<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MAXIM PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2834 87-0279983
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
</TABLE>
3099 SCIENCE PARK ROAD, SUITE 150
SAN DIEGO, CALIFORNIA 92121
(619) 453-4040
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
DALE A. SANDER
VICE PRESIDENT, FINANCE, CHIEF FINANCIAL OFFICER AND SECRETARY
MAXIM PHARMACEUTICALS, INC.
3099 SCIENCE PARK ROAD, SUITE 150
SAN DIEGO, CALIFORNIA 92121
(619) 453-4040
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
LANCE W. BRIDGES, ESQ. LAWRENCE B. FISHER, ESQ.
RANDY J. BERHOLTZ, ESQ. ORRICK, HERRINGTON & SUTCLIFFE LLP
COOLEY GODWARD LLP 666 FIFTH AVENUE
4365 EXECUTIVE DRIVE, SUITE 1100 NEW YORK, NY 10103
SAN DIEGO, CA 92121 (212) 506-5000
(619) 550-6000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration 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 number of the earlier effective Registration Statement for the same
offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED (1) PER SHARE (2) OFFERING PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.001 par value................... 2,875,000 $12.625 $36,296,875 $11,000
</TABLE>
(1) Includes 375,000 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated in accordance with Rule 457(c) solely for the purpose of computing
the amount of the registration fee based on the average of the high and low
prices of the Registrant's Common Stock as reported on the American Stock
Exchange on September 11, 1997.
--------------------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 1997
2,500,000 SHARES
[LOGO]
COMMON STOCK
Of the 2,500,000 shares of Common Stock offered hereby, 2,000,000 shares are
being offered in Sweden and other countries outside the United States (the
"International Offering") and 500,000 shares are being offered in the United
States (the "U.S. Offering," and the International Offering, collectively the
"Offering"). The number of shares offered in the International and the U.S.
Offerings shown above are indicative amounts only. The number of shares actually
sold in each Offering may be more or less than such amounts.
The Company's Common Stock is traded on the American Stock Exchange ("AMEX")
under the symbol "MMP." On September 11, 1997, the last sale price of the Common
Stock on AMEX was $12 5/8 per share. See "Price Range of Common Stock." The
Company has applied to list the Common Stock for trading on the Stockholm Stock
Exchange ("SSE").
FOR A DISCUSSION OF MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" COMMENCING ON PAGE 7
HEREOF.
------------------------
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.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share.............................................. $ $ $
Total (3).............................................. $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting offering expenses estimated to be $700,000 payable by the
Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 375,000 additional shares of Common Stock solely to cover
over-allotments, if any, on the same terms and conditions as the shares
offered hereby. If such option is exercised in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $ ,
$ , $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters named
herein (and in the wrap-around prospectuses relating to the shares offered in
Sweden and internationally to which this Prospectus is attached), 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 the shares of the Company's Common Stock
in the Offering will be ready for delivery in book-entry form on or about
, 1997.
------------------------
RODMAN & RENSHAW, INC. ALFRED BERG
The date of this Prospectus is , 1997
<PAGE>
INSIDE FRONT COVER
CLINICAL TRIAL ACTIVITY -- MAXAMINE
Maxim Pharmaceuticals, Inc. anticipates that by early 1998 it will be
conducting three Phase III clinical trials of MAXAMINE for the treatment of
cancer. In June 1997 the Company commenced a 200-patient clinical trial of
MAXAMINE for advanced malignant melanoma in the United States. A separate Phase
III advanced malignant melanoma trial is planned to commence in Sweden and
Australia by the end of 1997. The Company also intends to commence a Phase III
clinical trial for Acute Mylogenous Leukemia ("AML") in Europe and the United
States in early 1998. Furthermore, the Company has initiated earlier stage
clinical trials of MAXAMINE for the treatment of renal cell carcinoma, hepatitis
C, and multiple myeloma, and expects to commence clinical trials of MAXAMINE for
the treatment of additional cancers, such as prostate adenocarcinoma, in 1998.
<TABLE>
<CAPTION>
PHASE I/II PHASE III
INDICATION RESEARCH* PRECLINICAL* CLINICAL CLINICAL MARKET
- --------------------------------------------------------- ------------- --------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Malignant Melanoma -- United States *** *** *** **
Malignant Melanoma -- Sweden / Australia *** *** ** *
AML -- Sweden / United States *** *** ** *
Renal Cell Carcinoma *** *** *
Multiple Myeloma *** *** *
Hepatitis C *** *** *
Prostate Adenocarcinoma *** *** *
</TABLE>
*** Completed ** In-process * Planned for 1997 or 1998
* Note: Research and preclinical is completed or clinical trails are being
conducted in reliance upon work completed in other indications.
See "Business--Maxamine Immunotherapy Platform" for more complete description.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE EFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF
PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."
MAXAMINE, MAXVAX AND THE MAXIM LOGO ARE TRADEMARKS OF THE COMPANY. ALL
TRADEMARKS AND TRADE NAMES REFERRED TO IN THIS PROSPECTUS ARE THE PROPERTY OF
THEIR RESPECTIVE OWNERS.
2
<PAGE>
PROSPECTUS SUMMARY
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE U.S. PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, AS AMENDED. THESE STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS AND UNCERTAINTIES THAT MAY CAUSE THE COMPANY'S ACTUAL RESULTS OR
OUTCOMES TO BE MATERIALLY DIFFERENT FROM THOSE ANTICIPATED AND DISCUSSED HEREIN.
SUCH DIFFERENCES ARE DISCUSSED IN THE CAUTIONARY STATEMENTS ACCOMPANYING THE
FORWARD-LOOKING STATEMENTS AND IN THE RISK FACTORS CONTAINED IN THIS PROSPECTUS
AND IN THE RISK FACTORS DETAILED IN THE COMPANY'S OTHER FILINGS WITH THE SEC
DURING THE PAST 12 MONTHS. IN ASSESSING FORWARD-LOOKING STATEMENTS CONTAINED
HEREIN, READERS ARE URGED TO READ CAREFULLY ALL RISK FACTORS AND CAUTIONARY
STATEMENTS CONTAINED IN THIS PROSPECTUS AND IN THE COMPANY'S OTHER FILINGS WITH
THE SEC. UNLESS OTHERWISE INDICATED, ALL FINANCIAL AND SHARE INFORMATION SET
FORTH IN THIS PROSPECTUS ASSUMES (I) A PUBLIC OFFERING PRICE OF $12 5/8 PER
SHARE AND (II) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
THE COMPANY
Maxim Pharmaceuticals, Inc. ("Maxim" or the "Company") is developing novel
therapeutics for the treatment of cancer and infectious disease. The Company's
lead drug, MAXAMINE, is designed to be self-administered on an outpatient basis
in combination with cytokines such as interleukin-2 ("IL-2") and
interferon-alpha ("IFN-a"). MAXAMINE therapy may be used to facilitate an immune
system mechanism that allows these cytokines and other biological response
modifiers to achieve full anti-tumor and anti-infective potential for the
treatment of cancer and infectious disease. The Company believes that MAXAMINE
therapy has the potential to (i) significantly increase overall survival
outcomes in certain cancers over existing approved therapies and standards of
care; (ii) lower cytokine dosage requirements and reduce related toxicity; (iii)
provide a more cost-effective treatment; and (iv) improve patient quality of
life during therapy.
The Company anticipates that by early 1998 it will be conducting three Phase
III clinical trials of MAXAMINE for the treatment of cancer. In June 1997 the
Company commenced a 200-patient Phase III clinical trial of MAXAMINE for
advanced malignant melanoma in the United States. A separate Phase III advanced
malignant melanoma trial is planned to commence in Sweden and Australia by the
end of 1997. The Company also intends to commence a Phase III clinical trial for
acute mylogenous leukemia ("AML") in Europe and the United States in early 1998.
Furthermore, the Company has initiated earlier stage clinical trials of MAXAMINE
for the treatment of renal cell carcinoma, hepatitis C, and multiple myeloma,
and expects to commence clinical trials of MAXAMINE for the treatment of
additional cancers, such as prostate adenocarcinoma, in 1998.
In the Company's two completed Phase II clinical trials for the treatment of
advanced malignant melanoma, MAXAMINE therapy produced improved patient survival
outcomes. Mean survival time for patients treated with MAXAMINE in each of the
two studies exceeded 14 months as compared with reported mean survival times of
approximately seven months for existing available treatments. In patients where
the melanoma metastasized to the liver, MAXAMINE therapy improved mean survival
time to 20 months from a reported mean survival time of approximately four
months for existing available treatments.
The Company's Phase II clinical trials for the treatment of AML have
demonstrated an improvement of disease-free remission intervals. Patients
treated with MAXAMINE during their first complete remission ("CR1") had mean
time in remission in excess of 20 months as compared with reported mean time in
remission of approximately 12 months for patients under the current standard of
care. Patients who relapsed and achieved a second or greater remission ("CR2+")
and were subsequently treated with MAXAMINE had a mean time in remission in
excess of 20 months as compared with reported mean time in remission of
approximately six months under the current standard of care. In the Company's
ongoing Phase II clinical trial, remission inversion (prolonging the duration of
CR2+ to that equal to or exceeding the patient's prior remission duration) was
achieved in 8 of 10 (80%) evaluable patients treated with MAXAMINE therapy as
compared with approximately 10% to 20% under the current standard of care.
3
<PAGE>
There are significant patient populations in the markets targeted by
MAXAMINE. The American Cancer Society estimates that approximately 1,380,000 new
cases and approximately 560,000 deaths will be reported for invasive cancers in
the United States in 1997. The Company estimates that the size of the anti-
cancer market in Europe is approximately equivalent to that of the United States
market. The U.S. Centers for Disease Control and Prevention estimates that
approximately four million Americans are infected with the hepatitis C virus
("HCV"). The World Health Organization and other sources estimate that
approximately 60 million people are chronically infected worldwide with HCV.
Maxim is also developing MAXVAX, a mucosal vaccine carrier/adjuvant
platform. The MAXVAX technology is based on the B subunit of cholera toxin
("CTB"), generally regarded as a safe and effective mucosal vaccine carrier. The
Company expects that its future product development efforts will focus on
mucosal vaccines against sexually transmitted diseases, major respiratory
diseases and gastrointensinal tract diseases. The MAXVAX platform is also being
evaluated for therapeutic vaccines and gene-based vaccines. The Company intends
to seek collaborations with pharmaceutical and biopharmaceutical partners for
the development of mucosal vaccine candidates.
Maxim's drug development strategy is designed to facilitate product
development from preclinical to FDA approval and product launch. Once a product
has been launched, Maxim plans to work with numerous collaborators, both
pharmaceutical and clinical, in the oncology and infectious disease communities
to extend the labeling of the drug to other indications. In order to market its
products effectively, the Company intends to develop marketing alliances with
corporate partners and may co-promote and/or co-market in certain territories.
The Company's principal offices are located at 3099 Science Park Road, Suite
150, San Diego, California 92121, United States, and its telephone number is
(619) 453-4040.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company
Internationally.................................. 2,000,000 shares
Common Stock Offered by the Company in the U.S..... 500,000 shares
Total Common Stock Offered by the Company...... 2,500,000 shares
Common Stock to be Outstanding after the
Offering......................................... 9,179,700 shares (1)
Use of Proceeds.................................... To finance product development
activities and clinical trials of the
Company's MAXAMINE product, research
and development activities for the
Company's MAXVAX technology, and for
working capital and general corporate
purposes. See "Use of Proceeds."
AMEX Symbol........................................ "MMP"
Proposed SSE Symbol (2)............................ "MAXM"
</TABLE>
- ------------------------
(1) Excludes, as of September 11, 1997, an aggregate of (i) 2,875,000 shares of
Common Stock reserved for issuance upon exercise of publicly traded warrants
(the "Redeemable Warrants") at an exercise price of $10.50 per share, (ii)
999,600 shares of Common Stock issuable under the Company's 1993 Long Term
Incentive Plan (the "Incentive Plan") of which 774,832 shares of Common
Stock are reserved for issuance upon exercise of outstanding stock options
with a weighted average exercise price of $5.57 per share, (iii) 250,000
shares of Common Stock issuable at $9.00 per share, and 250,000 shares of
Common Stock issuable at $12.50 per share, reserved for issuance upon
exercise of warrants held by the underwriter of the Company's initial public
offering or its designees, and (iv) 332,642 shares of Common Stock issuable
upon exercise of other outstanding warrants with an exercise price of $3.00
per share. See "Description of Securities" and "Shares Eligible for Future
Sale."
(2) The Company has made an application to the Stockholm Stock Exchange ("SSE")
to have its shares of Common Stock listed on the SSE upon completion of the
Offering.
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------------- ----------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF OPERATIONS DATA:
Research and development expenses..................... $ 999 $ 985 $ 1,609 $ 1,078 $ 3,294
General and administrative expenses (1)............... 1,024 1,116 1,355 1,027 1,680
Net loss.............................................. (2,433) (2,790) (833) (2,378) (4,315)
SELECTED PER SHARE DATA:
Net loss per share.................................... $ (0.82) $ (0.87) $ (0.20) $ (0.42) $ (0.65)
Weighted average shares outstanding................... 2,961 3,209 4,075 5,656 6,671
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF JUNE 30, 1997
SEPTEMBER 30, --------------------------
1996 ACTUAL AS ADJUSTED(2)
------------- ---------- --------------
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash, cash equivalents and investments.............................. $ 19,144 $ 14,275 $ 43,244
Working capital..................................................... 16,212 10,499 39,468
Total assets........................................................ 21,255 17,516 46,485
Long-term debt, less current portion................................ - 548 548
Deficit accumulated during the development stage.................... (13,937) (18,252) (18,252)
Stockholders' equity................................................ 20,124 15,860 44,829
</TABLE>
- ------------------------
(1) Business development expenses for the nine months ended June 30, 1996 and
1997 have been included in general and administrative expenses to conform to
the presentation for the years ended September 30, 1994, 1995 and 1996.
(2) Adjusted to reflect the sale by the Company of 2,500,000 shares of Common
Stock offered hereby and the receipt of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OF THE COMPANY OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED
IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SHARES OFFERED
HEREBY. PROSPECTIVE INVESTORS SHOULD BE IN A POSITION TO RISK THE LOSS OF THEIR
ENTIRE INVESTMENT. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT
OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND
ELSEWHERE IN THIS PROSPECTUS.
DEVELOPMENT STAGE COMPANY; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
The Company, as a development stage enterprise, has experienced net losses
every year since its inception and, as of June 30, 1997, had a deficit
accumulated during the development stage of approximately $18.3 million. The
Company anticipates incurring substantial additional losses over at least the
next several years due to, among other factors, the need to expend substantial
amounts on its ongoing and planned clinical trials and anticipated research and
development activities, and the business development and general and
administrative expenses associated with those activities. The Company has not
commercially introduced any product and its products are in varying stages of
development and testing. The Company's ability to attain profitability will
depend upon its ability to develop products that are effective and commercially
viable, to obtain regulatory approval for the manufacture and sale of its
products and to market its products successfully. There can be no assurance that
the Company will ever achieve profitability or that profitability, if achieved,
can be sustained on an ongoing basis. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
NO ASSURANCE OF SUCCESSFUL CLINICAL TRIALS AND PRODUCT DEVELOPMENT
All drug products currently under development by the Company will require
extensive preclinical and clinical testing prior to regulatory approval for
commercial use. To date, the Company has not completed testing for efficacy or
safety in humans on any of its products. Substantial additional research and
development will be necessary in order for the Company to develop products based
on the Company's MAXAMINE and MAXVAX technologies and there can be no assurance
that the Company's research and development efforts will lead to development of
products that are shown to be safe and effective in clinical trials and are
commercially viable. In addition to further research and development, potential
products based on the Company's MAXAMINE and MAXVAX technologies will require
clinical testing, regulatory approval and substantial additional investment
prior to commercialization. There can be no assurance that any such products
will be successfully developed, prove to be safe and effective in clinical
trials, meet applicable regulatory standards, be capable of being produced in
commercial quantities at acceptable costs, be eligible for third party
reimbursement from governmental or private insurers, be successfully marketed or
achieve market acceptance. Further, the Company's products may prove to have
undesirable or unintended side effects that may prevent or limit their
commercial use. The Company may find, at any stage of this process, that
products that appeared promising in preclinical studies or Phase I and Phase II
clinical trials do not demonstrate efficacy in larger-scale, Phase III clinical
trials and do not receive regulatory approvals. Accordingly, any product
development program undertaken by the Company may be curtailed, redirected or
eliminated at any time. In addition, there may be delays in the Company's
testing and development schedules, and there can be no assurance that the
Company will meet expected testing and development schedules, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business."
NO ASSURANCE OF REGULATORY APPROVAL; GOVERNMENT REGULATION
The U.S. Food and Drug Administration (the "FDA") and comparable agencies in
countries outside the United States impose substantial requirements on the
introduction of therapeutic pharmaceutical
7
<PAGE>
products and vaccines through lengthy and detailed laboratory and clinical
testing procedures and other costly and time consuming procedures. Satisfaction
of these requirements typically takes a number of years and varies substantially
based upon the type, complexity and novelty of the pharmaceutical agent. In
general, the FDA approval process for pharmaceuticals involves the submission of
an Investigational New Drug ("IND") application following preclinical studies,
clinical trials in humans to demonstrate the safety and efficacy of the product
under the protocols set forth in the IND and submission of preclinical and
clinical data as well as other information to the FDA in a New Drug Application
("NDA") or Product License Application ("PLA"). The Company must expend
substantial time and financial resources to conduct clinical trials. The
Company's clinical trials have been primarily conducted overseas and in the
future will continue to be conducted in part overseas. There can be no assurance
that the results of such trials will support the submission or the approval of
an NDA or PLA or that data from the Company's overseas trials or approvals of
the Company's products in foreign countries outside of the United States, if
any, will be accepted by the FDA. Accordingly, there can be no assurance that
FDA or other regulatory approval for any products developed by the Company will
be granted on a timely basis, or at all. There can be no assurance that the
Company will have sufficient resources to complete the required regulatory
review process, or that the Company could overcome the inability to obtain, or
delays in obtaining, such approvals. The failure of the Company to receive FDA
approval for its products under development would preclude the Company from
marketing and selling its products in the United States. Therefore, failure to
receive such FDA approval would have a material adverse effect on the business,
financial condition and results of operations of the Company. European and other
international regulatory approvals are subject to the same risks and
uncertainties as FDA and other regulatory approvals in the United States. See
"Business--Government Regulation."
The production and marketing of the Company's proposed products, as well as
its ongoing research and development activities, are also subject to regulation
by governmental agencies of the United States and other countries. The effect of
government regulation may be to delay marketing of the Company's products for a
considerable period of time, to impose costly procedures upon the Company's
activities and to furnish a competitive advantage to larger companies that
compete with the Company. Any delay in obtaining, or failure to obtain, FDA or
other necessary regulatory approvals, including approvals by comparable agencies
in foreign countries, would adversely affect the marketing of the Company's
products and the ability to generate product revenue. In addition, the marketing
and manufacturing of pharmaceuticals are subject to continuing FDA (or
comparable international agency) review and surveillance and failure to comply
with regulations or discovery of previously unknown problems can result in FDA
(or comparable international agency) action against the product or the
manufacturer, including fines, recalls, product seizures, and suspension or
withdrawal of previously granted regulatory approvals. Furthermore, government
regulation may increase at any time, creating additional costs and delays for
the Company. The extent of potential adverse government regulation which might
arise from future legislation or administrative action cannot be predicted. See
"Business--Government Regulation."
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
It is the policy of the Company to file patent applications in the United
States, Europe and other major markets throughout the world. The patent
positions of biotechnology and pharmaceutical companies are highly uncertain and
involve complex legal and factual questions, and the breadth of claims allowed
in biotechnology and pharmaceutical patents cannot be predicted. There can be no
assurance that patents will issue from any of the Company's patent applications.
With respect to already issued patents and any patents which may issue from the
Company's applications, there can be no assurance that claims allowed will be
sufficient to protect the Company's technologies. 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 technology
covered by the Company's pending applications or that the Company was the first
to file patent applications for such technology. Competitors may have filed
applications for, or may have received patents and may obtain additional patents
and proprietary rights
8
<PAGE>
relating to, compounds or processes that block or compete without infringing on
those of the Company. In addition, there can be no assurance that any patents
issued to the Company or to licensors from whom the Company has licensed rights
to its technologies will not be challenged, invalidated or circumvented, that
the rights granted thereunder will provide proprietary protection or commercial
advantage to the Company.
Other public and private concerns, including universities, have filed
applications for, or have been issued patents with respect to technology
potentially useful or necessary to the Company. The scope and validity of such
patents, the extent to which the Company may wish or need to acquire licenses
under such patents, and the cost or availability of such licenses, are currently
unknown.
In addition to patents and proprietary rights, the Company relies on
unpatented trade secrets and proprietary know-how, and there can be no assurance
that others will not obtain access to or independently develop such trade
secrets and know-how. Although potential corporate partners and the Company's
research partners and consultants are not given access to proprietary trade
secrets and know-how of the Company until they have executed confidentiality
agreements, these agreements may be breached by the other party thereto or may
otherwise be of limited effectiveness or enforceability.
The pharmaceutical industry has experienced extensive litigation regarding
patent and other intellectual property rights. Accordingly, the Company could
incur substantial costs in defending itself in suits that may be brought against
the Company claiming infringement of the patent rights of others or in asserting
the Company's patent rights in a suit against another party. The Company may
also be required to participate in interference proceedings declared by the
United States Patent and Trademark Office for the purpose of determining the
priority of inventions in connection with the patent applications of the Company
or other parties. Adverse determinations in litigation or interference
proceedings could require the Company to seek licenses (which may not be
available on commercially reasonable terms) or subject the Company to
significant liabilities to third parties, and could therefore have a material
adverse effect on the Company. See "Business--Patents, Licenses and Proprietary
Rights."
NEED FOR ADDITIONAL FUNDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's operations to date have consumed substantial amounts of cash.
Negative cash flow from the Company's operations is expected to continue and to
accelerate over at least the next several years. The Company's capital
requirements will depend on numerous factors, including: the progress of
preclinical testing and clinical trials; the progress of the Company's research
and development programs; the time and costs required to obtain regulatory
approvals; the resources devoted to manufacturing methods and advanced
technologies; the timing and amount, if any, of funding obtained through
corporate collaborations; the cost of filing, prosecuting and, if necessary,
enforcing patent claims; the cost of commercialization activities and
arrangements; and the demand for the Company's products if and when approved.
The net proceeds of the Offering will be sufficient to fund the Company's
operations for at least twelve months from the date of the Offering but will not
enable the Company to fund the commercialization of its first project. The
Company may have to raise substantial additional funds to complete development
of any product or bring products to market. Issuance of additional equity
securities by the Company, for these or other purposes, could result in dilution
to then existing stockholders, including persons purchasing the Common Stock
included in the Offering. There can be no assurance that additional financing
will be available on acceptable terms, if at all. If adequate funds are not
available on acceptable terms, the Company may be required to delay, scale back
or eliminate one or more of its product development programs or obtain funds
through arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies or products that the
Company would not otherwise relinquish, which may have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operation."
9
<PAGE>
DEPENDENCE ON QUALIFIED PERSONNEL
The Company's future performance depends in part upon the continued
contributions of its senior management and on the ability to attract and retain
qualified management and scientific personnel. Competition for such personnel is
intense, and there can be no assurance that the Company will be able to continue
to attract, assimilate or retain highly qualified technical and management
personnel. The loss of key personnel or the failure to recruit additional
personnel or to develop needed expertise could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Employees and Consultants" and "Management."
DEPENDENCE ON COLLABORATIVE PARTNERS
The Company's strategy for the research, development, clinical testing,
manufacturing and commercialization of certain of its products requires
arrangements with corporate and university collaborators, licensors, marketing
partners, licensees, consultants and others, and is dependent upon the
subsequent success of these outside parties in performing their
responsibilities. Although the Company believes parties to any such arrangements
would have an economic motivation to perform their contractual responsibilities,
the amount and timing of resources to be devoted to these activities may not be
within the control of the Company. In addition, there can be no assurance that
collaborators will not pursue alternative technologies as a means for developing
treatments for the diseases targeted by these collaborative programs.
Furthermore, there can be no assurance that the Company will be able to
negotiate acceptable collaborative arrangements, or that its collaborative
arrangements will be successful. See "Business--Product Development and
Collaborative Relationships."
NO MARKETING AND SALES CAPABILITIES; ANTICIPATED DEPENDENCE UPON MARKETING
ALLIANCES
The Company has not developed pharmaceutical marketing or sales
capabilities. In order to market and sell certain products, the Company will
need to develop a sales force and a marketing group with technical expertise, or
make appropriate arrangements with strategic partners. There can be no assurance
that the Company will be able to gain such expertise or that such efforts will
be successful. The Company's strategy for development, commercialization and
marketing of MAXAMINE and MAXVAX is expected to involve, where appropriate, the
establishment of marketing and other collaborative relationships with
pharmaceutical industry partners. There can be no assurance that any such
relationships can be consummated on terms favorable to the Company or that
marketing efforts undertaken by such partners will be successful. See
"Business--Marketing and Sales."
NO ASSURANCE OF MARKET ACCEPTANCE
There can be no assurance that, if approved for marketing, MAXAMINE or any
of the Company's other products in development will achieve market acceptance.
The degree of market acceptance will depend upon a number of factors, including
the scope of regulatory approvals, the establishment and demonstration in the
medical community of the clinical efficacy and safety of the Company's products
and therapies and their potential advantages over existing treatment methods,
and reimbursement policies of government and third-party payors. There can be no
assurance that physicians, patients, payors or the medical community in general
will accept and utilize any products that may be developed by the Company. See
"Business--Competition" and "--Third-Party Reimbursement."
NO MANUFACTURING CAPABILITIES
The Company has not invested in the development of pharmaceutical
manufacturing capabilities. The Company's strategy has been, and is expected to
continue to be for the foreseeable future, to contract with established
pharmaceutical manufacturers for the production of MAXAMINE. If the Company is
unable to contract for manufacturing capabilities on acceptable terms, the
Company's ability to conduct clinical
10
<PAGE>
testing and to produce commercial quantities of product will be adversely
affected, resulting in delays in submissions for regulatory approval and in
commercial product launches, which in turn could materially impair the Company's
competitive position and the possibility of achieving profitability. There can
be no assurance that the Company will be able to maintain its existing, or
acquire or establish new, satisfactory third-party relationships to provide
manufacturing resources. See "Business--Manufacturing."
COMPETITION
There are many companies, both publicly and privately held, including
well-known pharmaceutical companies, as well as academic and other research
institutions, engaged in developing pharmaceutical and biologically-derived
products for the treatment of cancer and vaccines and therapeutics for the
prevention or the treatment of infectious diseases. Many of the Company's
competitors and potential competitors have substantially greater capital,
research and development capabilities and human resources than the Company and
represent significant competition for the Company. Many of these competitors
have significantly greater experience than the Company in undertaking
preclinical testing and clinical trials of new pharmaceutical products and
obtaining FDA and other regulatory approvals. If the Company is permitted to
commence commercial sales of any product, it will also be competing with
companies that have greater resources and experience in the manufacturing,
marketing and sales of pharmaceutical products. The Company's competitors may
succeed in developing products that are more effective, less costly, or have a
better side effect profile than any that may be developed by the Company, and
such competitors may also prove to be more successful than the Company in
manufacturing, marketing and sales. See "Business--Competition."
TECHNOLOGICAL CHANGES AND UNCERTAINTY
The Company is engaged in the pharmaceutical field, which is characterized
by extensive research efforts and rapid technological progress. New developments
in oncology, cancer therapy, medicinal pharmacology, biochemistry and other
fields are expected to continue at a rapid pace in both industry and academia.
There can be no assurance that research and discoveries by others will not
render some or all of the Company's proposed programs or products noncompetitive
or obsolete. The Company's business strategy is subject to the risks inherent in
the development of new products using new technologies and approaches. There can
be no assurance that unforeseen problems will not develop with these
technologies or applications, that the Company will be able to address
successfully technological challenges it encounters in its research and
development programs or that commercially feasible products will ultimately be
developed by the Company. See "Business--Competition."
LEGAL PROCEEDINGS
In March 1997, the former President and Chief Operating Officer and the
Chief Financial Officer of the Company (the "Former Employees") filed a
complaint in the Superior Court in the State of California, County of San Diego
(the "Complaint") seeking claims for certain purported damages in contract and
in tort arising from their respective terminations of employment with the
Company in March 1996. In addition, the Former Employees asserted possible
punitive damages and damages based on emotional distress. The Former Employees
also claimed the right to vested options of the Company's Common Stock.
According to the Complaint, each of the Former Employees appears to be claiming
compensatory damages in excess of $2 million and punitive damages in excess of
$3 million. In June 1997, the Company filed an answer to the Complaint denying
each of the allegations therein. Pretrial discovery with respect to these legal
proceedings has commenced, and a trial date has been scheduled for May 1998. The
Company believes the Former Employees' claims are without merit and the Company
intends to contest any such claims vigorously. However, there can be no
assurances as to the eventual outcome of such claims or their effect on the
Company's business, financial condition and results of operations. In addition,
an adverse determination in any litigation arising from these claims or the
settlement of such claims could have a
11
<PAGE>
material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Legal Proceedings."
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Common Stock of the Company in the
public market could adversely affect prevailing market prices for the Common
Stock and the ability of the Company to raise equity capital in the future. Upon
completion of the Offering, the Company will have outstanding 9,179,700 shares
of Common Stock (9,554,700 shares if the Underwriters' over-allotment option is
exercised in full). Of these shares, an aggregate of 5,375,400 shares will be
freely tradeable in the public market, unless acquired by affiliates of the
Company. The remaining 3,804,300 shares will be restricted securities as that
term is defined in Rule 144 under the Securities Act (the "Restricted Shares").
Of the 3,804,300 Restricted Shares, 1,146,234 shares will be eligible for
immediate sale in the public market pursuant to Rule 144 subject to certain
volume, manner of sale and limitations and 1,326,436 shares will be eligible for
immediate sale in the public market pursuant to Rule 144(k). Additionally,
1,331,630 shares currently held by three entities and their affiliates will
become eligible for public resale over a period of less than two years following
the completion of the Offering. The Company has an agreement with each of these
holders to file a registration statement, if requested by each such holder in
the event that the shares are not freely tradable at the time of such holder's
request. Pursuant to lock-up agreements, all officers, directors and certain
beneficial holders of outstanding Common Stock, who collectively hold 1,635,059
shares have agreed not to sell, or otherwise dispose of any beneficial interest
in such securities for a period of either 90 or 180 days (the "Lock-up Periods")
without the prior written consent of the Representatives. Upon termination of
the Lock-up Periods, 400,999 shares will be eligible for immediate sale pursuant
to Rule 144 and 2,071,671 shares will be eligible for immediate sale pursuant to
Rule 144(k).
Sales of substantial amounts of the Common Stock issuable upon exercise of
warrants and options may also adversely affect prevailing market prices for the
Common Stock and the ability of the Company to raise equity capital.
Approximately 3,707,642 shares of Common Stock underlying certain of the
Company's warrants and 999,600 shares issued or reserved for issuance under the
Company's Incentive Plan would be available for immediate sale in the public
market. Further, 332,642 shares of Common Stock underlying the outstanding
warrants have not been registered for public sale and will be subject to the
public sale restrictions of Rule 144 or Rule 701 under the Securities Act, where
applicable if the warrants were exercised. Subsequent to the Offering, the
Company intends to file a registration statement on Form S-8 under the
Securities Act covering 50,000 additional shares of Common Stock reserved for
issuance under the Company's 401(k) plan. See "Shares Eligible for Future Sale."
ABSENCE OF DIVIDENDS
The Company has never declared or paid dividends on its Common Stock and
does not anticipate paying any dividends in the foreseeable future. In addition,
the Company has entered into a Loan and Security Agreement with Silicon Valley
Bank which restricts the payment of dividends by the Company. See "Dividend
Policy."
PRODUCT LIABILITY EXPOSURE AND INSURANCE
The Company's business exposes it to potential product liability risks which
are inherent in the clinical testing, manufacturing and marketing of human
therapeutic products. The Company currently maintains product liability
insurance coverage for its clinical trials, and intends to expand its insurance
coverage to include the sales of commercial products if marketing approval is
obtained for MAXAMINE or other products in development. There can be no
assurance that such coverage is or in the future will be adequate or that
adequate insurance will be available in the future at an acceptable cost, if at
all. In addition, there can be no assurance that a product liability claim, even
if the Company has insurance coverage, would not materially adversely affect the
business or financial condition of the Company.
12
<PAGE>
PRICE VOLATILITY OF THE COMMON STOCK
The securities markets have from time to time experienced significant price
and volume fluctuations that may be unrelated to the operating performance of
particular companies. In addition, the market prices of the Common Stock of many
publicly traded pharmaceutical or biotechnology companies have in the past been,
and can in the future be expected to be, especially volatile. Low trading
volumes, announcements of technological innovations or new products by the
Company or its competitors, developments or disputes concerning patents or
proprietary rights, publicity regarding actual or potential medical results
relating to products under development by the Company or its competitors,
regulatory developments in both the United States and foreign countries outside
of the United States, delays in the Company's testing and development schedules,
events or announcements relating to the Company's collaborative relationships
with others, public concern as to the safety of biopharmaceutical or
biotechnology products and economic and other external factors, as well as
period-to-period fluctuations in the Company's financial results, may have a
significant impact on the market price or liquidity of the Common Stock.
The Company's Common Stock currently trades on the American Stock Exchange
and has not previously traded on the Stockholm Stock Exchange. Historically, the
Common Stock has generally experienced relatively low daily trading volumes in
relation to the aggregate number of shares issuable in this Offering. The price
and liquidity of the Common Stock may be significantly affected by trading
activity and market factors related to the AMEX and SSE, which factors and the
effects thereof may differ between these markets. Notwithstanding the addition
of a new trading market for the Company's Common Stock, there can be no
assurance that Company's listing on the SSE will not increase the price
volatility or reduce the liquidity of the Company's Common Stock. See "Price
Range of Common Stock."
DISCRETION OF MANAGEMENT AND THE BOARD OF DIRECTORS IN USE OF PROCEEDS
Although the Company intends to apply the net proceeds of this Offering in
the manner described under "Use of Proceeds," the Company's management and the
Board of Directors have broad discretion within such proposed uses as to the
precise allocation of the net proceeds, the timing of expenditures and all other
aspects of the use thereof. The Company reserves the right to reallocate the net
proceeds of this Offering among the various categories set forth under "Use of
Proceeds" as it, in its sole discretion, deems necessary or advisable based upon
prevailing business conditions and circumstances. See "Use of Proceeds."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby is estimated to be $29.0 million ($33.4 million if
the Underwriters' over-allotment option is exercised in full) after deducting
the underwriting discount and offering expenses payable by the Company.
The Company intends to use the net proceeds as follows: (i) approximately
$22.0 million for costs related to the product development activities planned
for the Company's MAXAMINE product, including ongoing and planned clinical
trials, manufacturing development, regulatory application and other research and
development; (ii) approximately $2.5 million for research and development
primarily for the MAXVAX technology; and (iii) the remainder for working capital
and general corporate purposes. The amounts and timing of actual expenditures
will depend upon numerous factors, including results of preclinical testing and
clinical trials, results of research and development, relationships with
strategic corporate partners, changes in direction and focus of the Company's
research and development programs, competitive and technological advances, the
United States and international regulatory process and other factors.
Additionally, it is the Company's policy to regularly review potential
opportunities to acquire or to enter into joint venture or licensing
relationships with respect to products and businesses compatible with the
Company's existing business. The Company may, therefore, use a portion of the
net proceeds to make acquisitions or to fund joint research and development or
other complementary ventures or strategic alliances, although the Company does
not currently have any arrangements, agreements or understandings with respect
thereto. Pending the uses described above, the net proceeds will be invested in
interest-bearing, investment-grade securities.
The Company believes that the net proceeds of the Offering, together with
its available cash, cash equivalents, investment securities and investment
income, should be sufficient to finance its cash requirements for a period of at
least 12 months from the date of this Prospectus. However, the net proceeds of
the Offering will not be sufficient to fund the Company's operations through the
commercialization of its first product. The Company will require additional
funds to finance its business, through corporate alliances, borrowings or by
raising additional equity capital, until such time as (i) it can commercially
exploit its technology, either through licensing arrangements or the sale of
products based on its technology, and (ii) revenues from those commercial
activities become sufficient to cover its expenses. The Company anticipates that
it will need to obtain additional financing, the amount and timing of which is
currently uncertain and the availability of which, on terms reasonably
acceptable to the Company, if at all, cannot be assured. See "Risk Factors--Need
for Additional Funds; Uncertainty of Additional Funding."
14
<PAGE>
PRICE RANGE OF COMMON STOCK
Concurrent with the Company's initial public offering, the Common Stock
began trading on the American Stock Exchange under the symbol "MMP" on July 10,
1996. Prior to such date there was no established public market for the Common
Stock. The following table sets forth, for the periods indicated, the high and
low sale prices for the Common Stock, as reported by the AMEX:
<TABLE>
<CAPTION>
HIGH LOW
----- ---
<S> <C> <C>
YEAR ENDING SEPTEMBER 30, 1996:
Fourth Quarter (commencing July 10, 1996)...................................................... $ 11 $ 73/4
YEAR ENDING SEPTEMBER 30, 1997:
First Quarter.................................................................................. $ 105/8 $ 7
Second Quarter................................................................................. 111/4 63/4
Third Quarter.................................................................................. 93/4 77/8
Fourth Quarter (through September 11, 1997).................................................... 131/4 81/2
</TABLE>
On September 11, 1997 the last sale price of the Common Stock, as reported
by the AMEX, was $12 5/8 per share. As of such date, there were approximately
150 holders of record of the Common Stock.
The Company has applied to list its Common Stock on the Stockholm Stock
Exchange upon completion of the Offering. The rules and regulations relating to
companies whose capital stock is listed and traded on the SSE may differ from
those required for the Company's listing and trading of its Common Stock on
AMEX. The Company and the holders of the Company's Common Stock who trade their
shares on the SSE may also be subject to certain Swedish laws which may differ
from applicable U.S. federal and state laws. For example, there is no specific
legislation in Sweden relating to market manipulation, however, under certain
circumstances, market manipulation may constitute a violation of the Swedish
Insider Trading Act or constitute fraud under Swedish law. If the Company's
Common Stock is accepted for listing and trading on the SSE, any holder of the
Company's Common Stock desiring to trade such shares on the SSE may wish to
consult with appropriate legal counsel prior to commencement of trading.
