SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997.
Commission File Number
0-28308
CollaGenex Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1758016
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 South State Street, Newtown, PA 18940
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 579-7388
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of June 30, 1997:
Common Stock $0.01 par value 8,543,579
<PAGE>
COLLAGENEX PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31,1996 and June 30,1997
<TABLE>
<CAPTION>
12/31/96 6/30/97
-------- -------
(unaudited)
(in thousands except
share amounts)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .......................... $ 9,848 $ 14,673
Short-term investments ............................. 8,367 12,603
Interest receivable ................................ 66 163
Prepaid expenses ................................... 88 112
-------- --------
Total current assets ........................ 18,369 27,551
Equipment, net ....................................... 57 84
Other assets ......................................... 11 11
-------- --------
Total assets ................................ $ 18,437 $ 27,646
======== ========
LIABILITIES and STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................... $ 46 $ 467
Accrued expenses .................................... 799 1,435
-------- --------
Total current liabilities .................... 845 1,902
-------- --------
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; none issued and outstanding ........... -- --
Common stock, $0.01 par value; 25,000,000 shares
authorized; 7,535,533 and 8,543,579 shares issued
and outstanding in 1996 and 1997, respectively ... 75 85
Additional paid-in capital ......................... 35,552 47,152
Deferred compensation .............................. (296) (247)
Deficit accumulated during the development stage.... (17,739) (21,246)
-------- -------
Stockholders' equity ........................ 17,592 25,744
-------- --------
Commitments
Total liabilities and stockholders' equity .... $ 18,437 $ 27,646
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
COLLAGENEX PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended June 30,1996 and 1997
and for the period from January 10, 1992 (inception) to June 30,1997
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30, For the Period from
-------------------------- -------------------------- 1/10/92 (inception)
1996 1997 1996 1997 to 6/30/97
---- ---- ---- ---- -------------------
(in thousands, except share amounts)
<S> <C> <C> <C> <C> <C>
Revenues:
Licensing Fees ...................... $ -- $ 300 $ -- $ 300 $ 700
Operating expenses incurred in the
development stage:
Research and development ............ 1,301 1,379 2,277 2,072 15,116
Selling, general and administrative.. 535 1,385 953 2,353 8,167
----------- ----------- ----------- ----------- ---------
Total operating expenses ..... 1,836 2,764 3,230 4,425 23,283
Other income (expense)
Interest income ..................... 48 382 109 618 1,481
Other expense ....................... -- -- -- -- (144)
----------- ----------- ----------- ----------- ---------
Net loss .............................. $ (1,788) $ (2,082) $ (3,121) $ (3,507) $ (21,246)
=========== =========== =========== =========== =========
Accretion of undeclared dividends
attributable to mandatorily redeem-
able convertible preferred stock ...... $ 336 $ -- $ 720 $ -- $ 2,597
=========== =========== =========== =========== =========
Net loss allocable to common
stockholders ........................ $ (2,124) $ (2,082) $ (3,841) $ (3,507) $ (23,843)
=========== =========== =========== =========== =========
Proforma net loss per share ........... $ (0.31) $ (0.24) $ (0.56) $ (0.44)
=========== =========== =========== ===========
Shares used in computing
proforma net loss per share ......... 5,734,061 8,521,601 5,623,333 8,030,087
=========== =========== =========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
COLLAGENEX PHARMACEUTICALS, INC.
AND SUBSIDIARY
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1996 and 1997
and for the period from January 10, 1992 (inception) to June 30,1997
(Unaudited)
Six Months Ended
June 30, For the Period
----------------- from 1/10/92
1996 1997 (inception) to 6/30/97
---- ---- ---------------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ....................................... $ (3,121) $ (3,507) $(21,246)
Adjustments to reconcile net loss to net
cash used in operating activities:
Non-cash research and development expense .... -- -- 514
Non-cash compensation expense ................ 101 49 221
Non-cash consulting expense .................. -- -- 15
Depreciation and amortization expense ........ 2 16 39
Change in assets and liabilities:
Increase in accounts and interest receivable.. -- (97) (163)
Increase in prepaid expenses ................. (13) (24) (112)
Increase in other assets ..................... (1) -- (11)
Increase in accounts payable ................. 290 421 467
Increase in accrued expenses ................. 275 636 1,435
-------- -------- --------
Net cash used in operating activities ............ (2,467) (2,506) (18,841)
-------- -------- --------
Cash flows from investing activities:
Organizational costs ........................... -- -- (5)
Capital expenditures ........................... (28) (43) (118)
Purchase of short-term investments (available
for sale) ................................... -- (15,587) (27,877)
Proceeds from the sale of short-term
investments (available for sale) ............. -- 11,351 15,274
-------- -------- --------
Net cash used in investing activities ............ (28) (4,279) (12,726)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of preferred stock ...... -- -- 13,508
Proceeds from issuance of common stock ......... 18,053 11,610 29,707
Proceeds from issuance of promissory notes ..... -- -- 3,150
Repayment of promissory note ..................... -- -- (125)
-------- -------- --------
Net cash provided by financing activities ........ 18,053 11,610 46,240
-------- -------- --------
Net increase in cash and cash equivalents ........ 15,558 4,825 14,673
Cash and cash equivalents at beginning of period . 5,807 9,848 0
-------- -------- --------
Cash and cash equivalents at end of period ....... $ 21,365 $ 14,673 $ 14,673
======== ======== ========
4
<PAGE>
(Continued from preceding page)
Six Months Ended
June 30, For the Period
----------------- from 1/10/92
1996 1997 (inception) to 6/30/97
---- ---- ---------------------
(in thousands)
Supplemental disclosure of cash flows information:
Cash paid for interest ......................... $ -- $ -- $ 23
======= ======== ========
Supplemental schedule of non-cash financing
activities:
Conversion of mandatorily redeemable
convertible preferred stock to common stock ... $19,628 $ -- $ 19,628
======= ======== ========
Accretion of undeclared dividends attributable
to mandatorily redeemable convertible
preferred stock ............................... $ -- $ -- $ 2,597
======= ======== ========
Conversion of promissory notes plus accrued
interest to preferred stock ................... $ -- $ -- $ 2,903
======= ======== ========
Deferred compensation .......................... $ 381 $ -- $ 469
======= ======== ========
Preferred stock issued in connection with
technology license agreements ................. $ -- $ -- $ 498
======= ======== ========
See accompanying notes to unaudited condensed consolidated financial statements.
</TABLE>
5
<PAGE>
COLLAGENEX PHARMACEUTICALS, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996 and 1997
(Unaudited)
(1) Basis of Presentation
The unaudited condensed consolidated financial statements included herein
have been prepared by the Company, pursuant to the rules and regulations of the
Securities and Exchange Commission and in accordance with generally accepted
accounting principles. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These unaudited financial statements should be read in conjunction
with the Company's 1996 audited financial statements and footnotes.
The accompanying unaudited consolidated financial statements include the
results of the Company and its wholly-owned subsidiary (CollaGenex
International, Ltd.). All intercompany accounts and transactions have been
eliminated.
