200 votes on all matters
submitted to a vote of the shareholders of the Company, voting together as a
single class with the holders of the Common Stock and the holders of any other
class of capital stock having general voting rights, adjusted to give effect
to any Dilution Event. In the event of liquidation of the Company, the holder
of each Preferred Share would be entitled to receive a preferential
liquidation payment equal to 200 times the aggregate per share amount to be
distributed to the holders of the Common Stock, adjusted to give effect to any
Dilution Event, plus an amount equal to accrued and unpaid dividends and
distributions on such Preferred Share, whether or not declared, to the date of
such payment. In the event of any merger, consolidation or other transaction
in which the outstanding shares of Common Stock are exchanged for or converted
into other capital stock, securities, cash and/or other property, each
Preferred Share would be similarly exchanged or converted into 200 times the
per share amount applicable to the Common Stock, adjusted to give effect to
any Dilution Event.
ARTICLES OF INCORPORATION AND BY-LAWS
Certain provisions of the Articles of Incorporation and the By-Laws could
have anti-takeover effects and may delay, defer or prevent a takeover attempt
that a shareholder might consider to be in the shareholder's best interest.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of and in the policies formulated by the Board of
Directors of the Company. In addition, these provisions are also intended to
ensure that the Board of Directors will have sufficient time to act in what
the Board of Directors believes to be the best interests of the Company and
its shareholders.
Classified Board of Directors. The Articles of Incorporation and By-Laws
provide for a Board of Directors divided into three classes of directors
serving staggered three-year terms. The classification of directors has the
effect of making it more difficult for shareholders to change the composition
of the Board of Directors in a short period of time. At least two annual
meetings of shareholders, instead of one, will generally be required to effect
a change in a majority of the Board of Directors.
Number of Directors; Filling Vacancies; Removal. The Articles of
Incorporation and the By-Laws provide that the Board of Directors will consist
of at least five and no more than twelve members as fixed by the By-Laws. The
By-Laws currently fix the number of directors at five. The By-Laws provide
that the Board of Directors, acting by majority vote of the directors then in
office, may fill any newly created directorships or vacancies on the Board of
Directors. The Articles of Incorporation and the By-Laws provide that a
director may be removed upon the affirmative vote of 80% of the outstanding
shares entitled to vote for the election of such directors, and any vacancy so
created may be filled by the affirmative vote of 80% of such shares.
Super-Majority Vote. The Articles of Incorporation provide that in voting on
a merger or consolidation of the Company with or into any other corporation,
or sale, lease or exchange of all or substantially all of the property and
assets of the Company, the affirmative vote of 60% of the shares of Common
Stock then entitled to vote is required for approval.
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<PAGE>
Shareholder Advance Notice Requirements. The By-Laws of the Company provide
that for nominations for the Board of Directors or for other business to be
properly brought by a shareholder before an annual or special meeting of
shareholders, the shareholder must first have given notice thereof in writing
to the Secretary of the Company. To be timely, a shareholder's notice
generally must be delivered not more than 90 days nor less than 60 days prior
to the date of the meeting. In addition, the notice must contain, among other
things, certain information about the shareholder delivering the notice and,
as applicable, background information about each nominee or a description of
the proposed business to be brought before the meeting.
Preferred Stock. The Articles of Incorporation provide that the Board of
Directors of the Company is authorized, subject to certain limitations
prescribed by law or the rules of The Nasdaq Stock Market, to issue, without
further shareholder approval, up to 2,000,000 shares of Preferred Stock of the
Company. The authorized shares of Preferred Stock of the Company, as well as
shares of Common Stock, are available for issuance without further action by
the shareholders of the Company, unless such action is required by applicable
law or the rules of The Nasdaq Stock Market. The Nasdaq Stock Market currently
requires shareholder approval as a prerequisite to listing shares in several
instances, including in certain situations where the present or potential
issuance of shares could result in a change in control or an increase in the
number of shares of common stock or in the voting power outstanding of 20% or
more.
Although the Board of Directors of the Company has no intention at the
present time of doing so, the Company could issue a series of Preferred Stock
that could, depending on the terms of such series, impede the completion of a
merger, tender offer or other takeover attempt. The Board of Directors will
make any determination to issue such shares based on its judgment as to the
best interests of the Company and its shareholders. The Board of Directors, in
so acting, could issue Preferred Stock having terms that could discourage an
acquisition attempt through which an acquirer may be able to change the
composition of the Board of Directors, including a tender offer or other
transaction that some, or a majority, of the Company's shareholders might
believe to be in their best interests or in which shareholders might receive a
premium for their stock over the then-current market price of such stock.
CERTAIN EFFECTS OF THE RIGHTS PLAN
The Rights Plan is designed to protect shareholders of the Company in the
event of unsolicited offers to acquire the Company and other coercive takeover
tactics which, in the opinion of the Board of Directors, could impair its
ability to represent shareholder interests. The provisions of the Rights
Agreement may render an unsolicited takeover of the Company more difficult or
less likely to occur or might prevent such a takeover, even though such
takeover may offer the Company's shareholders the opportunity to sell their
stock at a price above the then prevailing market rate and may be favored by a
majority of the Company's shareholders. See "--Rights Agreement."
CERTAIN WISCONSIN BUSINESS CORPORATION LAW PROVISIONS
Restrictions on Business Combinations. Section 180.1141 of the WBCL provides
that a "resident domestic corporation," such as the Company, may not engage in
a "business combination" with an "interested stockholder" (a person
beneficially owning 10% of the voting power of the outstanding voting stock),
for three years after the date (the "stock acquisition date") the interested
shareholder acquired its 10% or greater interest, unless the business
combination (or acquisition of 10% or greater interest) was approved before
the stock acquisition date by the corporation's board of directors. After the
three-year period, a business combination that was not so approved by the
corporation's board of directors can be consummated only if it is approved by
the affirmative vote of a majority of the outstanding voting shares not
beneficially owned by the interested stockholder or is made at a specified
formula price intended to provide a fair price for the shares held by
noninterested shareholders. As described above under "Articles of
Incorporation and By-Laws," under the Articles of Incorporation, the
affirmative vote of 60% of the shares of Common Stock then entitled to vote is
required to approve a business combination.
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In addition, the WBCL provides, in Sections 180.1130 to 180.1133, that
business combinations involving a "significant shareholder" (as defined below)
and an "issuing public corporation" (generally defined as a Wisconsin
corporation with total assets exceeding, a class of equity securities held of
record by 500 or more persons, and with at least 100 shareholders of record
with unlimited voting rights who are Wisconsin residents) are subject to a
supermajority vote of shareholders, in addition to any approval otherwise
required. A "significant shareholder," with respect to an issuing public
corporation, is defined as a person who beneficially owns, directly or
indirectly, 10% or more of the voting stock of the corporation, or an
affiliate of the corporation which beneficially owned, directly or indirectly,
10% or more of the voting stock of the corporation within the last two years.
Under the WBCL, the business combinations described above must be approved by
80% of the voting power of the corporation's stock and at least two-thirds of
the voting power of the corporation's stock not beneficially held by the
significant shareholder who is party to the relevant transaction or any of its
affiliates or associates, in each case voting together as a single group,
unless the following fair price standards have been met: (i) the aggregate
value of the per share consideration is equal to the higher of (a) the highest
price paid for any common stock of the corporation by the significant
shareholder in the transaction in which it became a significant shareholder or
within two years before the date of the business combination, (b) the market
value of the corporation's shares on the date of commencement of any tender
offer by the significant shareholder, the date on which the person became a
significant shareholder or the date of the first public announcement of the
proposed business combination, whichever is highest, or (c) the highest
liquidation or dissolution distribution to which holders of shares would be
entitled, and (ii) either cash, or the form of consideration used by the
significant shareholder to acquire the largest number of shares, is offered.
The Articles of Incorporation provide that neither Dr. Mazess, any affiliate
of Dr. Mazess nor the estate, executor, administrator, conservator or
beneficiaries of Dr. Mazess shall constitute a significant shareholder for
purposes of the foregoing.
Stock Purchase Restrictions. Section 180.1134 of the WBCL provides that, in
addition to the vote otherwise required by law or the articles of
incorporation of an "issuing public corporation," the approval of the holders
of a majority of the shares entitled to vote is required before such
corporation can take certain action while a takeover offer is being made or
after a takeover offer has been publicly announced and before it is concluded.
Shareholder approval is required for the corporation to (i) acquire more than
5% of its outstanding voting shares at a price above the market price from any
individual or organization that owns more than 3% of the outstanding voting
shares and has held such shares for less than two years, unless a similar
offer is made to acquire all voting shares or (ii) sell or option assets of
the corporation which amount to at least 10% of the three independent
directors or a majority of the independent directors vote not to have this
provision apply to the corporation. The restrictions described in clause (i)
above may have the effect of deterring a shareholder from acquiring shares of
the Company with the goal of seeking to have the Company repurchase such
shares at a premium over the market price or, alternatively, may deter a
person from embarking on an acquisition of the Company in which shareholders
might receive a premium for their stock over the then-current market price of
such stock.
Control Share Voting Restrictions. Section 180.1150 of the WBCL provides
that, absent a contrary provision in the Articles of Incorporation, the voting
power of shares (including shares issuable upon conversion of convertible
securities or upon exercise of options or warrants) of an "issuing public
corporation" held by any person in excess of 20% of the voting power in the
election of directors is limited to 10% of the full voting power of such
excess shares unless, at a special meeting of shareholders called in
accordance with certain procedures, the affirmative vote of a majority of the
voting power represented at the meeting and entitled to vote on the subject
matter approve a resolution restoring full voting power to such shares. Shares
of an issuing public corporation held or acquired from the issuing public
corporation or acquired under an agreement entered into at a time when the
issuing public corporation was not an issuing public corporation are excluded
from the application of these provisions. The Articles of Incorporation
provide that Section 180.1150 should not in any way limit the voting power of
any shares of capital stock owned by Dr. Mazess, any affiliate of Dr. Mazess
or the estate, administrator, conservator or beneficiaries of Dr. Mazess.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Norwest Bank
Minnesota, N.A.
53
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering and based on the number of shares
outstanding on November 30, 1997, the Company will have a total of 11,722,482
shares of Common Stock outstanding (12,172,482 shares if the over-allotment
option is exercised in full). Of these shares, 11,470,640 shares of Common
Stock, including the 3,000,000 shares of Common Stock offered hereby
(11,920,640 shares if the over-allotment option is exercised in full), will be
freely tradeable without restriction or registration under the Securities Act
by persons other than "affiliates" of the Company, as defined under the
Securities Act. The remaining 251,842 shares of Common Stock outstanding are
"restricted securities" as that term is defined by Rule 144 under the
Securities Act. All of such shares of restricted securities are currently
eligible for sale under Rule 144 (subject to the conditions thereof).
The Company has obtained from all of the executive officers and directors
and certain shareholders of the Company holding in the aggregate 3,301,674
shares of Common Stock and exercisable options to purchase an aggregate of
88,182 shares of Common Stock agreements not to directly or indirectly offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, establish an open put equivalent position or otherwise dispose of
any Common Stock or any securities convertible into, or exercisable or
exchangeable for, any shares of Common Stock for a period of 90 days from the
date of the final Prospectus without the prior written consent of NationsBanc
Montgomery Securities LLC. See "Underwriting."
As of November 30, 1997, options to purchase a total of 537,052 shares of
Common Stock pursuant to the Stock Option Plans were outstanding at a weighted
average exercise price of $2.92 per share, of which options to purchase
119,136 shares of Common Stock were then exercisable. An additional 574,200
shares of Common Stock were reserved for future option grants under the 1996
Plan. The Company has an effective registration statement on Form S-8 under
the Securities Act registering shares of Common Stock subject to stock options
granted under the Stock Option Plans. See "Management--Stock Option Plans" and
"Underwriting."
54
<PAGE>
UNDERWRITING
The Underwriters named below represented by NationsBanc Montgomery
Securities LLC, Donaldson, Lufkin & Jenrette Securities Corporation and Robert
W. Baird & Co. Incorporated (the "Representatives") have severally agreed,
subject to the terms and conditions in the Underwriting Agreement (the
"Underwriting Agreement"), by and between the Company and the Underwriters, to
purchase from the Company the number of shares of Common Stock indicated below
opposite their respective names at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters to
pay for and accept delivery of the shares of Common Stock are subject to
certain conditions precedent and that the Underwriters are committed to
purchase all such shares if they purchase any.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
NationsBanc Montgomery Securities LLC.................................
Donaldson, Lufkin & Jenrette Securities Corporation...................
Robert W. Baird & Co. Incorporated....................................
---------
Total............................................................. 3,000,000
=========
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Common Stock to the public on the terms set forth on the cover page
of this Prospectus. The Underwriters may allow selected dealers a concession
of not more than per share, and the Underwriters may allow, and such
dealers may reallow, a concession of not more than per share to certain
other dealers. After the offering, the offering price and other selling terms
may be changed by the Representatives. The Common Stock is offered subject to
receipt and acceptance by the Underwriters, and to certain other conditions,
including the right to reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 450,000 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial 3,000,000 shares to be
purchased by the Underwriters. To the extent that the Underwriters exercise
such over-allotment option, the Underwriters will be committed, subject to
certain conditions, to purchase such additional shares in approximately the
same proportion as set forth in the above table. The Underwriters may purchase
such shares only to cover over-allotments made in connection with the
offering.
The Representatives have informed the Company that the Underwriters do not
expect to confirm sales to any accounts over which they exercise discretionary
authority in excess of 5% of the number of shares of Common Stock offered
hereby.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
The directors, executive officers and certain shareholders of the Company,
who immediately following the offering and based on the number of shares
outstanding and stock options exercisable within 60 days as of November 30,
1997 collectively will beneficially own 3,389,856 shares of Common Stock, have
agreed not to directly or indirectly sell, offer, contract or grant any option
to sell, pledge, transfer, establish an open put equivalent position or
otherwise dispose of any rights with respect to any shares of Common Stock,
any options or warrants to purchase Common Stock, or any securities
convertible or exchangeable for Common Stock, owned directly by such holders
or with respect to which they have the power of disposition for a period of 90
days after the date of the final Prospectus without the prior written consent
of NationsBanc Montgomery Securities LLC. NationsBanc Montgomery Securities
LLC may, in its sole discretion and at any time without notice, release all or
any portion of the securities subject to these lock-up agreements. In
addition, the Company has agreed not to sell, offer to sell, contract to sell
or otherwise sell or dispose of any shares of Common Stock or any rights to
55
<PAGE>
acquire Common Stock, other than pursuant to its stock plans or upon the
exercise of outstanding options, for a period of 90 days after the date of the
final Prospectus without the prior written consent of NationsBanc Montgomery
Securities LLC.
The Representatives, on behalf of the Underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934, as amended ("Exchange Act"). Over-allotment involves syndicate sales
in excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so
long as the stabilizing bids do not exceed a specified maximum. Syndicate
covering transactions involve purchases of the Common Stock in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the Representatives to reclaim a selling
concession from a syndicate member when the Common Stock originally sold by
such syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the Common stock to be
higher than it would otherwise be in the absence of such transactions. These
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
In connection with the offering, certain Underwriters and selling group
members may engage in passive market making transactions in the Common Stock on
the Nasdaq National Market immediately prior to the commencement of sales in
the offering, in accordance with Rule 103 under Regulation M. Passive market
making consists of displaying bids on the Nasdaq National Market limited by the
bid prices of independent market makers for a security and making purchases of
a security which are limited by such prices and effected in response to order
flow. Net purchases by a passive market maker on each day are limited to a
specified percentage of the passive market maker's average daily trading volume
in the Common Stock during a specified prior period and must be discontinued
when such limit is reached. Passive market making may stabilize the market
price of the Common Stock at a level above that which might otherwise prevail
and, if commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters in connection with the offering will be reviewed for
the Company by Sidley & Austin, Chicago, Illinois and with respect to certain
patent matters, by Stroud, Stroud, Willink, Thompson & Howard, Madison,
Wisconsin, and for the Underwriters by Cooley Godward llp, Palo Alto,
California. The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Michael, Best & Friedrich, Milwaukee, Wisconsin.
EXPERTS
The consolidated financial statements of the Company as of June 30, 1997 and
1996 and for each of the years in the three-year period ended June 30, 1997
have been included herein and in the registration statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
56
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission the Registration Statement under
the Securities Act with respect to the Common Stock and associated Rights
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus omits certain information contained in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock and Rights offered hereby,
reference is hereby made to the Registration Statement and to the exhibits and
schedules filed therewith. Statements contained in this Prospectus regarding
the contents of any agreement or other document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to the copy of such agreement filed as an exhibit to the
Registration Statement, each such statement being qualified in its entirety by
such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected at the public reference facilities
maintained by the Commission at Room 204, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, DC 20549; Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661; and Seven World Trade Center, New York, New York 10048; and
copies of all or any part thereof may be obtained from such office upon
payment of the prescribed fees. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants, such as the Company, that file
electronically with the Commission.
The Company is required to comply with the reporting requirements of the
Exchange Act and files annual, quarterly and other reports with the
Commission. Similarly, the Company is subject to the proxy solicitation
requirements of the Exchange Act and, accordingly, furnishes audited financial
statements to its shareholders in connection with its annual meetings of
shareholders.
57
<PAGE>
BONE CARE INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-2
Consolidated Statements of Operations for the three months ended
September 30, 1997 and 1996 (unaudited) and each of the three years in
the period ended June 30, 1997.......................................... F-3
Consolidated Balance Sheets as of September 30, 1997 (unaudited) and June
30, 1997 and 1996....................................................... F-4
Consolidated Statements of Shareholders' Equity for the three months
ended September 30, 1997 (unaudited) and each of the three years in the
period ended June 30, 1997.............................................. F-5
Consolidated Statements of Cash Flows for the three months ended
September 30, 1997 and 1996 (unaudited) and each of the three years in
the period ended June 30, 1996.......................................... F-6
Notes to the Consolidated Financial Statements........................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Bone Care International, Inc.:
We have audited the accompanying consolidated balance sheets of Bone Care
International, Inc. and subsidiary as of June 30, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended June 30, 1997.
