<PAGE>
===============================================================================
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1996
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------
AMARILLO BIOSCIENCES, INC.
(Name of Small Business Issuer in its Charter)
Texas 8731 75-1974352
(State or Other Jurisdiction (Primary Standard Industrial I.R.S. Employer
Incorporation or Organization) Classification Code Number) dentification No.)
800 West 9th Avenue Organization)
Amarillo, Texas 79101
(806) 376-1741
(Address and Telephone Number of Principal Executive Offices and
Principal Place of Business)
Dr. Joseph M. Cummins, DVM, PhD
Amarillo Biosciences, Inc.
800 West 9th Avenue
Amarillo, Texas 79101
(806) 376-1741
(Name, Address and Telephone Number of Agent for Service)
------
Copies to:
ROBERT E. FISCHER, ESQ. ROBERT J. MITTMAN, ESQ.
Lowenthal, Landau, Fischer & Bring, P.C. Tenzer Greenblatt LLP
250 Park Avenue 405 Lexington Avenue
New York, New York 10177 New York, New York 10174
(212) 986-1116 (212) 885-5000
Facsimile No. (212) 986-0604 Facsimile No. (212) 885-5001
Approximate Date of Proposed Sale to the Public: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
-------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
==============================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
==============================================================================
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of Each Class of Amount to be Price per Offering Registration
Securities to be Registered Registered Unit(1) Price(1) Fee
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock, par value
$.01 per share .................. 2,300,000 shares (2) $5.00 $11,500,000 $3,965.52
- -------------------------------------------------------------------------------------------------
Underwriter's Warrants to Purchase
Shares of Common Stock (3) ...... 200,000 warrants $.001 $200 (4)
- -------------------------------------------------------------------------------------------------
Shares of Common Stock, par value
$.01 per share(5) ............... 200,000 shares $7.00 $1,400,000 $482.76
- -------------------------------------------------------------------------------------------------
Total ............................................................................ $4,448.28
=================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 300,000 shares which the Underwriter has the option to purchase
from the Registrant solely to cover over-allotments.
(3) Represents warrants to be issued by the Registrant and purchased by the
Underwriter at the time of delivery and acceptance of the shares of Common
Stock offered hereby.
(4) None, pursuant to Rule 457(g).
(5) Reserved for issuance upon exercise of the Underwriter's Warrants.
<PAGE>
AMARILLO BIOSCIENCES, INC.
------
CROSS REFERENCE SHEET
------
<TABLE>
<CAPTION>
Form SB-2 Item Nos. and Caption Prospectus Caption
-------------------------------- -------------------
<S> <C>
1. Front of Registration Statement and Outside Front Cover of
Prospectus ............................................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus . Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors .................. Prospectus Summary; Risk Factors
4. Use of Proceeds ....................................... Use of Proceeds
5. Determination of Offering Price ....................... Underwriting
6. Dilution .............................................. Dilution
7. Selling Security-Holders .............................. *
8. Plan of Distribution .................................. Outside Front Cover Page; Underwriting
9. Legal Proceedings ..................................... *
10. Directors, Executive Officers, Promoters and Control
Persons................................................. Management
11. Security Ownership of Certain Beneficial Owners and
Management.............................................. Principal Shareholders
12. Description of Securities ............................. Description of Common Stock; Shares Eligible
For Future Sale
13. Interest of Named Experts and Counsel ................. Legal Matters; Experts
14. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities ............................ *
15. Organization Within Last Five Years ................... *
16. Description of Business ............................... Prospectus Summary; Business
17. Management's Discussion and Analysis or Plan of
Operation Management's.................................. Discussion and Analysis of Financial
Condition and Results of Operations
18. Description of Property ............................... Business
19. Certain Relationships and Related Transactions ........ Certain Transactions
20. Market for Common Equity and Related Stockholder
Matters................................................. *
21. Executive Compensation ................................ Management
22. Financial Statements .................................. Consolidated Financial Statements
23. Changes in and Disagreements with Accountants on
Accountingand Financial Disclosure .................... *
</TABLE>
- ------
* Not applicable.
<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.
PRELIMINARY PROSPECTUS DATED MAY 23, 1996
SUBJECT TO COMPLETION
[LOGO]
2,000,000 SHARES
AMARILLO BIOSCIENCES, INC.
COMMON STOCK
Prior to this offering, there has been no public market for the Common Stock,
and there can be no assurance that any such market will develop. It is
anticipated that the Common Stock will be quoted on the NASDAQ Small Cap Market
("NASDAQ") under the symbol "AMAR." For a discussion of the factors considered
in determining the initial public offering price, see "Underwriting."
In connection with this offering, Hayashibara Biochemical Laboratories, Inc.
("HBL"), a principal shareholder and supplier of the Company, has agreed with
the Underwriter that HBL or its designees will purchase up to 600,000 of the
shares of Common Stock offered hereby at the initial public offering price. In
addition, the Company has agreed to use $1,000,000 of the proceeds of this
offering to pay a portion of the indebtedness owed by the Company to HBL. See
"Use of Proceeds," "Principal Shareholders" and "Certain Transactions."
------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT
AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS"
COMMENCING ON PAGE 8 AND "DILUTION" ON PAGE 19.
------
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.
===============================================================================
Price Underwriting Proceeds
to Discounts and to
Public Commissions(1) Company(2)
- -------------------------------------------------------------------------------
Per Share ..................... $5.00 $.50 $4.50
- -------------------------------------------------------------------------------
Total(3) ...................... $10,000,000 $1,000,000 $9,000,000
===============================================================================
(1) In addition, the Company has agreed to pay to the Underwriter a 3%
nonaccountable expense allowance, to sell to the Underwriter warrants
(the "Underwriter's Warrants") to purchase up to 200,000 shares of Common
Stock and to retain the Underwriter as a financial consultant. The
Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses, including the nonaccountable expense allowance in
the amount of $300,000 ($345,000 if the Underwriter's over-allotment option
is exercised in full), estimated at $825,000, payable by the Company.
(3) The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 300,000 additional
shares of Common Stock, on the same terms as set forth above, solely for the
purpose of covering over-allotments, if any. If the Underwriter's
over-allotment option is exercised in full, the total price to public,
underwriting discounts and commissions and proceeds to Company will be
$11,500,000, $1,150,000 and $10,350,000 respectively. See "Underwriting."
The shares of Common Stock are being offered, subject to prior sale, when, as
and if delivered to and accepted by the Underwriter and subject to approval of
certain legal matters by counsel and to certain other conditions. The
Underwriter reserves the right to withdraw, cancel or modify the offering and to
reject any order in whole or in part. It is expected that delivery of
certificates representing the shares of Common Stock offered hereby will be made
at the offices of the Underwriter, 650 Fifth Avenue, New York, New York 10019,
on or about , 1996.
------
WHALE SECURITIES CO., L.P.
The date of this Prospectus is , 1996.
<PAGE>
A graphic image of a man appears here showing the path of IFNa taken
orally. Four circles surrounding the image display drawings of (i) a profile of
the head of a person suffering from Sjogren's syndrome, (ii) the mouth of an
individual with oral mucositis, (iii) an IFNa molecule and (iv) a microscopic
view of a portion of a liver infected with the hepatitis virus. In addition to
the graphic images, the following text appears: "Sjogren's Syndrome. The Company
believes oral IFNa therapy helps to relieve the dryness associated with
Sjogren's syndrome and may effectively supplement or replace the existing
treatments. Oral Mucositis. The Company has filed and there is now in effect an
Investigational New Drug Application for the use of IFNa to treat oral
mucositis. Hepatitis B. The Company believes that low dose oral IFN |ga therapy
for chronic active HBV disease might be as beneficial a treatment for the
disease as parenteral IFNa and be more economical. Hepatitis C. The Company
believes that, by pretreating hepatitis C patients with low dose oral IFNa ,
the response rate of those patients to parenteral IFNa treatment may
increase."
AVAILABLE INFORMATION
As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, will file reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information can be
inspected and copied at the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices: Northeast Regional Office, Suite 1300, 7 World Trade
Center, New York, New York 10048, and Midwest Regional Office, Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and copies of such material may also be obtained from the Public
Reference Section of the Commission at prescribed rates. The Company intends to
furnish its shareholders with annual reports containing audited financial
statements and such other reports as the Company deems appropriate or as may be
required by law.
------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON NASDAQ, IN THE OVER-THE- COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. Unless otherwise indicated, all share and
per share information in this Prospectus (i) gives retroactive effect to a
10-for-1 stock split effected in May 1993 and a 20% stock dividend effected in
May 1996, and (ii) assumes that the Underwriter's over-allotment option is not
exercised. See "Underwriting" and Notes 1 and 13 of Notes to Consolidated
Financial Statements. For definitions of certain terms used in this Prospectus
see the Glossary beginning on page 6.
THE COMPANY
Amarillo Biosciences, Inc., a development-stage company (the "Company"), is
engaged in developing biologics for the treatment of human and animal diseases.
The Company is currently focusing its research on human health indications for
the use of low dose oral natural interferon alpha ("IFNa"), particularly for
the treatment of Sjogren's syndrome, oral mucositis in cancer patients and
hepatitis B and C ("Primary Development Projects"). The Company believes that
significant worldwide opportunities exist for the development of low dose oral
natural IFNa as an inexpensive, non-toxic, efficacious alternative to the
treatment of disease by injection of high doses of IFNa. In addition, the
Company believes that low dose oral natural IFNa can be an effective treatment
for diseases or conditions for which current therapies are inadequate.
The Company owns or licenses ten United States patents relating to low dose
oral natural IFNa. Since 1992, the Company has filed, and there now are in
effect, seven Investigational New Drug Applications covering indicated uses for
low dose oral IFNa, including treatment of Sjogren's syndrome and oral
mucositis. The Company is seeking regulatory approvals in certain foreign
countries to test and/or market low dose oral IFNa for the treatment of
hepatitis B and C.
The Company is also testing oral IFNa in cats with herpesvirus-1 infection,
dogs with keratoconjunctivitis sicca and cattle with shipping fever or mastitis
and has filed, and there are now in effect, Investigational New Animal Drug
Notices for these and other indications in animals. The Company is also testing
a topical IFNa as a treatment for genital warts in humans.
The Company has formed a strategic alliance with Hayashibara Biochemical
Laboratories, Inc. ("HBL") of Okayama, Japan, a subsidiary of Hayashibara
Company, Ltd., a privately-owned Japanese holding corporation with diversified
subsidiaries. To date, the Company has received from HBL research funding in the
amount of $9,000,000. HBL has also purchased from the Company an aggregate of
461,520 shares of Common Stock for a total purchase price of $1,443,800 and has
made loans to the Company aggregating $3,000,000, of which $1,000,000 borrowed
after March 31, 1996 will be repaid simultaneously with the consummation of this
offering. Pursuant to a Joint Development and Manufacturing/Supply Agreement
between HBL and the Company (the "Development Agreement"), HBL manufactures and
supplies exclusively to the Company IFNa for oral use in the development of
human applications under the Company's patents for worldwide markets outside of
Japan and for animal applications worldwide. The Company also has a
non-exclusive license from HBL to use HBL's patented technology to produce
IFNa lozenges with anhydrous maltose. This formulation significantly prolongs
the stability of IFNa activity at room temperature. In addition, HBL has
agreed to supply its IFNa exclusively to the Company in North America for
non-oral (topical and parenteral) use.
The Company has also entered into manufacturing and supply and license
agreements with Interferon Sciences, Inc. ("ISI") of New Brunswick, New Jersey,
a subsidiary of National Patent Development, Inc., under which ISI, among other
things, supplies exclusively to the Company, IFNa for oral use in animals.
The Company's objective is to exploit its proprietary technology to become a
leader in the field of low dose oral IFNa applications. The Company's business
strategy is to pursue those indications for low dose oral IFNa treatment for
which initial clinical research has indicated the treatment is efficacious and
3
<PAGE>
which in the opinion of the Company have the greatest commercial potential and
are most likely to be approved by the FDA. To the extent possible, the Company
will attempt to minimize the cost to the Company of obtaining FDA approval by
utilizing forms of IFNa already approved (in other dosage forms and for
different indications) by the Japanese Ministry of Health and Welfare for human
use or by the FDA for animal use. The Company will attempt to gain market share
for approved products by forming alliances with strong marketing partners.
The Company is in the development stage and currently has no products
approved for commercial use other than in Kenya. The Company's long-term
viability, profitability and growth will depend upon successful
commercialization of products resulting from its research and product
development activities. To date, although the Company has recorded contract
revenue relating to research and development pursuant to the Development
Agreement, the Company has generated only limited revenues from product sales
and licensing. Moreover, the Company has incurred significant losses, including
losses of $129,239 and $311,579 for the years ended December 31, 1994 and 1995,
respectively, and $4,943,168 for the period from June 25, 1984 (inception)
through March 31, 1996. For the years ended December 31, 1994 and 1995 and the
three months ended March 31, 1996, the Company recorded contract revenues of
$2,480,093, $1,361,395 and $402,574, respectively, as research and development
and administrative costs were incurred. As of March 31, 1996, all but $14,566 of
the $9,000,000 in research funding provided by HBL from 1992 to 1994 pursuant to
the Development Agreement had been recognized as contract revenue. HBL has no
obligation to provide additional research funding to the Company nor does the
Company currently have such a commitment from any other person. Inasmuch as the
Company will continue to have a high level of research and development and
general and administrative expenses (including compensation expense in 1996 of
$515,156 relating to the issuance of restricted stock to three officers of the
Company simultaneously with the sale of the Common Stock offered hereby) and
will not have matching contract revenues as such expenditures are incurred, the
Company anticipates that, commencing in the second quarter of 1996, losses will
increase significantly and losses will continue until such time, if ever, as the
Company is able to generate sufficient revenues to support its operations. The
Company believes that its ability to generate sufficient revenues primarily
depends on the success of the Company in completing development and obtaining
regulatory approvals for the commercial sale of products, including approval of
any manufacturing facilities established or maintained by the Company or its
suppliers that produce such products. There can be no assurance that any of such
events will occur, that the Company will attain revenues from commercialization
of its products or that the Company will ever achieve profitable operations. See
"Risk Factors."
The Company was incorporated in June 1984 in the State of Texas under the
name of Amarillo Cell Culture Company, Incorporated. In May 1996, the Company
changed its name to Amarillo Biosciences, Inc. The executive offices of the
Company are located at 800 West 9th Avenue, Amarillo, Texas 79101 and its
telephone number is (806) 376-1741. Unless the context otherwise requires, all
references in this Prospectus to the Company include its wholly-owned
subsidiaries, Vanguard Biosciences Inc., Veldona USA Inc., Veldona Inc., Veldona
Africa Inc., Veldona Poland Inc. and Amarillo Cell of Canada Inc.
THE OFFERING
Common Stock offered........... 2,000,000 shares
Common Stock to be outstanding
after the offering (1)....... 5,114,232 shares
Use of Proceeds................ The Company intends to use approximately
$6,350,000 of the net proceeds of this
offering for research and development,
$1,000,000 for repayment of certain
short-term indebtedness to HBL and the
balance for working capital and general
corporate purposes. See "Use of Proceeds."
4
<PAGE>
Risk Factors................... The securities offered hereby are
speculative and involve a high degree of
risk and immediate substantial dilution and
should not be purchased by investors who
cannot afford the loss of their entire
investment. See "Risk Factors" and
"Dilution."
Proposed NASDAQ symbol......... AMAR
- ------
(1) Includes 79,000 shares of Common Stock to be issued to three officers of the
Company simultaneously with the sale of the Common Stock offered hereby
pursuant to their employment agreements. Does not include (i) 200,000 shares
of Common Stock reserved for issuance upon exercise of the Underwriter's
Warrants; (ii) an aggregate of 115,500 shares of Common Stock reserved for
issuance upon the exercise of stock options to be outstanding under the
Company's 1996 Employee Stock Option Plan and the Company's Outside Director
and Advisor Stock Option Plan (collectively, the "Plans"), none of which
options are currently exercisable; or (iii) an aggregate of 134,500 shares
of Common Stock reserved for issuance upon exercise of stock options which
are available for future grant under the Plans. See "Management --
Employment Agreements," "-- Stock Option Plans," "Principal Shareholders,"
"Certain Transactions" and "Underwriting."
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial information set forth below is derived
from the consolidated financial statements appearing elsewhere in this
Prospectus. Such information should be read in conjunction with such financial
statements, including the notes thereto.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Cumulative
From
June 25, 1984
(Inception)
Through
Year Ended December 31, Three Months Ended March 31, March 31,
--------------------------- ----------------------------- --------------
1994 1995 1995 1996 1996
------------ ------------ ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Total revenues ........ $2,653,331 $2,006,262 $ 647,069 $ 415,728 $10,570,886
Total expenses ........ 2,782,570 2,317,841 722,003 402,921 15,514,054
Net income (loss) ..... (129,239) (311,579) (74,934) 12,807 (4,943,168)
Net loss per share .... (.04) (.10) (.02) --
Weighted average shares
outstanding .......... 3,005,592 3,034,339 3,031,609 3,035,232
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
March 31, 1996
------------------------------------------------
December 31, 1995 Actual As Adjusted(1)
----------------- ----------- -----------
<S> <C> <C> <C>
Cash and cash equivalents ....................... $ 1,108,527 $ 724,280 $ 8,664,280
Working capital (deficiency) .................... (18,035) (2,585) 8,062,102
Total assets .................................... 1,791,060 1,424,004 9,364,004
Total liabilities ............................... 3,152,957 2,743,094 2,618,407
Deficit accumulated during the development stage . (4,955,975) (4,943,168) (5,448,481)
Shareholders' equity (deficit) .................. (1,361,897) (1,319,090) 6,745,597
</TABLE>
- ------
(1) Gives effect to the sale of 2,000,000 shares of Common Stock offered hereby
and the anticipated application of the estimated net proceeds therefrom,
including the payment of $235,000 to satisfy withholding tax obligations of
the Company arising in a transaction required under the employment
agreements of three officers in which the Company shall also issue 79,000
shares of Common Stock to such officers. Subsequent to March 31, 1996, the
Company borrowed $1,000,000 from HBL, which amount will be repaid from the
proceeds of this offering. See "Use of Proceeds" and "Certain Transactions."
5
<PAGE>
GLOSSARY
<TABLE>
<CAPTION>
<S> <C>
AIDS .............................. Acquired Immunodeficiency Syndrome
ANTIPROLIFERATIVE ................. Slowing or stopping the multiplication of cells.
APHTHOUS STOMATITIS ............... Painful ulcers occurring in the mucosal lining of the mouth.
BIOLOGIC .......................... A product derived from living cells which is used to treat
or diagnose disease.
CELL CULTURE ...................... A large number of cells maintained in an environment in which
nutrients and oxygen are provided for growth.
CIRRHOSIS ......................... Fibrosis of the liver with hardening caused by excessive formation
of connective tissue followed by contraction.
CLINICAL TRIALS ................... The investigational use of a product in humans or animals.
Phase I trials test the product for general safety and metabolism.
Phase II trials test various dosages for efficacy and Phase
III trials test the chosen dosage in many patients.
DISTAL ............................ Far from the point of origin.
FELINE HERPESVIRUS-1 INFECTION .... Feline viral rhinotracheitis - a viral disease of the upper
respiratory tract of cats.
FIBROMYALGIA ...................... A debilitating disease characterized by pain at specific "trigger
points", fatigue, sleeplessness, headaches and stiffness.
HEPATITIS B (HBV) ................. Disease of the liver caused by a DNA virus.
HEPATITIS C (HCV) ................. Disease of the liver caused by an RNA virus.
IMMUNOMODULATORY .................. That which modulates (augments or diminishes) immune responses.
INDICATION ........................ A specific condition intended to be treated by a drug or biologic.
INTERFERON (IFN) .................. A natural protein produced by all species of animals in response
to infection by viruses and other intracellular microorganisms.
IFNa............................... Interferon alpha, a distinct class of IFN.
INTERNATIONAL UNIT (IU) ........... An internationally accepted measure of IFNa anti- viral activity.
INAD .............................. Notice of Claimed Investigational Exemption for a New Animal
Drug. A document that must be submitted to the FDA before animal
clinical trials can be conducted using a new drug or biologic.
IND ............................... Investigational New Drug Application. A document that must
be submitted to the FDA before human clinical trials can be
conducted using a new drug or biologic.
KERATOCONJUNCTIVITIS SICCA ........ Inflammation of the cornea and conjunctiva of the eye resulting
in a decrease in tear production.
LOZENGE ........................... A solid dosage formulation designed to dissolve in the mouth and
deliver a drug, biologic or active ingredient to the oral cavity.
MASTITIS .......................... Inflammation of the mammary gland.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
LOZENGE ........................... Inflammation and ulcers of the mucosal lining of the mouth,
often associated with the use of chemotherapy and/or radiation
therapy in cancer patients.
PARENTERAL ........................ By injection, not by the digestive tract.
SHIPPING FEVER .................... A bovine respiratory disease complex observed in cattle after
shipment. Usually shipping fever is a combination of viral
and bacterial infections.
SJOGREN'S SYNDROME ................ A symptom complex of unknown cause marked by keratoconjunctivitis
sicca (dry eye) and xerostomia (dry mouth).
</TABLE>
7
<PAGE>
RISK FACTORS
The shares of Common Stock offered hereby are speculative and involve a high
degree of risk, including, but not necessarily limited to, the risk factors
described below. Each prospective investor should carefully consider the
following risk factors inherent in and affecting the business of the Company and
this offering before making an investment decision.
Except for the historical information contained herein, the discussion in
this Prospectus contains forward- looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such difference
include, but are not limited to, those discussed in "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" as well as those discussed elsewhere in this
Prospectus.
Development Stage Company; Uncertainty of Product Development; Limited
Relevant Operating History. The Company is in the development stage and
currently has no products approved for commercial use other than in Kenya. The
Company's long-term viability, profitability and growth will depend upon
successful commercialization of products resulting from its research and product
development activities. The Company will not be able to sell significant
quantities of any product until such time, if ever, as it receives regulatory
approval to commercially market the product. All of the Company's products will
require significant additional development, laboratory and clinical testing and
investment prior to obtaining such approvals for any product and prior to
commercialization. The Company does not expect to receive regulatory approvals
in the United States for any product for at least three years. Moreover, adverse
or inconclusive results in clinical trials could significantly delay or
ultimately preclude any such approvals and, even if obtained, there can be no
assurance that any product approval will lead to the successful
commercialization of such product. Further, as a development stage company, the
Company has a limited relevant operating history upon which an evaluation of its
prospects can be made. Such prospects must be considered in light of the risks,
expenses and difficulties frequently encountered in establishing a new business
in the evolving, heavily regulated pharmaceutical industry, which is
characterized by an increasing number of market entrants, intense competition
and a high failure rate. In addition, significant challenges are often
encountered in shifting from development to commercialization of new products.
See "Business."
History of Significant Losses; Anticipated Future Losses; Limited Product
Revenues. To date, although the Company has recorded contract revenues relating
to research and development pursuant to the Development Agreement, the Company
has generated only limited revenues from product sales and licensing. Moreover,
the Company has incurred significant losses, including losses of $129,239 and
$311,579 for the years ended December 31, 1994 and 1995, respectively, and
$4,943,168 for the period from June 25, 1984 (inception) through March 31, 1996.
For the years ended December 31, 1994 and 1995 and the three months ended March
31, 1996, the Company recorded contract revenues of $2,480,093, $1,361,395 and
$402,574, respectively, as research and development and administrative costs
were incurred. As of March 31, 1996, all but $14,566 of the $9,000,000 in
research funding provided by HBL from 1992 to 1994 pursuant to the Development
Agreement had been recognized as contract revenue. HBL has no further obligation
to provide additional research funding to the Company nor does the Company
currently have such a commitment from any other person. Inasmuch as the Company
will continue to have a high level of research and development and general and
administrative expenses (including compensation expense in 1996 of $515,156
relating to the issuance of restricted stock to three officers of the Company
simultaneously with the sale of the Common Stock offered hereby) and will not
have matching contract revenues as such expenditures are incurred, the Company
anticipates that, commencing in the second quarter of 1996, losses will increase
significantly and losses will continue until such time, if ever, as the Company
is able to generate sufficient revenues to support its operations. The Company
believes that its ability to generate sufficient revenues primarily depends on
the success of the Company in completing development and obtaining regulatory
approvals for the commercial sale of products, including approval of any
manufacturing facilities established or maintained by the Company or its
suppliers that produce such products. There can be no assurance that any of such
events will occur, that the Company will attain revenues from commercialization
of its products or that the Company will ever achieve profitable operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and Consolidated Financial Statements.
Significant Capital Requirements; Dependence on Proceeds of this Offering;
Need for Additional Capital. The Company's capital requirements have been and
will continue to be significant. To fund its capital requirements to date, the
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Company has been dependent primarily on (i) an aggregate of $9,000,000 in
funding received from HBL under the Development Agreement, (ii) the net cash
proceeds of private placements of the Company's Common Stock, aggregating
approximately $3,500,000 and (iii) loans from HBL aggregating $3,000,000, of
which $1,000,000 borrowed after March 31, 1996 will be repaid with a portion of
the proceeds of this offering. The Company is dependent upon the proceeds of
this offering to fund its research and development as well as other working
capital requirements. The Company anticipates, based on its currently proposed
plans and assumptions relating to its operations (including assumptions
regarding the progress of its research and development and the timing and costs
associated with the Primary Development Projects), that the net proceeds of this
offering, together with the Company's existing capital resources, will be
sufficient to satisfy the Company's estimated cash requirements for at least 12
months following the consummation of this offering. The Company estimates that
an aggregate of $11,100,000 will be needed over approximately the next three
years to complete its Primary Development Projects. Such amount is in excess of
the net proceeds of this offering and the existing capital of the Company.
Therefore, unless the Company generates significant revenues during such period,
which the Company believes is unlikely, the Company will need additional
financing to fully fund such development. The Company has no current
arrangements with respect to sources of additional financing and it is not
anticipated that any of the officers, directors or shareholders of the Company
(including HBL) will provide any portion of the Company's future financing
requirements. There can be no assurance that, when needed, additional financing
will be available to the Company on commercially reasonable terms, or at all. In
the event that the Company's plans change, its assumptions change or prove
inaccurate, or if the proceeds of this offering, together with other capital
resources, otherwise prove to be insufficient to fund operations, the Company
could be required to seek additional financing sooner than currently
anticipated. Any inability to obtain additional financing when needed would have
a material adverse effect on the Company, including possibly requiring the
Company to cease its operations. In addition, any additional equity financing
may involve substantial dilution to the Company's then existing shareholders.
See "Use of Proceeds," "Dilution," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and "Certain
Transactions."
Patent Claims Made By Roche. Hoffmann La-Roche, Inc. ("Roche") has asserted
to both HBL and ISI that the manufacture, sale and use of their respective forms
of IFNa infringe United States Patent 4,503,035 and foreign counterparts
thereof owned by Roche relating to IFNa (collectively, the "Roche Patent").
The Roche Patent expires in March 2002 in the United States and at various times
in other jurisdictions. HBL has informed the Company that it believes that the
claims of the Roche Patent are not applicable to the manufacture and sale of HBL
IFNa. HBL has prevailed at the trial level in litigation initiated by Roche
in Japan concerning the dispute and Roche has appealed the decision. The Company
is not a party to the litigation between Roche and HBL in Japan.
The Company believes that it is likely that Roche would commence suit against
the Company if the Company were to sell or attempt to sell HBL IFNa for
commercial use in the United States or any other country where the Roche Patent
has issued with IFNa composition claims and is still in effect. However, under
applicable United States patent law, the use of a patented product solely for
uses reasonably related to the development and submission of information for FDA
approval of a biologic for indicated uses in humans is not an act of
infringement. Thus, the Company believes that it is unlikely that it would be
sued by Roche prior to commercialization of the Company's IFNa products. Roche
would also not assert infringement claims with respect to the Company's sale of
ISI IFNa, because in March 1995 ISI entered into a license agreement with
Roche pursuant to which ISI was granted a license to use the Roche Patent in
exchange for specified royalties.