In the opinion of the Company's management, the accompanying unaudited
condensed financial statements have been prepared on a basis substantially
consistent with the audited financial statements and contain adjustments, all of
which are of a normal recurring nature, necessary to present fairly its
financial position as of June 30, 1997, its results of operations for the three
and six months ended June 30, 1996 and 1997 and for the period January 10, 1992
(inception) to June 30, 1997, and its cash flows for the six months ended June
30, 1996 and 1997 and for the period January 10, 1992 (inception) to June 30,
1997. Interim reports are not necessarily indicative of results anticipated for
the full fiscal year.
(2) Completion of Follow-on Offering of Common Stock
On April 8, 1997, the Company completed a follow-on offering of 1,000,000
shares of its common stock at a price of $12.50 per share. The net proceeds from
the offering after underwriting fees and other expenses were $11.6 million.
(3) Line of Credit
On June 26, 1997, the Company entered into a credit arrangement consisting
of a $5,000,000 line of credit (the "LOC") to support the future working capital
needs of the Company. The LOC will be unsecured as long as the Company's cash
and investment balances maintained with the lender or an affiliate of the lender
equals or exceeds $10,000,000. At the Company's option, the LOC will bear
interest at either the prime rate charged by the lender or LIBOR plus 2.15%. The
LOC is terminable by the lender at any time.
No balance was outstanding under the LOC at June 30, 1997.
6
<PAGE>
(4) Licensing Fee
During 1996, the Company executed a licensing agreement with Boehringer
Mannheim Italia ("BMI") pursuant to which BMI will distribute and manufacture
Periostat(R) in Italy. The agreement provided for BMI to pay the Company a
license fee upon signing, additional fees upon the achievement of future
milestones and royalties upon future sales of Periostat in Italy, San Marino and
The Vatican City. During the second quarter of 1997, the Company received a
nonrefundable $300,000 licensing fee related to the achievement of the first
milestone under the agreement.
(5) Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued statement
of Financial Accounting Standards No. 128 Earnings Per Share ("Statement 128").
Statement 128 replaces the presentation of primary earnings per share ("EPS")
and fully diluted EPS with basic EPS and diluted EPS, respectively. Statement
128 is effective for both interim and annual periods ending after December 15,
1997 and once implemented will require restatement of all prior EPS data to
conform with Statement 128. The Company believes that this restatement will not
be material.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company began operations in January 1992 and is engaged in the
development and commercialization of innovative, proprietary medical therapies
for the treatment of periodontal disease and other dental pathologies. Since
inception, the Company has had no revenues from product sales and has funded its
operations primarily from the proceeds of public and private offerings of equity
securities. Substantially all of the Company's expenditures to date have been
for pharmaceutical development, prelaunch sales and marketing activities and
general and administrative expenses.
Since inception, the Company has operated with a minimal number of
employees. Substantially all pharmaceutical development activities, including
clinical trials, have been contracted to independent contract research and other
organizations. The Company anticipates that it will significantly increase the
number of its employees over the next several years, primarily to build a
commercial infrastructure in anticipation of regulatory approval and market
commercialization of Periostat(R).
The Company has incurred losses each year since inception and had an
accumulated deficit of $21.2 million at June 30, 1997. The Company expects to
continue to incur losses in the foreseeable future from expenditures on
marketing, drug development, manufacturing and administrative activities.
The Company does not expect to generate any material revenues from sales of
its own products in 1997. No assurance can be given that such product sales will
be achieved in the future. Successful future operations will depend on the
Company's ability to develop, obtain regulatory approval for and commercialize
its products.
Statements contained or incorporated by reference in this Quarterly Report
on Form 10-Q that are not based on historical fact are "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Forward-looking statements may be identified by the use of
forward-looking terminology such as "may", "will", "expect", "estimate",
"anticipate", "continue", or similar terms, variations of such terms or the
negative of those terms. This Form 10-Q contains forward-looking statements that
involve risks and uncertainties. The Company's business of developing
pharmaceutical products is subject to a number of significant risks, including
risks inherent in research and development activities and in conducting business
in a highly regulated environment. The success of the Company depends to a large
degree upon obtaining FDA and foreign regulatory approval to market products
currently under development. There can be no assurance that any of the Company s
product candidates will be approved by any regulatory authority for marketing in
any jurisdiction or, if approved, that any such products will be successfully
commercialized by the Company. The Company's actual results may differ
materially from the results discussed in the forward-looking statements
contained herein.
8
<PAGE>
Results of Operations
From inception through June 30, 1997, the Company had no revenues from
product sales. Operating expenses consist of research and development expenses,
prelaunch sales and marketing and general and administrative expenses. Research
and development expenses consist primarily of funds paid to contract research
organizations for the provision of services and materials for drug development
and clinical trials. General and administrative expenses consist primarily of
personnel salaries and benefits, contract selling expenses, professional and
consulting fees, facilities and general office expenses. The Company anticipates
that selling, general and administrative expenses will increase during the next
several years due to the expansion of its commercial infrastructure, primarily
in sales, marketing and finance.
During 1996, the Company executed a licensing agreement with Boehringer
Mannheim Italia ("BMI") pursuant to which BMI will distribute and manufacture
Periostat(R) in Italy. The Company earned $300,000 in licensing fee revenue
during the three month period ending June 30, 1997. This revenue represented a
milestone payment pursuant to the agreement. (See Note 4 of Notes to Condensed
Consolidated Financial Statements.)
Research and development expenses decreased $205,000, or 9%, but increased
$78,000, or 6%, respectively, for the six months and three months ended June 30,
1997, over the comparable year earlier periods. The decrease in the six month
period was due to lower contract costs associated with the New Drug Application
("NDA") for Periostat(R), which was submitted to the FDA in August 1996. The
increase in the three month period resulted from costs associated with
validating manufacturing processes for Periostat(R). Selling, general and
administrative expenses increased $1,400,000, or 147%, and $850,000, or 159%,
respectively, during these six and three month periods due to the hiring of
additional staff in finance, commercial development and sales and marketing, the
initiation of certain prelaunch sales and marketing activities, and higher
insurance and professional fees associated with becoming a public company.
Interest income for the six month period ended June 30, 1997 increased
$509,000 from the comparable period in 1996 due to higher interest income from
the invested net proceeds of the Company's initial public offering in June 1996
and its follow-on common stock offering in April 1997.
Liquidity and Capital Resources
On June 20, 1996, the Company completed an initial public offering of
2,000,000 shares of common stock at a price of $10.00 per share, which generated
net proceeds to the Company of approximately $18.0 million after underwriting
fees and related expenses. An additional $11.6 million, net of underwriting fees
and expenses, was raised as a result of the Company's follow-on offering of
1,000,000 shares of common stock completed on April 8, 1997 at a price of $12.50
per share (See Note 2 of Notes to Condensed Consolidated Financial Statements).
At June 30, 1997, the Company had cash, cash equivalents and short-term
investments of approximately $27.3 million. This was an increase of $9.1 million
9
<PAGE>
from the $18.2 million balance at December 31, 1996. In accordance with
investment guidelines approved by the Company's Board of Directors, cash
balances in excess of those required to fund operations have been invested in
short-term U.S. Treasury securities and commercial paper with a credit rating no
lower than A1/P1. The Company's working capital of $25.6 million at June 30,
1997 reflected an increase of $8.1 million from December 31, 1996 due primarily
to the proceeds received from the follow-on offering, less normal operating
expenses incurred during the six months ended June 30,1997.