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. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bone Care
International, Inc. and subsidiary as of June 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1997 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
August 2, 1997
F-2
<PAGE>
BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------------- -----------------------
1995 1996 1997 1996 1997
---------- ------------ ------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 15,000 $ 18,620 $ 39,425 $ 525 $ --
Operating expenses:
Cost of sales......... -- 11,918 38,304 3,785 --
Research and
development.......... 535,195 1,157,914 2,885,127 369,364 1,002,517
General and
administrative....... 171,788 196,370 438,831 67,893 117,300
---------- ------------ ------------ ---------- -----------
Total operating
expenses........... 706,983 1,366,202 3,362,262 441,042 1,119,817
---------- ------------ ------------ ---------- -----------
Loss from operations.... (691,983) (1,347,582) (3,322,837) (440,517) (1,119,817)
Other income (expense):
Interest income....... 2,588 103,310 528,492 144,515 111,339
Interest expense...... (9,344) (13,495) -- -- --
---------- ------------ ------------ ---------- -----------
Interest, net......... (6,756) 89,815 528,492 144,515 111,339
---------- ------------ ------------ ---------- -----------
Net loss................ $ (698,739) $ (1,257,767) $ (2,794,345) $ (296,002) $(1,008,478)
========== ============ ============ ========== ===========
Net loss per common
share.................. $ (0.41) $ (0.26) $ (0.32) $ (0.03) $ (0.12)
========== ============ ============ ========== ===========
Weighted average number
of common shares....... 1,697,884 4,894,028 8,713,344 8,707,382 8,722,382
========== ============ ============ ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------
ASSETS 1996 1997 SEPTEMBER 30, 1997
- ------ ----------- ----------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........... $11,060,843 $ 8,531,714 $ 7,644,033
Receivables......................... 1,619 -- --
Inventory........................... -- 52,565 52,565
Prepaid expenses.................... 20,695 -- 62,785
----------- ----------- -----------
Total current assets............ 11,083,157 8,584,279 7,759,383
Property, plant and equipment, at
cost:
Lab improvements.................... 21,092 21,092 21,092
Furniture and fixtures.............. 20,390 24,625 24,625
Machinery and other equipment....... 215,979 263,970 308,752
----------- ----------- -----------
257,461 309,687 354,469
Less accumulated depreciation......... 192,677 226,737 235,736
----------- ----------- -----------
64,784 82,950 118,733
Excess of cost over fair value of net
assets acquired, net of
accumulated amortization of $553,512
at June 30, 1996, $642,960 at June
30, 1997 and $665,322 at September
30, 1997............................. 806,405 716,957 694,595
Patent fees, net of accumulated
amortization of $251,462 at
June 30, 1996, $359,462 at June 30,
1997 and $392,462 at September 30,
1997................................. 306,979 516,270 538,664
----------- ----------- -----------
$12,261,325 $ 9,900,456 $ 9,111,375
=========== =========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable.................... $ 73,236 $ 141,445 $ 92,029
Accrued liabilities:
Accrued clinical study and
research costs................... -- 291,165 568,683
Compensation payable.............. 4,133 15,447 25,224
Property, payroll and other taxes. 1,750 8,388 14,406
Other............................. -- 24,500 --
----------- ----------- -----------
Total current liabilities....... 79,119 480,945 700,342
Shareholders' equity:
Preferred stock--authorized--
2,000,000 shares of
$.001 par value; none issued....... -- -- --
Common stock--authorized--28,000,000
shares of
no par value; issued and
outstanding--8,707,382 shares at
June 30, 1996, 8,722,382 at June
30, 1997 and at September 30, 1997. 11,393,883 11,393,883 11,393,883
Additional paid-in capital............ 3,524,275 3,555,925 3,555,925
Accumulated deficit................... (2,735,952) (5,530,297) (6,538,775)
----------- ----------- -----------
12,182,206 9,419,511 8,411,033
----------- ----------- -----------
$12,261,325 $ 9,900,456 $ 9,111,375
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
NUMBER OF COMMON PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES STOCK CAPITAL DEFICIT EQUITY
--------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30,
1994................... 1,697,884 $ 583,333 $1,453,984 $ (779,446) $ 1,257,871
Net loss for the year
ended June 30, 1995.... -- -- -- (698,739) (698,739)
--------- ----------- ---------- ----------- -----------
Balance at June 30,
1995................... 1,697,884 583,333 1,453,984 (1,478,185) 559,132
Conversion of Lunar
Corporation advances
to common stock........ 214,802 634,683 -- -- 634,683
Contribution of Lunar
Corporation D- hormone
assets and all the
outstanding shares of
Continental Assays
Corporation for common
stock.................. 3,397,348 175,867 -- -- 175,867
Capital contributions by
Lunar Corporation...... 3,397,348 10,000,000 1,285,291 -- 11,285,291
Capital contribution by
Draxis Health Inc...... -- -- 60,000 -- 60,000
Payment from Lunar
Corporation for tax
benefit................ -- -- 725,000 -- 725,000
Net loss for the year
ended June 30, 1996.... -- -- -- (1,257,767) (1,257,767)
--------- ----------- ---------- ----------- -----------
Balance at June 30,
1996................... 8,707,382 11,393,883 3,524,275 (2,735,952) 12,182,206
Issuance of shares under
stock option plan...... 15,000 -- 31,650 -- 31,650
Net loss for the year
ended June 30, 1997.. -- -- -- (2,794,345) (2,794,345)
--------- ----------- ---------- ----------- -----------
Balance at June 30,
1997................... 8,722,382 11,393,883 3,555,925 (5,530,297) 9,419,511
Net loss for the three
month period ended
September 30, 1997..... -- -- -- (1,008,478) (1,008,478)
--------- ----------- ---------- ----------- -----------
Balance at September 30,
1997................... 8,722,382 $11,393,883 $3,555,925 $(6,538,775) $ 8,411,033
========= =========== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------- ------------------------
1995 1996 1997 1996 1997
--------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(698,739) $(1,257,767) $(2,794,345) $ (296,002) $(1,008,478)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization....... 115,094 182,378 231,508 56,322 64,361
Changes in assets
and liabilities:
Receivables....... (785) 33,168 1,619 (378) --
Inventory......... -- -- (52,565) -- --
Prepaid expenses.. 1,110 (2,695) 20,695 2,695 (62,785)
Accounts payable.. 11,692 (70,909) 68,209 (9,273) (49,416)
Accrued
liabilities...... (8,431) 4,289 333,617 7,800 268,813
--------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities....... (580,059) (1,111,536) (2,191,262) (238,836) (787,505)
--------- ----------- ----------- ----------- -----------
Cash flows from
investing activities:
Additions to property,
plant and equipment.. (15,254) (30,081) (52,226) (10,264) (44,782)
Patent fees........... (26,501) (87,597) (317,291) (56,131) (55,394)
Continental Assays
cash contribution.... -- 6,832 -- -- --
--------- ----------- ----------- ----------- -----------
Net cash used in
investing
activities....... $ (41,755) $ (110,846) $ (369,517) $ (66,395) $ (100,176)
--------- ----------- ----------- ----------- -----------
Cash flows from
financing activities:
Proceeds from Lunar
Corporation advances. 444,344 190,339 -- -- --
Proceeds from Lunar
Corporation capital
contributions........ -- 12,010,291 -- -- --
Proceeds from Draxis
Health, Inc. capital
contribution......... -- 60,000 -- -- --
Proceeds from exercise
of stock options..... -- -- 31,650 -- --
--------- ----------- ----------- ----------- -----------
Net cash provided
by financing
activities....... 444,344 12,260,630 31,650 -- --
--------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ (177,470) 11,038,248 (2,529,129) (305,231) (887,681)
Cash and cash
equivalents at
beginning of the
period................. 200,065 22,595 11,060,843 11,060,843 8,531,714
--------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
the period............. $ 22,595 $11,060,843 $ 8,531,714 $10,755,612 $ 7,644,033
========= =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include
the accounts of Bone Care International, Inc. and its wholly-owned subsidiary,
Continental Assays Corporation (the Company). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Description of Business: Bone Care International, Inc. is engaged in the
discovery and development of improved D-hormone therapies. In November 1997,
the Company announced results from its two pivotal Phase 3 clinical trials for
an oral formulation of its lead product candidate, one-alpha D/2/, a synthetic
D-hormone analog, for the treatment of secondary hyperparathyroidism
associated with end stage renal disease. Continental Assays Corporation
performs blood assays to determine the variety and level of D-hormone
metabolites in blood for both internal research and on behalf of third
parties.
The Company was a subsidiary of Lunar Corporation (Lunar) until May 8, 1996.
The Board of Directors of Lunar declared a dividend, payable to holders of
record of Lunar common stock, of one share of the Company's common stock for
every two shares of Lunar common stock held of record on April 24, 1996. The
distribution occurred on May 8, 1996, at which time Lunar and the Company
became separate publicly-traded companies.
Interim Financial Information: The financial information at September 30,
1997 and for the three months ended September 30, 1996 and 1997 is unaudited
but includes all adjustments (consisting only of normal recurring adjustments)
which the Company considers necessary for a fair presentation of the financial
position at such date and of the operating results and cash flows for those
periods. Results of the three month period are not necessarily indicative of
results expected for the entire year.
Revenue Recognition: Revenues from assay services are recognized as services
are performed.
Cash and Cash Equivalents: For purposes of the statements of cash flows, the
Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Inventory: Inventory is stated at the lower of cost or market; cost is
determined by the first-in, first-out method. Inventory consists of raw
materials.
Depreciation and Amortization: Depreciation and amortization are provided
for in amounts sufficient to relate the cost of depreciable assets to
operations over their estimated service lives. A combination of straight-line
and accelerated methods of depreciation are used for financial statement and
income tax reporting purposes.
The cost of property and equipment are depreciated over the following
estimated useful lives:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
-------------------- ---------------------
<S> <C>
Machinery, furniture, and fixtures 5-7 years
Lab improvements 31.5 years
</TABLE>
Intangible Assets: The excess of cost over fair value of net assets acquired
is being amortized on a straight-line basis over a 15-year period. Legal costs
incurred to register patents are amortized over a period of up to 10 years.
The Company continuously reviews intangibles to assess recoverability from
future operations using undiscounted cash flows. Impairment would be
recognized in operating results if a permanent diminution in value occurred.
Impairment would be measured using fair value.
Research and Development Costs: Materials, labor, and overhead expenses
related to research and development projects are charged to operations as
incurred.
F-7
<PAGE>
BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Stock-Based Compensation: Stock-based compensation related to employees is
recognized using the intrinsic value method and thus there is no compensation
expense for options granted with exercise prices equal to the fair value of
the Company's common stock on the date of the grant. Stock-based compensation
related to non-employees is not material.
Capital Structure: On October 10, 1997, the Company declared a 2-for-1 stock
split in the form of a stock dividend to shareholders of record on October 27,
1997. The dividend was paid November 14, 1997. Accordingly, all common share
and per share data in the accompanying financial statements have been adjusted
to give effect to the stock split.
Net Loss Per Share: Net loss per share is based on a weighted average number
of shares of common stock of 1,697,884, 4,894,028 and 8,713,344 for the years
ended June 30, 1995, 1996 and 1997, respectively, and 8,707,382 and 8,722,382
for the three months ended September 30, 1996 and 1997, respectively. Common
equivalent shares resulting from stock options have been excluded as their
effect is antidilutive.
Income Taxes: Income taxes are accounted under the assets and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and credit carryforwards. Deferred tax assets and
liabilities are measured using enacted rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
For the period prior to the May 8, 1996 distribution, the Company was
included in the consolidated federal income tax return of Lunar. Through the
date of distribution, tax expense has been calculated as if the Company filed
separate income tax returns; however, as a result of net operating losses
incurred, no income taxes have been provided for in any of the periods
presented.
Fair Value of Financial Instruments: The fair value of financial
instruments, which consisted of cash and cash equivalents, receivables,
accounts payable, and accrued liabilities, approximate their carrying values.
Use of Estimates: In preparing the consolidated financial statements, the
Company's management makes 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.
Recently Issued Accounting Pronouncements: The Financial Accounting
Standards Board has recently issued a new accounting standard, SFAS No. 128,
Earnings Per Share. This statement will affect the disclosure requirements for
the 1998 annual financial statements. The Company does not believe the
adoption of SFAS No. 128 will have a material impact on its financial
statements.
2. STOCK OPTIONS
Bone Care has granted options to key employees and directors under two
separate programs.
The January 1, 1989 option plan is intended to qualify as an incentive stock
option plan within the meaning of Section 422 of the Internal Revenue Code of
1986. Stock options to purchase shares of the Company's common stock granted
under this plan may be exercised, with certain exceptions in the case of the
optionee's death or retirement, only during employment. Stock options granted
are exercisable, during the optionee's lifetime, only by the optionee. The
stock options granted under this plan vest over a five year period and expire
10 years from the granting date. A total of 126,352 options were issued and
remain outstanding under this plan. In June 1990, the Board of Directors of
Bone Care agreed not to issue any new options under this plan. The
F-8
<PAGE>
BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company has not made any subsequent grants, except for a grant in March 1996
of replacement stock options to purchase 78,970 shares in exchange for the
forfeiture of an equal amount of previously granted stock options.
Under the second option program, titled the Bone Care International, Inc.
1996 Stock Option Plan, a total of 1,000,000 shares of common stock were made
available, of which 619,700 remain available for grant at June 30, 1997
(574,200 at September 30, 1997). Options granted under this program vest over
a three- or five-year period. The options will expire 10 years from the
granting date, or upon termination of employment.
A summary of the Company's stock option activity, and related information
are summarized as follows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JUNE 30, ENDED
---------------------------------------------------- SEPTEMBER 30,
1995 1996 1997 1997
---------------- ----------------- ----------------- ----------------
(UNAUDITED)
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding--beginning
of the period ......... 126,352 $2.11 126,352 $2.11 453,652 $2.12 491,652 $2.49
Granted................. -- -- 406,270 2.12 53,000 5.51 45,500 7.50
Exercised............... -- -- -- -- (15,000) 2.11 -- --
Terminated/cancelled.... -- -- (78,970) 2.11 -- -- -- --
------- ----- ------- ----- ------- ----- ------- -----
Outstanding--end of the
period ................ 126,352 $2.11 453,652 $2.12 491,652 $2.49 537,152 $2.92
======= ===== ======= ===== ======= ===== ======= =====
Exercisable at end of
the period............. 126,352 $2.11 47,382 $2.11 119,236 $2.12 119,236 $2.12
======= ===== ======= ===== ======= ===== ======= =====
Weighted average fair
value of options
granted during the
period................. $1.08 $2.88 $3.65
</TABLE>
The options outstanding at June 30, 1997, have been segregated into three
ranges for additional disclosure as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- ------------------------
WEIGHTED OPTIONS
OPTIONS AVERAGE WEIGHTED CURRENTLY WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
AT CONTRACTUAL EXERCISE AT JUNE 30, EXERCISE
RANGE OF EXERCISE PRICES JUNE 30, 1997 LIFE PRICE 1997 PRICE
- ------------------------ ------------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$2.11................... 435,152 7.4 $2.11 118,536 $2.11
$2.935-$3.125........... 6,500 9.1 3.01 700 3.01
$5.75................... 50,000 10.0 5.75 -- --
</TABLE>
The Company has elected to follow Accounting Principles Board Option No. 25,
Accounting for Stock Issued to Employees (APB 25), and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS No. 123, Accounting
for Stock-Based Compensation, requires use of option valuation models that
were not developed for use in valuing employee stock options. Under APB 25,
because of the exercise price of the Company's employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net loss and net loss per share is required
by SFAS No. 123, which also requires that the information be determined as if
the Company has accounted for its employee stock options
F-9
<PAGE>
BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
granted subsequent to June 30, 1995, under the fair market 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 1996 and 1997, risk free interest rate of 5.5% for
1996 and 6.0% for 1997, volatility factors of the expected market price of the
Company's common stock of 0.60, no expected dividends, and a weighted-average
expected life of the option of four years from the grant date.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair market value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair market value of its employee
stock options.
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:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Pro forma net loss............................. $(1,291,830) $(2,889,880)
Pro forma net loss per share................... (0.26) (0.33)
</TABLE>
Since SFAS No. 123 is applicable only to options granted subsequent to June
30, 1995, its pro forma effect will not be reflective until 2000.
3. INCOME TAXES
The Company had federal and state net operating loss and R&D tax credit
carryforwards expiring as follows:
<TABLE>
<CAPTION>
FEDERAL STATE
------------------- ------------------
R&D R&D
NOL CREDIT NOL CREDIT
---------- -------- ---------- -------
<S> <C> <C> <C> <C>
2009............................... $ -- $ -- $ 388,000 $24,000
2010............................... -- -- 596,000 24,000
2011............................... -- -- 1,146,000 16,000
2012............................... 322,000 -- 2,667,000 18,000
2013............................... 2,667,000 169,000 949,000 6,000
2014............................... 949,000 60,000 -- --
---------- -------- ---------- -------
Total.......................... $3,938,000 $229,000 $5,746,000 $88,000
========== ======== ========== =======
</TABLE>
Deferred tax assets at June 30, 1996, 1997 and September 30, 1997 were as
follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------------- SEPTEMBER 30,
1996 1997 1997
--------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Federal net operating loss carryforward... $ 110,000 $ 1,016,000 $1,339,000
Federal R&D tax credit carryforward....... -- 169,000 229,000
State net operating loss carryforward..... 168,000 377,000 454,000
State R&D tax credit carryforward......... -- 82,000 88,000
Valuation allowance....................... (278,000) (1,644,000) (2,110,000)
--------- ----------- ----------
Total................................. $ -- $ -- $ --
========= =========== ==========
</TABLE>
F-10
<PAGE>
BONE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
Realization of deferred tax assets is dependent upon generating sufficient
taxable income prior to the expiration of the related carryforward period.
Management believes there is a risk that such carryforwards may expire unused,
and accordingly, has established a valuation allowance against them.
4. RELATED-PARTY TRANSACTIONS
The Company entered into a Transition Agreement with Lunar pursuant to which
certain employees of Lunar will perform administrative services for the
Company. Such services include legal, treasury, accounting, insurance and
employee benefit administration. As compensation the Company paid Lunar a
monthly fee of $7,000 plus certain expenses for services through June 30, 1997.
The monthly fee was reduced to $5,000 per month effective July 1, 1997. Lunar
leases approximately 3,000 square feet of office space to the Company for
$2,000 per month under the Transition Agreement. The Transition Agreement
expires in May 1999; however, the Company may terminate the agreement by giving
Lunar 90 days advance written notice. Prior to the distribution, the Company
paid $5,000 per month to Lunar for rent and the aforementioned administrative
services. The total payments for those expenses were $60,000, $66,968, and
$135,000 during the years ended June 30, 1995, 1996, and 1997, respectively and
$27,000 for the three months ended September 30, 1997.
During the years ended June 30, 1995 and 1996, the Company paid $9,344 and
$13,495, respectively, for interest on intercompany advances from Lunar.
5. SHAREHOLDERS' EQUITY
On April 15, 1996, the Board of Directors of the Company adopted Amended and
Restated Articles of Incorporation of the Company which, among other things,
increased the authorized capital of the Company to 30,000,000 shares consisting
of 28,000,000 shares of common stock and 2,000,000 shares of preferred stock
issuable in series. The Board of Directors of the Company also declared a 789.7
for 1 stock split payable in the form of a stock dividend. The accompanying
financial statements give retroactive effect to these changes.
6. NON-CASH TRANSACTIONS
In October 1995, Lunar contributed its ownership of Continental Assays
Corporation and certain assets with a book value of $175,867 for 3,397,348
shares of the Company's common stock. In October 1995, Lunar also exchanged
$634,683 of loans receivable from the Company for 214,802 shares of common
stock of the Company.
7. PROFIT-SHARING PLAN
The Company has established a 401(k) profit-sharing plan covering
substantially all employees. Employer contributions to the plan are at the
discretion of the Board of Directors. The Company's policy is to fund profit-
sharing plan contributions as they accrue. Profit-sharing expense amounted to
$7,779, $6,699, and $6,215 for the years ended June 30, 1995, 1996 and 1997,
respectively and $1,500 for the three months ended September 30, 1997.
8. SHAREHOLDERS RIGHTS PLAN AND PREFERRED STOCK
In 1996, the Company adopted a Shareholders Rights Plan. Under this plan,
each share of common stock has associated with it one preferred share purchase
right (a Right). Under certain circumstances, each Right would entitle the
holders thereof to purchase from the Company 1/200th of one share of Series A
Junior Participating Preferred Stock for the price of $12.50 per 1/200th of one
share. The Rights do not have voting or dividend rights, and until they become
exercisable, have no dilutive effect on the per-share earnings of the Company.