The Company believes that its oral IFNa dosage forms do not infringe any
claims of the Roche Patent. However, there can be no assurance that, if the
Company sells or attempts to sell HBL IFNa for commercial use in one or more
countries in which the Roche Patent has issued, such sale or attempted sale
would not be determined to be an infringement of the Roche Patent under
applicable law. HBL has agreed to indemnify the Company for litigation expenses
incurred in defending suits brought by Roche against the Company for
infringement of the Roche Patent and for any damages the Company may be required
to pay to Roche in the event that Roche is successful in any such suit.
Nevertheless, a determination of infringement could have a material adverse
effect on the business and operations of the Company. See "Business-Patents and
Proprietary Rights."
Government Regulation. The development, manufacture, testing and marketing of
all of the Company's products are subject to extensive regulation by numerous
authorities in the United States and other countries. In the United States,
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before new pharmaceutical products (including biologics) are permitted to be
marketed commercially, they must undergo extensive preclinical and clinical
testing to satisfy the FDA that they are safe and efficacious in each clinical
indication (the specific condition intended to be treated) for which approval is
sought. Additionally, approval by analogous regulatory authorities in other
countries must be obtained prior to commencing marketing of pharmaceutical
products in those countries. The approval process varies from country to country
and approval of a drug for sale in one country does not ensure approval in other
countries. Delays in obtaining regulatory approvals may adversely affect the
development, testing or marketing of the Company's products and the ability of
the Company to generate revenues from the sale or licensing of such products.
There can be no assurance that the Company will obtain regulatory approvals for
its products in a timely manner, or at all.
Since 1992 the Company has filed and there are now in effect, seven INDs
covering indicated uses for low dose oral IFNa. The Company intends to use a
portion of the proceeds of this offering to do clinical testing of the use of
low dose oral IFNa in treating Sjogren's syndrome and oral mucositis, two of
the indications covered by the INDs granted to the Company. There can be no
assurance that regulatory approvals will be obtained by the Company in the
United States or any other country to sell IFNa for such purposes. In
addition, INADs have been filed and are now in effect for testing of low dose
oral IFNa in cats, dogs, swine, horses and cattle.
Manufacturers of therapeutic products sold in the United States are required
to satisfy the FDA that their manufacturing facilities and processes adhere to
the agency's good manufacturing practices ("GMP") regulations and to engage in
extensive record keeping and reporting. Even if regulatory approval for a
product is granted, the facilities in which the product is manufactured will be
subject to periodic review and inspections by the FDA or the analogous
regulatory authorities of other countries for compliance with GMP or similar
foreign regulatory standards. Compliance with such regulations requires
substantial time and attention, and is costly. In addition, each domestic
manufacturing establishment must be registered with and approved by the FDA. For
biologics, except certain well-characterized ones, this requires the filing of
an establishment license application for the facilities at which the product
will be produced. Failure to comply with the applicable regulatory requirements
by either the Company or its strategic partners could, among other things,
result in criminal prosecution and fines, product recalls, product seizures and
operating restrictions.
The Company has not yet sought FDA approval for the commercial sale of any of
its products or for the manufacturing processes or facilities of any of its
strategic partners. The Company has obtained approval in Kenya for the use of
oral IFNa for the treatment of certain symptoms of AIDS and has made
application in Poland for the use of oral IFNa as a treatment for hepatitis B
and AIDS, but has not yet received approval for commercial sales in Poland. The
approval process applicable to products of the type being developed by the
Company usually takes many years and typically requires substantial
expenditures. Moreover, even if approval is granted, such approval may impose
limitations on the indicated uses for which a product may be marketed.
Inasmuch as the Company may manufacture products in the United States and
seek to market or license other domestic manufacturers to market products
throughout the world, the Company may become subject to United States laws and
regulations applicable to exporting drugs, including biologics. The Federal
Food, Drug, and Cosmetic Act stipulates that, prior to FDA approval for
commercial sale, a drug manufactured in the United States may be exported,
without prior FDA authorization, only to certain countries listed in Section 802
of that act. This list contains 25 countries to which such a drug may be
exported, provided certain requirements are met, including that: (i) at least
one of the 25 countries has granted approval for such drug for commercial sale,
(ii) the product is manufactured in substantial compliance with the FDA's GMP
regulations, (iii) the FDA is notified of the exportation, and (iv) the FDA has
not determined that the probability of reimportation presents an imminent hazard
to the public health and safety of the United States. Drugs for investigational
use in any of the 25 countries may be exported without notification to the FDA.
Thus, the ability of the Company or its licensees to export products
manufactured in the United States prior to receiving commercial approval in the
United States will be subject to certain restrictions. Therefore, there can be
no assurance that the Company or its licensees would be able to export for
investigational use or commercial sale in any countries products manufactured in
the United States which have not received FDA approval.
The Company is also subject to the regulations of the United States
Environmental Protection Agency as well as other federal, state and local laws
and regulations governing the use and disposal of hazardous materials.
Compliance with these laws and regulations is time-consuming and expensive and
failure to comply could have a material adverse effect on the Company.
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The adoption by federal, state or local governments of significant new laws
or regulations or a change in the interpretation of existing laws or regulations
relating to environmental or other regulatory matters could increase the cost of
producing the products manufactured by the Company or its strategic partners or
otherwise adversely affect the demand for the Company's products. Adverse
governmental regulation which might arise from future legislative or
administrative action cannot be predicted. See "Business-Government Regulation."
Dependence on HBL. The success of the Company's business will depend upon
many factors beyond the Company's control, including its contractual and working
relationship with HBL. The Company relies and will rely on HBL to supply HBL
IFNa to the Company in sufficient quantities to support development and
regulatory approval of products for oral and topical use in humans and animals.
The ability of the Company to commercialize its oral IFNa products in Japan
will be dependent upon the efforts of HBL, to which it has granted exclusive
marketing rights in such country. To date HBL has provided to the Company an
aggregate of $9,000,000 of funding pursuant to the Development Agreement. HBL
has also purchased from the Company an aggregate of 461,520 shares of Common
Stock for a total purchase price of $1,443,800 and has made loans to the Company
aggregating $3,000,000 of which $1,000,000 borrowed after March 31, 1996 will be
repaid with a portion of the proceeds of this offering. HBL has also agreed that
it or its designees will purchase an aggregate of 600,000 shares of Common Stock
in this offering. Giving effect to the sale of 2,000,000 shares of the Company's
Common Stock pursuant to this offering, including 600,000 shares to HBL, and the
issuance of 79,000 shares to three officers of the Company simultaneously with
the sale of the Common Stock offered hereby, HBL will own approximately 31.9% of
the Company's Common Stock. Despite its substantial investment in the Company,
HBL is not obligated to provide any additional funding to the Company. The
initial term of the Development Agreement expires in March 1999, but the
agreement is automatically renewable for successive three year terms, subject to
the prior written agreement of the parties. Commencing in March 2002, HBL may
also terminate the Development Agreement if sales by the Company or its
sublicensees of oral products containing HBL IFNa shall not have exceeded
$100,000 during the calendar year prior to the termination. If such agreement is
terminated, the Company would lose its only current source of supply of IFNa
for use in humans and there can be no assurance that alternate sources of supply
would be available on satisfactory terms, or at all. Such loss could severely
limit the Company's ability to conduct clinical trials for the development of
applications for its products or to sell its products. The termination of the
Company's relationship with HBL could also adversely affect the Company's
ability to develop and maintain business relationships with other companies. See
"Business-Strategic Alliance with HBL."
Limited Manufacturing Capability and Experience. To be successfully
commercialized, the Company's products must be manufactured in large quantities
in compliance with regulatory requirements and at an acceptable cost. The
Company does not intend to build manufacturing facilities for such purpose.
Rather, it currently intends to obtain all of its requirements of bulk IFNa
for oral use in humans from HBL and all of its requirements of bulk IFNa for
animal use from either ISI or HBL. HBL manufactures IFNa at its plant in
Okayama, Japan, which the Company believes will have sufficient capacity to
produce all of the Company's requirements of the product for the foreseeable
future. HBL will be required to obtain FDA approval for commercial-scale
manufacturing of products sold in the United States which contain HBL IFNa,
which approval has not yet been sought or obtained. ISI manufactures IFNa at
its plant in New Brunswick, New Jersey. The FDA has approved an establishment
license application for such facility. The Company has entered into a supply
agreement with ISI pursuant to which ISI is obligated to use its best efforts to
supply the Company's requirements of IFNa for animal use. However, such
agreement may be terminated by ISI under certain circumstances. If for any
reason HBL and ISI were unwilling or unable to supply to the Company IFNa, the
Company would be required to seek alternate sources of such product. The
availability of such alternate sources of supply, on terms satisfactory to the
Company, or at all, is not assured. The Company's failure to obtain adequate
supplies of IFNa at a competitive cost or in a timely manner could have a
material adverse effect on the Company. See "Business."
Patents and Proprietary Technology. The Company's success will depend in part
on its ability to obtain or license patents, protect trade secrets for its
technology and operate without infringing on the proprietary rights of others.
The Company owns or exclusively licenses eight issued United States patents and
numerous foreign counterparts. The Company or its licensors also have eight
United States patent applications pending. The issued United States patents are
primarily "use" patents (which cover the use of oral IFNa for particular
purposes). The Company also licenses from HBL on a non-exclusive basis two
United States patents covering the process of manufacturing lozenges. The
Company and its licensors have filed patent applications in certain other areas
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of the world and expect to make additional patent applications in the United
States and other countries with respect to the use of low doses of IFNa for oral
mucosal administration. There can be no assurance, however, that either the
Company's or its licensors' existing patent applications will mature into issued
patents or, if issued, that such patents will be adequate to protect the
Company's products or processes. In addition, there can be no assurance that the
Company will be able to obtain any necessary or desired additional licenses to
patents or technologies of others or that the Company will be able to develop
its own additional patentable technologies.
The Company believes that the patent position of pharmaceutical companies
generally involves complex legal and factual questions. There can be no
assurance that any future patent applications or any patents issued to the
Company will provide it with competitive advantages or that the use of this
patented technology will not be challenged as infringing upon the patents or
proprietary rights of others, or that the patents or proprietary rights of
others will not have an adverse effect on the ability of the Company to do
business. Furthermore, there can be no assurance that others will not
independently develop similar technology or that others will not design
technology to circumvent the Company's existing or future patents or proprietary
rights. In the event that the Company's technology were deemed to be infringing
upon the rights of others, the Company could be subject to damages or enjoined
from using such technology or the Company could be required to obtain licenses
to utilize such technology. No assurance can be given that any such licenses
would be made available on terms acceptable to the Company, or at all. If the
Company were unable to obtain such licenses, it could encounter significant
delays in introducing products to the market while it attempted to design around
the patents or rights infringed upon, or the Company's development, manufacture
and sale of products requiring such licenses could be foreclosed. In addition,
the Company could experience a loss of revenues and may incur substantial costs
in defending itself and indemnifying its strategic partners in patent
infringement or other actions based on proprietary rights violations brought
against it or its strategic partners. The Company could also incur substantial
costs in the event it finds it necessary to assert claims against third parties
to prevent the infringement of its patents and proprietary rights by others.
The Company relies on proprietary know-how and confidential information and
employs various methods, such as entering into confidentiality and noncompete
agreements with its current employees and with third parties to whom it has
divulged proprietary information, to protect the processes, concepts, ideas and
documentation associated with its technologies. Such methods may afford
incomplete protection and there can be no assurance that the Company will be
able to protect adequately its trade secrets or that other companies will not
acquire information which the Company considers to be proprietary. The Company
will be materially adversely affected if it cannot maintain its proprietary
technologies. See "Business--Patents and Proprietary Rights."
Competition. The pharmaceutical industry is an expanding and rapidly changing
industry characterized by intense competition. The Company believes that its
ability to compete will be dependent in large part upon its ability to
continually enhance and improve its products and technologies. In order to do
so, the Company must effectively utilize and expand its research and development
capabilities and, once developed, expeditiously convert new technology into
products and processes which can be commercialized. Competition is based
primarily on scientific and technological superiority, technical support,
availability of patent protection, access to adequate capital, the ability to
develop, acquire and market products and processes successfully, the ability to
obtain governmental approvals and the ability to serve the particular needs of
commercial customers. Corporations and institutions with greater resources than
the Company may, therefore, have a significant competitive advantage. The
Company's potential competitors include entities that develop and produce
therapeutic agents for treatment of human and animal diseases. These include
numerous public and private academic and research organizations and
pharmaceutical and biotechnology companies pursuing production of, among other
things, biologics from cell cultures, genetically engineered drugs and natural
and chemically synthesized drugs. Almost all of these competitors and potential
competitors have substantially greater capital resources, research and
development capabilities, manufacturing and marketing resources and experience
than the Company. The Company's competitors may succeed in developing products
or processes that are more effective or less costly than any that may be
developed by the Company, or that gain regulatory approval prior to the
Company's products. The Company also expects that the number of its competitors
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and potential competitors will increase as more IFNa products receive commercial
marketing approvals from the FDA or analogous foreign regulatory agencies. Any
of these competitors may be more successful than the Company in manufacturing,
marketing and distributing its products. There can be no assurance that the
Company will be able to compete successfully. See "Business- Competition."
Technological Change. The pharmaceutical industry is subject to rapid and
significant technological change, and the ability of the Company to compete is
dependent in large part on its ability continually to enhance and improve its
products and technologies. In order to do so, the Company must effectively
utilize and expand its research and development capabilities, and, once
developed, expeditiously convert new technology into products and processes
which can be commercialized. The Company's competitors may succeed in developing
technologies, products and processes that render the Company's processes and
products obsolete. Certain companies, such as Roche, have filed applications for
or have been issued patents and may obtain additional patents and proprietary
rights relating to products or processes competitive with or otherwise related
to those of the Company. The scope and viability of these patents, the extent to
which the Company may be required to obtain licenses under these patents or
under other proprietary rights and the cost and availability of licenses are
unknown, but these factors may limit the Company's ability to market its
products. See "Business-- Competition."
Product Liability Exposure; Uncertainty of Availability of Insurance. The
Company's business exposes it to potential product liability risks which are
inherent in the testing, manufacturing, marketing and sale of therapeutic
products. While the Company will take precautions it deems appropriate, there
can be no assurance that it will be able to avoid significant product liability
exposure. Product liability insurance for the pharmaceutical industry generally
is expensive, to the extent it is available at all. Although the Company is
currently making limited sales of IFNa in Kenya and is using IFNa in
clinical trials, it has not yet sought to obtain product liability coverage. The
Company intends to obtain product liability insurance coverage at such time, if
any, that the volume of sales of its products in its opinion warrants such
coverage. There can be no assurance that it will be able to obtain coverage on
acceptable terms or that any insurance policy will provide adequate protection
against potential claims. A successful claim brought against the Company in
excess of any insurance coverage could have a material adverse effect upon the
Company.
Dependence on Management. The success of the Company will be largely
dependent on the abilities and continued personal efforts of Dr. Joseph
Cummins, the Company's founder, Chairman of the Board, President and Chief
Executive Officer, as well as, to a lesser extent, Dr. Alan Richards, its
Director of Clinical and Regulatory Affairs, and Charles Hughes, its Vice
President-Finance and Administration and Chief Financial Officer. Dr. Cummins
is employed by the Company under an employment agreement expiring December
31, 1999. Dr. Richards and Mr. Hughes each have an employment agreement with
the Company which is terminable by either the individual or the Company on
six months prior written notice to the other. The loss of the services of Dr.
Cummins would have a material adverse effect on the Company. The Company is
the beneficiary of a key man life insurance policy on Dr. Cummins in the
amount of $2,000,000. It does not own policies covering any other officer or
employee. The Company is seeking the services of an additional experienced
senior executive. There can be no assurance that the Company will be able to
attract such a person. See "Management."
Continuing Control by Existing Shareholders. Upon the consummation of this
offering, HBL and Dr. Joseph Cummins, the Chairman of the Board, President and
Chief Executive Officer of the Company, will beneficially own approximately
31.9% and 13.6%, respectively, of the shares of Common Stock outstanding.
Katsuaki Hayashibara, the Director of the Research and Development Center of
HBL, is a director of the Company. In the event that HBL and Dr. Cummins were to
act in concert, they would be in a position generally to control the affairs of
the Company. These two shareholders may be able to control the outcome of
shareholder votes, including votes concerning the election of directors, the
adoption of amendments to the Company's Restated Certificate of Incorporation or
By-laws and the approval of certain mergers and other significant corporate
transactions, including a sale of substantially all of the Company's assets.
Such control by existing shareholders could also have the effect of delaying,
deferring or preventing a change in control of the Company. Moreover, purchasers
of the shares offered hereby (other than HBL) will be minority shareholders and,
although entitled to vote on matters submitted to a vote of shareholders, they
will not control the outcome of such a vote. See "Principal Shareholders" and
"Description of Common Stock."
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Indemnification of Directors and Officers. The Company's By-laws provide for
the Company to indemnify each director and officer of the Company against
liabilities imposed upon him (including reasonable amounts paid in settlement)
and expenses incurred by him in connection with any claim made against him or
any action, suit or proceeding to which he may be a party by reason of his being
or having been a director or officer of the Company. The Company has also
entered into Indemnification Agreements with each officer and director pursuant
to which the Company will, in general, indemnify such persons to the maximum
extent permitted by the Company's By-laws and the laws of the State of Texas
against any expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement incurred in connection with any actual or threatened action
or proceeding to which such director or officer is made or threatened to be made
a party by reason of the fact that such person is or was a director or officer
of the Company. The foregoing provisions may reduce the likelihood of derivative
litigation against directors and may discourage or deter shareholders or
management from suing directors for breaches of their duty of care, even though
such an action, if successful, might otherwise benefit the Company and its
shareholders. See "Management -- Indemnification of Directors and Officers."
Broad Discretion in Application of Proceeds. Although the Company currently
intends to use approximately $6,350,000 (77.7%) of the net proceeds of this
offering to fund the Primary Development Projects, it will have broad discretion
in the use of such funds as circumstances warrant. In addition, approximately
$825,000 (10.1%) of the estimated net proceeds from this offering has been
allocated to working capital and general corporate purposes. Accordingly, the
Company's management will have broad discretion as to the application of such
proceeds. See "Use of Proceeds."
No Assurance of Public Market; Arbitrary Determination of Offering Price;
Possible Volatility of Market Price of Common Stock. Prior to this offering,
there has been no public trading market for the Common Stock. Consequently, the
initial public offering price has been determined by negotiation between the
Company and the Underwriter and does not necessarily reflect the Company's book
value or other established criteria of value. In addition, there can be no
assurance that a regular trading market will develop after this offering or
that, if developed, it will be sustained. The market prices for securities of
biotechnology companies have been volatile. Announcements of technological
innovations or new products by the Company or its competitors, developments
concerning proprietary rights (including patents and litigation matters),
publicity regarding actual or potential clinical testing relating to products
under development by the Company or others, regulatory developments in both the
United States and foreign countries, public concern as to the safety of
biotechnology products and economic and other external factors, as well as
period-to-period fluctuations in financial results, may have a significant
impact on the market price of the Common Stock. Additionally, in recent years,
the stock market has experienced a high level of price and volume volatility and
market prices for the stock of many companies, particularly the common stock of
small and emerging growth companies that trade in the over-the-counter market,
have experienced wide price fluctuations not necessarily related to the
operating performance of such companies. See "Underwriting."
Benefits of Offering to Existing Shareholders. Upon the consummation of this
offering, the existing shareholders of the Company will receive substantial
benefits, including the creation of a public trading market for their securities
and the corresponding facilitation of sales by such shareholders of their shares
of Common Stock in the secondary market, as well as an immediate increase in net
tangible book value of $1.77 per share to such shareholders based upon the pro
forma net tangible book value per share after this offering and the initial
public offering price per share of the Common Stock offered hereby. If, at the
time the existing shareholders are able to sell their shares of Common Stock in
the public market, the market price per share remains at the $5.00 initial
public offering price (of which there can be no assurance) such shareholders
would realize an aggregate gain of $11,951,082 ($3.84 per share) on the sale of
all of their existing shares. Additionally, $1,000,000 of the proceeds of this
offering will be used to repay indebtedness owing by the Company to HBL, which
is an existing shareholder. See "Use of Proceeds," "Dilution" and "Shares
Eligible for Future Sale."
Shares Eligible for Future Sale. Upon the consummation of this offering, the
Company will have 5,114,232 shares of Common Stock outstanding. Up to 600,000 of
the 2,000,000 shares offered hereby will be purchased by HBL and will be subject
to certain restrictions on sale imposed under the federal securities laws. The
remaining shares of Common Stock offered hereby will be freely tradeable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"). All of the 3,035,232 shares of Common Stock outstanding
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as of the date of this Prospectus are, and all of the 79,000 shares to be issued
to three officers of the Company simultaneously with the consummation of the
sale of the Common Stock offered hereby will be, "restricted securities" as that
term is defined under Rule 144 promulgated under the Securities Act. Such shares
may only be sold pursuant to a registration statement under the Securities Act,
in compliance with the exemptive provisions of Rule 144 or pursuant to another
exemption under the Securities Act. Of such 3,114,232 restricted shares of
Common Stock, an aggregate of 1,040,976 shares are immediately eligible for
sale, without registration, under Rule 144 (subject to the contractual
restrictions described below). An additional 1,964,616 shares will become
eligible for sale (subject to the volume limitations prescribed in Rule 144 and
such contractural restrictions) commencing 90 days after the date of this
Prospectus. The balance of such shares will become eligible for sale at various
times commencing in January 1997. In general, under Rule 144 as currently in
effect, subject to the satisfaction of certain other conditions, a person (or
persons whose shares are aggregated for this purpose), including an affiliate of
the Company, who has owned restricted shares of Common Stock beneficially for at
least two years is permitted to sell in the open market within any three-month
period a number of shares that does not exceed the greater of 1% of the
outstanding shares of the same class or, if the Common Stock is quoted on
NASDAQ, the average weekly trading volume during the four calendar weeks
preceding the filing of the required notice of sale. A person who has not been
an affiliate of the Company for at least the three months immediately preceding
the sale and who has beneficially owned shares of Common Stock as described
above for at least three years is entitled to sell such shares under Rule 144
without regard to any of the limitations described above. The Company and its
officers and directors and shareholders owning of record more than 99% of the
Common Stock outstanding as of the date of this Prospectus, have agreed with the
Underwriter not to sell or otherwise dispose of any shares of Common Stock for a
period of 12 months after the date of this Prospectus, without the Underwriter's
prior written consent. No predictions can be made of the effect, if any, that
sales of Common Stock in the market or the availability of shares of Common
Stock for sale under Rule 144 will have on the market price of Common Stock
prevailing from time to time. Nevertheless, the possibility that substantial
amounts of Common Stock may be sold in the public market may adversely affect
prevailing market prices for the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity securities. See "Shares
Eligible for Future Sale" and "Underwriting."
Outstanding Options. Upon the consummation of this offering, there will be
40,500 shares of Common Stock reserved for issuance upon the exercise of stock
options outstanding under the Company's 1996 Employee Stock Option Plan (the
"Employee Plan") and 75,000 shares of Common Stock reserved for issuance upon
exercise of stock options outstanding under the Company's Outside Director and
Advisor Stock Option Plan (the "Director Plan" and together with the Employee
Plan, the "Plans"). None of the foregoing options is currently exercisable. An
additional 134,500 shares are reserved for issuance upon exercise of options
available for future grant under the Plans. All of the options outstanding upon
consummation of this offering will be exercisable at a price of $5.00 per share.
To the extent the market price of Common Stock at the time of exercise exceeds
the exercise price, the exercise of the foregoing options will have a dilutive
effect on the Company's shareholders. Moreover, the terms upon which the Company
may be able to obtain additional equity may be adversely affected, since the
holders of the options can be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital on terms
more favorable to the Company than those provided in the options. See
"Management - Stock Option Plans" and "Shares Eligible for Future Sale."
Immediate and Substantial Dilution. This offering involves an immediate
and substantial dilution of $3.69 (73.8%) between the pro forma net tangible
book value per share of Common Stock after the offering and the initial
public offering price of $5.00 per share. See "Dilution."
No Dividends. To date, the Company has not paid any dividends on its
Common Stock and it does not expect to declare or pay dividends on the Common
Stock in the foreseeable future. In addition, future agreements or credit
facilities may restrict dividend payments. See "Dividend Policy" and
"Description of Common Stock."
Possible Delisting of Securities from NASDAQ System; Risks of Low-Priced
Stocks. It is anticipated that the Company's Common Stock will be quoted on
NASDAQ on the date of this Prospectus. However, in order to continue to be
listed on NASDAQ, a company must maintain $2,000,000 in total assets, a $200,000
market value of the public float and $1,000,000 in total capital and surplus. In
addition, continued inclusion requires two market makers and a minimum bid price
of $1.00 per share; provided, however, that if a company falls below such
15
<PAGE>
minimum bid price, it will remain eligible for continued inclusion on NASDAQ if
the market value of the public float is at least $1,000,000 and the company has
$2,000,000 in capital and surplus. The failure to meet these maintenance
criteria in the future may result in the delisting of the Company's Common Stock
from NASDAQ and trading, if any, in the Company's Common Stock would thereafter
be conducted in the non- NASDAQ over-the-counter market. As a result of such
delisting, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the market value of, the Company's Common Stock.
In addition, if the Common Stock were to become delisted from trading on
NASDAQ and the trading price of the Common Stock were to fall below $5.00 per
share, trading in the Common Stock would also be subject to the requirements of
certain rules promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a "penny stock"
(generally, any non-NASDAQ equity security that has a market price of less than
$5.00 per share, subject to certain exceptions). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
defined as an investor with a net worth in excess of $1,000,000 or annual income
exceeding $200,000, $300,000 together with a spouse). For these types of
transactions, the broker-dealer must make a special suitability determination
for the purchaser and have received the purchaser's written consent to the
transaction prior to sale. The broker-dealer also must disclose the commissions
payable to the broker-dealer, current bid and offer quotations for the penny
stock and, if the broker-dealer is the sole market-maker, the broker-dealer must
disclose this fact and the broker-dealer's presumed control over the market.
Such information must be provided to the customer orally or in writing prior to
effecting the transaction and in writing before or with the customer
confirmation. Monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. The additional burdens imposed upon
broker-dealers by such requirements may discourage them from effecting
transactions in the Common Stock, which could severely limit the liquidity of
the Common Stock and the ability of purchasers in this offering to sell the
Common Stock in the secondary market.
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
commissions and other expenses of the offering are estimated to be approximately
$8,175,000 ($9,480,000 if the Underwriter's over-allotment option is exercised
in full). The Company expects to use such net proceeds approximately as follows:
<TABLE>
<CAPTION>
Approximate Approximate
Dollar Percentage of
Application of Proceeds Amount Net Proceeds
- ----------------------- ------------- ---------------
<S> <C> <C>
Research and development(1) ..................... $6,350,000 77.7%
Repayment of indebtedness to HBL (2) ............ 1,000,000 12.2
Working capital and general corporate purposes(3) . 825,000 10.1
---------- -----
Total ....................................... $8,175,000 100.0%
========== =====
</TABLE>
- ------
(1) Represents a portion of the costs associated with the Primary Development
Projects, including the cost of conducting clinical trials to determine the
safety, efficacy and optimal dosages of low dose oral IFNa for indicated
uses as well as other direct and indirect costs. The Company estimates that
the amounts required to complete the Primary Development Projects will be
substantially in excess of the portion of the proceeds allocated to research
and development. See "Business--Research and Development."