DIVIDEND POLICY
The Company has never paid cash dividends on its capital stock and does not
anticipate paying cash dividends in the foreseeable future. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition,
business, results of operations, capital requirements and such other factors as
the Board of Directors deems relevant. The Company has entered into a Loan and
Security Agreement with Silicon Valley Bank which restricts the payment of
dividends by the Company. Future cash dividends, if any, will be paid in U.S.
dollars.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997, and as adjusted to reflect the sale of the 2,500,000 shares of Common
Stock offered hereby and the receipt of the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current portion..................................................... $ 548 $ 548
STOCKHOLDERS' EQUITY:
Preferred Stock, $.001 par value, 5,000,000 shares authorized, no shares issued and
outstanding.......................................................................... - -
Common Stock, $.001 par value, 20,000,000 shares authorized, 6,671,246 shares issued
and outstanding; 9,171,246 shares issued and outstanding as adjusted (1)............. 7 9
Additional paid-in capital............................................................. 34,173 63,140
Deficit accumulated during the development stage....................................... (18,252) (18,252)
Deferred compensation.................................................................. (68) (68)
---------- -----------
Total stockholders' equity........................................................... 15,860 44,829
---------- -----------
Total capitalization............................................................... $ 16,408 $ 45,377
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Excludes, as of June 30, 1997, an aggregate of (i) 2,875,000 shares of
Common Stock reserved for issuance upon exercise of the Redeemable Warrants
at an exercise price of $10.50 per share, (ii) 999,600 shares of Common
Stock issuable under the Incentive Plan of which 674,497 shares of Common
Stock are reserved for issuance upon exercise of outstanding stock options
with a weighted average exercise price of $4.97 per share, (iii) 250,000
shares of Common Stock issuable at $9.00 per share, and 250,000 shares of
Common Stock issuable at $12.50 per share, reserved for issuance upon
exercise of other warrants held by the underwriter of the Company's initial
public offering or its designees, and (iv) 332,642 shares of Common Stock
issuable upon exercise of other outstanding warrants with an exercise price
of $3.00 per share. See "Description of Securities" and "Shares Eligible for
Future Sale."
16
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock as of June 30,
1997 was approximately $14.1 million, or $2.11 per share. Net tangible book
value per share represents the total amount of tangible assets less total
liabilities divided by the number of shares of Common Stock issued. After giving
effect to the sale of the 2,500,000 shares of Common Stock offered hereby and
the receipt of the estimated net proceeds (after deducting the underwriting
discount and estimated offering expenses payable by the Company), the net
tangible book value of the Company at June 30, 1997 would have been
approximately $43.0 million or $4.69 per share. This represents an immediate
increase in net tangible book value of $2.58 per share to existing stockholders
and an immediate dilution in net tangible book value of $7.94 per share to
purchasers of the Common Stock in this Offering. The following table illustrates
this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed public offering price per share........................................................ $ 12.63
Net tangible book value per share as of June 30, 1997 (1)...................................... $ 2.11
Increase per share attributable to this Offering............................................... 2.58
---------
Net tangible book value per share after this Offering (1)...................................... 4.69
---------
Dilution per share to purchasers of Common Stock in this Offering.............................. $ 7.94
---------
---------
</TABLE>
If the Underwriters' over-allotment option is exercised in full, the net
tangible book value per share of Common Stock after this offering would be $4.97
per share, which would result in dilution to new investors of $7.66 per share.
- ------------------------
(1) Excludes, as of June 30, 1997, an aggregate of (i) 2,875,000 shares of
Common Stock reserved for issuance upon exercise of the Redeemable Warrants
at an exercise price of $10.50 per share, (ii) 999,600 shares of Common
Stock issuable under the Incentive Plan of which 674,497 shares of Common
Stock are reserved for issuance upon exercise of outstanding stock options
with a weighted average exercise price of $4.97 per share, (iii) 250,000
shares of Common Stock issuable at $9.00 per share, and 250,000 shares of
Common Stock issuable at $12.50 per share, reserved for issuance upon
exercise of other warrants held by the underwriter of the Company's initial
public offering or its designees and (iv) 332,642 shares of Common Stock
issuable upon exercise of other outstanding warrants with an exercise price
of $3.00 per share. See "Description of Securities" and "Shares Eligible for
Future Sale."
17
<PAGE>
SELECTED FINANCIAL DATA
The selected data presented below as of September 30, 1995 and 1996, and for
the years ended September 30, 1994, 1995 and 1996, has been derived from the
financial statements of the Company, which have been audited by KPMG Peat
Marwick LLP, independent auditors, and are included elsewhere in this
Prospectus. The selected data presented below as of June 30, 1997 and September
30, 1992, 1993 and 1994, and for the nine months ended June 30, 1996 and 1997,
and for the years ended September 30, 1992 and 1993, and from inception (October
23, 1989) through June 30, 1997, has been derived from unaudited financial
statements. The unaudited interim financial statements contain all of the
adjustments, consisting only of normal recurring adjustments and accruals, which
the Company considers necessary for a fair presentation of its financial
position as of that date and results of operation for these periods. The results
of operations for the nine months ended June 30, 1997 are not necessarily
indicative of the results to be expected in subsequent periods or for the year
as a whole. The following selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
Research and development......... $ 1,794 $ 3,416 $ 999 $ 985 $ 1,609 $ 1,078 $ 3,294
General and administrative (1)... 476 671 1,024 1,116 1,355 1,027 1,680
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses....... 2,270 4,087 2,023 2,101 2,964 2,105 4,974
Other income (expense):
Gain on sale of subsidiary....... - - - - 2,288 - -
Investment income................ 8 9 5 260 23 732
Interest expense................. (181) (349) (689) (487) (197) (177) (60)
Foreign exchange gains (losses).. (2) 403 (75) (208) (95) (119) -
Other income (expense)........... - - (4) 1 (125) - (13)
Research grant revenue........... 8 - - - - - -
--------- --------- --------- --------- --------- --------- ---------
Total other income (expense)... (175) 62 (759) (689) 2,131 (273) 659
--------- --------- --------- --------- --------- --------- ---------
Loss from continuing operations.... (2,445) (4,025) (2,782) (2,790) (833) (2,378) (4,315)
Discontinued operations:
Loss from operations............. - (214) (134) - - - -
Gain on sale..................... - - 483 - - - -
--------- --------- --------- --------- --------- --------- ---------
Net loss........................... $ (2,445) $ (4,239) $ (2,433) $ (2,790) $ (833) $ (2,378) $ (4,315)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA:
Loss from continuing operations per
share............................ $ (0.88) $ (1.41) $ (0.94) $ (0.87) $ (0.20) $ (0.42) $ (0.65)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net loss per share................. $ (0.88) $ (1.48) $ (0.82) $ (0.87) $ (0.20) $ (0.42) $ (0.65)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average shares
outstanding...................... 2,772 2,859 2,961 3,209 4,075 5,656 6,671
<CAPTION>
FROM INCEPTION
(OCTOBER 23,
1989)
THROUGH
JUNE 30,
1997
-----------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
Research and development......... $ 13,295
General and administrative (1)... 9,267
--------
Total operating expenses....... 22,562
Other income (expense):
Gain on sale of subsidiary....... 2,288
Investment income................ 1,020
Interest expense................. (1,964)
Foreign exchange gains (losses).. 23
Other income (expense)........... (138)
Research grant revenue........... 2,946
--------
Total other income (expense)... 4,175
--------
Loss from continuing operations.... (18,387)
Discontinued operations:
Loss from operations............. (348)
Gain on sale..................... 483
--------
Net loss........................... $ (18,252)
--------
--------
PER SHARE DATA:
Loss from continuing operations per
share............................
Net loss per share.................
Weighted average shares
outstanding......................
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30,
AS OF SEPTEMBER 30, 1997
----------------------------------------------------- ---------
1992 1993 1994 1995 1996 ACTUAL
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Cash, cash equivalents and investments............ $ 74 $ 335 $ 119 $ 513 $ 19,144 $ 14,275
Working capital (deficit)......................... (808) (696) (3,592) (5,324) 16,212 10,499
Total assets...................................... 429 2,688 1,878 2,454 21,255 17,516
Long-term debt, less current portion.............. 1,777 7,395 640 247 - 548
Deficit accumulated during the development
stage........................................... (2,444) (7,881) (10,313) (13,103) (13,937) (18,252)
Stockholders' equity (deficit).................... (1,177) (6,568) (2,513) (3,644) 20,124 15,860
<CAPTION>
AS ADJUSTED (2)
---------------
<S> <C>
SELECTED BALANCE SHEET DATA:
Cash, cash equivalents and investments............ $ 43,244
Working capital (deficit)......................... 39,468
Total assets...................................... 46,485
Long-term debt, less current portion.............. 548
Deficit accumulated during the development
stage........................................... (18,252)
Stockholders' equity (deficit).................... 44,829
</TABLE>
- ------------------------------
(1) Business development expenses for the nine months ended June 30, 1996 and
1997 have been included in general and administrative expenses to conform to
the presentation for the years ended September 30, 1994, 1995 and 1996.
(2) Adjusted to reflect the sale of the 2,500,000 shares of Common Stock offered
hereby and the receipt of the estimated net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS AND OTHER PARTS OF THIS PROSPECTUS CONTAIN FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED
TO, THOSE DISCUSSED UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Maxim was incorporated in Delaware in 1954 under the name "Wilco Oil &
Minerals, Corp." and has existed under various names since then. From 1987 to
1993, the Company operated as a medical diagnostics products company under the
name "General Biometrics, Inc." In 1993, the Company merged with Syntello
Vaccine Development AB ("SVD"), a Swedish biopharmaceutical company, in an
exchange of stock accounted for as a reverse acquisition (the "Reorganization").
Upon completion of the Reorganization, the Company changed its name to Syntello,
Inc. and commenced its operations as a biopharmaceutical company. The Company's
proprietary technologies, which target the prevention and treatment of cancer
and infectious diseases, were acquired during and following the Reorganization.
The Company sold its medical diagnostic division in 1994 and sold SVD in July
1996. Since December 1995, the Company has operated under the name "Maxim
Pharmaceuticals, Inc."
Since the Reorganization, the Company has devoted substantially all of its
resources to its MAXAMINE and MAXVAX product development programs. The Company
conducts its research and other product development efforts through a
combination of internal and collaborative programs. For MAXAMINE, in addition to
internal management and staff, the Company relies upon arrangements with
universities and other clinical research sites and contract research
organizations for a significant portion of its product development efforts. The
majority of the basic research and development efforts related to MAXVAX were
transferred to the Company's internal facilities during 1997, and the Company
conducted this research primarily through university laboratories prior to this
year. Oversight and coordination of all external and collaborative programs is
conducted by the Company's executive officers and other staff from its
administrative offices located in San Diego, California.
Maxim's products are in the development stage, and the Company does not
expect revenue from product sales in the near future. The Company expects to
continue to incur losses as it expands its research and development activities,
particularly relating to ongoing and planned clinical trials of MAXAMINE. The
Company expects that losses will fluctuate from quarter to quarter and that such
fluctuations may be substantial as a result, among other factors, of the number
and timing of clinical trials conducted, the funding, if any, provided as a
result of corporate collaborations, the results of clinical testing, and the
timing of FDA or international regulatory approvals. There can be no assurance
that the Company will successfully develop, commercialize, manufacture or market
its products or ever achieve or sustain product revenues or profitability. As of
June 30, 1997, the Company had an accumulated deficit since inception of
approximately $18.3 million.
RESULTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1997 AND 1996
RESEARCH AND DEVELOPMENT EXPENSES--For the nine months ended June 30, 1997,
research and development expenses were $3,294,000, an increase of $2,215,000, or
205%, over the same period of the prior year. This increase was primarily
attributable to increased activity related to cancer clinical trials of the
Company's MAXAMINE therapy, including hiring additional clinical and development
personnel, contract research organization costs, and consulting and other costs
associated with commencement in June 1997 of Phase III clinical trials in the
United States. The current period increase also resulted from increased
19
<PAGE>
efforts relating to preclinical development of the Company's MAXVAX mucosal
vaccine technology, including the addition of laboratory personnel and
establishment of internal research capabilities.
BUSINESS DEVELOPMENT AND GENERAL AND ADMINISTRATIVE EXPENSES--Business
development costs for the nine month period ended June 30, 1997 totaled
$285,000, an increase of $205,000, or 257%, over the same period of the prior
year. This increase was due to additional personnel and other resources devoted
to corporate partnering efforts and market evaluations. General and
administrative expenses for the nine month period ended June 30, 1997 increased
$448,000, or 47%, over the same period of the prior year to $1,395,000. This
increase was largely due to the increased personnel, insurance, reporting and
compliance costs associated with operation as a public company.
OTHER INCOME (EXPENSE)--Investment income was $732,000 for the nine month
period ended June 30, 1997, compared to $23,000 for the same period in the prior
year, due to investment income on the proceeds of the Company's initial public
offering completed in July 1996. Interest expense was $60,000 compared to
$177,000 for the nine month period in the prior year. This decrease was due to
the repayment of approximately $2.85 million of notes payable and long-term debt
subsequent to December 1995.
NET LOSS--Net loss for the nine months ended June 30, 1997 totaled
$4,315,000, an increase of $1,936,000, or 81% over the same period of the prior
year. Net loss per share of Common Stock for the nine month period ended June
30, 1997 was $0.65, a 55% increase over the loss of $0.42 per share for the same
period of the prior year. This increase was a result of the expanded research
and development and business development discussed above. The increase in
current period net loss per share was offset partially by an increase in the
number of shares of common stock outstanding.
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
RESEARCH AND DEVELOPMENT EXPENSES--For the year ended September 30, 1996,
research and development expenses increased $624,000, or 63%, to $1,609,000.
This increase was primarily attributable to a $382,000 increase in research
funding to certain universities due to increased activity in cancer clinical
trials of the Company's MAXAMINE therapy, and increased funding of preclinical
projects for its MAXVAX mucosal vaccine technology. For the years ended
September 30, 1995 and 1994, research and development expenses remained
relatively constant at approximately $985,000 and $999,000, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES--For the year ended September 30, 1996,
general and administrative expenses increased $238,000, or 21%, to $1,355,000
over the prior year. This increase was primarily the result of $276,000 in
deferred compensation recognized in that fiscal year related to stock options
issued to management, directors and consultants; no such expense was incurred in
the prior year. For the years ended September 30, 1995 and 1994, general and
administrative expenses remained relatively constant at $1,117,000 and
$1,023,000, respectively.
OTHER INCOME (EXPENSE)--During the year ended September 30, 1996 the Company
recorded a gain of $2,288,000 from the sale of a subsidiary of the Company.
Investment income increased to $260,000 for the year ended September 30, 1996,
compared to $6,000 for the prior year, due to income on the proceeds of the
Company's initial public offering. Interest expense for the year ended September
30, 1996 decreased $290,000, or 60%, to $197,000 compared to the prior year due
to the repayment of approximately $2.85 million of notes payable and long-term
debt. Interest expense for the year ended September 30, 1995 was $487,000, a
decrease of $202,000, or 29%, from the prior year due to the conversion of
approximately $1.7 million of debt into equity and the repayment of
approximately $1.1 million of notes payable.
DISCONTINUED OPERATIONS--During the year ended September 30, 1994, the
Company sold its medical diagnostic operations recording a gain of $483,000.
This gain was offset by a loss of $134,000 in fiscal 1994 from the operations of
the diagnostic division.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company, as a development stage enterprise, has experienced net losses
every year since its inception and, as of June 30, 1997, had a deficit
accumulated during the development stage of approximately $18.3 million. The
Company anticipates incurring substantial additional losses over at least the
next several years due to, among other factors, the need to expend substantial
amounts on its ongoing and planned clinical trials and anticipated research and
development activities, and the business development and general and
administrative expenses associated with those activities. The Company has
financed its operations primarily through the sale of its equity securities,
including an initial public offering of Common Stock and Redeemable Warrants in
July 1996 which provided approximately $18.2 million, net of financing costs, to
the Company.
As of June 30, 1997, the Company had cash, cash equivalents and investments
totaling approximately $14.3 million. For the nine months ended June 30, 1997,
net cash used in the Company's operating activities was approximately $3.8
million. The Company expects its cash requirements to increase significantly in
future periods as it conducts additional product development activities
including internal product research, development and testing, preclinical
studies and clinical testing of its potential products and marketing of any
products that are developed. Among the specific planned activities which are
expected to result in an increase in cash requirements are the Phase III
clinical trials commenced in June 1997 in the U.S. for the MAXAMINE therapy and
other planned clinical trials.
The Company's cash requirements may vary materially from those now planned
because of the results of research, development and clinical trials, the time
and costs involved in obtaining regulatory approvals, the cost of filing,
prosecuting, defending and enforcing patent claims and other intellectual
property rights, competing technological and market developments, changes in the
Company's existing research relationships, the ability of the Company to
establish collaborative arrangements and the development of the Company's
product commercialization activities. As a result of these factors, it is
difficult to predict accurately the timing and amount of the Company's cash
requirements.
The Company believes that the net proceeds of the Offerings together with
its available cash, cash equivalents, investment securities and investment
income, should be sufficient to fund the Company's operations at least twelve
months from the date of the Offering. However, the net proceeds of the Offering
will not be sufficient to fund the Company's operations through
commercialization of its first product. In order to successfully commercialize
any of its products, the Company expects that it will ultimately be required to
seek additional funds through public or private financings or collaborative
arrangements with corporate partners. The issuance of additional equity
securities could result in substantial dilution to the Company's stockholders.
There can be no assurance that additional funding will be available on terms
acceptable to the Company, if at all. The failure to fund its capital
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company has never paid a cash dividend and does not contemplate the
payment of cash dividends in the foreseeable future.
ACCOUNTING CONSIDERATIONS
In October 1995, the Financial Accounting Standard Board issued SFAS 123,
"Accounting for Stock-Based Compensation." effective for fiscal years beginning
after December 15, 1995. Under the provisions of SFAS 123, the Company is
encouraged, but not required, to measure compensation costs related to its
employee stock compensation under the fair value method. If the Company elects
not to recognize compensation expense under this method, it is required to
disclose the pro forma effects based on the SFAS 123 methodology. The Company
anticipates adopting the pro forma method of disclosure under SFAS 123.
21
<PAGE>
In February 1997, the FASB issued SFAS No. 128, "EARNINGS PER SHARE". This
Statement specifies the computation, presentation, and disclosure requirements
for earnings per share for entities with publicly held common stock or potential
common stock. This Statement shall be effective for financial statements for
both interim and annual periods ending after December 15, 1997. Earlier
application is not permitted. At this time the Company does not believe that
this Statement will have a significant impact on the financial position or
results of operations for the year ending September 30, 1998.
In February 1997, the FASB issued SFAS No. 129, "DISCLOSURE OF INFORMATION
ABOUT CAPITAL STRUCTURE." This Statement shall be effective for financial
statements for both interim and annual periods ending after December 15, 1997.
At this time the Company has determined that this Statement will have no
significant impact on the financial position or results of operations for the
year ending September 30, 1998.
In June 1997, the FASB issued SFAS No. 130, "REPORTING COMPREHENSIVE
INCOME." This Statement established standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purposes financial statements. This Statement shall be
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods provided for comparative purposes is
required. At this time the Company does not believe that this Statement will
have a significant impact on the financial position or results of operations for
the year ending September 30, 1999.
In June 1997, the FASB issued SFAS No. 131, "DISCLOSURES ABOUT SEGMENTS OF
AN ENTERPRISE AND RELATED INFORMATION." This Statement established standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that enterprises report
selected information about operating segments in interim financial reports
issued to stockholders. This Statement shall be effective for fiscal years
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. At this time the
Company does not believe that this Statement will have a significant impact on
the financial position or results of operations for the year ending September
30, 1999.
22
<PAGE>
BUSINESS
Maxim Pharmaceuticals, Inc. ("Maxim" or the "Company") is developing novel
therapeutics for the treatment of cancer and infectious disease. The Company's
lead drug, MAXAMINE, is designed to be self-administered on an outpatient basis
in combination with cytokines such as interleukin-2 ("IL-2") and
interferon-alpha ("IFN-a"). MAXAMINE therapy may be used to facilitate an immune
system mechanism that allows these cytokines and other biological response
modifiers to achieve full anti-tumor and anti-infective potential for the
treatment of cancer and infectious disease. The Company believes that MAXAMINE
therapy has the potential to (i) significantly increase overall survival
outcomes in certain cancers over existing approved therapies and standards of
care; (ii) lower cytokine dosage requirements and reduce related toxicity; (iii)
provide a more cost-effective treatment; and (iv) improve patient quality of
life during therapy.
The Company anticipates that by early 1998 it will be conducting three Phase
III clinical trials of MAXAMINE for the treatment of cancer. In June 1997 the
Company commenced a 200-patient Phase III clinical trial of MAXAMINE for
advanced malignant melanoma in the United States. A separate Phase III advanced
malignant melanoma trial is planned to commence in Sweden and Australia by the
end of 1997. The Company also intends to commence a Phase III clinical trial for
acute mylogenous leukemia ("AML") in Europe and the United States in early 1998.
Furthermore, the Company has initiated earlier stage clinical trials of MAXAMINE
for the treatment of renal cell carcinoma, hepatitis C, and multiple myeloma,
and expects to commence clinical trials of MAXAMINE for the treatment of
additional cancers, such as prostate adenocarcinoma, in 1998.
In the Company's two completed Phase II clinical trials for the treatment of
advanced malignant melanoma, MAXAMINE therapy produced improved patient survival
outcomes. Mean survival time for patients treated with MAXAMINE in each of the
two studies exceeded 14 months as compared with reported mean survival times of
approximately seven months for existing available treatments. In patients where
the melanoma metastasized to the liver, MAXAMINE therapy improved mean survival
time to 20 months from a reported mean survival time of approximately four
months for existing available treatments.
The Company's Phase II clinical trials for the treatment of AML have
demonstrated an improvement of disease-free remission intervals. Patients
treated with MAXAMINE during their first complete remission ("CR1") had mean
time in remission in excess of 20 months as compared with reported mean time in
remission of approximately 12 months for patients under the current standard of
care. Patients who relapsed and achieved a second or greater remission ("CR2+")
and were subsequently treated with MAXAMINE had a mean time in remission in
excess of 20 months as compared with reported mean time in remission of
approximately six months under the current standard of care. In the Company's
ongoing Phase II clinical trial, remission inversion (prolonging the duration of
CR2+ to that equal to or exceeding the patient's prior remission duration) was
achieved in 8 of 10 (80%) evaluable patients treated with MAXAMINE therapy as
compared with approximately 10% to 20% under the current standard of care.
Maxim is also developing MAXVAX, a mucosal vaccine carrier/adjuvant
platform. The MAXVAX technology is based on the B subunit of cholera toxin
("CTB"), generally regarded as a safe and effective mucosal vaccine carrier. The
Company expects that its future product development efforts will focus on
mucosal vaccines against sexually transmitted diseases, major respiratory
diseases and gastrointensinal tract diseases. The MAXVAX platform is also being
evaluated for therapeutic vaccines and gene-based vaccines. The Company intends
to seek collaborations with pharmaceutical and biopharmaceutical partners for
the development of mucosal vaccine candidates.
Maxim's drug development strategy is designed to facilitate product
development from preclinical to FDA approval and product launch. Once a product
has been launched, Maxim plans to work with numerous collaborators, both
pharmaceutical and clinical, in the oncology and infectious disease communities
to extend the labeling of the drug to other indications. In order to market its
products effectively, the
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Company intends to develop marketing alliances with corporate partners and may
co-promote and/or co-market in certain territories.
MAXAMINE IMMUNOTHERAPY PLATFORM
CANCER MARKET
Cancer comprises a large and diverse group of diseases resulting from the
uncontrolled proliferation of abnormal (malignant) cells. Most cancers will
spread beyond their original sites and invade surrounding tissue, and may also
metastasize to more distant sites and ultimately cause death in the patient
unless effectively treated. To be effective, cancer treatment must target not
only the primary tumor site but also distant metastases. CANCER FACTS AND
FIGURES, a report from the American Cancer Society, estimates that a total of
approximately 1,380,000 new cases and approximately 560,000 deaths will be
reported for invasive cancers in the United States in 1997. Predominant forms of
cancer include leukemia and lymphoma, breast, lung, urinary, prostate, melanoma,
ovarian, colon, rectal and brain cancers. The National Cancer Institute
estimates that the direct medical cost of treating cancer in the United States
is $35 billion per year. Information regarding certain cancer indications is
summarized below.
INCIDENCE FOR SELECTED CANCERS IN THE UNITED STATES
<TABLE>
<CAPTION>
ANNUAL
---------------------
NEW CASES DEATHS
---------- ---------
<S> <C> <C>
Malignant Melanoma........................................................................ 40,000 7,000
Acute Myelogenous Leukemia................................................................ 9,000 7,000
Prostate Adenocarcinoma................................................................... 335,000 42,000
All Invasive Cancers...................................................................... 1,380,000 560,000
</TABLE>
The Company estimates that the size of the anti-cancer pharmaceutical market
in Europe is approximately equivalent to the U.S. market.
Predominant methods of treating cancer generally include surgery, radiation
therapy, chemotherapy and immunotherapy. Although these techniques have achieved
success for certain cancers, particularly when detected in the early stages,
each has drawbacks which may significantly limit their success in treating
certain types and stages of cancer. For example, cancer may recur even after
repeated attempts at surgical removal of tumors or other treatment. Surgery may
be successful in removing visible tumors but may leave smaller nests of cancer
cells in the patient which continue to proliferate. Radiation or chemotherapy
are relatively imprecise methods for the destruction of cancer cells (i.e., such
therapies can kill both cancer cells and normal cells) and have toxic side
effects which may themselves be lethal to the patient; these toxic side effects
may also restrict the application of these treatment modes to less than optimal
levels required to ensure eradication of the cancer.
The high number of cancer-related deaths indicate the need for more
efficacious therapies for many patients. In addition, the Company believes that
new cancer therapies will increasingly be required to be more cost-effective and
allow for alternate site or in-home treatment, and to improve patient quality of
life during treatment.
HEPATITIS C MARKET
The U.S. Centers for Disease Control and Prevention estimates that
approximately four million Americans are infected with the hepatitis C virus
("HCV"). Approximately 85% of HCV patients develop long-term or chronic
infection, possibly leading to serious liver diseases, cirrhosis (scarring of
the liver), liver cancer and death. HCV is the leading cause of liver cancer and
the primary reason for liver transplantation in the United States. The World
Health Organization and other sources estimate that
24
<PAGE>
approximately 60 million people are chronically infected worldwide. The only
approved treatment for HCV is IFN-a. However, IFN-a therapy results in
sustained, long-lasting responses in only about 10-15% of chronically infected
persons.
IMMUNE SYSTEM MODULATION AGAINST CANCER AND INFECTIOUS DISEASES
In recent years, research has focused on the immune system's ability to
combat cancer and infectious diseases. New drugs, vaccines, chemotherapeutic
agents and advanced radiation therapy technologies are continually being
developed to protect and enhance the response of the immune system to disease.
Many of these technologies, however, have demonstrated significant limitations
in their ability to treat cancer and certain infectious agents. These
limitations include marginal efficacy, severe adverse side effects and the
development of multi-drug resistance.
Since the early 1980's, the cytokines IL-2 and IFN-a have been studied for
the treatment of many cancers and infectious diseases including advanced
malignant melanoma, renal cell carcinoma, hepatitis C and AML. Cytokines are
naturally occurring molecules that have potent effects related to inflammation
and immune cell functions. The medical community held high expectations for IL-2
and IFN-a in the treatment of cancer and infectious diseases based on findings
that these cytokines enhance the anti-tumor activity of natural killer-cells
("NK-cells") IN VITRO (NK-cells are a specialized subset of cells which can
function to destroy cancer cells and virally infected cells). Although certain
beneficial effects were demonstrated with IL-2 and IFN-a therapy in both
experimental animals and in the killing activity of human NK-cells IN VITRO, in
only a small portion of cancer patients do these cytokines demonstrate a
clinically significant tumor response. Further, in chronically infected
hepatitis C patients, IFN-a therapy results in sustained, long-lasting responses
in only about 10-15% of these cases. Moreover, cytokines generally produce
severe adverse side-effects and are intolerable at high doses.
MAXAMINE TECHNOLOGY
The Company's lead product, MAXAMINE, was designed to enhance and support
the activity of cytokines and may play a key role in the recent emphasis on
combination therapy for certain cancers and infectious diseases. A novel
mechanism discovered and researched by Maxim scientists at the University of
Gothenburg, Sweden may explain, in part, why cytokine therapy using IL-2 or
IFN-a for many forms of cancer and infectious diseases have demonstrated limited
efficacy.
This research has shown that phagocytic cells (such as monocytes,
macrophages and neutrophils) which are present in tumors and may comprise a
significant portion of the tumor's cellular volume, inhibit the tumor-killing
activity of NK-cells and T-cells and can prevent their activation by cytokines.
The specific suppression of NK-cells and T-cells has been shown to be caused by
localized oxidative stress resulting from the release of reactive oxygen
metabolites ("ROMs") by phagocytes. The ROMs inhibit T-cell function and cause
NK-cells to undergo apoptosis (programmed cell death) thereby destroying the
NK-cells. The administration of cytokines, regardless of the dosage, cannot
overcome the suppression of NK-cells and T-cells within the tumor.
This research has also shown that by the addition of an H(2) receptor
agonist such as MAXAMINE, the production of ROMs can be blocked, thereby
protecting NK-cells and T-cells. Under such conditions,
25
<PAGE>
enhanced activation of NK-cells and T-cells is possible, leading to improved
anti-tumor and anti-viral activity. This mechanism is diagrammed below.
MECHANISM OF ACTION OF MAXAMINE
(Illustration of mechanism of action of MAXAMINE)
PHAGOCYTIC CELLS WHICH ARE PRESENT IN TUMORS INHIBIT THE
TUMORICIDAL ACTIVITY OF NK-CELLS AND T-CELLS AND CAN PREVENT THEIR
ACTIVATION BY CYTOKINES. THE ADMINISTRATION OF H(2) RECEPTOR
AGONISTS SUCH AS MAXAMINE CAN BLOCK THE PRODUCTION OF ROMS
(H(2)O(2)), THEREBY PROTECTING NK-CELLS AND T-CELLS. UNDER SUCH
CONDITIONS, ENHANCED ACTIVATION OF NK-CELLS AND T-CELLS IS
POSSIBLE, LEADING TO IMPROVED ANTI-TUMOR AND ANTI-VIRAL ACTIVITY.
BENEFITS OF MAXAMINE
The Company believes that MAXAMINE will be integral in the growing trend
toward combination therapy for certain cancers and infectious diseases and may
offer a number of important clinical and commercial advantages relative to
current therapies or approaches including:
- IMPROVED CLINICAL EFFICACY. The Company's preliminary clinical data has
provided evidence of improved therapeutic efficacy (extended survival and
remission intervals) over approved therapies or standards of care. In
addition, the combination therapy may extend the range of indications for
the use of cytokine therapies in both cancer and infectious diseases.
- IMPROVED QUALITY OF LIFE. Combination therapies with MAXAMINE may be an
important part of a strong medical interest in reducing treatment
toxicities and improving quality of life during therapy.
- OUTPATIENT ADMINISTRATION. MAXAMINE therapy can be self-administered on
an outpatient basis, subcutaneously, rather than the in-hospital
administration required for other therapies. The Company believes that the
greater ease of outpatient administration, as well as low dosage
requirements for the combined products, will result in increased patient
quality of life.
- COST EFFECTIVE THERAPY. By utilizing a lower dose of IL-2 or IFN-a, the
cost to the patient may be reduced below existing treatment regimens. In
addition, the Company's product is delivered on an outpatient basis rather
than in-hospital.
MAXAMINE CLINICAL TRIAL STATUS
A number of clinical trials of MAXAMINE have been initiated or are planned
by the Company in the near future. By early 1998, the Company expects to have
commenced three Phase III clinical trials for MAXAMINE in various countries
around the world, any one of which, if successful, could provide data necessary
to file for the approval to market MAXAMINE in certain countries. The table
below sets forth the disease indications currently targeted or planned to be
targeted by the Company. No assurance can be given that the Company will be able
to commence planned clinical studies within the time frames set forth below, if
at all. Moreover, the Company cannot predict when clinical studies for all of
the indications set forth below will be completed or whether the results of such
studies will support the filing of NDAs or the equivalent. See "Risk Factors--No
Assurance of Successful Product Development."
26
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MAXAMINE CLINICAL TRIAL STATUS
<TABLE>
<CAPTION>
INDICATION PHASE STATUS LOCATION
- ----------------------------------- ---------------- ------------------------- -----------------------------
<S> <C> <C> <C>
Advanced Malignant Melanoma Phase III trial Ongoing United States
Phase II trial Ongoing Sweden
Phase III trial Planned for late 1997 Sweden and Australia
Acute Myelogenous Leukemia Phase II trial Ongoing Sweden
Phase III trial Planned for early 1998 Europe and United States
Hepatitis C Phase I trial Ongoing Sweden
Phase I/II trial Planned for 1998 United States
Prostate Adenocarcinoma Phase I trial Planned for 1998 United States and Sweden
</TABLE>
ADVANCED MALIGNANT MELANOMA
The Company's initial Phase II clinical trial was conducted in Sweden at the
Sahlgrenska University Hospital in Gothenburg in which fifteen patients with
advanced metastatic malignant melanoma were treated with a high-dose regimen of
IL-2 together with daily injections of IFN-a in five-day cycles. Eight of the
patients were also given MAXAMINE injections twice daily during treatment with
IL-2 and IFN-a.
The results of the initial Phase II clinical trial indicated that MAXAMINE
may be given as an effective adjuvant to IL-2/IFN-a therapy. In the seven
patients who did not receive MAXAMINE, one partial response (defined as a 50%
reduction of the total tumor burden) was observed in a patient with skin and
lymph node melanoma. In the eight MAXAMINE-treated patients, four partial and
two mixed responses were observed. Notably, two of the MAXAMINE-treated patients
had complete resolution of their extensive liver metastases. Sites of response
in MAXAMINE-treated patients also included skin, lymph nodes, skeleton, spleen,
and muscle. In patients receiving MAXAMINE, there was a statistically
significant improvement in overall survival (p < 0.03). The MAXAMINE treated
patients had a mean survival of 14.7 months, more than double the mean 6.8 month
survival in the control group. One MAXAMINE-treated patient remains completely
free of detectable disease more than four years after the onset of MAXAMINE
therapy.
A second advanced malignant melanoma study was undertaken at the Sahlgrenska
University Hospital in Sweden to determine if a lower-dose regimen of the same
cytokines (IL-2 and IFN-a) in combination with the same doses of MAXAMINE would
retain the efficacy seen previously while reducing the side effects of the
cytokine portion of the treatment. In addition to survival, a goal for MAXAMINE
therapy is to lower toxicity of immunotherapy, and thus enhance the patients'
quality of life. Lowering the doses of the cytokines reduces many of the side
effects of these drugs, thereby facilitating tolerance of the therapy and even
allowing self-administration of the drugs at home. The mean survival time of
patients with advanced (stage IV) malignant melanoma using conventional
treatments is historically reported to be seven months. In this second, ongoing
low-dose malignant melanoma study, 11 patients have been evaluated and as of the
date of last report (September, 1997) had a mean survival time of 16.5 months,
more than double the rate generally reported for the normal course of the
disease and exceeding the favorable results from the high-dose study described
above. In this second malignant melanoma clinical trial MAXAMINE treatment was
well-tolerated and most patients were able to treat themselves at home.
A third Phase II advanced malignant melanoma trial of stage IV patients is
ongoing in Sweden using MAXAMINE in combination with IL-2 and IFN-a. As of
September 1997, 12 patients have been enrolled and 10 of 12 remain alive and on
treatment. In aggregate, MAXAMINE has now been studied in three Phase II trials
in a total of 31 patients with stage IV malignant melanoma. In each of the first
two trials the mean survival time has exceeded 14 months compared to reported
means of seven months for conventional treatments. In addition, of the seven
patients having liver metastases, treatment with MAXAMINE was shown
27
<PAGE>
to significantly improve survival outcome (mean of 20 months survival as a
group) compared to the historically reported four months survival rate for these
patients.
A multi-center Phase III clinical trial of MAXAMINE in the United States for
the treatment of advanced-stage malignant melanoma commenced in June 1997. In
this clinical trial, advanced-stage malignant melanoma patients are being
treated with a combination of MAXAMINE and IL-2, and patients in the control
group are being treated with IL-2 alone. The primary endpoint of the study is
overall patient survival, and the secondary endpoints include time to
progression, tumor response rate, duration of response and quality of life. The
enrollment objective for the study is 200 evaluable patients, 100 in each arm.
The study will ultimately be conducted in 15 or more centers in the United
States.
The Company currently plans to initiate a second Phase III trial of MAXAMINE
for the treatment of advanced malignant melanoma in Sweden and Australia later
this year. The trial will be performed in approximately 8-10 clinical centers in
Sweden and a similar number of sites in Australia. Patients in the treatment arm
will receive a co-administration of MAXAMINE plus low-dose IL-2 and IFN-a, while
patients in the control arm will receive dacarbazine (DTIC), the most common
chemotherapeutic agent for the treatment of advanced malignant melanoma which
has a reported survival benefit of 6-7 months in advanced stage melanoma
patients. The Swedish/Australian study will be designed to encompass 200
evaluable patients.
ACUTE MYELOGENOUS LEUKEMIA ("AML")
Once diagnosed with AML, patients are typically treated with chemotherapy to
attain remission, yet 75-80% of these patients will relapse and require
additional chemotherapy. The standard of care once a patient is in remission,
however, is no further treatment. Historically, patients in their first complete
remission ("CR1") remain in disease-free remission for a mean of approximately
12 months. Patients who have relapsed and achieved a second or subsequent
remission ("CR2+") typically have shorter remissions (mean time to relapse of
six months or less) and have less than 1% probability of long term survival. In
Phase II clinical trials conducted in Sweden, 28 patients with AML in complete
remission have been evaluated to date in a clinical trial wherein they were
given outpatient therapy with MAXAMINE plus IL-2. The objective of the study is
to treat AML patients in remission with MAXAMINE and low doses of IL-2 to
prevent relapse and prolong disease-free survival while maintaining a good
quality of life during treatment.