The Rights are not presently exercisable and are transferable only with the
related shares of common stock. The Company's Board of Directors has designated
140,000 shares of the Preferred Stock as Series A Junior Participating
Preferred Stock in connection with the Rights.
F-11
<PAGE>
[GRAPHIC ILLUSTRATION OF PRODUCTS AT VARIOUS STAGES OF DEVELOPMENT]
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any
securities other than the shares of Common Stock to which it relates, or an
offer to, or a solicitation of, any person in any jurisdiction where such an
offer or solicitation would be unlawful. 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 Company
since the date hereof or that information contained herein is correct as of
any time subsequent to the date hereof.
--------------------
TABLE OF CONTENTS
--------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Special Note Regarding Forward-Looking Statements......................... 15
Use of Proceeds........................................................... 16
Price Range of Common Stock............................................... 17
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Selected Consolidated Financial Data...................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 24
Management................................................................ 41
Certain Transactions...................................................... 46
Principal Shareholders.................................................... 47
Description of Capital Stock.............................................. 49
Shares Eligible for Future Sale........................................... 54
Underwriting.............................................................. 55
Legal Matters............................................................. 56
Experts................................................................... 56
Available Information..................................................... 57
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 SHARES
[BCI LOGO]
BONE CARE INTERNATIONAL, INC.
COMMON STOCK
-----------------
PROSPECTUS
-----------------
NationsBanc Montgomery Securities LLC
Donaldson, Lufkin & Jenrette
Securities Corporation
Robert W. Baird & Co.
Incorporated
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with the sale of
the Common Stock offered hereby are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
SEC registration fee............................................ $ 8,969
NASD filing fee................................................. 3,540
Printing and engraving expenses................................. 125,000
Legal fees and expenses......................................... 200,000
Accounting fees and expenses.................................... 50,000
Blue Sky fees and expenses...................................... 5,000
The Nasdaq Stock Market listing fee............................. 58,000
Miscellaneous................................................... 49,491
--------
Total....................................................... $500,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the Company's By-Laws, directors and officers of the Company are
entitled to mandatory indemnification from the Company against certain
liabilities and expenses (a) to the extent such officers or directors are
successful in the defense of a proceeding and (b) in proceedings in which the
director or officer is not successful in the defense thereof, unless it is
determined the director or officer breached or failed to perform his duties to
the Company and such breach or failure constituted: (i) a willful failure to
deal fairly with the Company or its shareholders in connection with a matter
in which the director or officer had a material conflict of interest, (ii) a
violation of criminal law, unless the director or officer had reasonable cause
to believe his or her conduct was lawful or had no reasonable cause to believe
his or her conduct was unlawful, (iii) a transaction from which the director
or officer derived an improper personal profit, or (iv) willful misconduct.
The Company's By-Laws provide that the Company may purchase and maintain
insurance on behalf of an individual who is a director or officer of the
Company against liability asserted against or incurred by such individual in
his or her capacity as a director or officer regardless of whether the Company
is required or authorized to indemnify or allow expenses to the individual
against the same liability under the By-Laws.
The Wisconsin Business Corporation Law (the "WBCL") contains provisions for
mandatory indemnification of directors and officers against certain
liabilities and expenses that are similar to those contained in the Company's
By-Laws. Under Section 180.0828 of the WBCL, directors of the Company are not
subject to personal liability to the Company, its shareholders or any person
asserting rights on behalf thereof for certain breaches or failures to perform
any duty resulting solely from their status as such directors, except in
circumstances paralleling those in clauses (i) through (iv) in the preceding
paragraph. These provisions pertain only to breaches of duty by directors as
directors and not in any other corporate capacity, such as officers. As a
result of such provisions, shareholders may be unable to recover monetary
damages against directors for actions taken by them which constitute
negligence or gross negligence or which are in violation of their fiduciary
duties, although it may be possible to obtain injunctive or other equitable
relief with respect to such actions. If equitable remedies are found not to be
available to shareholders in any particular case, shareholders may not have
any effective remedy against the challenged conduct. Reference is made to the
Company's Charter and By-Laws filed as Exhibits 3.1 and 3.2 hereto,
respectively.
The Company has purchased directors and officers liability insurance, which
would provide coverage against certain liabilities including liabilities under
the Securities Act of 1933, as amended (the "Securities Act").
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
Company has issued the following securities that were not registered under the
Securities Act:
1. In October 1995, in exchange for 3,612,150 shares of Company Common
Stock, Lunar contributed to the Company its Vitamin D discovery program and
all outstanding capital stock of Continental Assays Corporation and
canceled outstanding loans from the Company in the amount of $634,683.
2. In April 1996, in exchange for 3,397,348 shares of Company Common
Stock, Lunar contributed $10,000,000 to the Company.
3. In February 1997, the Company issued 15,000 shares of Common Stock to
a director and an employee of the Company upon exercise of options to
purchase such shares at an exercise price of $2.11 per share in reliance
upon Rule 701 under the Securities Act.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by
an issuer not involving any public offering or the rules and regulations
thereunder and Rule 701 under the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S> <C>
1.1 Form of underwriting agreement
3.1(a) Restated Articles of Incorporation of Registrant (1) (Ex-
hibit 3.1, Amendment No. 3 to Form 10/A)
3.1(b) Articles of Amendment of Registrant
3.2 By-Laws of Registrant (2) (Exhibit 3.2)
4.1 Shareholders Rights Agreement between Bone Care and
Norwest Bank Minnesota, N.A. (1) (Exhibit 4.1, Amendment
No. 3 to Form 10/A)
5.1 Opinion of Michael, Best & Friedrich
10.1 Distribution Agreement between Bone Care and Lunar Corpo-
ration (1) (Exhibit 10.1, Amendment No. 3 to Form 10/A)
10.2 Tax Disaffiliation Agreement between Bone Care and Lunar
Corporation (1) (Exhibit 10.2, Amendment No. 3 to Form
10/A)
10.3 Transition Agreement between Bone Care and Lunar Corpora-
tion (1) (Exhibit 10.3, Amendment No. 3 to Form 10/A)
10.4 Incentive Stock Option Plan (1) (Exhibit 10.4)
10.5 1996 Stock Option Plan
10.6 Restated License Agreement between Bone Care and Draxis
Health, Inc. (1) (Exhibit 10.6)
10.7 Form of Stock Option Agreement
10.8 Agreement, effective as of May 1, 1987, by and between the
Wisconsin Alumni Research Foundation and Bone Care (Confi-
dential material appearing in this document has been omit-
ted and filed separately with the Securities and Exchange
Commission in accordance with the Securities Act of 1933,
as amended, and 17 C.F.R. 230.406 and 200.80 promulgated
thereunder. Omitted information has been replaced with as-
terisks.)
21.1 List of Subsidiaries of Registrant (3)
23.1 Consent of KPMG Peat Marwick LLP
23.2 The consent of Michael, Best & Friedrich is contained in
its opinion filed as Exhibit 5.1 to this Registration
Statement
24.1 Powers of Attorney (included on signature page)
</TABLE>
II-2
<PAGE>
- --------
(1) Incorporated by reference to exhibits filed with Registrant's Form 10
Registration Statement (Registration Number 0-27854) filed under the
Securities Exchange Act of 1934. Parenthetical references to exhibit
numbers are to the exhibit numbers in the Form 10 or, if applicable, the
Amendment to the Form 10.
(2) Incorporated by reference to the exhibits filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1996
(File No. 0-27854). Parenthetical references to exhibit numbers are to
the exhibit numbers in the Form 10-Q.
(3) Incorporated by reference to Exhibit 21 to the Registrant's Annual Report
on Form 10-K for the year ended June 30, 1997 (File No. 0-27854)
(b) FINANCIAL STATEMENT SCHEDULES: All schedules for which provision is made
in the applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions or are
inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
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 provisions described in Item 14 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that: (1) for purpose of
determining any liability under the Securities Act, the information omitted
from the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of the time
it was declared effective; and (2) for the purpose of determining any
liability under the Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN MADISON, WISCONSIN ON JANUARY 8,
1998.
Bone Care International, Inc.
/s/ Charles W. Bishop
By: _________________________________
Charles W. Bishop, Ph.D.
President and Chief Executive
Officer
POWER OF ATTORNEY AND SIGNATURES
WE, THE UNDERSIGNED OFFICERS AND DIRECTORS OF BONE CARE INTERNATIONAL, INC.,
HEREBY SEVERALLY CONSTITUTE AND APPOINT CHARLES W. BISHOP AND DALE W. GUTMAN,
AND EACH OF THEM SINGLY, OUR TRUE AND LAWFUL ATTORNEYS, WITH FULL POWER TO
THEM AND EACH OF THEM SINGLY, TO SIGN FOR US IN OUR NAMES IN THE CAPACITIES
INDICATED BELOW, ALL PRE-EFFECTIVE AND POST-EFFECTIVE AMENDMENTS TO THIS
REGISTRATION STATEMENT, INCLUDING ANY FILINGS PURSUANT TO RULE 462(B) UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND GENERALLY TO DO ALL THINGS IN OUR
NAMES AND ON OUR BEHALF IN SUCH CAPACITIES TO ENABLE BONE CARE INTERNATIONAL,
INC. TO COMPLY WITH THE PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND ALL REQUIREMENTS OF THE SECURITIES AND EXCHANGE COMMISSION.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED ON JANUARY 8, 1998 BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ Charles W. Bishop President, Chief Executive Officer and
___________________________________________ Director (Principal Executive Officer)
Charles W. Bishop, Ph.D.
/s/ Dale W. Gutman Vice President of Finance (Principal
___________________________________________ Financial and Accounting Officer)
Dale W. Gutman
/s/ Richard B. Mazess Chairman of the Board
___________________________________________
Richard B. Mazess, Ph.D.
Director
___________________________________________
Martin Barkin, M.D.
/s/ John Kapoor Director
___________________________________________
John Kapoor, Ph.D.
/s/ Robert A. Beckman Director
___________________________________________
Robert A. Beckman
</TABLE>
II-4
<PAGE>
EXHIBIT 1.1
_______________ Shares
Bone Care International, Inc.
Common Stock
Underwriting Agreement
dated January __, 1998
<PAGE>
<TABLE>
<S> <C> <C>
Section 1. Representations and Warranties of the Company....................................... 2
(a) Compliance with Registration Requirements........................................... 2
(b) Offering Materials Furnished to Underwriters........................................ 3
(c) Distribution of Offering Material By the Company.................................... 3
(d) The Underwriting Agreement.......................................................... 3
(e) Authorization of the Common Shares.................................................. 3
(f) No Applicable Registration or Other Similar Rights.................................. 3
(g) No Material Adverse Change.......................................................... 3
(h) Independent Accountants............................................................. 4
(i) Preparation of the Financial Statements............................................. 4
(j) Incorporation and Good Standing of the Company and its Subsidiaries................. 4
(k) Capitalization and Other Capital Stock Matters...................................... 4
(l) Stock Exchange Listing.............................................................. 5
(m) Non-Contravention of Existing Instruments;
No Further Authorizations or Approvals Required..................................... 5
(n) No Material Actions or Proceedings.................................................. 5
(o) Intellectual Property Rights........................................................ 6
(p) All Necessary Permits, etc.......................................................... 6
(q) Title to Properties................................................................. 6
(r) Tax Law Compliance.................................................................. 6
(s) Company Not an "Investment Company"................................................. 7
(t) Insurance........................................................................... 7
(u) No Price Stabilization or Manipulation.............................................. 7
(v) Related Party Transactions.......................................................... 7
(w) No Unlawful Contributions or Other Payments......................................... 7
(x) Company's Accounting System......................................................... 7
(y) Compliance with Environmental Laws.................................................. 8
(z) Periodic Review of Costs of Environmental Compliance................................ 8
(aa) ERISA Compliance.................................................................... 9
Section 2. Purchase, Sale and Delivery of the Common Shares.................................... 9
(a) The Firm Common Shares.............................................................. 9
(b) The First Closing Date.............................................................. 9
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<S> <C> <C>
(c) The Optional Common Shares; the Second Closing Date................................. 10
(d) Public Offering of the Common Shares................................................ 10
(e) Payment for the Common Shares....................................................... 10
(f) Delivery of the Common Shares....................................................... 11
(g) Delivery of Prospectus to the Underwriters.......................................... 11
Section 3. Additional Covenantsof the Company.................................................. 11
(a) Representatives' Review of Proposed Amendments and Supplements...................... 11
(b) Securities Act Compliance........................................................... 11
(c) Amendments and Supplements to the Prospectus and Other Securities Act Matters....... 12
(d) Copies of any Amendments and Supplements to the Prospectus.......................... 12
(e) Blue Sky Compliance................................................................. 12
(f) Use of Proceeds..................................................................... 13
(g) Transfer Agent...................................................................... 13
(h) Earnings Statement.................................................................. 13
(i) Periodic Reporting Obligations...................................................... 13
(j) Agreement Not To Offer or Sell Additional Securities................................ 13
(k) Future Reports to the Representatives............................................... 13
Section 4. Payment of Expenses................................................................. 14
Section 5. Conditions of the Obligations of the Underwriters................................... 14
(a) Accountants' Comfort Letter......................................................... 14
(b) Compliance with Registration Requirements; No Stop Order; No Objection from NASD.... 15
(c) No Material Adverse Change or Ratings Agency Change................................. 15
(d) Opinion of Counsel for the Company.................................................. 15
(e) Opinion of Intellectual Property Counsel for the Company............................ 16
(f) Opinion of Counsel for the Underwriters............................................. 16
(g) Officers' Certificate............................................................... 16
(h) Bring-down Comfort Letter........................................................... 16
(i) Lock-Up Agreement from Certain Stockholders of the Company.......................... 16
(j) Additional Documents................................................................ 17
Section 6. Reimbursement of Underwriters' Expenses............................................. 17
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<S> <C> <C>
Section 7. Effectiveness of this Agreement..................................................... 17
Section 8. Indemnification..................................................................... 17
(a) Indemnification of the Underwriters................................................. 17
(b) Indemnification of the Company, its Directors and Officers.......................... 19
(c) Notifications and Other Indemnification Procedures.................................. 19
(d) Settlements......................................................................... 20
Section 9. Contribution........................................................................ 21
Section 10. Default of One or More of the Several Underwriter................................... 22
Section 11. Termination of this Agreement....................................................... 22
Section 12. Representations and Indemnities to Survive Delivery................................. 23
Section 13. Notices............................................................................. 24
Section 14. Successors.......................................................................... 24
Section 15. Partial Unenforceability............................................................ 24
Section 16. Governing Law Provisions............................................................ 25
(a) Consent to Jurisdiction............................................................. 25
(b) Waiver of Immunity.................................................................. 25
Section 18. General Provisions.................................................................. 25
</TABLE>
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UNDERWRITING AGREEMENT
January __, 1998
NATIONSBANC MONTGOMERY SECURITIES, INC.
DONALDSON, LUFKIN & JENRETTE Securities Corporation
ROBERT W. BAIRD & CO. INCORPORATED
As Representatives of the several Underwriters
c/o NATIONSBANC MONTGOMERY SECURITIES, INC.
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Bone Care International, Inc., a Wisconsin corporation (the
"Company), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of [___] shares (the "Firm Common
Shares") of its Common Stock, no par value per share (the "Common Stock"). In
addition, the Company has granted to the Underwriters an option to purchase up
to an additional [___] shares (the "Optional Common Shares") of Common Stock, as
provided in Section 2. The Firm Common Shares and, if and to the extent such
option is exercised, the Optional Common Shares are collectively called the
"Common Shares". NationsBanc Montgomery Securities, Inc., ("NMSI"), Donald
Lufkin & Jenrette Securities Corporation and Robert W. Baird & Co. Incorporated
have agreed to act as representatives of the several Underwriters (in such
capacity, the "Representatives") in connection with the offering and sale of the
Common Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (File No.
333-[___]), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the "Registration Statement". Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the "Rule 462(b) Registration Statement", and from and
after the date and time of filing of the Rule 462(b) Registration Statement the
term "Registration Statement" shall include the Rule 462(b) Registration
Statement. Such prospectus, in the form first used by the Underwriters to
confirm sales of the Common Shares, is called the "Prospectus"; provided,
however, if the Company has, with the consent of NMSI, elected to rely upon Rule
434 under the Securities Act, the term "Prospectus" shall mean the Company's
prospectus subject to
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completion (each, a "preliminary prospectus") dated [___] (such preliminary
prospectus is called the "Rule 434 preliminary prospectus"), together with the
applicable term sheet (the "Term Sheet") prepared and filed by the Company with
the Commission under Rules 434 and 424(b) under the Securities Act and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. All references in this Agreement to the Registration
Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the
Prospectus or the Term Sheet, or any amendments or supplements to any of the
foregoing, shall include any copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR").
The Company hereby confirms its agreements with the Underwriters as
follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents, warrants and covenants to each
Underwriter as follows:
(A) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in all
material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Common Shares.
Each of the Registration Statement, any Rule 462(b) Registration Statement and
any post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any 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. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will not contain any 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. The
representations and warranties set forth in the two immediately preceding
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
2.
<PAGE>
(B) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The Company
has delivered to the Representatives three complete manually signed copies of
the Registration Statement and of each consent and certificate of experts filed
as a part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives have
reasonably requested for each of the Underwriters.
(C) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY. The
Company has not distributed and will not distribute, prior to the later of the
Second Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection with the
offering and sale of the Common Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(D) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(E) AUTHORIZATION OF THE COMMON SHARES. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(F) NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS. There
are no persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or included
in the offering contemplated by this Agreement, except for such rights as have
been duly waived.
(G) NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed in
the Prospectus, subsequent to the respective dates as of which information is
given in the Prospectus: (i) there has been no material adverse change, or any
development that could reasonably be expected to result in a material adverse
change, in the condition, financial or otherwise, or in the earnings, business,
operations or prospects, whether or not arising from transactions in the
ordinary course of business, of the Company and its subsidiaries, considered as
one entity (any such change is called a "Material Adverse Change"); (ii) the
Company and its subsidiaries, considered as one entity, have not incurred any
material liability or obligation, indirect, direct or contingent, not in the
ordinary course of business nor entered into any material transaction or
agreement not in the ordinary course of business; and (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Company or,
except for dividends paid to the Company or other subsidiaries, any of its
subsidiaries on any class of capital stock or repurchase or redemption by the
Company or any of its subsidiaries of any class of capital stock.
3.
<PAGE>
(H) INDEPENDENT ACCOUNTANTS. KPMG Peat Marwick LLP, who have
expressed their opinion with respect to the financial statements (which term as
used in this Agreement includes the related notes thereto) and supporting
schedules filed with the Commission as a part of the Registration Statement and
included in the Prospectus, are independent public or certified public
accountants as required by the Securities Act and the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(I) PREPARATION OF THE FINANCIAL STATEMENTS. The financial
statements filed with the Commission as a part of the Registration Statement and
included in the Prospectus present fairly the consolidated financial position of
the Company and its subsidiaries as of and at the dates indicated and the
results of their operations and cash flows for the periods specified. The
supporting schedules included in the Registration Statement present fairly the
information required to be stated therein. Such financial statements and
supporting schedules have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved, except as may be expressly stated in the related notes thereto. No
other financial statements or supporting schedules are required to be included
in the Registration Statement. The financial data set forth in the Prospectus
under the captions "Prospectus Summary--Summary Selected Financial Data",
"Selected Financial Data" and "Capitalization" fairly present the information
set forth therein on a basis consistent with that of the audited financial
statements contained in the Registration Statement.