(2) The Company has borrowed $3,000,000 from HBL, of which $1,000,000 borrowed
after March 31, 1996, bearing interest at the rate of 4% per annum, is
required to be repaid upon the consummation of the sale of Common Stock
offered hereby. The Company has used the proceeds of loans made to it by HBL
for research and development and general corporate purposes.
(3) Pursuant to agreements between the Company and three of its officers,
simultaneously with the consummation of this offering the Company was to
have issued an aggregate of 126,000 shares to such officers. In
satisfaction of such obligation, the Company will issue 79,000 shares
and use $235,000 of the proceeds of this offering to satisfy required
tax withholding relating to such transaction. In addition, a portion of
the proceeds allocated to working capital is expected to be utilized to
pay the salaries of the Company's three executive officers, which
salaries are anticipated to aggregate approximately $281,500 for the 12
months following the consummation of this offering. See "Management" and
"Certain Transactions."
If the Underwriter exercises its over-allotment option in full, the Company
will receive additional net proceeds of approximately $1,305,000, which amount
will be utilized for research and development.
The allocation of the net proceeds of this offering set forth above
represents the Company's best estimates based upon its current plans and certain
assumptions regarding the Company's future revenues and expenditures. If any of
these factors change, the Company may find it necessary or advisable to
reallocate some of the proceeds within the above-described categories or to use
portions thereof for other purposes.
The Company estimates that approximately $4,500,000 and $3,800,000 will be
needed for regulatory compliance and clinical trials with respect to low dose
oral IFNa therapy for the treatment of Sjogren's syndrome and oral mucositis,
respectively, approximately $2,000,000 will be needed for HCV testing in Mexico
and Canada and approximately $800,000 will be needed for HBV testing in Mexico,
subject to obtaining regulatory approvals in such countries. The amounts
actually expended by the Company for these activities may vary significantly
from the foregoing estimates as a result of a variety of factors, including the
timing of regulatory approvals (if such approvals are given at all), the status
of competitive products, technological advances made by the Company or others,
the progress of the Company's research and development efforts, the availability
of funding from institutions or corporate sponsors and determinations regarding
the commercial potential of the Company's products, including other products the
Company is currently developing and new products the Company may identify. The
Company may abandon, deemphasize or expand its activities with respect to one or
more of the Primary Development Projects and may use a portion of the proceeds
of this offering for other projects as circumstances warrant.
17
<PAGE>
The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations (including assumptions regarding the
progress of its research and development and the timing and costs associated
with the Primary Development Projects), that the net proceeds of this offering,
together with the Company's existing capital resources, will be sufficient to
satisfy the Company's estimated cash requirements for at least 12 months
following the consummation of this offering. In the event the Company's plans
change, its assumptions prove to be inaccurate or the net proceeds of this
offering and the Company's existing capital resources prove insufficient to fund
operations, the Company may be required to seek additional financing sooner than
anticipated. As set forth above, the Company estimates that an aggregate of
$11,100,000 will be needed to complete the Primary Development Projects. Such
amount is in excess of the net proceeds of this offering. Therefore, the Company
may need additional financing to fully fund such development. The Company has no
current arrangements with respect to, or sources of, additional financing and
there can be no assurance that any needed financing would be available to the
Company on commercially reasonable terms, or at all.
Proceeds not immediately required for the purposes described above will be
invested principally in United States Government securities, bank certificates
of deposit, money market funds or other short-term interest-bearing investments.
DIVIDEND POLICY
To date, the Company has not declared or paid any cash dividends on its
Common Stock and does not expect to declare or pay any dividends in the
foreseeable future. Instead, the Company intends to retain all earnings, if any,
for use in the Company's business operations.
18
<PAGE>
DILUTION
The difference between the public offering price per share of the Common
Stock and the pro forma net tangible book value per share of the Common Stock
after completion of this offering constitutes the dilution to investors in this
offering. Net tangible book value per share on any given date is determined by
dividing the Company's net tangible book value (total tangible assets less total
liabilities) on such date by the number of outstanding shares of Common Stock.
At March 31, 1996, the negative net tangible book value of the Company was
$(1,383,475) or approximately $(.46) per share of Common Stock. After giving
effect to the sale by the Company of 2,000,000 shares of Common Stock offered
hereby (less underwriting discounts and commissions and estimated expenses of
this offering and assuming no exercise of the Underwriter's over-allotment
option or the Underwriter's Warrants) and the issuance of 79,000 shares and the
use of $235,000 of the proceeds of this offering simultaneously with such sale
to satisfy withholding tax obligations relating to such transaction, the pro
forma net tangible book value of the Company at March 31, 1996 would have been
$6,681,212, or approximately $1.31 per share of Common Stock. This represents an
immediate increase in net tangible book value of $1.77 per share to the existing
shareholders and an immediate dilution of $3.69 per share to new investors. The
following table illustrates this dilution to new investors on a per share basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price .............................. $5.00
Negative net tangible book value before offering $(.46)
Increase attributable to new investors ......... 1.77
Pro forma net tangible book value after offering ..... 1.31
-------
Dilution to new investors ........................... $3.69
</TABLE>
The following table sets forth, with respect to the Company's existing
shareholders (including three employees of the Company who will be issued an
aggregate of 79,000 shares simultaneously with the consummation of the sale of
the Common Stock offered hereby) and new investors in this offering a comparison
of the number of shares of Common Stock purchased from the Company, the
percentage ownership of such shares, the total consideration paid, the
percentage of total consideration paid and the average price per share:
<TABLE>
<CAPTION>
Average
Price Per
Shares Purchased Total Consideration Share
------------------------ ------------------------- ----------
Number Percent Amount Percent
----------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders . 3,114,232 60.9% $ 3,620,078 26.6% $1.16
New investors ....... 2,000,000 39.1 10,000,000 73.4 5.00
--------- ---- ----------- -----
Total ............. 5,114,232 100.0% $13,620,078 100.0%
========= ===== =========== =====
</TABLE>
The above table assumes no exercise of the Underwriter's over-allotment
option. If the Underwriter's over-allotment option is exercised in full, the
new investors will have paid $11,500,000 or 76.1% of the total consideration,
for 2,300,000 shares, or approximately 42.5% of the total number of shares of
Common Stock outstanding. See "Underwriting."
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 on a historical basis and as adjusted to give effect to the Company's
sale of 2,000,000 shares of Common Stock offered hereby and the application of
the estimated net proceeds therefrom.
<TABLE>
<CAPTION>
March 31, 1996
------------------------------
Actual As Adjusted(1)
------------- --------------
<S> <C> <C>
Notes payable to related party(2) ................. $ 2,000,000 $ 2,000,000
----------- -----------
Shareholders' equity (deficit) ....................
Common Stock, $.01 par value, 10,000,000
shares authorized, 3,048,672 shares issued,
5,114,232 shares as adjusted(3) ........... 30,487 51,142
Additional paid-in capital ................... 3,589,591 12,112,936
Deficit accumulated during the development
stage. .................................... (4,943,168) (5,448,481)
Unrealized gain on marketable securities ..... 30,000 30,000
Treasury stock -- 13,440 shares(4) ........... (26,000) --
----------- -----------
Total shareholders' equity (deficit) ....... (1,319,090) 6,745,597
----------- -----------
Total capitalization ..................... $ 680,910 $ 8,745,597
=========== ===========
</TABLE>
- ------
(1) Gives effect to the issuance of 79,000 shares of Common Stock to three
officers of the Company and the use of $235,000 of the proceeds of this
offering simultaneously with the sale of the Common Stock offered hereby
to satisfy withholding tax obligations relating to such transaction. See
"Management-Employment Agreements."
(2) Represents the outstanding principal amounts of two $1,000,000 promissory
notes issued to HBL in September 1991 and September 1992, respectively.
Accrued interest on such notes was $483,699 as of March 31, 1996. The notes
are due on September 16, 1996 and September 25, 1997, respectively, provided
that principal and accrued interest thereon are required to be paid only out
of 10% of the Company's gross revenues from its sales of IFN. The notes bear
interest at the rate of 6% per annum. Since repayment of the notes is
dependent on future sales of IFN by the Company, material amounts of which
are not expected within the next year, they are classified as non-current
liabilities.
(3) Does not include (i) 200,000 shares of Common Stock reserved for issuance
upon exercise of the Underwriter's Warrants; (ii) 115,500 shares of Common
Stock reserved for issuance upon exercise of stock options to be outstanding
under the Plans, none of which options are currently exercisable; or (iii)
an aggregate of 134,500 shares of Common Stock reserved for issuance upon
exercise of stock options which are available for future grant under the
Plans. See "Management Stock-Option Plans," "Principal Shareholders,"
"Certain Transactions" and "Underwriting."
(4) On May 14, 1996 the Board of Directors of the Company approved the
cancellation of all treasury shares.
20
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below under the captions "Consolidated
Statement of Operations Data" and "Consolidated Balance Sheet Data" for the two
years ended December 31, 1995 and as of December 31, 1995 are derived from the
consolidated financial statements of the Company and its subsidiaries (companies
in the development stage) included elsewhere in this Prospectus, which financial
statements have been audited by Ernst & Young LLP, independent auditors.
Financial data for the three months ended March 31, 1995 and March 31, 1996 and
the period from June 25, 1984 (inception) through March 31, 1996 and as of March
31, 1996 are unaudited and, in the opinion of the Company's management, contain
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation thereof. Results for the three months ended March 31, 1996,
are not indicative of the results that may be expected for the full 1996 fiscal
year. The selected financial data should be read in conjunction with the
consolidated financial statements, the related notes and the independent
auditors' report, appearing elsewhere in this Prospectus.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Cumulative From
June 25, 1984
(Inception)
Year Ended December 31, Three Months Ended March 31, Through
--------------------------- ---------------------------- March 31,
1994 1995 1995 1996 1996
------------ ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Total revenues ................ $2,653,331 $2,006,262 $ 647,069 $ 415,728 $10,570,886
Total expenses ................ 2,782,570 2,317,841 722,003 402,921 15,514,054
Net income (loss) ............. (129,239) (311,579) (74,934) 12,807 (4,943,168)
Net loss per share ............ (.04) (.10) (.02) --
Weighted average shares
outstanding .................. 3,005,592 3,034,339 3,031,609 3,035,232
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
March 31, 1996
--------------------------------
December 31, 1995 Actual As Adjusted(1)
----------------- ----------- --------------
<S> <C> <C> <C>
Cash and cash equivalents ....................... $ 1,108,527 $ 724,280 $ 8,664,280
Working capital (deficiency) .................... (18,035) (2,585) 8,062,102
Total assets .................................... 1,791,060 1,424,004 9,364,004
Total liabilities ............................... 3,152,957 2,743,094 2,618,407
Deficit accumulated during the development stage . (4,955,975) (4,943,168) (5,448,481)
Shareholders' equity (deficit) .................. (1,361,897) (1,319,090) 6,745,597
</TABLE>
- ------
(1) Gives effect to the sale of 2,000,000 shares of Common Stock offered hereby
and the anticipated application of the estimated net proceeds therefrom,
including the payment of $235,000 to satisfy withholding tax obligations of
the Company arising in a transaction required under the employment
agreements of three officers in which the Company shall also issue 79,000
shares of Common Stock to such officers. Subsequent to March 31, 1996, the
Company borrowed $1,000,000 from HBL, which amount will be repaid from the
proceeds of this offering. See "Use of Proceeds" and "Certain Transactions."
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Since June 1984, the Company, a development stage company, has been engaged
almost exclusively in research and development activities focused on developing
biologics for the treatment of human and animal diseases. Other than limited
sales of natural IFNa in Kenya, the Company has not yet commenced any
significant product commercialization and, until such time as it does, will not
generate significant product revenues. The Company has incurred significant
operating losses since its inception resulting in an accumulated deficit of
$4,943,168 at March 31, 1996. Beginning in April 1996, the rate of loss
increased and such losses are expected to continue for the foreseeable future
and until such time, if ever, as the Company is able to attain sales levels
sufficient to support its operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
During the three months ended March 31, 1996 (the "1996 Quarter") and the
three months ended March 31, 1995 (the "1995 Quarter") the Company recorded
total revenues of $415,728 and $647,069, respectively. $402,574 of the 1996
revenues and $618,266 of the 1995 revenues were contract revenues recognized
during the respective periods. Other revenues consisted primarily of interest
income of $11,154 and $28,803 for the 1996 and 1995 quarters, respectively. Of
the $9 million contract revenues received from HBL from 1992 through 1994, all
but $14,566 has been recognized as income as of the end of the 1996 Quarter.
Beginning in April 1996, the Company will no longer have contract revenues to
offset expenditures as they are incurred. Accordingly, the Company anticipates a
significant increase in net losses.
During the 1996 Quarter, research and development expenses were $134,209 as
compared to $247,978 for the 1995 Quarter. The decrease of $113,769 was the
result of fewer clinical studies conducted and completed in the 1996 Quarter.
General and administrative expenses were $238,712 during the 1996 Quarter as
compared to $444,025 during the 1995 Quarter. The primary reason for the
decrease was fewer employees in the 1996 Quarter (eight compared to eleven) and
litigation expense in the 1995 Quarter of $103,737 compared to none in the 1996
Quarter.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
During the year ended December 31, 1995, the Company had total revenues of
$2,006,262 compared to total revenues of $2,653,331 during the year ended
December 31, 1994. $550,000 of the revenues for 1995 were received in connection
with the settlement of a patent infringement action brought by the Company in
New Zealand. Of the total settlement amount, $50,000 was in exchange for the
grant by the Company of a sublicense of the technology that was the subject of
the lawsuit and $500,000 was a reimbursement of research and development cost
incurred by the Company. Other revenues for 1995 consisted of interest income of
$94,867 and deferred contract revenues recognized in the amount of $1,361,395.
Had the Company not received the $500,000 payment toward research and
development costs from the settlement, the remaining balance of deferred
contract revenue ($417,140) would have been recognized as contract revenue in
1995. During 1994, deferred contract revenues of $2,480,093 were recorded as
earned based on research and development and administrative costs incurred.
Other 1994 revenues consisted of interest income of $132,713 and interferon
sales of $40,525.
During 1995, research and development expenses were $875,093 as compared to
$1,364,042 during 1994. The decrease of $488,949 in 1995 was the result of
certain clinical studies being completed in 1994 and the continuation of certain
other studies into 1996. It is anticipated that approximately $76,000 will be
paid by the Company in 1996 for 1995 studies which will be completed in 1996.
During 1995 and 1994, the Company incurred general and administrative
expenses of $1,322,748 and $1,298,528, respectively. Over all, general and
administrative expenses for 1995 were lower than 1994. However, the Company
recorded a $150,000 discount on its investment in ISI common stock due to
certain restrictions placed on the sale of such stock. The Company acquired
22
<PAGE>
312,500 shares of ISI common stock for $625,000, or $2.00 per share,
representing the quoted market price of ISI stock at that time. The stock was
acquired as a result of an agreement with ISI to allow the sublicense by the
Company to others of certain products previously exclusively licensed to ISI.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had cash of $724,280 with accounts payable of
$100,175 and other funding commitments for clinical studies of approximately
$36,000. Deferred contract revenues of $14,566 at March 31, 1996 represents
contract revenues received from HBL in advance of services to be performed for
research and development activities.
The Company has borrowed $2 million from HBL and the notes accrue interest at
the rate of 6% with accrued interest of $483,699 at March 31, 1996. The accrued
interest and principal are to be paid only from 10% of the Company's gross
revenues from sales of IFN. The Company has made arrangements with HBL to borrow
an additional $1 million, of which $500,000 will be advanced in May and $500,000
will be advanced in June of 1996. The Company shall be obligated to repay such
additional loans in full simultaneously with the consummation of this offering.
At the present time, the Company's only sales of IFNa are to Kenya and such
sales are insignificant. Accordingly, the Company believes that losses from
operations will continue until such time, if ever, as the Company receives
approval from the FDA, so that commercial marketing of the Company's products
can begin in the United States. Also, approval is being sought in certain
foreign countries for product sales. However, there can be no assurance that
such approvals will occur.
The Company anticipates, based on its currently proposed plans and
assumptions relating to its operations (including assumptions regarding the
progress of its research and development and the timing and costs associated
with the Primary Development Projects), that the net proceeds of this offering,
together with the Company's existing capital resources, will be sufficient to
satisfy the Company's estimated cash requirements for at least 12 months
following the consummation of this offering. The Company estimates that an
aggregate of $11,100,000 will be needed over approximately the next three years
to complete its Primary Development Projects. Such amount is in excess of the
net proceeds of this offering and the existing capital of the Company.
Therefore, unless the Company generates significant revenues during such period,
which the Company believes is unlikely, the Company will need additional
financing to fully fund such development. The Company has no current
arrangements with respect to sources of additional financing and it is not
anticipated that any of the officers, directors or shareholders of the Company
(including HBL) will provide any portion of the Company's future financing
requirements. There can be no assurance that, when needed, additional financing
will be available to the Company on commercially reasonable terms, or at all. In
the event that the Company's plans change, its assumptions change or prove
inaccurate, or if the proceeds of this offering, together with other capital
resources, otherwise prove to be insufficient to fund operations, the Company
could be required to seek additional financing sooner than currently
anticipated. Any inability to obtain additional financing when needed would have
a material adverse effect on the Company, including requiring the Company to
significantly curtail or possibly cease its operations.
23
<PAGE>
BUSINESS
GENERAL
The Company, a development-stage company, is engaged in developing biologics
for the treatment of human and animal diseases. The Company is currently
focusing its research on human health indications for the use of low dose oral
natural IFNa, particularly for the treatment of Sjogren's syndrome, oral
mucositis in cancer patients and hepatitis B and C. The Company believes that
significant worldwide opportunities exist for the development of low dose oral
natural IFNa as an inexpensive, non-toxic, efficacious alternative to the
treatment of disease by injection of high doses of IFNa. In addition, the
Company believes that low dose oral natural IFNa can be an effective treatment
for diseases or conditions for which current therapies are inadequate.
The Company owns or licenses ten United States patents relating to low dose
oral natural IFNa. Since 1992, the Company has filed, and there now are in
effect, seven Investigational New Drug Applications covering indicated uses for
low dose oral IFNa, including treatment of Sjogren's syndrome and oral
mucositis. The Company is seeking regulatory approvals in certain foreign
countries to test and/or market low dose oral IFNa for the treatment of
hepatitis B and C.
The Company is also testing oral IFNa in cats with herpesvirus-1 infection,
dogs with keratoconjunctivitis sicca and cattle with shipping fever or mastitis
and has filed and there are now in effect Investigational New Animal Drug
Applications for these and other indications for the product in animals. The
Company is also testing a topical IFNa as a treatment for genital warts in
humans.
The Company's objective is to exploit its proprietary technology to become a
leader in the field of low dose oral IFNa applications. The Company's business
strategy is to pursue those indications for low dose oral IFNa treatment for
which initial clinical research has indicated the treatment is efficacious and
which in the opinion of the Company have the greatest commercial potential and
are most likely to be approved by the FDA. To the extent possible, the Company
will attempt to minimize the cost to the Company of obtaining FDA approval by
utilizing forms of IFNa already approved (in other dosage forms and for
different indications) by the Japanese Ministry of Health and Welfare for human
use or by the FDA for animal use. The Company believes such minimized costs will
be the result of more information available for use in preparing applications
for such approvals. The Company will attempt to gain market share for approved
products by forming alliances with strong marketing partners.
IFNa
The bodies of humans and animals maintain delicately balanced immune systems
that fight disease and injury. Substances such as IFNa, which are produced by
the body in small quantities, play important roles in the maintenance of these
systems. The Company believes that IFNa and other biologics show great promise
as weapons against disease and for use in therapy.
IFNa has antiviral, antiproliferative and immunomodulatory properties and
is used therapeutically in humans with various chronic disorders. IFNa may
reduce inflammation by eliminating persistent viral infection, modulating the
allergic response or attenuating factors which cause inflammation.
In recent years IFNa has been used as a biologic and various techniques
have been discovered for the mass production of IFNa and other biologics. The
prevailing view is that for IFNa to be effective, sufficient concentrations of
the substance must reach the disease site, by means of either local or distal
administration of the IFNa. If IFNa is disseminated in the bloodstream, high
doses of IFNa would be required to assure that sufficient amounts of IFNa
reach the diseased tissue. Such approaches have proven effective in many
instances, but high-dose systemic IFNa therapy has the disadvantage of
significant side effects in many cases as well as expense.
The Company has focused its efforts on the use of IFNa in low doses since
such use mimics the way the body naturally produces and utilizes the substance.
It has accumulated data that indicate that oral administration of IFNa , at
very low doses, can trigger systemic alterations which augment the body's
disease-fighting mechanisms. Such oral application of low dose IFNa is without
the adverse side effects of high-dose IFNa administration. Moreover, low dose
treatment which is administered orally or topically is more economical than
treatment by injection of high dose IFNa.
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The Company has conducted preliminary research on various human and animal
indications for the use of low dose oral IFNa therapy and, based upon initial
results, intends to focus its development activities on the applications
discussed below.
HUMAN HEALTH APPLICATIONS
Sjogren's Syndrome. Sjogren's syndrome is a chronic autoimmune disorder
characterized by severe dryness of the eyes and mouth. It can exist as a primary
disorder or in association with other autoimmune diseases such as rheumatoid
arthritis, systemic lupus erythematosus and progressive systemic sclerosis.
Patients with primary Sjogren's syndrome may have clinical signs such as rash,
arthritis, pneumonitis and nephritis. Typical symptoms include burning eyes, dry
mouth, stinging tongue, painful throat, swollen glands and dry vagina. Oral
candidiasis (a fungus infection of the mouth) may also arise as a result of the
absence of naturally occurring anti-yeast substances which are contained in
saliva. Although Sjogren's syndrome is not life threatening, it can cause
extreme discomfort.
The National Institutes of Health ("NIH") estimates that there are
approximately two to four million people in the United States who suffer from
Sjogren's syndrome. The Company believes that the incidence of Sjogren's
syndrome worldwide is similar to its incidence in the United States.
Topical use of artificial tears is the prevailing treatment for the dry eye
symptom of the disease. Artificial tears must be used on a regular basis.
Intensive oral hygiene is prescribed to prevent progressive periodontal problems
that may develop as a result of the disease.
The Company believes that oral IFNa therapy helps to relieve the dryness
associated with Sjogren's syndrome and may effectively supplement or replace the
existing treatments. In a study conducted by the Company from October 1994 to
January 1996 at two universities, the Company found that oral IFNa therapy
administered to Sjogren's syndrome patients led to increased saliva production
in six of 14 patients.
The Company has filed and there is now in effect an IND for the use of oral
IFNa to treat Sjogren's syndrome. The Company intends to spend approximately
$4.5 million to conduct and evaluate additional clinical trials of the treatment
during the next three years.
Oral Mucositis. Oral mucositis is a condition characterized by inflammation
and sometimes ulcerations of the mucosal lining of the mouth. It is often
associated with the use of chemotherapy or radiation therapy on cancer patients,
and in many cases is a dose limiting factor for the chemotherapy treatment
cancer patients receive. Current treatments for oral mucositis, including oral
hygiene, topical agents and oral rinses, are generally ineffective.
The Company has filed and there is now in effect an IND for the use of oral
IFNa to treat oral mucositis. The Company sponsored a Phase 1/Phase 2 clinical
trial at three oncology research centers. Seven out of ten patients experienced
a clinically significant reduction in their oral mucositis when IFNa was given
with particular chemotherapy compared to a previous cycle of chemotherapy
without IFNa given to the same patients. The Company believes that in the
United States approximately 400,000 patients per year will suffer from oral
mucositis. The Company intends to spend approximately $3.8 million to conduct
and evaluate additional clinical trials during the next three years.
Hepatitis. Hepatitis is a family of diseases in which inflammation of the
liver occurs. The most common cause of hepatitis is viral infection by one of
six distinct viruses. Two of the most common of such viruses are HBV and HCV.
Symptoms of acute hepatitis, regardless of which viral agent causes the
illness, are similar and include fever, nausea, vomiting and jaundice. While
acute viral hepatitis can be debilitating, it is seldom fatal or permanently
disabling. However, HBV and HCV can result in a lifelong chronic state. This
chronic condition is usually found in two forms. One form is a "chronic carrier"
state in which the individual does not have the clinical signs of the disease
but is infectious. A chronic carrier can spread the disease for years without
being aware of it. The second chronic state is termed "chronic active
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hepatitis." In this condition, the person is both infectious and has mild to
severe hepatitis symptoms. According to the World Health Organization ("WHO"),
HBV chronically infects (including both carrier and active states) 300-400
million people worldwide. WHO lists HBV as the ninth leading cause of death,
responsible for up to 2 million deaths each year.
Hepatitis B
HBV is transmitted through blood, blood products and sexual contact. About
6-10% of patients infected with HBV become carriers and 5-8% of all HBV patients
develop chronic disease.
Currently, the only effective and widely approved treatment for chronic HBV
is IFNa administered parenterally in high doses three times per week for 16 to
24 weeks. However, new parenteral IFNa treatment regimens last for up to 48
weeks. Fewer than 40% of HBV patients respond favorably to parenteral IFNa
treatment. The therapy has been shown to be almost totally ineffective in
carrier cases.
High dose parenteral IFNa therapy often results in adverse reactions,
including fever, headache, muscular pain, anorexia, fatigue, chills, weakness,
nausea, hair loss, depression and personality changes. Parenteral high- dose
IFNa treatment is also costly. Moreover, its use requires the additional
expense of syringes and needles, and necessitates close medical supervision.
Some of the additional required medical expense is in the form of doctor visits
and treatment for the adverse effects associated with the parenteral IFNa.
While no specific cost estimates are available, the costs are substantial,
especially in countries where the health system is already overburdened.
The Company believes that low dose oral IFNa therapy for chronic HBV might
be as beneficial a treatment for the disease as, and be more economical than,
parenteral IFNa. Up to 140 million chronic HBV patients may qualify for low
dose oral IFNa therapy worldwide.
Since 1990, the Company has been involved in an open-labelled (non-placebo
controlled) safety and efficacy study of oral IFNa therapy for chronic HBV
patients conducted at two clinical centers in Poland. The therapy appears to
have had as beneficial an effect in this patient population as parenteral IFNa
and to have produced fewer adverse side effects. Care needs to be taken in the
interpretation of the results of the study since it was not placebo-controlled.
However, the data generated to date indicate that the low dose oral IFNa
therapy would represent significant improvement over parenteral therapy because
it is less toxic and less expensive.
The Company intends to spend approximately $800,000 to conduct and evaluate
clinical trials of oral IFNa treatment in Mexico with the goal of obtaining
regulatory approval for marketing in Mexico. The Company has designed a study to
be conducted at a hepatitis treatment center in Mexico City, which the Company
believes will require approximately two years to complete. The Company is
seeking temporary approval to market IFNa for treatment of HBV in China while
clinical testing is being conducted. The Company intends to seek permanent
marketing approval in China for such treatment after clinical testing has been
completed.
Hepatitis C
HCV is transmitted primarily through blood and blood products and, to a
lesser extent, by sexual contact. However, in 20-40% of HCV cases, no source of
infection can be identified. Symptoms of the acute phase of the disease are
similar to HBV, though usually less severe, with fatigue being the most common
complaint. Of individuals infected with HCV, 20-30% will resolve their
infection, 20-30% will become chronic carriers and the remaining 40-60% will
develop chronic active hepatitis. The latter group is at great risk of
developing cirrhosis and/or liver cancer. It is estimated that the number of
chronic infections (including carriers) is 60-100 million worldwide, and the
number is increasing rapidly. While infection via blood, blood products and
sexual contact can be controlled to a certain extent, the 20 to 40% of cases
with an unknown method of transmission have resulted in great concern in the
international health care community. Because HCV was not identified until 1989,
the full extent of the epidemic is still unknown.