At August 1, 1997, the 11 patients in the CR2+ group have had a mean time in
remission of 20 months, compared to the historic mean of six months. The 17
patients in the CR1 group have had a mean time in remission of 20 months and 12
(71%) remain in complete remission. In this clinical trial the MAXAMINE
treatment was well-tolerated and the patients were able to treat themselves at
home. In the ongoing study, remission inversion (defined as prolonging the
duration of complete remission to at least equal that of the patient's own
previous remission) has been achieved in 80% of the 10 evaluable CR2+ patients.
The above findings for patients in CR2+ may be compared to those in a study
published in 1994 in which non-bone marrow transplanted patients were treated
with IL-2 alone. In that study, remission inversion was achieved with IL-2 alone
in only 2 of 29 AML patients, or 7%, and time in CR2+ averaged less than six
months (compared to 80% and a mean of 20 months for MAXAMINE treated patients as
reported above). In addition, data collected in Gothenburg, Sweden from 1976 to
1994 representing the natural course for this disease reported a 9% remission
inversion and a mean remission time of only five and one-half months.
A Phase III clinical trial of MAXAMINE for the treatment of AML is planned
to commence in early 1998 based upon the results of the data for the ongoing
Phase II study. The Company currently plans to include clinical sites in both
Europe and the United States and to enroll approximately 300 patients.
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HEPATITIS C
In mid-1997 the Company initiated a Phase I clinical trial of MAXAMINE for
the treatment of HCV. The Company expects to treat up to 15 HCV patients with a
combination of MAXAMINE and IFN-a. Response to the therapy will be measured
through an evaluation of specific liver function tests and viral burden. The
objective of the trial will be to determine if the administration of MAXAMINE as
an adjunct to IFN-a is safe and can demonstrate clinical responses among
previously IFN-a-resistant HCV patients. The study is being conducted in
Gothenburg, Sweden.
MAXVAX MUCOSAL VACCINE CARRIER/ADJUVANT PLATFORM
OVERVIEW OF VACCINE MARKET AND INFECTIOUS DISEASES
There remains today a broad range of infectious diseases for which no
therapies currently exist. One of the most promising areas in the fight against
such diseases is the development of vaccines. Recent trends in the delivery of
health care in the United States, including an increased emphasis on preventive
health care, have contributed to significant growth of interest in disease
prevention and development of the vaccine market. Immunization has long been
recognized as an effective means to decrease health care costs through disease
prevention and is one of the key areas given priority attention by the United
States Department of Health and Human Services and the World Health Organization
in their respective public health service publications. In 1991, revenues for
the total world human vaccine market totaled $1.7 billion, with the U.S. and
Europe comprising 75% of the market. It is estimated that by 1999, the total
world market for human vaccine products will have more than tripled to $5.3
billion and is anticipated to grow in excess of 20% per year.
MUCOSAL MEMBRANES--A FIRST-LINE DEFENSE
The mucosal membranes (which line the nasal compartment and sinuses, eyes,
ears, oral cavity, respiratory tract, gastrointestinal tract and urogenital
tract) represent the body's first line of defense against infections and are the
sites where most infectious agents enter the body. Examples of infectious
pathogens which enter the body through the mucosal membranes are chlamydia,
herpes simplex viruses and HIV, which cause sexually transmitted diseases;
respiratory syncytial virus ("RSV"), pneumococcus and streptococcus which cause
respiratory diseases; and HELICOBACTER PYLORI (ulcers) and rotavirus (diarrhea)
which causes gastrointestinal diseases. There has been a long-standing interest
in developing mucosal vaccines against these and other important infections.
[MAXVAX Diagram]
(Illustration of the CTA and CTB subunits)
CHOLERA TOXIN IS COMPRISED OF TWO SUBUNITS; THE A-SUBUNIT ("CTA"),
WHICH IS THE KNOWN TOXIC PORTION OF THE MOLECULE, AND THE B-SUBUNIT
("CTB"), WHICH HAS BEEN SHOWN TO BE IMMUNOGENIC, NON-TOXIC AND BINDS
SPECIFICALLY TO THE GM-1 GANGLIOSIDE MOLECULE ON THE TARGET M-CELL OF
THE MUCOSAE. THE COMPANY IS DEVELOPING THE MAXVAX SYSTEM TO LINK TARGET
ANTIGENS TO CTB. THE CTB-ANTIGN CONJUGATE THEN BINDS SPECIFICALLY TO
M-CELLS FOR PROCESSING AND PRESENTATION TO THE APPROPRIATE IMMUNE SYSTEM
CELLS.
MAXVAX is a mucosal vaccine carrier/adjuvant platform based on the cholera
toxin B subunit ("CTB"). CTB has already been administered to hundreds of
thousands of patients worldwide and is a major component of an existing oral
cholera vaccine and traveler's diarrhea vaccine. Most current vaccines have
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been designed to provide systemic immunity administered through injection. They
treat or prevent infection only after the infecting organism has entered the
blood stream or deep tissues of the body. The mechanisms which induce mucosal
immunity appear to be distinct from those that protect systemically. The Company
believes that the MAXVAX approach to therapeutic and protective vaccines has the
potential to elicit both mucosal and systemic immunity by delivering antigens
directly to the mucosal system. By combining the Company's proprietary
recombinant form of CTB with vaccine antigens and/or genes, the Company believes
that it will be able to develop effective, new mucosal-based vaccines.
POTENTIAL BENEFITS OF MUCOSAL IMMUNIZATION USING MAXVAX
The Company's MAXVAX approach to therapeutic and protective vaccines has
been shown to elicit both mucosal and systemic immunity and is based upon
"non-injectable" administration. The Company believes that there are numerous
important clinical and commercial advantages to mucosal immunization compared
with traditional injected vaccine products, including:
- GREATER CLINICAL EFFICACY. The body's largest defense system against
disease is the mucosal immune system where most infectious agents enter
the body. The Company believes that its mucosal vaccine platform may
likely result in mucosal and systemic immune stimulation and could more
effectively prevent or treat most infectious diseases, as compared to
traditional injected vaccines.
- HIGHER LEVEL OF SAFETY. CTB-based vaccines have been administered to
hundreds of thousands patients worldwide in clinical trials for the
cholera and traveler's diarrhea. CTB is widely thought to be a safe and
effective mucosal vaccine carrier.
- LOWER COST OF ADMINISTRATION. The administration of the Company's
products by oral, nasal and topical applications involving direct contact
with mucosal surfaces may not require patients to go to clinics nor will
it require trained personnel, thereby effectively lowering the cost of
administration. The vaccines may be prescribed by a doctor and dispensed
by a pharmacy, thus simplifying delivery and eliminating the multiple
office visits required for injection delivery of most contemporary
vaccines.
- IMPROVED VACCINE UTILIZATION. Maxim believes that the relative ease of
administration and the concept of "prescription" vaccines may improve
vaccine utilization over traditionally administered vaccines. Further, the
Company believes that this novel mucosal vaccine concept may allow
development of protective and therapeutic approaches to diseases where
previous vaccines and therapeutics have failed.
The MAXVAX technology is currently in preclinical development. The Company
has expanded its internal research and development efforts with emphasis on a
mucosal vaccine against chlamydia and a mucosal vaccine against diphtheria. In
addition, the Company has ongoing programs related to gene-based vaccines and
potential therapeutic vaccines. The chlamydia vaccine utilizes the Company's
gene-fusion technology and is nearing a prototype for animal testing. This
program also includes an ongoing human Phase I study addressing appropriate
routes of administration (nasal, oral, vaginal), dosing, and immune response
using the MAXVAX carrier alone. The results of this human study is expected to
be published in a scientific journal. The Company intends to seek collaborations
with pharmaceutical and biopharmaceutical companies for the discovery and
development of vaccine candidates of market interest.
The MAXVAX technology represents an early stage discovery and development
program. As with any such program, substantial additional research and
development will be necessary in order for the Company or its partners to
develop products based on the technology, and there can be no assurance that the
Company's research and development efforts will lead to development of products
that are shown to be safe and effective in clinical trials and are commercially
viable. See "Risk Factors--No Assurance of Successful Product Development."
PRODUCT DEVELOPMENT AND COLLABORATIVE RELATIONSHIPS
The Company conducts its research and other product development efforts
through a combination of its internal research staff and collaborative programs.
For MAXAMINE, the Company relies upon its clinical management personnel along
with arrangements with universities and other clinical research sites, contract
research organizations, and similar institutions and persons for a significant
portion of its product development efforts. The majority of the basic research
and development efforts related to MAXVAX were transferred to the Company's
internal laboratories during 1997, although the Company expects to rely more
heavily on pharmaceutical company collaborative relationships as product
development advances.
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The Company has relied upon licensing and other transactions to gain access
to certain of its proprietary technologies. Conduct of the Company's current and
planned clinical trials of MAXAMINE relies upon contractual relationships with
universities and other clinical trial sites, contract research organizations,
home nursing organizations, and regulatory and other consultants. The Company's
strategy for development, commercialization and marketing of MAXAMINE and MAXVAX
will involve, where appropriate, the establishment of marketing and other
collaborative relationships with pharmaceutical industry partners. The Company
intends to seek collaborative relationships in certain targeted development
areas, particularly in situations where the Company believes that the clinical
testing, marketing, manufacturing and other resources of pharmaceutical
collaborators will enable it to more effectively access particular products or
geographic markets.
MARKETING AND SALES
The Company expects to enter into an alliance with one or more
pharmaceutical companies to market MAXAMINE and to assist with funding of
certain portions of the clinical development efforts. The Company is currently
in discussions with potential collaborative marketing partners, although there
can be no assurance that any such relationships can be consummated, or that any
such relationships will be consummated under terms favorable to the Company. See
"Risk Factors--No Marketing and Sales Capacities; Anticipated Dependence Upon
Marketing Alliances."
The treatment of cancer is a highly specialized activity in which the
approximately 3,500 practicing oncologists in the United States tend to be
concentrated in major medical centers. The Company's marketing strategy for
MAXAMINE may include co-promotion or co-marketing of the product with the
Company's future marketing partners.
Due to the nature of the vaccine markets, the Company intends to establish
licensing arrangements with pharmaceutical companies with large distribution
systems for MAXVAX and does not expect to establish a direct sales capability in
the vaccine area.
MANUFACTURING
There are a number of facilities with FDA Good Manufacturing Practice
("GMP") approval available for contract manufacturing of the MAXAMINE product.
The Company does not intend to acquire or establish its own dedicated
manufacturing facilities for MAXAMINE in the foreseeable future. The Company's
strategy has been, and is expected to continue, to contract with established
pharmaceutical manufacturers for the production of MAXAMINE. The CTB protein
portion of MAXVAX is currently being produced by SBL Vaccin AB ("SBL"),
Stockholm, Sweden, under GMP through a system suitable for large-scale
industrial production.
The Company believes that, in the event of the termination of an agreement
with any single supplier or manufacturer, the Company would likely be able to
enter into agreements with other suppliers and/or manufacturers on similar
terms. However, there can be no assurance that there will be manufacturing
capacity available to the Company within the timelines and at quantities
required. See "Risk Factors--No Manufacturing Capabilities."
PATENTS, LICENSES AND PROPRIETARY RIGHTS
The Company holds five issued or allowed patents and has six patent
applications pending in the United States. In addition, the Company holds
license rights to one issued patent and three patent applications pending in the
United States. Corresponding patent applications have been filed, and in certain
instances patents have been issued, in major international markets. It is the
Company's policy to file, where possible, patent applications to protect
technologies, inventions and improvements that are important to the development
of its business. Maxim's management has devoted substantial attention and
resources to the Company's patent and license portfolio to obtain the strongest
positions available.
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Maintaining patents and licenses and conducting an assertive patent prosecution
strategy is a high priority of the Company.
KEY GRANTED PATENTS AND PENDING APPLICATIONS
The Company holds a patent relating to the combination of IL-2 and
H(2) receptor agonists ("H(2)RA's") that was issued by the U.S. Patent Office in
September 1994 and has additionally been granted in Europe and Australia. The
Company holds a patent application relating to the combination of IFN-a and
H(2)RA's which was allowed by the U.S. Patent Office in July 1997 and has also
issued in Australia. The Company also holds four other patent applications in
the United States relating to other cytokines, biotherapies, mechanisms, rates
and routes of administration, and uses which have also been filed
internationally.
Maxim holds a worldwide exclusive license to Vitec AB ("Vitec") and SBL's
U.S. and international patents for recombinantly producing CTB for use in
infectious diseases other than cholera, bacterial related diarrhea's and HIV
(the Company holds non-exclusive rights to this patent with regard to HIV). The
Company also holds exclusive license rights to related patent applications as
well as a patent application with respect to certain therapeutic and
anti-inflammatory properties of CTB.
A patent application has been filed by the Company in the U.S. Patent Office
covering use of CTB to make vaccines against chlamydia and other sexually
transmitted diseases. The Company has filed a U.S. patent application for the
use of CTB and other proteins in gene delivery of DNA or RNA.
MAXAMINE TECHNOLOGY RIGHTS
In 1993, the Company entered into a technology transfer agreement pursuant
to which the Company purchased the core intellectual property and patent rights
related to its MAXAMINE technology. The technology transfer agreement requires
that the Company pay certain royalty obligations to the two inventors of the
technology. The Company has also filed additional patent applications and
received additional patents encompassing the MAXAMINE technology.
MAXVAX LICENSES AND TECHNOLOGY RIGHTS
In 1993, the Company entered into an option and license agreement with Vitec
and SBL, pursuant to which the Company exercised an option for an exclusive,
worldwide license to technology related to CTB for use in a chlamydia vaccine.
Under the agreement, the Company is required to use its best efforts to engage
SBL to manufacture any products which result from the application of the
licensed technology. The Company has to make royalty payments on the net sales
of products using the licensed technology and to make additional license and
milestone payments to Vitec upon the execution of any sub-licenses. Pursuant to
the agreement, any party may terminate the license agreement, with respect to
the rights and duties of that party, as a result of a material breach of the
agreement by another party.
In 1994, the Company entered into a second license agreement with Vitec and
SBL for an exclusive, worldwide license to technology rights related to CTB for
all infectious diseases except chlamydia (which is governed by the agreement
discussed above), HIV (which is governed by a separate non-exclusive sub-license
agreement held by the Company), cholera and bacterial-related diarrheas. Under
the agreement, the Company has agreed to use its best efforts to engage SBL to
manufacture any products which result from the application of licensed
technology, and both Vitec and the Company shall receive a percentage of any
profits that SBL derives from manufacturing such products. The licensors may
terminate the agreement upon a material breach of the agreement by the Company.
The Company has asked Active i Malmo AB (publ) ("Active"), SBL's recent
acquirer, to address concerns regarding SBL's performance under the 1994 license
agreement, including (i) the transfer of technical information and materials to
Maxim as required by the license agreement, (ii) disclosure of all
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improvements to the technology licensed to Maxim as required by the license
agreement, and (iii) cessation of any activities which conflict with Maxim's
rights under the license agreement. The Company is currently discussing
resolution of the matter with Active. The Company cannot determine what impact,
if any, unfavorable resolution of the existing concerns would have on the
commercial value of the CTB technology.
The Company holds other licenses relating to CTB, including a non-exclusive
sub-license to CTB for the prevention and treatment of HIV infection, and an
exclusive, worldwide license to patent applications and related technology
rights with respect to certain therapeutic and anti-inflammatory properties of
CTB.
TRADE SECRETS AND TECHNOLOGY TRANSFER
The Company's competitive position is also dependent upon unpatented trade
secrets. In an effort to protect its trade secrets, the Company has a policy of
requiring its employees, consultants and advisors to execute confidentiality,
proprietary information and invention assignment agreements upon commencement of
employment or consulting relationships with the Company. These agreements
provide that all confidential information of the Company developed or made known
to such individuals during the course of their relationship with the Company
must be kept confidential, except in specified circumstances. These agreements
also provide that inventions resulting from agreements be assigned to the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection for the Company's trade secrets or other proprietary
information in the event of unauthorized use or disclosure of confidential
information. Invention assignment agreements executed by consultants and
advisors may conflict with, or be subject to, the rights of third parties with
whom such individuals have employment or consulting relationships. In addition,
there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets, that such trade secrets will not be
disclosed or that the Company can effectively protect its rights to unpatented
trade secrets.
The Company has entered into confidentiality and non-compete agreements with
its Swedish scientists and other collaborating scientists. These agreements
generally give Maxim license rights and access to most past and current
inventions and processes as they relate to the Company's current products, as
well as rights in certain future discoveries made by such scientists. Such
technology transfers are directly between the Company and the scientists. Unlike
U.S. institutions, Swedish universities cannot hold a patent position on any
discoveries made by its research scientists.
GENERAL PATENT UNCERTAINTIES AND RISKS
The patent position of participants in the pharmaceutical field generally is
highly uncertain, involves complex legal and factual questions, and has recently
been the subject of much litigation. There can be no assurance that any patent
applications relating to the Company's potential products or processes will
result in patents being issued, or that the resulting patents, if any, will
provide protection against competitors who successfully challenge the Company's
patents, obtain patents that may have an adverse effect on the Company's ability
to conduct business, or are able to circumvent the Company's patent position. It
is possible that other parties have conducted or are conducting research, and
could make discoveries of compounds or processes that would precede any
discoveries made by the Company, which could prevent the Company from obtaining
patent protection for these discoveries. Finally, there can be no assurance that
others will not independently develop pharmaceutical products similar to or make
obsolete those that the Company is planning to develop, or duplicate any of the
Company's products.
The Company may be required to obtain licenses to patents or proprietary
rights of others. No assurance can be given that any licenses required under any
such patents or proprietary rights would be made available on terms acceptable
to the Company, if at all. If the Company does not obtain such licenses, it
could encounter delays in product market introductions while it attempts to
design around such
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patents, or could find that the development, manufacture or sale of products
requiring such licenses could be foreclosed. Litigation may be necessary to
defend against or assert claims of infringement, to enforce patents issued to
the Company, to protect trade secrets or know-how owned by the Company, or to
determine the scope and validity of the proprietary rights of others. In
addition, interference proceedings declared by the United States Patent and
Trademark Office may be necessary to determine the priority of inventions with
respect to patent applications of the Company or its licensors. Litigation or
interference proceedings could result in substantial costs to and diversion of
effort by, and may have a material adverse impact on, the Company. In addition,
there can be no assurance that these efforts by the Company will be successful.
See "Risk Factors--Uncertainty Regarding Patents and Proprietary Rights."
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and other
countries is a significant factor in the development, manufacture and marketing
of the Company's proposed products and in its ongoing research and product
development activities. The nature and extent to which such regulation applies
to the Company will vary depending on the nature of any products which may be
developed by the Company. It is anticipated that all of the Company's products
will require regulatory approval by governmental agencies prior to
commercialization. In particular, human therapeutic and vaccine products are
subject to rigorous preclinical and clinical testing and other approval
procedures of the U.S. Food and Drug Administration ("FDA") and similar
regulatory authorities in European and other countries. Various governmental
statutes and regulations also govern or influence testing, manufacturing,
safety, labeling, storage and record-keeping related to such products and their
marketing. The process of obtaining these approvals and the subsequent
compliance with appropriate statutes and regulations require the expenditure of
substantial time and financial resources. Any failure by the Company or its
collaborators to obtain, or any delay in obtaining, regulatory approval could
adversely affect the marketing of any products developed by the Company, its
ability to receive product revenues and its liquidity and capital resources. See
"Risk Factors--No Assurance of Regulatory Approval; Government Regulation."
FDA APPROVAL PROCESS
Prior to commencement of clinical studies involving human beings,
preclinical testing of new pharmaceutical products is generally conducted on
animals in the laboratory to evaluate the potential efficacy and the safety of
the product. The results of these studies are submitted to the FDA as a part of
an Investigational New Drug ("IND") application, which must become effective
before clinical testing in humans can begin. Typically, clinical evaluation
involves a time consuming and costly three-phase process. In Phase I, clinical
trials are conducted with a small number of subjects to determine the early
safety profile, the pattern of drug distribution and metabolism. In Phase II,
clinical trials are conducted with groups of patients afflicted with a specific
disease in order to determine preliminary efficacy, optimal dosages and expanded
evidence of safety. In Phase III, large-scale, multi-center, comparative trials
are conducted with patients afflicted with a target disease in order to provide
enough data to demonstrate the efficacy and safety required by the FDA. The FDA
closely monitors the progress of each of the three phases of clinical testing
and may, at its discretion, re-evaluate, alter, suspend or terminate the testing
based upon the data which have been accumulated to that point and its assessment
of the risk/benefit ratio to the patient.
The results of the preclinical and clinical testing on a non-biologic drug
and certain diagnostic drugs are submitted to the FDA in the form of a New Drug
Application ("NDA") for approval prior to commencement of commercial sales. In
the case of vaccines, the results of clinical trials are submitted as a Product
License Application ("PLA"). In responding to an NDA or PLA, the FDA may grant
marketing approval, request additional information or deny the application if
the FDA determines that the application does not satisfy its regulatory approval
criteria. There can be no assurance that approvals will be granted on a timely
basis, if at all. Similar procedures are in place in countries outside the
United States.
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The FDA has issued "fast-track" regulations intended to accelerate the
approval process for the development, evaluation and marketing of new
therapeutic products used to treat life-threatening and severely debilitating
illnesses, especially those for which no satisfactory alternative therapies
exist. "Fast-track" designation affords the Company early interaction with the
FDA in terms of protocol design and permits, although it does not require the
FDA to grant approval after completion of Phase II clinical trials (although the
FDA may require subsequent Phase III clinical trials or even post-approval Phase
IV efficacy studies). On March 29, 1996, the FDA announced further intentions to
accelerate the approval for cancer therapeutics. The FDA's cancer drug
initiative consists of specific requirements and elements including accelerated
approval for cancer drugs, expanded access for drugs approved in other
countries, and facilitating additional uses of approved cancer drugs. Further,
the FDA has stated that it will increase its proactive role in ensuring cancer
drugs become available to patients by soliciting applications for U.S. approval
for products approved overseas and, for the first time, taking international
regulatory approvals into consideration. The FDA has previously accepted data
generated in clinical trials from Sweden for incorporation in NDAs filed in the
United States. The Company believes that a number of its product candidates may
fall under these regulations, but there can be no assurance that any of the
Company's products will receive this or other similar regulatory treatment.
The Advisory Committee of Immunization Practices ("ACIP") of the Centers for
Disease Control and Prevention ("CDCP") has a role in setting the market for
most, if not all, of the vaccine products Maxim intends to make. The ACIP meets
quarterly to review developing data on licensed vaccines, and those approaching
license, as well as epidemiologic data on the need for these products. The
recommendations of the ACIP on the appropriate use of vaccines and related
products are published in the MORBIDITY AND MORTALITY WEEKLY REPORT and
reprinted in several journals. The CDCP develops epidemiological data in support
of the need for new vaccines and monitors vaccine usage and changes in disease
incidence. In addition, CDCP staff frequently act as key advisors to the FDA in
their review process.
EUROPEAN AND OTHER REGULATORY APPROVAL
Whether or not FDA approval has been obtained, approval of a product by
comparable regulatory authorities in Europe and other countries will likely be
necessary prior to commencement of marketing the product in such countries. The
regulatory authorities in each country may impose their own requirements and may
refuse to grant, or may require additional data before granting, an approval
even though the relevant product has been approved by the FDA or another
authority. As with the FDA, the European Union ("EU") countries and other
developed countries have very high standards of technical appraisal and,
consequently, in most cases a lengthy approval process for pharmaceutical
products. The process for gaining such approval in particular countries varies,
but generally follows a similar sequence to that described for FDA approval. In
Europe, the European Committee for Proprietary Medicinal Products provides a
mechanism for EU-member states to exchange information on all aspects of product
licensing and assesses license applications submitted under two different
procedures (the multi-state and the high-tech concentration procedures). The EU
has established a European agency for the evaluation of medical products, with
both a centralized community procedure and a decentralized procedure, the latter
being based on the principle of mutual recognition between the member states.
ORPHAN DRUG ACT
Under the Orphan Drug Act, the FDA may designate drug products as orphan
drugs if there is no reasonable expectation of recovery of the costs of research
and development from sales in the United States or if such drugs are intended to
treat a rare disease or condition, which is defined as a disease or condition
that affects less than 200,000 persons in the United States. If certain
conditions are met, designation as an orphan drug confers upon the sponsor
marketing exclusivity for seven years following FDA approval of the product,
meaning that the FDA cannot approve another version of the "same" product for
the same use during such seven year period. The market exclusivity provision
does not,
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however, prevent the FDA from approving a different orphan drug for the same use
or the same orphan drug for a different use. The Orphan Drug Act has been
controversial, and many legislative proposals have from time to time been
introduced in Congress to modify various aspects of the Orphan Drug Act,
particularly the market exclusivity provisions. There can be no assurance that
new legislation will not be introduced in the future that may adversely impact
the availability or attractiveness of orphan drug status for any of the
Company's products.
OTHER REGULATIONS
The Company is also subject to various United States, state and local and
international laws, regulations and recommendations relating to safe working
conditions, laboratory manufacturing practices and the use and disposal of
hazardous or potentially hazardous substances, including radioactive compounds
and infectious disease agents, used in connection with the Company's research
work. The extent of government regulation which might result from future
legislation or administrative action cannot be predicted accurately.
THIRD-PARTY REIMBURSEMENT
The business and financial condition of pharmaceutical and biotechnology
companies will continue to be affected by the efforts of government and
third-party payors to contain or reduce the cost of health care through various
means. For example, in certain international markets pricing negotiations are
often required in each country of the European Community, even if approval to
market the drug under the European Medical Evaluation Authority's centralized
procedure is obtained. In the U.S., there have been, and the Company expects
that there will continue to be, a number of federal and state proposals to
implement similar government control. In addition, an increasing emphasis on
managed care in the U.S. has and will continue to increase the pressure on
pharmaceutical pricing. While the Company cannot predict whether any such
legislative or regulatory proposals will be adopted or the effect such proposals
or managed care efforts may have on its business, the announcement of such
proposals or efforts could have a material adverse effect on the Company's
ability to raise capital, and the adoption of such proposals or efforts could
have a material adverse effect on the Company's business, financial condition
and results of operations. Further, to the extent that such proposals or efforts
have a material adverse effect on other pharmaceutical companies that are
prospective corporate partners for the Company, the Company's ability to
establish a strategic alliance may be adversely affected. In addition, in both
the U.S. and elsewhere, sales of prescription pharmaceuticals are dependent in
part on the availability of reimbursement to the consumer from third-party
payors, such as government and private insurance plans that mandate
predetermined discounts from list prices. In addition, third-party payors are
increasingly challenging the prices charged for medical products and services.
If the Company succeeds in bringing one or more products to the market, there
can be no assurance that these products will be considered cost effective and
that reimbursement to the consumer will be available or will be sufficient to
allow the Company to sell its products on a competitive basis.
COMPETITION
Competition in the discovery and development of methods for treating or
preventing cancer and infectious disease is intense. Numerous pharmaceutical,
biotechnology and medical companies and academic and research institutions in
the United States and elsewhere are engaged in the discovery, development,
marketing and sale of products for the treatment of cancer and infectious
disease. These include surgical approaches, new pharmaceutical products and new
biologically derived products. The Company expects to encounter significant
competition for the principal pharmaceutical products it plans to develop.
Companies that complete clinical trials, obtain regulatory approvals and
commence commercial sales of their products before their competitors may achieve
a significant competitive advantage. A number of pharmaceutical companies are
developing new products for the treatment of the same diseases being
36
<PAGE>
targeted by the Company. In some instances, the Company's competitors already
have products in clinical trials. In addition, certain pharmaceutical companies
are currently marketing drugs for the treatment of the same diseases being
targeted by the Company, and may also be developing new drugs to address these
disorders.
The Company believes that its competitive success will be based on its
ability to create and maintain scientifically advanced technology, develop
proprietary products, attract and retain scientific personnel, obtain patent or
other protection for its products, obtain required regulatory approvals, obtain
orphan drug status for certain products and manufacture and successfully market
its products either independently or through outside parties. Many of the
Company's competitors have substantially greater financial, clinical testing,
regulatory compliance, manufacturing, marketing, human and other resources. In
addition, the Company will continue to seek licenses with respect to key
technologies related to its fields of interest and may face competition with
respect to such efforts.
EMPLOYEES AND CONSULTANTS
As of September 11, 1997, the Company had 20 employees, all but one of which
were based at its headquarters in San Diego, California. The Company believes
its relationships with its employees are satisfactory. Other experienced
professionals and personnel are expected to be hired to join the Company's
management team in 1997 and 1998 to, among other things, address the
requirements of the expansion of clinical trials of MAXAMINE and other
commercialization efforts.
In addition to its employees, Maxim has engaged approximately 12 experienced
consultants in the United States, Europe and Australia with pharmaceutical and
business backgrounds to assist in its product development efforts. The Company
plans to leverage its key personnel by making extensive use of contract
laboratories, development consultants, and strategic partnerships with
pharmaceutical companies to conduct the Company's preclinical and clinical
trials.
FACILITIES
The Company currently leases approximately 9,500 square feet of laboratory
and office space in San Diego, California. The Company has no current plans for
any expansion of its facilities, but believes that increases in its clinical
trial and other commercialization efforts related to MAXAMINE may increase the
Company's facility requirements.
LEGAL PROCEEDINGS
In March 1997, the former President and Chief Operating Officer and the
Chief Financial Officer of the Company (the "Former Employees") filed a
complaint in the Superior Court in the State of California, County of San Diego
(the "Complaint") seeking claims for certain purported damages in contract and
in tort arising from their respective terminations of employment with the
Company in March 1996. In addition, the Former Employees asserted possible
punitive damages and damages based on emotional distress. The Former Employees
also claimed the right to vested options of the Company's Common Stock.
According to the Complaint, each of the Former Employees appears to be claiming
compensatory damages in excess of $2 million and punitive damages in excess of
$3 million. In June 1997, the Company filed an answer to the Complaint denying
each of the allegations therein. Pretrial discovery with respect to these legal
proceedings has commenced, and a trial date has been scheduled for May 1998. The
Company believes the Former Employees' claims are without merit and the Company
intends to contest any such claims vigorously. However, there can be no
assurances as to the eventual outcome of such claims or their effect on the
Company's business, financial condition and results of operations. In addition,
an adverse determination in any litigation arising from these claims or the
settlement of such claims could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Risk
Factors--Legal Proceedings."
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names, ages and positions of the Company's executive officers and
directors, as of September 11, 1997, are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
Larry G. Stambaugh........................ 50 Chairman of the Board, President and Chief Executive Officer
Kurt R. Gehlsen, Ph.D..................... 41 Chief Technical Officer and Vice President, Development
Dale A. Sander............................ 37 Chief Financial Officer, Vice President, Finance and Secretary
Colin B. Bier, Ph.D....................... 51 Director
G. Steven Burrill......................... 52 Director
Per-Olof Martensson....................... 60 Director
F. Duwaine Townsen........................ 64 Director
</TABLE>
LARRY G. STAMBAUGH has served as the Company's Chairman of the Board of
Directors, President and Chief Executive Officer since 1993. From 1989 to 1992,
Mr. Stambaugh served in a number of positions at ABC Laboratories, Inc., an
international contract science research laboratory, including Chairman of the
Board of Directors, President and Chief Executive Officer. From 1983 to 1989,
Mr. Stambaugh served as Executive Vice President and Chief Financial Officer of
CNB Financial Corporation, a multi-bank holding company. Mr. Stambaugh received
a B.A. in business administration from Washburn University and is a certified
public accountant.
KURT R. GEHLSEN, PH.D. joined the Company as Chief Technical Officer and
Vice President, Development in 1996. From 1991 to 1995, Dr. Gehlsen served as
Chairman of the Board of Directors, President and Chief Executive Officer of
Trauma Products, Inc., a biomedical company. From 1989 to 1991, Dr. Gehlsen
served as Senior Research Scientist and Head, Division of Molecular and Cellular
Biology, Pharmacia Experimental Medicine Division of Pharmacia, Inc., a
biopharmaceutical company and as Vice President, Chief Operating Officer and
Director of Molecular and Cellular Biology for the La Jolla Institute for
Experimental Medicine. Dr. Gehlsen received a B.S. in biology from the
University of Arizona and a Ph.D. from the University of Arizona College of
Medicine.
DALE A. SANDER joined the Company in 1996 as Chief Financial Officer, Vice
President, Finance and Secretary. From 1993 to 1996, Mr. Sander served as Chief
Financial Officer of Pacific Pharmaceuticals, Inc. (formerly Xytronyx, Inc.), a
biotech company. From 1991 to 1993, Mr. Sander served as Chief Financial Officer
of Tactyl Technologies, Inc., a medical device manufacturer. Prior to 1991 he
worked for over nine years with Ernst & Young, an international professional
service firm. Mr. Sander is a Certified Public Accountant and has a B.S. in
Accounting from San Diego State University.
COLIN B. BIER, PH.D. has served as a director of Maxim since 1994. Dr. Bier
has served as Managing Director of ABA BioResearch, an independent bioregulatory
affairs consulting firm, since 1988. Dr. Bier is also a director of Boston Life
Sciences, Inc., BioChem Vaccins, a subsidiary of BioChem Pharmaceuticals, NYMOX
Pharmaceuticals Corporation, Receptagen, Inc. and Sparta Pharmaceuticals.
G. STEVEN BURRILL has served as a director of Maxim since 1996. He founded
and has served as Chief Executive Officer of Burrill & Company, a private
merchant bank, since January, 1997, and its predecessor firm, Burrill & Craves,
since 1994. Prior to that, Mr. Burrill served for 28 years with Ernst & Young
LLP as a partner and as chairman of the firm's Manufacturing/High Technology
Industry Services Group. Mr. Burrill is also a director of Axis Genetics plc,
Advanced Bioresearch Associates, Genitope Corporation, Hambro Health
International, NuGene Technologies and Promega Corporation and UltraOrtho, Inc.
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<PAGE>
PER-OLOF MARTENSSON has served as a director of Maxim from 1993 to 1995 and
again beginning in 1996. Since 1990, Mr. Martensson has owned and operated POM
Advisory Services AB, an independent consulting firm. Since 1997, Mr. Martensson
has served as Chairman of the board of Karo Bio AB, a pharmaceutical company,
and from 1991 to 1997 served as President and Chief Executive Officer. From 1992
to 1995, Mr. Martensson served as Chairman of Skandigen AB, a diversified
investment company. From 1987 to 1990, Mr. Martensson served as President of
Pharmacia LEO Therapeutics AB, and as Executive Vice President of Pharmacia AB,
both biopharmaceutical companies. From 1985 to 1990, Mr. Martensson served as
President and Chief Executive Officer of AB LEO, a biopharmaceutical company.
Mr. Martensson is also a director of Gambro AB, AB Eleata and Nobel BioCare AB.
Mr. Martensson is a shareholder and a former director of MediGlobe AB, a
corporation that has recently filed for bankruptcy in Sweden. Mr. Martensson
received an M.S. in Pharmacy from The Royal Institute of Pharmaceutical Sciences
(Kungliga Farmacevtiska Institutet) in Stockholm, Sweden.
F. DUWAINE TOWNSEN has served as a director of Maxim since 1993. Mr. Townsen
has served as a Managing Partner of Ventana Growth Funds, a group of five
venture capital funds, since 1983. Prior to that, Mr. Townsen served as Chairman
of the Board of Directors and Chief Executive Officer of Kay Laboratories, Inc.,
a manufacturer of medical products. Mr. Townsen is a certified public
accountant. Mr. Townsen is also a director of Cymer, Inc.
SCIENTIFIC ADVISORS
Biographical information with respect to some of the Company's key
collaborating scientists and scientific and development advisors is set forth
below in alphabetical order:
MATS BRUNE, M.D., PH.D.,is the principal investigator of the Phase II
clinical trials of Maxamine in the treatment of AML in Sweden. Dr. Brune is a
physician at the Department of Hematology, Sahlgren's University Hospital,
University of Gothenburg, Sweden. Dr. Brune will serve as Coordinating
Investigator for the planned Phase III AML clinical trial.
PAUL BUNN, M.D., serves on the Company's clinical advisory board. Dr. Bunn
is presently the Director of the University of Colorado Cancer Center and
Interim Chairman of the Department of Radiation Oncology at the University of
Colorado Health Sciences Center, Denver. In addition, he has been a member of
the Food and Drug Administration (FDA) Oncology Drug Advisory Committee since
1992 and served as acting as chairman from 1995 to 1996. Dr. Bunn also serves on
the National Cancer Institute's Cancer Clinical Trials Committee and is on the
board of directors of the American Society of Clinical Oncology.
JIM BURNS, PH.D., is one of the Companies regulatory advisors and assists
with the Company's interactions with the FDA. Dr. Burns is Sr. Vice President,
Regulatory Affairs, for PharmaNet, Inc.
CECIL CZERKINSKY, D.M.D., PH.D. Dr. Czerkinsky is a co-inventor with Dr.
Holmgren of the CTB technology and is collaborating with the Company on certain
of the MAXVAX platform technologies licensed by the Company.
KRISTOFFER HELLSTRAND, M.D., PH.D. Dr. Hellstrand is the inventor of the
Company's MAXAMINE platform technology, and is working closely with the Company
and outside investigators in Sweden and elsewhere on designing and conducting
Maxim's cancer clinical trials. Dr. Hellstrand is Assistant Professor of
Immunology at the University of Gothenburg, Sweden.
JAN HOLMGREN, M.D., PH.D. Dr. Holmgren is one of the inventors of the
Company's MAXVAX platform technology. He has devoted more than 20 years to
research on mucosal immunity and is recognized as one of the world's foremost
authorities on the subject. Dr. Holmgren heads a leading mucosal immunology
research team, and he is Chairman of the World Health Organization's steering
committee on mucosal immunology and new vaccination approaches. Dr. Holmgren was
the first to describe the subunit molecular structure of cholera toxin and the
biologic properties of its binding subunit portion, and the first
39
<PAGE>
to develop an effective CTB cholera vaccine. For his pioneering scientific
contributions in mucosal immunology and CTB, he was awarded the prestigious 1994
Louis Jeantet Prix de Medecine award. Dr. Holmgren has more than 300 scientific
publications and is a noted speaker at international scientific meetings. He is
the Head of the Department of Microbiology and Immunology at the University of
Gothenburg in Sweden.
LOWELL D. MILLER, PH.D., is one of the Company's scientific and business
development advisors. Dr. Miller advises the Company on general research and
development matters, monitors the Company's clinical programs and participates
in formulating the Company's business development strategies. Dr. Miller serves
the pharmaceutical industry as a consultant following his retirement from Marion
Laboratories (now Hoechst Marion Roussel). During his 17 years with Marion, Dr.