The Company had no debt outstanding (other than accounts payable and
accrued expenses) at June 30, 1997. The Company had no capital leases
outstanding at June 30, 1997. On June 26, 1997, the Company entered into a
credit arrangement consisting of a $5,000,000 line of credit (the "LOC") to
support the future working capital needs of the Company. The LOC will be
unsecured as long as the Company's cash and investment balances maintained with
the lender or an affiliate of the lender equals or exceeds $10,000,000. At the
Company's option, the LOC will bear interest at either the prime rate charged by
the lender or LIBOR plus 2.15%. The LOC is terminable by the lender at any time.
No balance was outstanding under the LOC at June 30, 1997.
The Company anticipates that its existing working capital will be
sufficient to fund the Company's operations through at least 1998. The Company's
future capital requirements and the adequacy of its available funds will depend
on many factors, including the timing of FDA approval, if any, of the Company's
NDA for Periostat(R), such NDA having been submitted to the FDA in August 1996,
the size and scope of the Company's sales and marketing effort, the terms of
agreements entered into with corporate partners, if any, and the results of
research and development and pre-clinical and clinical studies for other
applications of the Company's core technology. Over the long term, the Company's
liquidity is dependent on market acceptance of its products and technology.
PART II. OTHER INFORMATION
Item 2. Changes in Securities.
The following information relates to all securities of the Company sold by
the Company within the past quarter which were not registered under the
securities laws at the time of grant, issuance and/or sale:
1. The Company has, during the quarter, granted stock options pursuant to
its 1996 Stock Plan which, at the time of grant, had not yet been
registered under the securities laws. The following table sets forth
certain information regarding such grants during the quarter:
<TABLE>
<CAPTION>
Number
of shares Exercise price
--------- --------------
<S> <C> <C>
25,000 $12.25
</TABLE>
10
<PAGE>
No underwriter was employed by the Company in connection with the issuance
of the securities described above. The Company believes that the issuance of all
of the foregoing securities were exempt from registration under either (i)
Section 4(2) of the Securities Act of 1933, as amended (the "Act") as
transactions not involving any public offering, or (ii) Rule 701 under the Act
as transactions made pursuant to a written compensatory benefit plan or pursuant
to a written contract relating to compensation. All recipients had adequate
access to information about the Company.
On July 14, 1997, the Company filed a Registration Statement on Form S-8
with respect to the Company's 1992 Stock Option Plan, as amended, 1996 Stock
Plan and 1996 Non-Employee Director Stock Option Plan, as amended.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual meeting of Shareholders of the Company (the "Meeting") was held
on May 8, 1997.
There were present at the Meeting in person or by proxy shareholders
holding an aggregate of 6,432,790 shares of Common Stock. The results of the
vote taken at such Meeting with respect to each nominee for director were as
follows:
<TABLE>
<CAPTION>
Common Stock Nominees For Withheld
- --------------------- --- --------
<S> <C> <C>
Helmer P.K. Agersborg, Ph.D. 6,429,740 Shares 3,050 Shares
Brian M. Gallagher, Ph.D. 6,429,740 Shares 3,050 Shares
Peter R. Barnett, D.M.D. 6,429,740 Shares 3,050 Shares
Robert J. Easton 6,429,740 Shares 3,050 Shares
James E. Daverman 6,429,740 Shares 3,050 Shares
Stephen W. Ritterbush, Ph.D. 6,429,740 Shares 3,050 Shares
Pieter J. Schiller 6,429,740 Shares 3,050 Shares
Terence E. Winters, Ph.D. 6,429,740 Shares 3,050 Shares
</TABLE>
In addition, a vote of the shareholders was taken at the Meeting on the
proposal to ratify the appointment of KPMG Peat Marwick LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1997. Of the
shares present at the meeting in person or by proxy, 6,428,790 shares of Common
Stock were voted in favor of such proposal, 2,500 shares of Common Stock were
voted against such proposal and 1,500 shares of Common Stock abstained from
voting.
In addition, a vote of the shareholders was taken at the Meeting on the
proposal to approve certain amendments to the Company's 1996 Non-Employee
Director Stock Option Plan. Of the shares present at the meeting in person or by
proxy, 5,573,269 shares of Common Stock were voted in favor of such proposal,
563,075 shares of Common Stock were voted against such proposal and 85,898
shares of Common Stock abstained from voting.
11
<PAGE>
Item 5. Other Information.
Follow-on Offering of Common Stock
- ----------------------------------
On April 8, 1997, the Company completed a follow-on offering of 1,000,000
shares of its common stock at a price of $12.50 per share. The net proceeds from
the offering after underwriting fees and other expenses were $11.6 million.
Line of Credit
- --------------
On June 26, 1997, the Company entered into a credit arrangement consisting
of a $5,000,000 line of credit (the "LOC") to support the future working capital
needs of the Company. The LOC will be unsecured as long as the Company's cash
and investment balances maintained with the lender or an affiliate of the lender
equals or exceeds $10,000,000. At the Company's option, the LOC will bear
interest at either the prime rate charged by the lender or LIBOR plus 2.15%. The
LOC is terminable by the lender at any time. No balance was outstanding under
the LOC at June 30, 1997.
Product Launches
- ----------------
On May 12, 1997, the Company announced that it signed an exclusive
marketing agreement with the Parke-Davis Division of the Warner Lambert Company
to promote Ponstel(R)(Mefenamic Acid) to the professional dental community.
Ponstel(R) is a nonsteriodal anti-inflammatory drug indicated for the relief of
moderate pain. As of June 30, 1997, the Company had not recognized any revenue
from its marketing of Ponstel(R).
On June 17, 1997, the Company announced that it signed a marketing
agreement with Advanced Clincal Technologies, Inc. pursuant to which the Company
will promote Periocheck(R) to the professional dental community. Periocheck(R)
is an FDA-approved test for monitoring the periodontal disease process in the
dentist's office. As of June 30, 1997, the Company had not recognized any
revenue from its marketing of Periocheck(R).
Executive Officers
- ------------------
On June 9, 1997, the Company hired David F. Pfeiffer as Vice President,
Marketing, and on June 16, 1997, the Company hired Douglas C. Gehrig as Vice
President, Sales.
Extension of Collaboration Agreement with National Cancer Institute
- -------------------------------------------------------------------
On June 30, 1997, the Company and the National Cancer Institute ("NCI")
formally extended its collaboration with the Company. As a result, NCI and the
Company will collaborate in the clinical development of one of the Company's
compounds, Metastat(TM), for the prevention of cancer metastases. The Company
expects that Metastat(TM) will be the first of a new class of matrix
metalloproteinase (MMP) inhibitors to reach clinical development. Metastat(TM)
is a chemically modified tetracycline that has shown promise in pre-clinical
studies in a variety of human tumor types as an inhibitor of tumor growth and
metastases.