As with HBV, parenterally administered IFNa is the only widely approved
therapy for HCV infection. Current therapy consists of high dosages of IFNa that
are administered by injection three times per week for 24 weeks. Relapse after
parenteral IFNa administration is common in HCV patients. Of the 30-50% of
patients who initially respond to treatment, about half will revert to active
disease, leaving only 15-25% of treated patients who experience a lasting
benefit from therapy. Parenteral IFNa treatment of HCV is associated with the
same high cost and adverse side effects attendant to such therapy for HBV. Costs
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can be even greater in treating HCV since patients who fail to respond to
parenteral IFNa therapy or who relapse after therapy often receive multiple
treatment courses, sometimes consisting of even greater doses and/or duration,
in an attempt to forestall the frequently life-threatening consequences of
long-term chronic HCV.
Recent clinical pilot work completed by the Company in association with a
university in Canada indicates that chronic HCV patients treated with low-dose
oral IFNa followed by a standard course of parenteral IFNa had an initial
response rate twice that recorded in patients given parenteral IFNa alone. HBL
has provided the Company with data that demonstrates that HCV patients in Japan
who were treated with injectable IFNa preceded by low-dose oral IFNa
experienced a greater than expected sustained rate of response. It should be
noted that these data were generated from open-label treatment and should be
interpreted accordingly. The Company has licensed such technology from the
Canadian university and intends to use approximately $2,000,000, to prepare an
Investigational New Drug submission in Canada and a similar application in
Mexico, and, if such applications are approved, to conduct clinical trials in
such countries to evaluate, and thereafter develop, oral IFNa pre-treatment as
a means of increasing the effectiveness of parenteral IFNa therapy.
Approximately two-thirds of the estimated 60-100 million worldwide chronic cases
of HCV are believed to be candidates for this treatment.
Other Applications and Products. The Company has also filed and there are
currently in effect INDs for the use of oral IFNa to treat aphthous
stomatitis, fibromyalgia, the common cold and chronic fatigue syndrome in
humans. However, the Company does not currently have, nor does it believe that
in the foreseeable future it will have, the financial or human resources to
actively pursue research and development activities with respect to these or
other diseases or conditions. Any such additional activities would require
arrangements to be made with strategic partners. There can be no assurance that
any such development would occur.
In April 1996, the NIH announced that it will be conducting a clinical trial
of the use of low dose oral IFNa therapy for the treatment of AIDS-related
symptoms. The study will enroll 560 AIDS patients and test three different forms
of IFNa , including the form produced by HBL as well as forms produced by two
licensees of the Company. While the Company has filed an IND for the use of oral
IFNa to treat AIDS, and assisted the NIH in the finalization of the study
protocol as well as the coordination of the packaging of clinical supplies for
the study, the Company currently plans only limited further development work for
this indication until the NIH study has been completed. The extent of further
development work undertaken by the Company may depend upon the results of the
NIH study.
The Company is currently testing IFNa in ointment form for the treatment of
genital warts. A pilot study has been conducted in Mexico on eight volunteers.
The Company is also conducting laboratory tests on the product at an American
university.
ANIMAL HEALTH
The 1996 American Veterinary Medical Association Membership Directory and
Resource Manual reports that there are approximately 51 million dogs in 29
million households and 58 million cats in 29 million households in the United
States. The United States Department of Agriculture estimates that the total
number of cattle in the United States at the end of last year was 103 million.
While the Company does not currently intend to devote significant financial
or human resources to animal health, it is testing oral IFNa as a treatment
for keratoconjunctivitis sicca ("KCS") in dogs, feline herpesvirus-1 infection
("FVR") in cats and shipping fever and mastitis in cattle.
KCS. KCS occurs whenever there is decreased production of tears or increased
evaporation or break-up of the tear film. The disease is most common in dogs but
occasionally occurs in cats and horses. Current treatment for the condition
involves stimulation of tear production by a topical administration of
cyclosporine formulation, topical applications or oral administration of
antibiotics and use of artificial tear solutions. The Company has conducted a
pilot study in which low dose oral IFNa resulted in significantly increased
tear production in dogs.
FVR. Veterinarians can trace 80 to 90% of all feline upper-respiratory tract
infections to two known viruses. Although both viruses cause similar clinical
effects, FVR (also known as feline viral rhinotracheitis) usually causes a more
severe illness. A cat suffering from infection by the virus may sneeze
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frequently, become lethargic, salivate excessively and lose its appetite. Some
cats also develop conjunctivitis and in some cases, pneumonia. In a pilot study
on the use of oral IFNa in the treatment of FVR conducted by the Company at an
American university in 1995, cats given IFNa for only two days had a significant
benefit over cats given a placebo in terms of reduced nasal discharges, reduced
fever and other clinical variables.
Shipping Fever. The term "shipping fever" is used to describe the bovine
respiratory disease complex observed in cattle after shipment either into
feedlots or onto pasture. Affected cattle experience fever, loss of appetite,
cough, nasal discharge and irregular breathing. In studies conducted by Dr.
Cummins at an American university from 1982 to 1988, human IFNa given orally
to calves was found to provide significant reduction in fever, improvement in
feed intake, and a decrease in mortality. The Company has filed an INAD and
intends to conduct clinical trials with respect to use of oral IFNa as a
treatment for shipping fever when a development partner is found.
Mastitis. The inflammation of the mammary gland in dairy cows is the most
important and costly disease in the dairy industry. Ajinomoto Co., Inc. of
Tokyo, Japan has agreed to conduct a pilot study, at its sole expense, on the
use of low dose oral IFNa as a treatment for mastitis.
STRATEGIC ALLIANCE WITH HBL
HBL was established in 1970 to engage in biotechnical research and
development. It is a subsidiary of Hayashibara Company Ltd., a privately-owned
Japanese holding corporation with diversified subsidiaries. For more than 100
years the Hayashibara Company, Ltd. and its predecessors have been applying
microbiological technology in the starch industry for the production of maltose
and other sugars.
In 1981, HBL established the Fujisaki Institute to accelerate development of
industrial methods for the production of biologics and to sponsor clinical
trials for such products. In 1985, HBL built the Fujisaki Cell Center to support
basic research. In 1987, HBL successfully accomplished the mass production of
human cells in an animal host by producing human cells in hamsters. This made it
possible to economically produce a natural form of human IFNa and other
biologics. HBL also has developed and obtained patents for technology relating
to the production of IFNa - containing lozenges by which the stability of the
IFNa activity at room temperature can be maintained for up to three years. The
Company believes that the use of such lozenges gives it advantages over
competitive technologies in terms of cost, taste and ease of handling.
In 1989, the Company and HBL entered into a manufacturing and supply
agreement pursuant to which HBL granted the Company a license to use and
distribute HBL INFa and committed to supply to the Company its requirements
of HBL IFNa and the Company agreed to pay HBL perpetual royalties on net sales
of products containing IFNa (whether supplied by HBL or others) along with
certain fees for the sublicensing of the Company's rights. In March 1992, HBL
and the Company terminated the 1989 agreement and entered into a Joint
Development and Manufacturing/Supply Agreement (the "Development Agreement")
pursuant to which HBL agreed to supply to the Company HBL IFNa at specified
prices and granted to the Company an exclusive license to market (with the right
to sublicense such rights to others, subject to HBL's approval of the
sublicensees) HBL IFNa for low dosage oral use in humans worldwide, except in
Japan (where HBL has retained exclusive marketing rights), and for low dosage
oral use in animals worldwide. Subject to certain conditions, HBL also agreed to
provide to the Company $9,000,000 in research funding. All of such funding was
provided to the Company during the three years ended December 31, 1994 and has
been expended. The Company also increased HBL's perpetual royalties on net sales
by the Company of IFNa -containing products for oral use.
Under the Development Agreement, the Company has granted to HBL an exclusive
license to use the Company's technology and certain of its patents for the
marketing of HBL IFNa for oral use in humans in Japan and HBL agreed to pay to
the Company perpetual royalties on net sales of HBL IFNa for oral use by
humans in Japan by HBL, its affiliates and licensees. The initial term of the
Development Agreement expires in March 1999, but the agreement is automatically
renewable for successive three year terms subject to the prior written agreement
of the parties.
In January 1993, the Company entered into a license agreement with HBL
pursuant to which it granted a license to HBL for the marketing by HBL of HBL
IFNa for oral use in animals in Japan in exchange for HBL's agreement to pay
royalties on net sales of the product for such use in Japan by HBL, its
affiliates and licensees. Such agreement terminates in January 2000 but is
automatically renewable for successive three year terms subject to the prior
written agreement of the parties.
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In June 1994, the Company and HBL entered into a Manufacturing/Supply
Agreement under which HBL granted to the Company an exclusive license to use,
formulate, test and market HBL IFNa for non-oral (topical or parenteral) use
in both humans and animals in North America and HBL agreed to supply to the
Company its IFNa for such purposes. Under the agreement the Company agreed to
pay to HBL a specified price for the HBL IFNa it purchases for non-oral use.
AGREEMENTS WITH ISI AND OTHERS
In October 1989, the Company entered into a Manufacturing and Supply
Agreement with ISI, under which ISI granted to the Company an exclusive
worldwide license to market ISI IFNa for oral use in animals and agreed to
supply ISI IFNa for such use exclusively to the Company. Pursuant to the
agreement, ISI receives a specified price for ISI IFNa sold to the Company.
ISI is also entitled to receive royalties on net sales as well as a percentage
of any license fee, option fee or other payment, except royalty or specific
research or patent expense reimbursements, which the Company receives for the
assignment or sublicense of the Company's rights under the license agreement.
Since 1994, the Company has been required to expend a minimum of $50,000 per
year toward development of products under the Manufacturing and Supply Agreement
in order to keep it in force. The Company has done so, and currently intends to
continue to make such expenditures. The Manufacturing and Supply Agreement will
continue for seven years after the Company's first purchase order for
Manufactured Products under the Agreement, and will be automatically renewed for
successive three-year terms thereafter, subject to termination by the Company,
with or without cause, and subject to termination by ISI at any time after the
first renewal term, if net sales for a calendar year do not exceed $100,000. The
seven-year term has not yet commenced, since the Company has not yet placed an
order with ISI for Manufactured Products. "Manufactured Products" is defined in
the agreement as ISI IFNa, packaged in accordance with FDA approved dosage
forms. The FDA has not yet approved any dosage form within the meaning of the
agreement.
In October 1989, the Company and ISI entered into a license agreement
pursuant to which the Company granted to ISI a license (co-exclusive with the
Company) of the Company's patented technology for the use and sale of IFNa
containing products for use in humans worldwide, except for Japan (where the
Company has granted to HBL an exclusive license), for a royalty on net sales of
licensed products made during the term of the agreement. The original term of
the license agreement was to expire on October 20, 1994, but ISI extended its
term as therein permitted. As amended in April 1995, the agreement will continue
in force for the life of the licensed patents, subject only to ISI's right to
terminate the agreement with or without cause (in which case ISI must cease any
use or sale of the licensed products), and the Company's right to terminate for
breach of the agreement by ISI, or upon certain other events.
In April 1995, in connection with the settlement of certain patent and
infringement litigation brought by the Company in New Zealand against Fernz
Corporation Limited, Pharma Pacific Management Pty. Ltd. ("PPM") and certain
other companies and certain opposition proceedings brought by PPM against the
Company and certain of the Company's licensors in Australia and Europe, the
Company entered into a non-exclusive license agreement with PPM. Pursuant to
such agreement, the Company licenses to PPM worldwide, except in Japan, the
right to use the Company's patented technology for the use and sale of IFNa
containing products in humans and PPM is obligated to pay the Company a royalty
based on sales of the product in countries where any of the licensed patents has
issued. To the Company's knowledge, PPM is not selling products covered by the
license in any such country. PPM also paid to the Company $500,000 as a
reimbursement of a portion of the Company's research and expenses related to the
licensed technology and a $50,000 license fee to be credited against future
royalties. In connection with the settlement, ISI and the Company agreed to an
amendment of ISI's license from the Company to prohibit any sublicensing by ISI
of the licensed technology (except that ISI retained the right to sublicense
such technology in connection with the use and sale of ISI IFNa products) and
the Company purchased, for $625,000, 312,500 shares of the Common Stock of ISI,
a public company.
MANUFACTURING
The Company depends on HBL and ISI for the production and purification of
IFNa for use in clinical trials and intends to rely on them to supply it with
IFNa in bulk for formulation in products commercially sold by the Company. HBL
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produces all of its IFNa (including injectable IFNa and IFNa formulated in
lozenges) at its Kibi Pharmaceutical Plant outside Okayama, Japan. The plant has
not yet been approved by the FDA for production of IFNa. ISI produces all of its
IFNa at an FDA-approved plant in New Brunswick, New Jersey. The Company uses ISI
IFNa for oral administration in animal testing.
MARKETING AND SALES
The Company anticipates that its products eventually will be marketed in all
countries where approval to sell such products is obtained. The Company expects
to sell products for human use to pharmaceutical distributors who will undertake
the marketing of human products. It hopes to sell the products for animal use to
animal health distributors who will undertake the marketing of the products.
However, the Company does not expect that it will have significant sales for at
least three years.
In November 1990, the Company entered into an agreement (the "Marketing
Agreement") with Mitsubishi Corporation ("Mitsubishi") under which it has
appointed Mitsubishi its marketing representative for the Company's low-dose
oral IFNa products for human use. The agreement is exclusive worldwide, except
for the United States, Japan, Thailand and certain countries in Africa. Pursuant
to the Marketing Agreement, Mitsubishi is assisting the Company in developing a
global marketing strategy. Mitsubishi will also identify and negotiate with
potential licensees where the Company determines that licensing is the most
effective method of commercializing a product; establish distribution channels
for such products, if any, that may be produced under the Company's own
auspices; arrange for shipment and delivery of products to licensees,
distributors and customers; and assist the Company in obtaining regulatory
approval for the Company's products. For its services, Mitsubishi will receive
stated percentages of all license or option fees and stated percentages of any
royalties paid to the Company under any license agreements entered into by the
Company in Mitsubishi's exclusive market area during the term of the Marketing
Agreement or any license agreement entered into within two years after the term
with licensees contacted by Mitsubishi or introduced to the Company by
Mitsubishi prior to the expiration of the Marketing Agreement. In addition,
Mitsubishi is entitled to a percentage commission on the net sales value (as
defined in the agreement) of products shipped to any person in Mitsubishi's
exclusive marketing area during the same periods discussed above with respect to
licenses. The initial term of the Marketing Agreement expires in November 2000,
but the term shall automatically be extended for successive three year periods
unless either party elects not to extend the agreement by written notice to the
other not less than 12 months prior to the end of the term or renewal term.
PATENTS AND PROPRIETARY RIGHTS
The Company seeks patent protection for its technology and products. It
typically files United States patent applications and related foreign patent
applications as soon as such technology and products are developed. The Company
files foreign patent applications on some of its technology and products in
countries where, in the Company's opinion, business considerations warrant such
filings. The foreign countries in which the Company files patent applications
usually include Japan, Canada, Australia, and countries of the European Economic
Community.
The Company owns or licenses from HBL and two universities or their
affiliates, ten issued United States patents. The Company and its licensors have
eight United States patent applications pending relating to oral IFNa.
Numerous foreign patent applications which correspond to certain of these United
States patent applications have also been filed and are pending. There can be no
assurance, however, that either the Company's or its licensors' existing patent
applications will mature into issued patents, that the Company will be able to
obtain any necessary or desired additional licenses to patents or technologies
of others or that the Company will be able to develop its own additional
patentable technologies.
The Company's license agreements with its licensors provide for the payment
to licensors of various license issue fees, percentage royalties on net sales of
licensed products by the Company (including certain minimum annual royalties)
and stated percentages of license, option or other front-end payments and
royalty payments received by the Company from sublicensees. The Company's
licenses extend for the life of the licensed patents, subject to earlier
termination without cause by the Company or with cause by licensors.
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The Company believes that the patent position of pharmaceutical companies
involves complex legal and factual questions. There can be no assurance that any
future patent applications or any patents issued to the Company will provide it
with competitive advantages or that the Company's use of its technology will not
be challenged as infringing upon the patents or proprietary rights of others, or
that the patents or proprietary rights of others will not have an adverse effect
on the ability of the Company to do business. Furthermore, there can be no
assurance that others will not independently develop similar technology or that
others will not design technology to circumvent the Company's existing or future
patents or proprietary rights. In the event that the Company's technology were
to be deemed to be infringing upon the rights of others, the Company could be
subject to damages or enjoined from using such technology or the Company could
be required to obtain licenses to utilize such technology. No assurance can be
given that any such licenses would be made available on terms acceptable to the
Company, or at all. If the Company were to be unable to obtain such licenses, it
could encounter significant delays in introducing products to the market while
it attempts to design around the patents or rights infringed upon, or the
Company's development, manufacture and sale of products requiring such licenses
could be foreclosed. In addition, the Company could experience a loss of
revenues and may incur substantial costs in defending itself and indemnifying
its strategic partners in patent infringement or other actions based on
proprietary rights violations brought against it or its strategic partners. The
Company could also incur substantial costs in the event it finds it necessary to
assert claims against third parties to prevent the infringement of its patents
and proprietary rights by others.
Roche has asserted to both HBL and ISI that the manufacture, sale and use of
their respective forms of IFNa infringe United States Patent 4,503,035 and
foreign counterparts thereof owned by Roche relating to IFNa (collectively,
the "Roche Patent"). The Roche Patent expires in March 2002 in the United States
and at various times in other jurisdictions. HBL has informed the Company that
it believes that the claims of the Roche Patent are not applicable to the
manufacture and sale of HBL IFNa. HBL has prevailed at the trial level in
litigation initiated by Roche in Japan concerning the dispute and Roche has
appealed the decision. The Company is not a party to the litigation between
Roche and HBL in Japan.
The Company believes that it is likely that Roche would commence suit against
the Company if the Company were to sell or attempt to sell HBL IFNa for
commercial use in the United States or any other country where the Roche Patent
has issued with IFNa composition claims and is still in effect. However, under
applicable United States patent law, the use of a patented product solely for
uses reasonably related to the development and submission of information for
seeking FDA approval of a biologic for indicated uses in humans is not an act of
infringement. Thus, the Company believes that it is unlikely that it would be
sued by Roche prior to commercialization of the Company's IFNa products. Roche
would also not assert infringement claims with respect to the Company's sale of
ISI IFNa, because in March 1995 ISI entered into a license agreement with
Roche pursuant to which ISI was granted a license to use the Roche Patent in
exchange for specified royalties.
The Company believes that its oral IFNa dosage forms do not infringe any
claims of the Roche Patent. However, there can be no assurance that, if the
Company sells or attempts to sell HBL IFNa for commercial use in one or more
countries in which the Roche Patent has issued, such sale or attempted sale
would not be determined to be an infringement of the Roche Patent under
applicable law. HBL has agreed to indemnify the Company for litigation expenses
incurred in defending suits brought by Roche against the Company for
infringement of the Roche Patent and for any damages the Company may be required
to pay to Roche in the event that Roche is successful in any such suit.
Nevertheless, a determination of infringement could have a material adverse
effect on the business and operations of the Company. See "Certain
Transactions."
The Company relies on proprietary know-how and confidential information and
employs various methods, such as entering into confidentiality and noncompete
agreements with its current employees and with third parties to whom it has
divulged proprietary information, to protect the processes, concepts, ideas and
documentation associated with its technologies. Such methods may afford
incomplete protection and there can be no assurance that the Company will be
able to protect adequately its trade secrets or that other companies will not
acquire information which the Company considers to be proprietary. The Company
will be materially adversely affected if it cannot maintain its proprietary
technologies for its exclusive use.
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COMPETITION
The pharmaceutical industry is an expanding and rapidly changing industry
characterized by intense competition. The Company believes that its ability to
compete will be dependent in large part upon its ability to continually enhance
and improve its products and technologies. In order to do so, the Company must
effectively utilize and expand its research and development capabilities and,
once developed, expeditiously convert new technology into products and processes
which can be commercialized. Competition is based primarily on scientific and
technological superiority, technical support, availability of patent protection,
access to adequate capital, the ability to develop, acquire and market products
and processes successfully, the ability to obtain governmental approvals and the
ability to serve the particular needs of commercial customers. Corporations and
institutions with greater resources than the Company may, therefore, have a
significant competitive advantage. The Company's potential competitors include
entities that develop and produce therapeutic agents for treatment of human and
animal disease. These include numerous public and private academic and research
organizations and pharmaceutical and biotechnology companies pursuing production
of, among other things, biologics from cell cultures, genetically engineered
drugs and natural and chemically synthesized drugs. Almost all of these
competitors have substantially greater capital resources, research and
development capabilities, manufacturing and marketing resources, and experience
than the Company. The Company's competitors may succeed in developing products
or processes that are more effective or less costly than any that may be
developed by the Company, or that gain regulatory approval prior to the
Company's products. The Company also expects that the number of its competitors
and potential competitors will increase as more IFNa products receive
commercial marketing approvals from the FDA or analogous foreign regulatory
agencies. Any of these competitors may be more successful than the Company in
manufacturing, marketing and distributing its products. There can be no
assurance that the Company will be able to compete successfully.
GOVERNMENT REGULATION
The Company's research and development activities are subject to
comprehensive regulation by numerous governmental authorities in the United
States and other countries. If the Company is able to produce and market
products, such production and marketing will place the Company under continued
regulation. Among the applicable regulations in the United States,
pharmaceutical products are subject to the Federal Food, Drug and Cosmetic Act,
the Public Health Service Act, other federal statutes and regulations, and
certain state and local regulations. These statutes and regulations govern the
development, testing, formulation, manufacture, labeling, storage, record
keeping, quality control, advertising, promotion, sale, distribution and
approval of pharmaceutical products. Failure to comply with applicable
requirements can result in fines, recall or seizure of products, total or
partial suspension of production, refusal by the government to approve marketing
of the product and criminal prosecution.
A new drug may not be legally marketed for commercial use in the United
States without FDA approval. In addition, upon approval, a drug may only be
marketed for the indications, in the formulations and at the dosage levels
approved by the FDA. The FDA also has the authority to withdraw approval of
drugs in accordance with applicable statutes and regulations. Analogous foreign
regulators impose similar approval requirements relating to commercial marketing
of a drug in their respective countries and may impose similar restrictions and
limitations after approval.
In order to obtain FDA approval of a new product, the Company and its
strategic partners, if any, must submit proof of safety, efficacy, purity, and
stability, and the Company must demonstrate validation of its manufacturing
process. The testing and application process is expensive and time consuming,
often taking years to complete. There is no assurance that the FDA will act
favorably or quickly in reviewing applications. With respect to patented
products, processes or technologies, delays imposed or caused by the
governmental approval process may materially reduce the period during which the
Company will have the exclusive right to exploit them. Delays could also affect
the commercial advantages derived from proprietary processes. There is no
assurance that the regulatory agencies will find present or future submissions
of the Company to be adequate.
The FDA approval process for a pharmaceutical product such as oral IFNa
includes review of (i) preclinical laboratory and animal studies to enable FDA
review of an Investigational New Drug Application ("IND") or Investigational New
Animal Drug Notice ("INAD"), (ii) initial clinical studies to define safety and
32
<PAGE>
dose parameters and (iii) well-controlled clinical trials to demonstrate product
efficacy and safety, followed by submission and FDA approval of a Product
License Application ("PLA") concerning biologics and a New Drug Application
("NDA") with respect to drugs. FDA approval of the NDA and/or PLA is required
prior to any commercial sale or shipment of the product, except as to certain
exports.
Preclinical studies involve laboratory evaluation of product characteristics
and animal studies to assess the safety of the product. The results of the
preclinical tests are submitted to the FDA as part of the IND or INAD
application and are reviewed by the FDA. Unless the FDA objects to an IND, the
application will become effective 30 days following its receipt by the FDA.
INADs need only be filed prior to the shipment of the drug or biologic for
testing. There can be no certainty that the FDA will not object to the
commencement of clinical studies concerning any drug or biologic.
Human clinical trials are typically conducted in three sequential phases with
some amount of overlap allowed. Phase 1 trials normally consist of testing the
product in a small number of patient volunteers for establishing safety (adverse
effects), dosage tolerance, metabolism, distribution, excretion and clinical
pharmacology. In Phase 2, the continued safety and initial efficacy of the
product are evaluated in a somewhat larger patient population, and appropriate
dosage amounts and treatment intervals are determined. Phase 3 trials typically
involve more definitive testing of the appropriate dose for safety and clinical
efficacy in an expanded patient population at multiple clinical testing centers.
A clinical plan, or "protocol," accompanied by the approval of the institution
participating in the trials, must be submitted to the FDA prior to commencement
of each clinical trial. Each clinical study must be conducted under the auspices
of an Institutional Review Board ("IRB") at the institution performing the
clinical study. An IRB may require changes in a protocol, and there can be no
assurance that an IRB will permit any given study to be initiated or completed.
In addition, the FDA may order the temporary or permanent discontinuation of
clinical trials at any time. In light of this process, the Company must
necessarily rely on other persons and institutions to conduct studies. The
Company cannot guarantee that such persons and institutions will conduct studies
properly. There also can be no assurance that Phase 1, Phase 2 and Phase 3
testing of the Company's products will be completed successfully within any
specified time period, if at all.
All the results of the preclinical and clinical studies on a pharmaceutical
product are submitted to the FDA in the form of a PLA or NDA, for approval to
commence commercial distribution. Submission of a PLA or NDA does not assure FDA
approval for marketing. The application review process takes more than two years
on average to complete. However, the process may take substantially longer if
the FDA has questions or concerns about a product or studies regarding the
product. In general, the FDA requires at least two adequate and well-controlled
clinical studies demonstrating efficacy with sufficient levels of statistical
assurance. However, additional support may be required. The FDA also may request
additional information relating to safety or efficacy, such as long- term
toxicity studies. In responding to a PLA or NDA, the FDA may grant marketing
approval, require additional testing and/or information or deny the application.
Accordingly, there can be no assurance about any specific time frame for
approval, if any, of products by the FDA. The FDA also may require
post-marketing testing and surveillance to monitor the safety record of a
product and its continued compliance with regulatory requirements.
The facilities of each pharmaceutical manufacturer must be registered with
and approved by the FDA as compliant with the agency's good manufacturing
practice regulations ("GMP"). For biologics, except certain well-characterized
ones, this requires the filing of an establishment license application ("ELA")
that must be approved by the FDA for the facility in which the product is
maintained. While the ELA and PLA are separate documents, they must be submitted
at the same time and both documents must be approved before the sale of the
biologic. Continued registration also requires compliance with the FDA's GMP.
Products must be formulated in accordance with the FDA's GMP requirements and
preclinical tests must be conducted by laboratories that comply with FDA
regulations governing the testing of drugs in humans and animals. In order to
comply with GMP, manufacturers must continue to expend time, money and effort in
production, record keeping and quality control. In addition, manufacturers must
comply with regulations promulgated by the United States Drug Enforcement
Administration and similar state and local regulatory authorities if they handle
controlled substances, and they must be registered with the United States
Environmental Protection Agency and similar state and local regulatory
authorities if they generate toxic or dangerous waste streams. Other regulatory
agencies, such as the Occupational Safety and Health Administration, also
33
<PAGE>
monitor manufacturing facilities for compliance with workplace safety
regulations. Each of these organizations conducts periodic establishment
inspections to confirm continued compliance with its regulations. Failure to
comply with any of these regulations could mean fines, interruption of
production and even criminal prosecution.