Miller had extensive experience in the development and approval of many
pharmaceuticals and served as Marion's Senior Vice President of Research and
Development and as a member of its Board of Directors. Dr. Miller continues to
serve as an adjunct professor of biochemistry at the University of Missouri.
PETER NAREDI, M.D., PH.D., is principal investigator of the Phase II
clinical trials of MAXAMINE for the treatment of malignant melanoma in Sweden.
Dr. Naredi is an Associate Professor, Surgery, University of Umea, Sweden. Dr.
Naredi will serve as Coordinating Investigator for the planned
Swedish/Australian Phase III malignant melanoma clinical study and is an
advisory investigator for the U.S. Phase III trial.
BENGT SIMONSSON, M.D., PH.D., serves on the Company's clinical advisory
board. Dr. Simonsson heads the division of hematology in the department of
internal medicine at University Hospital, Uppsala University, Sweden. As a
member of numerous scientific committees, he is the current Chairman of a
European multi-center study on autologous bone marrow transplantation in acute
myelogenous leukemia.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors is divided into three classes, each class consisting
of one or two directors, and each class having a three-year term. Vacancies on
the Board may be filled only by persons elected by a majority of the remaining
directors. A director elected by the Board to fill a vacancy (including a
vacancy created by an increase in the Board of Directors) will serve for the
remainder of the term of the class of directors in which the vacancy occurred
and until such director's successor is elected and qualified. The Class I
directors, whose term of office expires at the annual meeting of stockholders in
1998, are Messrs. Martensson and Stambaugh. The Class II director, whose term of
office expires at the annual meeting in 1999, is Dr. Bier. The Class III
directors, whose term of office expires at the annual meeting in 2000, are
Messrs. Burrill and Townsen. The officers of the Company are appointed annually
and serve at the discretion of the Board of Directors. See "Description of
Securities--Change of Control Provisions."
The Board has an Audit Committee, a Compensation Committee, a Nominating
Committee and a Technology Committee which all operate independently of the
Company's management. The Audit Committee, composed soley of outside directors,
meets at least annually with the Company's independent auditors to, among other
things, review the results and scope of the annual audit and discuss the
Company's financial statements and receive and consider comments as to controls,
adequacy of staff and management performance and procedures in connection with
audit and financial controls. The Audit Committee also makes recommendations to
the Board regarding the retention of independent auditors. The Audit Committee
is currently composed of Messrs. Townsen, Burrill and Dr. Bier.
The Compensation Committee, composed soley of outside directors, makes
recommendations concerning salaries and incentive compensation, administers and
awards stock options to employees and consultants under the Company's equity
incentive plans and otherwise determines compensation levels and performs such
other functions regarding compensation as the Board may delegate. The
Compensation Committee is currently composed of Messrs. Burrill, Martensson and
Townsen.
40
<PAGE>
The Nominating Committee interviews, evaluates, nominates and recommends
individuals for membership on the Company's Board of Directors and committees
thereof and nominates specific individuals to be elected as officers of the
Company by the Board of Directors. The Nominating Committee is currently
composed of Messrs. Stambaugh, Burrill and Martensson.
The Technology Committee meets with management to evaluate and make
recommendations regarding the progress of the Company's technologies and product
development activities. The Technology Committee is currently comprised of Mr.
Martensson and Dr. Bier.
The Company has adopted a director compensation policy under which each
non-employee director will receive an annual fee of $4,000 and a per-meeting fee
of $1,000, if attended in person, or $500 if attended by telephone. Each
non-employee director will also receive a fee of $250 per committee meeting
attended and $500 per committee meeting attended in the capacity as that
committee's chairperson. In addition, each non-employee director will receive an
automatic stock option grant of 10,000 shares of Common Stock upon his election
or reelection to the Board and 5,000 shares annually if he attends at least 75%
of the meetings held during a fiscal year. Non-employee directors are also
eligible for reimbursement for their expenses incurred in connection with
attendance at Board meetings in accordance with Company policy. Notwithstanding
the foregoing, Mr. Burrill is not entitled to receive the above described fees
because of his firm's consulting arrangement with the Company. In connection
with his reelection as a director at the February 11, 1997 annual meeting of
stockholders of the Company, the Company granted Mr. Townsen a fully vested
option to purchase 10,000 shares of common stock at an exercise price of $8.875
per share.
On May 2, 1996, in connection with their services as directors, the Company
granted Dr. Bier fully vested stock options to purchase 45,000 shares of Common
Stock and each of Messrs. Martensson and Townsen fully vested stock options to
purchase 40,000 shares of Common Stock at an exercise price of $3.75 per share.
Mr. Stambaugh was granted stock options on May 2, 1996 and November 11, 1996 in
connection with his services as President and Chief Executive Officer as
described in "Compensation of Executive Officers" below. In addition, entities
affiliated with certain of the directors have, from time to time, entered into
transactions with the Company. See "Certain Transactions."
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows for the two fiscal years ending September 30,
1996, and annualized for the current fiscal year, compensation awarded or paid
to, or earned by the Company's Chief Executive Officer and its other two
executive officers (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
--------------------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION (1) YEAR SALARY ($) BONUS ($)(2) OPTIONS (#)
- ------------------------------------------------------------ ------------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Larry G. Stambaugh 1997(3) $ 225,000 $ - 83,333
Chairman, President and Chief Executive Officer........... 1996 180,000 67,500 233,333
1995 180,000 54,000 16,666
Kurt R. Gehlsen, Ph.D. (4) 1997(3) $ 140,000 $ - 23,334
Chief Technical Officer and Vice President, Development... 1996 126,000(5) - 66,666
1995 - - -
Dale A. Sander (4) 1997(3) $ 125,000 $ - 75,000
Chief Financial Officer, Vice President, Finance and 1996 - - -
Secretary................................................. 1995 - - -
</TABLE>
- ------------------------------
(1) The principal position for each of the Named Executive Officers reflects the
offices and titles held by each of them for the current fiscal year.
(2) Bonuses are reflected in the fiscal year earned. Bonuses for fiscal 1997
will be determined by the Compensation Committee of the Board of Directors
prior to December 31, 1997.
(3) Salary information for fiscal year 1997 represents actual compensation paid
through September 11, 1997, annualized for the year. Long-term compensation
represents actual options granted through September 11, 1997.
(4) Dr. Gehlsen's and Mr. Sander's employment commenced in May 1996 and October
1996, respectively.
(5) Dr. Gehlsen's fiscal year 1996 salary has been annualized.
41
<PAGE>
OPTION GRANTS DURING THE YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED TERM(2)
OPTIONS TO EMPLOYEES IN EXPIRATION ------------------------
NAME GRANTED(1) FISCAL YEAR EXERCISE PRICE DATE 5% 10%
- --------------------------------- ----------- --------------- --------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Larry G. Stambaugh............... 233,333 77.6% $ 3.75 5/2/03 $ 602,454 $ 1,171,151
Kurt R. Gehlsen, Ph.D............ 66,666 22.2% $ 3.75 5/2/03 $ 172,131 $ 334,617
</TABLE>
- ------------------------
(1) Consists of stock options granted pursuant to the Incentive Plan. The
maximum term of each option granted is seven years from the date of grant.
The exercise price is equal to the market value of the stock on the grant
date as adjusted for subsequent stock splits.
(2) In accordance with the rules of the SEC, shown are the gains or "option
spreads" that would exist for the respective options granted. These gains
are based on the assumed rates of annually compounded stock price
appreciation of 5% and 10% from the date the option was granted over the
full option term. These assumed annually compounded rates of stock price
appreciation are mandated by the rules of the SEC and do not represent the
Company's estimates or projection of future Common Stock prices.
The following table sets forth certain information for the Named Executive
Officers with respect to the exercise of options to purchase Common Stock during
the fiscal year ended September 30, 1996 and the number and value of securities
underlying unexercised options held by the Named Executive Officers as of
September 30, 1996.
AGGREGATED OPTION EXERCISES IN THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON
STOCK UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SEPTEMBER 30, 1996 SEPTEMBER 30, 1996(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Larry G. Stambaugh........................................ 116,667 116,667 $ 743,749 $ 743,749
Kurt R. Gehlsen, Ph.D..................................... 13,333 53,334 $ 85,000 $ 340,002
</TABLE>
- ------------------------
(1) Represents the fair market value of the shares of Common Stock underlying
the options as of September 11, 1997, less the exercise price of the
options.
EMPLOYMENT AGREEMENTS
Pursuant to an executive employment agreement between the Company and Larry
G. Stambaugh, the Chairman, President and Chief Executive Officer of the
Company, dated November 12, 1996, Mr. Stambaugh receives an annual salary of not
less than $225,000, an annual bonus in an amount up to 30% of his annualized
base salary, and equity compensation as determined by the Board of Directors.
The term of Mr. Stambaugh's employment agreement expires on December 31, 1998.
The employment agreement also provides that, if Mr. Stambaugh's employment is
terminated without cause or upon constructive discharge, he will receive a
severance payment equal to his then annual base salary plus health care
insurance coverage for one year or the remainder of the term of his employment
agreement, whichever is greater. Pursuant to his employment agreement, Mr.
Stambaugh was granted an option to
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<PAGE>
purchase 83,333 shares of Common Stock at an exercise price of $9.00 per share,
vesting over approximately four years. Mr. Stambaugh's stock option agreements
provide that such options will become fully exercisable in the event his
employment is terminated without cause or following a change in control of the
Company. In addition, the Company has agreed to maintain a life insurance policy
in the amount of $1,000,000 on Mr. Stambaugh's behalf.
Pursuant to an executive employment agreement between the Company and Kurt
R. Gehlsen, Ph.D., the Vice President, Development and Chief Technical Officer
of the Company, dated October 1, 1996, Dr. Gehlsen receives an annual salary of
not less than $140,000, and he is eligible to receive an incentive bonus of up
to $28,000. The term of Dr. Gehlsen's employment agreement expires on December
31, 1997. The employment agreement provides that, if Dr. Gehlsen's employment is
terminated without cause, he will be entitled to continuation of his then base
salary and health benefits for six months. Dr. Gehlsen's stock option agreements
provide that such options will become fully exercisable in the event his
employment is terminated without cause or following a change in control of the
Company.
Pursuant to an executive employment agreement between the Company and Dale
A. Sander, the Vice President, Finance and Chief Financial Officer of the
Company, dated October 1, 1996, Mr. Sander receives an annual salary of not less
than $125,000. The term of Mr. Sander's employment agreement expires on December
31, 1997. The employment agreement provides that, if Mr. Sander's employment is
terminated without cause, he will be entitled to continuation of his then base
salary and health benefits for six months. Mr. Sander's stock option agreements
provide that such options will become fully exercisable in the event his
employment is terminated without cause or following a change in control of the
Company.
1993 LONG-TERM INCENTIVE PLAN AND OTHER BENEFIT PLANS
The Company's 1993 Long-Term Incentive Plan (the "Incentive Plan") was
adopted by the Board of Directors in 1993. The Incentive Plan was amended and
restated by the Board of Directors in March 1996 and December 1996 and
subsequently approved by the Company's stockholders in April 1996 and February
1997, respectively. A total of 1,000,000 shares of Common Stock were reserved
for issuance under the Incentive Plan. As of September 11, 1997, 400 shares had
been issued upon the exercise of stock awards granted under the Incentive Plan,
774,832 shares were subject to outstanding stock options and 224,768 shares
remained available for future grants. The Incentive Plan provides for the grant
to employees of the Company (including officers and employee directors) of
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and for the grant of
non-statutory stock options to employees, directors and consultants of the
Company. The Incentive Plan also provides for the issuance of restricted stock
purchase awards, stock bonuses and stock appreciation rights. With respect to
officers, employee-directors and consultant-directors, the Incentive Plan is
administered by the Compensation Committee of the Board of Directors, which
determines the recipients and types of awards to be granted, including exercise
price, number of shares subject to the award and the exercisability thereof. The
Chief Executive Officer administers the Incentive Plan with respect to all other
employees and consultants.
The exercise price of all incentive stock options granted under the
Incentive Plan must be equal to at least 100% of the fair market value of the
Common Stock on the date of grant. The term of all options granted under the
Incentive Plan is determined by the appropriate administrator, but in no event
will such term exceed ten years.
Restricted stock purchase awards granted under the Incentive Plan must be
subject to at least one term or condition constituting a "substantial risk of
forfeiture" as defined by Section 83(c) of the Code. Stock bonuses may be
awarded in consideration for past services without a purchase payment. Stock
appreciation rights authorized for issuance under the Incentive Plan may be
tandem stock appreciation rights, concurrent stock appreciation rights or
independent stock appreciation rights. As of September 11, 1997, the Company has
not issued any restricted stock purchase awards, stock bonuses or stock
appreciation rights.
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<PAGE>
The Company has registered the shares issued under the Incentive Plan
(including shares subject to then outstanding options under such plan), thus
permitting the resale of such shares in the public market without restriction
under the Securities Act of 1933.
401(K) PLAN
As of July 1, 1997 the Company adopted a tax-qualified employee savings and
retirement plan (the "401(k) Plan") covering the Company's employees. Pursuant
to the 401(k) Plan, eligible employees may elect to reduce their current
compensation by up to the lesser of 15% of their annual compensation or the
statutorily prescribed annual limit ($9,500 in 1997) and have the amount of such
reduction contributed to the 401(k) Plan. The 401(k) Plan provides for matching
contributions by the Company in an amount equal to the lesser of 50% of the
employees' deferral or 3% of the employees' qualifying compensation. The Company
contribution may be made in the form of either the Common Stock of the Company
or cash, at the discretion of the Company's Board of Directors. The trustees of
the 401(k) Plan, at the discretion of each participant, invest the assets of the
401(k) Plan in designated investment options. The 401(k) Plan is intended to
qualify under Section 401 of the United States Internal Revenue Code of 1996, as
amended, so that both employee and Company contributions to the 401(k) Plan, and
income earned on the 401(k) Plan contributions, are not taxable until withdrawn,
and that contributions by the Company will be deductible when made.
LIMITATIONS OF DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its Bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person whom it
is required or permitted to indemnify. Pursuant to this provision, the Company
has entered into indemnity agreements with each of its directors and officers
and currently maintains directors and officers insurance coverage.
In addition, the Company's Certificate of Incorporation provides that to the
fullest extent permitted by Delaware law, the Company's directors will not be
liable for monetary damages for breach of the directors' fiduciary duty of care
to the Company and its stockholders. This provision in the Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law. Each director
will continue to be subject to liability for breach of the director's duty of
loyalty to the Company or its stockholders, for acts or omissions not in good
faith or involving intentional misconduct or knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for unlawful payments of dividends or unlawful stock purchase or redemption.
This provision also does not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.
Larry G. Stambaugh, the Chairman, President and Chief Executive Officer, is
named as a defendant, together with the Company, in the complaint filed by the
Former Employees as described under the caption "Business--Legal Proceedings."
Mr. Stambaugh is indemnified under the above mentioned indemnification agreement
in the aggregate amounts stated therein for damages he may incur as a result of
such legal proceedings. There is no other pending litigation or proceeding
involving a director, officer, employee or other agent of the Company as to
which indemnification is being sought, nor is the Company aware of any pending
or threatened litigation that may result in claims for indemnification by any
director, officer, employee or other agent.
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<PAGE>
CERTAIN TRANSACTIONS
In April 1997, the Company entered into agreements with Clearwater Fund IV,
LLC and Clearwater Offshore Fund, Ltd. (collectively the "Clearwater Funds") and
HealthCap KB, each beneficial holders of more than 5% of the outstanding Common
Stock of the Company. Under the agreements, the Company agreed to file, on
request, a registration statement covering the re-sale of the 888,983 and
367,647 shares of Common Stock held by the Clearwater Funds and HealthCap KB,
respectively, provided that such shares are not freely tradable at the time of
the request.
In July 1996, the Company sold its interest in its subsidiary, Syntello
Vaccine Development AB ("SVD") to Dr. Anders Vahlne, a former member of the
Company's Board of Directors, for $1.00. In connection with such sale, SVD
granted to the Company a non-exclusive sub-license to the CTB mucosal vaccine
carrier technology for vaccines to treat or prevent HIV infection.
In May 1996, the Company sold and issued to S-E-Banken Lakemedelsfonder
("S-E-Banken"), a beneficial owner of more than 5% of the outstanding Common
Stock of the Company, 400,000 shares of the Company's Common Stock at a purchase
price of $4.50 per share.
In May 1996, the Company and each of the holders of certain outstanding
warrants to purchase an aggregate 332,642 shares of the Company's Common Stock
agreed to amend and restate such warrants to, among other things, remove certain
provisions relating to early termination of the warrants and provisions
adjusting the exercise prices of the warrants upon certain dilutive stock
issuances. The Company did not receive any additional cash consideration to
amend and restate such warrants, and the expiration dates of the amended and
restated warrants remain the same as the original warrants. The following
affiliates or beneficial owners of more than 5% of the outstanding Common Stock
of the Company agreed to the amendment and restatement of warrants to purchase
the number of shares set forth opposite their names:
<TABLE>
<CAPTION>
NUMBER OF
WARRANT HOLDER SHARES
- ------------------------------------------------------------------------------------------------------ -----------
<S> <C>
Ventana Group (1)..................................................................................... 33,072
Atrix-Ventana Investment & Company L.P................................................................ 10,673
S-E-Banken............................................................................................ 8,000
</TABLE>
- ------------------------
(1) Ventana Group includes warrants to purchase 16,666, 1,825, 5,831 and 8,750
shares of Common Stock held by Ventana Growth Fund II L.P., Ventana Growth
Capital Fund V L.P., Ventana Partnership III L.P. and F. Duwaine Townsen, a
director of the Company and a general partner of the foregoing entities,
respectively. All of such warrants shall expire in August or November 1998,
or May 1999, as the case may be.
In February 1996, the Company entered into an agreement with a predecessor
company of Burrill & Company, Inc. ("B&C"). G. Steven Burrill, a director of the
Company, is the Chief Executive Officer and a principal of B&C. Pursuant to the
agreement, the Company will pay B&C a retainer of $10,000 per month for three
years, and the Company has granted B&C a warrant expiring in February 2003 to
purchase up to 173,333 shares of its Common Stock at an exercise price of $3.00
per share. One-half of the shares subject to this warrant vest ratably over 36
months from the date of the agreement and the other one-half of such shares vest
30 days prior to the expiration of the seven year term of the warrant; provided,
however, that vesting with respect to such shares may accelerate in connection
with certain performance-based events set forth in the agreement. In exchange
for such consideration, B&C will provide strategic planning and advisory
services to the Company and will locate sources of private equity financing and
strategic corporate partners to assist in the development of the Company's
product candidates.
In January 1996, the Company completed a private financing pursuant to which
the Company issued 473,329 shares of its Common Stock and warrants expiring in
January 1999 to purchase an additional
45
<PAGE>
94,663 shares of Common Stock. In connection with such financing, S-E-Banken, a
beneficial owner of more than 5% of the outstanding Common Stock of the Company,
purchased 40,000 shares of Common Stock and warrants to purchase an additional
8,000 shares of Common Stock. The warrants issued in such financing are fully
vested, have an exercise price of $3.00 per share and expire three years from
their date of issuance. Such warrants were amended and restated in May 1996 as
described above.
In October and December of 1995, Ventana Growth Fund II L.P. ("Ventana II")
purchased 41,666 and 62,000 shares of the Company's Common Stock at $3.00 per
share. In March 1995, the Company issued a $250,000 principal amount demand
promissory note to Ventana II. To secure the repayment obligations under such
note, the Company granted Ventana II a security interest in all of its tangible
and intangible property. The Company repaid the note in September 1996.
In December 1994 and May 1995, Ventana Growth Capital Fund V L.P. ("Ventana
V"), Ventana II and Atrix-Ventana Investment & Company L.P. ("Atrix-Ventana"),
each a beneficial owner of more than 5% of the outstanding securities of the
Company, as well as Paladin Equities (1991), Inc. ("Paladin"), an entity
affiliated with a director and officer of the general partner of Atrix-Ventana,
posted certificates of deposit aggregating $2,250,000 as collateral for lines of
credit extended by Scripps Bank and Valle de Oro Bank to the Company. In
consideration for collateralizing the lines of credit, the Company issued
warrants to purchase 421, 16,666, 7,078 and 1,250 shares of Common Stock with an
exercise price of $7.20 per share to Ventana V, Ventana II, Atrix-Ventana and
Paladin, respectively. Such warrants expire in November 1998, December 1998,
November 1998 and May 1999, respectively. The certificates of deposit posted by
Ventana V, Ventana II, Atrix-Ventana and Paladin were guaranteed by Ventana
Growth Fund III, L.P. ("Ventana III") and F. Duwaine Townsen, a director of the
Company. Ventana III and Mr. Townsen received warrants to purchase 5,831 and
8,750 shares of Common Stock, respectively, for guaranteeing such certificates
of deposit. Such warrants expire in November 1998 and May 1999, respectively. In
September 1995, the Company, Ventana V, Ventana II, Atrix-Ventana and Paladin
reached an agreement to release the collateral securing the lines of credit to
permit the lines of credit to be fully repaid. In December 1995, in return for
the cancellation of the indebtedness created by such release of collateral, the
Company issued 28,066, 166,666, 471,866 and 83,333 shares of Common Stock at a
purchase price of $3.00 per share to Ventana V, Ventana II, Atrix-Ventana and
Paladin, respectively.
During the period from September 1994 through July 1995, Ventana II, a
beneficial owner of more than 5% of the outstanding securities of the Company,
loaned the Company an aggregate of $975,000 pursuant to demand promissory notes
bearing annual interest at the prime lending rate plus 2%. Approximately
$500,000 of principal and $9,500 of accrued interest under such notes were
repaid by the Company in fiscal 1995. In August 1995, the Company and Ventana II
reached an agreement pursuant to which the Company treated $225,000 of such
loans as an advance toward Ventana II's purchase of shares of Common Stock, at a
purchase price of $3.00 per share, in the Company's August 1995 financing. In
December 1995, Ventana II converted the remaining $250,000 of principal and
approximately $9,200 of accrued interest into shares of Common Stock at a
conversion price of $3.00 per share. These transactions resulted in the issuance
of approximately 161,408 shares of Common Stock to Ventana II.
During the period from October 1993 through July 1994, the Company financed
its operations by issuing promissory notes in the aggregate principal amount of
$3,405,000 and related five year warrants to purchase 11,251 shares of the
Company's Common Stock. Among the investors in such financing transactions were
(i) F. Duwaine Townsen, a director of the Company and a managing partner of
Ventana V, (ii) Merle and Eileen Stambaugh, parents of Larry G. Stambaugh, the
Company's Chairman of the Board, President and Chief Executive Officer, and
(iii) Ventana V and Atrix-Ventana, each of which beneficially owns more than 5%
of the outstanding securities of the Company. In August 1994, such indebtedness
was converted into shares of Common Stock at a price of $3.00 per share, the
related warrants were amended and exercised at $3.00 per share and new warrants
expiring in August 1998 to purchase up to an additional 11,251 shares of Common
Stock at an exercise price of $3.00 per share were issued. The new warrants
issued pursuant to such debt conversion were amended and restated in May 1996
46
<PAGE>
as described above. As a result of such debt conversion, warrant exercise and
amendment and restatement of warrants, the Company issued the following number
of shares of Common Stock and warrants to the interested parties described
above:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
STOCKHOLDER SHARES WARRANTS
- ----------------------------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Atrix-Ventana............................................................................ 385,970 3,595
Ventana V................................................................................ 159,742 1,404
Merle and Eileen Stambaugh............................................................... 10,688 100
F. Duwaine Townsen....................................................................... 8,884 83
</TABLE>
The Company has also entered into an employment agreement with each of the
Named Executive Officers, as described under the caption "Management--Employment
Agreements." As described in "Management--Board of Directors and Committees" and
"--Compensation of Executive Officers," the Company has granted stock options to
certain directors and executive officers of the Company. The Company has entered
into indemnity agreements with each of its directors and officers and currently
maintains directors and officers insurance coverage.
47
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 11, 1997 and as adjusted
to reflect the sale by the Company of the shares of Common Stock offered hereby
(assuming no exercise of the Underwriters' over-allotment option) by (i) each
person (or group of affiliated persons) who is known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) each
of the Company's directors, (iii) each of the Named Executive Officers, and (iv)
all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-------------------------------------------------------
NUMBER OF PERCENT BEFORE PERCENT AFTER
BENEFICIAL OWNER (1) SHARES OFFERING (2) OFFERING (2)
- --------------------------------------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Clearwater Funds (3) ........................ 938,483 14.0% 10.2%
611 Druid Road East, No. 200
Clearwater, FL 34616
S-E-Banken Funds (4) ........................ 556,666 8.3% 6.1%
Regeringsgatan 45
ST R2
S-106 40 Stockholm, Sweden
HealthCap KB (5) ............................ 534,647 7.8% 5.7%
Sturegatan 34
SE 114 36, Stockholm, Sweden
F. Duwaine Townsen (6) ...................... 462,679 6.8% 5.0%
8880 Rio San Diego Drive, Suite 500
San Diego, CA 92108
Ventana Growth Funds (7) .................... 394,913 5.9% 4.3%
8880 Rio San Diego Drive, Suite 500
San Diego, CA 92108
Larry G. Stambaugh (8) ...................... 197,933 2.9% 2.1%
3099 Science Park Road, Suite 150
San Diego, CA 92121
G. Steven Burrill (9) ....................... 50,596 * *
Burrill & Company
One Bush Street, Suite 1100
San Francisco, CA 94104
Colin B. Bier, Ph.D. (10) ................... 45,000 * *
ABA BioResearch Inc.
677 Dr. Frederik Philips
Saint-Laurent, Quebec
H4M 2W4 Canada
Per-Olof Martensson (11) .................... 40,333 * *
POM Advisory Services AB
Kompass Vagen 18
Box 6
S-26041 Nyhamnslage
Sweden
Kurt R. Gehlsen, Ph.D. (12) ................. 31,967 * *
3099 Science Park Road, Suite 150
San Diego, CA 92121
Dale A. Sander (13) ......................... 12,000 * *
3099 Science Park Road, Suite 150
San Diego, CA 92121
All Directors and Officers as a Group (7
persons)(14)............................... 840,508 11.8% 8.7%
</TABLE>
48
<PAGE>
- ------------------------------
* Represents beneficial ownership of less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as otherwise indicated,
the Company believes, based on information furnished by such owners, that
the beneficial owners of the shares listed above have sole investment and
voting power with respect to such shares, subject to community property
laws where applicable.
(2) Percentage of beneficial ownership is based on an aggregate of 6,679,700
shares of Common Stock outstanding as of September 11, 1997 and 9,179,700
shares of Common Stock outstanding after completion of this Offering.
(3) Includes 791,424 shares held by Clearwater Fund IV, LLC, and 147,059 shares
held by Clearwater Offshore Fund, Ltd.
(4) Includes 8,000 shares subject to warrants exercisable within 60 days of
September 11, 1997.
(5) Includes 160,000 Redeemable Warrants exercisable within 60 days of
September 11, 1997.
(6) Includes an aggregate of 370,591 shares and 24,322 shares subject to
warrants exercisable within 60 days of September 11, 1997 held by Ventana
Holdings, L.P., Ventana II, Ventana III, and Ventana V. See Note 6. Mr.
Townsen is a general partner of Ventana Holdings L.P., Ventana II, Ventana
III, and Ventana V. Mr. Townsen disclaims beneficial ownership of all
shares held by such entities except to the extent of his pecuniary interest
therein, if any. Includes 8,933 shares and 83 shares subject to warrants
exercisable within 60 days of September 11, 1997 held jointly by Mr.
Townsen and his wife. Also includes 50,000 shares subject to stock options
exercisable within 60 days of September 11, 1997, and 8,750 shares subject
to warrants exercisable within 60 days of September 11, 1997 held by Mr.
Townsen.
(7) Includes (i) 369,866 shares and 16,666 shares subject to warrants
exercisable within 60 days of September 11, 1997 held by Ventana Growth
Fund II L.P. ("Ventana II"), (ii) 1,825 shares subject to warrants
exercisable within 60 days of September 11, 1997 held by Ventana Growth
Capital Fund V L.P. ("Ventana V"), (iii) 5,831 shares subject to warrants
exercisable within 60 days of September 11, 1997 held by Ventana
Partnership III L.P. ("Ventana III"), and (iv) 725 shares held by Ventana
Holdings, L.P. F. Duwaine Townsen, a director of the Company, is a general
partner of each of the aforementioned entities. Mr. Townsen disclaims
beneficial ownership of all shares held by such entities except to the
extent of his pecuniary interest therein, if any.
(8) Includes 1,000 shares and 1,000 Redeemable Warrants exercisable within 60
days of September 11, 1997 held by Mr. Stambaugh's spouse, and 195,833
shares subject to stock options exercisable within 60 days of September 11,
1997.
(9) Includes 50,596 shares subject to warrants exercisable within 60 days of
September 11, 1997 held by Burrill & Company, Inc. Mr. Burrill is the Chief
Executive Officer and a principal of Burrill & Company, Inc. Mr. Burrill
disclaims beneficial ownership of all shares held by Burrill & Company,
Inc. except to the extent of his pecuniary interest therein, if any.
(10) Includes 45,000 shares subject to stock options exercisable within 60 days
of September 11, 1997.
(11) Includes 40,000 shares subject to stock options exercisable within 60 days
of September 11, 1997.
(12) Includes 400 shares held by members of the immediate family of Dr.
Gehlsen, 2,400 shares subject to Redeemable Warrants exercisable within 60
days of September 11, 1997 held by the immediate family of Dr. Gehlsen and
29,167 shares subject to stock options exercisable within 60 days of
September 11, 1997.
(13) Includes 12,000 shares subject to stock options exercisable within 60 days
of September 11, 1997.
(14) Includes 3,400 shares subject to Redeemable Warrants, 83,751 shares
subject to warrants and 372,000 shares subject to stock options
exercisable within 60 days of September 11, 1997. See Notes 6-13.
49
<PAGE>
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, $0.001 par value, and 5,000,000 shares of Preferred Stock, $0.001
par value (the "Preferred Stock").
COMMON STOCK
At September 11, 1997, 6,679,700 shares of Common Stock were outstanding and
held of record by 150 stockholders. The holders of Common Stock are entitled to
one vote per share on all matters to be voted upon by the stockholders. Subject
to preferences that may be applicable to any outstanding Preferred Stock, the
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preferences of any outstanding shares of
Preferred Stock. Holders of Common Stock have no preemptive, conversion
subscription or other rights. There are no redemption or sinking fund provisions
available to the Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable. The Common Stock is listed on AMEX under the symbol
"MMP". The Company has filed an application to list the Common Stock on the SSE
under the symbol "MAXM."
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, any or all of which
may be greater than the rights of the Common Stock. The issuance of Preferred
Stock could adversely affect the voting power of holders of Common Stock and
reduce the likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of delaying, deterring or
preventing a change in control of the Company. The Company has no present plan
to issue any shares of Preferred Stock.
WARRANTS
As of September 11, 1997, there were outstanding warrants to purchase
332,642 shares of Common Stock at an exercise price of $3.00 per share. Such
warrants expire between one to four years from July 10, 1996, and most are
currently exercisable, except for a warrant granted to Burrill & Company which
is subject to vesting. See "Certain Transactions." Also, as of September 11,
1997, there were outstanding warrants to purchase from the Company up to 250,000
shares of Common Stock and/or 250,000 redeemable warrants (the "IPO Warrants").
The IPO Warrants are initially exercisable at a price of $9.00 per share of
Common Stock and $0.12 per redeemable warrant for a period of four (4) years,
commencing at the beginning of the second year after their issuance and sale.
The redeemable warrants issuable upon exercise of the IPO Warrants are
exercisable at a price of $12.38 per share of Common Stock. The IPO Warrants
provide for adjustment in the number of shares of Common Stock and redeemable
Warrants issuable upon the exercise thereof and in the exercise price of the IPO
Warrants as a result of certain events, including subdivisions and combinations
of the Common Stock. The IPO Warrants, and the securities underlying the IPO
Warrants, have been registered with the SEC and may be sold at any time, subject
to certain prospectus delivery requirements. Subject to the requirements of Rule
144 of the Securities Act and the SEC's "Underwriters' Compensation Rule," the
IPO Warrants, and the securities underlying the IPO Warrants, may also be resold
without meeting such prospectus delivery requirements. The IPO Warrants grant to
the holders thereof certain other rights of registration, including "piggy back"
rights, for the securities issuable upon exercise thereof. Such "piggy back"
rights have been waived with respect to the Offering. In addition, holders of
IPO Warrants exercisable for 234,000 shares of Common
50
<PAGE>
Stock and 234,000 redeemable warrants have agreed not to exercise such
registration rights for a period of 90 days following the effective date of the
Offering, without the prior written consent of the Representatives.
REDEEMABLE WARRANTS
As of September 11, 1997, there were outstanding redeemable warrants to
purchase up to 2,875,000 shares of Common Stock ("Redeemable Warrants"). The
Redeemable Warrants are listed on AMEX under the trading symbol "MMP.WS." The
following is a brief summary of certain provisions of the Redeemable Warrants.
EXERCISE PRICE AND TERMS
The Redeemable Warrants expire on July 10, 2001. Each Redeemable Warrant
entitles the registered holder thereof to purchase, at any time prior to July
10, 2001, one share of Common Stock at a price of $10.50 per share, subject to
adjustment in accordance with the anti-dilution and other provisions referred to
below.
ADJUSTMENT
The exercise price and the number of shares of Common Stock purchasable upon
the exercise of the Redeemable Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combinations or reclassifications of the common Stock. Additionally, an
adjustment would be made in the case of a reclassification or exchange of Common
Stock, consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the surviving
corporation) or sale of all or substantially all of the assets of the Company in
order to enable holders of Redeemable Warrants to acquire the kind and number of
shares of stock or other securities or property receivable in such event by a
holder of the number of shares of Common Stock that might otherwise have been
purchased upon the exercise of the Redeemable Warrant.
REDEMPTION PROVISIONS
Commencing January 10, 1998, the Redeemable Warrants are subject to
redemption at $.01 per Warrant on thirty (30) days prior written notice to the
holders if the average closing price of the Common Stock as reported on AMEX
equals or exceeds $12.00 per share of Common Stock for any twenty (20) trading
days within a period of thirty (30) consecutive trading days ending on the fifth
trading day prior to the date of the notice of redemption. In the event the
Company exercises the right to redeem the Redeemable Warrants, such Redeemable
Warrants will be exercisable until the close of business on the business day
immediately preceding the date for redemption fixed in such notice. If any
Redeemable Warrant called for redemption is not exercised by such time, it will
cease to be exercisable and the holder will be entitled only to the redemption
price.
CHANGE OF CONTROL PROVISIONS AND DELAWARE ANTI-TAKEOVER LAW
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Bylaws may have the effect of preventing, discouraging or
delaying transactions involving an actual or potential change in the control of
the Company (including transactions in which stockholders might otherwise
receive a premium for their shares over then current prices) and may maintain
the incumbency of the Board of Directors and management. The authorization of
undesignated Preferred Stock makes it possible for the Board of Directors to
issue Preferred Stock with voting or other rights or preferences that could
impede the success of any attempt to change control of the Company. In addition,
the Company's Bylaws limit the ability of stockholders of the Company to raise
matters or nominate persons to serve as members of the Company's Board of
Directors at a meeting of stockholders without giving advance notice. The
51
<PAGE>
Company's Amended and Restated Certificate of Incorporation provides that the
Board of Directors is divided into three classes of directors with each class
serving a staggered three-year term. The classification system of electing
directors may tend to discourage a third party from making a tender offer or
otherwise attempting to obtain control of the Company and may maintain the
incumbency of the Board of Directors, as the classification of the Board of
Directors generally increases the difficulty of replacing a majority of the
directors. The Company's Amended and Restated Certificate of Incorporation also
eliminates the right of stockholders to act by written consent without a
meeting. Special meetings of the stockholders of the Company may be called only
by the Chairman of the Board, the Chief Executive Officer, or by the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors. The Amended and Restated Certificate of Incorporation and
Bylaws do not provide for cumulative voting in the election of directors.
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203") regulating corporate takeovers. In
general, Section 203 prohibits certain Delaware corporations, including those
whose securities are listed on the American Stock Exchange, from engaging, under
certain circumstances, in a "business combination" (which includes a merger,
sale of more than 10% of the corporation's assets or other transactions
resulting in a financial benefit to the stockholder) with any "interested
stockholder" (a stockholder who, together with affiliates and associates, owns,
or, if an affiliate of the corporation, within the three previous years did own,
15% or more of the corporation's voting stock without the prior approval of the
corporation's Board of Directors) for three years following the date that such
stockholder became an "interested stockholder," unless the business combination
is approved in a prescribed manner. A Delaware corporation may "opt out" of
Section 203 with an express provision in its original certificate of
incorporation or an express provision in its certificate of incorporation or
bylaws resulting from a stockholders' amendment approved by at least a majority
of the outstanding voting shares. The Company has not "opted out" of the
provisions of Section 203.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005, United
States, Telephone (718) 921-8254.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Common Stock of the Company in the
public market could adversely affect prevailing market prices for the Common
Stock and the ability of the Company to raise equity capital in the future. Upon
completion of the Offering, the Company will have outstanding 9,179,700 shares
of Common Stock (9,554,700 shares if the Underwriters' over-allotment option is
exercised in full). Of these shares, an aggregate of 5,375,400 shares will be
freely tradeable in the public market, unless acquired by affiliates of the
Company. The remaining 3,804,300 shares held by existing stockholders will be
restricted securities as defined in Rule 144 under the Securities Act (the
"Restricted Shares"). Restricted Shares may be sold in the public market only if
registered under the Securities Act or qualified for an exemption from
registration under Rule 144 or 701 promulgated under the Securities Act. Of the
3,804,300 Restricted Shares, 1,146,234 shares will be eligible for immediate
sale in the public market pursuant to Rule 144 subject to certain volume, manner
of sale and limitations and 1,326,436 shares will be eligible for immediate sale
in the public market pursuant to Rule 144(k). Additionally, 1,331,630 shares
currently held by three entities and their affiliates will become eligible for
public resale over a period of less than two years following the completion of
the Offering. The Company has entered into an agreement with each of these
holders to file a registration statement, if requested by such individual holder
and in the event that the shares are not freely tradable at the time of such
holder's request. Pursuant to lock-up agreements, all officers, directors and
certain beneficial holders of outstanding Common Stock who collectively hold
1,635,059 shares have agreed not to sell or otherwise dispose of any beneficial
interest in such securities for a period of either 90 or 180 days (the "Lock-up
Period") without the prior written
52
<PAGE>
consent of the Representatives. Upon termination of the Lock-up Periods, 400,999
shares will be eligible for immediate sale in the public markets pursuant to
Rule 144 and 2,071,671 shares will be eligible for immediate sale in the public
market pursuant to Rule 144(k).