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 - Letter Agreement dated June 24, 1997 relating to CoreStates Bank
N.A. line of credit, together with Master Commercial Promissory Note.
10.2 - Consulting and Contract Service Agreement dated February 1, 1997 by
and between the Company and Innovative Customer Solutions, Ltd.
27 - Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this report
on Form 10-Q is filed.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CollaGenex Pharmaceuticals, Inc.
Date: July 31, 1997 By: /s/ Brian M. Gallagher, Ph.D
----------------------------
Brian M. Gallagher, Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
Date: July 31, 1997 By: /s/ Nancy C. Broadbent
----------------------
Nancy C. Broadbent
Chief Financial Officer (Principal
Financial and Accounting Officer)
14
June 24, 1997
Ms. Nancy C. Broadbent
Vice President and Chief Financial Officer
CollaGenex Pharmaceuticals, Inc.
301 South State Street
Newtown, PA 18901
Dear Nancy:
It is a pleasure to inform you that CoreStates Bank, N.A. (the "Bank") has
approved a $5,000,000 line of credit to support the normal working capital needs
of CollaGenex Pharmaceuticals, Inc., a Delaware corporation (the "Company") and
its subsidiary.
All borrowings will be subject to the Bank's continuing satisfaction with the
Company's financial condition and will be evidenced by the enclosed $5,000,000
Master Promissory Note when it and the enclosed borrowing resolution have been
duly executed by the Company.
Interest on all borrowings will be payable at the maturity of each borrowing but
in no event less frequently than monthly on the first business day. Interest
will be paid by means of a charge to the Company's demand account with the Bank.
Interest will be calculated on the basis of a year of 360 days for each day
actually outstanding.
All or any part of the line will be available to the Company using the following
pricing alternatives:
Floating prime rate:
- -------------------
Interest will be calculated at a rate equal to the prime rate of interest
charged from time to time by the Bank. Said interest rate will change each time
the Bank's prime rate changes, effective on and as of the date of the change.
There will be no minimum size for borrowings bearing interest at the Bank's
prime rate, and the Company may repay such borrowings in full or in part at any
time without notice or penalty.
<PAGE>
Ms. Nancy C. Broadbent
June 24, 1997
Page 2
Adjusted LIBOR-based rates:
- --------------------------
Interest will be calculated at a fixed rate of interest for the duration of each
such borrowing. The Company's interest rate(s) will be 2.15% in excess of the
interest rate(s) (adjusted for reserve requirements, if any) at which the Bank
is offered dollar deposits in the interbank Eurodollar market at or about 10:00
a.m. (Eastern Time) two business days prior to a borrowing which is to be priced
using this alternative.
Minimum borrowings will be $100,000. Once agreed to, these may not be prepaid
nor added to prior to their stated maturities.
Collateral
- ----------
The line of credit will be unsecured as long as the sum of the Company's cash
and investment balances (the "Liquid Assets") maintained with the Bank or with
CoreStates Investment Advisers equals or exceeds $10,000,000. If the Liquid
Assets fall below $10,000,000, all advances will be fully secured by the Liquid
Assets.
Other Conditions
- ----------------
Negative Pledge
- ---------------
Except for assets having aggregate book value not greater than $100,000, the
Company will not create or permit to exist any liens on any assets of the
Company or its Subsidiary without the prior written consent of the Bank.
Negative-Negative Pledge
- ------------------------
The Company will not give a Negative Pledge to any party other than the Bank.
Primary Depository and Investment Advisor
- -----------------------------------------
The Bank will remain the Company's primary operating and account bank, and
CoreStates Investment Advisers will remain the Company's primary provider of
investment management and custody services.
<PAGE>
Ms. Nancy C. Broadbent
June 24, 1997
Page 3
Reporting
- ---------
In consideration of the line, the Company will provide the Bank with:
- - its SEC Form 10-K and consolidated annual report, to be audited by KPMG
Peat Marwick LLP or another independent Certified Public Accountant
satisfactory to the Bank, to be delivered to the Bank within 90 days of the
close of the Company's fiscal year;
- - its SEC Form 10-Q and quarterly consolidated financial statements, to be
prepared in accordance with GAAP, to be delivered to the Bank within 90
days of the close of each fiscal quarter;
- - such other financial and operating information as the Bank may from time to
time reasonably request.
You understand that this line of credit may be terminated by the Company or the
Bank at any time.
Nancy, we are delighted to support the Company in the manner set forth above and
hope that the Company will find the terms of this credit facility acceptable. If
so, please have the appropriate party so signify in the space provided below and
return this letter to my attention.
At the Bank's option, this letter will be null and void unless accepted in
writing by June 30, 1997.
Very truly yours,
CORESTATES BANK, N.A.
Bruce F. Morgan
Vice President
BFM:bm
Enclosures (2)
[signatures continued on following page]
<PAGE>
Ms. Nancy C. Broadbent
June 24, 1997
Page 4
Agreed to and accepted:
COLLAGENEX PHARMACEUTICALS, INC.
[SEAL]
/s/ Nancy C. Broadbent, VP&CFO 6/26/97
By: ------------------------------ -------
(Name and Title) (Date)
<PAGE>
MASTER
COMMERCIAL PROMISSORY NOTE
$ 5,000,000.00 June 24, 1997
------------ -------------
FOR VALUE RECEIVED, each of the undersigned, jointly and severally if more than
one (hereinafter collectively referred to as "Borrower"), promises to pay to the
order of CORESTATES BANK, N.A.*, a national banking association (the "Bank"), at
any of its
banking offices in Pennsylvania, the principal amount of Five million and
00/100--------------Dollars, in lawful money of the United States, plus
interest, to be paid as follows:
plus interest on the unpaid principal balance at a rate mutually agreed upon at
the time a loan is made and shall be payable monthly, if the loan is payable on
demand, or the date or dates agreed to, if the loan is payable on a time or
other basis. If the rate of interest agreed to is based upon our "prime rate,"
such term shall mean and refer to the rate of interest for commercial loans
established and publicly announced by us from time to time as our prime rate,
and such rate of interest shall change each time our prime rate changes,
effective on the date of change. Interest will be computed on the basis of a
year of 360 days for each day of the year actually elapsed. The Undersigned
hereby authorizes the Bank to charge any account in the name of the Undersigned
for any and all amounts due hereunder. All payments to the Bank of principal and
interest and other amounts, if any, shall be made in U.S. dollars in immediately
available funds.
ADDITIONAL TERMS OF THIS NOTE - Each of the following provisions shall apply to
this Note, to any extension or modification hereof and to the indebtedness
evidenced hereby, except as otherwise expressly stated above or in a separate
writing signed by Bank and Borrower.