For foreign markets, a pharmaceutical company is subject to regulatory
requirements, review procedures and product approvals which, generally, may be
as extensive, if not more extensive, as those in the United States. Although the
technical descriptions of the clinical trials are different, the trials
themselves are often substantially the same as those in the United States.
Approval of a product by regulatory authorities of foreign countries must be
obtained prior to commencing commercial product marketing in those countries,
regardless of whether FDA approval has been obtained. The time and cost required
to obtain market approvals in foreign countries may be greater than required for
FDA approval and may be subject to delay. There can be no assurance that
regulatory authorities of foreign countries will grant approval.
RESEARCH AND DEVELOPMENT
During the years ended December 31,1994 and 1995 and the three months ended
March 31, 1996, the Company incurred expenses of $1,364,042, $875,093 and
$134,209, respectively, resulting from Company- sponsored research and
development activities. Research and development is expected to remain a
significant component of the Company's business. In the short term, the Company
expects to concentrate on the Primary Development Projects and intends to use
approximately $6,350,000 of the estimated net proceeds of this offering and
other funds, to the extent they are, or may become, available, for such
projects. However, the Company may abandon or deemphasize its research and
development activities with respect to the Primary Development Projects and
expand research and development of other products as circumstances warrant. The
Company has contracted out substantially all of its clinical research and
intends to continue to do so while utilizing its staff for monitoring such
research.
PROPERTY
The Company's executive and administrative offices are located at 800 West
9th Avenue, Amarillo, Texas in a 5,200 square foot facility owned by the
Company. The building contains offices, meeting rooms and a biologic storage
area. The Company believes that the facility is adequate for its present and
anticipated uses.
EMPLOYEES
The Company currently has eight full-time employees, three of whom are
executive officers, three of whom assist in the design and monitoring of
clinical trials and the conduct of regulatory affairs for such trials, and two
of whom are clerical staff. The Company believes that its relations with its
employees are good. None are covered by a collective bargaining agreement with
the Company.
34
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Joseph Cummins, DVM, PhD (1) . 53 Chairman of the Board, President,
Chief Executive Officer and Director
Charles Hughes .............. 56 Vice President--Finance and
Administration, Chief Financial Officer
and Treasurer
Alan Richards, PhD .......... 46 Director of Clinical and Regulatory Affairs
Edward L. Morris ............ 51 Secretary
Stephen Chen, PhD (2) ....... 47 Director
James Cook (1)(3) ........... 61 Director
Katsuaki Hayashibara (2) .... 52 Director
Dennis Moore, DVM (1)(3) .... 49 Director
James Page, MD (2) .......... 69 Director
</TABLE>
- ------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
Joseph Cummins has been the Chairman of the Board of the Company since he
founded it in June 1984. Dr. Cummins has also served as President of the Company
since December 1994 and from June 1984 to September 1992. He received a PhD
degree in veterinary microbiology from the University of Missouri in 1978 and a
doctor of veterinary medicine degree from Ohio State University in 1966. Dr.
Cummins has been conducting research concerning IFN since 1969.
Charles Hughes has been Vice President -- Finance and Administration, Chief
Financial Officer and Treasurer of the Company since April 1993. From August
1991 to March 1993 he was a Vice President of First National Bank of Amarillo,
and from July 1989 to July 1991 he was Vice President of Finance and
Administration of the Cattlemen's Beef Promotion and Research Board, an industry
organization. From September 1985 to July 1989, he was a financial consultant
and from May 1979 to September 1985 he was the Chief Financial Officer of Friona
Industries, Inc., a public company engaged in agribusiness. Mr. Hughes is a
certified public accountant.
Alan Richards has served the Company in various capacities since June 1990,
most recently as Director of Clinical and Regulatory Affairs. From 1986 to 1990,
Dr. Richards was a member of the faculty of Campbell University teaching
microbiology, immunology, genetics and biotechnology. He received a PhD degree
in veterinary microbiology and immunology from Texas A&M University in 1984.
Edward Morris has served as Secretary of the Company since 1986. Since 1983,
Mr. Morris has been a partner in the law firm of Morris, Moore, Moss & Douglass,
P.C., which firm provides legal services to the Company.
Stephen Chen has been a director of the Company since February 1996. He has
been President and Chief Executive Officer of STC International, Inc., a
healthcare investment firm, since May 1992. From August 1989 to May 1992 he was
Director of Pharmaceutical Research and Development for the Ciba Consumer
Pharmaceuticals Division of Ciba-Geigy.
James Cook has been a director of the Company since 1988. He has been the
President and Chief Executive Officer of the First National Bank of Arvada since
January 1992 and from April 1987 to December 1991 he was Executive Vice
President of First National Bank of Amarillo.
Katsuaki Hayashibara has been a director of the Company since 1994. Since
1988, Mr. Hayashibara has been the Director of Research and Development for
HBL.
35
<PAGE>
Dennis Moore has been a director of the Company since 1986. Dr. Moore has
been a doctor of veterinary medicine since 1972 and was in private practice
from 1972 to 1995.
James Page has been a director of the Company since February 1996. Prior to
retiring in 1991 as a Vice President with Adria Laboratories, Inc., a
pharmaceutical company specializing in therapy given to cancer and AIDS
patients, Dr. Page held various upper management level positions with Carter
Wallace, Inc., Merck Sharpe & Dohme Research Laboratories and Wyeth
Laboratories.
The Company's directors are elected at the annual meeting of shareholders to
hold office until the annual meeting of shareholders for the ensuing year or
until their successors have been duly elected and qualified. The Company pays
directors who are not employees of the Company a fee of $1,000 per regularly
scheduled Board meeting attended (or $250 for participation in a regularly
scheduled Board meeting by conference telephone). The Company reimburses all
directors for their expenses in connection with their attendance at such
meetings.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board.
The Company has agreed, for a period of five years from the date of this
Prospectus, if so requested by the Underwriter, to nominate and use its best
efforts to elect a designee of the Underwriter as a director of the Company or,
at the Underwriter's option, as a non-voting advisor to the Company's Board of
Directors. The Company's officers and directors and substantially all of its
existing shareholders have agreed to vote their shares of Common Stock in favor
of such designee. The Underwriter has not yet exercised its right to designate
such a person.
The Company is the owner and beneficiary of a $2,000,000 insurance policy
on the life of Dr. Joseph Cummins.
EXECUTIVE COMPENSATION
The following table sets forth for the three years ended December 31, 1995
compensation paid by the Company to its Chairman of the Board, President and
Chief Executive Officer. None of the Company's other executive officers had
annual compensation in excess of $100,000 for services rendered during any of
the three years ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-----------------------------------
Other Annual
Compensation
Name and Principal Position Year Salary($) Bonus($) ($)
- --------------------------- ---- --------- -------- -------------
<S> <C> <C> <C> <C>
Dr. Joseph Cummins, Chairman
of the Board, President and
Chief Executive Officer .. 1995 $120,000 $ 500 $ --
1994 120,000 -- --
1993 120,000 27,308 30,000(1)
</TABLE>
- ------
(1) Represents the amount allocated to Mr. Cummins of contributions made by the
Company to employees under the Company's Profit Sharing Plan which was
discontinued in 1995.
EMPLOYMENT AGREEMENTS
Joseph Cummins, the Chairman of the Board, President and Chief Executive
Officer of the Company, is employed under an employment agreement entered into
by the parties in March 1994, as amended in May 1996. As amended, the agreement
provides for a term expiring on December 31, 1999. Pursuant to the agreement Dr.
Cummins is required to devote his full time to the affairs of the Company and
receives an annual salary of $120,000. The agreement also contains provisions
(i) prohibiting disclosure of confidential information, (ii) granting to the
Company rights to intellectual property developed by Dr. Cummins that relate to
the Company's business and are developed in the course of his employment by the
Company, and (iii) prohibiting competition with the Company during, and for a
period of three years after, Dr. Cummins' employment by the Company. The
employment agreement also sets forth the amended terms of a restricted stock
36
<PAGE>
grant awarded to Dr. Cummins by the Company. In accordance with and in full
satisfaction of such terms, simultaneously with the sale of the Common Stock
offered hereby, the Company will issue to Dr. Cummins 30,000 shares of Common
Stock and use $90,000 to satisfy withholding tax obligations arising as a
result of such issuance. See "Certain Transactions."
Alan Richards, the Company's Director of Clinical and Regulatory Affairs, and
Charles Hughes, its Vice President - Finance and Administration and Chief
Financial Officer, respectively, are employed pursuant to employment agreements
entered into in March 1994 and June 1994, respectively. Pursuant to the
agreements, Dr. Richards and Mr. Hughes each is required to devote his full time
to the affairs of the Company and receive annual salaries of $87,500 and
$74,000, respectively. The employment agreements contain the same provisions
regarding confidentiality, non-competition and ownership of intellectual
property rights as contained in Dr. Cummins' employment agreement. The
employment agreements were amended in May 1996 to modify the terms of certain
restricted stock grants previously awarded to the employees. In accordance with
and in full satisfaction of the amended terms of the restricted stock grants,
simultaneously with the sale of the Common Stock offered hereby, the Company
will issue 30,000 and 19,000 shares of Common Stock, respectively, to Dr.
Richards and Mr. Hughes and use an aggregate of $145,000 to satisfy withholding
tax obligations relating to such issuances. Each employment agreement is for an
indefinite term, but is terminable by either party upon six months prior written
notice to the other. See "Certain Transactions."
For a period of three years after the date of this Prospectus, the Company
may not, without the prior written consent of the Underwriter, increase the
compensation of Messrs. Cummins, Richards or Hughes. Such approval shall be
predicated upon, among other things, the performance of the Company, the
performance of the employee, inflationary trends and other economic conditions.
SCIENTIFIC ADVISORY BOARD
The Company's Scientific Advisory Board (the "Advisory Board") was organized
to review and evaluate the Company's research and development programs and to
advise the Company generally in addressing various scientific issues. The
Company generally selects for membership persons who are experts in infectious
diseases. Members of the Advisory Board ("Advisors") may meet as a group or
individually with management of the Company. They are not employed by the
Company and may have commitments to, or consulting or advisory agreements with,
other entities that may limit their availability to the Company. These entities
may also be competitors of the Company. The Company is not aware of any conflict
of interest between work performed by Advisors on behalf of the Company and work
performed by them on behalf of other parties. The Company requires each Advisor
to execute a confidentiality agreement upon the commencement of his or her
relationship with the Company. The agreements generally provide that all
confidential information made known to the individual during the term of the
relationship is the exclusive property of the Company and shall be kept
confidential and not disclosed to third parties. The current members of the
Advisory Board are as follows:
<TABLE>
<CAPTION>
<S> <C>
Steven L. Berk, M.D. Michael Lange, M.D.
Chairman of the Scientific Advisory Board Associate Chief of Infectious Diseases
Professor and Chairman of Medicine St. Luke's-Roosevelt Hospital Center
East Tennessee State University New York, New York
Masashi Kurimoto Jun Minowada, M.D., DMS
Member of Executive Executive Director of HBL, Director of
Board of HBL, Director of Fujisaki Cell Center
Fujisaki Institute
Wayne A. Tompkins, Ph.D. James Page, M.D.
Professor of Immunology and Director Director of the Company
of Graduate Programs, North Carolina
State University
</TABLE>
The Company has entered into consulting agreements with each Advisor. Each
agreement is for a one year term. Under each agreement the Company is required
to pay the Advisor $1,200 per day for consultation services requested by the
Company and performed by such person. Advisors also receive reimbursement of
travel expenses connected with Company business and stock options and related
stock appreciation rights under the Director Plan. Consultation services include
37
<PAGE>
assisting the Company in the development of a research plan to elucidate the
biological effects, safety and efficacy of the Company's products and assisting
the Company in analyzing data from research trials and other studies concerning
the Company's products.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's By-laws provide for the Company to indemnify each director and
officer of the Company against liabilities imposed upon him (including
reasonable amounts paid in settlement) and expenses incurred by him in
connection with any claim made against him or any action, suit or proceeding to
which he may be a party by reason of his being or having been a director or
officer of the Company. The Company has also entered into Indemnification
Agreements with each officer and director pursuant to which the Company will, in
general, indemnify such persons to the maximum extent permitted by the Company's
By-Laws and the laws of the State of Texas against any expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement incurred in
connection with any actual or threatened action or proceeding to which such
director or officer is made or threatened to be made a party by reason of the
fact that such person is or was a director or officer of the Company. The
foregoing provisions may reduce the likelihood of derivative litigation against
directors and may discourage or deter shareholders or management from suing
directors for breaches of their duty of care, even though such an action, if
successful, might otherwise benefit the Company and its shareholders.
STOCK OPTION PLANS
In May 1996, the Board of Directors adopted and the shareholders of the
Company approved both the 1996 Employee Stock Option Plan (the "Employee Plan")
and the Outside Director and Advisor Stock Plan (the "Director Plan" and
together with the Employee Plan, the "Plans").
EMPLOYEE PLAN
The purpose of the Employee Plan is to serve as an incentive to employees for
continuous employment with the Company, to maintain competitive compensation
levels for employees and to more closely align the interests of shareholders and
employees of the Company.
Awards under the Employee Plan shall be in the form of incentive stock
options ("ISOs"), as defined in Section 422 of the Internal Revenue Code of
1986, as amended. Limited stock appreciation rights ("Limited Rights") relating
to such ISOs may also be granted. An aggregate of 150,000 shares of Common Stock
are reserved for issuance upon the exercise of ISOs granted under the Employee
Plan.
The Employee Plan is administered by a committee of at least two directors of
the Company (the "Committee") which has the authority, in its sole discretion,
to grant ISOs and Limited Rights to eligible employees, to determine the timing
and amount of such awards, to impose limitations, restrictions and conditions
upon such awards and to interpret the Employee Plan and related rules and
agreements.
All ISOs granted to employees who do not possess more than 10% of the total
combined voting power of all classes of stock of the Company will be exercisable
at a price equal to 100% of the fair market value of a share of Common Stock on
the date of grant and will vest at the rate of 20% per year, commencing on the
first anniversary of the date of grant. All ISOs granted to 10% shareholders
will be exercisable at a price equal to 110% of the fair market value of a share
of Common Stock on the date of grant and will vest at the rate 25% per year,
commencing on the first anniversary of the date of grant. The aggregate fair
market value of the shares covered by ISOs granted under the Employee Plan that
become exercisable by a holder for the first time in any calendar year is
subject to a $100,000 limit. The maximum number of shares of Common Stock with
respect to which ISOs may be granted in any one year to any employee shall not
exceed 50,000.
ISOs granted to employees who are not 10% shareholders must be exercised
prior to the expiration of ten years from the date of grant and ISOs granted to
10% shareholders must be exercised prior to the expiration of five years from
the date of grant. ISOs are exercisable only during the holder's employment,
and, in the case of a involuntary termination of the employee, for a period of
up to 90 days after the termination of such holder's employment to the extent
the ISOs were exercisable at the date of termination or become exercisable
within the 90 days after termination of employment. However, in the case of the
termination of an optionee's employment by reason of his disability or
retirement, the ISOs held by him may be exercised for a period of 36 months
after such termination to the extent the ISOs were exercisable at the date of
termination. In the case of the death of an optionee, any ISO exercisable on the
date of the employee's death may be exercised by the employee's estate of
38
<PAGE>
beneficiaries if such exercise occurs within the remaining term of the option
but in no event after one year after the employee's death. ISOs may not be
transferred other than by will or the laws of descent and distribution, or
pursuant to certain qualified domestic relations orders.
Concurrently with or subsequent to the award of any ISO, the Committee may
award a Limited Right with respect to each ISO permitting the optionee to be
paid the appreciation on the Common Stock in lieu of (but not in addition to)
exercising the ISO. A Limited Right is fully exercisable and must be exercised
immediately preceding or simultaneously with a Change in Control (as defined in
the Employee Plan), except that if a Change of Control occurs without notice to
the holder of the Limited Right or an opportunity by the holder of the Limited
Right to exercise it, the Limited Right must be exercised as soon as practicable
after the Change of Control occurs.
Any shares of Common Stock subject to an option which has been terminated
unexercised or expires shall again be available for issuance under the Employee
Plan, except that shares subject to an option which are not issued because the
optionee has elected to be paid upon the exercise of a related Limited Right
shall not again be available for issuance under the Employee Plan.
In May 1996, the Company granted ISOs to purchase 7,500 shares of Common
Stock at an exercise price of $5.00 per share to each of Joseph Cummins, Charles
Hughes and Alan Richards.
DIRECTOR PLAN
The purpose of the Director Plan is to provide an incentive to outside
directors and members of the Company's Scientific Advisory Board ("Advisors")
for continuous association with the Company and to reinforce the relationship
between participants' rewards and shareholder gains.
Awards under the Director Plan are in the form of so-called non-qualified
stock options and Limited Rights relating to such options. An aggregate of
100,000 shares of Common Stock are reserved for issuance upon exercise of
options granted under the Director Plan. Options under the Director Plan may be
granted only to directors or Advisors who are not officers or employees of the
Company.
The Director Plan is administered by a committee of at least two directors of
the Company which has the authority, in its sole discretion, to interpret the
Plan, to adopt, amend and rescind rules and regulations relating to the Plan and
to otherwise administer the Plan. However, all options and Limited Rights
granted under the Plan are automatic and non-discretionary.
The Director Plan provides that on the day following the date of this
Prospectus or, if later, the date a person first becomes an outside director of
or Advisor to the Company, each outside director or Advisor shall be awarded
options to purchase an aggregate of 10,000 and 5,000 shares, respectively, of
Common Stock, except any outside director who is an Advisor shall be granted
options to purchase 10,000 shares of Common Stock as a director and shall not be
granted any options as an Advisor. Concurrently with the award of options, each
director and Advisor shall also be awarded an equal number of Limited Rights.
All options granted under the Director Plan will be exercisable at a price
equal to 100% of the fair market value of a share of Common Stock on the date of
grant and will vest at the rate of 20% per year, commencing on the first
anniversary of the date of grant. Options must be exercised prior to the
expiration of ten years from the date of grant.
The provisions of the Director Plan relating to exercisability of outstanding
options after the optionee's termination of association with the Company by
virtue of his death, disability or the involuntary termination of the optionee's
employment and the exercise of Limited Rights are the same as the provisions of
the Employee Plan relating thereto. Options under the Director Plan may not be
transferred other than by will or the laws of descent and distribution.
On the day after the date of this Prospectus, options to purchase an
aggregate of 10,000 shares of Common Stock at an exercise price of $5.00 per
share will be granted to each of Stephen Chen, James Cook, Katsuaki Hayashibara,
Dennis Moore and James Page, each of whom is a director of the Company, and
options to purchase an aggregate of 5,000 shares of Common Stock at an exercise
price of $5.00 per share will be granted to each of Steven Berk, Masashi
Kurimoto, Wayne Tompkins, Michael Lange and Jun Minowada, each of whom is an
Advisor.
39
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of the date of this Prospectus
and as adjusted to reflect the sale of 2,000,000 shares offered hereby, based
upon information obtained from the persons named below, relating to the
beneficial ownership of shares of Common Stock by (i) each person known to the
Company to own five percent or more of the outstanding Common Stock, (ii) each
director of the Company and (iii) all officers and directors of the Company as a
group.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percentage of Shares Owned
----------------------------
Name and Address Ownership Before After
of Beneficial Owner Before Offering (1) Offering Offering(2)
------------------------- ......................... ----------------- ---------- -----------
<S> <C> <C> <C>
Hayashibara Biochemical
Laboratories, Inc.
2-3, Shimoishii 1-chome
Okayama 700, Japan ................................ 1,032,756 34.0% 31.9%(3)
Dr. Joseph Cummins
800 West 9th Avenue
Amarillo, Texas 79101 ............................. 666,804(4) 22.0% 13.6%
Mesa Operating Limited
Partnership
P.O. Box 2009
Amarillo, Texas 79189-2009 ........................ 315,120 10.4% 6.2%
Dr. Dennis Moore
P.O. Box 1553
Hamilton, Montana 59840 ........................... 149,616 4.9% 2.9%
Katsuaki Hayashibara
Hayashibara Biochemical
Laboratories, Inc.
1-2-3, Shimoishii
Okayama 700, Japan ................................ 48,240(5) 1.6% *
Dr. Stephen Chen
6 Persimmon Court
East Brunswick, New Jersey 08816 .................. -- -- --
James Cook
13711 Basalt Court
Broomfield, Colorado 80020 ........................ 66,600(6) 2.2% 1.3%
Dr. James Page
103 Clubhouse Lane
Naples, Florida 33942 ............................. -- -- --
All officers and directors as a group (nine persons) 931,860 30.7% 19.8%
</TABLE>
- ------
* Less than 1%
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus upon
the exercise of options or warrants. Each beneficial owner's percentage
ownership is determined by assuming that options that are held by such
person (but not those held by any other person) and that are exercisable
within 60 days from the date of this Prospectus have been exercised. Except
as otherwise indicated, the Company believes that each of the persons named
has sole voting and investment power with respect to the shares shown as
beneficially owned by him.
(2) Gives effect to the issuance of 30,000 shares of Common Stock to Joseph
Cummins and an aggregate of 49,000 shares of Common Stock to two officers
simultaneously with the consummation of the sale of the Common Stock offered
hereby - See "Management-Employment Agreements" and "Certain Transactions."
(3) Gives effect to the purchase by HBL of 600,000 of the 2,000,000 shares
offered hereby. HBL may purchase fewer than 600,000 shares if one or more of
its designees purchase the balance of such shares.
(4) Includes an aggregate of 337,666 shares of Common Stock held by Joseph
Cummins as trustee under certain trusts for the benefit of his children and
360 shares owned by Dr. Cummins wife.
(5) Does not include 1,032,756 shares owned by HBL.
(6) All of such shares are owned jointly with Mr. Cook's wife.
Joseph Cummins and HBL may be deemed "parents" of the Company and Joseph
Cummins may be deemed a "promoter" of the Company, as such terms are defined
under the federal securities laws.
40
<PAGE>
CERTAIN TRANSACTIONS
The Company has relied significantly on HBL, the principal shareholder of the
Company, for a substantial portion of its capital requirements. From 1989 to the
date of this Prospectus, HBL has provided an aggregate of $9,000,000 of funding
pursuant to the Development Agreement, purchased from the Company an aggregate
of 461,520 shares of Common Stock for a total purchase price of $1,443,800 and
made loans to the Company aggregating $3,000,000, of which $1,000,000 loaned
after March 31, 1996 will be repayable simultaneously with the consummation of
this offering. As of March 31, 1996, the outstanding amount of the Company's
indebtedness to HBL (including accrued interest) was $2,483,699. HBL has agreed
that it and/or its designees will purchase 600,000 shares of Common Stock in the
offering made pursuant to this Prospectus. Giving effect to the sale of
2,000,000 shares of the Company's Common Stock pursuant to this offering,
including 600,000 shares to HBL, HBL will own approximately 31.9% of the
Company's Common Stock. In addition to the Development Agreement, HBL and the
Company are parties to various license and manufacturing and supply agreements
pursuant to which the Company licenses certain technology to or from HBL and HBL
supplies formulations of its IFNa to the Company.
In May 1996, the Company amended the employment agreements of three officers
to provide that in lieu of issuing an aggregate of 126,000 shares of Common
Stock that were originally to be issued to such persons as a result of their
satisfying certain criteria under which the Common Stock becomes issuable, the
Company will issue an aggregate of 79,000 shares and use $235,000 of the
proceeds of this offering to satisfy withholding tax obligations relating to
such issuances. The amended employment agreement between the Company and Dr.
Cummins provides for the term of Dr. Cummins' employment agreement to be
extended to December 31, 1999. See "Management --Employment Agreements."
Pursuant to a Contract Termination and Severance Agreement with Edward
Sherwood, a former President of the Company, in January 1995 the Company issued
to Mr. Sherwood an aggregate of 29,640 shares of Common Stock and satisfied the
withholding tax obligations relating to such issuance.
During the year ended December 31, 1995, the Company accrued an aggregate of
$68,700 for legal services rendered by Morris, Moore, Moss and Douglas, P.C.
Edward Morris, the Secretary of the Company, is a member of such firm.
Effective upon the consummation of the sale of Common Stock offered hereby,
HBL has agreed to indemnify the Company and its officers, directors, employees
and agents for litigation expenses, losses, damages and amounts paid in
settlement arising out of litigation which may be brought by Roche or its
affiliates relating to the Roche Patent.
41
<PAGE>
DESCRIPTION OF COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock, par
value $.01 per share. As of the date of this Prospectus, there are 3,035,232
shares outstanding (not including an aggregate of 79,000 shares to be issued to
three officers simultaneously with the sale of the Common Stock offered hereby)
which are held by 135 holders of record.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by shareholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voting for the election of directors can
elect all of the directors. The holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors in its discretion,
out of funds legally available therefor. In the event of liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in the assets of the Company, if any, legally
available for distribution to them after payment of debts and liabilities of the
Company and after provision has been made for each class of stock, if any,
having liquidation preference over the Common Stock. Holders of shares of Common
Stock have no conversion, preemptive or other subscription rights, and there are
no redemption or sinking fund provisions applicable to the Common Stock. All of
the outstanding shares of Common Stock are, and the shares of Common Stock
offered hereby will be, when issued upon payment of the consideration set forth
in this Prospectus, fully paid and non-assessable.
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.
REPORTS TO SHAREHOLDERS
The Company intends to furnish its shareholders annual reports containing
audited financial statements and such other periodic reports as the Company may
determine to be appropriate or as may be required by law.
The Company has agreed, subject to the sale of the shares offered hereby,
that on or before the date of this Prospectus, it will register its Common Stock
under the provisions of Section 12(g) of the Exchange Act and has agreed with
the Underwriter that it will use its best efforts to maintain such registration
for five years. Such registration will require the Company to comply with
periodic reporting, proxy solicitation and certain other requirements of the
Exchange Act.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 5,114,232
shares of Common Stock outstanding (assuming no exercise of the Underwriter's
over-allotment option or other outstanding options). Up to 600,000 of the
2,000,000 shares offered hereby will be purchased by HBL and will be subject to
certain restrictions on sale imposed under the federal securities laws. The
remaining shares of Common Stock being offered hereby will be immediately
tradeable without restriction or further registration under the Securities Act.
All of the 3,035,232 shares of Common Stock outstanding as of the date of this
Prospectus are, and all of the 79,000 shares to be issued to three officers of
the Company simultaneously with the consummation of the sale of the Common Stock
offered hereby will be, deemed to be "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities Act, in that such shares
were acquired by the shareholders of the Company in transactions not involving a
public offering, and, as such, may only be sold pursuant to a registration
statement under the Securities Act, in compliance with the exemption provisions
of Rule 144, or pursuant to another exemption under the Securities Act. Of such
3,114,232 restricted shares of Common Stock, an aggregate of 1,040,976 shares
are immediately eligible for sale, without registration, under Rule 144 (subject
to the contractual restrictions described below). An additional 1,964,616 shares
will become eligible for sale (subject to the volume limitations prescribed in
Rule 144 and such contractual restrictions) commencing 90 days after the date of
this Prospectus. The balance of such shares will become so eligible at various
times commencing in January 1997. Notwithstanding the foregoing, stockholders of
the Company owning of record more than 99% of the Common Stock outstanding as of
the date of this Prospectus, have agreed not to sell or otherwise dispose of any
shares of Common Stock beneficially owned by them for a period of 12 months from
the date of this Prospectus without the Underwriter's prior written consent.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least two years is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the then outstanding shares of
the issuer's com mon stock or the average weekly trading volume during the four
42
<PAGE>
calendar weeks preceding such sale, provided that certain public information
about the issuer as required by Rule 144 is then available and the seller
complies with certain other requirements. Affiliates will be subject to the
provisions of Rule 144, except that the holding period requirement does not
apply to sales by affiliates of shares which are not restricted securities. A
person who is not an affiliate, has not been an affiliate within three months
prior to sale, and has beneficially owned the restricted shares for at least
three years is entitled to sell such shares under Rule 144 without regard to any
of the limitations described above.