In general, under Rule 144, a person who has beneficially owned Restricted
Shares for at least one year (including the holding period of any prior owner
except an affiliate) would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (approximately 91,797 shares
immediately after the Offering), or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the filing of a Form
144 with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sale provisions and notice requirements and to the availability of
current public information about the Company. Under Rule 144(k), a person who is
not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years (including the holding period of any prior owner
except an affiliate), is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
In general, Rule 701 permits resales of shares issued pursuant to certain
compensatory benefit plans and contracts 90 days after the Company beocmes
subject to the reporting requirements of the Securities Exchange Act, in
reliance upon Rule 144, but without compliance with certain restrictions
including the holding period requirements contained in Rule 144.
Sales of substantial amounts of Common Stock issuable upon exercise of the
Company's warrants and options may also adversely affect prevailing market
prices for the Common Stock and the ability of the Company to raise equity
capital. The Common Stock currently outstanding excludes an aggregate of (i)
2,875,000 shares of Common Stock reserved for issuance upon exercise of the
Redeemable Warrants at an exercise price of $10.50 per share, (ii) 999,600
shares of Common Stock issuable under the Company's Incentive Plan of which
774,832 shares of Common Stock reserved for issuance upon exercise of stock
options with a weighted average exercise price of $5.57 per share, (iii) 250,000
shares of Common Stock issuable at $9.00 per share, and 250,000 shares of Common
Stock issuable $12.50, reserved for issuance upon exercise of the IPO Warrants,
and (iv) 332,642 shares of Common Stock issuable upon exercise of outstanding
warrants at an exercise price of $3.00 per shares. The 3,707,642 shares of
Common Stock underlying certain of the Company's warrants, and the 999,600
shares issued or reserved for issuance under the Incentive Plan, have been
registered and upon exercise would be available for immediate sale in the public
market without restriction under the Securities Act, unless purchased by
"affiliates" of the Company. The 332,642 shares of Common Stock underlying
certain of the warrants have not been registered for public sale and would be
subject to the above restrictions on public sale if the warrants were exercised.
Subsequent to this Offering, the Company intends to file a registration
statement on Form S-8 under the Securities Act covering 50,000 additional shares
of Common stock reserved for issuance under the Company 401(k) Plan.
53
<PAGE>
UNDERWRITING
Alfred Berg Fondkommission AB ("Alfred Berg"), will act as global
co-ordinator (the "Global Coordinator") and Rodman & Renshaw, Inc. ("Rodman")
will act as the U.S. representative (the "U.S. Representative") for the Offering
of the shares of the Company's Common Stock. The Offering consists of an
International Offering of 2,000,000 shares and a U.S. Offering of 500,000
shares.
Subject to the terms and conditions of an underwriting agreement (the
"Underwriting Agreement") among the Company, Alfred Berg and Rodman, Alfred Berg
has agreed to procure purchasers, which may include a syndicate of underwriters
(together with Alfred Berg, the "International Underwriters"), for (or failing
which, to purchase) the 2,000,000 shares offered in the International Offering.
The shares of Common Stock subject to the Underwriting Agreement will be offered
by Alfred Berg when, as and if sold to, and accepted by, Alfred Berg and will be
subject to their right to reject orders in whole or in part. Rodman and each of
the U.S. underwriters named below, (together with Rodman, the "U.S.
Underwriters"), has severally agreed to purchase from the Company, on a firm
commitment basis, the respective number of shares of Common Stock allocated to
such U.S. Underwriter. The allocation of shares in the Offering, to each of the
International Underwriters, and each of the U.S. Underwriters is set forth
below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
----------
<S> <C>
INTERNATIONAL UNDERWRITERS
- ---------------------------------------------------------------------------------
Alfred Berg Fondkommission AB....................................................
Total.......................................................................... 2,000,000
----------
U.S. UNDERWRITERS
- ---------------------------------------------------------------------------------
Rodman & Renshaw, Inc............................................................
Total.......................................................................... 500,000
----------
Total........................................................................ 2,500,000
----------
----------
</TABLE>
The International Underwriters and the U.S. Underwriters are collectively
referred to as the "Underwriters." The offering price and aggregate underwriting
discounts per share for the U.S. Offering and the International Offering are
identical. The number of shares allocated to each of the International Offering
and the U.S. Offering may differ from the amount offered due to reallocation
between each offering. The closing of each of the International Offering and the
U.S. Offering is conditional upon the simultaneous closing of the other
offering.
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The U.S. Underwriters are obligated to take and pay for all of
the shares of Common Stock offered hereby (other than those covered by the
Underwriters' over-allotment option described below), if any such shares are
taken.
The Company has been advised that the Underwriters propose initially to
offer the shares of Common Stock to the public at the public offering price set
forth on the cover page of this Prospectus and to certain dealers at such price
less concessions not in excess of $ per share. Such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After the
commencement of the Offering, the public offering prices, concession and
reallowance may be changed by the Global Coordinator.
Pursuant to an Agreement Among Underwriters, as part of the distribution of
the shares and subject to certain exceptions, sales may be made among the
Underwriters of such number of shares as may be mutually agreed. Pursuant to the
Agreement Among Underwriters, as part of the distribution of the shares offered
hereby, and subject to certain exceptions, the Underwriters in each region of
the Offering will offer and sell shares only to investors in their respective
region.
54
<PAGE>
The U.S. Representative has informed the Company that it does not expect
sales to discretionary accounts by the U.S. Underwriters to exceed five percent
(5%) of the shares offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act and to contribute to
payments that the Underwriters may be required to make. The Company has also
agreed to pay the actual out-of-pocket expenses of the Global Coordinator and
the U.S. Representative.
The Company has granted to the Underwriters an over-allotment option,
exercisable during the thirty (30) day period from the date of this Prospectus,
to purchase up to an additional 375,000 shares of Common Stock at the initial
public offering price per share offered hereby, less underwriting discounts.
Such option may be exercised only for the purpose of covering over-allotments,
if any, incurred in the sale of the shares offered hereby. In connection with
the Offering, the Global Coordinator may effect borrowing arrangements in order
to deliver over-allotted shares. Shares borrowed from time to time under these
arrangements may exceed the number of shares covered by the over-allotment
option.
All officers and directors of the Company and certain beneficial holders of
the Company's Common Stock have agreed not to sell or otherwise dispose of any
beneficial interest in such securities for periods ranging from 90 days to 180
days following the effective date of the Registration Statement without the
prior written consent of the Global Coordinator and the U.S. Representative. An
appropriate legend shall be marked on the face of certificates representing all
such securities.
The Company has agreed not to, without the prior written consent of the
Global Coordinator and the U.S. Representative, issue, sell, agree or offer to
sell, grant an option for the purchase or sale of, or otherwise transfer or
dispose of any of its securities for a period of six months following the
effective date of the Registration Statement, except in connection with the
exercise of the Underwriters' over-allotment option, the issuance of shares of
Common Stock upon the exercise of currently outstanding options and warrants,
the issuance and exercise of options and warrants reserved for issuance under
the Company's Incentive Plan and the 401(k) Plan (including 50,000 shares of
Common Stock to be registered on a Form S-8 subsequent to the Offering) and up
to an additional 150,000 shares of Common Stock to be issued at the discretion
of the Company.
The U.S. Representative was retained by the Company in September 1997 for a
12-month period to provide certain financial advisory services related to
general strategic financial advice, including in connection with serving as the
U.S. Representative of this Offering, valuation and potential mergers and
acquisitions. The Company has agreed to pay the U.S. Representative $200,000 for
such services, payable in monthly installments until the consummation of this
Offering, at which time the remaining amount shall be paid in full.
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company, and in each case may purchase
Common Stock in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 375,000 shares of Common Stock, by
exercising the over-allotment option referred to above. In addition, the U.S.
Representative and the Global Coordinator may impose "penalty bids" under
contractual arrangements with the Underwriters whereby they may reclaim from an
Underwriter (or dealer participating in the Offering) for the account of other
Underwriters, the selling concession with respect to Common Stock that is
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described
55
<PAGE>
in this paragraph is required, and, if they are undertaken, they may be
discontinued at any time. Such transactions may be effected on the American
Stock Exchange, the SSE or otherwise.
This Prospectus may be used in connection with shares of Common Stock
initially offered outside the United States in the International Offering
insofar as such shares of Common Stock are resold from time to time in the
United States in transactions that require registration under the Securities
Act.
The foregoing is a summary of the principal terms of the Underwriting
Agreement described above and does not purport to be complete. Reference is made
to a copy of such agreement which is filed as an exhibit to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
The validity of the issuance of the Securities offered hereby will be passed
upon for the Company by its counsel, Cooley Godward LLP, San Diego, California.
Orrick, Herrington & Sutcliffe LLP has acted as U.S. counsel to the
Underwriters.
EXPERTS
The consolidated financial statements of the Company as of September 30,
1995 and 1996 and for each of the years in the three-year period ended September
30, 1996 and for the period from inception (October 29, 1989) through September
30, 1996, 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.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the United
States Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files periodic reports, proxy statements and other
information with the United States Securities and Exchange Commission (the
"SEC"). Copies of such periodic reports, proxy statements and other information
can be inspected and copied at the public reference facilities maintained by the
SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the following Regional Offices of the SEC: Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661; and Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the SEC, 450 Fifth Street,
N.W., Washington, D.C. 20549. The SEC maintains a World Wide Web site located at
http://www.sec.gov which contains periodic reports, proxy statements and other
information regarding registrants that file electronically with the SEC,
including the Company, at the address.
The Company has filed with the SEC a registration statement on Form S-1
(together with any amendments thereto, the "Registration Statement") under the
Securities Act with respect to the shares being offered pursuant to this
Prospectus. This Prospectus is part of the Registration Statement and does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted pursuant to the rules and regulations of the
SEC. Such additional information may be obtained from the SEC's principal office
in Washington, D.C. Statements contained in this Prospectus as to the contents
of any contract or other document referred to herein are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed or incorporated by reference as an exhibit to the
Registration Statement or incorporated by reference therein, each such statement
being qualified in all respects by such reference.
The Common Stock is listed on the American Stock Exchange ("AMEX") and
reports and other information concerning the Company may be inspected at the
offices of AMEX at 86 Trinity Place, Seventh Floor, New York, N.Y. 10006. The
Company has applied to list its Common Stock on the Stockholm Stock Exchange
(the "SSE") upon completion of the Offering. The address for the SSE is
Kallargrand 2, 11182 Stockholm, Sweden and its World Wide Web site is located at
www.xsse.se.
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2
Annual Financial Statements:
Balance Sheets - September 30, 1995 and 1996............................................................. F-3
Statements of Operations - Years ended September 30, 1994, 1995, 1996 and for the period from inception
(October 23, 1989) through September 30, 1996.......................................................... F-4
Statements of Stockholders' Equity (Deficit) - From inception (October 23, 1989) through September 30,
1996................................................................................................... F-5
Statements of Cash Flows - Years ended September 30, 1994, 1995, 1996 and for the period from inception
(October 23, 1989) through September 30, 1996.......................................................... F-6
Notes to Financial Statements............................................................................ F-7
Unaudited Interim Financial Statements:
Balance Sheets - September 30, 1996 and June 30, 1997.................................................... F-16
Statements of Operations - Nine months ended June 30, 1996 and 1997 and for the period from inception
(October 23, 1989) through June 30, 1997............................................................... F-17
Statements of Cash Flows - Nine months ended June 30, 1996 and 1997 and for the period from inception
(October 23, 1989) through June 30, 1997............................................................... F-18
Notes to Financial Statements............................................................................ F-19
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Maxim Pharmaceuticals, Inc.:
We have audited the accompanying consolidated balance sheets of Maxim
Pharmaceuticals, Inc. and subsidiary (a development stage company) as of
September 30, 1995 and 1996, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the years
in the three-year period ended September 30, 1996 and for the period from
inception (October 23, 1989) through September 30, 1996. 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 Maxim
Pharmaceuticals, Inc. and subsidiary (a development stage company) as of
September 30, 1995 and 1996, and the results of their operations and their cash
flows for each of the years in the three-year period ended September 30, 1996
and for the period from inception (October 23, 1989) through September 30, 1996,
in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
San Diego, California
November 27, 1996
F-2
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 512,928 $ 4,070,089
Short-term investments in marketable securities................................. - 12,563,622
Accrued interest and other current assets....................................... 13,676 709,285
-------------- --------------
Total current assets.......................................................... 526,604 17,342,996
Investments in marketable securities.............................................. - 2,510,366
Patents and licenses, net......................................................... 1,619,591 1,367,235
Property and equipment, net....................................................... 142,292 31,037
Receivable from related party..................................................... 147,803 -
Other assets...................................................................... 17,611 3,397
-------------- --------------
Total assets.................................................................. $ 2,453,901 $ 21,255,031
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................................ $ 335,556 $ 405,760
Accrued expenses................................................................ 349,204 478,623
Current portion of long-term debt............................................... 353,000 247,000
Notes payable to bank........................................................... 2,250,000 -
Note payable to stockholder..................................................... 250,000 -
Note payable to Swedish governmental agency..................................... 2,312,853 -
-------------- --------------
Total current liabilities..................................................... 5,850,613 1,131,383
Long-term debt, less current portion.............................................. 247,000 -
Commitments and contingencies - Note 9
Stockholders' equity (deficit)
Preferred stock, $.001 par value, 5,000,000 shares authorized, 250,000 shares
issued and outstanding at September 30, 1995.................................. 250 -
Common stock, $.001 par value, 20,000,000 shares authorized, 2,082,821 and
6,671,237 shares issued and outstanding at September 30, 1995 and 1996,
respectively.................................................................. 2,083 6,672
Additional paid-in capital...................................................... 9,768,370 34,172,618
Deficit accumulated during the development stage................................ (13,103,415) (13,936,903)
Deferred compensation........................................................... - (118,739)
Common stock subscriptions receivable........................................... (311,000) -
-------------- --------------
Total stockholders' equity (deficit).......................................... (3,643,712) 20,123,648
-------------- --------------
Total liabilities and stockholders' equity (deficit)........................ $ 2,453,901 $ 21,255,031
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Consolidated Financial Statements
F-3
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FROM INCEPTION
(OCTOBER 23,
1989)
YEAR ENDED SEPTEMBER 30, THROUGH
------------------------------------------- SEPTEMBER 30,
1994 1995 1996 1996
------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Operating expenses:
Research and development........................ $ 999,439 $ 984,778 $ 1,608,931 $ 10,001,258
General and administrative...................... 1,023,256 1,116,714 1,355,197 7,587,807
------------- ------------- ------------- -----------------
Total operating expenses...................... 2,022,695 2,101,492 2,964,128 17,589,065
Other income (expense):
Gain on sale of subsidiary...................... - - 2,288,474 2,288,474
Investment income............................... 8,712 5,590 259,625 287,730
Interest expense................................ (688,568) (486,671) (197,028) (1,903,809)
Foreign exchange gain (loss).................... (75,036) (208,520) (95,217) 23,426
Other income (expense).......................... (4,158) 971 (125,214) (125,214)
Research grant revenue.......................... - - - 2,946,001
------------- ------------- ------------- -----------------
Total other income (expense).................. (759,050) (688,630) 2,130,640 3,516,608
------------- ------------- ------------- -----------------
Loss from continuing operations................... (2,781,745) (2,790,122) (833,488) (14,072,457)
Discontinued operations:
Loss from operations of discontinued diagnostic
division...................................... (134,040) - - (347,608)
Gain on sale of diagnostic division............. 483,162 - - 483,162
------------- ------------- ------------- -----------------
Net loss.......................................... $ (2,432,623) $ (2,790,122) $ (833,488) $ (13,936,903)
------------- ------------- ------------- -----------------
------------- ------------- ------------- -----------------
Loss from continuing operations per share of
common stock.................................... $ (0.94) $ (0.87) $ (0.20)
------------- ------------- -------------
------------- ------------- -------------
Net loss per share of common stock................ $ (0.82) $ (0.87) $ (0.20)
------------- ------------- -------------
------------- ------------- -------------
Weighted average shares outstanding............... 2,961,004 3,209,469 4,074,961
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SUBSCRIPTION
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE/
---------------------- ---------------------- PAID-IN ACCUMULATED DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT COMPENSATION
--------- ----------- --------- ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 23, 1989
(inception)....................... - $ - - $ - $ - $ - $ -
Issuance of common stock at $.001... - - 1,000 8,029 - - -
Net income.......................... - - - - - 44 -
--------- ----- --------- ----------- ---------- ------------ -------------
Balance at December 31, 1989........ - - 1,000 8,029 - 44 -
Net income.......................... - - - - - 751 -
--------- ----- --------- ----------- ---------- ------------ -------------
Balance at December 31, 1990........ - - 1,000 8,029 - 795 -
Net income.......................... - - - - - 272 -
--------- ----- --------- ----------- ---------- ------------ -------------
Balance at December 31, 1991........ - - 1,000 8,029 - 1,067 -
Additional funding.................. - - 42 - 1,259,249 - -
Net loss............................ - - - - - (2,445,184) -
--------- ----- --------- ----------- ---------- ------------ -------------
Balance at December 31, 1992........ - - 1,042 8,029 1,259,249 (2,444,117) -
Net effect of reorganization and
issuance of common stock to
account for reverse acquisition... - - 173,977 (7,854) 53,009 (1,197,822) -
Net loss............................ - - - - - (4,238,731) -
--------- ----- --------- ----------- ---------- ------------ -------------
Balance at September 30, 1993....... - - 175,019 175 1,312,258 (7,880,670) -
Issuance of common stock at $60 per
share for consulting and
professional services............. - - 1,098 1 65,999 - -
Issuance of Series A preferred stock
for cash at $3.00 per share....... 250,000 250 - - 487,250 - -
Issuance of common stock to convert
bridge debt financing at prices
from $52.50 to $75 per share...... - - 112,440 113 5,933,894 - -
Net loss............................ - - - - - (2,432,623) -
--------- ----- --------- ----------- ---------- ------------ -------------
Balance at September 30, 1994....... 250,000 250 288,557 289 7,799,401 (10,313,293) -
Issuance of common stock at $3.00
per share upon conversion of
debt.............................. - - 553,254 553 1,659,210 - -
Issuance of common stock pursuant to
anti-dilutive provisions in
previous bridge debt financing.... - - 1,137,343 1,137 (1,137) - -
Issuance of common stock at $3.00
per share for subscription
receivable........................ - - 103,667 104 310,896 - (311,000)
Net loss............................ - - - - - (2,790,122) -
--------- ----- --------- ----------- ---------- ------------ -------------
Balance at September 30, 1995....... 250,000 250 2,082,821 2,083 9,768,370 (13,103,415) (311,000)
Issuance of common stock at $3.00
per share in exchange for
repayment of note payable to
bank.............................. - - 744,646 745 2,249,255 - -
Receipt of subscription
receivable........................ - - - - - - 311,000
Issuance of common stock and
warrants at $3.75 per unit for
cash.............................. - - 465,504 465 1,740,033 - -
Issuance of common stock at $4.50
per share for cash................ - - 400,000 400 1,799,600 - -
Exercise of common stock options.... - - 400 1 2,999 - -
Issuance of common stock at $7.50
per share and warrants at $.10 per
warrant in initial public
offering.......................... - - 2,875,000 2,875 18,217,215 - -
Conversion of preferred stock to
common stock...................... (250,000) (250) 102,866 103 147 - -
Options granted to employees........ - - - - 394,999 - (163,124)
Amortization of deferred
compensation...................... - - - - - - 44,385
Net loss............................ - - - - - (833,488) -
--------- ----- --------- ----------- ---------- ------------ -------------
Balance at September 30, 1996....... - $ - 6,671,237 $ 6,672 $34,172,618 ($13,936,903) $(118,739)
--------- ----- --------- ----------- ---------- ------------ -------------
--------- ----- --------- ----------- ---------- ------------ -------------
<CAPTION>
TOTAL
----------
<S> <C>
Balance at October 23, 1989
(inception)....................... $ -
Issuance of common stock at $.001... 8,029
Net income.......................... 44
----------
Balance at December 31, 1989........ 8,073
Net income.......................... 751
----------
Balance at December 31, 1990........ 8,824
Net income.......................... 272
----------
Balance at December 31, 1991........ 9,096
Additional funding.................. 1,259,249
Net loss............................ (2,445,184)
----------
Balance at December 31, 1992........ (1,176,839)
Net effect of reorganization and
issuance of common stock to
account for reverse acquisition... (1,152,667)
Net loss............................ (4,238,731)
----------
Balance at September 30, 1993....... (6,568,237)
Issuance of common stock at $60 per
share for consulting and
professional services............. 66,000
Issuance of Series A preferred stock
for cash at $3.00 per share....... 487,500
Issuance of common stock to convert
bridge debt financing at prices
from $52.50 to $75 per share...... 5,934,007
Net loss............................ (2,432,623)
----------
Balance at September 30, 1994....... (2,513,353)
Issuance of common stock at $3.00
per share upon conversion of
debt.............................. 1,659,763
Issuance of common stock pursuant to
anti-dilutive provisions in
previous bridge debt financing.... -
Issuance of common stock at $3.00
per share for subscription
receivable........................ -
Net loss............................ (2,790,122)
----------
Balance at September 30, 1995....... (3,643,712)
Issuance of common stock at $3.00
per share in exchange for
repayment of note payable to
bank.............................. 2,250,000
Receipt of subscription
receivable........................ 311,000
Issuance of common stock and
warrants at $3.75 per unit for
cash.............................. 1,740,498
Issuance of common stock at $4.50
per share for cash................ 1,800,000
Exercise of common stock options.... 3,000
Issuance of common stock at $7.50
per share and warrants at $.10 per
warrant in initial public
offering.......................... 18,220,090
Conversion of preferred stock to
common stock...................... -
Options granted to employees........ 231,875
Amortization of deferred
compensation...................... 44,385
Net loss............................ (833,488)
----------
Balance at September 30, 1996....... $20,123,648
----------
----------
</TABLE>
See Notes to Consolidated Financial Statements
F-5
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FROM INCEPTION
(OCTOBER 23,
1989)
YEAR ENDED SEPTEMBER 30, THROUGH
----------------------------------- SEPTEMBER 30,
1994 1995 1996 1996
---------- ---------- ----------- -----------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................ $(2,432,623) $(2,790,122) $ (833,488) $ (13,936,903)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization....................... 42,916 53,581 128,719 781,144
Stock options issued as compensation................ - - 276,260 276,260
Gain on sale of subsidiary.......................... - - (2,288,474) (2,288,474)
Loss on write-off of patents........................ - - 189,068 189,068
Loss on disposal of property and equipment.......... - - 128,248 128,248
Loss on write-off of receivable from related
party............................................. - - 147,803 147,803
Other............................................... - - 27,032 27,032
Write-off of obsolete inventory..................... - 24,669 - 24,669
Gain on sale of diagnostic division................. (483,162) - - (483,162)
Loss on write-off of purchased research and
development....................................... - - - 2,646,166
Cumulative effect of reorganization................. - - - 1,152,667
Changes in operating assets and liabilities:
Accrued interest and other current assets......... 68,800 1,779 (695,609) (709,285)
Other assets...................................... 37,944 46,966 14,214 (151,200)
Accounts payable.................................. (281,559) 42,089 70,204 405,760
Accrued expenses.................................. (263,504) 17,105 150,629 499,833
---------- ---------- ----------- -----------------
Net cash used in operating activities........... (3,311,188) (2,603,933) (2,685,394) (11,290,374)
INVESTING ACTIVITIES:
Purchases of marketable securities...................... - - (15,073,988) (15,073,988)
Additions to patents.................................... (473,401) (274,901) (213,196) (1,842,787)
Purchases of property and equipment..................... - - (23,524) (808,241)
Cash acquired in acquisition of business................ - - - 985,356
Proceeds from sale of diagnostic division............... 496,555 - - 496,555
---------- ---------- ----------- -----------------
Net cash provided by (used in) investing
activities.................................... 23,154 (274,901) (15,310,708) (16,243,105)
FINANCING ACTIVITIES:
Payments on notes payable and long-term debt............ - - (2,603,000) (2,770,505)
Payments on notes payable to related parties............ - (1,079,885) (250,000) (1,329,885)
Proceeds from issuance of notes payable and long-term
debt.................................................. 1,588,178 3,427,992 81,675 4,576,423
Proceeds from issuance of notes payable to related
parties............................................... 930,000 925,000 - 4,982,169
Net proceeds from issuance of common stock and
warrants.............................................. 66,000 - 24,324,588 25,657,866
Net proceeds from issuance of preferred stock........... 487,500 - - 487,500
---------- ---------- ----------- -----------------
Net cash provided by financing activities....... 3,071,678 3,273,107 21,553,263 31,603,568
---------- ---------- ----------- -----------------
Net increase (decrease) in cash and cash equivalents.... (216,356) 394,273 3,557,161 4,070,089
Cash and cash equivalents at beginning of period........ 335,011 118,655 512,928 -
---------- ---------- ----------- -----------------
Cash and cash equivalents at end of period.............. $ 118,655 $ 512,928 $ 4,070,089 $ 4,070,089
---------- ---------- ----------- -----------------
---------- ---------- ----------- -----------------
</TABLE>
See Notes to Consolidated Financial Statements
F-6
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND BASIS FOR PRESENTATION
Maxim Pharmaceuticals, Inc. (the "Company") was incorporated in Delaware in
1954 under the name "Wilco Oil & Minerals, Corp." and has existed under various
names since then. From 1987 to 1993, the Company operated as a medical
diagnostics products company under the name "General Biometrics, Inc." In 1993,
the Company merged with Syntello Vaccine Development AB ("SVD"), a Swedish
biopharmaceutical company, in an exchange of stock accounted for as a reverse
acquisition. Upon completion of the reverse acquisition the Company changed its
name to "Syntello, Inc." and commenced its operations as a biopharmaceutical
company. The Company sold its medical diagnostic division in 1994 and sold SVD
in July 1996 as described in Note 12. Since December 1995 the Company has
operated under the name "Maxim Pharmaceuticals, Inc." The consolidated
statements of operations' inception-to-date information reflects the cumulative
operations of SVD from the date of its inception (October 23, 1989). The
consolidated statement of stockholders' equity (deficit) for the periods from
inception to the date of the 1993 reverse acquisition reflects the equity
activity of SVD.
The Company has devoted substantially all of its efforts to research and
development of proprietary technologies targeting the prevention and treatment
of cancer and infectious diseases. To date, the Company has conducted the
majority of its research and development in university laboratories and at
clinical sites through consulting arrangements with its collaborative
scientists; a significant portion of such work has been performed in Sweden.
Oversight and coordination of these programs has been managed by the Company's
personnel from its administrative offices located in San Diego, California.
The Company expects to incur losses as it expands its research and
development activity and sponsorship of clinical trials. The future success of
the Company is likely to be dependent on its ability to obtain additional
capital to develop and commercialize its proposed products and, ultimately, upon
its ability to attain future profitable operations. There can be no assurance
that the Company will be successful in obtaining such financing, or that it will
attain positive cash flow from operations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE. The Company has not earned significant revenues from
planned principal operations. Accordingly, the Company's activities have been
accounted for as those of a "Development Stage Enterprise" as set forth in
Financial Accounting Standards Board Statement No. 7 ("FAS 7"). Among the
disclosures required by FAS 7 are that the Company's financial statements be
identified as those of a development stage company, and that the consolidated
statements of operations, stockholders' equity (deficit) and cash flows disclose
activity since the date of the Company's inception.
CONCENTRATION OF CREDIT RISK. The Company invests its excess cash in U.S.
government securities and other highly liquid debt instruments of financial
institutions and corporations with strong credit ratings. The Company has
established guidelines relative to diversification and maturities to maintain
safely an adequate level of liquidity.
CASH EQUIVALENTS AND INVESTMENTS. The Company has classified all
investments as held-to-maturity securities. Investments are carried at cost,
which approximates market. The investments mature at various dates through March
1998. Investments with original maturities of less than 90 days are considered
cash equivalents, and all other investments which mature within one year are
classified as short-term investments.
F-7
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost.
Depreciation on property and equipment is calculated on the straight-line method
over the estimated useful lives of the assets, generally five years.
PATENTS AND LICENSES. The Company capitalizes certain legal costs and
acquisition costs related to patents and licenses. Accumulated costs are
amortized over the lesser of the legal lives or the estimated economic lives of
the proprietary rights, generally seven to ten years, using the straight-line
method and commencing at the time the patents are issued or the license is
acquired. Capitalized costs are written off to expense at the time the
underlying proprietary rights are deemed to have no continuing value.
CAPITAL STOCK. On January 5, 1996, the Company effected a 1-for-2000
reverse stock split and changed the par value of the common stock from $.0001
per share to $.001 per share and changed the par value of the preferred stock
from $.01 per share to $.001 per share. On May 9, 1996, the Company effected a
100-for-1 stock split. On July 10, 1996, the effective date of its initial
public offering (Note 7), the Company effected a 2-for-3 reverse stock split of
its common stock. All common and preferred stock share amounts, par values and
the additional paid-in capital amounts have been restated to reflect the above
transactions.
LOSS PER SHARE OF COMMON STOCK. Loss per share of common stock is computed
by dividing the net loss by the weighted average number of shares of common
stock outstanding during the period. In accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 83, for periods preceding the effective
date of the initial public offering all common and common equivalent shares
issued during the twelve-month period prior to the effective date have been
included in the calculation as if they were outstanding for all such periods,
using the treasury stock method and the public offering price of common stock.
For periods subsequent to the initial public offering, common stock equivalents
have not been included as they are antidilutive.
FOREIGN CURRENCY TRANSLATION. The Company accounts for translation of
foreign currency in accordance with Statement of Financial Accounting Standards
No. 52 "Foreign Currency Translation." During the periods in which the Company
owned SVD, the U.S. dollar was considered the functional currency of this
Swedish subsidiary. Monetary assets and liabilities were translated using the
exchange rate in effect at the balance sheet date, and non-monetary assets and
liabilities were translated at historical rates. Revenue and expense accounts
were translated at the average rates in effect during the year. All translation
adjustments and transaction gains and losses were recognized in operations as
other income or expense.
FAIR VALUE OF FINANCIAL INSTRUMENTS. Statement of Financial Accounting
Standards No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires that fair values be disclosed for the Company's financial instruments.
The carrying amount of cash and cash equivalents, accounts payable and accrued
expenses are considered to be representative of their respective fair values
because of the short-term nature of these financial instruments. The carrying
amount of the notes payable and long-term debt are reasonable estimates of fair
value as the loans bear interest based on market rates currently available for
debt with similar terms.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported
F-8
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amounts of assets and liabilities at the date of the consolidated financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from these estimates.
RECLASSIFICATIONS. Certain amounts in the prior years' financial statements
have been reclassified to conform with current year classifications.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
Furniture, fixtures and equipment................. $ 32,661 $ 56,187
Laboratory equipment.............................. 689,517 -
-------------- --------------
722,178 56,187
Less accumulated depreciation..................... (579,886) (25,150)
-------------- --------------
$ 142,292 $ 31,037
-------------- --------------
-------------- --------------
</TABLE>
During the year ended September 30, 1996, the Company transferred laboratory
equipment with a net book value of $128,248 to a former Swedish collaborating
scientist and former director of the Company.
4. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
FROM INCEPTION
YEAR ENDED SEPTEMBER 30, THROUGH
---------------------------------------------- SEPTEMBER 30,
1994 1995 1996 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Noncash investing and financing activities:
Issuance of common stock to convert debt........ $ 5,934,007 $ 1,659,763 $ - $ 7,593,770
Sale of subsidiary:
Net patents sold.............................. - - 154,296 154,296
Other liabilities transferred................. - - (121,210) (121,210 )
Note payable transferred...................... - - (2,421,560) (2,421,560 )
Other accruals................................ - - 100,000 100,000
Acquisition of subsidiary:
Assets acquired............................... - - - 4,917,359
Liabilities assumed........................... - - - (5,911,481 )
Net equity effect of acquisition.............. - - - (994,122 )
Supplemental disclosure of cash flow information:
Cash paid for interest.......................... 266,819 202,627 341,126 1,393,124
</TABLE>
F-9
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
Professional fees................................. $ - $ 201,179
Collaborator fees................................. - 100,000
Compensation...................................... 137,498 79,868
Interest.......................................... 149,703 5,605
Other............................................. 62,003 91,971
-------------- --------------
$ 349,204 $ 478,623
-------------- --------------
-------------- --------------
</TABLE>
6. NOTES PAYABLE AND LONG-TERM DEBT
NOTES PAYABLE. In 1991 the Company's subsidiary, SVD, arranged a Swedish
Industrial Fund loan from the Swedish government for the purpose of funding
research and development. In connection with the loan, the Swedish government
acquired a security interest in certain technology rights of SVD, such security
interest to remain in place until repayment of the loan. Certain stockholders of
the Company pledged as collateral to the Swedish Industrial Fund loan a portion
of their personal equity interest in the Company. The interest rate on the loan
was based on the Swedish discount rate plus 5%. The Swedish Industrial Fund loan
became due December 31, 1994 and was in default at the time that the Company
sold SVD in July 1996. As a result of the sale of SVD, described in Note 12, the
Company has no remaining liability or obligation in connection with the loan.
In August 1994, the Company obtained a bank line of credit in the amount of
$2,000,000, bearing interest at 6.9% and maturing February 25, 1996. In May
1995, the Company obtained a second bank line of credit, in the amount of
$250,000 bearing interest at 6.9% and maturing December 31, 1995. These bank
lines of credit were secured by $2,250,000 of certificates of deposit pledged by
certain stockholders of the Company. On December 7, 1995, the certificates of
deposit were assigned to the Company in exchange for the issuance of common
stock at a rate of $3.00 per share; the proceeds of these certificates of
deposit were used to pay off the bank lines of credit.
In March 1995, the Company issued a demand promissory note to a stockholder
in the amount of $250,000 bearing interest at prime plus 2%. This note was
secured by all the tangible and intangible assets of the Company. The note and
accrued interest of $39,056 were repaid on September 19, 1996.
LONG-TERM DEBT. Long-term debt consists of the following:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
Note payable with interest at prime plus 2% per
annum, secured by a priority interest in certain
technology and rights........................... $ 600,000 $ 247,000
Less current portion.............................. (353,000) (247,000)
-------------- --------------
$ 247,000 $ -
-------------- --------------
-------------- --------------
</TABLE>
F-10
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
In July 1993, the Company issued the above note payable to a company, owned
in part by a former collaborating scientist and former director of the Company,
for $600,000 in partial consideration for certain worldwide exclusive rights
related to its cancer technology as described in Note 10. The note was
originally due December 31, 1995. In December 1995 the Company and the note
holder entered into an agreement to extend the term of the note; under the
amended terms, the Company made payments of principal aggregating $353,000
during the year ended September 30, 1996, and the remaining $247,000 is payable
on June 30, 1997.
7. STOCKHOLDERS' EQUITY
JULY 1996 INITIAL PUBLIC OFFERING. During July 1996 the Company completed
an initial public offering in which it sold 2,875,000 shares of common stock and
2,875,000 detachable warrants to purchase common stock ("Redeemable Warrants").
The Company received net proceeds of $18,220,090 after underwriting discounts
and other issuance costs of $3,629,910.
STOCK OPTIONS. In 1993, the Company established a stock option plan (the
"1993 Plan") under which incentive and nonqualified stock options have been
granted to key employees, directors and consultants of the Company. Under the
1993 Plan, options may be granted to purchase up to 800,000 shares of common
stock; options that are granted generally vest over five years and have a
maximum term of ten years. Option activity for the fiscal years ended September
30, 1994, 1995 and 1996 was as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
-------------- --------------
<S> <C> <C>
Outstanding September 30, 1993.................... 12,754 $60.00
Granted......................................... 33,533 $7.50
Exercised....................................... - -
Canceled........................................ (12,220 ) $7.50 - $60.00
-------
Outstanding September 30, 1994.................... 34,067 $7.50 - $60.00
Granted......................................... 3,333 $7.50
Exercised....................................... - -
Canceled........................................ (533 ) $60.00
-------
Outstanding September 30, 1995.................... 36,867 $7.50
Granted......................................... 527,334 $3.75
Exercised....................................... (400 ) $7.50
Canceled........................................ (53,134 ) $3.75 - $7.50
-------
Outstanding September 30, 1996.................... 510,667 $3.75
-------
-------
</TABLE>
At September 30, 1996, options for 314,132 shares of common stock were
exercisable and the remaining 196,535 become exercisable at various dates
through September 30, 2000.
In May 1996, the Company issued options to purchase 526,665 shares of common
stock under the 1993 Plan at an exercise price of $3.75 per share to members of
management, directors and consultants. Concurrently, the Company also canceled
previously issued options held by certain of these persons. Of the options
issued, 305,833 were immediately exercisable with the remaining options vesting
over a period
F-11
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
of two to five years. In accordance with Accounting Principles Board Opinion No.
25, as a result of the issuance the Company expects to record compensation
expense of approximately $395,000 over the vesting period of the options. Such
compensation expense recorded during the fiscal year ended September 30, 1996
totaled $276,260.
WARRANTS. At September 30, 1996, warrants to purchase 3,707,642 shares of
the Company's common stock at a weighted average exercise price of $9.73 per
share are outstanding, of which warrants to purchase 672,584 shares are
exercisable.
Included in the above total warrants outstanding are 2,875,000 Redeemable
Warrants issued in connection with the aforementioned initial public offering.
Each Redeemable Warrant allows the holder thereof to purchase one share of
common stock at an exercise price of $10.50. The Redeemable Warrants may be
exercised at any time during the period commencing July 10, 1997 and terminating
July 10, 2001. Commencing January 10, 1998, the Company may redeem the
Redeemable Warrants at $0.01 per warrant upon 30 days prior written notice to
the holders if the average closing price of the common stock equals or exceeds
$12.00 per share for any 20 trading days within a period of 30 consecutive
trading days ending on the fifth trading day prior to the date of the notice of
redemption. In connection with the initial public offering the Company also
issued warrants to the underwriter of such offering under which the holders
thereof may purchase up to 250,000 shares of common stock at a price of $9.00
per share and/or up to 250,000 Redeemable Warrants at a price of $0.12 per
Redeemable Warrant.