(J) INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS
SUBSIDIARIES. Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation and has corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus and, in the case of the Company, to enter into
and perform its obligations under this Agreement. Each of the Company and each
subsidiary is duly qualified as a foreign corporation to transact business and
is in good standing in the State of Wisconsin and each other jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except for such jurisdictions
(other than the State of Wisconsin) where the failure to so qualify or to be in
good standing would not, individually or in the aggregate, result in a Material
Adverse Change. All of the issued and outstanding capital stock of each
subsidiary has been duly authorized and validly issued, is fully paid and
nonassessable and is owned by the Company, directly or through subsidiaries,
free and clear of any security interest, mortgage, pledge, lien, encumbrance or
claim. The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries listed in
Exhibit 22.1 to the Registration Statement.
(K) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS. The
authorized, issued and outstanding capital stock of the Company is as set forth
in the Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in the
Prospectus). The Common Stock (including the Common Shares) conforms in all
material respects to the description thereof contained in the Prospectus. All of
the issued and outstanding shares of Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable and have been issued in
compliance with federal and
4.
<PAGE>
state securities laws. None of the outstanding shares of Common Stock were
issued in violation of any preemptive rights, rights of first refusal or other
similar rights to subscribe for or purchase securities of the Company. There are
no authorized or outstanding options, warrants, preemptive rights, rights of
first refusal or other rights to purchase, or equity or debt securities
convertible into or exchangeable or exercisable for, any capital stock of the
Company or any of its subsidiaries other than those accurately described in the
Prospectus. The description of the Company's stock option, stock bonus and other
stock plans or arrangements, and the options or other rights granted thereunder,
set forth in the Prospectus accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(L) STOCK EXCHANGE LISTING. The Common Stock (including the
Common Shares) is registered pursuant to Section 12(g)n of the Exchange Act and
is listed on the Nasdaq National Market, and the Company has taken no action
designed to, or likely to have the effect of, terminating the registration of
the Common Stock under the Exchange Act or delisting the Common Stock from the
Nasdaq National Market, nor has the Company received any notification that the
Commission or the National Association of Securities Dealers, Inc. (the "NASD")
is contemplating terminating such registration or listing.
(M) NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER
AUTHORIZATIONS OR APPROVALS REQUIRED. Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws or is in default (or,
with the giving of notice or lapse of time, would be in default) ("Default")
under any indenture, mortgage, loan or credit agreement, note, contract,
franchise, lease or other instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound, or to which
any of the property or assets of the Company or any of its subsidiaries is
subject (each, an "Existing Instrument"), except for such Defaults as would not,
individually or in the aggregate, result in a Material Adverse Change. The
Company's execution, delivery and performance of this Agreement and consummation
of the transactions contemplated hereby and by the Prospectus (i) have been duly
authorized by all necessary corporate action and will not result in any
violation of the provisions of the charter or by-laws of the Company or any
subsidiary, (ii) will not conflict with or constitute a breach of, or Default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, or require the consent of any other part to, any
Existing Instrument, except for such conflicts, breaches, Defaults, liens,
charges or encumbrances as would not, individually or in the aggregate, result
in a Material Adverse Change and (iii) will not result in any violation of any
law, administrative regulation or administrative or court decree applicable to
the Company or any subsidiary. No consent, approval, authorization or other
order of, or registration or filing with, any court or other governmental or
regulatory authority or agency, is required for the Company's execution,
delivery and performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been obtained or
made by the Company and are in full force and effect under the Securities Act,
applicable state securities or blue sky laws and from the National Association
of Securities Dealers, Inc. (the "NASD").
(N) NO MATERIAL ACTIONS OR PROCEEDINGS. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened (i) against or affecting the Company or any of
its subsidiaries, (ii) which has as the
5.
<PAGE>
subject thereof any officer or director of, or property owned or leased by, the
Company or any of its subsidiaries or (iii) relating to environmental or
discrimination matters, where in any such case (A) there is a reasonable
possibility that such action, suit or proceeding might be determined adversely
to the Company or such subsidiary and (B) any such action, suit or proceeding,
if so determined adversely, would reasonably be expected to result in a Material
Adverse Change or adversely affect the consummation of the transactions
contemplated by this Agreement. No material labor dispute with the employees of
the Company or any of its subsidiaries, or with the employees of any principal
supplier of the Company, exists or, to the best of the Company's knowledge, is
threatened or imminent.
(O) INTELLECTUAL PROPERTY RIGHTS. The Company and its
subsidiaries own or possess sufficient trademarks, trade names, patent rights,
copyrights, licenses, approvals, trade secrets and other similar rights
(collectively, "Intellectual Property Rights") reasonably necessary to conduct
their businesses as now conducted; and the expected expiration of any of such
Intellectual Property Rights would not result in a Material Adverse Change.
Neither the Company nor any of its subsidiaries has received any notice of
infringement or conflict with asserted Intellectual Property Rights of others,
which infringement or conflict, if the subject of an unfavorable decision, would
result in a Material Adverse Change.
(P) ALL NECESSARY PERMITS, ETC. The Company and each subsidiary
possess such valid and current certificates, authorizations or permits issued by
the appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct their respective businesses, and neither the Company nor
any subsidiary has received any notice of proceedings relating to the revocation
or modification of, or non-compliance with, any such certificate, authorization
or permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.
(Q) TITLE TO PROPERTIES. The Company and each of its
subsidiaries has good and marketable title to all the properties and assets
reflected as owned in the financial statements referred to in Section 1(i) above
(or elsewhere in the Prospectus), in each case free and clear of any security
interests, mortgages, liens, encumbrances, equities, claims and other defects,
except such as do not materially and adversely affect the value of such property
and do not materially interfere with the use made or proposed to be made of such
property by the Company or such subsidiary. The real property, improvements,
equipment and personal property held under lease by the Company or any
subsidiary are held under valid and enforceable leases, with such exceptions as
are not material and do not materially interfere with the use made or proposed
to be made of such real property, improvements, equipment or personal property
by the Company or such subsidiary.
(R) TAX LAW COMPLIANCE. The Company and its consolidated
subsidiaries have filed all necessary federal, state and foreign income and
franchise tax returns or have properly requested extensions thereof and have
paid all taxes required to be paid by any of them and, if due and payable, any
related or similar assessment, fine or penalty levied against any of them. The
Company has made adequate charges, accruals and reserves in the applicable
financial statements referred to in Section 1(i) above in respect of all
federal, state and foreign
6.
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income and franchise taxes for all periods as to which the tax liability of the
Company or any of its consolidated subsidiaries has not been finally determined.
(S) COMPANY NOT AN "INVESTMENT COMPANY". The Company has been
advised of the rules and requirements under the Investment Company Act of 1940,
as amended (the "Investment Company Act"). The Company is not, and after
receipt of payment for the Common Shares will not be, an "investment company"
within the meaning of Investment Company Act and will conduct its business in a
manner so that it will not become subject to the Investment Company Act.
(T) INSURANCE. Each of the Company and its subsidiaries are
insured by recognized, financially sound and reputable institutions with
policies in such amounts and with such deductibles and covering such risks as
are generally deemed adequate and customary for their businesses including, but
not limited to, policies covering real and personal property owned or leased by
the Company and its subsidiaries against theft, damage, destruction, acts of
vandalism and earthquakes. The Company has no reason to believe that it or any
subsidiary will not be able (i) to renew its existing insurance coverage as and
when such policies expire or (ii) to obtain comparable coverage from similar
institutions as may be necessary or appropriate to conduct its business as now
conducted and at a cost that would not result in a Material Adverse Change.
Neither of the Company nor any subsidiary has been denied any insurance coverage
which it has sought or for which it has applied.
(U) NO PRICE STABILIZATION OR MANIPULATION. The Company has not
taken and will not take, directly or indirectly, any action designed to or that
might be reasonably expected to cause or result in stabilization or manipulation
of the price of the Common Stock to facilitate the sale or resale of the Common
Shares.
(V) RELATED PARTY TRANSACTIONS. There are no business
relationships or related-party transactions involving the Company or any
subsidiary or any other person required to be described in the Prospectus which
have not been described as required.
(W) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS. Neither the
Company nor any of its subsidiaries nor, to the best of the Company's knowledge,
any employee or agent of the Company or any subsidiary, has made any
contribution or other payment to any official of, or candidate for, any federal,
state or foreign office in violation of any law or of the character required to
be disclosed in the Prospectus.
(X) COMPANY'S ACCOUNTING SYSTEM. The Company maintains a system
of accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
7.
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(Y) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as would not,
individually or in the aggregate, result in a Material Adverse Change (i)
neither the Company nor any of its subsidiaries is in violation of any federal,
state, local or foreign law or regulation relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or wildlife,
including without limitation, laws and regulations relating to emissions,
discharges, releases or threatened releases of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum and
petroleum products (collectively, "Materials of Environmental Concern"), or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Materials of Environment Concern
(collectively, "Environmental Laws"), which violation includes, but is not
limited to, noncompliance with any permits or other governmental authorizations
required for the operation of the business of the Company or its subsidiaries
under applicable Environmental Laws, or noncompliance with the terms and
conditions thereof, nor has the Company or any of its subsidiaries received any
written communication, whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the Company or any of its subsidiaries
is in violation of any Environmental Law; (ii) there is no claim, action or
cause of action filed with a court or governmental authority, no investigation
with respect to which the Company has received written notice, and no written
notice by any person or entity alleging potential liability for investigatory
costs, cleanup costs, governmental responses costs, natural resources damages,
property damages, personal injuries, attorneys' fees or penalties arising out
of, based on or resulting from the presence, or release into the environment, of
any Material of Environmental Concern at any location owned, leased or operated
by the Company or any of its subsidiaries, now or in the past (collectively,
"Environmental Claims"), pending or, to the best of the Company's knowledge,
threatened against the Company or any of its subsidiaries or any person or
entity whose liability for any Environmental Claim the Company or any of its
subsidiaries has retained or assumed either contractually or by operation of
law; and (iii) to the best of the Company's knowledge, there are no past or
present actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission, discharge, presence or
disposal of any Material of Environmental Concern, that reasonably could result
in a violation of any Environmental Law or form the basis of a potential
Environmental Claim against the Company or any of its subsidiaries or against
any person or entity whose liability for any Environmental Claim the Company or
any of its subsidiaries has retained or assumed either contractually or by
operation of law.
(Z) PERIODIC REVIEW OF COSTS OF ENVIRONMENTAL COMPLIANCE. In the
ordinary course of its business, the Company conducts a periodic review of the
effect of Environmental Laws on the business, operations and properties of the
Company and its subsidiaries, in the course of which it identifies and evaluates
associated costs and liabilities (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties). On the basis of such review and the amount of its established
reserves, the Company has reasonably concluded that such associated costs and
liabilities would not, individually or in the aggregate, result in a Material
Adverse Change.
8.
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(AA) ERISA COMPLIANCE. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or maintained by
the Company, its subsidiaries or their "ERISA Affiliates" (as defined below) are
in compliance in all material respects with ERISA. "ERISA Affiliate" means,
with respect to the Company or a subsidiary, any member of any group of
organizations described in Sections 414(b),(c),(m) or (o) of the Internal
Revenue Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company or such subsidiary
is a member. No "reportable event" (as defined under ERISA) has occurred or is
reasonably expected to occur with respect to any "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of their ERISA
Affiliates. No "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates, if such "employee
benefit plan" were terminated, would have any "amount of unfunded benefit
liabilities" (as defined under ERISA). Neither the Company, its subsidiaries
nor any of their ERISA Affiliates has incurred or reasonably expects to incur
any liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or
4980B of the Code. Each "employee benefit plan" established or maintained by
the Company, its subsidiaries or any of their ERISA Affiliates that is intended
to be qualified under Section 401(a) of the Code is so qualified and nothing has
occurred, whether by action or failure to act, which would cause the loss of
such qualification.
Any certificate signed by an officer of the Company and delivered to the
Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
(A) THE FIRM COMMON SHARES. The Company agrees to issue and
sell to the several Underwriters the Firm Common Shares upon the terms herein
set forth. On the basis of the representations, warranties and agreements herein
contained, and upon the terms but subject to the conditions herein set forth,
the Underwriters agree, severally and not jointly, to purchase from the Company
the respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
Underwriters to the Company shall be $[___] per share.
(B) THE FIRST CLOSING DATE. Delivery of certificates for the
Firm Common Shares to be purchased by the Underwriters and payment therefor
shall be made at the offices of NMSI, 600 Montgomery Street, San Francisco,
California (or such other place as may be agreed to by the Company and the
Representatives) at 6:00 a.m. San Francisco time, on [___], or such other time
and date not later than 10:30 a.m. San Francisco time, on [___]/1/ as the
Representatives shall designate by notice to the Company (the time and date of
such closing are called the "First Closing Date"). The Company hereby
acknowledges that circumstances under which the Representatives may provide
notice to postpone the First Closing Date as originally
_______________________
/1/ Insert a date ten business days following the original contemplated First
Closing Date.
9.
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scheduled include, but are in no way limited to, any determination by the
Company or the Representatives to recirculate to the public copies of an amended
or supplemented Prospectus or a delay as contemplated by the provisions of
Section 10.
(C) THE OPTIONAL COMMON SHARES; THE SECOND CLOSING DATE. In
addition, on the basis of the representations, warranties and agreements herein
contained, and upon the terms but subject to the conditions herein set forth,
the Company hereby grants an option to the several Underwriters to purchase,
severally and not jointly, up to an aggregate of [___] Optional Common Shares
from the Company at the purchase price per share to be paid by the Underwriters
for the Firm Common Shares. The option granted hereunder is for use by the
Underwriters solely in covering any over-allotments in connection with the sale
and distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "First Closing Date" shall refer to the time and date
of delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the
Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Optional Common
Shares are to be purchased, each Underwriter agrees, severally and not jointly,
to purchase the number of Optional Common Shares (subject to such adjustments to
eliminate fractional shares as the Representatives may determine) that bears the
same proportion to the total number of Optional Common Shares to be purchased as
the number of Firm Common Shares set forth on Schedule A opposite the name of
such Underwriter bears to the total number of Firm Common Shares. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
(D) PUBLIC OFFERING OF THE COMMON SHARES. The Representatives
hereby advises the Company that the Underwriters intend to offer for sale to the
public, as described in the Prospectus, their respective portions of the Common
Shares as soon after this Agreement has been executed and the Registration
Statement has been declared effective as the Representatives, in its sole
judgment, has determined is advisable and practicable.
(E) PAYMENT FOR THE COMMON SHARES. Payment for the Common Shares
shall be made at the First Closing Date (and, if applicable, at the Second
Closing Date) by wire transfer of immediately available funds to the order of
the Company.
It is understood that the Representatives has been authorized, for its own
account and the accounts of the several Underwriters, to accept delivery of and
receipt for, and make payment of the purchase price for, the Firm Common Shares
and any Optional Common Shares the Underwriters have agreed to purchase. NMSI,
individually and not as the Representatives of the Underwriters, may (but shall
not be obligated to) make payment for any Common Shares to be
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purchased by any Underwriter whose funds shall not have been received by the
Representatives by the First Closing Date or the Second Closing Date, as the
case may be, for the account of such Underwriter, but any such payment shall not
relieve such Underwriter from any of its obligations under this Agreement.
(F) DELIVERY OF THE COMMON SHARES. The Company shall deliver,
or cause to be delivered, to the Representatives for the accounts of the several
Underwriters certificates for the Firm Common Shares at the First Closing Date,
against the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The Company shall also
deliver, or cause to be delivered, to the Representatives for the accounts of
the several Underwriters, certificates for the Optional Common Shares the
Underwriters have agreed to purchase at the First Closing Date or the Second
Closing Date, as the case may be, against the irrevocable release of a wire
transfer of immediately available funds for the amount of the purchase price
therefor. The certificates for the Common Shares shall be in definitive form and
registered in such names and denominations as the Representatives shall have
requested at least two full business days prior to the First Closing Date (or
the Second Closing Date, as the case may be) and shall be made available for
inspection on the business day preceding the First Closing Date (or the Second
Closing Date, as the case may be) at a location in New York City as the
Representatives may designate. Time shall be of the essence, and delivery at the
time and place specified in this Agreement is a further condition to the
obligations of the Underwriters.
(G) DELIVERY OF PROSPECTUS TO THE UNDERWRITERS. Not later than
12:00 p.m. on the second business day following the date the Common Shares of
released by the Underwriters for sale to the public, the Company shall delivery
or cause to be delivered copies of the Prospectus in such quantities and at such
places as the Representatives shall request.
SECTION 3. ADDITIONAL COVENANTSOF THE COMPANY.
The Company further covenants and agrees with each Underwriter as
follows:
(A) REPRESENTATIVES' REVIEW OF PROPOSED AMENDMENTS AND
SUPPLEMENTS. During such period beginning on the date hereof and ending on the
later of the First Closing Date or such date, as in the opinion of counsel for
the Underwriters, the Prospectus is no longer required by law to be delivered in
connection with sales by an Underwriter or dealer (the "Prospectus Delivery
Period"), prior to amending or supplementing the Registration Statement
(including any registration statement filed under Rule 462(b) under the
Securities Act) or the Prospectus, (including any amendment or supplement
through incorporation by reference of any report filed under the Exchange Act).
The Company shall furnish to the Representatives for review a copy of each such
proposed amendment or supplement, and the Company shall not file any such
proposed amendment or supplement to which the Representatives reasonably
objects.
(B) SECURITIES ACT COMPLIANCE. After the date of this
Agreement, the Company shall promptly advise the Representatives in writing (i)
of the receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any filing of any
post-effective amendment to the Registration Statement or any
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amendment or supplement to any preliminary prospectus or the Prospectus, (iii)
of the time and date that any post-effective amendment to the Registration
Statement becomes effective and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto or of any order preventing or suspending the
use of any preliminary prospectus or the Prospectus, or of any proceedings to
remove, suspend or terminate from listing or quotation the Common Stock from any
securities exchange upon which the it is listed for trading or included or
designated for quotation, or of the threatening or initiation of any proceedings
for any of such purposes. If the Commission shall enter any such stop order at
any time, the Company will use its best efforts to obtain the lifting of such
order at the earliest possible moment. Additionally, the Company agrees that it
shall comply with the provisions of Rules 424(b), 430A and 434, as applicable,
under the Securities Act and will use its reasonable efforts to confirm that any
filings made by the Company under such Rule 424(b) were received in a timely
manner by the Commission.
(C) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER
SECURITIES ACT MATTERS. If, during the Prospectus Delivery Period, any event
shall occur or condition exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the light
of the circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if in the opinion of the Representatives or counsel for the
Underwriters it is otherwise necessary to amend or supplement the Prospectus to
comply with law, the Company agrees to promptly prepare (subject to Section
3(A)(a) hereof), file with the Commission and furnish at its own expense to the
Underwriters and to dealers, amendments or supplements to the Prospectus so that
the statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will comply
with law.