INTEREST - Interest shall be calculated on the basis of a 360-day year and shall
be charged for the actual number of days elapsed. Accrued interest shall be
payable monthly. Accrued interest shall also be payable when the entire
principal balance of this Note becomes due and payable (whether by demand,
stated maturity or acceleration) or, if earlier, when such principal balance is
actually paid to Bank. If the rate at which interest accrues is based on the
"Prime Rate" that term is defined as the rate of interest for loans established
by Bank, from time to time as its prime rate. Said per annum rate of interest
shall change each time Bank's prime rate shall change, effective on and as of
the date of the change. Interest shall accrue on each disbursement hereunder
from the date such disbursement is made by Bank, provided, however, that to the
extent this Note represents a replacement, substitution, renewal or refinancing
of existing indebtedness, interest shall accrue from the date hereof. Interest
shall accrue on the unpaid balance hereof at the rate provided for in this Note
until the entire unpaid balance has been paid in full, notwithstanding the entry
of any judgment against Borrower.
PREPAYMENT - If this Note bears interest at a floating or variable rate and no
floor or minimum rate is specified, Borrower may prepay all or any portion of
the principal balance of this Note at any time, without premium or penalty. If
not permitted under the preceding sentence, any prepayment of principal
(including any principal repayment as a result of acceleration by Bank of this
Note) shall require immediate payment to Bank of a prepayment fee equal to the
amount, if any, by which the aggregate present value of scheduled principal and
interest payments eliminated by the prepayment exceeds the principal amount
being prepaid. Said present value shall be calculated by application of a
discount rate determined by Bank in its reasonable judgment to be the
yield-to-maturity at the time of prepayment on U.S. Treasury securities having a
maturity which most closely approximates the final maturity date of the
principal balance then outstanding. Whether or not a prepayment fee is required
hereunder, prepayments shall be applied to scheduled installments of principal
in the inverse order of their maturity, shall be accompanied by payment of
accrued interest on the principal amount being prepaid and, unless this Note has
been accelerated by Bank, shall not be permitted in an amount less than the
scheduled principal installment immediately prior to final maturity of the
outstanding principal balance.
- --------------------------------------------------------------------------------
*CoreStates Bank, N.A. also conducts business as Philadelphia National Bank, as
CoreStates First Pennsylvania Bank and as CoreStates Hamilton Bank
<PAGE>
EVENTS OF DEFAULT - Each of the following shall be an Event of Default
hereunder: (a) the nonpayment when due of any amount payable under this Note or
under any obligation or indebtedness to Bank of Borrower or any person liable,
either absolutely or contingently, for payment of any indebtedness evidenced
hereby, including endorsers, guarantors and sureties (each such person is
referred to as an "Obligor"); (b) if Borrower or any Obligor has failed to
observe or perform any other existing or future agreement with Bank of any
nature whatsoever; (c) if any representation, warranty, certificate, financial
statement or other information made or given by Borrower or any Obligor to Bank
is materially incorrect or misleading; (d) if Borrower or any Obligor shall
become insolvent or make an assignment for the benefit of creditors or if any
petition shall be filed by or against Borrower or any Obligor under any
bankruptcy or insolvency law; (e) the entry of any judgment against Borrower or
any Obligor which remains unsatisfied for 15 days or the issuance of any
attachment, tax lien, levy or garnishment against any property of material value
in which Borrower or any Obligor has an interest; (f) if any attachment, levy,
garnishment or similar legal process is served upon Bank as a result of any
claim against Borrower or any Obligor or against any property of Borrower or any
Obligor; (g) the dissolution, merger, consolidation or change in control (as
control is defined in Rule 12b-2 under the Securities Exchange Act of 1934), of
any Borrower which is a corporation or partnership, or the sale or transfer of
any substantial portion of any of Borrower's assets, or if any agreement for
such dissolution, merger, or consolidation, change in control, sale or transfer
is entered into by Borrower, without the written consent of Bank; (h) the death
of any Borrower or Obligor who is a natural person; (i) if Bank determines
reasonably and in good faith that an event has occurred or a condition exists
which has had, or is likely to have a material adverse effect on the financial
condition or creditworthiness of Borrower or any Obligor, or on the ability of
Borrower or any Obligor to perform its obligation evidenced by this Note; (j) if
Borrower shall fail to remit promptly when due to the appropriate government
agency or authorized depository, any amount collected or withheld from any
employee of Borrower for payroll taxes, Social Security payments or similar
payroll deductions; (k) if any Obligor shall attempt to terminate or disclaim
such Obligor's liability for the indebtedness evidenced by this Note; (l) if
Bank shall reasonably and in good faith determine and notify Borrower that any
collateral for this Note or for the indebtedness evidenced hereby is
insufficient as to quality or quantity; (m) if Borrower shall fail to pay when
due any material indebtedness for borrowed money other than to Bank; or (n) if
Borrower shall be notified of the failure of Borrower or any Obligor to provide
financial and other information promptly when reasonably requested by Bank. If
this Note is payable on demand, Bank's right to demand payment hereof shall not
be restricted or impaired by the absence, non-occurrence or waiver of an Event
of Default, and it is understood that if this Note is payable on demand, Bank
may demand payment at any time.
BANK'S REMEDIES - Upon the occurrence of one or more Events of Default
(including, if this Note is payable on demand, any Event of Default resulting
from Borrower's failure to make any payment hereunder when demanded) unless Bank
elects otherwise, the entire unpaid balance of this Note and all accrued
interest shall be immediately due and payable without notice to borrower or any
Obligor, and Bank may, immediately or at any time thereafter exercise any or all
of its rights and remedies hereunder or under any agreement or otherwise under
applicable law against Borrower, any Obligor and any collateral, Bank may
exercise its rights and remedies in any order and may, at its option, delay in
or refrain from exercising some or all of its rights and remedies without
prejudice thereto. Upon the occurrence of any such Event of Default or at any
time thereafter; Bank may, at its option, and upon five days' written notice to
Borrower, begin accruing interest on this Note, at a rate not to exceed five
percent (5%) per annum in excess of the greater of (a) the rate of interest
provided for above, or (b) the Prime Rate in effect from time to time on the
unpaid principal balance hereof; provided, however, that no interest shall
accrue hereunder in excess of the maximum rate permitted by law. All such
additional interest shall be payable on demand.
<PAGE>
NOTICE TO BORROWER - Any notice required to be given by Bank under the
provisions of this Note shall be effective as to each Borrower and each Obligor
when addressed to Borrower and deposited in the mail, postage prepaid, for
delivery by first class mail at Borrower's mailing address as it appears on
Bank's records.
DISBURSEMENTS AND PAYMENTS - The proceeds of this Note, or any portion thereof,
may be credited by Bank to the deposit account of Borrower, or disbursed in any
other manner requested by Borrower and approved by Bank. If Borrower so
requests, Bank may, at its option, disburse the proceeds of this Note in more
than one disbursement on the same or different dates, but except as otherwise
agreed by Bank in writing, no action taken by Bank in response to any such
request shall be deemed to create or shall imply the existence of any commitment
or obligation to pay or credit the undisbursed portion of this Note. All
payments due under this Note are to be made in immediately available funds. If
Bank accepts payment in any other form, such payment shall not be deemed to have
been made until the funds comprising such payment have actually been received by
or made available to Bank. If Borrower is not an individual, Borrower authorizes
Bank (but Bank shall have no obligation) to charge any deposit account in
Borrower's name for any and all payments of principal, interest, or any other
amounts due under this Note.