The Company has also issued warrants to purchase common stock to certain
consultants of the Company and in connection with private placements of equity
securities. These warrants generally have terms ranging from five to seven
years, and some include vesting provisions. Such warrants to purchase 332,642
shares of the Company's common stock at an exercise price of $3.00 per share
were outstanding at September 30, 1996, of which warrants to purchase 172,584
shares were exercisable.
8. INCOME TAXES
The Company has deferred income taxes which have been fully reserved as
follows:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------------------
1995 1996
-------------- --------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 5,526,000 $ 7,434,000
General business credit carryforwards........... 284,000 276,000
Other........................................... 24,000 87,000
-------------- --------------
Total net deferred tax assets................. 5,834,000 7,797,000
Valuation allowance for deferred tax assets....... (5,834,000) (7,797,000)
-------------- --------------
Net deferred tax assets....................... $ 0 $ 0
-------------- --------------
-------------- --------------
</TABLE>
At September 30, 1996, the Company has federal and California tax net
operating loss carryforwards of approximately $21,865,000 and $4,375,000,
respectively. The federal tax loss carryforwards will begin expiring in 2000
unless previously utilized. The California tax loss carryforwards will begin
expiring in 1997.
F-12
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
As a result of the "change in ownership" provisions of the Tax Reform Act of
1986, utilization of the Company's tax net operating loss carryforwards and tax
credit carryforwards are subject to an annual limitation in future periods. As a
result of the annual limitation, a portion of these carryforwards may expire
before ultimately becoming available to reduce future taxable income.
9. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS. The Company leases an office facility under a
non-cancelable operating lease agreement that expires in July 1997. In November
1996 the Company entered into a five-year operating lease commencing December
1996 for laboratory and administrative office facilities. Future minimum lease
commitments approximate the following:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
- --------------------------------------------------
<S> <C>
1997.............................................. $ 326,000
1998.............................................. 374,000
1999.............................................. 385,000
2000.............................................. 397,000
2001.............................................. 409,000
Thereafter........................................ 69,000
--------------
$ 1,960,000
--------------
--------------
</TABLE>
Total rent expense for the fiscal years ended September 30, 1994, 1995 and 1996
was $180,090, $78,449 and $87,456, respectively.
10. LICENSES AND COLLABORATIVE AGREEMENTS
The Company's strategy for development of its technologies involves the
licensing of technologies and the establishment of collaborative relationships
with university, governmental and other entities. Material licensing and
collaborative agreements are described below.
In 1993, the Company entered into a technology transfer agreement with
Estero Anstalt, a Swedish corporation, pursuant to which the Company purchased
the core intellectual property and patent rights related to its MAXAMINE cancer
and infectious disease immunotherapy technology. The total purchase price under
the agreement was $700,000, of which $600,000 was paid pursuant to a promissory
note issued by the Company and secured by the MAXAMINE technology as described
in Note 6 above. At September 30, 1996, $247,000 remains payable under the note
and is due June 30, 1997. The technology transfer agreement also requires that
the Company pay certain royalty obligations to Drs. Kristoffer Hellstrand and
Svante Hermodsson, the two inventors of the technology.
In 1993, the Company entered into an agreement with Vitec AB and SBL Vaccin
AB ("SBL"), pursuant to which the Company obtained an exclusive, worldwide
license to technology, including two patent applications, related to use of the
MAXVAX vaccine technology for the treatment of Chlamydia. Under the agreement,
the Company is required to use its best efforts to engage SBL to manufacture any
products which result from the application of the licensed technology. The
Company has made payments of $150,000 to Vitec AB under this agreement, and has
agreed to make royalty payments on the net sales of
F-13
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LICENSES AND COLLABORATIVE AGREEMENTS (CONTINUED)
products using the licensed technology and to make additional license and
milestone payments to Vitec AB upon the execution of any sublicenses.
In 1994, the Company entered into a second license agreement with Vitec AB
and SBL for an exclusive, worldwide license to technology rights related to the
MAXVAX technology for all infectious diseases with the exception of (i)
Chlamydia (governed by the agreement discussed above), (ii) HIV (governed by a
sublicense agreement held by the Company as described below) and (iii) cholera
and travelers' diarrhea. Under the agreement, the Company has agreed to use its
best efforts to engage SBL to manufacture any products which result from the
application of licensed technology, and both Vitec AB and the Company shall
receive a percentage of any profits that SBL derives from manufacturing such
products. The Company paid an initial license fee of $100,000 under the
agreement, and has agreed to make a minimum milestone payment of $400,000 by
December 31, 1996 to extend the exclusivity on the license. If the Company fails
to make the minimum milestone payment by such date, the Company's rights to the
technology shall convert to a non-exclusive license; if the Company fails to
make the minimum payment by December 31, 1998, the licensors shall have the
right to terminate the agreement. The agreement also requires the Company to
make royalty payments based on net sales of products which utilize the licensed
technology.
In 1995, the Company entered into a license agreement with Drs. Jan Holmgren
and Cecil Czerkinsky, inventors of the core technology underlying MAXVAX (the
"CTB" technology), and their affiliated companies, Duotol AB and Triotol AB, for
an exclusive, worldwide license to patent applications and related technology
rights with respect to the therapeutic and anti-inflammatory properties of CTB.
Under the agreement, the Company has agreed to make royalty payments based on
net sales of certain products which utilize the licensed technology for the
treatment of infectious diseases. Triotol AB has agreed to make royalty payments
to the Company based on net sales of certain other products which utilize the
licensed products for the treatment of certain autoimmune diseases. Duotol AB
may terminate the agreement upon a material breach by the Company and the
agreement will terminate automatically if the Company is liquidated.
11. RELATED PARTY TRANSACTIONS
In February 1996, the Company entered into an agreement with a business
consulting firm to provide strategic planning and advisory services for $10,000
per month for three years, and warrants to purchase up to 173,333 shares of
common stock at an exercise price of $3.00 per share vesting over 36 months. In
April 1996, the chief executive officer of this firm was elected as a director
of the Company. The Company made payments totaling $80,000 in connection with
the consulting agreement during the year ended September 30, 1996.
As described in Note 6, in September 1996 the Company repaid a $250,000 note
payable, and paid interest in the amount of 39,056, to a shareholder of the
Company.
As described in Note 12, in July 1996 the Company sold its ownership
interest in a subsidiary to a former director and shareholder of the Company for
$1.00, and recorded a gain on the disposal of $2,288,474. As described in Note
3, during the year ended September 30, 1996 the Company transferred laboratory
equipment with a net book value of $128,248 to this former director.
F-14
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RELATED PARTY TRANSACTIONS (CONTINUED)
As part of its program of research and development, the Company has retained
certain Swedish scientists and other consultants to consult with the Company and
perform research and development services. Certain of these consultants were
considered related parties as they were holders of the Company's common stock
(or warrants, or options, to purchase common stock), and one such consultant was
formerly a director of the Company.
12. DISPOSAL OF CERTAIN OPERATIONS
SALE OF SVD SUBSIDIARY. On July 5, 1996, the Company sold its ownership
interest in its Swedish subsidiary, SVD, to a former Swedish collaborating
scientist and former director and shareholder of the Company for $1.00. The
Company recorded a gain on the disposal of SVD of $2,288,474, representing the
excess of SVD's liabilities over its assets as of the date of sale. SVD's
primary liability at the date of sale was a $2,421,560 Swedish Industrial Fund
loan from the Swedish government described in Note 6. SVD's assets consisted
primarily of capitalized patent costs. The sale transferred certain technology
rights related to certain peptides for use in vaccination and induction of
neutralizing antibodies against HIV. In connection with the sale, the Company
received a non-exclusive sublicense to the MAXVAX mucosal vaccine carrier for
development of vaccines for the treatment of HIV infection.
DISCONTINUED OPERATIONS. During fiscal 1994 the Company disposed of its
diagnostic division and certain assets and liabilities for cash of $496,555 and
the assumption of $700,000 of debt by the buyer. The loss on discontinued
operations and gain on disposition of the division was accounted for as
discontinued operations. Revenue for the diagnostic division was $1,273,170 in
1994.
13. SUBSEQUENT EVENT (UNAUDITED)
In April 1996, the Company received a demand letter from an attorney
representing the former President and Chief Operating Officer and the Chief
Financial Officer of the Company (the "Former Employees"). In the letter, the
Former Employees made claims for certain specified and unspecified damages in
contract and in tort arising out of the termination of the Former Employees'
employment with the Company.
In March 1997, the Former Employees filed a complaint in the Superior Court
in the State of California, County of San Diego (the "Complaint") seeking claims
for certain purported damages in contract and in tort arising from their
respective terminations of employment with the Company in March 1996. In
addition, the Former Employees asserted possible punitive damages and damages
based on emotional distress. The Former Employees also claimed the right to
vested options of the Company's Common Stock. According to the Complaint, each
of the Former Employees appears to be claiming compensatory damages in excess of
$2 million and punitive damages in excess of $3 million. In June 1997, the
Company filed an answer to the Complaint denying each of the allegations
therein. Pretrial discovery with respect to these legal proceedings has
commenced, and a trial date has been scheduled for May 1998. The Company
believes the Former Employees' claims are without merit and the Company intends
to contest any such claims vigorously. However, there can be no assurance as to
the eventual outcome of such claims or their effect on the Company's business,
financial condition and results of operations. In addition, an adverse
determination in any litigation arising from these claims or the settlement of
such claims could have a material adverse effect on the Company's business,
financial condition and results of operations.
F-15
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1996
------------------ AS OF
JUNE 30, 1997
--------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 4,070,089 $ 170,091
Short-term investments in marketable securities............................. 12,563,622 10,887,863
Accrued interest and other current assets................................... 709,285 549,247
------------------ --------------
Total current assets...................................................... 17,342,996 11,607,201
Investments in marketable securities.......................................... 2,510,366 3,216,603
Patents and licenses, net..................................................... 1,367,235 1,807,048
Property and equipment, net................................................... 31,037 681,898
Deposits...................................................................... 3,397 203,396
------------------ --------------
Total assets............................................................ $ 21,255,031 $ 17,516,146
------------------ --------------
------------------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................ $ 405,760 $ 480,050
Accrued expenses............................................................ 478,623 549,599
Current portion of long-term debt........................................... 247,000 78,317
------------------ --------------
Total current liabilities................................................. 1,131,383 1,107,966
Long-term debt, less current portion........................................ - 548,216
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares authorized............... - -
Common stock, $.001 par value, 20,000,000 shares authorized; 6,671,237 and
6,671,246 shares issued and outstanding at September 30, 1996 and June 30,
1997, respectively........................................................ 6,672 6,672
Additional paid-in capital.................................................. 34,172,618 34,172,686
Deficit accumulated during the development stage............................ (13,936,903) (18,251,524)
Deferred compensation....................................................... (118,739) (67,870)
------------------ --------------
Total stockholders' equity................................................ 20,123,648 15,859,964
------------------ --------------
Total liabilities and stockholders' equity.............................. $ 21,255,031 $ 17,516,146
------------------ --------------
------------------ --------------
</TABLE>
See Notes to Financial Statements
F-16
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FROM INCEPTION
NINE MONTHS ENDED (OCTOBER 23,
JUNE 30, 1989)
---------------------------- THROUGH
1996 1997 JUNE 30, 1997
------------- ------------- -----------------
<S> <C> <C> <C>
Operating expenses:
Research and development....................................... $ 1,078,306 $ 3,293,528 $ 13,294,786
Business development........................................... 79,810 284,895 346,895
General and administrative..................................... 946,727 1,394,716 8,920,523
------------- ------------- -----------------
Total operating expenses..................................... 2,104,843 4,973,139 22,562,204
Other income (expense):
Investment income.............................................. 22,843 732,142 1,019,872
Interest expense............................................... (176,667) (60,269) (1,964,078)
Other expense.................................................. (119,631) (13,355) (115,143)
Research grant revenue......................................... - - 2,946,001
Gain on sale of subsidiary..................................... - - 2,288,474
------------- ------------- -----------------
Total other income (expense)................................. (273,455) 658,518 4,175,126
------------- ------------- -----------------
Discontinued operations:
Loss from operations of discontinued diagnostic division....... - - (347,608)
Gain on sale of diagnostic division............................ - - 483,162
------------- ------------- -----------------
Net loss......................................................... $ (2,378,298) $ (4,314,621) $ (18,251,524)
------------- ------------- -----------------
------------- ------------- -----------------
Net loss per share of common stock............................... $ (0.42) $ (0.65)
------------- -------------
------------- -------------
Weighted average shares outstanding.............................. 5,655,594 6,671,240
------------- -------------
------------- -------------
</TABLE>
See Notes to Financial Statements
F-17
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FROM INCEPTION
NINE MONTHS ENDED (OCTOBER 23,
JUNE 30, 1989)
------------------------------ THROUGH
1996 1997 JUNE 30, 1997
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.......................................... $ (2,378,298) $ (4,314,621) $ (18,251,524 )
Adjustments to reconcile net loss to net cash used
for operating activities:
Depreciation and amortization................... 27,113 180,787 961,931
Amortization of premium on investments.......... - 123,664 123,664
Stock options issued as compensation............ 249,568 50,869 327,129
Gain on sale of subsidiary...................... - - (2,288,474 )
Loss on write-off of patents.................... - 53,339 242,407
Loss on disposal of property & equipment........ 128,248 - 128,248
Loss on write-off of receivable from related
party......................................... 100,000 - 147,803
Other........................................... - - 27,032
Write-off of obsolete inventory................. - - 24,669
Gain on sale of diagnostic division............. - - (483,162 )
Loss on write-off of purchased research and
development................................... - - 2,646,166
Cumulative effect of reorganization............. - - 1,152,667
Changes in operating assets and liabilities:
Accrued interest and other current assets..... 12,376 160,038 (549,247 )
Other assets.................................. 16,141 (200,000) (351,200 )
Accounts payable.............................. (55,220) 74,291 480,051
Accrued expenses.............................. - 70,974 570,807
-------------- -------------- --------------
Net cash used in operating activities....... (1,900,072) (3,800,659) (15,091,033 )
INVESTING ACTIVITIES:
Purchases of marketable securities................ - (10,340,141) (25,414,129 )
Maturities of marketable securities............... - 11,186,000 11,186,000
Additions to patents.............................. (145,227) (603,377) (2,446,164 )
Purchases of property and equipment............... (13,838) (721,422) (1,529,663 )
Cash acquired in acquisition of business.......... - - 985,356
Proceeds from sale of diagnostic division......... - - 496,555
-------------- -------------- --------------
Net cash used in investing activities........... (159,065) (478,940) (16,722,045 )
FINANCING ACTIVITIES:
Proceeds from issuance of notes payable and
long-term debt.................................. - 626,533 5,202,956
Payments on notes payable and long-term debt...... (2,141,293) (247,000) (3,017,505 )
Proceeds from issuance of notes payable to related
parties......................................... (106,000) - 4,982,169
Payments on notes payable to related parties...... - - (1,329,885 )
Net proceeds from issuance of common stock and
warrants........................................ 5,706,795 68 25,657,934
Net proceeds from issuance of preferred stock..... - - 487,500
-------------- -------------- --------------
Net cash provided by financing activities....... 3,459,502 379,601 31,983,169
-------------- -------------- --------------
Net increase (decrease) in cash and cash
equivalents..................................... 1,400,365 (3,899,998) 170,091
Cash and cash equivalents at beginning of
period.......................................... 512,928 4,070,089 -
-------------- -------------- --------------
Cash and cash equivalents at end of period........ $ 1,913,293 $ 170,091 $ 170,091
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See Notes to Financial Statements.
F-18
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. PRINCIPLES OF INTERIM PERIOD REPORTING
Maxim Pharmaceuticals, Inc. (the "Company") has not earned significant
revenues from planned principal operations. Accordingly, the Company's
activities have been accounted for as those of a "Development Stage Enterprise"
as set forth in Financial Accounting Standards Board Statement No. 7 ("FAS 7").
In the opinion of the Company, the unaudited financial statements contain
all of the adjustments, consisting only of normal recurring adjustments and
accruals, necessary to present fairly the financial position of the Company as
of September 30, 1996 and June 30, 1997, and the results of operations for the
three months and nine months ended June 30, 1996 and 1997 and from inception
(October 23, 1989) to June 30, 1997. The results of operations for the three
months and nine months ended June 30, 1997 are not necessarily indicative of the
results to be expected in subsequent periods or for the year as a whole. For
further information, refer to the consolidated financial statements and
footnotes thereto for the year ended September 30, 1996.
2. LINE OF CREDIT AGREEMENT AND NOTE PAYABLE
LINE OF CREDIT AGREEMENT. In March 1997 the Company entered into a line of
credit agreement with a bank. Under the agreement the Company may borrow up to
$900,000 during 1997 to fund qualified equipment purchases. At January 1, 1998
any outstanding advances under the line of credit will convert to a term loan
payable in equal installments over 48 months, including interest at prime plus
0.5%. The loan is secured by all assets of the Company. The agreement restricts
the payment of dividends by the Company. At June 30, 1997, aggregate advances
under the line of credit totaled $626,533.
NOTE PAYABLE. In July 1993, the Company issued a note payable to a company
for $600,000 in partial consideration for certain worldwide exclusive rights
related to its Maxamine-TM- technology. In June 1997, the Company made the final
payment of principal of $247,000 due under the note.
3. CONTINGENCY
In April 1996, the Company received a demand letter from an attorney
representing the former President and Chief Operating Officer and the Chief
Financial Officer of the Company (the "Former Employees"). In the letter, the
Former Employees made claims for certain specified and unspecified damages in
contract and in tort arising out of the termination of the Former Employees'
employment with the Company.
In March 1997, the Former Employees filed a complaint in the Superior Court
in the State of California, County of San Diego (the "Complaint") seeking claims
for certain purported damages in contract and in tort arising from their
respective terminations of employment with the Company in March 1996. In
addition, the Former Employees asserted possible punitive damages and damages
based on emotional distress. The Former Employees also claimed the right to
vested options of the Company's Common Stock. According to the Complaint, each
of the Former Employees appears to be claiming compensatory damages in excess of
$2 million and punitive damages in excess of $3 million. In June 1997, the
Company filed an answer to the Complaint denying each of the allegations
therein. Pretrial discovery with respect to these legal proceedings has
commenced, and a trial date has been scheduled for May 1998. The Company
believes the Former Employees' claims are without merit and the Company intends
to
F-19
<PAGE>
MAXIM PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. CONTINGENCY (CONTINUED)
contest any such claims vigorously. However, there can be no assurances as to
the eventual outcome of such claims or their effect on the Company's business,
financial condition and results of operations. In addition, an adverse
determination in any litigation arising from these claims or the settlement of
such claims could have a material adverse effect on the Company's business,
financial condition and results of operations.
F-20
<PAGE>
INSIDE BACK COVER
PHASE II CLINICAL TRIALS OF MAXAMINE
MAXAMINE THERAPY IN ADVANCED-STAGE MALIGNANT MELANOMA PATIENTS
INITIAL CLINICAL STUDY
<TABLE>
<CAPTION>
MEAN SURVIVAL TIME
------------------
<S> <C>
Control Group 6.8 Months
MAXAMINE and high-dose IL-2/IFN-a 14.7 Months
</TABLE>
MAXAMINE THERAPY IN ADVANCED-STAGE MALIGNANT MELANOMA PATIENTS
SECOND CLINICAL STUDY
<TABLE>
<CAPTION>
MEAN SURVIVAL TIME
------------------
<S> <C>
Normal course -- conventional treatment 7 Months
MAXAMINE and low-dose IL-2/IFN-a 16+ Months
</TABLE>
MAXAMINE THERAPY IN ACUTE MYELOGENOUS LEUKEMIA PATIENTS
ONGOING CLINICAL STUDY
<TABLE>
<CAPTION>
MEAN REMISSION TIME
--------------------
<S> <C>
Relapse ("CR2+") patients:
Normal course of disease 6 Months
Treatment with MAXAMINE & low-dose IL-2 20+ Months
First remission ("CR 1") patients:
Normal course of disease 12 Months
Treatment with MAXAMINE and low-dose IL-2/IFN-a 20+ Months
</TABLE>
See "Business--Maxamine Immunotherapy Platform--Advanced Malignant Melanoma" and
"--Acute Myelogenous Leukemia ("AML") for more complete description.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION 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 SOLICITATION OF ANY OFFER TO BUY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 7
Use of Proceeds............................ 14
Price Range of Common Stock................ 15
Dividend Policy............................ 15
Capitalization............................. 16
Dilution................................... 17
Selected Financial Data.................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 19
Business................................... 23
Management................................. 38
Certain Transactions....................... 45
Principal Stockholders..................... 48
Description of Securities.................. 50
Shares Eligible for Future Sale............ 52
Underwriting............................... 54
Legal Matters.............................. 56
Experts.................................... 56
Available Information...................... 56
Index to Financial Statements.............. F-1
</TABLE>
[LOGO]
2,500,000 SHARES
COMMON STOCK
--------------
PROSPECTUS
--------------
RODMAN & RENSHAW, INC.
ALFRED BERG
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts, payable by the Registrant in connection with the sale of
the Common Stock being registered. All amounts are estimates except the SEC
registration fee and the National Association of Securities Dealers, Inc. fee.
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
----------
<S> <C>
SEC Registration Fee.............................................................. $ 11,000
National Association of Securities Dealers, Inc. Fee.............................. 4,130
Printing Fees and Expenses........................................................ 200,000
Underwriter Expense Reimbursement................................................. 75,000
Underwriters' Counsel Fees and Expenses........................................... 75,000
Issuer Counsel Fees and Expenses.................................................. 125,000
Accounting Fees and Expenses...................................................... 60,000
American Stock Exchange Listing Fee............................................... 17,500
Blue Sky Fees and Expenses........................................................ 5,000
Transfer Agent and Registrar Fees................................................. 2,500
Miscellaneous..................................................................... 124,870
----------
Total......................................................................... $ 700,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its Bylaws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person whom it
is required or permitted to indemnify. Pursuant to this provision, the Company
has entered into indemnity agreements with each of its directors and officers
and currently maintains directors and officers insurance coverage.
In addition, the Company's Certificate of Incorporation provides that to the
fullest extent permitted by Delaware law, the Company's directors will not be
liable for monetary damages for breach of the directors' fiduciary duty of care
to the Company and its stockholders. This provision in the Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law. Each director
will continue to be subject to liability for breach of the director's duty of
loyalty to the Company or its stockholders, for acts or omissions not in good
faith or involving intentional misconduct or knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for unlawful payments of dividends or unlawful stock purchase or redemption.
This provision also does not affect a director's responsibilities under any
other laws, such as the federal securities laws or state or federal
environmental laws.
Reference is also made to Section 7(b) of the Form of Underwriting Agreement
contained in Exhibit 1.1 hereto, indemnifying officers and directors of the
Company against certain liabilities.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since September 1994, the Registrant has issued and sold (without payment of
any selling commission to any person) the following unregistered securities:
1. Between September 1994 and July 1996, the Registrant granted
incentive and non-statutory stock options to employees, officers, directors
and consultants of the Company under its 1993 Long-Term Incentive Plan (the
"Incentive Plan") covering an aggregate of 530,396 shares of the Company's
Common Stock. Certain of these options vest over a period of time following
their respective dates of grant. On September 4, 1996 Registrant filed a
registration statement on Form S-8 covering the issuance of Common Stock
pursuant to the exercise of such options, as well as other shares of Common
Stock issuable in accordance with the Incentive Plan.
2. From August 1994 to May 1995, in connection with the pledge of
certificates of deposit by certain investors, the Registrant issued warrants
to purchase, at an exercise price of $3.00 per share, an aggregate of 39,999
shares of the Company's Common Stock to such investors.
3. In June 1995, the Registrant issued warrants to purchase, at an
exercise price of $3.00 per share, an aggregate of 13,332 shares of the
Company's Common Stock to certain consultants as partial consideration for
services rendered by such consultants.
4. In August 1995, the Registrant converted $463,205 of debt and
interest owed to Praktikertjanst AB into 154,400 shares of the Company's
Common Stock, issued 398,730 shares of the Company's Common Stock for
$1,189,000 in cash to certain investors pursuant to the terms of an equity
financing of the Company, and issued 1,137,332 shares of the Company's
Common Stock to certain investors pursuant to anti-dilution provisions in
the August 1994 bridge debt conversion agreements.
5. In October 1995, pursuant to the terms of an equity financing of the
Company, the Registrant issued 41,666 shares of the Company's Common Stock
for $125,000 in cash to certain investors.
6. In December 1995, the Registrant converted certificates of deposit
pledged by certain investors to pay off a bank line of credit in the amount
of $2,250,000 into 750,000 shares of the Company's Common Stock, and issued
62,000 shares of the Company's Common Stock for $186,000 in cash to certain
investors pursuant to an equity financing of the Company.
7. In January 1996, the Registrant effected a one-for-two thousand
reverse split of the outstanding shares of the Company's Common Stock. In
connection with the reverse stock split, the Registrant repurchased from
certain stockholders 5,332 shares of the Company's Common Stock.
8. In February 1996, pursuant to a business advisory agreement between
the Company and Burrill & Craves, Inc., the Registrant issued to Burrill &
Craves, Inc. warrants to purchase, at an exercise price of $3.00 per share,
an aggregate of 173,333 shares of the Company's Common Stock and, pursuant
to the terms of an equity financing of the Company, issued 473,333 shares of
the Company's Common Stock for $1,775,000 in cash, and issued warrants to
purchase, at an exercise price of $3.00 per share, an aggregate of 94,666
shares of the Company's Common Stock to certain investors.
9. On May 9, 1996, the Registrant effected a one hundred-for-one split
of its outstanding shares of Common Stock. On July 9, 1996, the Registrant
effected a two-for-three reverse split of the Company's outstanding shares
of Common Stock.
10. On May 17, 1996, pursuant to the terms of an equity financing of the
Company, the Registrant issued to SE Banken Lakemedelsfonder 40,000 shares
of the Company's Common Stock for $1,800,000 in cash.
II-2
<PAGE>
The sales and issuances of securities in the transactions described in
paragraphs 1 and 3 above were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701.
The issuances of securities described in paragraphs 7 and 9 above, were
deemed to be exempt from registration under the Securities Act by virtue of
Section 2(3) thereof in that the securities were issued in transactions not
involving a "sale" of securities as such term is used in Section 2(3) of the
Securities Act.
The sales and issuances of securities in the transactions described in
paragraphs 2, 4, 5, 6, 8 and 10 above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2), Regulation D and/or
Regulation S promulgated under the Securities Act. The purchasers in each case
represented their intention to acquire the securities for investment only and
not with a view to the distribution thereof. Appropriate legends are affixed to
the stock certificates issued in such transactions. Similar legends were imposed
in connection with any subsequent transfers of any such securities. All
recipients either received adequate information about the Registrant or had
access, through employment or other relationships, to such information.
There were no underwritten offerings employed in connection with any of the
transactions set forth in this Item 15.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of Registrant.(1)
3.2 Bylaws of Registrant.(1)
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Form of Common Stock Certificate.(1)
5.1 Opinion of Cooley Godward LLP.
10.1 Form of Indemnification Agreement for directors and officers of the
Registrant.(1)
10.2 Form of Representative's Warrant Agreement between the Company and
National Securities Corporation, as representative of the several
Underwriters (the "Representative"), including form of Representative's
Warrant Certificate.(1)
10.3 Form of Warrant Agreement between the Company, the Representative and
American Stock Transfer & Trust company, including form of Warrant
Certificate.(1)
10.4 Option to Buy Technology and Rights Agreement, dated March 30, 1993,
between the Registrant and Estero Anstalt.(1)(2)
10.5 Security Agreement, dated July 27, 1993, between the Registrant and Estero
Anstalt.(1)(2)
10.6 Exclusive License Agreement, dated June 14, 1995, among the Registrant,
Jan Holmgren, M.D., Ph.D., Cecil Czerkinsky, Duotol AB and Triotol
Ltd.(1)(2)
10.7 Option and License Agreement, dated May 19, 1993, among the Registrant,
Vitec AB and SBL Vaccin AB, as amended.(1)(2)
10.8 License Agreement dated January 14, 1994, among the Registrant, Vitec AB
and SBL Vaccin AB, as amended.(1)(2)
10.9 Agreement, dated December 2, 1995, among the Registrant, Syntello Vaccine
Development AB and Estero Anstalt.(1)(2)
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.10 Agreement, dated April 23, 1996, among the Registrant, Anders Vahlne,
M.D., Ph.D. and Syntello Vaccine Development AB.(1)(2)
10.11 Letter Agreement, dated February 15, 1996, between the Registrant and
Burrill & Craves, Inc.(1)
10.12 $250,000 Promissory Note, dated March 31, 1995, executed by the Registrant
in favor of Ventana Growth Fund II L.P.(1)
10.13 Lease dated November 1, 1996 between DM Spectrum LLC, a California limited
liability company, as Landlord and the Registrant for 3099 Science Park
Road, Suite 150, San Diego, California 92121.(3)
10.14 Stock Purchase Agreement, dated as of July 5, 1996, by and between Dr.
Anders Vahlne and the Registrant.(1)
10.15 Amended and Restated 1993 Long-Term Incentive Plan and forms of stock
option agreements.(4)
10.16 Employment Agreement dated October 1, 1996 between the Registrant and Kurt
R. Gehlsen(4)
10.17 Employment Agreement dated October 1, 1996 between the Registrant and Dale
A. Sander.(4)
10.18 Employment Agreement dated October 1, 1996 between the Registrant and
Larry G. Stambaugh.(4)
10.19 Loan and Security Agreement between the Registrant and Silicon Valley
Bank.(5)
10.20 Financial Advisory Services Agreement between the Registrant and Rodman &
Renshaw, Inc. dated September 17, 1997.
11.1 Statement re: computation of pro forma loss per share.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
23.3 Power of Attorney. Reference is made to page II-6.
</TABLE>
- ------------------------
(1) Previously filed together with the Registrant's Registration Statement on
Form SB-2 (File No. 333-4854-LA) as amended through the date hereof and
incorporated herein by reference.
(2) Certain confidential portions deleted pursuant to Order Granting Application
Under the Securities Act of 1933 and Rule 406 thereunder respecting
confidential treatment.
(3) Previously filed together with the Registrant's Annual Report on Form 10-K
(File No. 1-4430) dated September 30, 1996.
(4) Previously filed together with the Registrant's Quarterly Report on Form
10-Q (File No. 1-14430) dated December 31, 1996.
(5) Previously filed together with the Registrant's Quarterly Report on Form
10-Q (File No. 1-14430) dated March 31, 1997.
(B) FINANCIAL STATEMENT SCHEDULES
None
ITEM 17. UNDERTAKINGS
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act of 1933, as amended (the "Securities Act"), may be permitted
to directors, officers and controlling persons of the
II-4
<PAGE>
Registrant pursuant to the provisions referenced in Item 14 of this Registration
Statement, 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 purposes 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 a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the city of San Diego, state of
California, on September 18, 1997.
<TABLE>
<S> <C> <C>
MAXIM PHARMACEUTICALS, INC.
By: /s/ DALE A. SANDER
-----------------------------------------
Dale A. Sander
Chief Financial Officer,
Vice President, Finance and Secretary
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Larry G. Stambaugh and Dale A. Sander, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any subsequent registration
statement pursuant to Rule 462(b) under the Securities Act of 1933 which relates
to this Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all which said attorneys-in-fact and agents, or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman of the Board,
/s/ LARRY G. STAMBAUGH President and Chief
- ------------------------------ Executive Officer September 18, 1997
Larry G. Stambaugh (PRINCIPAL EXECUTIVE
OFFICER)
Chief Financial Officer,
Vice President, Finance
/s/ DALE A. SANDER and Secretary
- ------------------------------ (PRINCIPAL ACCOUNTING September 18, 1997
Dale A. Sander OFFICER
AND FINANCIAL OFFICER)
/s/ COLIN B. BIER, PH.D.
- ------------------------------ Director September 18, 1997
Colin B. Bier, Ph.D.
/s/ G. STEVEN BURRILL
- ------------------------------ Director September 18, 1997
G. Steven Burrill
/s/ PER-OLOF MARTENSSON
- ------------------------------ Director September 18, 1997
Per-Olof Martensson
/s/ F. DUWAINE TOWNSEN
- ------------------------------ Director September 18, 1997
F. Duwaine Townsen
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of Registrant.(1)
3.2 Bylaws of Registrant.(1)
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Form of Common Stock Certificate.(1)
5.1 Opinion of Cooley Godward LLP.
10.1 Form of Indemnification Agreement for directors and officers of the Registrant.(1)
10.2 Form of Representative's Warrant Agreement between the Company and National Securities
Corporation, as representative of the several Underwriters (the "Representative"), including
form of Representative's Warrant Certificate.(1)
10.3 Form of Warrant Agreement between the Company, the Representative and American Stock Transfer &
Trust company, including form of Warrant Certificate.(1)
10.4 Option to Buy Technology and Rights Agreement, dated March 30, 1993, between the Registrant and
Estero Anstalt.(1)(2)
10.5 Security Agreement, dated July 27, 1993, between the Registrant and Estero Anstalt.(1)(2)
10.6 Exclusive License Agreement, dated June 14, 1995, among the Registrant, Jan Holmgren, M.D.,
Ph.D., Cecil Czerkinsky, Duotol AB and Triotol Ltd.(1)(2)
10.7 Option and License Agreement, dated May 19, 1993, among the Registrant, Vitec AB and SBL Vaccin
AB, as amended.(1)(2)
10.8 License Agreement dated January 14, 1994, among the Registrant, Vitec AB and SBL Vaccin AB, as
amended.(1)(2)
10.9 Agreement, dated December 2, 1995, among the Registrant, Syntello Vaccine Development AB and
Estero Anstalt.(1)(2)
10.10 Agreement, dated April 23, 1996, among the Registrant, Anders Vahlne, M.D., Ph.D. and Syntello
Vaccine Development AB.(1)(2)
10.11 Letter Agreement, dated February 15, 1996, between the Registrant and Burrill & Craves, Inc.(1)
10.12 $250,000 Promissory Note, dated March 31, 1995, executed by the Registrant in favor of Ventana
Growth Fund II L.P.(1)
10.13 Lease dated November 1, 1996 between DM Spectrum LLC, a California limited liability company, as
Landlord and the Registrant for 3099 Science Park Road, Suite 150, San Diego, California
92121.(3)
10.14 Stock Purchase Agreement, dated as of July 5, 1996, by and between Dr. Anders Vahlne and the
Registrant.(1)
10.15 Amended and Restated 1993 Long-Term Incentive Plan and forms of stock option agreements.(4)
10.16 Employment Agreement dated October 1, 1996 between the Registrant and Kurt R. Gehlsen(4)
10.17 Employment Agreement dated October 1, 1996 between the Registrant and Dale A. Sander.(4)
10.18 Employment Agreement dated October 1, 1996 between the Registrant and Larry G. Stambaugh.(4)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C>
10.19 Loan and Security Agreement between the Registrant and Silicon Valley Bank.(5)
10.20 Financial Advisory Services Agreement between the Registrant and Rodman & Renshaw, Inc. dated
September 17, 1997.
11.1 Statement re: computation of pro forma loss per share.
23.1 Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
23.3 Power of Attorney. Reference is made to page II-6.
</TABLE>
- ------------------------
(1) Previously filed together with the Registrant's Registration Statement on
Form SB-2 (File No. 333-4854-LA) as amended through the date hereof and
incorporated herein by reference.
(2) Certain confidential portions deleted pursuant to Order Granting Application
Under the Securities Act of 1933 and Rule 406 thereunder respecting
confidential treatment.
(3) Previously filed together with the Registrant's Annual Report on Form 10-K
(File No. 1-4430) dated September 30, 1996.
(4) Previously filed together with the Registrant's Quarterly Report on Form
10-Q (File No. 1-14430) dated December 31, 1996.
(5) Previously filed together with the Registrant's Quarterly Report on Form
10-Q (File No. 1-14430) dated March 31, 1997.
<PAGE>
9/15/97
Draft - Subject
to client review
2,500,000 SHARES OF COMMON STOCK
MAXIM PHARMACEUTICALS, INC.
UNDERWRITING AGREEMENT
____________, 1997
ALFRED BERG FONDKOMMISSION AB
As global coordinator of the several Underwriters
c/o Alfred Berg Fondkommission AB
Box 70447
S-107 25 Stockholm, Sweden
Ladies and Gentlemen:
Maxim Pharmaceuticals, Inc., a Delaware corporation (the "Company"),
proposes to sell to the several U.S. Underwriters (as defined below) and to
purchasers procured by the International Underwriter (as defined below) or, if
and to the extent the International Underwriter has not procured such
purchasers, to the International Underwriter, an aggregate of 2,500,000 shares
("Shares") of the Company's common stock, $.001 par value per share ("Common
Stock").
It is understood that, subject to the conditions hereinafter stated,
(i) 500,000 Shares of Common Stock (the "U.S. Shares") will be sold to the
underwriters named in Schedule A hereto (collectively, the "U.S. Underwriters,"
which term shall also include any underwriter substituted as hereinafter
provided in SECTION 11), for whom Rodman & Renshaw, Inc. ("Rodman") is acting as
representative (in such capacity, Rodman shall hereinafter be referred to as the
"Representative") and (ii) 2,000,000 Shares of Common Stock (the "International
Shares") will be sold to purchasers procured by Alfred Berg Fondkommission AB
(the "International Underwriter") or, if and to the extent that the
International Underwriter has not procured such purchasers, to the International
Underwriter. The U.S. Underwriters and the International Underwriter are
hereinafter collectively referred to as the "Underwriters." The U.S Shares are
hereinafter referred to as the "U.S. Firm Securities." The International Shares
are hereinafter referred to as the "International Firm
<PAGE>
Securities." The "U.S. Firm Securities and the International Firm Securities
are hereinafter collectively referred to as the "Firm Securities."
The Company also proposes to issue and sell to the U.S. Underwriters,
acting severally and not jointly, up to an additional [75,000] shares of Common
Stock (the "U.S. Option Securities") and to purchasers procured by the
International Underwriter, or, if and to the extent the International
Underwriter has not procured such purchasers, to the International Underwriter,
up to an additional [300,000] shares of Common Stock (the "International Option
Securities) for the purpose of covering over-allotments, if any. The U.S.