(D) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS.
The Company agrees to furnish the Representatives, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any amendments
and supplements thereto as the Representatives may request.
(E) BLUE SKY COMPLIANCE. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of) the
or state securities or blue sky laws or Canadian provincial Securities laws of
those jurisdictions designated by the Representatives, shall comply with such
laws and shall continue such qualifications, registrations and exemptions in
effect so long as required for the distribution of the Common Shares. The
Company shall not be required to qualify as a foreign corporation or to take any
action that would subject it to general service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise the Representatives
promptly of the suspension of the qualification or registration of (or any such
exemption relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any such purpose,
and in the event of the issuance of any order suspending such qualification,
registration or exemption, the Company shall use its best efforts to obtain the
withdrawal thereof at the earliest possible moment.
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(F) USE OF PROCEEDS. The Company shall apply the net proceeds
from the sale of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(G) TRANSFER AGENT. The Company shall engage and maintain, at
its expense, a registrar and transfer agent for the Common Stock.
(H) EARNINGS STATEMENT. As soon as practicable, the Company
will make generally available to its security holders and to the Representatives
an earnings statement (which need not be audited) covering the twelve-month
period ending March 31, 1999 that satisfies the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder.
(I) PERIODIC REPORTING OBLIGATIONS. During the Prospectus
Delivery Period the Company shall file, on a timely basis, with the Commission
and the Nasdaq National Market all reports and documents required to be filed
under the Exchange Act.
(J) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. During
the period of 180 days following the date of the Prospectus, the Company will
not, without the prior written consent of NMSI (which consent may be withheld at
the sole discretion of NMSI), directly or indirectly, sell, offer, contract or
grant any option to sell, pledge, transfer or establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Exchange Act, or
otherwise dispose of or transfer, or announce the offering of, or file any
registration statement under the Securities Act in respect of, any shares of
Common Stock, options or warrants to acquire shares of the Common Stock or
securities exchangeable or exercisable for or convertible into shares of Common
Stock (other than as contemplated by this Agreement with respect to the Common
Shares); provided, however, that the Company may issue shares of its Common
Stock or options to purchase its Common Stock, or Common Stock upon exercise of
options, pursuant to any stock option, stock bonus or other stock plan or
arrangement described in the Prospectus, but only if the holders of such shares,
options, or shares issued upon exercise of such options, agree in writing not to
sell, offer, dispose of or otherwise transfer any such shares or options during
such 180 day period without the prior written consent of NMSI (which consent may
be withheld at the sole discretion of the NMSI).
(K) FUTURE REPORTS TO THE REPRESENTATIVES. During the period of
five years hereafter the Company will furnish to the Representatives at 600
Montgomery Street, San Francisco, CA 94111, Attention: Stuart Duty: (i) as soon
as practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows for
the year then ended and the opinion thereon of the Company's independent public
or certified public accountants; (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Current Report on Form 8-K or other report filed by the
Company with the Commission, the NASD or any securities exchange; and (iii) as
soon as available, copies of any report or communication of the Company mailed
generally to holders of its capital stock.
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NMSI, on behalf of the several Underwriters, may, in its sole discretion,
waive in writing the performance by the Company of any one or more of the
foregoing covenants or extend the time for their performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs, fees
and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel, independent public or certified public accountants and
other advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the state securities or blue sky laws or the provincial
securities laws of Canada, and, if requested by the Representatives, preparing
and printing a "Blue Sky Survey" or memorandum, and any supplements thereto,
advising the Underwriters of such qualifications, registrations and exemptions,
(vii) the filing fees incident to, and the reasonable fees and expenses of
counsel for the Underwriters in connection with, the NASD's review and approval
of the Underwriters' participation in the offering and distribution of the
Common Shares, (viii) the fees and expenses associated with including the Common
Shares on the Nasdaq National Market, and (ix) all other fees, costs and
expenses referred to in Item 13 of Part II of the Registration Statement. Except
as provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the
Underwriters shall pay their own expenses, including the fees and disbursements
of their counsel.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and as of the First Closing Date
as though then made and, with respect to the Optional Common Shares, as of the
Second Closing Date as though then made, to the timely performance by the
Company of its covenants and other obligations hereunder, and to each of the
following additional conditions:
(A) ACCOUNTANTS' COMFORT LETTER. On the date hereof, the
Representatives shall have received from KPMG Peat Marwick LLP, independent
public or certified public accountants for the Company, a letter dated the date
hereof addressed to the Underwriters, in form and substance satisfactory to the
Representatives, containing statements and information of the type ordinarily
included in accountant's "comfort letters" to underwriters, delivered according
to Statement of Auditing Standards No. 72 (or any successor bulletin), with
respect to the audited and unaudited financial statements and certain financial
information
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contained in the Registration Statement and the Prospectus (and the
Representatives shall have received an additional [___] conformed copies of such
accountants' letter for each of the several Underwriters).
(B) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER; NO
OBJECTION FROM NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the Optional
Common Shares, the Second Closing Date:
(I) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under the Securities
Act) in the manner and within the time period required by Rule 424(b) under the
Securities Act; or the Company shall have filed a post-effective amendment to
the Registration Statement containing the information required by such Rule
430A, and such post-effective amendment shall have become effective; or, if the
Company elected to rely upon Rule 434 under the Securities Act and obtained the
Representatives' consent thereto, the Company shall have filed a Term Sheet with
the Commission in the manner and within the time period required by such Rule
424(b);
(II) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or any post-
effective amendment to the Registration Statement, shall be in effect and no
proceedings for such purpose shall have been instituted or threatened by the
Commission; and
(III) the NASD shall have raised no objection to the
fairness and reasonableness of the underwriting terms and arrangements.
(C) NO MATERIAL ADVERSE CHANGE OR RATINGS AGENCY CHANGE. For
the period from and after the date of this Agreement and prior to the First
Closing Date and, with respect to the Optional Common Shares, the Second Closing
Date:
(I) in the judgment of the Representatives there shall
not have occurred any Material Adverse Change; and
(II) there shall not have occurred any downgrading, nor
shall any notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any securities of the Company or any of
its subsidiaries by any "nationally recognized statistical rating organization"
as such term is defined for purposes of Rule 436(g)(2) under the Securities Act.
(D) OPINION OF COUNSEL FOR THE COMPANY. On each of the First
Closing Date and the Second Closing Date the Representatives shall have received
the favorable opinion of Sidley & Austin, counsel for the Company, dated as of
such Closing Date, the form of which is attached as Exhibit A (and the
Representatives shall have received an additional [___] conformed copies of such
counsel's legal opinion for each of the several Underwriters).
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(E) OPINION OF INTELLECTUAL PROPERTY COUNSEL FOR THE COMPANY .
On each of the First Closing Date and the Second Closing Date the
Representatives shall have received the opinion of __________________,
intellectual property counsel for the Company, dated as of such Closing Date,
the form of which is attached as Exhibit B (and the Representatives shall have
received an additional [_____] conformed copies of such counsel's legal opinion
for each of the several Underwriters).
(F) OPINION OF COUNSEL FOR THE UNDERWRITERS. On each of the
First Closing Date and the Second Closing Date the Representatives shall have
received the favorable opinion of Cooley Godward LLP, counsel for the
Underwriters, dated as of such Closing Date, with respect to the matters set
forth in paragraphs (viii), (ix), (x) (xi) and (xiii) (with respect to the
caption "Description of Capital Stock" under subparagraph (i) only) and the
next-to-last paragraph of Exhibit A (and the Representatives shall have received
an additional [___] conformed copies of such counsel's legal opinion for each of
the several Underwriters).
(G) OFFICERS' CERTIFICATE. On each of the First Closing Date
and the Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer or
President of the Company and the Chief Financial Officer or Chief Accounting
Officer of the Company, dated as of such Closing Date, to the effect set forth
in subsections (b)(ii) and (c)(ii) of this Section 5, and further to the effect
that:
(I) for the period from and after the date of this
Agreement and prior to such Closing Date, there has not occurred any Material
Adverse Change;
(II) the representations, warranties and covenants of the
Company set forth in Section 1 of this Agreement are true and correct with the
same force and effect as though expressly made on and as of such Closing Date;
and
(III) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(H) BRING-DOWN COMFORT LETTER. On each of the First Closing
Date and the Second Closing Date the Representatives shall have received from
KPMG Peat Marwick LLP, independent public or certified public accountants for
the Company, a letter dated such date, in form and substance satisfactory to the
Representatives, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5, except
that the specified date referred to therein for the carrying out of procedures
shall be no more than three business days prior to the First Closing Date or
Second Closing Date, as the case may be (and the Representatives shall have
received an additional [___] conformed copies of such accountants' letter for
each of the several Underwriters).
(I) LOCK-UP AGREEMENT FROM CERTAIN STOCKHOLDERS OF THE COMPANY.
On the date hereof, the Company shall have furnished to the Representatives an
agreement in the form of Exhibit C hereto from each director, officer and their
affiliates, and
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such agreement shall be in full force and effect on each of the First Closing
Date and the Second Closing Date.
(J) ADDITIONAL DOCUMENTS. On or before each of the First
Closing Date and the Second Closing Date, the Representatives and counsel for
the Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Common Shares as contemplated herein, or in order to
evidence the accuracy of any of the representations and warranties, or the
satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Optional Common Shares, at any time prior
to the Second Closing Date, which termination shall be without liability on the
part of any party to any other party, except that Section 4, Section 6, Section
8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by the Representatives pursuant to Section 5, Section 7, Section 10
or Section 11, or if the sale to the Underwriters of the Common Shares on the
First Closing Date is not consummated because of any refusal, inability or
failure on the part of the Company to perform any agreement herein or to comply
with any provision hereof, the Company agrees to reimburse the Representatives
and the other Underwriters (or such Underwriters as have terminated this
Agreement with respect to themselves), severally, upon demand for all out-of-
pocket expenses that shall have been reasonably incurred by the Representatives
and the Underwriters in connection with the proposed purchase and the offering
and sale of the Common Shares, including but not limited to fees and
disbursements of counsel, printing expenses, travel expenses, postage, facsimile
and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall not
become effective until the later of (i) the execution of this Agreement by the
parties hereto and (ii) notification by the Commission to the Company and the
Representatives of the effectiveness of the Registration Statement under the
Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any party
by notice to each of the other parties hereto, and any such termination shall be
without liability on the part of (a) the Company to any Underwriter, except that
the Company shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 4 and 6 hereof, (b) of any Underwriter
to the Company , or (c) of any party hereto to any other party except that the
provisions of Section 8 and Section 9 shall at all times be effective and shall
survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. The Company agrees
to indemnify and hold harmless each Underwriter, its officers and employees, and
each person, if
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any, who controls any Underwriter within the meaning of the Securities Act and
the Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule 430A or
Rule 434 under the Securities Act, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company contained herein; or (iv) in whole
or in part upon any failure of the Company to perform its obligations hereunder
or under law; or (v) any act or failure to act or any alleged act or failure to
act by any Underwriter in connection with, or relating in any manner to, the
Common Stock or the offering contemplated hereby, and which is included as part
of or referred to in any loss, claim, damage, liability or action arising out of
or based upon any matter covered by clause (i) or (ii) above, provided that the
Company shall not be liable under this clause (v) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that such loss,
claim, damage, liability or action resulted directly from any such acts or
failures to act undertaken or omitted to be taken by such Underwriter through
its bad faith or willful misconduct; and to reimburse each Underwriter and each
such controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by NMSI) as such expenses are reasonably
incurred by such Underwriter or such controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action; provided, however, that the foregoing
indemnity agreement shall not apply to any loss, claim, damage, liability or
expense to the extent, but only to the extent, arising out of or based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information furnished to
the Company by the Representatives expressly for use in the Registration
Statement, any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto); and provided, further, that with respect to any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the benefit of
any Underwriter from whom the person asserting any loss, claim, damage,
liability or expense purchased Common Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such Underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Common Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 8(a) shall be in addition to any liabilities that the
Company may otherwise have.
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(B) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS.
Each Underwriter agrees, severally and not jointly, to indemnify and hold
harmless the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer or controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action. The Company
hereby acknowledges that the only information that the Underwriters have
furnished to the Company expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) are the statements set forth (A) as the last two paragraphs on the
inside front cover page of the Prospectus concerning stabilization and passive
market making by the Underwriters and (B) in the table in the first paragraph
and as the second paragraph under the caption "Underwriting" in the Prospectus;
and the Underwriters confirm that such statements are correct. The indemnity
agreement set forth in this Section 8(b) shall be in addition to any liabilities
that each Underwriter may otherwise have.
(C) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES. Promptly
after receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and
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the indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (NMSI in the case of Section 8(b) and Section 9),
representing the indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying party.
(D) SETTLEMENTS. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an indemnified party shall have requested an indemnifying party
to reimburse the indemnified party for fees and expenses of counsel as
contemplated by Section 8(c) hereof, the indemnifying party agrees that it shall
be liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 days after receipt
by such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement, compromise or consent to the entry of judgment in any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise or
consent includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding.
20.
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SECTION 9. CONTRIBUTION. If the indemnification provided for in Section 8
is for any reason held to be unavailable to or otherwise insufficient to hold
harmless an indemnified party in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount paid or payable by such indemnified party, as
incurred, as a result of any losses, claims, damages, liabilities or expenses
referred to therein (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and the
Underwriters, on the other hand, from the offering of the Common Shares pursuant
to this Agreement or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, on the one hand, and the Underwriters, on the other hand,
in connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Underwriters, on the other hand, in connection with the offering of the
Common Shares pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Common
Shares pursuant to this Agreement (before deducting expenses) received by the
Company, and the total underwriting discount received by the Underwriters, in
each case as set forth on the front cover page of the Prospectus (or, if Rule
434 under the Securities Act is used, the corresponding location on the Term
Sheet) bear to the aggregate initial public offering price of the Common Shares
as set forth on such cover. The relative fault of the Company, on the one hand,
and the Underwriters, on the other hand, shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact or any
such inaccurate or alleged inaccurate representation or warranty relates to
information supplied by the Company, on the one hand, or the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 8(c), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in Section 8(c) with
respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this Section 9; provided, however, that no
additional notice shall be required with respect to any action for which notice
has been given under Section 8(c) for purposes of indemnification.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No
21.
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person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 9 are several, and not joint,
in proportion to their respective underwriting commitments as set forth opposite
their names in Schedule A. For purposes of this Section 9, each officer and
employee of an Underwriter and each person, if any, who controls an Underwriter
within the meaning of the Securities Act and the Exchange Act shall have the
same rights to contribution as such Underwriter, and each director of the
Company, each officer of the Company who signed the Registration Statement, and
each person, if any, who controls the Company with the meaning of the Securities
Act and the Exchange Act shall have the same rights to contribution as the
Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITER. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the several Underwriters shall fail or refuse to purchase Common Shares
that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the non-defaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company for
the purchase of such Common Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Section 4, Section 8 and Section 9
shall at all times be effective and shall survive such termination. In any such
case either the Representatives or the Company shall have the right to postpone
the First Closing Date or the Second Closing Date, as the case may be, but in no
event for longer than seven days in order that the required changes, if any, to
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date this Agreement maybe terminated by the Representatives by notice given to
the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
22.
<PAGE>
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the NASD; (ii) a general
banking moratorium shall have been declared by any of federal, New York,
Wisconsin or California authorities; (iii) there shall have occurred any
outbreak or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective substantial
change in United States' or international political, financial or economic
conditions, as in the judgment of the Representatives is material and adverse
and makes it impracticable to market the Common Shares in the manner and on the
terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Representatives there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained a
loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the judgment of the Representatives may interfere materially
with the conduct of the business and operations of the Company regardless of
whether or not such loss shall have been insured. Any termination pursuant to
this Section 11 shall be without liability on the part of (a) the Company to any
Underwriter, except that the Company shall be obligated to reimburse the
expenses of the Representatives and the Underwriters pursuant to Sections 4 and
6 hereof, (b) any Underwriter to the Company, or (c) of any party hereto to any
other party except that the provisions of Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Common Shares sold hereunder and any termination of this Agreement.
23.
<PAGE>
SECTION 13. NOTICES. All communications hereunder shall be in writing and
shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
NationsBanc Montgomery Securities, Inc.
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
NationsBanc Montgomery Securities, Inc.
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
Bone Care International, Inc.
313 West Beltline Highway
Madison, Wisconsin 53713
Facsimile: (608) 277-7534
Attention: Charlie Bishop
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, [and personal representatives], and no
other person will have any right or obligation hereunder. The term "successors"
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
24.
<PAGE>
SECTION 16. GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(A) CONSENT TO JURISDICTION. Any legal suit, action or
proceeding arising out of or based upon this Agreement or the transactions
contemplated hereby ("Related Proceedings") may be instituted in the federal
courts of the United States of America located in the City and County of San
Francisco or the courts of the State of California in each case located in the
City and County of San Francisco (collectively, the "Specified Courts"), and
each party irrevocably submits to the exclusive jurisdiction (except for
proceedings instituted in regard to the enforcement of a judgment of any such
court (a "Related Judgment"), as to which such jurisdiction is non-exclusive) of
such courts in any such suit, action or proceeding. Service of any process,
summons, notice or document by mail to such party's address set forth above
shall be effective service of process for any suit, action or other proceeding
brought in any such court. The parties irrevocably and unconditionally waive any
objection to the laying of venue of any suit, action or other proceeding in the
Specified Courts and irrevocably and unconditionally waive and agree not to
plead or claim in any such court that any such suit, action or other proceeding
brought in any such court has been brought in an inconvenient forum.
(B) WAIVER OF IMMUNITY. With respect to any Related Proceeding,
each party irrevocably waives, to the fullest extent permitted by applicable
law, all immunity (whether on the basis of sovereignty or otherwise) from
jurisdiction, service of process, attachment (both before and after judgment)
and execution to which it might otherwise be entitled in the Specified Courts,
and with respect to any Related Judgment, each party waives any such immunity in
the Specified Courts or any other court of competent jurisdiction, and will not
raise or claim or cause to be pleaded any such immunity at or in respect of any
such Related Proceeding or Related Judgment, including, without limitation, any
immunity pursuant to the United States Foreign Sovereign Immunities Act of 1976,
as amended.
SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
Each of the parties hereto acknowledges that it is a sophisticated business
person who was adequately represented by counsel during negotiations regarding
the provisions hereof, including, without limitation, the indemnification
provisions of Section 8 and the contribution provisions of Section 9, and is
fully informed regarding said provisions. Each of the parties hereto further
acknowledges that the provisions of Sections 8 and 9 hereto fairly allocate the
risks
25.
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in light of the ability of the parties to investigate the Company, its affairs
and its business in order to assure that adequate disclosure has been made in
the Registration Statement, any preliminary prospectus and the Prospectus (and
any amendments and supplements thereto), as required by the Securities Act and
the Exchange Act.
26.
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to the Company the enclosed copies hereof, whereupon this
instrument, along with all counterparts hereof, shall become a binding agreement
in accordance with its terms.
Very truly yours,
BONE CARE INTERNATIONAL, INC.
By: ______________________________
Charlie Bishop
President
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives in San Francisco, California as of the date first above
written.
NATIONSBANK MONTGOMERY SECURITIES, INC.