Prior to this offering, there has been no market for the Common Stock and no
prediction can be made as to the effect, if any, that market sales of Common
Stock or the availability of such shares for sale will have on the market price
prevailing from time to time. Nevertheless, the possibility that substantial
amounts of Common Stock may be sold in the public market may adversely affect
prevailing market prices for the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity securities.
UNDERWRITING
Whale Securities Co., L.P. (the "Underwriter") has agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase
2,000,000 shares of Common Stock from the Company. The Underwriter is committed
to purchase and pay for all of the Common Stock offered hereby if any of such
securities are purchased. The shares of Common Stock are being offered by the
Underwriter, subject to prior sale, when, as and if delivered to and accepted by
the Underwriter and subject to approval of certain legal matters by counsel and
to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the Common
Stock to the public at the public offering price set forth on the cover page of
this Prospectus. The Underwriter may allow to certain dealers who are members of
the National Association of Securities Dealers, Inc. (the "NASD") concessions,
not in excess of $ per share of Common Stock, of which not in excess of $ per
share of Common Stock may be reallowed to other dealers who are members of the
NASD.
The Company has granted to the Underwriter an option, exercisable for 45 days
from the date of this Prospectus, to purchase up to 300,000 additional shares of
Common Stock at the public offering price set forth on the cover page of this
Prospectus, less the underwriting discounts and commissions. The Underwriter may
exercise this option in whole or, from time to time, in part, solely for the
purpose of covering over-allotments, if any, made in connection with the sale of
the shares of Common Stock offered hereby.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance of 3% of the gross proceeds of this offering (including gross proceeds
received as a result of the exercise of the Underwriter's over-allotment
option), of which $50,000 has been paid as of the date of this Prospectus. The
Company has also agreed to pay all expenses in connection with qualifying the
shares of Common Stock offered hereby for sale under the laws of such states as
the Underwriter may designate, including expenses of counsel retained for such
purpose by the Underwriter.
The Company has agreed to sell to the Underwriter and its designees for an
aggregate of $200, warrants (the "Underwriter's Warrants") to purchase up to
200,000 shares of Common Stock at a purchase price of $7.00 per share. The
Underwriter's Warrants may not be sold, transferred, assigned or hypothecated
for one year from the date of this Prospectus, except to the officers and
partners of the Underwriter and members of the selling group, and are
exercisable during the four-year period commencing one year after the date of
this Prospectus (the "Warrant Exercise Term"). During the Warrant Exercise Term,
the holders of the Underwriter's Warrants are given, at nominal cost, the
opportunity to profit from a rise in the market price of the Company's Common
Stock. To the extent that the Underwriter's Warrants are exercised, dilution to
the interests of the Company's stockholders will occur. Further, the terms upon
which the Company will be able to obtain additional equity capital may be
adversely affected since the holders of the Underwriter's Warrants can be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company than
those provided in the Underwriter's Warrants. Any profit realized by the
Underwriter on the sale of the Underwriter's Warrants or the underlying shares
of Common Stock may be deemed additional underwriting compensation. Subject to
certain limitations and exclusions, the Company has agreed, at the request of
43
<PAGE>
the holders of a majority of the Underwriter's Warrants, at the Company's
expense, to register the Underwriter's Warrants and the shares of Common Stock
issuable upon exercise of the Underwriter's Warrants under the Securities Act on
one occasion during the Warrant Exercise Term and to include the Underwriter's
Warrants and all such underlying securities in any appropriate Registration
Statement which is filed by the Company during the seven years following the
date of this Prospectus.
The Company has agreed for a period of five years from the date of this
Prospectus, if so requested by the Underwriter, to nominate and use its best
efforts to elect a designee of the Underwriter as a director of the Company, or,
at the Underwriter's option, as a non-voting advisor to the Company's Board of
Directors. The Underwriter has not yet exercised its right to designate such a
person.
In addition, the Company has agreed to retain the Underwriter as a financial
consultant for a period of two years from the consummation of this offering at
an annual fee of $30,000, the entire $60,000 payable in full, in advance, upon
the consummation of this offering. The consulting agreement will not require the
consultant to devote a specific amount of time to the performance of its duties
thereunder. It is anticipated that these consulting services will be provided by
principals of the Underwriter and/or members of the Underwriter's corporate
finance department who, however, have not been designated as of the date hereof.
In the event that the Underwriter originates a financing or a merger,
acquisition, joint venture or other transaction to which the Company is a party,
the Underwriter will be entitled to receive a finder's fee in consideration for
origination of such transaction.
The Underwriter has informed the Company that it does not expect sales made
to discretionary accounts to exceed 1% of the securities offered hereby.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act.
All of the officers and directors and shareholders of the Company owning of
record more than 99% of the Common Stock outstanding as of the date of this
Prospectus, have agreed that they will not sell any shares of Common Stock of
the Company for a period of 12 months after the date of this Prospectus without
the prior written consent of the Underwriter.
Prior to this offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock has been determined by negotiation between the Company and the Underwriter
and is not necessarily related to the Company's asset value, net worth or other
established criteria of value. Among the factors considered in determining the
offering price were the Company's financial condition and prospects, management,
market prices of similar securities of comparable publicly-traded companies,
certain financial and operating information of companies engaged in activities
similar to those of the Company and the general condition of the securities
market.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for the
Company by Lowenthal, Landau, Fischer & Bring, P.C., New York, New York. Certain
legal matters have been passed upon for the Underwriter by Tenzer Greenblatt
LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company and its subsidiaries
(companies in the development stage) at December 31, 1995 and for each of the
two years in the period ended December 31, 1995, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in auditing and accounting.
44
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under the
Securities Act with respect to the Common Stock offered by this Prospectus. This
Prospectus, filed as a part of such Registration Statement, does not contain all
of the information set forth in, or annexed as exhibits to, the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and this offering, reference is made to the Registration Statement,
including the exhibits filed therewith, which may be inspected without charge at
the Commission's principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549, at the Chicago Regional Office, 500 West Madison Street,
Chicago, Illinois 60601-2511, and at the New York Regional Office, 7 World Trade
Center, New York, New York 10048. Copies of the Registration Statement may be
obtained from the Commission's Public Reference Section upon payment of
prescribed fees. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete and, where the
contract or other document has been filed as an exhibit to the Registration
Statement, each statement is qualified in all respects by reference to the
applicable document filed with the Commission.
45
<PAGE>
AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors ...................................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and March 31, 1996 (Unaudited) .................. F-3
Consolidated Statements of Operations for the years ended December 31, 1994 and 1995 and the
unaudited three months ended March 31, 1995 and 1996 and cumulative from June 25, 1984
(inception) through March 31, 1996 (unaudited) ..................................................... F-4
Consolidated Statements of Shareholders' Deficit for the years ended December 31, 1994 and 1995
and the three months ended March 31, 1996 (unaudited) and cumulative from June 25, 1984 (inception)
through March 31, 1996 (unaudited) ................................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1995 and the unaudited
three months ended March 31, 1995 and 1996 and cumulative from June 25, 1984 (inception) through
March 31, 1996 (unaudited) ......................................................................... F-6
Notes to Consolidated Financial Statements .......................................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Amarillo Biosciences, Inc.
We have audited the accompanying consolidated balance sheet of Amarillo
Biosciences, Inc. and subsidiaries (companies in the development stage) as of
December 31, 1995, and the related consolidated statements of operations,
shareholders' deficit and cash flows for each of the two years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
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 consolidated financial position of
Amarillo Biosciences, Inc. and subsidiaries at December 31, 1995, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
February 1, 1996,
except for Note 13, as to which the date is
May 14, 1996
F-2
<PAGE>
AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
---------------- ---------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ......................................... $ 1,108,527 $ 724,280
Prepaid expenses .................................................. 26,395 16,229
----------- -----------
Total current assets ...................................... 1,134,922 740,509
Property and equipment, net (Note 2) ................................ 114,593 114,110
Patent license, net of accumulated amortization of $59,118 and $60,946
at December 31, 1995 and March 31, 1996 (unaudited), respectively
Note 5) ........................................................... 65,882 64,054
Organizational costs, net of accumulated amortization of $6,335 and
$6,667 at December 31, 1995 and March 31, 1996 (unaudited),
respectively ...................................................... 663 331
Investment in ISI common stock (Note 12) ............................ 475,000 505,000
----------- -----------
Total assets ........................................................ $ 1,791,060 $ 1,424,004
=========== ===========
Liabilities and Shareholders' Deficit
Current liabilities:
Deferred contract revenues (Note 4) ............................... $ 417,140 $ 14,566
Accounts payable .................................................. 148,274 100,175
Accrued interest expense .......................................... 453,699 483,699
Accrued restricted stock grants ................................... 114,844 124,687
Other accrued expenses ............................................ 19,000 19,967
----------- -----------
Total current liabilities ................................. 1,152,957 743,094
Notes payable to related party (Note 3) ............................. 2,000,000 2,000,000
----------- -----------
Total liabilities ................................................... 3,152,957 2,743,094
----------- -----------
Commitments and contingencies (Notes 4, 5, 6, and 10)
Shareholders' deficit (Notes 7 and 13):
Common stock, $.01 par value:
Authorized shares - 10,000,000
Issued shares - 3,048,672 ......................................... 30,487 30,487
Additional paid-in capital ........................................ 3,589,591 3,589,591
Deficit accumulated during the development stage .................. (4,955,975) (4,943,168)
Unrealized gain on marketable securities .......................... -- 30,000
Treasury stock - 13,440 shares, at cost ........................... (26,000) (26,000)
----------- -----------
Total shareholders' deficit ......................................... (1,361,897) (1,319,090)
----------- -----------
Total liabilities and shareholders' deficit ......................... $ 1,791,060 $ 1,424,004
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
from
June 25,
1984
(Inception)
Year ended Three months ended through
December 31, December 31, March 31, March 31, March 31,
1994 1995 1995 1996 1996
---------------- ---------------- --------------------------- ------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Contract revenues (Note 4) ....... $2,480,093 $1,361,395 $ 618,266 $ 402,574 $ 8,985,434
Interferon sales ................. 40,525 -- -- 2,000 415,773
Interest income .................. 132,713 94,867 28,803 11,154 520,430
Sublicense fees (Note 12) ........ -- 50,000 -- -- 108,334
Royalty income ................... -- -- -- -- 31,544
Other (Note 12) .................. -- 500,000 -- -- 509,371
---------- ---------- ----------- ----------- -----------
2,653,331 2,006,262 647,069 415,728 10,570,886
Expenses:
Research and development expenses. . 1,364,042 875,093 247,978 134,209 6,585,071
Selling, general, and administrative
expenses ...................... 1,298,528 1,322,748 444,025 238,712 8,408,162
Interest expense ................. 120,000 120,000 30,000 30,000 485,821
---------- ---------- ----------- ----------- -----------
2,782,570 2,317,841 722,003 402,921 15,479,054
---------- ---------- ----------- ----------- -----------
Income (loss) before income taxes .. (129,239) (311,579) (74,934) 12,807 (4,908,168)
Income tax expense (Note 9) ........ -- -- -- -- 35,000
---------- ---------- ----------- ----------- -----------
Net income (loss) .................. $ (129,239) $ (311,579) $ (74,934) $ 12,807 $ (4,943,168)
========= ========== =========== ========== ============
Income (loss) per share ............ $ (.04) $ (.10) $ (.02) $ --
========= ========== =========== ==========
Weighted average shares outstanding . 3,005,592 3,034,339 3,031,609 3,035,232
========= ========== =========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
CUMULATIVE FROM JUNE 25, 1984 (INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
Common Stock
Issuance ------------------------- Additional
Price Shares Issued Amount Paid-in Capital
----------- ------------- -------- ---------------
<S> <C> <C> <C> <C>
1984:
Initial issuance for cash .................... $.29 84,000 $ 840 $ 23,660
Initial issuance in exchange for legal fees .. .29 30,000 300 8,450
Initial issuance in exchange for services and
research and development costs .............. .01 1,086,000 10,860 (9,955)
1985:
Issuance for cash ............................ .83 102,000 1,020 83,980
Issuance in exchange for professional fees,
salaries, and research services ............. .83 10,800 108 8,892
1986:
Issuance in exchange for professional fees,
salaries, and services ...................... .83 22,800 228 18,772
Treasury stock purchase, 11,040 shares at cost -- -- --
Issuance for cash ............................ .83 -1.25 182,352 1,824 154,626
Issuance in exchange for professional fees,
salaries, and research services ............. .83 19,020 190 15,660
1987:
Issuance for cash ............................ 1.25 - 2.08 309,648 3,096 445,974
Treasury stock purchase, 2,400 shares at cost -- -- --
1988:
Issuance for cash ............................ 1.88 120,972 1,210 225,613
1989:
Issuance for cash ............................ 2.08 2,568 26 5,324
Issuance for cash ............................ 2.50 227,748 2,277 567,093
1990:
Issuance for cash ............................ 1.72 - 2.50 592,584 5,926 1,108,634
Issuance for cash ............................ 4.17 174,000 1,740 723,260
Issuance in exchange for note receivable from
shareholder ................................. 2.50 54,540 545 135,805
1991:
Repayment of note receivable from shareholder -- -- --
Net loss cumulative from June 25, 1984
(inception) through December 31, 1991 ....... -- -- --
1992:
Net loss for year ended December 31, 1992 .... -- -- --
--------- ------ ----------
Balance at December 31, 1992 ................. 3,019,032 30,190 3,515,788
1993:
Net loss for year ended December 31, 1993 .... -- -- --
--------- ------ ----------
Balance at December 31, 1993 ................. 3,019,032 30,190 3,515,788
1994:
Net loss for year ended December 31, 1994 .... -- -- --
Adjustment to unrealized losses on marketable
securities .................................. -- -- --
--------- ------ ----------
Balance at December 31, 1994 ................. 3,019,032 30,190 3,515,788
1995:
Issuance for stock grant ..................... 2.50 29,640 297 73,803
Net loss for year ended December 31, 1995 .... -- -- --
Adjustment to unrealized losses on marketable
securities .................................. -- --
--------- ------ ----------
Balance at December 31, 1995 ................. 3,048,672 30,487 3,589,591
1996:
Net income for three months ended March 31,
1996 (unaudited) ............................ -- -- --
Adjustment to unrealized gain on marketable
securities (unaudited) ...................... -- -- --
--------- ------- ----------
Balance at March 31, 1996 (unaudited) ........ 3,048,672 $30,487 $3,589,591
========= ======= ==========
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Deficit
Accumulated Unrealized Note
During the Gain (Loss) on Receivable Total
Development Marketable From Treasury Shareholders'
Stage Securities Shareholder Stock Deficit
-------------- ------------ --------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
1984:
Initial issuance for cash .................... $ -- $ -- $ -- $ -- $ 24,500
Initial issuance in exchange for legal fees .. -- -- -- -- 8,750
Initial issuance in exchange for services and
research and development costs .............. -- -- -- -- 905
1985:
Issuance for cash ............................ -- -- -- -- 85,000
Issuance in exchange for professional fees,
salaries, and research services ............. -- -- -- -- 9,000
1986:
Issuance in exchange for professional fees,
salaries, and services ...................... -- -- -- -- 19,000
Treasury stock purchase, 11,040 shares at cost -- -- -- (22,500) (22,500)
Issuance for cash ............................ -- -- -- -- 156,450
Issuance in exchange for professional fees,
salaries, and research services ............. -- -- -- -- 15,850
1987:
Issuance for cash ............................ -- -- -- -- 449,070
Treasury stock purchase, 2,400 shares at cost -- -- -- (3,500) (3,500)
1988:
Issuance for cash ............................ -- -- -- -- 226,823
1989:
Issuance for cash ............................ -- -- -- -- 5,350
Issuance for cash ............................ -- -- -- -- 569,370
1990:
Issuance for cash ............................ -- -- -- -- 1,114,560
Issuance for cash ............................ -- -- -- -- 725,000
Issuance in exchange for note receivable from
shareholder ................................. -- -- (136,350) -- --
1991:
Repayment of note receivable from shareholder.. -- -- 136,350 -- 136,350
Net loss cumulative from June 25, 1984
(inception) through December 31, 1991 ....... (3,901,236) -- -- -- (3,901,236)
1992:
Net loss for year ended December 31, 1992 .... (505,558) -- -- -- (505,558)
----------- -------- --------- -------- -----------
Balance at December 31, 1992 ................. (4,406,794) -- -- (26,000) (886,816)
1993:
Net loss for year ended December 31, 1993 .... (108,363) -- -- -- (108,363)
----------- -------- --------- -------- -----------
Balance at December 31, 1993 ................. (4,515,157) -- -- (26,000) (995,179)
1994:
Net loss for year ended December 31, 1994 .... (129,239) -- -- -- (129,239)
Adjustment to unrealized losses on marketable
securities .................................. -- (57,316) -- -- (57,316)
----------- -------- --------- -------- -----------
Balance at December 31, 1994 ................. (4,644,396) (57,316) -- (26,000) (1,181,734)
1995:
Issuance for stock grant ..................... -- -- -- -- 74,100
Net loss for year ended December 31, 1995 .... (311,579) -- -- -- (311,579)
Adjustment to unrealized losses on marketable
securities .................................. -- 57,316 -- -- 57,316
----------- -------- --------- -------- -----------
Balance at December 31, 1995 ................. (4,955,975) -- -- (26,000) (1,361,897)
1996:
Net income for three months ended March 31,
1996 (unaudited) ............................ 12,807 -- -- -- 12,807
Adjustment to unrealized gain on marketable
securities (unaudited) ...................... -- 30,000 -- -- 30,000
----------- -------- --------- -------- -----------
Balance at March 31, 1996 (unaudited) ........ $(4,943,168) $ 30,000 $ -- $(26,000) $(1,319,090)
</TABLE>
See accompanying notes.
F-5
<PAGE>
AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
from
June 25,
1984
(Inception)
Year ended Three months ended through
December 31, December 31, March 31, March 31, March 31,
1994 1995 1995 1996 1996
------------ ------------ --------- --------- -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating Activities
Net income (loss) ............................... $ (129,239) $ (311,579) $ (74,934) $ 12,807 $(4,943,168)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization .............. 29,282 23,652 6,387 5,110 204,830
Discount on investment in ISI .............. -- 150,000 -- -- 150,000
Recognition of deferred sublicense fees .... -- -- -- -- (32,844)
Organization costs ......................... -- -- -- -- (9,953)
Gain on sale of equipment, net ............. -- -- -- -- (8,375)
Common stock issued for stock grant ........ -- 74,100 74,100 -- 74,100
Common stock issued for services ........... -- -- -- -- 53,505
Changes in operating assets and liabilities:
Other current assets .................. (26,323) 5,000 (12,983) 10,166 (16,229)
Accounts payable ...................... 25,692 7,282 (82,643) (48,099) 100,175
Accrued expenses ...................... 246,926 98,126 (20,634) 40,810 628,353
Deferred contract revenue ............. (980,092) (1,361,395) (618,266) (402,574) 14,566
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities ........... (833,754) (1,314,814) (728,973) (381,780) (3,785,040)
Investing Activities ............................
Sale (purchase) of marketable securities ........ (1,999,336) 1,999,336 -- -- --
Capital expenditures ............................ (2,468) -- -- (2,467) (253,442)
Proceeds from the sale of equipment ............. -- -- -- -- 13,445
Purchase of patent license ...................... -- -- -- -- (125,000)
Investment in ISI ............................... -- (625,000) -- -- (625,000)
Deposits ........................................ (85,000) 85,000 -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities (2,086,804) 1,459,336 -- (2,467) (989,997)
Financing Activities ............................
Receipt of sublicense fees ...................... $ -- $ -- $ -- $ -- $ 32,844
Proceeds from notes payable ..................... -- -- -- -- 2,000,000
Repayment of note receivable from shareholder for
purchase of common stock ...................... -- -- -- -- 136,350
Issuance of common stock ........................ -- -- -- -- 3,356,123
Acquisition of treasury stock ................... -- -- -- -- (26,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities ....... -- -- -- -- 5,499,317
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (2,920,558) 144,522 (728,973) (384,247) 724,280
Cash and cash equivalents at beginning of period . 3,884,563 964,005 964,005 1,108,527 --
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period ...... $ 964,005 $ 1,108,527 $ 235,032 $ 724,280 $ 724,280
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes ...................... $ 7,084 $ -- $ -- $ -- $ 37,084
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
AMARILLO BIOSCIENCES, INC. AND SUBSIDIARIES
(COMPANIES IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Amarillo Biosciences, Inc. (the Company), formerly Amarillo Cell Culture
Company, Inc. (Note 13), is a development stage company incorporated on June 25,
1984, for the purpose of developing and marketing, within the United States and
internationally, eight patents and eight pending applications relating to low
dosage oral and non-oral natural interferon alpha used in the treatment of human
and animal diseases. The Company has obtained certain patent rights through
licensing agreements (see Note 5) and is currently conducting clinical studies
as part of the process of obtaining regulatory approval from the United States
Food and Drug Administration (FDA), so that commercial marketing can begin in
the United States.
The Company's viability is dependent upon successful commercialization of
products resulting from its research and product development activities. All of
the Company's products will require significant additional development,
laboratory and clinical testing and investment prior to obtaining regulatory
approval to commercially market its product(s). Accordingly, for at least the
next few years, the Company will continue to incur research and development and
general and administrative expenses and likely will not generate sufficient
revenues from product sales to support its operations.
The Company has been dependent upon financing from its shareholders. The
Company's development- stage-through-1991 activities were financed primarily
through the issuance of common stock. Since 1991, such activities have been
financed under agreements (described in Note 4) with a major shareholder. The
Company anticipates, based on its currently proposed plans and expectations
relating to its operations (including expectations regarding the progress of its
research and development and the timing and costs associated therewith), that
its existing capital resources together with the proceeds from a $1,000,000 loan
expected from a major shareholder, will be sufficient to satisfy the Company's
estimated cash requirements through December 31, 1996. However, the Company
estimates that an aggregate of $11,100,000 will be needed over the next three
years to complete its primary research and development projects.
The Company has no current arrangements with respect to further sources of
financing and there can be no assurance that any of its officers, directors or
shareholders (including the major shareholder) will provide any portion of the
Company's future financing requirements. The possible inability to obtain
further financing would have a material adverse effect on the Company, including
possibly requiring the Company to cease operations.
Principles of Consolidation
The accompanying consolidated financial statements include the financial
statements of the Company and its wholly-owned subsidiaries, Amarillo Cell of
Canada, Inc. (a Texas corporation), Veldona Africa, Inc. (a Texas
corporation), Veldona, Inc. (A Canada corporation), Veldona Poland, Inc.,
Veldona USA, Inc. and Vanguard Biosciences, Inc. (Texas corporations). All
significant intercompany balances and transactions have been eliminated in
consolidation. The effect of translation of foreign currencies is not
material.
Marketable Securities
Marketable securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value, with any unrealized
gain or loss reported as a separate component of shareholders' equity.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
F-7
<PAGE>
Amarillo Biosciences, Inc. and Subsidiaries
(companies in the development stage)
Notes to Consolidated Financial Statements - (Continued)
1. Organization and Summary of Significant Accounting Policies - (Continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
methods that approximate the declining balance method over the estimated useful
lives of the assets.
Patent License
The patent license represents payments made under one of the license
agreements described in Note 5. The agreement remains in effect over the life of
the underlying patents. Accordingly, the patent license fee is being amortized
over 17 years using the straight-line method.
Organizational Costs
Organizational costs are amortized using the straight-line method over five
years.
Income Taxes
The Company files a consolidated income tax return with its domestic
subsidiaries, Amarillo Cell of Canada, Inc., Veldona Africa, Inc., Veldona
Poland, Inc., Veldona USA, Inc., and Vanguard Biosciences, Inc. Veldona, Inc.
files a separate income tax return in Canada.
On January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (Statement No. 109). As permitted by the new rules, prior years'
financial statements have not been restated. The effect of adopting Statement
No. 109 was not material.
Revenue Recognition
Contract revenue for research and development performed under the
manufacturing and supply agreement with Hayashibara Biochemical Laboratories,
Inc. (HBL) (see Note 4) is recorded as earned based on research and
administrative costs incurred. Amounts received in advance of services to be
performed are recorded as deferred revenue until expenses are incurred.
Research and Development
Research and development costs are expensed as incurred.
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 amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Stock Split
In May 1993, the Company approved a ten-for-one stock split for all issued
and outstanding shares. As described in Note 13, during 1996 a six-for-five
stock split was effected. All references to common stock and per share data have
been restated to give effect to these splits.
F-8
<PAGE>
Amarillo Biosciences, Inc. and Subsidiaries
(companies in the development stage)
Notes to Consolidated Financial Statements
- (Continued)
2. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and consist of the following:
December 31, 1995
-----------------
Land .............................. $ 8,000
Building .......................... 94,532
Furniture and equipment ........... 114,354
--------
216,886
Less accumulated depreciation ...... 102,293
--------
$114,593
========
3. NOTES PAYABLE
In September 1991, the Company borrowed $1,000,000 under a note payable
agreement with HBL. In September 1992, the Company borrowed an additional
$1,000,000 under a similar note agreement with HBL. The unsecured notes accrue
interest at a rate of 6%, and the entire principal and interest is due on
September 16, 1996 and September 25, 1997, respectively, provided that the
principal and accrued interest be paid only from 10% of the Company's gross
revenues from sales of interferon. All payments are to be applied first to
accrued interest. As repayment of the notes is dependent on future sales,
management is unable to estimate the fair value of the notes at December 31,
1995. Because material amounts of sales are not expected in the next twelve
months, the notes continue to be classified as non-current liabilities.
4. MANUFACTURING AND SUPPLY AGREEMENTS
The Company was a party to the following manufacturing and supply agreements
at December 31, 1995:
On March 13, 1992, the Company entered into a Joint Development and
Manufacturing/ Supply Agreement with HBL (the "Development Agreement"), a major
shareholder (see Note 7), under which HBL will formulate, manufacture, and
supply HBL interferon for the Company or any sublicensee. In exchange, HBL is
entitled to receive a transfer fee, specified royalties and a portion of any
payment received by the Company for sublicense of rights under this agreement.
The agreement further provides that the Company sublicense to HBL the right to
market HBL interferon for oral use in humans and in nonhuman, warm-blooded
species in Japan, in exchange for the Company receiving a royalty fee based on
net sales. On June 1, 1994, HBL entered into an additional agreement with HBL to
make the Company HBL's exclusive agent for the development of HBL interferon for
non-oral use in humans and in nonhuman, warm-blooded species in North America.
In exchange, HBL is entitled to receive a transfer fee based on units of
interferon supplied.
Under the Development Agreement, HBL has provided $9,000,000 in research
funding to the Company as follows: $3,500,000 in 1992, $4,000,000 in 1993, and
$1,500,000 in 1994. The agreement also provides that a royalty fee be paid to
HBL. The initial term of the agreement is for seven years, but will be renewed
automatically for successive three-year terms subject to prior written
agreement. HBL can terminate the agreement at any time after the end of the
first renewal term if certain conditions are not met.
On October 20, 1989, the Company entered into a manufacturing and supply
agreement with Interferon Sciences, Inc. (ISI), a 2% shareholder of the Company,
under which ISI will manufacture and utilize ISI interferon to formulate and
supply interferon-containing compositions to the Company for use in nonhuman
species. Under the Agreement, ISI is entitled to receive certain transfer fees,
manufacturing and supply fees, and a portion of any payments received by the
Company related to the use of ISI interferon. The initial five-year term of the
agreement has been extended to October 20, 1996, and may be terminated or
further extended if certain conditions are met.