PAYMENT OF COSTS - In addition to the principal and interest payable hereunder,
Borrower agrees to pay Bank, on demand, all costs and expenses (including
reasonable attorneys' fees and disbursements) which may be incurred by Bank in
the collection of this Note or the enforcement of Bank's rights and remedies
hereunder.
REPRESENTATIONS BY BORROWER - If Borrower is a corporation or a general or
limited partnership, Borrower represents and warrants that it is validly
existing and in good standing in the jurisdiction under whose laws it was
organized. If Borrower is a corporation, Borrower represents and warrants that
the execution, delivery and performance of this Note are within Borrower's
corporate powers, have been duly authorized by all necessary action by
Borrower's Board of Directors, and are not in contravention of the terms of
Borrrower's charter, by-laws, or any resolution of its Board of Directors. If
Borrower is a general or limited partnership, Borrower represents and warrants
that the execution, delivery and performance of this Note have been duly
authorized and are not in conflict with any provision of Borrower's partnership
agreement or certificate of limited partnership. Borrower further represents and
warrants that this Note has been validly executed and is enforceable in
accordance with its terms, that the execution, delivery and performance by
Borrower of this Note are not in contravention of law and do not conflict with
any indenture, agreement or undertaking to which Borrower is a party or is
otherwise bound, and that no consent or approval of any governmental authority
or any third party is required in connection with the execution, delivery and
performance of this Note.
WAIVERS, ETC. - Borrower and each Obligor waive presentment, dishonor, notice of
dishonor, protest and notice of protest. Neither the failure nor any delay on
the part of Bank to exercise any right, remedy, power or privilege hereunder
shall operate as a waiver or modification thereof. No consent, waiver or
modification of the terms of this Note shall be effective unless set forth in a
writing signed by Bank. All rights and remedies of Bank are cumulative and
concurrent and no single or partial exercise of any power or privilege shall
preclude any other or further exercise of any right, power or privilege.
<PAGE>
MISCELLANEOUS - This Note is the unconditional obligation of Borrower, and
Borrower agrees that Bank shall not be required to exercise any of its rights or
remedies against any collateral in which it holds a lien or security interest or
against which it has a right of setoff or against any particular Obligor. All
representations, warranties and agreements herein are made jointly and severally
by each Borrower. If any provision of this Note shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision hereof. To the extent that this Note represents a replacement,
substitution, renewal or refinancing of a pre-existing note or other evidence of
indebtedness, the indebtedness represented by such pre-existing note or other
instrument shall not be deemed to have been extinguished hereby. In the event
that any due date specified or otherwise provided for in this Note shall fall on
a day on which Bank is not open for business, such due date shall be postponed
until the next banking day, and interest and any fees or similar charges shall
continue to accrue during such period of postponement. This Note has been
delivered in and shall be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania without regard to the law of conflicts. This
Note shall be binding upon each Borrower and each Obligor and upon their
personal representatives, heirs, successors and assigns, and shall benefit Bank
and its successors and assigns.
CONSENT TO JURISDICTION AND VENUE - IN ANY LEGAL PROCEEDING INVOLVING, DIRECTLY
OR INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY, EACH UNDERSIGNED PARTY HEREBY IRREVOCABLY SUBMITS
TO THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN ANY
COUNTY OF THE COMMONWEALTH OF PENNSYLVANIA WHERE BANK MAINTAINS AN OFFICE AND
AGREES NOT TO RAISE ANY OBJECTION TO SUCH JURISDICTION OR TO THE LAYING OR
MAINTAINING OF THE VENUE OF ANY SUCH PROCEEDING IN SUCH COUNTY. EACH UNDERSIGNED
PARTY AGREES THAT SERVICE OF PROCESS IN ANY SUCH PROCEEDING MAY BE DULY EFFECTED
UPON IT BY MAILING A COPY THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO EACH
UNDERSIGNED PARTY.
WAIVER OF JURY TRIAL - EACH UNDERSIGNED PARTY HEREBY WAIVES, AND BANK BY ITS
ACCEPTANCE HEREOF THEREBY WAIVES, TRIAL BY JURY IN ANY LEGAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT,
CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE OR THE
RELATIONSHIP EVIDENCED HEREBY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR BANK
TO ENTER INTO, ACCEPT OR RELY UPON THIS NOTE.
IN WITNESS WHEREOF, Borrower, intending this to be a sealed instrument and
intending to be legally bound hereby, has executed and delivered this Note as of
the day and year first above written.
<PAGE>
- --------------------------------------------------------------------------------
Name of Corporation
or Partnership COLLAGENEX PHARMACEUTICALS, INC.
- --------------------------------------------------------------------------------
By: By:
- ----------------------------------- ------------------------------------
(Signature of Authorized Signer) (Signature of Authorized Signer)
- ----------------------------------- ------------------------------------
(Print or Type Name and (Print or Type Name and
Title of Signer Above) Title of Signer Above)
INDIVIDUALS SIGN BELOW
SEAL
- ----------------------------------- ------------------------------------
(Signature of Witness) (Signature of Individual Borrower)
- ----------------------------------- ------------------------------------
(Print or Type Name of Above Witness) (Print or Type Name of Borrower
Signing Above)
SEAL
- ----------------------------------- ------------------------------------
(Signature of Witness) (Signature of Individual Borrower)
- ----------------------------------- ------------------------------------
(Print or Type Name of Above Witness) (Print or Type Name of Borrower
Signing Above)
CollaGenex Pharmaceuticals, Inc.,
---------------------------------
and
Innovative Customer Solutions, Ltd.
-----------------------------------
Consulting and Contract Service Agreement
-----------------------------------------
This CONSULTING AND CONTRACT SERVICE AGREEMENT (the "Agreement") is made
and entered into as of the 1st day of February 1997, by and between CollaGenex
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), and Innovative
Customer Solutions, Ltd., an Ohio limited liability company ("ICS").
RECITALS:
WHEREAS, Company is the licensee of certain patent rights to Periostat
("Periostat") for which the Company is currently seeking approval from the
United States Food and Drug Administration (the "FDA"); and Company may also
enter into co-promotional or licensing agreements with other pharmaceutical
companies for other products (the "Products"); and that Company plans to sell
both Periostat and the Products (collectively the "Dental Products") in the
United States;
WHEREAS, ICS has the necessary expertise to develop and implement the
appropriate marketing, selling and educational programs to assist in the
acceptance of the Dental Products by the dental and insurance community;
WHEREAS, the Company desires to retain the services ("Services") of ICS to
(but not limited to) i) develop marketing plans for the sale and distribution of
the Dental Products ii) provide a contract dental sales organization for the
sale of the Dental Products iii) establish certain necessary third party
relationships that will be helpful to establish the Dental Products within the
dental community.
WHEREAS, ICS desires to provide Services to the Company.
NOW, THEREFORE, in consideration of the mutual terms and covenants
contained herein, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree as follows:
1. Purpose. Company shall engage ICS on a non-exclusive basis to render
advice and services in assisting Company to market and sell the Dental Products
to the dental community.
2. Duties of ICS. ICS shall provide Company with services as specified
below, provided that ICS shall not be required to undertake duties not
reasonably within the scope of the services in which ICS is generally engaged.