DONALDSON, LUFKIN & JENRETTE Securities Corporation
ROBERT W. BAIRD & CO. INCORPORATED
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
BY NATIONSBANC MONTGOMERY SECURITIES, INC.
By:
_______________________________
Richard A. Smith,
Authorized Signatory
27.
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
NUMBER OF
FIRM COMMON
SHARES
UNDERWRITERS TO BE PURCHASED
<S> <C>
NationsBanc Montgomery Securities, Inc................. [____]
Donaldson, Lufkin & Jenrette Securities Corporation.... [____]
Robert W. Baird & Co. Incorporated..................... [____]
[____]................................................. [____]
[____]................................................. [____]
Total............................................. [____]
</TABLE>
28.
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EXHIBIT A
The final opinion in draft form should be attached as Exhibit A at the time this
Agreement is executed.
Opinion of counsel for the Company to be delivered pursuant to Section 5(e)
of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any supplements
thereto at the Closing Date.
(I) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Wisconsin.
(II) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Underwriting
Agreement.
(III) The Company is duly qualified as a foreign corporation to transact
business and is in good standing in the State of Wisconsin and in each other
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except for such
jurisdictions (other than the State of Wisconsin) where the failure to so
qualify or to be in good standing would not, individually or in the aggregate,
result in a Material Adverse Change.
(IV) Each significant subsidiary (as defined in Rule 405 under the
Securities Act) has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and, to
the best knowledge of such counsel, is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually or in
the aggregate, result in a Material Adverse Change.
(V) All of the issued and outstanding capital stock of each such
significant subsidiary has been duly authorized and validly issued, is fully
paid and non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge, lien,
encumbrance or, to the best knowledge of such counsel, any pending or threatened
claim.
(VI) The authorized, issued and outstanding capital stock of the Company
(including the Common Stock) conform to the descriptions thereof set forth in
the Prospectus. All of the outstanding shares of Common Stock have been duly
authorized and validly issued, are fully paid and nonassessable and, to the best
of such counsel's knowledge, have been issued in compliance
A-1
<PAGE>
with the registration and qualification requirements of federal and state
securities laws. The form of certificate used to evidence the Common Stock is in
due and proper form and complies with all applicable requirements of the charter
and by-laws of the Company and the General Corporation Law of the State of
Wisconsin. The description of the Company's stock option, stock bonus and other
stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and fairly presents
the information required to be shown with respect to such plans, arrangements,
options and rights.
(VII) No stockholder of the Company or any other person has any preemptive
right, right of first refusal or other similar right to subscribe for or
purchase securities of the Company arising (i) by operation of the charter or
by-laws of the Company or the General Corporation Law of the State of Wisconsin
or (ii) to the best knowledge of such counsel, otherwise.
(VIII) The Underwriting Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, the Company, enforceable
in accordance with its terms, except as rights to indemnification thereunder may
be limited by applicable law and except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles.
(IX) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company pursuant to
the Underwriting Agreement against payment of the consideration set forth
therein, will be validly issued, fully paid and nonassessable.
(X) [Each of] The Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the Commission
under the Securities Act. To the best knowledge of such counsel, no stop order
suspending the effectiveness of either of the Registration Statement or the Rule
462(b) Registration Statement, if any, has been issued under the Securities Act
and no proceedings for such purpose have been instituted or are pending or are
contemplated or threatened by the Commission. Any required filing of the
Prospectus and any supplement thereto pursuant to Rule 424(b) under the
Securities Act has been made in the manner and within the time period required
by such Rule 424(b).
(XI) The Registration Statement, including any Rule 462(b) Registration
Statement, the Prospectus, and each amendment to the Registration Statement and
each supplement to the Prospectus, as of their respective effective or issue
dates (other than the financial statements and supporting schedules included
therein or in exhibits to or excluded from the Registration Statement, as to
which no opinion need be rendered) comply as to form in all material respects
with the applicable requirements of the Securities Act and the Exchange Act.
(XII) The Common Shares have been approved for listing on the Nasdaq
National Market.
2.
<PAGE>
(XIII) The statements (i) in the Prospectus under the captions "Risk
Factors--[___]," "Management's Discussion and Analysis and Results of
Operations--Liquidity," "Business--Intellectual Property," "Certain
Relationships and Related Transactions," "Shares Eligible for Future Sale,"
"Description of Capital Stock" and "Underwriting" and (ii) in Item 14 and Item
15 of the Registration Statement, insofar as such statements constitute matters
of law, summaries of legal matters, the Company's charter or by-law provisions,
documents or legal proceedings, or legal conclusions, has been reviewed by such
counsel and fairly present and summarize, in all material respects, the matters
referred to therein.
(XIV) To the best knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other than those
disclosed therein.
(XV) To the best knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto;
and the descriptions thereof and references thereto are correct in all material
respects.
(XVI) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance of the
Underwriting Agreement and consummation of the transactions contemplated thereby
and by the Prospectus, except as required under the Securities Act, applicable
state securities or blue sky laws and from the NASD.
(XVII) The execution and delivery of the Underwriting Agreement by the
Company and the performance by the Company of its obligations thereunder (other
than performance by the Company of its obligations under the indemnification
section of the Underwriting Agreement, as to which no opinion need be rendered)
(i) have been duly authorized by all necessary corporate action on the part of
the Company; (ii) will not result in any violation of the provisions of the
charter or by-laws of the Company or any subsidiary; (iii) will not constitute a
breach of, or Default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company or any of
its subsidiaries pursuant to any material Existing Instrument; or (iv) to the
best knowledge of such counsel, will not result in any violation of any law,
administrative regulation or administrative or court decree applicable to the
Company or any subsidiary.
(XVIII) The Company is not, and after receipt of payment for the
Common Shares will not be, an "investment company" within the meaning of
Investment Company Act.
(XIX) Except as disclosed in the Prospectus, to the best knowledge of
such counsel, there are no persons with registration or other similar rights to
have any equity or debt securities registered for sale under the Registration
Statement or included in the offering contemplated by the Underwriting
Agreement, except for such rights as have been duly waived.
(XX) To the best knowledge of such counsel, neither the Company nor
any subsidiary is in violation of its charter or by-laws or any law,
administrative regulation or administrative or
3.
<PAGE>
court decree applicable to the Company or any subsidiary or is in Default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any material Existing Instrument, except in each such case for such
violations or Defaults as would not, individually or in the aggregate, result in
a Material Adverse Change.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Underwriters at which the contents
of the Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as specified above), and
any supplements or amendments thereto, on the basis of the foregoing, nothing
has come to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted 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 (it being understood that such counsel need express no belief as to
the financial statements or schedules or other financial or statistical data
derived therefrom, included or incorporated by reference in the Registration
Statement or the Prospectus or any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Wisconsin or the federal law of the United
States, to the extent they deem proper and specified in such opinion, upon the
opinion (which shall be dated the First Closing Date or the Second Closing Date,
as the case may be, shall be satisfactory in form and substance to the
Underwriters, shall expressly state that the Underwriters may rely on such
opinion as if it were addressed to them and shall be furnished to the
Representatives) of other counsel of good standing whom they believe to be
reliable and who are satisfactory to counsel for the Underwriters; provided,
however, that such counsel shall further state that they believe that they and
the Underwriters are justified in relying upon such opinion of other counsel,
and (B) as to matters of fact, to the extent they deem proper, on certificates
of responsible officers of the Company and public officials.
4.
<PAGE>
EXHIBIT B
[To Come]
B-1
<PAGE>
EXHIBIT C
[To Come]
C-1
<PAGE>
EXHIBIT 3.1(b)
ARTICLES OF AMENDMENT OF
BONE CARE INTERNATIONAL, INC.
At the annual meeting of the shareholders of Bone Care International,
Inc. held on November 19, 1997, pursuant to the Wisconsin Business Corporation
Law and the Articles and By-Laws of said corporation, the following Articles of
Amendment of said corporation were duly adopted:
FIRST: The name of the corporation is Bone Care International, Inc.
SECOND: The first sentence of Article III of the Restated Articles of
Incorporation is amended to read in its entirety as follows:
The number of shares of capital stock which the corporation shall be
authorized to issue is Thirty Million (30,000,000), divided into
Twenty-Eight Million (28,000,000) shares of common stock, no par value
per share, and Two Million (2,000,000) shares of Preferred Stock,
$.001 par value per share.
THIRD: The date of adoption of the Amendment by the shareholders was
November 19, 1997.
<PAGE>
FOURTH: The foregoing Amendment was adopted in accordance with
Section 180.1003 of the Wisconsin Business Corporation Law by the shareholders
entitled to vote thereon.
IN WITNESS WHEREOF, the undersigned officers of Bone Care
International, Inc. have hereunto set their hands this 19th day of November,
1997.
BONE CARE INTERNATIONAL, INC.
By: /s/ Charles W. Bishop
--------------------------------
Charles W. Bishop
President
/s/ Dale W. Gutman
--------------------------------
Dale W. Gutman
Assistant Secretary
This document was drafted by
and returnable to:
Dale W. Gutman
Bone Care International, Inc.
313 West Beltline Highway
Madison, Wisconsin 53713
Record in Dane County, Wisconsin
-2-
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF MICHAEL, BEST & FRIEDRICH LLP]
January 6, 1998
Bone Care International, Inc.
313 West Beltline Highway
Madison, Wisconsin 53713
Re: Bone Care International, Inc. -- 3,000,000 Shares
of Common Stock, no par value
-----------------------------
Ladies and Gentlemen:
We are Wisconsin counsel to Bone Care International, Inc., a Wisconsin
corporation (the "Company"). We are familiar with the Registration Statement on
Form S-1 (the "Registration Statement") filed by the Company with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, relating
to the registration of 3,000,000 shares of Common Stock, no par value (the
"Shares"), of the Company to be offered by the Company.
We are also familiar with the Articles of Amendment and Restated
Articles of Incorporation, as amended, and the By-laws of the Company and the
proceedings to date with respect to the proposed offering and sale of the
Shares. In this connection, we have examined originals or copies of originals
certified to our satisfaction, of such documents, certificates and records, have
examined such questions of law and have satisfied ourselves as to such matters
of fact as we have considered relevant and necessary as a basis for the opinions
set forth herein. We have assumed the authenticity of all documents submitted
to us as originals, the genuineness of all signatures, the legal capacity of all
natural persons and the conformity with the original documents of any copies
thereof submitted to us for our examination.
We have also assumed that an Underwriting Agreement substantially in
the form of Exhibit 1.1 to the Registration Statement, by and among the Company
and the underwriters named therein (the "Underwriting Agreement"), will have
been duly executed and delivered.
<PAGE>
Based on the foregoing, we are of the opinion that:
1. The Company is duly incorporated and validly existing under the
laws of the State of Wisconsin.
2. The Shares will, when certificates representing the Shares shall
have been duly executed, countersigned and registered and delivered against
receipt by the Company of the consideration provided in the Underwriting
Agreement, be legally issued, fully paid and nonassessable, except to the
extent that such Shares are assessable as provided in Section 180.0622 of
the Wisconsin Business Corporation Law.
This opinion is limited to the laws of the State of Wisconsin. We do
not find it necessary for the purposes of this opinion to cover, and accordingly
we express no opinion as to, the application of the securities or blue sky laws
of the various states to the issuance and sale of the Shares.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to all references to our firm included in or made a
part of the Registration Statement.
Very truly yours,
Michael, Best & Friedrich
<PAGE>
EXHIBIT 10.5
BONE CARE INTERNATIONAL, INC.
1996 STOCK OPTION PLAN
1. Plan. To provide incentives to officers, key employees and consultants
----
of Bone Care International, Inc. (the "Company") and its subsidiaries from time
to time, and members of the Board of Directors of the Company (the "Board") to
contribute to the success and prosperity of the Company, based upon the
ownership of the common stock, no par value, of the Company ("Common Stock"),
the Committee hereinafter designated, may grant nonqualified stock options to
officers, key employees, consultants and eligible members of the Board on the
terms and subject to the conditions stated in this Plan.
2. Eligibility. Officers, key employees and consultants of the Company
-----------
and its subsidiaries and members of the Board who are not employees of the
Company ("non-employee directors") shall be eligible, upon selection by the
Committee, to receive stock options as the Committee, in its discretion, shall
determine.
3. Shares Issuable. The maximum number of shares of Common Stock to be
---------------
available under this Plan pursuant to all grants of stock options hereunder
shall be 500,000, subject to adjustment in accordance with Section 5. Shares of
Common Stock subject to a stock option granted hereunder, which are not issued
by reason of the expiration, cancellation or other termination of such stock
option, shall again be available for future grants of stock options under this
Plan.
Shares of Common Stock to be issued may be authorized and unissued shares
of Common Stock, treasury stock, or a combination thereof.
To the extent required by Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), and the rules and regulations thereunder, the
maximum number of shares of Common Stock with respect to which options may be
granted during any calendar year to any person shall be 100,000, subject to
adjustment as provided in Section 5.
4. Administration of the Plan. The Plan shall be administered by a
--------------------------
committee designated by the Board, which may be the whole Board (the
"Committee"), or may consist of two or more members of the Board, each of whom
may be a "Non-Employee Director," within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and an
"outside director" within the meaning of Section 162(m) under the Code.
The Committee shall, subject to the terms of this Plan, establish
eligibility guidelines, select officers, key employees, consultants and non-
employee directors for participation in this Plan and determine the number of
shares of Common Stock subject to a stock option granted hereunder, the exercise
price for such shares of Common Stock, the time and conditions of vesting or
exercise and all other terms and conditions of the stock option, including,
without limitation, the form of the option agreement. The Committee may
establish rules and regulations for the administration of the Plan, interpret
the Plan and impose, incidental to the grant of a stock option, conditions with
respect to the grant or award of stock options or competitive employment or
other activities not inconsistent with or conflicting with this Plan. All such
rules, regulations and interpretations relating to this Plan adopted by the
Committee shall be conclusive and binding on all parties. All grants of stock
options
1
<PAGE>
under this Plan shall be evidenced by written agreements between the Company and
the optionees, and no such grant shall be valid until so evidenced.
5. Changes in Capitalization. Appropriate adjustments shall be made by
-------------------------
the Committee in the maximum number of shares to be issued under the Plan and
the maximum number of shares which are subject to any stock option granted
hereunder, and the exercise price therefor, to give effect to any stock splits,
stock dividends and other relevant changes in the capitalization of the Company
occurring after the effective date of this Plan (which shall not include the
sale by the Company of shares of Common Stock or securities convertible into
shares of Common Stock).
6. Effective Date and Term of Plan. This Plan shall be submitted to the
-------------------------------
shareholders of the Company for approval and, if approved, shall become
effective on the date thereof; provided, however, that this Plan and any options
granted hereunder shall be null and void in the event the Company's registration
statement under Section 12 of the Exchange Act does not become effective on or
prior to December 31, 1996. This Plan shall terminate ten years after it
becomes effective unless terminated prior thereto by action of the Board. No
further grants shall be made under this Plan after termination, but termination
shall not affect the rights of any optionee under any grants made prior to
termination.
7. Amendments. This Plan may be amended by the Board in any respect,
----------
except that no amendment may be made without shareholder approval if such
amendment would (a) increase the maximum number of shares of Common Stock
available for issuance under this Plan (other than as provided in Section 5) or
(b) otherwise require shareholder approval.
8. Grants of Stock Options. Options to purchase shares of Common Stock
-----------------------
may be granted hereunder to such eligible officers, key employees, consultants,
and non-employee directors as may be selected by the Committee.
9. Option Price. The option price per share of Common Stock purchasable
------------
upon exercise of an option granted hereunder shall be determined by the
Committee; provided, however, that the option price per share of Common Stock
-------- -------
purchasable upon exercise of an option grant under this Plan shall be 100% of
the fair market value of a share of Common Stock on the date of grant of such
option. For purposes hereof, "fair market value" shall be determined by the
Committee.
10. Stock Option Period. Each stock option granted hereunder may be
-------------------
granted at any time on or after the effective date, and prior to the
termination, of this Plan. The Committee shall determine whether such stock
option shall become exercisable in cumulative or non-cumulative installments or
in full at any time. An exercisable stock option may be exercised in whole or
in part with respect to whole shares of Common Stock only. The period for the
exercise of each stock option shall be determined by the Committee.
11. Exercise of Stock Options. (a) Upon exercise, the option price may be
-------------------------
paid in cash, in previously owned shares of Common Stock (which the optionee has
held for at least six months or acquired on the open market and which the
optionee owns free and clear from all encumbrances) having a fair market value
on the date of exercise equal to the option price, or in a combination thereof.
The Company may arrange or approve of a cashless option exercise procedure which
2
<PAGE>
complies with the provisions of Section 16 of the Exchange Act and the rules and
regulations thereunder.
(b) An option may be exercised during an optionee's continued employment
with the Company or one of its subsidiaries, or service on the Board, as the
case may be, and, except in the event of such optionee's death, within a period
of 30 days following termination of such employment or service, but only to the
extent exercisable and within the term of such option at the time of the
termination of such employment or service; provided, however, that if employment
-------- -------
of the optionee by the Company or one of its subsidiaries or service on the
Board shall have terminated by reason of retirement after age 60, then the
option may be exercised within a period not in excess of one year following such
termination of employment or service on the Board, but only to the extent
exercisable and within the term of such option at the time of such termination
of employment or service.
(c) No option shall be transferable except that in the event of the death
of an optionee (i) during employment or service on the Board, as the case may
be, (ii) within a period of one year after termination of employment or service
on the Board, as the case may be, by reason of retirement after age 60 at a time
when the option is otherwise exercisable or (iii) within 30 days after
termination of employment or service on the Board, as the case may be, for any
other reason, outstanding stock options may be exercised, but only to the extent
exercisable and within the term of such option prior to the application of this
Section 12, by the executor, administrator, personal representative, beneficiary
or similar person of such deceased optionee within one year of the death of such
optionee in the case of clauses (i) and (ii) or within 90 days of the death of
such optionee in the case of clause (iii).
12. Acceleration of Options upon a Change in Control. The following
------------------------------------------------
provisions shall apply in the event of a "Change in Control":
(a) In the event of a Change in Control, any stock options not previously
exercisable in full shall become fully exercisable.