F-9
<PAGE>
Amarillo Biosciences, Inc. and Subsidiaries
(companies in the development stage)
Notes to Consolidated Financial Statements - (Continued)
4. Manufacturing and Supply Agreements - (Continued)
On October 1, 1991, Veldona, Inc. entered into an agreement with a Canadian
pharmaceutical firm which is to manufacture interferon tablets. As of December
31, 1995, minimum purchase requirements have not been established pending
completion of validation trials. If the agreement is terminated, Veldona, Inc.
is required to purchase any finished product, raw materials, or packaging
components in possession of the manufacturer. The agreement is effective until
December 31, 1996, with one year renewal options beyond that date.
5. LICENSE AND SUBLICENSE AGREEMENTS
The Company holds patent rights for which the Company has paid certain
license fees under three license agreements. Under these agreements, the Company
will pay the licensor a portion of any sublicense fee received by the Company
with respect to the manufacturing, use or sale of a licensed product, as well as
a royalty fee based on the net selling price of licensed products, subject to a
minimum annual royalty.
The Company has also entered into various sublicense agreements under which
the Company is entitled to receive royalties based on the net sales value of
licensed products.
6. RESEARCH AGREEMENTS
The Company contracts with third parties throughout the world to conduct
research, including studies and clinical trials. These agreements are generally
less than one year in duration. At December 31, 1995, the Company had
commitments to provide additional funding of approximately $76,000 under these
agreements.
7. COMMON STOCK
In May 1993, the shareholders of the Company approved an amendment to the
Articles of Incorporation to increase the total number of authorized shares of
common stock of the Company from one million shares to ten million shares. The
shareholders also approved a ten-for-one stock split for the currently issued
and outstanding shares of the Company.
Since 1984, the Company has issued common stock in exchange for various
professional, research, and consulting services. The stock issued for noncash
consideration was assigned a value based on the fair value of the services
received.
In December 1989, the Company issued 218,400 shares of stock to HBL for $2.50
per share. In February 1990, an additional 174,000 shares were issued to HBL for
$4.17 per share, and in November 1990, an additional 69,120 shares were issued
to HBL for $2.50 per share. These shares, combined with purchases from various
other shareholders, give HBL control of 34% of the outstanding common stock, or
1,032,756 shares at December 31, 1995.
In July 1992, the Board of Directors approved restricted stock grants to
three employees which would allow the Company to issue, under certain
conditions, up to 180,000 shares of its authorized but unissued shares of common
stock. In May 1994, the Board of Directors approved restricted stock grants to
an additional employee which would allow the Company to issue, under certain
conditions, up to 30,000 shares of its authorized but unissued shares of common
stock. In January 1995, 29,640 shares of common stock (net of required federal
withholdings of 12,360 shares) were issued to a former employee under a Contract
Termination and Severance Agreement. The issuance and withholding were in full
satisfaction of the employee's original 84,000 shares in stock grants.
Under a stock purchase agreement with a shareholder, Mesa Inc. (Mesa), the
Company is prohibited from repurchasing or redeeming any of its issued and
outstanding shares without the prior written approval of Mesa unless such
redemption or repurchase is offered pro rata to all shareholders.
F-10
<PAGE>
Amarillo Biosciences, Inc. and Subsidiaries
(companies in the development stage)
Notes to Consolidated Financial Statements
- (Continued)
8. EMPLOYEE BENEFIT PLAN
The Company discontinued a defined contribution retirement plan for eligible
employees in August 1995. Profit sharing expense for the years ended December
31, 1994 and 1995, and cumulative from June 25, 1984 (inception) through March
31, 1996 was approximately $0, $0, and $154,500, respectively.
9. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes. Significant
components of the Company's deferred tax liabilities and assets are as follows
at December 31, 1995:
Deferred tax liabilities:
Prepaid expenses ................................... $ 8,975
-----------
Total deferred tax liabilities ....................... 8,975
Deferred tax assets:
Net operating loss and AMT carryforwards ........ 1,277,286
Accrued interest ................................ 154,258
Depreciation and amortization ................... 59,192
Deferred revenue ................................ 141,828
Accrued stock grants ............................ 39,047
Other ........................................... 56,873
-----------
1,728,484
Valuation allowance for deferred tax assets .......... (1,719,509)
-----------
Total deferred tax assets, net of valuation allowance . 8,975
-----------
Net deferred taxes ................................... $ --
===========
At December 31, 1995, the Company has net operating loss carryforwards of
approximately $3,292,000 for federal income tax purposes expiring in 2006
through 2010. The ability of the Company to utilize these carryforwards may be
limited should changes in shareholder ownership occur in the future.
At December 31, 1995, the Company had approximately $36,000 of alternative
minimum tax credits which may be carried forward indefinitely.
The difference between the reported income tax provision and the benefit
normally expected by applying the statutory rate to the loss before income taxes
results primarily from the inability of the Company to recognize its tax losses.
10. CONTINGENCIES
Hoffmann La-Roche, Inc. ("Roche") has asserted to HBL that the manufacture,
sale and use of its form of IFNa infringes United States Patent 4,503,035 and
foreign counterparts thereof owned by Roche relating to IFNa (collectively,
the "Roche Patent"). The Roche Patent expires in March 2002 in the United States
and at various times in other jurisdictions. HBL has informed the Company that
it believes that the claims of the Roche Patent are not applicable to the
manufacture and sale of HBL IFNa. HBL has prevailed at the trial level in
litigation initiated by Roche in Japan concerning the dispute and Roche has
appealed the decision. The Company is not a party to the litigation between
Roche and HBL in Japan.
The Company is not a party to any litigation related to these issues;
however, there is a possibility of litigation against the Company regarding
these matters at some point in the future. Management of the Company believes
that litigation which might result from these disputes will not have an adverse
F-11
<PAGE>
Amarillo Biosciences, Inc. and Subsidiaries
(companies in the development stage)
Notes to Consolidated Financial Statements - (Continued)
10. Contingencies - (Continued)
effect on current operations, as the Company is not currently selling or
attempting to sell HBL interferon in any country where Roche has a patent.
However, since the Company currently has no interferons under license except ISI
interferon and HBL interferon, an ultimate determination adverse to the Company
could impact future expansion of the Company's sales.
11. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has and expects to have
transactions with related parties, including shareholders. In addition to the
transactions disclosed elsewhere in these financial statements, such related
party transactions included legal fees of approximately $50,400 and $68,700 paid
to Morris, Moore, Moss and Douglass, P.C., a member of which is an officer and
shareholder of the Company, in 1994 and 1995, respectively. The Company also
employs various shareholders as researchers and consultants and pays fees based
on contractual agreements.
12. SETTLEMENT OF LITIGATION
Commencing in 1993, the Company was the plaintiff in litigation involving a
patent infringement action in New Zealand. In May 1995, a settlement was reached
whereby the Company: (1) amended its manufacturing and supply agreement with ISI
to allow the sublicense of certain products previously exclusively licensed to
ISI and purchased 312,500 shares of ISI common stock for $625,000, or $2 per
share, representing the quoted market price of ISI stock at that time; and (2)
received $550,000 cash from the defendant in the lawsuit, comprising $50,000 in
exchange for a sublicense of the technology that was the subject of the lawsuit
and $500,000 as a payment toward research and development costs incurred by the
Company.
As a result of restrictions on the sale by the Company of its ISI stock until
May 1997, the Company has discounted the ISI stock (quoted price of $1.875 per
share at December 31, 1995) to a carrying value of $475,000 at December 31,
1995, and as a result charged $150,000 to selling, general, and administrative
expenses. The ISI stock is classified as available-for-sale. The $500,000
contribution toward research and development costs has been recorded as other
revenue in 1995.
13. SUBSEQUENT EVENTS
On May 14, 1996, the shareholders of the Company approved a name change from
Amarillo Cell Culture Company, Inc. to Amarillo Biosciences, Inc. and approved a
six-for-five stock split to be effected through a 20% stock dividend on the
issued and outstanding shares of the Company at the record date of April 16,
1996. All references to common stock and per share data have been restated to
give effect to the split.
During May 1996, the Company executed two notes with HBL under which it
expects to borrow $500,000 on May 31, 1996 and $500,000 on June 28, 1996. The
notes bear interest at 4% per annum and mature one year after the borrowing
date. If the Company successfully consummates an initial public offering,
the notes are payable in full from the proceeds of such offering.
14. UNAUDITED INFORMATION
The unaudited interim financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. The unaudited interim financial statements
reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to fairly present the financial
position, results of operations, and cash flows as of and for the periods
presented. The unaudited interim financial information should be read in
conjunction with the audited financial statements and related notes thereto. The
results for the interim periods presented are not necessarily indicative of
results to be expected for the full year.
F-12
<PAGE>
===============================================================================
<TABLE>
<CAPTION>
<S> <C>
No dealer, salesperson or any other individual has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the offer made by this Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or the Underwriter. This Prospectus does not constitute an offer 2,000,000 Shares
to sell, or a solicitation of an offer to buy, any securities other than the
securities offered by this Prospectus, or an offer to sell or a solicitation of
an offer to buy any security by any person in any jurisdiction in which such AMARILLO
offer or solicitation is unlawful. Neither the delivery of this Prospectus nor BIOSCIENCES, INC.
any sale made hereunder shall, under any circumstances, imply that the
information in this Prospectus is correct as of any time subsequent to the date
of this Prospectus. [LOGO]
------
TABLE OF CONTENTS
Page
----
Prospectus Summary ...................................... 3
Glossary ................................................ 6 Common Stock
Risk Factors ............................................ 8
Use of Proceeds ......................................... 17
Dividend Policy ......................................... 18
Dilution ................................................ 19
Capitalization .......................................... 20
Selected Financial Data ................................. 21
Management's Discussion and Analysis of
Financial Condition and Results of Operations........... 22
Business ................................................ 24 ------
Management .............................................. 35 PROSPECTUS
Principal Shareholders .................................. 40 ------
Certain Transactions .................................... 41
Description of Capital Stock ............................ 42
Shares Eligible for Future Sale ......................... 42
Underwriting ............................................ 43
Legal Matters ........................................... 44
Experts ................................................. 44
Additional Information .................................. 45
Index to Financial Statements ........................... F-1
Until , 1996 (25 days after the date of this Prospectus), all dealers WHALE SECURITIES CO., L.P.
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when , 1996
acting as underwriters and with respect to their unsold allotments or
subscriptions.
</TABLE>
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02-1 of the Texas Business Corporation Act (the "Texas Corporation
Law") empowers a Texas corporation to indemnify any person who was, is or is
threatened to be made a named defendant or respondent in any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative, arbitrative or investigative, any appeal in any such action,
suit or proceeding and any inquiry or investigation that could lead to such an
action, suit or proceeding (individually, a "Proceeding") by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent or similar functionary
of another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust or other enterprise, against reasonable expenses
(including court costs and attorneys' fees), judgments, penalties (including
excise and similar taxes), fines and amounts paid in settlement actually
incurred by him in connection with such Proceeding if he conducted himself in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, and with respect to any criminal action or
proceeding had no reasonable cause to believe his conduct was unlawful. The
termination of any Proceeding by judgment, order, settlement, conviction, or
upon plea of nolo contendere, or its equivalent, is not, of itself,
determinative that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was lawful.
A person may be indemnified in respect of a Proceeding (a) in which the
person is found liable on the basis that personal benefit was improperly
received by him whether or not the benefit resulted from an action taken in the
person's official capacity or (b) in which the person is found liable to the
corporation. However, indemnification in the foregoing circumstances is limited
to reasonable expenses actually incurred by the person in connection with the
Proceeding. In no event shall any indemnification be made in respect of a
Proceeding in which the person shall have been liable for willful or intentional
misconduct in the performance of his duty to the corporation. A person shall be
deemed to have been found liable in respect of any claim, issue or matter only
after the person shall have been so adjudged by a court of competent
jurisdiction after exhaustion of all appeals therefrom.
Reasonable expenses incurred by a director, officer, employee or agent of a
Texas corporation who was, is, or is threatened to be made a named defendant or
respondent in a Proceeding may be paid or reimbursed by the corporation, in
advance of the final disposition of the Proceeding, after the corporation
receives a written affirmation by the director of his good faith belief that he
has met the standard of conduct necessary for indemnification under the Texas
Corporation Law and a written undertaking by or on behalf of the person to repay
the amount paid or reimbursed if it is ultimately determined that he has not met
that standard or if it is ultimately determined that indemnification of the
person against expenses incurred by him in connection with that Proceeding is
prohibited by the Texas Corporation Law.
If, upon application of a person, a court of competent jurisdiction
determines, after giving any notice the court considers necessary, that the
person is fairly and reasonably entitled to indemnification in view of all the
relevant circumstances, the court may order the indemnification that the court
determines is proper and equitable.
Article 2.02-1 of the Texas Corporation Law further provides that, subject to
restrictions on the circumstances in which indemnification is required which may
be set forth in the corporation's articles of incorporation, a Texas corporation
is required to indemnify a director or officer against reasonable expenses
incurred by him in connection with any Proceeding in which he is a named
defendant or respondent because he is or was a director or officer, if he has
been successful on the merits or otherwise in the defense of the Proceeding;
that a corporation may also, consistent with law, indemnify and advance expenses
to persons as may be provided in the corporation's articles of incorporation,
bylaws or by general or specific action of the corporation's board of directors,
or contract or as permitted or required under common law; and empowers the
corporation to purchase and maintain insurance or another arrangement on behalf
II-1
<PAGE>
of any person who is or was a director, officer, employee or agent of the
corporation or who is or was serving at the request of the corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent, or
similar functionary of another domestic or foreign corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or any other
enterprise against any such liability asserted against him and incurred by him
in any such capacity or arising out of his status as such whether or not the
corporation would have the power to indemnify him against liability under
Article 2.02-1. A Texas corporation may provide indemnification only as
authorized in the specific case upon a determination that person has met the
applicable standard of conduct. Such determination is to be made (i) by the
members of the board of directors by a majority vote of a quorum consisting of
directors who were not named defendants or respondents in the Proceeding, or
(ii) if such a quorum is not obtainable, by a majority vote of a committee of
the board of directors designated to act in the matter by a majority vote of all
directors, consisting solely of two or more directors who are not named
defendants or respondents in the Proceeding or (iii) by special legal counsel
selected by the board of directors or a committee thereof.
Article IV of the By-Laws of the Company also provides for indemnification of
current or former directors and officers of the Company and any person who has
served at the request of the Company as a director or officer of another
corporation in which the Company owns shares of capital stock or of which it is
a creditor against liabilities imposed upon him and expenses reasonably incurred
by him in connection with any claim made against him, or any action, suit or
proceeding to which he may be a party by reason of his being or having been such
director or officer; provided that no director or officer shall be indemnified
with respect to matters as to which he shall be adjudged liable for negligence
or misconduct in performance of his duty or with respect to matters for which
such indemnification could be against public policy. Indemnification of such a
person is also authorized against such sums as independent legal counsel
selected by the board of directors shall deem reasonable payment in settlement
of claims primarily with a view of avoiding expenses of litigation.
The Company has entered into indemnification agreements with each of its
directors and executive officers whereby the Company will, in general, indemnify
such directors and executive officers, to the extent permitted by the Company's
Certificate of Incorporation or the laws of the State of Texas, against any
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred in connection with any actual or threatened action or
proceeding to which such director or officer is made or threatened to be made a
party by reason of the fact that such person is or was a director or officer of
the Company.
The Company has obtained liability insurance for each director and officer
for certain losses arising from claims or charges made against them while acting
in their capacities as directors or officers of the Company.
The Underwriting Agreement, which is filed as Exhibit 1.1, provides for
indemnification of the directors and certain officers of the Company by the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act of 1933.
Effective upon the consummation of the offering made pursuant to this
Registration Statement, HBL has agreed to indemnify the Company and its officers
and directors for litigation expenses, losses, damages and amounts paid in
settlement arising out of litigation which may be brought by Roche or its
affiliates relating to the Roche Patent.
II-2
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemized statement of all expenses in
connection with the issuance and distribution of the securities being registered
(all of which are estimated other than the filing fees of the Securities and
Exchange Commission, NASDAQ and the National Association of Securities Dealers,
Inc. and the consulting fee to the Underwriter), other than underwriting
discounts and commissions and the Underwriter's non-accountable expense
allowance:
Securities and Exchange Commission filing fee ............ $ 4,449
NASDAQ fee ............................................... $ 10,415
National Association of Securities Dealers, Inc. filing fee $ 1,791
Printing and engraving expenses .......................... $ *
Legal Fees and expenses .................................. $ *
Registrar and transfer agent fees ........................ $ *
Accounting fees and expenses ............................. $ *
Blue sky fees and expenses ............................... $ *
Consulting fee to Underwriter ............................ $ *
Miscellaneous ............................................ $ *
--------
Total ............................................... $525,000
========
- ------
* To be completed by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
On May 24, 1993 the Company issued 2,264,274 shares of Common Stock to effect
a 10 for 1 stock split. The shares issued in the stock split did not require
registration under the Securities Act in that the stock split was not a "sale,"
"offer for sale" or "offer" as such terms are defined in the Securities Act.
On January 12, 1995 the Company issued to a former employee 29,640 shares of
Common Stock pursuant a Contract Termination and Severance Agreement between the
Company and such person. The issuance was in consideration of the settlement of
certain obligations of the Company to the employee. The employee did not pay any
cash to the Company for the shares. All of the shares were issued pursuant to an
exemption from the registration requirements of the Securities Act afforded by
Section 4(2) of the Securities Act.
On May 6, 1996 the Company made a 20% stock dividend to all holders of record
of its Common Stock as of April 16, 1996. The Company issued 505,872 shares in
connection with the stock dividend. The shares issued in the stock dividend did
not require registration under the Securities Act in that the stock dividend was
not a "sale," "offer for sale" or "offer" as such terms are defined in the
Securities Act.
On the date this Registration Statement is declared effective by the
Securities Exchange Commission the Company shall issue to Joseph Cummins, Alan
Richards and Charles Hughes 30,000, 30,000 and 19,000 shares, respectively, of
the Company's Common Stock in accordance with the terms of conditional stock
grants awarded by the Company to Messrs. Cummins and Richards in July 1992 and
Mr. Hughes in June 1994. All of the shares were issued pursuant to an exemption
from the registration requirements of the Securities Act afforded by Section
4(2) of the Securities Act.
II-3
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
Number Description
----- -----------
<S> <C>
*1.1 Form of Underwriting Agreement.
*3.1 Restated Articles of Incorporation of the Company.
*3.2 Articles of Amendment of Restated Articles of Incorporation of the Company.
*3.3 Bylaws of the Company.
**4.1 Specimen Common Stock Certificate.
*4.2 Form of Underwriter's Warrant.
**5.1 Opinion of Lowenthal, Landau, Fischer & Bring, P.C.
*10.1 Agreement dated as of April 1, 1984 between University Patents, Inc. and the Company.
*10.2 License Agreement dated as of March 22, 1988 between the Company and The Texas A&M University System.
*10.3 License Agreement dated October 20, 1989 between the Company and ISI.***
*10.4 Manufacturing and Supply Agreement dated October 20, 1989 between the Company and ISI.***
*10.5 Joint Development and Manufacturing/Supply Agreement dated March 13, 1992 between the Company and
HBL, as amended.***
*10.6 Amended and Restated Agreement dated as of November 24, 1992 between Mitsubishi and the Company.
*10.7 Japan Animal Health License Agreement dated January 20, 1993 between the Company and HBL.***
*10.8 Employment Agreement dated as of March 4, 1994 between the Company and Dr. Alan B. Richards, as amended.
*10.9 Employment Agreement dated as of March 4, 1994 between the Company and Dr. Joseph M. Cummins, as
amended.
*10.10 Employment Agreement dated as of June 1, 1994 between the Company and Charles Hughes, as amended.
*10.11 Manufacturing/Supply Agreement dated June 1, 1994 between the Company and HBL.
*10.12 Settlement Agreement dated April 27, 1995 among the Company, ISI, Pharma Pacific Management Pty.
Ltd. ("PPM"), Pharma Pacific Pty. Ltd., Pharma Pacific Ltd., and Fernz Corporation Limited.
*10.13 Amendment of ACC/ISI License Agreement dated April 27, 1995 between the Company and ISI.
*10.14 PPM/ACC Sub-license Agreement dated April 27, 1995 between PPM and the Company.***
*10.15 License and Supply Agreement dated July 10, 1995 between Veldona Africa, Inc. ("VAF") and Innovative
Therapeutics, Ltd. ("ITL").***
*10.16 Pricing Amendment, dated December 5, 1995 between VAF and ITL.***
*10.17 License Agreement dated September 25, 1995 between McGill University and the Company.
*10.18 Form of Consulting Agreement between the Company and the Underwriter.
*10.19 Research Agreement dated March 25, 1996 between the Company and Ajinomoto Co., Inc.
*10.20 1996 Employee Stock Option Plan
*10.21 1996 Outside Director and Advisor Stock Option Plan
*10.22 Form of Indemnification Agreement between the Company and officers and directors of the Company.
**10.23 Indemnification Agreement between HBL and the Company.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Number Description
----- -----------
<S> <C>
**23.1 Consent of Lowenthal, Landau, Fischer & Bring, P.C. to be included in Exhibit 5.1.
*23.2 Consent of Ernst & Young LLP
*24.1 Powers of Attorney (contained on signature page of Registration Statement).
</TABLE>
- ------
* Filed herewith.
** To be filed by amendment.
*** Confidential treatment has been requested with respect to portions of this
document. Omitted portions have been filed separately with the Securities
and Exchange Commission.
ITEM 28. UNDERTAKINGS.
The Company hereby undertakes that: it will file, during any period in which
it offers or sells securities, a post-effective amendment to this Registration
Statement to:
(a) Include any prospectus required under Section 10(a) of the
Securities Act;
(b) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in this
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(c) Include any additional or changed material information on the plan
of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the provisions described under Item 24 above, or otherwise, the
Company 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 Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
against the Company by such director, officer or controlling person in
connection with the securities being registered, the Company 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 Company hereby undertakes that (i) for purposes of determining 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 Company pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be a part
of this Registration Statement as of the time it was declared effective; and
(ii) 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
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Amarillo, State of Texas, on May 23, 1996.
AMARILLO BIOSCIENCES, INC.
By: /s/ Joseph M. Cummins
-------------------------------
Joseph M. Cummins,
Chairman of the Board
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Joseph M.
Cummins, Charles H. Hughes and Edward L. Morris, or any of them acting singly,
as his lawful attorney-in-fact and agent with full power of substitution and
resubstitution for him and in his name, place and stead in any and all
capacities to execute in the name of each such person who is then an officer or
director of the registrant any and all amendments (including post-effective
amendments) 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 attorney-in-fact and agent full
power and authority to do and perform each and every act and thing required or
necessary to be done in and about the premises as fully as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Joseph M. Cummins
-------------------------- Chairman of the Board and President (Chief Executive
Joseph M. Cummins Officer) and Director May 23, 1996
/s/ Charles H. Hughes Vice President-Finance and Administration and
-------------------------- Treasurer (Chief Financial Officer and Chief
Charles H. Hughes Accounting Officer) May 23, 1996
/s/ Edward L. Morris Secretary
--------------------------
Edward L. Morris May 23, 1996
/s/ Stephen Chen Director
--------------------------
Stephen Chen May 23, 1996
/s/ Katsuaki Hayashibara Director
--------------------------
Katsuaki Hayashibara May 23, 1996
/s/ Dennis Moore Director
--------------------------
Dennis Moore May 23, 1996
/s/ James Page Director
--------------------------
James Page May 23, 1996
/s/ James Cook Director
--------------------------
James Cook May 23, 1996
</TABLE>
II-6
AMARILLO BIOSCIENCES, INC.
2,000,000 Shares of Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
Whale Securities Co., L.P. New York, New York
650 Fifth Avenue ___________, 1996
New York, New York 10019
Dear Sirs:
Amarillo Biosciences, Inc., a Texas corporation (the "Company"), proposes
to issue and sell to Whale Securities Co., L.P. (the "Underwriter") 2,000,000
shares of common stock, par value $.01 per share (the "Offered Shares"), which
Offered Shares are presently authorized but unissued shares of the common stock,
par value $.01 per share (individually a "Common Share" and collectively the
"Common Shares"), of the Company. In addition, the Underwriter, in order to
cover over-allotments in the sale of the Offered Shares, may purchase for its
own account an aggregate of not more than 300,000 Common Shares (the "Optional
Shares"; the Offered Shares and the Optional Shares are hereinafter sometimes
collectively referred to as the "Shares"). The Shares are described in the
Registration Statement, as defined below. The Company also proposes to issue and
sell to the Underwriter for its own account and the accounts of its designees,
warrants to purchase an aggregate of 200,000 Common Shares at an exercise price
of $7.00 per share (the "Underwriter's Warrants"), which sale will be
consummated in accordance with the terms and conditions of the form of
Underwriter's Warrant filed as an exhibit to the Registration Statement.
The Company hereby confirms its agreement with the Underwriter as follows:
1. Purchase and Sale of Offered Shares. On the basis of the representations
and warranties herein contained, but subject to the terms and conditions herein
set forth, the Company hereby agrees to sell the Offered Shares to the
Underwriter, and the Underwriter agrees to purchase the Offered Shares from the
Company, at a purchase price of $4.50 per share. The Underwriter plans to offer
the Shares to the public at a public offering price of $5.00 per share.
<PAGE>
2. Payment and Delivery.
(a) Payment for the Offered Shares will be made to the Company by certified
or official bank check or checks payable to its order in New York Clearing House
funds, at the offices of the Underwriter, 650 Fifth Avenue, New York, New York
10019, against delivery of the Offered Shares to the Underwriter. Such payment
and delivery will be made at , New York City time, on the fifth business day
following the Effective Date as defined below, the date and time of such payment
and delivery being herein called the "Closing Date." The certificates
representing the Offered Shares to be delivered will be in such denominations
and registered in such names as the Underwriter may request not less than three
full business days prior to the Closing Date, and will be made available to the
Underwriter for inspection, checking and packaging at the office of the
Company's transfer agent or correspondent in New York City, American Stock
Transfer & Trust Company, 40 Wall Street, New York, New York 10005 not less than
one full business day prior to the Closing Date.
(b) On the Closing Date, the Company will sell the Underwriter's Warrants
to the Underwriter or to its designees (limited to officers of the Underwriter).
The Underwriter's Warrants will be in the form of, and in accordance with, the
provisions of the Underwriter's Warrant attached as an exhibit to the
Registration Statement. The aggregate purchase price for the Underwriter's
Warrants is $200. The Underwriter's Warrants will be restricted from sale,
transfer, assignment or hypothecation for a period of one year from the
Effective Date, except to officers and partners of the Underwriter and members
of the selling group and/or their officers or partners. Payment for the
Underwriter's Warrants will be made to the Company by check or checks payable to
its order on the Closing Date against delivery of the certificates representing
the Underwriter's Warrants. The certificates representing the Underwriter's
Warrants will be in such denominations and such names as the Underwriter may
request prior to the Closing Date.
3. Option to Purchase Optional Shares.
(a) For the purposes of covering any overallotments in connection with the
distribution and sale of the Offered Shares as contemplated by the Prospectus as
defined below, the Underwriter is hereby granted an option to purchase all or
any part of the Optional Shares from the Company. The purchase price to be paid
for the Optional Shares will be the same price per Optional Share as the price
per Offered Share set forth in Section 1 hereof. The option granted hereby may
be exercised by the Underwriter as to all or any part of the Optional Shares at
any time within 45 days after the Effective Date. The Underwriter will not be
under any obligation to purchase any Optional Shares prior to the exercise of
such option.