In the performance of these duties, ICS shall provide Company with the benefit
of its best judgment and efforts.
<PAGE>
ICS's duties shall include, but will not necessarily be limited to, the
following:
a. Brand management for Periostat (see Exhibit A, Section 1);
b. Development, implementation and management of a contract sales
organization for Dental Products (see Exhibit A, Section 2). It
is understood that a sales representative contracted by ICS to
sell Dental Products will not sell products other than Dental
Products to the dental community;
c. The establishment and leverage of third party relationships that
will assist with the acceptance of Periostat by the dental and
insurance communities;
d. The development and production of marketing materials and
advertising programs for the Dental Products as requested by the
Company.
ICS agrees that in order to accomplish the forgoing duties, it will provide
its best efforts to develop and implement the programs and procedures set forth
on Exhibit "A" attached hereto.
3. Term. The term of this Agreement shall commence on February 1, 1997 and
shall continue in accordance with details listed in Exhibit A, or termination of
this Agreement by Company or ICS in accordance with paragraph 7.
4. Fees and Expenses.
a. Fees. ICS shall receive the fees set forth below upon the
submission of appropriate invoices for services performed
pursuant to Section 2 and Exhibit A, Sections 1 and 2. Invoices
shall be payable within 30 days of receipt by CollaGenex.
i) Periostat Brand Management (see Exhibit A, Section 1 for
----------------------------
details)
Retainer: $6,000 per month for a period of twelve months.
Development costs: The development of marketing materials, as
approved by Company, will be billed monthly at $80 per effort
hour.
ii) Products Brand Management (see Exhibit A, Section 1 for
---------------------------
details)
Fee: $80 per effort hour, up to a maximum of 20 hours/quarter.
<PAGE>
iii) Contract Sales Effort (see Exhibit A, Section 2 for details)
Project establishment fee: $20,000 due on signature of this
Agreement.
Contract compensation: $43/contact hour billable monthly in
accordance with actual hours implemented the previous month, and
consistent with the action plan approved by Company, for
Periostat and up to an additional three (3) Products.
iii) Dental Insurance Initiative
---------------------------
Company commitment: Company agrees that it will advise ICS of its
intention to implement the dental insurance initiative no later
than March 31st 1997.
Project establishment fee: $20,000 due at date of commitment.
Retainer: $15,000 per month for a total period of twelve months.
The twelve month period will begin on the later of the date of
commitment or 6 months prior to Company's best estimate for
Periostat launch.
Additional Services: Insurance Initiative services provided prior
to the commitment date will be charged at a per diem rate of $700
plus expenses.
b. Expenses. The Company agrees to reimburse ICS for all reasonable
--------
travel and other related expenses incurred in connection with the
performance of its Contract Brand Management and Dental Insurance
Initiative duties subject to the following conditions:
i) Aggregate expenses during the term of this Agreement will
not exceed $48,000 without express permission from Company.
ii) Prior to the reimbursement of any expense, ICS shall provide
the Company with a summary of such expense. Expense
summaries will be provided via an expense report designated
by the Company.
iii) Expense reimbursements shall be made at the end of each
month during the term of this Agreement; provided, the
expense report is received by the Company not less than 10
days prior to the date for reimbursement.
<PAGE>
iv) Prior approval by the Company is required for expenses
anticipated to be in excess of $4,000 per month.
ICS may provide Company with additional services if requested by Company
and approved by ICS. ICS and Company shall agree on a mutually acceptable fee
for any additional services provided to Company by ICS.
5. Independent Contractor. ICS shall provide its best efforts to perform
all services hereunder as an independent contractor and not as an employee of
Company or any affiliate thereof. It is expressly understood and agreed that ICS
shall have no authority to act, represent or bind Company or any affiliate
thereof in any manner, except as may be agreed expressly by Company in writing
from time to time. As an independent contractor, ICS recognizes and agrees that
no federal, state or FICA withholdings will be made by Company on ICS's behalf
and that ICS shall be solely responsible for payment of all taxes of any type
attendant to Company's payments pursuant to Section 4.
6. Confidentiality. ICS acknowledges that during the term of this
Agreement, ICS may have access to information, knowledge and/or financial data
of Company which is of a secret or confidential nature. ICS agrees that it shall
not disclose and shall not permit the disclosure of such information during the
term hereof or at any time thereafter. Company acknowledges that during the term
of this Agreement, Company may have access to information, knowledge and/or
financial data of ICS which is of a secret or confidential nature. Company
agrees that it shall not disclose and shall not permit the disclosure of such
information during the term hereof or at any time thereafter. ICS shall not use
the secret or confidential information of the Company for purposes other than
carrying out its duties specified hereunder.
7. Early Termination. This Agreement can be terminated by Company by 60-day
written notice if FDA action results in a delay in Periostat approval beyond
January 1998.
Company has the right to terminate the Agreement or any one or more of the
duties under Section 2 of this Agreement for any reason upon 90 days prior
written notice to ICS.
Either party has the right to terminate this contract if either party fails to
provide its best efforts to perform any of the material duties set forth in
Section 2 and Exhibit A, or breaches any of its material obligations set forth
in this Agreement. If said party does not cure such failure to perform within 90
days after receiving notice, the other party shall have the right to terminate
this agreement.
Project establishment fees and retainers paid to ICS up to the time of
termination are non-refundable. Fees and expenses will be pro-rated to date of
termination.
<PAGE>
8. Modification of Deliverables and Time Lines. This contract is written
under the assumption that the timing of Periostat's FDA approval will allow for
market entry around January 1, 1998. If during the course of this Agreement it
becomes apparent that market entry will take place either prior to or
significantly later than January 1, 1998, while the number of months of
contracted service will remain the same, deliverables, priorities, time lines
and payment schedules can be re-negotiated to optimally meet launch needs. The
foregoing shall not prohibit the Company from terminating this agreement in
accordance with the first paragraph of section 7 of this agreement.
9. Indemnification. Company hereby agrees to indemnify ICS and hold it
harmless from any and all claims (including but not limited to product liability
claims for the Dental Products), liabilities, losses, actions, suits, or
proceedings, at law or in equity that it may incur or with which it may be
threatened by reason of its acting pursuant to the terms of this agreement, and
in connection herewith, to indemnify ICS any and all expenses (including
attorney's fees) or costs of resisting any such action, suit or proceeding or
resisting any such claim; provided, however, that the provisions of this
paragraph shall not apply in the event of any claim, liability, loss, action,
suit or proceeding resulting from the breach by ICS of any provision of this
Agreement or from its negligence or willful misconduct or from its actions not
authorized by the Company or pursuant to the terms of this agreement, or from
representations made by ICS concerning the Company not authorized by the
Company.
ICS hereby agrees to indemnify Company and hold it harmless from any and all
claims, liabilities, losses, actions, suits, or proceedings, at law or in equity
that it may incur or with which it may be threatened by reason of the negligent
actions or willful misconduct of ICS or representations made by ICS concerning
the Company not authorized by the Company; and in connection herewith, to
indemnify Company for any and all expenses (including attorney's fees) or costs
of resisting any such action, suit or proceeding or resisting any such claim;
provided, however, that the provisions of this paragraph shall not apply in the
event of any claim, liability, loss, action, suit or proceeding resulting from
the breach by the Company of any provision of this Agreement or from its
negligence or willful misconduct.