Option Securities and the International Option Securities are hereinafter
collectively referred to as the "Option Securities." The Firm Securities and
the Option Securities (collectively, hereinafter referred to as the
"Securities") are more fully described in the Registration Statement and the
Prospectus referred to below.
To provide for the coordination of their activities and the appointment of
Alfred Berg Fondkommission AB as global coordinator (the "Global Coordinator")
the U.S. Underwriters and the International Underwriter simultaneously are
entering into an agreement among the U.S. Underwriters and the International
Underwriter (the "Agreement Among U.S. and International Underwriters") which
provides for, among other things, the transfer of shares of Common Stock among
the Underwriters.
Three forms of prospectus are to be used in connection with the offer and
sale of shares of Common Stock contemplated by the foregoing, one relating to
the U.S. Shares (the "U.S. Prospectus") and the other two relating to the
International Shares (collectively, the "International Prospectus"). The
International Prospectus is identical to the U.S. Prospectus except for [the
outside and inside front cover pages of each.] In addition, one version of the
International prospectus will be translated into a Swedish language prospectus
[(including any summary thereof permitted under Swedish Law)] for use in
connection with the offering and sale of the International Shares in connection
with the application to list the International Shares on the Stockholm Stock
Exchange. The Swedish version of the prospectus is identical to the U.S.
Prospectus and the International Prospectus except for [the outside and inside
front cover pages of each]. References herein to any prospectus whether in
preliminary or final form, and whether as amended or supplemented, shall include
the U.S. and the International versions thereof and the Swedish translation
version of the International version.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with, the Underwriters as of the date hereof, and as
of the Closing Date (as hereinafter defined) and each Option Closing Date (as
hereinafter defined), if any, as follows:
a. The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an amendment or
amendments thereto, on Form S-1 (No. 333-_______), including any related
preliminary prospectus ("Preliminary Prospectus"), for the registration of the
Firm Securities and the Option Securities under the Securities Act of 1933, as
amended (the "Act"), which registration
<PAGE>
statement and amendment or amendments have been prepared by the Company in
conformity with the requirements of the Act, and the rules and regulations (the
"Regulations") of the Commission under the Act. The Company will, if necessary,
promptly file a further amendment to said registration statement in the form
heretofore delivered to the Underwriters and will not file any other amendment
thereto to which the Underwriters shall have objected in writing after having
been furnished with a copy thereof. Except as the context may otherwise
require, such registration statement, as amended, on file with the Commission at
the time the registration statement becomes effective (including the prospectus,
financial statements, schedules, exhibits and all other documents filed as a
part thereof or incorporated therein (including, but not limited to those
documents or information incorporated by reference therein) and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430(A) of the Regulations), is hereinafter called the "Registration Statement",
and the U.S. and International Prospectus in the forms first filed with the
Commission pursuant to Rule 424(b) of the Regulations and the Swedish prospectus
in final form, are hereinafter collectively referred to as the "Prospectus."
For purposes hereof, "Rules and Regulations" mean the rules and regulations
adopted by the Commission under either the Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as applicable.
b. Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and Prospectus at the time of filing thereof conformed with the requirements of
the Act and the Rules and Regulations, and none of the Preliminary Prospectus,
the Registration Statement or Prospectus at the time of filing thereof 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, in
light of the circumstances under which they were made, not misleading, except
that this representation and warranty does not apply to statements made in
reliance upon and in conformity with written information furnished to the
Company with respect to the Underwriters by or on behalf of the Underwriters
expressly for use in such Preliminary Prospectus, Registration Statement or
Prospectus or any amendment thereof or supplement thereto.
c. When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date (as defined herein) and each Option
Closing Date (as defined herein), if any, and during such longer period as the
Prospectus may be required to be delivered in connection with sales by the
Underwriters or a dealer, the Registration Statement and the Prospectus will
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and will conform to the requirements
of the Act and the Rules and Regulations; neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, PROVIDED, HOWEVER,
that this representation and warranty does not apply to
3
<PAGE>
statements made or statements omitted in reliance upon and in strict conformity
with information furnished to the Company in writing by or on behalf of any
Underwriter expressly for use in the Preliminary Prospectus, Registration
Statement or Prospectus or any amendment thereof or supplement thereto.
d. The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of its incorporation.
Except as set forth in the Prospectus, the Company does not own an interest in
any corporation, partnership, trust, joint venture or other business entity.
The Company is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires such qualification or
licensing. The Company has all requisite power and authority (corporate and
other), and has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without limitation,
those having jurisdiction over environmental or similar matters), domestic or
foreign, to own or lease its properties and conduct its business as described in
the Prospectus; the Company is and has been doing business in compliance with
all such authorizations, approvals, orders, licenses, certificates, franchises
and permits and all applicable federal, state, local and foreign laws, rules and
regulations; and the Company has not received any notice of proceedings relating
to the revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the earnings,
position, prospects, value, operation, properties, business or results of
operations of the Company. The disclosures in the Registration Statement
concerning the effects of federal, state, local, and foreign laws, rules and
regulations on the Company's businesses as currently conducted and as
contemplated are correct in all material respects and do not omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein not misleading in light of the circumstances under which they
were made.
e. The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and each Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement,
and as described in the Prospectus. The Securities and all other securities
issued or issuable by the Company conform or, when issued and paid for, will
conform, in all respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding
securities of the Company have been duly authorized and validly issued and are
fully paid and non-assessable and the holders thereof have no rights of
rescission with respect thereto, and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of the Company
or similar contractual rights granted by the Company. The Securities to be
issued and sold by the Company to purchasers procured by the International
Underwriter, or, if and to the extent the International Underwriter has not
4
<PAGE>
procured such purchasers, to the International Underwriter, and to be issued and
sold by the Company to the U.S. Underwriters, are not and will not be subject to
any preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in accordance with the terms
hereof, will be validly issued, fully paid and non-assessable and will conform
to the description thereof contained in the Prospectus; the holders thereof will
not be subject to any liability solely as such holders; all corporate action
required to be taken for the authorization, issue and sale of the Securities has
been duly and validly taken; and the certificates representing the Securities
will be in due and proper form. Upon the issuance and delivery pursuant to the
terms hereof of the Securities to be sold by the Company hereunder, the
purchasers procured by the International Underwriter, or, if and to the extent
the International Underwriter has not procured such purchasers, the
International Underwriter, and the U.S. Underwriters, as the case may be, will
acquire good and marketable title to such Securities free and clear of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever.
f. The financial statements of the Company together with the related
notes and schedules thereto, included in the Registration Statement, each
Preliminary Prospectus and the Prospectus fairly present the financial position,
income, changes in cash flow, changes in stockholders' equity and the results of
operations of the Company at the respective dates and for the respective periods
to which they apply and such financial statements have been prepared in
conformity with generally accepted accounting principles and the Rules and
Regulations, consistently applied throughout the periods involved and such
financial statements as are audited have been examined by KPMG Peat Marwick LLP,
who are independent certified public accountants within the meaning of the Act
and the Rules and Regulations, as indicated in their report filed therewith.
[statement regarding reconciliations] There has been no adverse change or
development involving a prospective adverse change in the condition, financial
or otherwise, or in the earnings, position, prospects, value, operation,
properties, business, or results of operations of the Company whether or not
arising in the ordinary course of business, since the date of the financial
statements included in the Registration Statement and the Prospectus and the
outstanding debt, the property, both tangible and intangible, and the business
of the Company conform in all material respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. Financial
information (including, without limitation, any pro forma financial information)
set forth in the Prospectus under the headings "Summary Financial Information",
"Selected Financial Data," "Capitalization," and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," fairly present, on
the basis stated in the Prospectus, the information set forth therein, and have
been derived from or compiled on a basis consistent with that of the audited
financial statements included in the Prospectus; and, in the case of pro forma
financial information, if any, the assumptions used in the preparation thereof
are reasonable and the adjustments used therein are appropriate to give effect
to the transactions and circumstances referred to therein. The amounts shown as
accrued for current and deferred income and other taxes in such financial
statements are sufficient for the payment of all accrued and unpaid federal,
state, local and foreign income taxes, interest, penalties, assessments or
deficiencies applicable to the Company, whether disputed or not, for the
applicable period then ended and periods prior thereto; adequate allowance for
doubtful
5
<PAGE>
accounts has been provided for unindemnified losses due to the operations of the
Company; and the statements of income do not contain any items of special or
nonrecurring income not earned in the ordinary course of business, except as
specified in the notes thereto.
g. The Company (i) has paid all federal, state, local, and foreign
taxes for which it is liable, including, but not limited to, withholding taxes
and amounts payable under Chapters 21 through 24 of the Internal Revenue Code of
1986, as amended (the "Code"), and has furnished all information returns it is
required to furnish pursuant to the Code, (ii) has established adequate reserves
for such taxes which are due and payable, and (iii) does not have any tax
deficiency or claims outstanding, proposed or assessed against it.
h. No transfer tax, stamp duty or other similar tax is payable by or
on behalf of the Underwriters in connection with (i) the issuance by the Company
of the Securities, (ii) the purchase by the Underwriters of the Firm Securities
and the Option Securities from the Company, (iii) the consummation by the
Company of any of its obligations under this Agreement, or (iv) resales of the
Firm Securities and the Option Securities in connection with the distribution
contemplated hereby.
i. The Company maintains insurance policies, including, but not
limited to, general liability, product and property insurance, which insures the
Company and its employees, against such losses and risks generally insured
against by comparable businesses. The Company (A) has not failed to give notice
or present any insurance claim with respect to any matter, including but not
limited to the Company's business, property or employees, under any insurance
policy or surety bond in a due and timely manner, (B) has not any disputes or
claims against any underwriter of such insurance policies or surety bonds or has
failed to pay any premiums due and payable thereunder, or (C) has not failed to
comply with all conditions contained in such insurance policies and surety
bonds. There are no facts or circumstances under any such insurance policy or
surety bond which would relieve any insurer of its obligation to satisfy in full
any valid claim of the Company.
j. There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of the Company
which (i) questions the validity of the capital stock of the Company, this
Agreement, or of any action taken or to be taken by the Company pursuant to or
in connection with this Agreement, (ii) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
material respects), or (iii) might materially and adversely affect the
condition, financial or otherwise, or the earnings, position, prospects,
stockholders' equity, value, operation, properties, business or results of
operations of the Company.
k. The Company has full legal right, power and authority to authorize,
issue, deliver and sell the Securities, enter into this Agreement, and to
consummate the transactions provided for in this Agreement; and this Agreement
has been duly and properly authorized,
6
<PAGE>
executed and delivered by the Company. This Agreement constitutes a legal,
valid and binding agreement of the Company enforceable against the Company in
accordance with its terms, and none of the Company's issue and sale of the
Securities, execution or delivery of this Agreement, its performance hereunder,
its consummation of the transactions contemplated herein, or the conduct of its
business as described in the Registration Statement, the Prospectus, and any
amendments or supplements thereto, conflicts with or will conflict with or
results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company pursuant to
the terms of (i) the certificate of incorporation or by-laws of the Company,
(ii) any license, contract, collective bargaining agreement, indenture,
mortgage, deed of trust, lease, voting trust agreement, stockholders agreement,
note, loan or credit agreement or any other agreement or instrument to which the
Company is a party or by which the Company is or may be bound or to which any of
its properties or assets (tangible or intangible) is or may be subject, or any
indebtedness, or (iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company of any arbitrator, court, regulatory body or
administrative agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, having jurisdiction over the Company or any of its
activities or properties.
l. No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement,
and the transactions contemplated hereby, including without limitation, any
waiver of any preemptive, first refusal or other rights that any entity or
person may have for the issue and/or sale of any of the Securities, except such
as have been or may be obtained under the Act or may be required under state
securities or Blue Sky laws in connection with the Underwriters' purchase and
distribution of the Firm Securities and the Option Securities, to be sold by the
Company hereunder.
m. All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which any of its assets, properties or business may be subject have
been duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company enforceable
against the Company in accordance with their respective terms. The descriptions
in the Registration Statement of agreements, contracts and other documents are
accurate and fairly present the information required to be shown with respect
thereto by Form S-1, and there are no contracts or other documents which are
required by the Act to be described in the Registration Statement or filed as
exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are complete and correct copies
of the documents of which they purport to be copies.
7
<PAGE>
n. Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, the Company has not (i) issued
any securities or incurred any liability or obligation, direct or contingent,
for borrowed money, (ii) entered into any transaction other than in the ordinary
course of business, or (iii) declared or paid any dividend or made any other
distribution on or in respect of its capital stock of any class, and there has
not been any change in the capital stock, or any change in the debt (long or
short term) or liabilities or material adverse change in or affecting the
general affairs, management, financial operations, stockholders' equity or
results of operations of the Company.
o. Except as otherwise disclosed in the Registration Statement and
Prospectus, no default exists in the due performance and observance of any term,
covenant or condition of any license, contract, collective bargaining agreement,
indenture, mortgage, installment sale agreement, lease, deed of trust, voting
trust agreement, stockholders agreement, partnership agreement, note, loan or
credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other material agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which the property or assets (tangible or intangible) of the Company is
subject or affected.
p. Except as otherwise disclosed in the Registration Statement and
Prospectus, the Company has generally enjoyed a satisfactory employer-employee
relationship with its employees and is in compliance with all federal, state,
local, and foreign laws and regulations respecting employment and employment
practices, terms and conditions of employment and wages and hours. There are no
pending investigations involving the Company by the U.S. Department of Labor, or
any other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor
practice charge or complaint against the Company pending before the National
Labor Relations Board, or any comparable foreign agency, or any lockout, strike,
picketing, boycott, dispute, slowdown or stoppage pending or threatened against
or involving the Company or any predecessor entity, and none has ever occurred.
No representation question exists respecting the employees of the Company, and
no collective bargaining agreement or modification thereof is currently being
negotiated by the Company. No grievance or arbitration proceeding is pending
under any expired or existing collective bargaining agreements of the Company.
No labor dispute with the employees of the Company exists, or, is imminent.
q. The Company maintains, sponsors or contributes to any program or
arrangement that is an "employee pension benefit plan," an "employee welfare
benefit plan," or a "multiemployer plan" as such terms are defined in Sections
3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not
maintain or contribute, now or at any time previously, to a defined benefit
plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA or Section 4975 of the Code, which could subject the
Company to any tax penalty on prohibited transactions and which has not
adequately been
8
<PAGE>
corrected. Each ERISA Plan is in compliance with all reporting, disclosure and
other requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
The Company has not ever completely or partially withdrawn from a "multiemployer
plan."
r. Neither the Company nor any of its employees, directors,
stockholders, partners, or affiliates (within the meaning of the Rules and
Regulations) of any of the foregoing has taken or will take, directly or
indirectly, any action designed to or which has constituted or which might be
expected to cause or result in, under the Exchange Act, or otherwise,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities or otherwise.
s. Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held by
the Company are in dispute so far as known by the Company or are in any conflict
with the right of any other person or entity. The Company (i) owns or has the
right to use, free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities of any
kind whatsoever, all patents, trademarks, service marks, trade names and
copyrights, technology and licenses and rights with respect to the foregoing,
used in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing and (ii) is not obligated or under any liability whatsoever to
make any payment by way of royalties, fees or otherwise to any owner or licensee
of, or other claimant to, any patent, trademark, service mark, trade name,
copyright, know-how, technology or other intangible asset, with respect to the
use thereof or in connection with the conduct of its business or otherwise.
t. Except as otherwise disclosed in the Registration Statement and
Prospectus, the Company owns and has the unrestricted right to use all trade
secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
designs, processes, works of authorship, computer programs and technical data
and information (collectively herein "intellectual property") that are material
to the development, manufacture, operation and sale of all products and services
sold or proposed to be sold by the Company, free and clear of and without
violating any right, lien, or claim of others, including without limitation,
former employers of its employees; provided, however, that the possibility
exists that other persons or entities, completely independently of the Company,
or any of its employees or agents, could have developed trade secrets or items
of technical information similar or identical to those of the Company. The
Company is not aware of any such development of similar or identical trade
secrets or technical information by others.
u. The Company has taken reasonable security measures to protect the
secrecy, confidentiality and value of its intellectual property in all material
respects.
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v. The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects, or other
restrictions or equities of any kind whatsoever, other than those referred to in
the Prospectus and liens for taxes not yet due and payable.
w. KPMG Peat Marwick LLP, whose report is filed with the Commission as
a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
x. The Company has caused to be duly executed legally binding and
enforceable agreements ("Lock-up Agreements") pursuant to which each of the
officers and directors of the Company, all holders of 5% or more of the Common
Stock issued and outstanding on the effective date of the Registration
Statement, and all holders of options, warrants or other securities exchangeable
or exercisable for or convertible into 5% or more of the Common Stock issued and
outstanding on the effective date of the Registration Statement has agreed (i)
not to, directly or indirectly, issue, offer, offer to sell, sell, grant any
option for the sale or purchase of, assign, transfer, pledge, hypothecate or
otherwise encumber or dispose of any shares of Common Stock or securities
convertible into, exercisable or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common Stock (either pursuant to Rule
144 of the Rules and Regulations or otherwise) or dispose of any beneficial
interest therein for a period of not less than six (6) months following the
effective date of the Registration Statement without the prior written consent
of the Underwriters and the Company and (ii) to waive all rights to request or
demand the registration pursuant to the Act of any securities of the Company
which are registered in the name of or beneficially owned by any such holder.
[Include exception for certain holders.] During the six (6) month period
commencing on the effective date of the Registration Statement, the Company
shall not, without the prior written consent of the International Underwriter
and Rodman, sell, contract or offer to sell, issue, transfer, assign, pledge,
distribute, or otherwise dispose of, directly or indirectly, any shares of
Common Stock or any options, rights or warrants with respect to any shares of
Common Stock, except pursuant to options, rights or warrants existing on the
effective date of the Registration Statement; [PROVIDED, HOWEVER, (i) that the
Company and any subsidiaries or affiliates thereof may sell or offer for sale
any of their securities without the consent of the Underwriters in connection
with any merger or acquisition transaction, joint venture or other "corporate
partnering" transaction entered into by any of the Company and its subsidiaries
or affiliates and (ii) up to _______ shares of Common Stock reserved for grants
of options under the Company's stock option plan as described in the
Prospectus.] The Company will cause the Transfer Agent (as hereinafter defined)
to mark an appropriate legend on the face of stock certificates representing all
of such securities and to place "stop transfer" orders on the Company's stock
ledgers.
y. There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, or any of its officers, directors, stockholders,
partners, employees or affiliates, that may affect the Underwriters'
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compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
z. The Common Stock has been approved for listing on (i) the American
Stock Exchange ("AMEX") and (ii) the Stockholm Stock Exchange ("SSE").
aa. Neither the Company nor any of its officers, employees, agents or
any other person acting on behalf of the Company has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or official or
employee of any governmental agency (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (a) might subject the
Company, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign), (b) if
not given in the past, might have had a material adverse effect on the assets,
business or operations of the Company, or (c) if not continued in the future,
might adversely affect the assets, business, condition, financial or otherwise,
earnings, position, properties, value, operations or prospects of the Company.
The Company's internal accounting controls are sufficient to cause each of the
Company to comply with the Foreign Corrupt Practices Act of 1977, as amended.
bb. Except as set forth in the Prospectus, no officer, director,
stockholder or partner of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and Regulations)
of any of the foregoing persons or entities has or has had, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company, or (B) purchases from or sells or furnishes to the
Company any goods or services, or (ii) a beneficiary interest in any contract or
agreement to which the Company is a party or by which it may be bound or
affected. Except as set forth in the Prospectus under "Certain Transactions,"
there are no existing agreements, arrangements, understandings or transactions,
or proposed agreements, arrangements, understandings or transactions, between or
among the Company, and any officer, director, or 5% or greater securityholder of
the Company, or any partner, affiliate or associate of any of the foregoing
persons or entities.
cc. Any certificate signed by any officer of the Company, and
delivered to the Underwriters or to Underwriters' Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriters
as to the matters covered thereby.
dd. The minute books of the Company have been made available to the
Underwriters and contain a complete summary of all meetings and actions of the
directors (including committees thereof) and stockholders of the Company and
reflect all transactions referred to in such minutes accurately in all material
respects.
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ee. Except and to the extent described in the Prospectus, no holders
of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights (except for adjustments pursuant to stock splits, stock
dividends, recapitalizations and similar events) with respect to any securities
of the Company.
ff. (A) The Company is in compliance with all federal, state, local or
foreign laws, common law, rules, codes, administrative orders or regulations
relating to pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including without limitation, all laws, common
law, rules, codes, administrative orders and regulations relating to the release
or threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products (collectively,
"Hazardous Materials") or to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials
(collectively, "Environmental Laws") and (B) to the best of the Company's
knowledge, there are no events or circumstances that could form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the Company
relating to any Hazardous Materials or the violation of any Environmental Laws.
The Company has no reason to believe that it will not receive all necessary and
required approvals, authorizations, validations and certifications from the EPA
and other applicable regulatory authorities to enable the Company to commence
full operations as contemplated in the Registration Statement and the
Prospectus.
gg. 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, 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, the Company has reasonably
concluded that such associated costs and liabilities would not, singly or in the
aggregate, have a material adverse effect on the Company.
hh. Intentionally omitted.
ii. As of the date hereof, the Company does not have more than such
number of shares of Common Stock issued and outstanding as are described on page
[4] of the Prospectus (including securities with equivalent rights as the
Common Stock and shares of Common Stock, or such equivalent securities, issuable
upon exercise of any and all options, warrants and other contract rights and
securities convertible directly or indirectly into shares of Common Stock or
such equivalent securities).
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jj. The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and the Company
further agrees that if it or any affiliate commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's or
any affiliate's, business with Cuba or with any person or affiliate located in
Cuba changes in any material way, the Company will provide the Department notice
of such business or change, as appropriate, in a form acceptable to the
Department.
kk. The Company is not, and upon the issuance and sale of the
Securities as herein contemplated and the application of the net proceeds
therefrom as described in the Prospectus under the caption "Use of Proceeds"
will not be, an "investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of 1940, as
amended (the "1940 Act").
ll. The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorizations; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES.
a. On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the purchasers procured by the
International Underwriter, or, if and to the extent the International
Underwriter has not procured such purchasers, to the International Underwriter,
and the International Underwriter agrees to procure purchasers to purchase, or
failing which to purchase, from the Company, the International Shares at a price
of U.S. $[____] per International Share, subject to such adjustment as the
International Underwriter in its sole discretion shall make to eliminate any
sales or purchases of fractional shares, plus any additional number of
International Firm Securities which the International Underwriter may become
obligated to purchase pursuant to the provisions of SECTION 11 hereof.
b. On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company
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<PAGE>
agrees to sell to the U.S. Underwriters and the U.S. Underwriters agree to
purchase, from the Company, the U.S. Shares at a price of U.S. $[____] per U.S.
Share, subject to such adjustment as the Representative in its sole discretion
shall make to eliminate any sales or purchases of fractional shares, plus any
additional number of U.S. Firm Securities which the U.S. Underwriters may become
obligated to purchase pursuant to the provisions of SECTION 11 hereof.
c. In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the (i)
International Underwriter to procure purchasers for all or any part of an
additional [300,000] shares of Common Stock at a price of $[_____] per share of
Common Stock and (ii) U.S. Underwriters, severally and not jointly, to purchase
all or any part of an additional [75,000] shares of Common Stock at a price of
$[_____] per share of Common Stock. The options granted hereby will expire
[thirty] [(30)] days after (x) the date the Registration Statement becomes
effective, if the Company has elected not to rely on Rule 430A under the Rules
and Regulations, or (y) the date of this Agreement if the Company has elected to
rely upon Rule 430A under the Rules and Regulations, and may be exercised in
whole or in part from time to time only for the purpose of covering over-
allotments which may be made in connection with the offering and distribution of
the Firm Securities upon notice by the Global Coordinator to the Company setting
forth the number of Option Securities as to which the Global Coordinator are
then exercising the option and the time and date of payment and delivery for any
such Option Securities. Any such time and date of delivery (an "Option Closing
Date") shall be determined by the Global Coordinator, but shall not be later
than three (3) full business days after the exercise of said option, nor in any
event prior to the Closing Date, as hereinafter defined, unless otherwise agreed
upon by the Global Coordinator and the Company. Nothing herein contained shall
obligate the Underwriters to make any over-allotments. No Option Securities
shall be delivered unless the Firm Securities shall be simultaneously delivered
or shall theretofore have been delivered as herein provided.
d. Payment of the purchase price for the Firm Securities shall be made
by a wire transfer in immediately available funds to the account of the Company,
or at such other place as shall be agreed upon by the Company and the Global
Underwriter. Such payment shall be made at 10:00 a.m. ([New York City] time) on
________________, 1997 or at such other time and date as shall be agreed upon by
the Global Underwriter and the Company (such time and date of payment and
delivery being herein called the "Closing Date"). In addition, in the event
that any or all of the Option Securities are purchased by the Underwriters,
payment of the purchase price for such Option Securities shall be made at such
place as shall be agreed upon by the Global Coordinator and the Company on each
Option Closing Date as specified in the notice from the Global Coordinator to
the Company. [Finalize coordination of book entry delivery.] [Cleary and Alfred
Berg to review: The Global Coordinator may designate a portion of the
International Shares to be purchased under this Agreement to be delivered on
behalf of investors to local custodians in Sweden participating in the Swedish
Securities Register Center (any reference herein to "Shares to be delivered by
local delivery" shall be deemed to refer to the International Shares as to which
such a designation has been made) and a portion thereof to the respective
custodians for the Operator (as defined below),
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<PAGE>
and CEDEL (as defined below). Notice of such election shall be given by the
Global Coordinator, on behalf of the Underwriters, to the Company prior to
notification with respect to the Closing Date, in the case of Firm Shares, or
the notification with respect to the Option Closing Date, with respect to the
International Option Securities. Any International Shares to be delivered at
the Closing Date or at the Option Closing Date shall be delivered (i) with
respect to Shares to be delivered by local delivery at the Closing Date or the
Option Closing Date, as the case may be, by book-entry transfer in the Swedish
Securities Register center to an account to be specified by the Global
Coordinator, and (ii) with respect to any International Shares not to be
delivered by local delivery at the Closing Date or the Option Closing Date, as
the case may be, by book-entry transfer in the Swedish Securities Register
Center to _______________ Banken as custodian for (A) __________________ , as
Operator of the [Euroclear System] (the "Operator") and (B) CEDEL Bank, S.A.
("Cedel") in such respective portions as the Underwriters may designate, upon
notice to the Company by the Global Coordinator prior to the notification with
respect to the Closing Date or the Option Closing Date, as the case may be.]
3. PUBLIC OFFERING OF THE SHARES. As soon after the Registration
Statement becomes effective as the U.S. Underwriters and the International
Underwriter deem advisable, the U.S. Underwriters and the International
Underwriter shall make a public offering of the Shares (other than to residents
of or in any jurisdiction in which qualification of the Shares and is required
and has not become effective) at the price and upon the other terms set forth in
the U.S. Prospectus and the International Prospectus, respectively. The U.S.
Underwriters and the International Underwriter may from time to time increase or
decrease the respective public offering price after distribution of the Shares
has been completed to such extent as the Representative and the International
Underwriter, in their sole discretion deem advisable. The Representative and
the International Underwriter may enter into one of more agreements as the
Representative and the International Underwriter, in their sole discretion, deem
advisable with one or more broker-dealers who shall act as dealers in connection
with such public offering.
4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and
agrees with the Underwriters as follows:
a. The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or Exchange
Act before termination of the offering of the Shares by the Underwriters of
which the Underwriters shall not previously have been advised and furnished with
a copy, or to which the Underwriters shall have objected or which is not in
compliance with the Act, the Exchange Act or the Rules and Regulations.
b. As soon as the Company is advised or obtains knowledge thereof, the
Company will advise the Underwriters and confirm the notice in writing (i) when
the Registration Statement, as amended, becomes effective, if the provisions of
Rule 430A promulgated under the Act will be relied upon, when the Prospectus has
been filed in accordance with said Rule
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<PAGE>
430A and when any post-effective amendment to the Registration Statement becomes
effective; (ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding suspending the effectiveness
of the Registration Statement or any order preventing or suspending the use of
the Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, or the institution of proceedings for that purpose; (iii) of the
issuance by the Commission or by any state securities commission of any
proceedings for the suspension of the qualification of any of the Securities for
offering or sale in any jurisdiction or of the initiation, or the threatening,
of any proceeding for that purpose; (iv) of the receipt of any comments from the
Commission; and (v) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information. If the Commission or any state securities commission
shall enter a stop order or suspend such qualification at any time, the Company
will make every effort to obtain promptly the lifting of such order.
c. The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriters) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Underwriters, pursuant
to Rule 424(b)(4)) not later than the Commission's close of business on the
earlier of (i) the second business day following the execution and delivery of
this Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
d. The Company will give the Underwriters notice of its intention to
file or prepare any amendment to the Registration Statement (including any post-
effective amendment) or any amendment or supplement to the Prospectus (including
any revised prospectus which the Company proposes for use by the Underwriters in
connection with the offering of the Securities which differs from the
corresponding prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will
furnish the Underwriters with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such prospectus to which the Underwriters or its
counsel shall object.
e. The Company shall endeavor in good faith, in cooperation with the
Underwriters, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Underwriters may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; PROVIDED,
HOWEVER, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Underwriters agree that such action is not at the
time necessary or advisable, use all reasonable efforts to file and make such
statements or reports at such times as are or may reasonably be required by the
laws of such jurisdiction to continue such qualification.
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f. During the time when a prospectus is required to be delivered under
the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus
relating to the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the opinion of counsel for the
Company or the Underwriters, the Prospectus, as then amended or supplemented,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading, or
if it is necessary at any time to amend the Prospectus to comply with the Act,
the Company will notify the Underwriters promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to
Underwriters' Counsel, and the Company will furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.
g. As soon as practicable, but in any event not later than forty-five
(45) days after the end of the 12-month period beginning on the day after the
end of the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (ninety (90) days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), the Company shall
make generally available to its security holders, in the manner specified in
Rule 158(b) of the Rules and Regulations, and to the Underwriters, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least twelve (12) consecutive months after the effective
date of the Registration Statement.
h. During a period of ________ (___) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Underwriters:
i. concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the
form furnished to the Company's stockholders and certified by the Company's
principal financial or accounting officer;
ii. concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity,
and cash flows of the Company for such fiscal year, accompanied by a copy
of the certificate thereon of independent certified public accountants;
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iii. as soon as they are available, copies of all reports (financial
or other) mailed to stockholders;
iv. as soon as they are available, copies of all reports and financial
statements furnished to or filed with the Commission, the NASD or any
securities exchange;
v. every press release and every material news item or article of
interest to the financial community in respect of the Company, or its
affairs, which was released or prepared by or on behalf of the Company; and
vi. any additional information of a public nature concerning the
Company (and any future subsidiary) or its businesses which the
Underwriters may request.
During such ________-year period, if the Company has an active subsidiary,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiary(ies) are consolidated, and
will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
i. The Company will maintain a transfer agent and warrant agent
("Transfer Agent") and, if necessary under the jurisdiction of incorporation of
the Company, a Registrar (which may be the same entity as the Transfer Agent)
for its Common Stock.
j. The Company will furnish to the Underwriters or on the
Underwriters' order, without charge, at such place as the Underwriters may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Underwriters may request.
k. On or before the effective date of the Registration Statement, the
Company shall provide the Global Coordinator with true original copies of duly
executed, legally binding and enforceable Lock-up Agreements pursuant to which,
for a period of six (6) months [include exception for certain holders] from the
effective date of the Registration Statement, each of the Company's officers and
directors, all holders of 5% or more of the Common Stock issued and outstanding
on the effective date of the Registration Statement, and all holders of options,
warrants or other securities exchangeable or exercisable for or convertible into
5% or more of the Common Stock issued and outstanding on the effective date of
the Registration Statement agrees that it or he or she (i) will not, directly or
indirectly, issue, offer to sell, sell, grant an option for the sale or purchase
of, assign, transfer, pledge, hypothecate or otherwise encumber or dispose of
any shares of Common Stock or securities convertible into, exercisable or
exchangeable for or evidencing any right to purchase or subscribe for any shares
of Common Stock (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) or dispose of any beneficial interest therein without the prior
consent of the Representative and the Global Coordinator and the Company and
(ii) waives any and all rights to request or demand the registration pursuant to
the Act, of any
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securities of the Company which are registered in the name of or beneficially
owned by it or he or she, respectively. The Company will also use its best
efforts to cause all holders of less than 5% of the Common Stock issued and
outstanding on the effective date of the Registration Statement and all holders
of options, warrants or other securities convertible, exercisable or
exchangeable for less than 5% of the Common Stock issued and outstanding on the
effective date of the Registration Statement to enter into Lock-up Agreements.
During the six (6) month period commencing on the effective date of the
Registration Statement, the Company shall not, without the prior written consent
of the Representative and the Global Coordinator, sell, contract or offer to
sell, issue, transfer, assign, pledge, distribute, or otherwise dispose of,
directly or indirectly, any shares of Common Stock or any options, rights or
warrants with respect to any shares of Common Stock, except pursuant to options,
rights or warrants existing on the effective date of the Registration Statement;
PROVIDED, HOWEVER, that the Company and any subsidiaries or affiliates thereof
may sell or offer for sale any of their securities without the consent of the
Representative and the Global Coordinator in connection with (i) any merger or
acquisition transaction, joint venture or other "corporate partnering"
transaction entered into by any of the Company and its subsidiaries or
affiliates and (ii) up to _________ shares of Common Stock reserved for grants
of options under the Company's stock option plan as described in the Prospectus.
On or before the Closing Date, the Company shall deliver instructions to the
Transfer Agent authorizing it to place appropriate legends on the
certificates representing the securities subject to the Lock-up Agreements
and to place appropriate stop transfer orders on the Company's ledgers.
l. Neither the Company nor any of its officers, directors,
stockholders, nor any of their respective affiliates (within the meaning of the
Rules and Regulations) will take, directly or indirectly, any action designed
to, or which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any securities of the Company.
m. The Company shall apply the net proceeds from the sale of the
Securities in the manner, and subject to the conditions, set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
n. The Company shall timely file all such reports, forms or other
documents as may be required from time to time, under the Act, the Exchange Act,
and the Rules and Regulations, and all such reports, forms and documents filed
will comply as to form and substance with the applicable requirements under the
Act, the Exchange Act, and the Rules and Regulations.
o. The Company shall furnish to Representative and the Global
Coordinator as early as practicable prior to each of the date hereof, the
Closing Date and each Option
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Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than [________
(__)] days prior to the date of the Registration Statement) which have been read
by the Company's independent public accountants, as stated in their letters to
be furnished pursuant to SECTIONS 6(l) and 6(m) hereof.
p. The Company shall cause the Common Stock to be quoted on AMEX and
the SSE and use its best efforts to maintain the AMEX and SSE listing of the
Common Stock to the extent outstanding.
q. For a period of ______ (__) year[s] from the Closing Date, upon the
Underwriters' written request, the Company shall furnish to the Representative
and the Global Coordinator at the Company's sole expense, (i) daily consolidated
transfer sheets relating to the Common Stock (ii) the list of holders of all of
the Company's securities and (iii) a Blue Sky "Trading Survey" for secondary
sales of the Company's securities prepared by counsel to the Company.
r. The Company hereby agrees that it will not, for a period of six (6)
months from the effective date of the Registration Statement, adopt, propose to
adopt or otherwise permit to exist any employee, officer, director, consultant
or compensation plan or similar arrangement permitting (i) the grant, issue,
sale or entry into any agreement to grant, issue or sell any option, warrant or
other contract right (x) at an exercise price that is less than the fair market
value on the date of grant or sale or (y) to any of its executive officers or
directors or to any holder of 5% or more of the Common Stock, except as provided
in subsection (ii) of this subparagraph; (ii) the maximum number of shares of
Common Stock or other securities of the Company purchasable at any time pursuant
to options or warrants issued by the Company to exceed the aggregate _______
shares (subject to reduction pursuant to Section 4(k) herein) reserved for
future issuance under the Company's 1993 Long-Term Incentive Plan described in
footnote one (1) to the "Prospectus Summary - The Offering" section of the
Prospectus; (iii) the payment for such securities with any form of consideration
other than cash or a full recourse promissory note payable to the Company
secured by the securities; or (iv) the existence of stock appreciation rights,
phantom options or similar arrangements.
s. Until the completion of the distribution of the Securities, the
Company shall not, without the prior written consent of the Representative and
the Global Coordinator and their counsel, issue, directly or indirectly any
press release or other communication or hold any press conference with respect
to the Company or its activities or the offering contemplated hereby, other than
trade releases issued in the ordinary course of the Company's business
consistent with past practices with respect to the Company's operations.
t. At the effective date of the Registration Statement and on each
of the Closing Date and each Option Closing Date, if any, the Company shall have
obtained all necessary and required approvals, authorizations, franchises,
licenses, orders, permits, validations and certifications from the United States
Food and Drug Administration (the "FDA") and other domestic and foreign
regulatory authorities required to conduct its business as presently
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conducted and described in the Prospectus, and none of such approvals,
authorizations, franchises, licenses, orders, permits, validations and
certifications shall have been revoked, restricted or limited in any manner and
all of such approvals, authorizations, franchises, licenses, orders, permits,
validations and certifications shall be in full force and effect on each of the
effective date of the Registration Statement, the Closing Date and each Option
Closing Date, if any.