(b) For purposes hereof, "Change in Control" means:
(1) The acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act, of beneficial ownership within the meaning of Rule 13d-3
promulgated under the Exchange Act, of 50% or more of the then outstanding
shares of Common Stock (the "Outstanding Common Stock"); provided, however, that
-------- -------
the following acquisitions shall not constitute a Change in Control: (A) any
acquisition by the Company, (B) any acquisition by an employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation
controlled by the Company, (C) any acquisition by an underwriter or underwriters
as part of a bona fide public distribution of securities of the Company or (D)
---- ----
any acquisition by any Person which beneficially owned as of the effective date
of this Plan, 30% or more of the outstanding Common Stock; and provided further
----------------
that, for purposes of clause (A), if any Person (other than the Company or any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company) shall become the beneficial owner
of 50% or more of the outstanding Common Stock by reason of an acquisition by
3
<PAGE>
the Company and such Person shall, after such acquisition by the Company, become
the beneficial owner of any additional shares of the Outstanding Common Stock
and such beneficial ownership is publicly announced, such additional beneficial
ownership shall constitute a Change in Control;
(2) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
such Board; provided, however, that any individual who becomes a director of the
------------------
Company subsequent to the date hereof whose election, or nomination for election
by the Company's shareholders, was approved by the vote of at least a majority
of the directors then comprising the Incumbent Board shall be deemed to have
been a member of the Incumbent Board; and provided further, that no individual
----------------
who was initially elected as a director of the Company as a result of an actual
or threatened election contest, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act, or any other actual or
threatened solicitation of proxies or consents by or on behalf of any Person
other than the Board shall be deemed to have been a member of the Incumbent
Board;
(3) Approval by the shareholders of the Company of a reorganization, merger
or consolidation unless, in any such case, immediately after such
reorganization, merger or consolidation, (i) more than 50% of the then
outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and more than 50% of the combined voting
power of the then outstanding securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals or entities who were
the beneficial owners, respectively, of the Outstanding Common Stock immediately
prior to such reorganization, merger or consolidation and in substantially the
same proportions relative to each other as their ownership, immediately prior to
such reorganization, merger or consolidation, of the Outstanding Common Stock,
(ii) no Person (other than the Company, any employee plan (or related trust)
sponsored or maintained by the Company or the corporation resulting from such
reorganization, merger or consolidation (or any corporation controlled by the
Company) and any Person which beneficially owned, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 30% or more of
the Outstanding Common Stock) beneficially owns, directly or indirectly, 50% or
more of the then outstanding shares of common stock of such corporation or 50%
or more of the combined voting power of the then outstanding securities of such
corporation entitled to vote generally in the election of directors and (iii) at
least a majority of the members of the board of directors of the corporation
resulting from such reorganization, merger or consolidation were members of the
Incumbent Board at the time of the execution of the initial agreement or action
of the Board providing for such reorganization, merger or consolidation; or
(4) Approval by the shareholders of the Company of (i) a plan of complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all of the assets of the Company other than to a
corporation with respect to which, immediately after such sale or other
disposition, (A) more than 50% of the then outstanding shares of common stock
thereof and more than 50% of the combined voting power of the then outstanding
securities thereof entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners, respectively, of
the Outstanding Common Stock immediately prior to such sale or other disposition
and in substantially the same proportions relative to each other as their
ownership, immediately prior to such sale or other disposition, of the
Outstanding Common Stock, (B) no Person (other than the Company, any
4
<PAGE>
employee benefit plan (or related trust) sponsored or maintained by the Company
or such corporation (or any corporation controlled by the Company) and any
Person which beneficially owned, immediately prior to such sale or other
disposition, directly or indirectly, 30% or more of the Outstanding Common
Stock) beneficially owns, directly or indirectly, 50% or more of the then
outstanding shares of common stock thereof or 50% or more of the combined voting
power of the then outstanding securities thereof entitled to vote generally in
the election of directors and (C) at least a majority of the members of the
board of directors thereof were members of the Incumbent Board at the time of
the execution of the initial agreement or action of the Board providing for such
sale or other disposition.
5
<PAGE>
EXHIBIT 10.7
BONE CARE INTERNATIONAL, INC.
NON-QUALIFIED STOCK OPTION
Bone Care International, Inc. (the "Company") hereby irrevocably grants
to_______ (the "Employee") an option to purchase from time to time all or any
part of a total of 1,000 common shares of the Company, at a price of $___ per
share, upon the terms and conditions set forth below.
This option is granted as of ______ __, 199_ under the Bone Care International,
Inc., 1996 Stock Option Plan (herein called the "Plan") in consideration for the
Employee's agreement that any dispute with the company will be submitted
exclusively to arbitration according to the procedure described in Attachment A
hereto, and for the purpose of furnishing to the Employee an appropriate
incentive to improve operations and increase profits, and to encourage the
Employee to continue employment with the Company and its subsidiaries.
The terms and conditions of the option are as follows:
1. This option may, but need not, be exercised in installments, but may be
exercised only to the extent, and within the time periods, described below.
During the lifetime of the Employee, it may be exercised only by the
Employee and (except as provided below) only while in the employ of the
Company or any of its subsidiaries.
2. The option may be exercised only after one year following the granting
date. Termination of employment in this one-year period will terminate all
rights under the option. After one year from the granting date, one-fifth
of the total number of shares covered by this option may be exercised;
after two years from the granting date, two-fifths of the total number of
shares covered by this option may be exercised; after three years from the
granting date, three-fifths of the total number of shares covered by this
option may be exercised; after four years from the granting date, four-
fifths of the total number of shares covered by this option may be
exercised; and after five years, this option shall be exercisable in full.
The right to purchase shall cumulate so that shares may be purchased at any
time after becoming eligible for purchase until termination of the option.
3. Notwithstanding the foregoing provisions of this paragraph 2, this
option shall become fully exercisable in the event of a "Change in Control"
of the Company. A Change in Control is more fully defined in the Plan
Document, but includes:
(i) The sale or other disposition by the Company of all or substantially
all of its assets to a person, firm or other entity not controlling,
controlled by or under common control with the Company;
(ii) The sale or other disposition (including a merger or consolidation) of
capital stock of the Company if, as a consequence thereof, capital
stock representing more than 50% of the Company's total voting power
is sold or disposed of, in one or a series of related transactions, to
a person, firm or other entity not controlling, controlled by, or
under common control with the Company.
Page 1 of 4
<PAGE>
4. If employment with the Company terminates at a time when the Employee
is entitled to exercise all or a part of the option, for any reason other
than death, the option shall expire as of thirty (30) days after written
notice of termination; provided that if the termination of employment is by
reason of retirement (under a pension or retirement plan of the Company or
subsidiary), this option may be exercised by the Employee within twelve
months after the date of retirement but only to the extent exercisable on
said date of retirement. A leave of absence approved in writing by the
President and the Human Resources Manager shall not be termination of
employment for purposes of the Plan.
5. In the event of death of the Employee during employment or after
retirement at a time when this option is otherwise exercisable, the option
may be exercised within twelve months after such death, and only:
a. By the executor or administrator of the estate of the Employee or
the person or persons to whom rights under the option have passed
by will or the laws of descent and distribution; and
b. To the extent that the Employee was entitled to do so at the date
of death.
6. The option may not, under any circumstances, be exercised after
expiration of ten (10) years from the granting date.
7. No fractional share may be purchased under this option except in
combination with a fraction or fractions under another option or options
granted under the Program, and then only to the extent that such
combination equals a full share.
8. Nothing herein confers upon the Employee any right to continue in the
employ of the Company or of any subsidiary.
9. This option is not transferable other than by will or the laws of
descent and distribution. It may not be assigned, transferred (except as
aforesaid), pledged, or hypothecated in any way, whether by operation of
law or otherwise, and shall not be subject to execution, attachment, or
similar process. Any attempt at assignment, transfer, pledge,
hypothecation, or other disposition of this option contrary to the
provisions hereof, and the levy of any attachment or similar process upon
this option, shall be null and void and without effect.
10. The shares of common stock issuable to Optionee upon exercise of this
option ("Option Stock") are expressly subject to the terms of the Bylaws of
the corporation as may be amended by the Shareholders from time to time.
No transfer of Option Stock may be made except in accordance with the
provisions of the Bylaws. By accepting this option, Optionee hereby agrees
that, as an express condition to receiving shares of common stock issuable
upon exercise of this option, Optionee and his spouse will execute whatever
documents the Company requires so as to bind the Optionee and his spouse,
and the shares of common stock issuable upon exercise of this option, to
the terms of the Bylaws.
11. All terms and conditions of this option agreement are subject to and
shall be interpreted according to the terms of the Bone Care International,
Inc., 1996 Stock Option Plan.
Page 2 of 4
<PAGE>
12. Prior to the exercise of this option and as a condition to the
Company's obligation to deliver shares upon such exercise, the Optionee
shall make arrangements satisfactory to the Company for the payment of any
applicable federal or other withholding taxes payable as a result thereof.
13. The option may be exercised only by delivering to the Secretary or
other designated employee of the Company a written notice of exercise,
specifying the number of common shares with respect to which the option is
then being exercised, and accompanied by payment of the full purchase price
of the shares being purchased in cash, or by the surrender of other common
shares of the Company held by the Employee having a then fair market value
equal to the purchase price, or a combination thereof, plus payment in cash
of the full amount of any taxes which the Company believes are required to
be withheld and paid with respect to such exercise, and in the event the
option is being exercised by a person or persons other than the Employee,
such appropriate tax clearance, proof of the right of such person or
persons to exercise the option, and other pertinent data as the Company may
deem necessary.
14. The Company shall issue a certificate or certificates for shares
purchased upon exercise of the option; however, the Company shall not be
required to issue or deliver any certificate for shares purchased pending
compliance with all applicable federal and state securities and other laws
(including any registration requirements) and compliance with rules and
practices of any stock exchange upon which the Company's common shares are
listed.
15. In the event that there is any change in the number of issued common
shares of the Company without new consideration to the Company (such as by
stock dividends or stock split-ups), then (i) the number of shares at the
time unexercised under this option shall be changed in proportion to such
change in issued shares; and (ii) the option price for the unexercised
portion of the option granted shall be adjusted so that the aggregate
consideration payable to the Company upon the purchase of all shares not
theretofore purchased shall not be changed.
If the outstanding common shares of the Company shall be combined, or be
changed into another kind of stock of the Company or into securities of
another corporation, whether through recapitalization, reorganization,
sale, merger, consolidation, etc., the Company shall cause adequate
provision to be made whereby the person or persons entitled to exercise
this option shall thereafter be entitled to receive, upon due exercise of
any portion of the option, the securities equivalent to those which that
person would have been entitled to receive for common shares acquired
through exercise of the same portion of such option immediately prior to
the effective date of such recapitalization, reorganization, sale, merger,
consolidation, etc. If appropriate, due adjustment shall be made in the
per-share or per-unit price of the securities purchased on exercise of this
option following said recapitalization, reorganization, sale, merger,
consolidation, etc.
16. Upon written request, the Company agrees to furnish the Optionee a
copy of its annual financial statements within 120 days after the end of
each fiscal year.
17. Neither this option, shares issued upon its exercise, any excess of
market value over option price, nor any other rights, benefits, values, or
interest resulting from the granting of this option shall be considered as
compensation for purposes of any pension or retirement plan, insurance
plan, investment or stock purchase plan, or any other employee benefit plan
of the Company or any of its subsidiaries.
Page 3 of 4
<PAGE>
18. Every notice or other communication relating to this Agreement shall
be in writing and shall be mailed to or delivered to the party for whom it
is intended in each case properly addressed, if to the Company at its
principal place of business, Attention: Corporate President, or if mailed
or delivered to the Optionee at his address set forth below his signature
to this Agreement (or to such other address as may hereafter be designated
in writing by either party to this Agreement to the other).
IN WITNESS WHEREOF, the Company has caused this option to be executed by its
duly authorized officers as of the granting date above set forth.
-----------------------------------------------
President and Date
Chief Executive Officer
Attest
-----------------------------------------------
Assistant Secretary Date
Optionee:
-----------------------------------------------
Date
Address:
-----------------------------------------------
-----------------------------------------------
Page 4 of 4
<PAGE>
EXHIBIT 10.8
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
THE SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH
ASTERISKS.
AGREEMENT
THIS AGREEMENT, effective as of the 1st day of May, 1987, is by and between
the WISCONSIN ALUMNI RESEARCH FOUNDATION (hereinafter called WARF), a
corporation not for private profit, organized and existing under the laws of the
State of Wisconsin, and having its office at Madison, Wisconsin, and BONE CARE
INTERNATIONAL (hereinafter called Licensee or Bone Care), having its principal
place of business at 313 West Beltline Highway, Madison, Wisconsin 53713. This
Agreement replaces and supersedes an Agreement between WARF and Lunar Radiation
Corporation ("Lunar") dated as of May 1, 1987 and assigned to Licensee, on
January 25, 1989, as amended.
W I T N E S S E T H
WHEREAS, WARF is the owner by assignment of certain Letters Patent in the
United States relating to the compound 1 alpha-hydroxyergocalciferol (1 alpha-
HEC) which exhibits antirachitic and other properties and to methods for
preparing such compound; and
WHEREAS, it appears that substantial effort will have to be expended to
determine the efficacy, safety, and acceptability of such compound prior to
marketing for therapeutic purposes or for other purposes; and
WHEREAS, any part or all of such effort will require the expenditure of
substantial sums of money and time; and
WHEREAS, Licensee is willing to commit funds and effort to attempt to bring
the inventions of one or more of the aforesaid
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
THE SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH
ASTERISKS.
patents and patent applications into use for the benefit of the public and to
that end desires to have a license under "Licensed Patents" as hereafter
defined;
NOW, THEREFORE, in consideration of the premises and the mutual promises
and obligations hereinafter set forth the parties hereto agree as follows:
1. DEFINITION
-------------
For purposes of this Agreement the following terms shall have the indicated
definitions:
(a) "Licensed Patents" shall refer to and mean U.S. Letters Patent No.
3,907,843 issued September 23, 1975, and patents in foreign countries which
correspond to said patent being those listed in Appendix B of this
Agreement, and reissues or extensions of such patents.
(b) "Ancillary Patents" shall refer to and mean those patents listed in
Appendix A and reissues or extensions thereof.
(c) "Products" shall refer to and mean the compound 1 alpha-
hydroxyergocalciferol (1 alpha-HEC) and combinations thereof with other
materials in a dosage form suitable for sale to the retail trade.
(d) "Processes" shall mean the processes described and claimed in Ancillary
Patents.
(e) "Compound" shall mean 1 alpha-hydroxyergocalciferol (1 alpha-HEC).
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
THE SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH
ASTERISKS.
(f) "Ancillary Compounds" shall mean those compounds described and claimed in
Ancillary Patents which are intermediate in Processes.
(g) "Subsidiary" shall mean any corporation or organization
(1) at least fifty percent (50%) of whose stock entitled to vote upon
election of directors is owned or directly or indirectly controlled by
Licensee; or
(2) as much of whose stock entitled to vote upon election of directors is
owned or controlled by Licensee as permitted by law.
(h) "Net Selling Price" shall mean the invoice price of Products on an F.O.B.
factory basis after deduction of trade and quantity discounts, credits or
allowances because of the return of defective Products, and taxes or other
governmental charges on the sale, transportation or delivery of Products
absorbed by the Licensee.
In the case of sales of Products in combination with one or several
other therapeutic ingredients, the Net Selling Price shall be determined by
multiplying the invoice price of such combination, after the above-
mentioned deductions, by a fraction, the numerator of which shall be the
current wholesale selling price of the Product and the denominator of which
shall be the total of the current wholesale selling prices of all active
therapeutic ingredients in such combination including Product.
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80 PROMULGATED
THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
(i) "Licensed Field" shall mean ethical or proprietary pharmaceutical Products
for consumption by or administration to humans.
(j) "Competing Use" shall mean any use of the Compound for the treatment of an
osteoporotic condition.
(k) "Development Protocol" shall mean the Appendix C summary overview attached
hereto and provided by Licensee detailing the activities believed necessary
to bring Products to the marketplace worldwide.
2. GRANT
--------
(a) (i) Subject to the terms and provisions set forth in this Agreement, all of
which are conditions of this grant, WARF hereby grants and Licensee accepts
a worldwide license under Licensed Patents to make, have made for its
account, use and/or sell Products in Licensed Field, and under Ancillary
Patents to use Processes and Ancillary Compounds to make, or have made for
its account Products for use and sale in Licensed Field.
(ii) The license granted herein shall be exclusive to Licensee under
all Licensed Patents and the foreign patents listed in Appendix B attached
to this Agreement, except for a license to the Government of the United
States.
(iii) WARF agrees that it will not license a third party to practice
Processes for the manufacture of Compound and Products for use or sale in
Licensed Field anywhere in
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80 PROMULGATED
THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
the world as long as this Agreement is in effect and if sale of Product is
being made in the United States, Bone Care is paying the Annual License Fee
described in section 3(d)(ii). Bone Care may credit the Annual License Fee
against royalties due and owing WARF under Sections 3(c)(i) and 3(c)(ii) of
this Agreement for sales of Compound or Products in the United States.
WARF agrees that it will add to Ancillary Patents (Appendix A) such
patents as it obtains which are directed to processes for making 1 alpha-
HEC for the purpose of making 1 alpha-HEC while this Agreement is in effect
and Licensee is fulfilling all of its obligations under its terms and
provisions.
(b) Licensee may, at its option, and without a formal sublicense, permit third
parties to practice Processes, to make Compound and Products and to make
and use Ancillary Compound but only on its behalf or for its account.
Licensee shall have the same responsibility for said activities of such
third party under any such arrangement as if the activities were those of
Licensee, whether or not said third party is also a licensee of WARF under
Licensed Patents.
(c) This license is not to be construed as a warranty, either express or
implied, that Compound, Products, Processes, Ancillary Compounds, or
Method, or the practice of any of them, are free from third party patent
infringement
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80 PROMULGATED
THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
considerations. However, in the event Licensee pays royalties to any third
party for any additional patent license which is unavoidably and legally
necessary to practice the license granted by this Agreement, Licensee shall
be entitled to deduct fifty percent (50%) of the royalties paid to any such
third party under such additional patent license from the royalties due
WARF under this Agreement, provided, however, that such deduction shall not
reduce the royalty payment to WARF to less than one-half the amount
otherwise payable under this Agreement.
(d) Licensee accepts this license subject to a royalty-free irrevocable license
under any United States Letters Patents and the inventions thereof and any
additional inventions, and patent applications and patents pertaining
thereto, which may come within the scope of Licensed Patents and which have
been conceived and/or reduced to practice with funds obtained from the
Government of the United States, to the Government of the United States for
governmental purposes, and subject to the additional limitations which may
be imposed under PL 96-517 and PL 98-620 and OMB circular A-124 or other
regulations under those laws, or by any other entity which may fund
research leading to patent applications and patents which may come within
the scope of this Agreement.
WARF warrants and represents that, as the designee of the University
of Wisconsin under the Institutional Patent
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80 PROMULGATED
THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
Agreement between the University and the then Department of Health,
Education and Welfare dated December 1, 1968, it has, to the best of its
knowledge and belief, been in compliance with the terms and provisions of
that agreement with regard to Licensed Patents and such Ancillary Patents
as come within the purview of that agreement.
(e) Where Licensee accepts the responsibility for payment and for as long as it
pays the royalty specified in Section 3 on the sale of Products it shall
have the right to extend to purchasers, mediate and immediate, of Products
sold by Licensee immunity from suit for infringement of Licensed Patents
arising out of such purchaser's resale and/or use of Products.
(f) Inasmuch as WARF and the inventors named in Licensed Patents and Ancillary
Patents will not, under the provisions of this Agreement, or otherwise,
have control over the manner in which Licensee or its agents or those
operating for its account under Section 2(b), or third parties who purchase
Product from Licensee practice the inventions of Licensed Patents and
Ancillary Patents, Licensee shall hold WARF and said inventors harmless as
against any judgments, fees, expenses, or other costs arising from or
incidental to any product liability lawsuit brought as a consequence of
Licensee's practice of said inventions. Practice of the inventions of
Licensed Patents or Ancillary Patents by a third party on behalf of or for
the account of Licensee or
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80 PROMULGATED
THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
by a third party who purchases Product from Licensee, shall be considered
Licensee's practice of said inventions for purposes of this Section 2(f).
(g) Licensee warrants that it now maintains and will continue to maintain
liability insurance coverage appropriate to the risk involved in marketing
Products and will annually present evidence to WARF that such coverage is
being maintained.