10. Marketing Obligation. ICS shall advise Company promptly concerning any
market information that may come to the attention of ICS respecting Company,
Dental Products, Company's market position or the continued competitiveness of
Dental Products in the marketplace, including charges, complaints or claims by
any customer or other persons about Company or Dental Products. ICS shall confer
from time to time, at the request of Company, on matters relating to market
conditions, sales forecasting and product planning. ICS shall not misrepresent
or disparage Company or Dental Products in any way to any customer or any other
third party. ICS agrees that it shall not make any representation of Company or
Dental Products unless such representation is authorized by Company.
<PAGE>
11. Miscellaneous.
a. This Agreement shall be binding upon and inure to the benefit of
each of the parties hereto and their respective successor, legal
representatives and assigns;
b. This agreement may be executed in any number of counter parts,
each of which together shall constitute one and the same original
document;
c. No provision of this agreement may be amended, modified or
waived, except in writing signed by the parties hereto;
d. This Agreement shall be construed in accordance with and governed
by the laws of Ohio.
e. ICS will provide, without restriction, copies of the account
profiles which pertain to the sales of Dental Products for which
Company has contracted ICS to provide sales services. Account
profiles are records of information describing individual
accounts called on by ICS representatives in the course of acting
on the Company's behalf. Profiles will minimally include name,
address of such accounts, names of key contact people within the
accounts, and a history of ICS' interactions with that account
while in Company's service. In developing and modifying the
account profiles, ICS agrees not to breach any agreement with any
third party or infringe the proprietary rights of any third
party.
ICS agrees to provide the company with the most recent version of
any such account profiles upon the request of Company. While ICS
has full responsibility for the development and modification of
the account profiles, it is intended that there will be full
cooperation between ICS and Company with respect to such
development and modification and that there will be a free flow
of information between ICS and Company in order to promote
development of commercially useful account profiles. During the
term of this Agreement and upon the termination of this agreement
for any reason, Company shall be entitled to retain and use,
without any limitation upon such use, the most recent version of
account profiles. Upon any such termination, ICS shall deliver to
Company the complete and most recent versions of the account
profiles pertaining to Company's contracted services.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as the day and year first written above:
For ICS: For Company:
By: /s/Walter Deinees By: /s/BM Gallagher
----------------- ---------------
Name: Walter Deinees Name: BM Gallagher
-------------- ------------
Date: Jan 30, 1997 Date: Jan 28, 1997
<PAGE>
Exhibit A
Section 1
Dental Products Brand Management
1. Periostat
ICS will be contracted for a total of 12 months beginning February 1, 1997 to
provide all planning and implementation of marketing activities necessary to
optimize Periostat launch.
Objective:
Revise and implement marketing plan for Periostat to optimize sales.
Supporting activities:
Activities will include but are not limited to:
1. The development and production of marketing materials and
advertising programs.
2. Recommendation of product pricing.
3. Development and implementation of product distribution plan.
4. Product forecasting.
5. Development of alternative marketing vehicles.
Responsibilities related to alternative sales vehicles:
I. ICS will provide clear rationale, budget, time lines
and expected benefits along with each vehicle/project
recommended.
ii. Company will approve budget & time line
iii. ICS will deliver project on time and within budget
6. Development of materials for, and attendance at, dental
conventions.
7. Development and implementation of sampling program.
8. Development and implementation of compliance program.
9. Development and implementation of professional educational
program, e.g., symposia, speakers' programs.
<PAGE>
Deliverables:
1. Provide detailed time and events schedule (Marketing "action
plan") to CollaGenex management for review and approval by
February 10, 1997.
2. Provide hard copy of revised Periostat Marketing Plan by
February 15, 1997.
3. Present Periostat advertising campaign by April 1, 1996
4. Provide monthly summary of activities vs. action plan to
CollaGenex management by the 15th of each month
Fee:
Retainer: $6,000 per month for a period of twelve months due on the first day of
each month. The first payment is due on February 1, 1997.
Development costs: The development of marketing materials, as approved by
Company, will be billed at $80 per effort hour. Payment will be due monthly, on
the first day of each month.
2. Products
Objective:
ICS will be contracted for a total of 12 months, beginning February 1, 1997 to
provide planning and implementation of marketing activities in order to optimize
the contract sales effort associated with the sales of up to 3 Products.
Supporting activities:
It is anticipated that brand management for Products will be limited to the
following activities:
1. Conversion of promotional and detailing material to be more
relevant for a dental audience
2. Development of convention materials appropriate for
exhibition on CollaGenex convention booth
3. Product forecasting
However the exact nature of the activities and services required will only
become apparent when details of the co-promotional contracts are negotiated.
Fee:
For brand management activities related to Products, there will be an additional
charge of $80 per hour, to a maximum of up to 20 hours per quarter.
<PAGE>
Exhibit A
Section 2
Contract Sales Force
Scope:
ICS will provide contract sales services for Periostat and up to three (3)
Products. Additional Products will be the subject of addenda to this Exhibit.
1. Start date is targeted for April 1, 1997, however initiation of services is
contingent on securing of co-promotion agreements.
2. Specific products and product mix promoted at project initiation and over the
course of this contract will be determined based on pending co-promotional
agreements and the timing of FDA approval for Periostat. Number of reps. needed
will depend on number and mix of products, desired audience reach and call
frequency and geography. An illustration of rep. requirements and budgets for 6
possible scenarios is given in Table 1 below.
3. Target audience, reach and frequency of calls for each product will be
determined separately for each product as each product becomes available for
promotion. The agreed upon audience, reach and frequency will then be included
as an amendment to this contract.
Services:
1. Creation and implementation of a sales strategy for Dental
Products, integrating alternative sales vehicles to support
field sales activities.
2. Provision of a detailed time, events and costs schedule
(sales "action plan") to CollaGenex management for review
and approval prior to initiation.
3. Creation of sales territories and call plans.
4. Hiring, training, management and compensation of sales
personnel.
5. Call reporting.
6. Provision of ongoing input and insight into sales strategy
and planning process.
7. Monthly forecasts of next months sales activities relative
to sales action plan, quarterly performance reviews and
planning sessions.
Deliverables:
1. For each Dental Product, an action plan will be submitted
documenting product sales strategy, integrating alternative
sales vehicles, and including recommended target audience,
reach and frequency possible within budget. Due before
product launch.
2. Monthly field feedback and performance analysis vs action
plan, including reach, frequency, and sample accountability
for each product in hard copy, due the 15th of the month for
the preceding month.
Fees:
Project establishment fee: $20,000 due on signature of this Agreement.
Contract compensation: $43/contract hour billable monthly in accordance with
actual hours implemented the previous month, and consistent with the action plan
approved by Company, for Periostat and up to an additional three (3) Products.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE
REGISTRANT'S FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<CIK> 0001012270
<NAME> COLLAGENEX PHARMACEUTICALS, INC.
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