5. PAYMENT OF EXPENSES.
a. The Company hereby agrees to pay on each of the Closing Date and
the Option Closing Date (to the extent not paid at the Closing Date) all
expenses and fees incident to the performance of the obligations of the Company
under this Agreement, including, without limitation, (i) the fees and expenses
of accountants and counsel for the Company, (ii) all costs and expenses incurred
in connection with the preparation, duplication, printing (including mailing and
handling charges), filing, delivery and mailing (including the payment of
postage with respect thereto) of the Registration Statement and the Prospectus
and any amendments and supplements thereto and the printing, mailing (including
the payment of postage with respect thereto) and delivery of this Agreement, the
Agreement Among Underwriters, the Selected Dealer Agreements, and related
documents, including the cost of all copies thereof and of the Preliminary
Prospectuses and of the Prospectus and any amendments thereof or supplements
thereto supplied to the Underwriters and such dealers as the Underwriters may
request, in quantities as hereinabove stated, (iii) the [printing, engraving],
issuance and delivery of the Securities including, but not limited to, (x) the
purchase by the Underwriters of the Firm Securities and the Option Securities,
(y) the consummation by the Company of any of its obligations under this
Agreement, and (z) resale of the Firm Securities and the Option Securities by
the Underwriters in connection with the distribution contemplated hereby,
(iv) fees and expenses of Underwriters' counsel provided that fees to Orrick,
Herrington & Sutcliffe LLP will not exceed $ (assuming a no review by
the Staff of the Commission) and fees to Cleary Gottlieb will not exceed
, (v) advertising costs and expenses, including but not limited to
costs and expenses in connection with the "road show", information meetings and
presentations, bound volumes and prospectus memorabilia and "tomb-stone"
advertisement expenses; (vi) costs and expenses in connection with due diligence
investigations, including but not limited to the fees of any independent
counsel, expert or consultant retained, (vii) fees and expenses of the Transfer
Agent and registrar and all issue and transfer taxes, if any,
(viii) applications for assignment of a rating of the Securities by qualified
rating agencies, (ix) the fees payable to the Commission and the NASD, (x) the
fees and expenses incurred in connection with the listing of the Securities on
AMEX and the SSE and any other exchange, and (y) any transfer tax payable by or
on behalf of the Underwriters in connection with (A) the issuance by the Company
of the Securities, (B) the purchase by the Underwriters of the Firm Securities
and the Option Securities respectively, from the Company, (C) the consummation
by the Company of any of its obligations under this Agreement, or (D) resales of
the Firm Securities and the Option Securities in connection with the
distribution contemplated hereby.
b. If this Agreement is terminated by the Underwriters in accordance
with the provisions of SECTION 6 or SECTION 12, the Company shall reimburse and
indemnify the
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Underwriters for all of their actual out-of-pocket expenses, including the fees
and disbursements of Underwriters' Counsel.
c. All fees, commissions and reimbursements of costs or expenses
payable under this Agreement to Alfred Berg are expressed to be exclusive of any
value added or similar tax in Sweden and if at any time any such tax is charged,
the Company shall indemnify Alfred Berg on demand from and against the amount of
any such tax, charge or other levy and any penalty, duty, interest, cost or
expense incurred in connection therewith.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of the officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Option Closing Date, if any, of its covenants and obligations hereunder and
to the following further conditions:
a. The Registration Statement shall have become effective not later
than 12:00 P.M., New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Representative and the
Global Coordinator, and, at the Closing Date and each Option Closing Date, if
any, no stop order suspending the effectiveness of the Registration Statement
shall have been issued and no proceedings for that purpose shall have been
instituted or shall be pending or contemplated by the Commission and any request
on the part of the Commission for additional information shall have been
complied with to the reasonable satisfaction of Underwriters' counsel. If the
Company has elected to rely upon Rule 430A of the Rules and Regulations, the
price of the Shares and any price-related information previously omitted from
the effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules
and Regulations within the prescribed time period and, prior to the Closing
Date, the Company shall have provided evidence satisfactory to the
Representative and the Global Coordinator of such timely filing, or a post-
effective amendment providing such information shall have been promptly filed
and declared effective in accordance with the requirements of Rule 430A of the
Rules and Regulations.
b. The Underwriters shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the opinion of the Representative and the Global Coordinator,
is material, or omits to state a fact which, in the opinion of the
Representative and the Global Coordinator, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or that the
Prospectus, or any supplement thereto, contains an untrue statement of fact
which, in the opinion of the Representative and the Global Coordinator, is
material, or omits to state a fact which, in the opinion of the Representative
and the Global Coordinator, is material and is required to be
22
<PAGE>
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
c. On or prior to each of the Closing Date and each Option Closing
Date, if any, the Underwriters shall have received from Orrick, Herrington &
Sutcliffe, LLP and, such opinion or opinions with respect to the organization of
the Company, the validity of the Securities, the Registration Statement, the
Prospectus and other related matters as the Underwriters may request and counsel
to the Underwriters shall have received such papers and information as they
request to enable them to pass upon such matters.
d. At the Closing Date, the Underwriters shall have received the
favorable opinion of Cooley Godward Castro Huddleson & Tatum, counsel to the
Company, dated the Closing Date, addressed to the Underwriters and in form and
substance satisfactory to Underwriters' Counsel, to the effect set forth in
Schedule C hereof.
Such counsel shall state that such counsel has participated in conferences
with officers and other representatives of the Company, and representatives of
the independent public accountants for the Company, at which conferences such
counsel made inquiries of such officers, representatives and accountants and
discussed the contents of the Preliminary Prospectus, the Registration
Statement, the Prospectus and related matters 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 Preliminary
Prospectus, the Registration Statement and the Prospectus, on the basis of the
foregoing, no facts have come to the attention of such counsel which lead them
to believe that either the Registration Statement or any amendment thereto, at
the time such Registration Statement or amendment became effective or the
Prospectus or any amendment or supplement thereto as of the date of such opinion
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading (it being understood that such counsel need express no opinion
with respect to the financial statements and schedules and other financial and
statistical data included in the Registration Statement or the Prospectus).
Such counsel shall further state that its opinion may be relied upon by counsel
to the Underwriters in rendering its opinion to the Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States, the
State of California and the General Corporation Law of the State of Delaware, to
the extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (in form and substance
satisfactory to counsel to the Underwriters) of other counsel acceptable to
counsel to the Underwriters, familiar with the applicable laws and assuming New
York law is the same as California law; (B) as to matters of fact, to the extent
they deem proper, on certificates and written statements of responsible officers
of the Company and certificates or other written statements of officers of
departments of various jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company, provided that copies of any
such statements or certificates shall be delivered to counsel to the
Underwriters if requested. The opinion of such counsel for the Company shall
state that the opinion of any such other counsel is in form satisfactory to such
counsel and that the, Underwriters,
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<PAGE>
counsel to the Underwriters and they are each justified in relying thereon. Any
opinion of counsel for the Company shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written policy
or other document relating to legal opinions, including, without limitation, the
Legal Opinion Accord of the ABA Section of Business Law (1991) or any comparable
state accord.
e. At the Closing Date, the Underwriters shall have received the
favorable opinion of Knobbe, Martens, Olson & Bear, special patent counsel to
the Company, dated the Closing Date, addressed to the Underwriters, in form and
substance satisfactory to Underwriters' Counsel, and in substantially the form
of Schedule B attached hereto.
f. Local Swedish Counsel Opinion.
g. At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinions of each of Cooley Godward Castro Huddleson &
Tatum, counsel to the Company, Knobbe, Martens, Olson & Bear, special patent
counsel to the Company, addressed to the Underwriters and in form and substance
satisfactory to counsel to the Underwriters confirming as of such Option Closing
Date the statements made by each of Cooley Godward Castro Huddleson & Tatum, and
Knobbe, Martens, Olson & Bear, in their respective opinions delivered on the
Closing Date.
h. On or prior to each of the Closing Date and each Option Closing
Date, if any, counsel to the Underwriters shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this SECTION 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions of the Company, or herein contained.
i. Prior to each of the Closing Date and each Option Closing Date, if
any, (i) there shall have been no adverse change nor development involving a
prospective change in the condition, financial or otherwise, earnings, position,
value, properties, results of operations, prospects, stockholders' equity or the
business activities of the Company whether or not in the ordinary course of
business, from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the Company
from the latest date as of which the financial condition of the Company is set
forth in the Registration Statement and the Prospectus which is adverse to the
Company; (iii) except as otherwise disclosed in the Registration Statement and
Prospectus, the Company shall not be in default under any provision of any
instrument relating to any outstanding indebtedness; (iv) except as otherwise
disclosed in the Registration Statement and Prospectus, the Company shall not
have issued any securities (other than the Securities) or declared or paid any
dividend or made any distribution in respect of its capital stock of any class
and there has not been any change in the capital stock or any change in the debt
(long or short term) or liabilities or obligations of the Company (contingent or
otherwise); (v) no material amount of the assets of the Company shall have been
pledged or mortgaged, except as set forth in the Registration Statement and
Prospectus, (vi) except as otherwise disclosed in the Registration Statement and
Prospectus,
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no action, suit or proceeding, at law or in equity, shall have been pending or
threatened (or circumstances giving rise to same) against the Company or
affecting any of its properties or businesses before or by any court or federal,
state or foreign commission, board or other administrative agency wherein an
unfavorable decision, ruling or finding may adversely affect the business,
operations, earnings, position, value, properties, results of operations,
prospects or financial condition or income of the Company; and (vii) no stop
order shall have been issued under the Act and no proceedings therefor shall
have been initiated, threatened or contemplated by the Commission.
j. At each of the Closing Date and each Option Closing Date, if any,
the Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that each of such persons has carefully examined the
Registration Statement, Prospectus and this Agreement, and that:
i. The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date or
the Option Closing Date, as the case may be, and the Company has complied
with all agreements and covenants and satisfied all conditions contained in
this Agreement on its part to be performed or satisfied at or prior to such
Closing Date or Option Closing Date, as the case may be;
ii. No stop order suspending the effectiveness of the Registration
Statement or any part thereof has been issued, and no proceedings for that
purpose have been instituted or are pending or, to the best of each of
such person's knowledge, after due inquiry, are contemplated or threatened
under the Act;
iii. The Registration Statement and Prospectus and, if any, each
amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading and neither the Preliminary Prospectus or any supplement
thereto included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; and
iv. Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (a) the Company has
not incurred up to and including the Closing Date or the Option Closing
Date, as the case may be, other than in the ordinary course of its
business, any material liabilities or obligations, direct or contingent;
(b) the Company has not paid or declared any dividends or other
distributions on its capital stock; (c) the Company has not entered into
any transactions not in the ordinary course of business; (d) there has not
been any change in the capital stock or long-term debt or any increase in
the short-term borrowings (other than the issuance of capital stock
pursuant to the exercise of outstanding stock options described
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<PAGE>
in the Prospectus and any increase in the short-term borrowings in the
ordinary course of business) of the Company; (e) the Company has not
sustained any loss or damage to any of its properties or assets, whether or
not insured; (f) there is no litigation which is pending or threatened (or
circumstances giving rise to same) against the Company or any affiliated
party of any of the foregoing which is required to be set forth in an
amended or supplemented Prospectus which has not been set forth; and (g)
there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this subsection
(j) are to such documents as amended and supplemented at the date of such
certificate.
k. By the Closing Date, the Underwriters will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
l. At the time this Agreement is executed, the Underwriters shall have
received a letter, dated such date, addressed to the Underwriters in form and
substance satisfactory in all respects to the Underwriters and counsel to the
Underwriters, from KPMG Peat Marwick LLP containing statements and information
of the type ordinarily included in accountant's "comfort letters" to U.S.
Underwriters with respect to financial information contained in the Registration
Statement and the Prospectus.
m. At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from KPMG Peat Marwick LLP a letter, dated as
of the Closing Date or the Option Closing Date, as the case may be, to the
effect that they reaffirm that statements made in the letter furnished pursuant
to SUBSECTION (l) of this SECTION, except that the specified date referred to
therein shall be a date not more than five (5) days prior to the Closing Date or
the Option Closing Date, as the case may be.
n. On each of the Closing Date and each Option Closing Date, if any,
there shall have been duly tendered to the Underwriters for the Underwriters'
accounts the appropriate number of Securities.
o. No order suspending the sale of the Securities in any jurisdiction
designated by the Underwriters pursuant to SUBSECTION (e) of SECTION 4 hereof
shall have been issued on either the Closing Date or the Option Closing Date, if
any, and no proceedings for that purpose shall have been instituted or shall be
contemplated.
p. On or before the Closing Date, the Firm Securities and Option
Securities shall have been duly approved for listing on AMEX and the SSE,
subject to official notice of issuance.
q. On or before the Closing Date, there shall have been delivered to
the Underwriters all of the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
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If any condition to the Underwriters' obligations hereunder to be fulfilled
prior to or at the Closing Date or the relevant Option Closing Date, as the case
may be, is not so fulfilled, the Underwriters may terminate this Agreement or,
if the Underwriters so elect, they may waive any such conditions which have not
been fulfilled or extend the time for their fulfillment.
7. INDEMNIFICATION.
a. The Company agrees to indemnify and hold harmless the Underwriters
(for purposes of this SECTION 7 "Underwriter" shall include the officers,
directors, partners, employees, agents and counsel of the Underwriters,
including specifically each person who may be substituted for the Underwriters
as provided in SECTION 11 hereof), and each person, if any, who controls the
Underwriters ("controlling person") within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries, suits and litigation in respect
thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such claim, action, proceeding, investigation, inquiry, suit or litigation,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which the Underwriters or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus, the Registration Statement or the Prospectus (as from
time to time amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
securities of the Company issued or issuable upon exercise of the Securities; or
(iii) in any application or other document or written communication (in this
SECTION 7 collectively called "application") executed by the Company or based
upon written information furnished by the Company in any jurisdiction in order
to qualify the Securities under the securities laws thereof or filed with the
Commission, any state securities commission or agency, AMEX, the SSE or any
other securities exchange; 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 (in the case of the Prospectus, in the light of the
circumstances under which they were made), unless such statement or omission was
made in reliance upon and in strict conformity with written information
furnished to the Company with respect to the Underwriters by or on behalf of the
Underwriters expressly for use in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment thereof or supplement thereto, or
in any application, as the case may be.
The indemnity agreement in this SUBSECTION (a) shall be in addition to any
liability which the Company may have at common law or otherwise.
b. The Underwriters agree to indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the Registration
Statement, and each other person, if any, who controls the Company within the
meaning of the Act, to the same extent as the foregoing indemnity from the
Company to the Underwriters but only with respect to
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statements or omissions, if any, made in any Preliminary Prospectus, the
Registration Statement or Prospectus or any amendment thereof or supplement
thereto or in any application made in reliance upon, and in strict conformity
with, written information furnished to the Company with respect to the
Underwriters by the Underwriters expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus directly relating to the
transactions effected by the International Underwriter in connection with this
Offering. The Company acknowledges that the statements with respect to the
public offering of the Firm Securities and the Option Securities set forth under
the heading "Underwriting" and the stabilization legend in the Prospectus have
been furnished by the Underwriters expressly for use therein and constitute the
only information furnished in writing by or on behalf of the Underwriters for
inclusion in the Prospectus.
c. Promptly after receipt by an indemnified party under this SECTION 7
of notice of the commencement of any claim, action, suit, investigation,
inquiry, proceeding or litigation, such indemnified party shall, if a claim in
respect thereof is to be made against one or more indemnifying parties under
this SECTION 7, notify each party against whom indemnification is to be sought
in writing of the commencement thereof (but the failure so to notify an
indemnifying party shall not relieve it from any liability which it may have
under this SECTION 7 except to the extent that it has been prejudiced in any
material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, suit, investigation, inquiry,
proceeding or litigation is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect 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. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense thereof at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense thereof within a reasonable
time after notice of commencement thereof, or (iii) such indemnified party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to one or
all of the indemnifying parties (in which case the indemnifying parties shall
not have the right to direct the defense thereof on behalf of the indemnified
party or parties), in any of which events such fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event
shall the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one claim, action, suit,
investigation, inquiry, proceeding or litigation or separate but similar or
related claims, actions, suits, investigations, inquiries, proceedings or
litigation in the same jurisdiction arising out of the same general allegations
or
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circumstances. Anything in this SECTION 7 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim, action,
suit, investigation, inquiry, proceeding or litigation effected without its
written consent; PROVIDED, HOWEVER, that such consent was not unreasonably
withheld. An indemnifying party will not, without the prior written consent of
the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit,
investigation, inquiry, proceeding or litigation in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim, action, suit,
investigation, inquiry, proceeding or litigation), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit, investigation,
inquiry, proceeding or litigation and (ii) does not include a statement as to or
an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
d. In order to provide for just and equitable contribution in any case
in which (i) an indemnified party makes claim for indemnification pursuant to
this SECTION 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this SECTION 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Firm Securities and the Option Securities or (B) if the allocation provided
by clause (A) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each of the contributing parties, on the
one hand, and the party to be indemnified, on the other hand, in connection with
the statements or omissions that resulted in such losses, claims, damages,
expenses or liabilities, as well as any other relevant equitable considerations.
In any case where the Company is the contributing party and the Underwriters are
the indemnified party, the relative benefits received by the Company on the one
hand, and the Underwriters, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Firm Securities
and the Option Securities (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover Page of the Prospectus. Relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company, or by
the Underwriters, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, expenses or liabilities (or actions in respect thereof)
referred to above in this SUBSECTION (d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this SUBSECTION (d), the
29
<PAGE>
Underwriters shall not be required to contribute any amount in excess of the
underwriting discount applicable to the Firm Securities and the Option
Securities purchased by the Underwriters hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this SECTION 7, each person, if
any, who controls the Company within the meaning of the Act, each officer of the
Company who has signed the Registration Statement, and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to this SUBSECTION (d). Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect to which a claim for contribution may
be made against another party or parties under this SUBSECTION (d), notify such
party or parties from whom contribution may be sought, but the omission so to
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this SUBSECTION (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution
agreement set forth above shall be in addition to any liabilities which any
indemnifying party may have at common law or otherwise.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in SECTION 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Underwriters, the
Company, any controlling person of the Underwriters or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters, as the case may be.
9. EFFECTIVE DATE. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Underwriters, in their discretion, shall release the Securities for sale to the
public; PROVIDED, HOWEVER, that the provisions of SECTIONS 5, 7 and 10 of this
Agreement shall at all times be effective. For purposes of this SECTION 9, the
Securities to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Underwriters of telegrams to securities
dealers releasing such securities for offering or the release by the
Underwriters for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. TERMINATION.
a. Subject to SUBSECTION (b) of this SECTION 10, the Global
Representative shall have the right to terminate this Agreement, (i) if any
domestic or international event or act or occurrence has disrupted, or in the
Global Representative's opinion will in the immediate future disrupt, the
financial markets; or (ii) if any material adverse change in the financial
markets shall have occurred; or (iii) if trading generally shall have been
suspended or
30
<PAGE>
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the NASD, the Boston Stock Exchange, the
Stockholm Stock Exchange, any over-the-counter market, the Commission or any
other government authority having jurisdiction, or if minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been required on the over-the-counter market, by the NASD or by order
of the Commission or any other government or other authority having
jurisdiction; or (iv) if trading of any of the securities of the Company shall
have been suspended, or any of the securities of the Company shall have been
delisted, on any exchange or in any over-the-counter market; or (v) if the
United States shall have become involved in a war or major hostilities, or if
there shall have been an escalation in an existing war or major hostilities or a
national emergency shall have been declared in the United States; or (vi) if a
banking moratorium has been declared by a state or federal authority; or (vii)
if a moratorium in foreign exchange trading has been declared; or (viii) if the
Company shall have sustained a loss material or substantial to the Company by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act which, whether or not such loss shall have been insured, will,
in the Underwriters' opinion, make it inadvisable to proceed with the offering,
sale and/or delivery of the Securities; or (ix) if there shall have been such a
material adverse change in the conditions or prospects of the Company, or such
material adverse change in the general market, political or economic conditions,
in the United States or elsewhere, that, in each case, in the Underwriters'
judgment, would make it inadvisable to proceed with the offering, sale and/or
delivery of the Securities or (x) if Larry G. Stambaugh shall no longer serve
the Company in his present capacity.
b. [to be discussed] If this Agreement is terminated by the
Underwriters in accordance with the provisions of SECTION 10(a) the Company
shall promptly reimburse and indemnify the Underwriters for all of their actual
out-of-pocket expenses, including the fees and disbursements of counsel for the
Underwriters (less amounts previously paid pursuant to SECTION 5(c) above);
PROVIDED, HOWEVER, that any such actual out-of-pocket expenses payable to the
Underwriters shall not exceed $_________ and, FURTHER PROVIDED, that the
Underwriters will refund to the Company any unaccounted-for portion of any
amounts already advanced by the Company to the Underwriters pursuant to SECTION
5(c) hereof. Notwithstanding any contrary provision contained in this
Agreement, if this Agreement shall not be carried out within the time specified
herein, or any extension thereof granted by the Underwriters, by reason of any
failure on the part of the Company to perform any undertaking or satisfy any
condition of this Agreement by it to be performed or satisfied (including,
without limitation, pursuant to SECTION 6 or SECTION 12) then, the Company shall
promptly reimburse and indemnify the Underwriters for all of their actual out-
of-pocket expenses, including the fees and disbursements of counsel for the
Underwriters (less amounts previously paid pursuant to SECTION 5(c) above);
PROVIDED, HOWEVER, that any such actual out-of-pocket expenses payable to the
Underwriters shall not exceed $_______ and, FURTHER PROVIDED, that the
Underwriters will refund to the Company any unaccounted-for portion of any
amounts already advanced by the Company to the Underwriters pursuant to SECTION
5(c) hereof. In addition, the Company shall remain liable for all counsel fees
and disbursements, expenses and filing fees. Notwithstanding any contrary
provision contained in this Agreement, any election hereunder or any termination
of this Agreement (including, without
31
<PAGE>
limitation, pursuant to SECTIONS 6, 10, 11 and 12 hereof), and whether or not
this Agreement is otherwise carried out, the provisions of SECTION 5 and SECTION
7 shall not be in any way affected by such election or termination or failure to
carry out the terms of this Agreement or any part hereof.
11. SUBSTITUTION OF THE UNDERWRITERS. [Subject to modification based upon
final underwriting terms.] If on the Closing Date or the Option Closing Date, as
the case may be, any one or more of the Underwriters shall fail (otherwise than
for a reason sufficient to justify the termination of this Agreement under the
provisions of SECTION 6, SECTION 10 or SECTION 12 hereof) to purchase or
subscribe or procure purchasers for, the Securities which it or they are
obligated to purchase or subscribe and pay for on such date under this Agreement
(the "Defaulted Securities"), the Representative shall have the right, within 24
hours thereafter, to make arrangement for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representative shall not have completed
such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
total number of Firm Securities to be purchased on such date, the non-
defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or in such other proportions as the Global Coordinator may
specify, PROVIDED THAT in no event shall the number of Shares that any
Underwriter has agreed to purchase be increased by an amount in excess of
one-ninth of such number of Shares without the prior written consent of
such Underwriter, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without liability
on the part of any non-defaulting Underwriters (or, if such default shall
occur with respect to any Option Securities to be purchased on an Option
Closing Date, the Underwriters may at the Representative's option, by
notice from the Representative to the Company, terminate the Underwriters'
obligation to purchase Option Securities from the Company on such date).
No action taken pursuant to this SECTION 11 shall relieve any defaulting
Underwriter from liability in respect of any default by such Underwriter under
this Agreement.
In the event of any such default which does not result in a termination of
this Agreement, the Representative shall have the right to postpone the Closing
Date for a period not exceeding seven (7) days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements.
12. DEFAULT BY THE COMPANY. If the Company shall fail at the Closing Date
or at any Option Closing Date, as applicable, to sell and deliver the number of
Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option
32
<PAGE>
Closing Date, the Underwriters may at the Underwriters' option, by notice from
the Underwriters to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the Company on such date) without any liability
on the part of any non-defaulting party other than pursuant to SECTION 5,
SECTION 7 and SECTION 10 hereof. No action taken pursuant to this SECTION 12
shall relieve the Company from liability, if any, in respect of such default.
13. NOTICES. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at Rodman & Renshaw, 2 World Financial Center, Tower-B, 30th
Floor, New York, New York 10281, Attention: _____________ and to the
International Underwriter at Alfred Berg Fondkommission AB, _________________,
Attention: _____________, with a copy to Orrick, Herrington & Sutcliffe LLP,
666 Fifth Avenue, New York, New York 10103, Attention: Lawrence B. Fisher, Esq.
Notices to the Company shall be directed to the Company at 4350 Executive Drive,
Suite 310, San Diego, California 92121, Attention: Larry G. Stambaugh, Chairman
and Chief Executive Officer, with a copy to Cooley Godward Castro Huddleson &
Tatum, 4365 Executive Drive, Suite 1200, San Diego, California 92121-2128,
Attention: Lance W. Bridges, Esq.
14. PARTIES. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in SECTION 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Securities from any Underwriter shall be deemed to
be a successor by reason merely of such purchase.
15. CONSTRUCTION. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
17. ENTIRE AGREEMENT; AMENDMENTS. This Agreement constitutes the entire
agreement of the parties hereto and supersede all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may not be amended except in a writing, signed by the
Underwriters and the Company.
33
<PAGE>
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
MAXIM PHARMACEUTICALS, INC.
By:
--------------------------------------
Larry G. Stambaugh
Chairman and Chief Executive Officer
Confirmed and accepted as of
the date first above written.
ALFRED BERG FONDKOMMISSION AB
as Global Coordinator
By:
---------------------------
RODMAN & RENSHAW, INC.
As Representative of the U.S.
Underwriters
By:
---------------------------
34
<PAGE>
SCHEDULE A
NUMBER OF SHARES
NAME OF INTERNATIONAL UNDERWRITER TO BE PURCHASED
--------------------------------- ---------------
Alfred Berg Fondkommission AB . . . . . . . . . . . . 2,000,000
Total . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000
---------
---------
NUMBER OF SHARES
NAME OF U.S. UNDERWRITER TO BE PURCHASED
------------------------ ---------------
Rodman & Renshaw . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . 500,000
---------
---------
35
<PAGE>
SCHEDULE B
[FORM OF INTELLECTUAL PROPERTY OPINION]
<PAGE>
SCHEDULE C
[FORM OF COOLEY GODWARD OPINION]
<PAGE>
EXHIBIT 5.1
[Cooley Godward Letterhead]
September 16, 1997
Maxim Pharmaceuticals, Inc.
3099 Science Park Road, Suite 150
San Diego, CA 92121
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Maxim Pharmaceuticals, Inc. (the "Company") of a
Registration Statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission covering the offering of up to 2,875,000
shares of the Company's Common Stock, $.001 par value, (the "Shares'').
In connection with this opinion, we have examined the Registration Statement
and related Prospectus, your Certificate of Incorporation and Bylaws, as
amended, and such other documents, records, certificates, memoranda and other
instruments as we deem necessary as a basis for this opinion. We have assumed
the genuineness and authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies thereof, and the due execution and delivery of all documents where due
execution and delivery are a prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares, when sold an issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid, and
nonassessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement.
Respectively,
COOLEY GODWARD LLP
/s/ LANCE W. BRIDGES
- --------------------
Lance W. Bridges
<PAGE>
EXHIBIT 10.20
September 17, 1997
CONFIDENTIAL
- ------------
Maxim Pharmaceuticals, Inc.
3099 Science Park Road
Suite 150
San Diego, CA 92121
Attention: Mr. Larry G. Stambaugh
Chief Executive Officer
Dear Larry:
Rodman & Renshaw, Inc. ("Rodman") is pleased to act as exclusive
financial advisor to Maxim Pharmaceuticals, Inc. ("Maxim" or the "Company")
in connection with providing general corporate finance advisory services with
respect to financial matters to the Company. This letter (the "Agreement")
confirms the terms of our engagement.
Within the scope of Rodman's engagement hereunder, Rodman agrees to (i)
analyze the business, operations, finances, and prospects of the Company (ii)
advise and assist the management and Board of Directors of the Company in
evaluating financing options reasonably available to the Company (a
"Financing") which may include (a) a public debt or equity financing (the
"Public Offering") or (b) a private debt or equity financing (the "Private
Placement"), (iii) take an active interest in the Company and its common
stock including facilitating and executing trades in the Company's stock on
behalf of Rodman clients on the American Stock Exchange or making a market in
the Company's stock on the NASDAQ, as appropriate, (iv) introduce the Company
to select institutional investors, and (iv) introduce the Company to
qualified financial institutions to provide corporate finance services to the
Company, as appropriate. In the event of a Public Offering, Rodman may
assist the Company in selecting an underwriter or underwriters to be retained
by the Company in order to execute the Public Offering. In the event that
the Company pursues a Private Placement, Rodman may assist in choosing an
agent to be retained by the Company to execute the Private Placement. Should
Rodman act as an underwriter in the Public Offering or as an agent in the
Private Placement, the terms and conditions of such arrangement shall be
embodied in an additional engagement letter to be signed at a later date.
In consideration for Rodman's financial advisory services hereunder, the
Company will pay Rodman a non-refundable retention fee of $200,000, (the
"Financial Advisory Fee") payable in cash, with payment due monthly, in
advance, in twelve equal payments. In the event of a
<PAGE>
Maxim Pharmaceuticals, Inc.
September 17, 1997
Page 2
Financing, payment of the Financial Advisory Fee shall be accelerated so that
the Company will pay Rodman at the closing of such Financing the difference
between $200,000 and the total amount of the Financial Advisory Fee paid to
Rodman immediately prior to the closing of such Financing.
In addition to any fees payable to Rodman hereunder, the Company will
reimburse Rodman, upon request made from time to time by Rodman, for all of
Rodman's reasonable out-of-pocket expenses incurred in connection with this
engagement. Rodman will receive prior approval from the Company for
reimbursement of expenses in excess of $25,000.
The Company will furnish Rodman with such information as Rodman believes
appropriate to its assignment hereunder (all such information so furnished
being the "Information"). The Company recognizes and confirms that Rodman
(a) will use and rely primarily on the Information and on information
available from generally recognized public sources in performing the services
contemplated by this Agreement without having independently verified the
same, (b) does not assume responsibility for the accuracy or completeness of
the Information and such other information and (c) will not make an appraisal
of any assets of the Company. To the best of the Company's knowledge, the
Information to be furnished by the Company, when delivered, will be true and
correct in all material respects and will not contain any material
misstatement of fact or omit to state any material fact necessary to make the
statements contained therein not misleading. The Company will promptly
notify Rodman if it learns of any material inaccuracy or misstatement in, or
material omission from, any Information theretofore delivered to Rodman.
The Company agrees to the indemnification and other agreements set forth
in the Indemnification Provisions attached hereto, the provisions of which
are incorporated herein by reference and shall survive the termination,
expiration or supersession of this Agreement.
Rodman's engagement hereunder will be for the period of one (1) year
from the date the Agreement is executed. The engagement may be terminated by
either the Company or Rodman at any time upon written notice to that effect
to the other party, it being understood that (i) the provisions relating to
the payment of fees and expenses and indemnification will survive any such
termination, and (ii) notwithstanding the foregoing, should Rodman terminate
the engagement prior to its expiration (a "Rodman Termination"), Rodman
agrees to pay to the Company an amount equal to (a) the total amount received
by or due to Rodman at the time of the Rodman Termination less (b) the amount
equal to the number of months (or part thereof) elapsed since execution of
the Agreement times $16,667. In no case shall Rodman, in the event of a
Rodman Termination, be required to pay an amount to the Company greater than
the aggregate amount received by Rodman under the Financial Advisory Fee.
This Agreement will be governed by, and construed in accordance with,
the laws of the State of New York without giving effect to the conflict of
law principles thereof. This Agreement may not be assigned by either party
without the prior written consent of the other
<PAGE>
Maxim Pharmaceuticals, Inc.
September 17, 1997
Page 3
party. Any right to trial by jury with respect to any dispute arising under
this Agreement or any transaction or conduct in connection herewith is
waived. Any dispute arising under this Agreement shall be brought in the
courts of the State of New York or of the United States of America for the
Southern District of New York and, by execution and delivery of this
Agreement, the Company hereby accepts for itself and in respect of its
property, generally and unconditionally, the jurisdiction of the aforesaid
courts.
This Agreement (including the attached Indemnification Provisions)
embodied the entire agreement and understanding between the parties hereto
and supersedes all prior agreements and understanding relating to the subject
matter hereof. If any provision of this Agreement is determined to be invalid
or unenforceable in any respect, such determination will not affect such
provision in any other respect or any other provision of this Agreement,
which will remain in full force and effect. This Agreement may not be
amended or otherwise modified or waived except by an instrument in writing
signed by both Rodman and the Company.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Rodman the enclosed duplicate copy of this Agreement.
Very truly yours,
RODMAN & RENSHAW, INC.
By: /s/ KARL J. SCHMIDT
-------------------
Karl J. Schmidt
Senior Director
Accepted and Agreed to as of
the date first written above:
MAXIM PHARMACEUTICALS, INC.
By: _______________________________
Title: ______________________________
<PAGE>
INDEMNIFICATION PROVISIONS
--------------------------
In accordance with the engagement of Rodman & Renshaw, Inc. ("Rodman")
by Maxim Pharmaceuticals, Inc. (the "Company") pursuant to letter agreement
dated September 17, 1997 between the Company and Rodman, as it may be amended
from time to time (the "Agreement"), the Company hereby agrees as follows:
1. To the extent permitted by law, the Company will indemnify Rodman and its
affiliates, stockholders, directors, officers, employees and controlling
persons (within the meaning of Section 15 of the Securities Act of 1933, as
amended, or Section 20 of the Securities Exchange Act of 1934) against all
losses, claims, damages or liabilities, as the same are incurred (including
the reasonable fees and expenses of counsel), relating to or arising out of
its activities hereunder, except to the extent that any losses, claims,
damages or liabilities (or actions in respect thereof) are found in a final
judgment by a court of law to have resulted from Rodman's willful
misconduct or gross negligence in performing the services described herein.
To the extent permitted by law, Rodman will indemnify the Company and its
affiliates, stockholders, directors, officers, employees and controlling
persons against all losses, claims, damages or liabilities as the same are
incurred (including the reasonable fees and expenses of counsel), relating
to or arising out of Rodman's activities hereunder caused by, or resulting
from or arising directly and primarily out of Rodman's conduct and, the
willful misconduct or gross negligence of Rodman in performing the services
described in the Agreement.
2. Promptly after receipt by Rodman of notice of any claim or the commencement
of any action or proceeding with respect to which Rodman is entitled to
indemnify hereunder, Rodman will notify the Company in writing of such
claim or of the commencement of such action or proceeding, and the Company
will assume the defense of such action or proceeding and will employ
counsel satisfactory to Rodman which approval shall not be unreasonably
withheld, and will pay the fees and expenses of such counsel.
Notwithstanding the preceding sentence, Rodman will be entitled to employ
counsel separate from counsel for the Company and from any other party in
such action if Rodman reasonably determines that a conflict of interests
exists which makes representation by counsel chosen by the Company not
advisable. In such event, the reasonable fees and disbursements of such
separate counsel will be paid by the Company.
3. The Company agrees to notify Rodman promptly of the assertion against it or
any other person of any claim of the commencement of any action or
proceeding relating to a transaction contemplated by this Agreement.
4. If for any reason the foregoing indemnity is unavailable to Rodman or
insufficient to hold Rodman harmless, then the Company shall contribute to
the amount paid or payable by Rodman as a result of such losses, claims,
damages or liabilities in such proportion as is
<PAGE>
Maxim Pharmaceuticals, Inc.
Indemnification Provisions
September 17, 1997
Page 2
appropriate to reflect the relative fault of the Company on the one hand
and Rodman on the other that resulted in such losses claim, damages or
liabilities, as well as any relevant equitable considerations. The
amounts paid or payable by a party in respect of losses, claims, damages
and liabilities referred to above shall be deemed to include any legal or
other fees and expense incurred in defending any litigation, proceeding
or other action or claim. Notwithstanding the provisions hereof, Rodman's
share of the liability hereunder shall not be in excess of the amount of
fees actually received by Rodman under the Agreement (excluding any
amounts received as reimbursement of expenses incurred by Rodman).
5. It is understood and agreed that, in connection with Rodman's engagement by
the Company, Rodman may also be engaged to act for the Company in one or
more additional capacities, and the terms of any such additional engagement
may be embodied in one or more separate written agreements. These
Indemnification Provisions shall apply to the engagement under the
Agreement and to any such additional engagement and any modification of
such additional engagement; provided, however, that in the event that the
Company engages Rodman to act as a dealer manager in an exchange or tender
offer or as an underwriter in connection with issuance of securities by the
Company or to furnish an opinion letter, such further engagement may be
subject to separate indemnification and contribution provisions as may be
mutually agreed upon, and such separate indemnification and contribution
provisions shall supersede the indemnification and contribution provisions
hereof with respect to the transaction or transactions contemplated by such
further engagement.
6. These Indemnification Provisions shall remain in full force and effect
whether or not the Financing contemplated by the Agreement is completed and
shall survive the termination of the Agreement, and shall be in addition to
any liability that the Company might otherwise have to any Indemnified
Party under the Agreement or otherwise.
RODMAN & RENSHAW, INC.
By: /s/ KARL J. SCHMIDT
-------------------
Karl J. Schmidt
Senior Director
MAXIM PHARMACEUTICALS, INC.
By: _________________________
Title: ________________________
<PAGE>
Exhibit 11.1
Maxim Pharmaceuticals, Inc.
Statement Regarding Computation of Loss Per Share
<TABLE>
<CAPTION>
Year Ended September 30
-------------------------------------------------------------------
1996
---------------------------------------
Prior to
Effective Subsequent Total
1994 1995 Date of IPO to IPO For Year
---- ---- ----------- ------ --------
<S> <C> <C> <C> <C> <C>
(10/1/95 - (7/11/96 -
7/10/96) 9/30/96)
Weighted average shares
outstanding excluding
common shares issued
in accordance with
SAB 83 189,764 438,229 438,229 6,671,237
Number of common shares
issued and stock
options and warrants
granted in accordance
with SAB 83 2,668,374 2,668,374 2,668,374
Convertible preferred
stock 102,866 102,866 102,866
---------- ---------- ---------- ---------- ---------
Total shares outstanding 2,961,004 3,209,469 3,209,469 6,671,237 4,074,961
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Net income (loss) ($2,432,623) ($2,790,122) ($2,378,298) $1,544,810 ($833,488)
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Net loss per share ($0.82) ($0.87) ($0.20)
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
Page 1
<PAGE>
Exhibit 11.1
Maxim Pharmaceuticals, Inc.
Statement Regarding Computation of Loss Per Share
9 Months Ended June 30,
------------------------
1996 1997
---- ----
Weighted average shares 2,884,354 6,671,240
outstanding excluding common
shares issued in accordance
with SAB 83
Number of common shares
issued and stock options and
warrants granted in
accordance with SAB 83 2,668,374
Convertible preferred stock 102,866
---------- ----------
Total shares outstanding 5,655,594 6,671,240
---------- ----------
---------- ----------
Net income (loss) ($2,378,298) ($4,314,621)
---------- ----------
---------- ----------
Net loss per share ($0.42) ($0.65)
---------- ----------
---------- ----------
Page 2
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Maxim Pharmaceuticals, Inc.:
We consent to the use of our reports included herein and to the reference to
our firm under the headings "Experts" and "Selected Financial Data" in the
prospectus.
/s/ KPMG Peat Marwick LLP
San Diego, California
September 15, 1997