(h) Notwithstanding any other provision of this Agreement, WARF hereby grants
to Bone Care the right to sublicense others to use Processes and Ancillary
Compounds to make Products for sale in Licensed Field. Such sublicense
shall continue only for as long as this Agreement is in effect which fact
Bone Care agrees to state prominently and unambiguously in any document
conveying any such sublicense. In addition, such sublicense shall include
at least such provisions as will be necessary to permit Bone Care to meet
its obligations under this Agreement including, but not limited to: (1) the
obligation to pay royalties to WARF; and (2) to hold WARF and its inventors
harmless in the event of a product liability suit arising from the
sublicensee's use of Processes and, Ancillary Compounds to make Products or
Compound or from the sublicensee's use or sale of Compound and Products.
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80 PROMULGATED
THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
Bone Care shall have the same responsibility to WARF for the
activities of the sublicensee as if those activities were the direct
activities of Bone Care.
(i) Licensee and WARF may each at its own discretion seek an extension of any
one or more European Licensed Patents where the laws and regulations of a
particular European country or the European Community permit an extension
to be obtained. Each party agrees to cooperate fully with the other party
in seeking such extensions, which shall be at Licensee's expense, except
that if the effort to obtain any one or more extensions is successful,
Licensee may credit one-half of the out-of-pocket expenses incurred in
obtaining the extensions against the royalties due WARF under the
particular Licensed Patent.
3. CONSIDERATION
----------------
In consideration of the license granted herein, Licensee agrees that:
(a) No later than thirty (30) days after the effective date of this Agreement,
it will pay WARF *** and upon receipt of an IND from the FDA it will pay an
additional ***. (It is acknowledged that these payments have been made to
WARF.)
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80 PROMULGATED
THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
In consideration for the extension of worldwide rights to Licensee
under Section 2(a), Licensee agrees to make the following payments to WARF
as additional initial license fees upon execution of this Agreement:
(1) For extending the rights to Japan, Australia, Korea, and New Zealand:
***.
(2) For extending the rights to France, Germany, Great Britain, Belgium,
Ireland, Netherlands, Switzerland, Denmark, Israel, Italy, and Sweden:
***. The additional license fees specified above shall not be
refundable or offset against any royalties due and payable to WARF on
the sale of Products or the use of royalties as are required to be
paid by Licensee under the terms and provisions of this Agreement or
any predecessor thereof, whether the named Licensee is Lunar or Bone
Care. (It is acknowledged that these payments have been made to WARF.)
(b) Licensee agrees to initiate the Development Protocol on or before December
31, 1990 and acknowledges that such agreement represents a substantial
obligation under the License. Licensee will establish and actively pursue
the worldwide development program described in Appendix C to the end that
at least one Product will be made available to the public worldwide in the
shortest reasonable time. At the beginning of each six-month period
commencing November 1, 1990, Licensee will supply WARF with a copy of the
protocol
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80 PROMULGATED
THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
of the development program for each geographical area where it intends to
pursue development during the following six months. At the end of each such
six-month period, Licensee will furnish WARF with a report indicating its
progress on such programs. Such protocols and reports shall be similar in
scope and content to the U.S. development protocols and reports previously
provided to WARF under the License. WARF agrees that it will not
communicate to any third party information which it receives from Licensee
and which has been identified by Licensee as being proprietary to it
without Licensee's express permission or unless or until such information
becomes available from another source or is in the public domain.
(c) It will pay WARF royalties on the Net Selling Price of Products accruing
from the time of first public sale of the Product whenever manufacture, use
or sale of such Products, absent this license, would amount to an
infringement of any claim of the indicated Licensed Patent or Ancillary
Patent which has not been abandoned or disclaimed by WARF or held invalid,
unpatentable or enforceable by a final adjudication of a judicial tribunal
of competent jurisdiction as follows:
(i) Under Licensed Patents - *** until the last to expire Licensed
Patents.
(ii) Under Ancillary Patents if one or more of Processes or Ancillary
Compounds is utilized in making Products or Compound:
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FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN
ACCORDANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R.
230.406 AND 200.80 PROMULGATED THEREUNDER. OMITTED INFORMATION HAS
BEEN REPLACED WITH ASTERISKS.
(a) other than in the United States and Japan - ***;
(b) in the United States - ***;
(c) in Japan, the royalty shall be *** until May 1, 1995, and *** after
that date.
In a given country, if a second party, other than Bone Care or a party with
which Bone Care has an arrangement, obtains approval of a New Drug
Application (NDA), or the foreign equivalent of an NDA, for Compound or
Products for a Competing Use, the royalty shall be reduced to *** beginning
upon the date the first significant sale for commercial purposes of
Compound or Products in Competing Use is made.
The royalties designated shall be additive except that in no event
shall Licensee pay a royalty which is greater than *** on the Net Selling
Price of Products.
(d) (i) Beginning upon January 1, 1992 Licensee will pay WARF an annual minimum
royalty of ***, in equal calendar quarterly installments until the
expiration of United States Letters Patent No. 3,907,843 or any extension
thereof and thereafter not less than *** annually while Licensee, or a
third party through or by virtue of an arrangement with Licensee, uses any
of Processes or Ancillary Compounds in the United States and this Agreement
is in effect. In the
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FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN
ACCORDANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R.
230.406 AND 200.80 PROMULGATED THEREUNDER. OMITTED INFORMATION HAS
BEEN REPLACED WITH ASTERISKS.
event this Agreement is terminated within any given calendar year, the
minimum annual payments specified in this Section 3(d)(i) shall be prorated
to the number of months in the year of termination that the Agreement was
in effect.
The royalties earned from the sale of Products by Licensee in the
United States in accordance with the provisions of Sections 3(c)(i) or
3(c)(ii) may be offset against the minimum royalty due and payable under
this Section 3(d)(i). Typically WARF requires additional minimum royalties
in consideration for granting rights in new territories. However, WARF
hereby waives such minimum royalty requirements in consideration of
Licensee's past and present efforts to develop a Product.
(ii) In addition to the minimum royalty provided for in Section
3(d)(i) and in consideration for the rights granted Bone Care in Section
2(a)(iii) of this Agreement, Bone Care agrees that beginning with the first
significant sale of Product by Bone Care, or by a party with which Bone
Care has an arrangement permitting that party to sell Product, in the
United States and for fifteen (15) years thereafter, it will pay WARF an
annual license fee (Annual License Fee) calculated at *** of the Net
Selling Price of Product sold in the United States. If a party other than
Bone Care or other than a party with which Bone Care has an arrangement
enters the market in the United States and sells Product in Competing Use,
Bone Care's obligation to pay the
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
THE SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH
ASTERISKS.
annual License Fee shall continue only if Bone Care, or a party with which
Bone Care has an arrangement, continues to practice Processes. In the event
this Agreement is terminated within any given calendar year, the Annual
License Fee specified in this Section 3(d)(ii) shall be prorated to the
number of months in the year of termination that the Agreement was in
effect.
(e) Licensee shall have the right to sell Products, without payment of royalty
to WARF, to other licensees of WARF under Licensed Patents.
(f) The royalty to be paid WARF on the Sale of Compound as a chemical per se,
i.e., not formulated for sale as Products in Licensed Fields, shall be
negotiated, except that royalties from the sale of Compound in such form
shall be substantially equivalent to the royalties obtained if Compound was
retained by Licensee and, after conversion to a final dosage form, sold in
that form as Products.
(g) In the event that Licensee or any of its sublicensees sell or otherwise
transfers Products or Compound to any of its Subsidiaries, which Compound
is then converted to Products by or on behalf of such subsidiary, monies
payable by Licensee under this Agreement shall be computed upon the Net
Selling Price of such Products as sold by such Subsidiary in accordance
with the royalty schedule set forth in Subsection 3(c).
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
THE SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH
ASTERISKS.
(h) All royalties due and payable to WARF in any calender quarter by Licensee
including minimum royalties, will be paid to WARF within sixty (60) days
after the close of each such calendar quarter. Each royalty payment will be
accompanied by a statement showing all details necessary for royalty
calculation where pertinent to royalties payable and shall specify what
taxes, if any, have been withheld as required by law. Also included in such
report will be a statement of Products or Compound sold to the Government
of the United States on a royalty-free basis.
(i) All royalties required to be paid under this Agreement shall be calculated
and payable in United States dollars.
4. RECORDS
----------
Licensee agrees that it will maintain true and accurate records of all
factors necessary to properly calculate royalties. For a period of at least
three (3) years after the royalty period such records will be available for
inspection and audit by a Certified Public Accountant acceptable to Licensee at
reasonable times during Licensee's regular office hours, but only for purposes
of verifying royalty payments.
WARF shall have the right in any year to request Licensee to submit a
written statement from a Certified Public Accountant verifying the accuracy and
completeness of royalty payments and reports made in accordance with this
Agreement.
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
THE SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH
ASTERISKS.
5. PATENT MARKING
------------------
Licensee agrees that it will apply appropriate patent markings for Licensed
Patents and Ancillary Patents on Products or Compound sold by it or its
subsidiaries under this Agreement.
6. ADVERTISING CLAIMS
----------------------
Any advertising of Products sold by Licensee or any of its subsidiaries
under this Agreement shall be free from extravagant or unwarranted statements
and shall contain no reference to Licensed Patents, the patentees thereof, the
University of Wisconsin or WARF except as provided in Section 5 above or except
with the written approval of WARF.
7. TERM AND TERMINATION
------------------------
(a) This Agreement shall remain in force and effect until the date of
expiration of the last to expire of Licensed Patents and Ancillary Patents,
unless terminated sooner by agreement of the parties or as hereinafter
provided.
(b) Licensee may terminate this Agreement at any time in its entirety upon
ninety (90) days' notice in writing to WARF.
(c) WARF shall have the right to terminate this Agreement in the event Licensee
shall breach or default in any of its substantial obligations hereunder,
including the payment of royalties and minimum royalties when due and
payable, which breach or default remains uncorrected for sixty (60) days
after receipt by Licensee of notice of such breach or
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80 PROMULGATED
THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
default. For purposes of this Subsection it is understood that Licensee's
requirement to file a report under the provisions of Subsection 3(b) above
shall be considered a substantial obligation and that this Agreement may be
terminated by WARF for Licensee's failure to file a report or in the event
that such report or other evidence indicates that there has been an absence
of real development activity on the part of the Licensee for the period
being reported upon.
(d) Termination of this Agreement by either party under any of the provisions
of this Section 7 shall not terminate Licensee's obligation to remit all
royalties and other payments theretofore accrued hereunder.
(e) Waiver by either party of a single breach or default, or a succession of
breaches or defaults, shall not deprive such party of any right to
terminate this Agreement arising by reason of any subsequent breach or
default.
(f) WARF may terminate this Agreement if Licensee commits any act of
bankruptcy, becomes insolvent, files a petition under any bankruptcy or
insolvency act or has any such petition filed against it, or offers any
general composition to its creditors, because of the happening of such act,
event, or offer.
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
THE SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH
ASTERISKS.
8. SCOPE AND ASSIGNABILITY
---------------------------
This Agreement shall extend to all Subsidiaries of Licensee but is
unassignable by Licensee except with the prior written consent of WARF and
except that it may be assigned without such consent to the corporate successor
of Licensee or to a person, firm or corporation acquiring all, or substantially
all, or majority interest in the business and assets of Licensee.
9. NOTICES
----------
Any notice hereunder shall be deemed to be sufficiently given if sent by
registered letter, or by international cable or telex:
(a) in the case of WARF to:
Wisconsin Alumni Research Foundation
614 Walnut Street
Madison, WI 53705
(b) in the case of Licensee to:
Bone Care International
313 West Beltline Highway
Madison, WI 53713
10. MISCELLANEOUS
-----------------
(a) All matters affecting the interpretation, validity and performance of this
Agreement shall be governed by the laws of the State of Wisconsin.
(b) When Licensee shall have supplied WARF with written evidence demonstrating
prima facie infringement of a claim of Licensed Patents by a third party
selling products in competition with Licensee and such sales are to the
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
THE SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH
ASTERISKS.
substantial financial detriment of Licensee, Licensee may, by written
notice, request WARF to take steps to terminate such infringement and
unless WARF shall within six (6) months of the receipt of such notice
either (i) cause such infringement to terminate or (ii) initiate legal
proceedings against the infringer, Licensee may, upon written notice to
WARF, initiate legal proceedings against the infringer in WARF's name and
at Licensee's expense, and may place in escrow royalty payments due in
connection with Licensee's sale of Products covered by such infringed
patent during the pendency of such proceedings. It is understood, however,
that in no event shall WARF be required to conduct more than one
infringement suit at a time and that while such suit is pending, Licensee
shall not have the right to institute a suit against another nor to escrow
royalties.
In the event one party shall initiate or carry on legal proceedings to
enforce any of Licensed Patents against an alleged infringer, the other
party shall fully cooperate with, and supply all assistance reasonably
requested by the party initiating or carrying on such proceedings.
(1) In the event Licensee institutes proceedings under the provisions of
this Section 10(b) and obtains a judgment in its favor it may deduct
from royalty payments accrued to WARF but held in escrow the direct
expenses incurred in such proceedings and return any balance, after
such deduction, to WARF.
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SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
THE SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH
ASTERISKS.
(2) If the cost of the proceeding to Licensee is greater than the amount
of royalty escrowed, Licensee may continue to deduct from royalties
payable to WARF such greater expenses until it has recovered the full
direct costs of such proceedings.
(c) In the event Licensee contests the validity of any of Licensed Patents all
rights and privileges extended under the terms and provisions of this
Agreement as to any of such contested Licensed Patents shall forthwith
cease and determine; but Licensee shall not be relieved from the payment of
royalties required or accrued under the terms and provisions of this
Agreement prior to such contest.
(d) This Agreement constitutes the entire Agreement between the parties hereto
with respect to the within subject matter and supersedes all previous
Agreements, whether written or oral. It shall not be changed or modified
orally. In the event that an unexpected incident renders a performance of
this contract physically or legally impossible, both parties agree to
negotiate an appropriate amendment to the Agreement.
-20-
<PAGE>
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
THE SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80
PROMULGATED THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH
ASTERISKS.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their officers thereunto duly authorized.
WISCONSIN ALUMNI RESEARCH FOUNDATION
(SEAL)
/s/ John R. Pike
By:_________________________________
/s/ Ronald Kendle
Attest:_________________________________
BONE CARE INTERNATIONAL
/s/ Richard B. Mazess
(SEAL) By:_________________________________
/s/ Charles W. Bishop
Attest:_________________________________
-21-
<PAGE>
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80 PROMULGATED
THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
AMENDED APPENDIX A
ANCILLARY PATENTS
-----------------
================================================================================
REFERENCE PATENT ISSUED SERIAL
NUMBER COUNTRY NUMBER DATE NUMBER
================================================================================
Process for Preparing 1 alpha-Hydroxylated Compounds-DSHP
- ----------------------------------------------------
P77028US U.S. 4,202,829 05/13/80
P77028CA Canada 1,137,944 12/21/82
Process for Preparing 1 alpha-Hydroxy-Vitamin D Compounds for 1 alpha-Hydroxy-
- ------------------------------------------------------------------------------
3,5-Cyclovitamin D Compounds-DSHP
- ----------------------------
P79018US U.S. 4,234,495 11/18/80
P79018GB GT. Brit. 2,058,075 07/27/83
P79018IL Israel 60904 01/01/84
P79018IE Ireland 50195 07/11/86
Process for Preparing 1 alpha-Hydroxylated Compounds-DSPH
- ----------------------------------------------------
P79022US U.S. 4,260,549 04/07/81
P79022FR France 7,916,805 04/16/84
P79022BE Belgium 877,356 07/13/79
P79022NL Netherlands 7905040
Method for Preparing 1 alpha-Hydroxyvitamin D Compounds-DSLP
- -------------------------------------------------------
P84017US U.S. 4,555,364 11/26/85
P84017AU Australia 4,867,485
P84017CA Canada 1,233,187 02/23/88
P84017DK Denmark 153,943
P84017IL Israel 76754
P84017JP Japan 60504750
P84017KR Korea 70040086
P84017NZ New Zealand 213,844
P84017IE Ireland 270,685
P84017EP EPO (BE,CH,LI,DE,FR,GB,IT,NL,SE) 859053530
5
<PAGE>
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80 PROMULGATED
THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
AMENDED APPENDIX A (cont.)
ANCILLARY PATENTS
-----------------
<TABLE>
<CAPTION>
================================================================================
REFERENCE PATENT ISSUED SERIAL
NUMBER COUNTRY NUMBER DATE NUMBER
================================================================================
<S> <C> <C> <C> <C>
Method for Preparing 1 alpha-Hydroxyvitamin D Compounds-DSLP
- -------------------------------------------------------
P84018US U.S. 4,554,106 11/19/85
P84018AU Australia 5064785
P84018CA Canada 1,233,188 10/15/85
P84018DK Denmark 153,836
P84018JP Japan 60504803
P84018KR Korea 70040186
P84018NZ New Zealand 213845
P84018EP EPO 859054561
P84018IE Ireland 270585
P84018IL Israel 76753
Process for Preparing 1 alpha-Hydroxylated Compounds-DSHP
- ----------------------------------------------------
P77027US U.S. 4,195,027 03/25/80
P77027CA Canada 1,156,251 11/01/83
P77032CA Canada (Div) 425,450
P77027FR France 79.00990 02/13/84
P77036FR France (Div) 81.08368 02/13/84
P77035FR France (Div) 83.11299 03/24/86
P77027DE Germany P2933189.3
P77039DE Germany (Div) P2954557.1
P77027GB Gt. Brit. 2,013,686 04/15/82
P77027BE Belgium 873,512 02/15/79
P77027IE Ireland 48,547 06/12/85
P77027NL Netherlands 7,900,331
P77027CH Switzerland 653,321 12/31/85
P77049CH Switzerland (Div) 658,050 12/15/86
P77027DK Denmark 147,912 06/17/85
P77034DK Denmark (Div) 3740/83
P77033DK Denmark (Div) 4361/82
P77027SE Sweden 7907631-1 01/26/84
P77027AU Australia 525,781 09/22/83
P77027JP Japan 1,197,578 03/21/84
P77030JP Japan (Div) 1,268,975 06/10/85
P77031JP Japan (Div) 1,268,976 06/10/85
P77050JP Japan (Div) 1,268,977 06/10/85
P77027NZ New Zealand 189,388 02/07/81
</TABLE>
6
<PAGE>
CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED, AND 17 C.F.R. 230.406 AND 200.80 PROMULGATED
THEREUNDER. OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.
APPENDIX B
----------
Foreign Filing corresponding to U.S. Patent No. 3,907,843 (for foreign filing
combined with inventions of U.S. Patent No. 3,880,894 - License extended in this
Agreement applies only to l-alpha-HEC).
<TABLE>
<CAPTION>
Country Patent No. Issue Date
- ------- ---------- ----------
<S> <C> <C>
France 7,513,243 January 25, 1980
France (Div.) 7,704,958 March 31, 1980
West Germany 2,518,842 July 12, 1978
Great Britain 1,503,942 March 15, 1978
</TABLE>
16
<PAGE>
EXHIBIT 23.1
Consent of KPMG Peat Marwick LLP
--------------------------------
The Board of Directors
Bone Care International, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
Chicago, Illinois
January 6, 1998