2
<PAGE>
(b) The option granted hereby may be exercised by the Underwriter by giving
oral notice to the Company, which must be confirmed by a letter, telex or
telegraph setting forth the number of Optional Shares to be purchased, the date
and time for delivery of and payment for the Optional Shares and stating that
the Optional Shares referred to therein are to be used for the purpose of
covering over-allotments in connection with the distribution and sale of the
Offered Shares. If such notice is given prior to the Closing Date, the date set
forth therein for such delivery and payment will not be earlier than either two
full business days thereafter or the Closing Date, whichever occurs later. If
such notice is given on or after the Closing Date, the date set forth therein
for such delivery and payment will not be earlier than five full business days
thereafter. In either event, the date so set forth will not be more than 15 full
business days after the date of such notice. The date and time set forth in such
notice is herein called the "Option Closing Date." Upon exercise of such option,
the Company will become obligated to convey to the Underwriter, and, subject to
the terms and conditions set forth in Section 3(d) hereof, the Underwriter will
become obligated to purchase, the number of Optional Shares specified in such
notice.
(c) Payment for the Optional Shares will be made to the Company by
certified or official bank check or checks pay-able to its order in New York
Clearing House funds, at the office of the Underwriter, against delivery of the
Optional Shares to the Underwriter. The certificates representing the Optional
Shares to be delivered will be in such denominations and registered in such
names as the Underwriter requests not less than two full business days prior to
the Option Closing Date, and will be made available to the Underwriter for
inspection, checking and packaging at the aforesaid office of the Company's
transfer agent or correspondent not less than one full business day prior to the
Option Closing Date.
(d) The obligation of the Underwriter to purchase and pay for any of the
Optional Shares is subject to the accuracy and completeness (as of the date
hereof and as of the Option Closing Date) of and compliance in all material
respects with the representations and warranties of the Company herein, to the
accuracy and completeness of the statements of the Company or its officers made
in any certificate or other document to be delivered by the Company pursuant to
this Agreement, to the performance in all material respects by the Company of
its obligations hereunder, to the satisfaction by the Company of the conditions,
as of the date hereof and as of the Option Closing Date, set forth in Section
3(b) hereof, and to the delivery to the Underwriter of opinions, certificates
and letters dated the Option Closing Date substan-
3
<PAGE>
tially similar in scope to those specified in Section 5, 6(b), (c), (d) and (e)
hereof, but with each reference to "Offered Shares" and "Closing Date" to be,
respectively, to the Optional Shares and the Option Closing Date.
4. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Underwriter that:
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas, with full power and
authority, corporate and other, to own or lease and operate its properties and
to conduct its business as described in the Registration Statement and to
execute, deliver and perform this Agreement and the Underwriter's Warrants and
to consummate the transactions contemplated hereby and thereby. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in all jurisdictions wherein such qualification is necessary and failure so to
qualify could have a material adverse effect on the financial condition, results
of operations, business or properties of the Company. Other than the companies
listed on Schedule A to this Agreement (the "Subsidiaries"), the Company has no
subsidiaries.
Each Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it was incorporated,
with full power and authority, corporate and other, to own or lease and operate
its properties and to conduct its business as described in the Registration
Statement. Each Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and failure so to qualify could have a material
adverse effect on the financial condition, results of operations, business or
properties of such Subsidiary
The Company owns all of the issued and outstanding shares of capital stock
of each Subsidiary, free and clear of any security interests, liens,
encumbrances, claims and charges, and all of such shares have been duly
authorized and validly issued and are fully paid and nonassessable. There are no
options or warrants for the purchase of, or other rights to purchase, or
outstanding securities convertible into or exchangeable for, any capital stock
or other securities of any Subsidiary.
(b) Each of this Agreement and the Consulting Agreement described in
Section 5(s) hereof (the "Consulting Agreement") has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company, and the Underwriter's Warrants, when executed and delivered by the
4
<PAGE>
Company on the Closing Date, will be the valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms. The execution, delivery and performance of this Agreement, the Consulting
Agreement and the Underwriter's Warrants by the Company, the consummation by the
Company of the transactions herein and therein contemplated and the compliance
by the Company with the terms of this Agreement, the Consulting Agreement and
the Underwriter's Warrants have been duly authorized by all necessary corporate
action and do not and will not, with or without the giving of notice or the
lapse of time, or both, (i) result in any violation of the certificate of
incorporation or by-laws of the Company; (ii) result in a breach of or conflict
with any of the terms or provisions of, or constitute a default under, or result
in the modification or termination of, or result in the creation or imposition
of any lien, security interest, charge or encumbrance upon any of the properties
or assets of the Company or any Subsidiary pursuant to any indenture, mortgage,
note, contract, commitment or other agreement or instrument to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary or any of
its their respective properties or assets is or may be bound or affected; (iii)
violate any existing applicable law, rule, regulation, judgment, order or decree
of any governmental agency or court, domestic or foreign, having jurisdiction
over the Company or any Subsidiary or any of their respective properties or
business; or (iv) have any effect on any permit, certification, registration,
approval, consent, license or franchise necessary for the Company or any
Subsidiary to own or lease and operate its properties and to conduct its
business or the ability of the Company to make use thereof.
(c) No authorization, approval, consent, order, registration, license or
permit of any court or governmental agency or body, other than under the
Securities Act of 1933, as amended (the "Act"), the Regulations (as hereinafter
defined) and applicable state securities or Blue Sky laws, is required for the
valid authorization, issuance, sale and delivery of the Shares to the
Underwriter, and the consummation by the Company of the transactions
contemplated by this Agreement, the Consulting Agreement or the Underwriter's
Warrants.
(d) The conditions for use of a registration statement on Form SB-2 set
forth in the General Instructions to Form SB-2 have been satisfied with respect
to the Company, the transactions contemplated herein and in the Registration
Statement. The Company has prepared in conformity with the requirements of the
Act and the rules and regulations (the "Regulations") of the Securities and
Exchange Commission (the "Commission") and filed with the Commission a
registration statement (File No. 333) on Form SB-2 and has filed one or more
amendments thereto, covering the registration of the Shares under the Act,
including the related
5
<PAGE>
preliminary prospectus or preliminary prospectuses (each thereof being herein
called a "Preliminary Prospectus") and a proposed final prospectus. Each
Preliminary Prospectus was endorsed with the legend required by Item 501(a)(5)
of Regulation S-B of the Regulations and, if applicable, Rule 430A of the
Regulations. Such registration statement including any documents incorporated by
reference therein and all financial schedules and exhibits thereto, as amended
at the time it becomes effective, and the final prospectus included therein are
herein, respectively, called the "Registration Statement" and the "Prospectus,"
except that, (i) if the prospectus filed by the Company pursuant to Rule 424(b)
of the Regulations differs from the Prospectus, the term "Prospectus" will also
include the prospectus filed pursuant to Rule 424(b), and (ii) if the
Registration Statement is amended or such Prospectus is supplemented after the
effective date of the Registration Statement (the "Effective Date") and prior to
the Option Closing Date, the terms "Registration Statement" and "Prospectus"
shall include the Registration Statement as amended or supplemented.
(e) Neither the Commission nor, to the best of the Company's knowledge, any
state regulatory authority has issued any order preventing or suspending the use
of any Preliminary Prospectus or has instituted or, to the best of the Company's
knowledge, threatened to institute any proceedings with respect to such an
order.
(f) The Registration Statement when it becomes effective, the Prospectus
(and any amendment or supplement thereto) when it is filed with the Commission
pursuant to Rule 424(b), and both documents as of the Closing Date or the Option
Closing Date referred to below, will contain all statements which are required
to be stated therein in accordance with the Act and the Regulations and will in
all material respects conform to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, on such dates, 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, except that this
representation and warranty does not apply to statements or omissions made in
reliance upon and in conformity with information furnished in writing to the
Company in connection with the Registration Statement or Prospectus or any
amendment or supplement thereto by the Underwriter expressly for use therein.
(g) The Company had at the date or dates indicated in the Prospectus a duly
authorized and outstanding capitalization as set forth in the Registration
Statement and the Prospectus. Based on the assumptions stated in the
Registration Statement and the Prospectus, the Company will have on the Closing
Date the
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adjusted stock capitalization set forth therein. Except as set forth in the
Registration Statement or the Prospectus, on the Effective Date and on the
Closing Date, there will be no options to purchase, warrants or other rights to
subscribe for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell shares of the Company's capital stock
or any such warrants, convertible securities or obligations. Except as set forth
in the Prospectus, no holders of any of the Company's securities has any rights,
"demand," "piggyback" or otherwise, to have such securities registered under the
Act.
(h) The descriptions in the Registration Statement and the Prospectus of
contracts and other documents are accurate and present fairly the information
required to be disclosed, and there are no contracts or other documents required
to be described in the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement under the Act or the Regulations which
have not been so described or filed as required.
(i) Ernst & Young LLP, the accountants who have certified certain of the
consolidated financial statements filed and to be filed with the Commission as
part of the Registration Statement and the Prospectus, are independent public
accountants within the meaning of the Act and Regulations. The consolidated
financial statements and schedules and the notes thereto filed as part of the
Registration Statement and included in the Prospectus are complete, correct and
present fairly the financial position of the Company as of the dates thereof,
and the results of operations and changes in financial position of the Company
for the periods indicated therein, all in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved except as otherwise stated in the Registration Statement and the
Prospectus. The selected financial data set forth in the Registration Statement
and the Prospectus present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited and unaudited financial
statements included in the Registration Statement and the Prospectus.
(j) The Company and each Subsidiary has filed with the appropriate federal,
state and local governmental agencies, and all foreign countries and political
subdivisions thereof, all tax returns, including franchise tax returns, which
are required to be filed or has duly obtained extensions of time for the filing
thereof and has paid all taxes shown on such returns and all assessments
received by it to the extent that the same have become due; and the provisions
for income taxes payable, if any, shown on the consolidated financial statements
filed with or as part of the Registration Statement are sufficient for all
accrued and unpaid foreign and domestic taxes, whether or not disputed, and for
all
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periods to and including the dates of such consolidated financial statements.
Except as disclosed in writing to the Underwriter, neither the Company nor any
Subsidiary has executed or filed with any taxing authority, foreign or domestic,
any agreement extending the period for assessment or collection of any income
taxes and is not a party to any pending action or proceeding by any foreign or
domestic governmental agency for assessment or collection of taxes; and no
claims for assessment or collection of taxes have been asserted against the
Company or any Subsidiary.
(k) The outstanding Common Shares and outstanding options to purchase
Common Shares have been duly authorized and validly issued. The outstanding
Common Shares are fully paid and nonassessable. The outstanding options and
warrants to purchase Common Shares constitute the valid and binding obligations
of the Company, enforceable in accordance with their terms. None of the
outstanding Common Shares and options to purchase Common Shares has been issued
in violation of the preemptive rights of any shareholder of the Company. None of
the holders of the outstanding Common Shares is subject to personal liability
solely by reason of being such a holder. The offers and sales of the outstanding
Common Shares and outstanding options to purchase Common Shares were at all
relevant times either registered under the Act and the applicable state
securities or Blue Sky laws or exempt from such registration requirements. The
authorized Common Shares and outstanding options to purchase Common Shares
conform to the descriptions thereof contained in the Registration Statement and
Prospectus. Except as set forth in the Registration Statement and the
Prospectus, on the Effective Date and the Closing Date, there will be no
outstanding options or warrants for the purchase of, or other outstanding rights
to purchase, Common Shares or securities convertible into Common Shares.
(l) No securities of the Company have been sold by the Company or by or on
behalf of, or for the benefit of, any person or persons controlling, controlled
by, or under common control with the Company within the three years prior to the
date hereof, except as disclosed in the Registration Statement.
(m) The issuance and sale of the Shares have been duly authorized and, when
the Shares have been issued and duly delivered against payment therefor as
contemplated by this Agreement, the Shares will be validly issued, fully paid
and nonassessable, and the holders thereof will not be subject to personal
liability solely by reason of being such holders. The Shares will not be subject
to preemptive rights of any shareholder of the Company.
(n) The issuance and sale of the Common Shares
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issuable upon exercise of the Underwriter's Warrants have been duly authorized
and, when such Common Shares have been duly delivered against payment therefor,
as contemplated by the Underwriter's Warrants, such Common Shares will be
validly issued, fully paid and nonassessable. Holders of Common Shares issuable
upon the exercise of the Underwriter's Warrants will not be subject to personal
liability solely by reason of being such holders. Neither the Underwriter's
Warrants nor the Common Shares issuable upon exercise thereof will be subject to
preemptive rights of any shareholder of the Company. The Common Shares issuable
upon exercise of the Underwriter's Warrants have been duly reserved for issuance
upon exercise of the Underwriter's Warrants in accordance with the provisions of
the Underwriter's Warrants. The Underwriter's Warrants conform to the
descriptions thereof contained in the Registration Statement and Prospectus.
(o) Neither the Company nor any Subsidiary is in violation of, or in
default under, (i) any term or provision of its Certificate of Incorporation, as
amended, or By-Laws; (ii) any material term or provision or any financial
covenants of any indenture, mortgage, contract, commitment or other agreement or
instrument to which it is a party or by which it or any of its property or
business is or may be bound or affected; or (iii) any existing applicable law,
rule, regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any Subsidiary or
any of the Company's or any Subsidiary's properties or business. The Company and
each Subsidiary owns, possesses or has obtained all governmental and other
(including those obtainable from third parties) licenses, permits,
certifications, registrations, approvals or consents and other authorizations
necessary to own or lease, as the case may be, and to operate its properties,
whether tangible or intangible, and to conduct any of the business or operations
of the Company as presently conducted and all such licenses, permits,
certifications, registrations, approvals, consents and other authorizations are
outstanding and in good standing, and there are no proceedings pending or, to
the best of the Company's knowledge, threatened, or any basis therefor, seeking
to cancel, terminate or limit such licenses, permits, certifications,
registrations, approvals or consents or other authorizations.
(p) Except as set forth in the Prospectus, there are no claims, actions,
suits, proceedings, arbitrations, investigations or inquiries before any
governmental agency, court or tribunal, domestic or foreign, or before any
private arbitration tribunal, pending, or, to the best of the Company's
knowledge, threatened against the Company or any Subsidiary or involving its or
any Subsidiary's properties or business which, if determined adversely to the
Company or any Subsidiary, would, individually or
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<PAGE>
in the aggregate, result in any material adverse change in the financial
position, shareholders' equity, results of operations, properties, business,
management or affairs or business prospects of the Company or any Subsidiary or
which question the validity of the capital stock of the Company or this
Agreement or of any action taken or to be taken by the Company pursuant to, or
in connection with, this Agreement; nor, to the best of the Company's knowledge,
is there any basis for any such claim, action, suit, proceeding, arbitration,
investigation or inquiry. There are no outstanding orders, judgments or decrees
of any court, governmental agency or other tribunal naming the Company or any
Subsidiary and enjoining the Company or any Subsidiary from taking, or requiring
the Company or any Subsidiary to take, any action, or to which the Company or
any Subsidiary or the Company's or any Subsidiary's properties or businesses is
bound or subject.
(q) Neither the Company nor any of its affiliates has incurred any
liability for any finder's fees or similar payments in connection with the
transactions herein contemplated.
(r) The Company and each of the Subsidiaries owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks, service
marks, copyrights, rights, trade secrets, confidential information, processes
and formulations used or proposed to be used in the conduct of their businesses
as described in the Prospectus (collectively the "Intangibles"); to the best of
the Company's knowledge, neither the Company nor any Subsidiary has infringed or
is infringing with the rights of others with respect to Intangibles; and neither
the Company nor any Subsidiary has received any notice of conflict with the
asserted rights of others with respect to Intangibles which could, singly or in
the aggregate, materially adversely affect its business as presently conducted
or prospects, financial condition or results of operations of the Company or any
Subsidiary, and the Company knows of no basis therefor; and, to the best of the
Company's knowledge, no others have infringed upon the Intangibles of the
Company or any Subsidiary.
(s) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus and the Company's latest consolidated
financial statements, neither the Company nor any Subsidiary has incurred any
material liability or obligation, direct or contingent, or entered into any
material transaction, whether or not in the ordinary course of business, and has
not sustained any material loss or interference with its business from fire,
storm, explosion, flood or other casualty, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or decree; and
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there have not been, and
10
<PAGE>
prior to the Closing Date referred to below there will not be, any changes in
the capital stock or any material increases in the long-term debt of the Company
or any material adverse change in or affecting the general affairs, management,
financial condition, shareholders' equity, results of operations or prospects of
the Company or any Subsidiary, otherwise than as set forth or contemplated in
the Prospectus.
(t) The Company and each Subsidiary has good and marketable title in fee
simple to all real property and good title to all personal property (tangible
and intangible) owned by it, free and clear of all security interests, charges,
mortgages, liens, encumbrances and defects, except such as are described in the
Registration Statement and Prospectus or such as do not materially affect the
value or transferability of such property and do not interfere with the use of
such property made, or proposed to be made, by the Company or any Subsidiary.
The leases, licenses or other contracts or instruments under which the Company
and each Subsidiary leases, holds or is entitled to use any property, real or
personal, are valid, subsisting and enforceable only with such exceptions as are
not material and do not interfere with the use of such property made, or
proposed to be made, by the Company or any Subsidiary, and all rentals,
royalties or other payments accruing thereunder which became due prior to the
date of this Agreement have been duly paid, and neither the Company nor any
Subsidiary, nor, to the best of the Company's knowledge, any other party is in
default thereunder and, to the best of the Company's knowledge, no event has
occurred which, with the passage of time or the giving of notice, or both, would
constitute a default thereunder. Neither the Company nor any Subsidiary has
received notice of any violation of any applicable law, ordinance, regulation,
order or requirement relating to its owned or leased properties. The Company and
each Subsidiary has adequately insured its properties against loss or damage by
fire or other casualty and maintains, in adequate amounts, such other insurance
as is usually maintained by companies engaged in the same or similar businesses
located in its geographical area.
(u) Each contract or other instrument (however characterized or described)
to which the Company or any Subsidiary is a party or by which its property or
business is or may be bound or affected and to which reference is made in the
Prospectus has been duly and validly executed, is in full force and effect in
all material respects and is enforceable against the parties thereto in
accordance with its terms, and none of such contracts or instruments has been
assigned by the Company or any Subsidiary, and neither the Company nor any
Subsidiary, nor, to the best of the Company's knowledge, any other party is in
default thereunder and, to the best of the Company's knowledge, no event has
occurred which, with the lapse of time or the giving of notice, or both,
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<PAGE>
would constitute a default thereunder.
None of the material provisions of such contracts or instruments violates
any existing applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court having jurisdiction over the Company or any of its
subsidiaries or any of their respective assets or businesses, including, without
limitation, those relating to the production, development, research, marketing
or commercialization of biologics.
(v) The employment, consulting, confidentiality and non-competition
agreements between the Company and between each Subsidiary and their respective
officers, employees and consultants, described in the Registration Statement,
are binding and enforceable obligations upon the respective parties thereto in
accordance with their respective terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium or other similar laws
or arrangements affecting creditors' rights generally and subject to principles
of equity.
(w) Except as set forth in the Prospectus, the Company has no employee
benefit plans (including, without limitation, profit sharing and welfare benefit
plans) or deferred compensation arrangements that are subject to the provisions
of the Employee Retirement Income Security Act of 1974.
(x) Except as set forth in the Prospectus, neither the Company nor any
subsidiary manufactures, fabricates or markets any product or performs any
service which is subject to regulation by the federal Food and Drug
Administration (the "FDA"), or to any provision of the Food, Drug and Cosmetic
Act, as amended (the "FDA Act"), or any rule or regulation promulgated
thereunder.
To the best of the Company's knowledge, with respect to the products
manufactured, fabricated or marketed by the Company and/or any subsidiary and
the services performed by them which are subject to such regulation, the Company
and each subsidiary are in compliance with the provisions of the FDA Act and the
rules and regulations promulgated thereunder.
(y) To the best of the Company's knowledge, no labor problem exists with
any of the Company's or any Subsidiary's employees or is imminent which could
adversely affect the Company or any Subsidiary.
(z) The Company has not, directly or indirectly, at any time (i) made any
contributions to any candidate for political office, or failed to disclose fully
any such contribution in violation of law or (ii) made any payment to any state,
federal or foreign governmental officer or official, or other person charged
12
<PAGE>
with similar public or quasi-public duties, other than payments or contributions
required or allowed by applicable law. The Company's internal accounting
controls and procedures are sufficient to cause the Company to comply in all
material respects with the Foreign Corrupt Practices Act of 1977, as amended.
(aa) Shares have been approved for listing on the Automated Quotation
System of the National Association of Securities Dealers, Inc. ("NASDAQ") and,
if so qualified, on the National Market System of NASDAQ.
(ab) The Company's response to the Corporate Review Memorandum of Tenzer
Greenblatt LLP, counsel to the Underwriter ("Underwriter's Counsel"), dated
March 13, 1996, is true, accurate and complete.
(ac) Amarillo Cell of Canada, Inc., a subsidiary of the Company, is
inactive and conducts no business.
Any certificate signed by an officer of the Company or of any subsidiary
and delivered to the Underwriter or to counsel for the Underwriter shall be
deemed to be a representation and warranty by the Company to the Underwriter as
to the matters covered thereby.
5. Certain Covenants of the Company. The Company covenants with the
Underwriter as follows:
(a) The Company will not at any time, whether before the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with the sales of the Shares by the Underwriter or a
dealer, file or publish any amendment or supplement to the Registration
Statement or Prospectus of which the Underwriter has not been previously advised
and furnished a copy, or to which the Underwriter shall object in writing.
(b) The Company will use its best efforts to cause the Registration
Statement to become effective and will advise the Underwriter immediately, and,
if requested by the Underwriter, confirm such advice in writing, (i) when the
Registration Statement, or any post-effective amendment to the Registration
Statement or any supplemented Prospectus is filed with the Commission; (ii) of
the receipt of any comments from the Commission; (iii) of any request of the
Commission for amendment or supplementation of the Registration Statement or
Prospectus or for additional information; and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any Preliminary
Prospectus, or of the suspension of the qualification of the Shares
13
<PAGE>
for offering or sale in any jurisdiction, or of the initiation of any
proceedings for any of such purposes. The Company will use its best efforts to
prevent the issuance of any such stop order or of any order preventing or
suspending such use and to obtain as soon as possible the lifting thereof, if
any such order is issued.
(c) The Company will deliver to the Underwriter, without charge, from time
to time until the Effective Date, as many copies of each Preliminary Prospectus
as the Underwriter may reasonably request, and the Company hereby consents to
the use of such copies for purposes permitted by the Act. The Company will
deliver to the Underwriter, without charge, as soon as the Registration
Statement becomes effective, and thereafter from time to time as requested, such
number of copies of the Prospectus (as supplemented, if the Company makes any
supplements to the Prospectus) as the Underwriter may reasonably request. The
Company has furnished or will furnish to the Underwriter two signed copies of
the Registration Statement as originally filed and of all amendments thereto,
whether filed before or after the Registration Statement becomes effective, two
copies of all exhibits filed therewith and two signed copies of all consents and
certificates of experts.
(d) The Company will comply with the Act, the Regulations, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder so as to permit the continuance of sales of and dealings
in the Offered Shares and in any Optional Shares which may be issued and sold.
If, at any time when a prospectus relating to the Shares is required to be
delivered under the Act, any event occurs as a result of which the Registration
Statement and Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, or if it shall be necessary to amend or supplement the
Registration Statement and Prospectus to comply with the Act or the regulations
thereunder, the Company will promptly file with the Commission, subject to
Section 5(a) hereof, an amendment or supplement which will correct such
statement or omission or which will effect such compliance.
(e) The Company will furnish such proper informa- tion as may be required
and otherwise cooperate in qualifying the Shares for offering and sale under the
securities or Blue Sky laws relating to the offering or for sale in such
jurisdictions as the Underwriter may reasonably designate, provided that no such
qualification will be required in any jurisdiction where, solely as a result
thereof, the Company would be subject to service of general process or to
taxation or qualification as a foreign corporation doing business in such
jurisdiction.
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(f) The Company will make generally available to its security holders, in
the manner specified in Rule 158(b) under the Act, and deliver to the
Underwriter as soon as practicable and in any event not later than 45 days after
the end of its fiscal quarter in which the first anniversary date of the
effective date of the Registration Statement occurs, an earning statement
meeting the requirements of Rule 158(a) under the Act covering a period of at
least 12 consecutive months beginning after the effective date of the
Registration Statement.
(g) For a period of five years from the Effective Date, the Company will
deliver to the Underwriter and to Underwriter's Counsel on a timely basis (i) a
copy of each report or document, including, without limitation, reports on Forms
8-K, 10-C, 10-K, 10-K SB and 10-Q, 10-Q SB and exhibits thereto, filed or
furnished to the Commission, any securities exchange or the National Association
of Securities Dealers, Inc. (the "NASD") on the date each such report or
document is so filed or furnished; (ii) as soon as practicable, copies of any
reports or communications (financial or other) of the Company mailed to its
security holders; (iii) as soon as practicable, a copy of any Schedule 13D, 13G,
14D-1 or 13E-3 received or prepared by the Company from time to time; (iv)
monthly statements setting forth such information regarding the Company's
results of operations and financial position (including balance sheet, profit
and loss statements and data regarding outstanding purchase orders) as is
regularly prepared by management of the Company; and (v) such additional
information concerning the business and financial condition of the Company as
the Underwriter may from time to time reasonably request and which can be
prepared or obtained by the Company without unreasonable effort or expense. The
Company will furnish to its shareholders annual reports containing audited
financial statements and such other periodic reports as it may determine to be
appropriate or as may be required by law.
(h) Neither the Company nor any person that con- trols, is controlled by or
is under common control with the Company will take any action designed to or
which might be reasonably expected to cause or result in the stabilization or
manipulation of the price of the Common Stock.
(i) If the transactions contemplated by this Agreement are consummated, the
Underwriter shall retain the $50,000 previously paid to it, and the Company will
pay or cause to be paid the following: all costs and expenses incident to the
performance of the obligations of the Company under this Agreement, including,
but not limited to, the fees and expenses of accountants and counsel for the
Company, the preparation, printing, mailing and filing of the Registration
Statement (including financial statements and exhibits), Preliminary
Prospectuses and the
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<PAGE>
Prospectus, and any amendments or supplements thereto, the printing and mailing
of the Selected Dealer Agreement, the issuance and delivery of the Shares to the
Underwriter; all taxes, if any, on the issuance of the Shares; the fees,
expenses and other costs of qualifying the Shares for sale under the Blue Sky or
securities laws of those states in which the Shares are to be offered or sold,
the cost of printing and mailing the "Blue Sky Survey" and fees and
disbursements of counsel in connection therewith, including those of such local
counsel as may have been retained for such purpose; the filing fees incident to
securing any required review by the NASD; the cost of furnishing to the
Underwriter copies of the Registration Statement, Preliminary Prospectuses and
the Prospectus as herein provided; the costs of placing "tombstone
advertisements" in any publications which may be selected by the Underwriter,
and all other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section
5(i).
In addition, at the Closing Date or the Option Closing Date, as the case
may be, the Underwriter will deduct from the payment for the Offered Shares or
the Optional Shares three percent (3%) of the gross proceeds of the offering
(less the sum of $50,000 previously paid to the Underwriter), as payment for the
Underwriter's non-accountable expense allowance relating to the transactions
contemplated hereby, which amount will include the fees and expenses of counsel
for the Underwriter.
(j) If the transactions contemplated by this Agreement or related hereto
are not consummated for any reason, then the Underwriter may retain only an
amount equal to its accountable out-of-pocket expenses up to the sum of $50,000
previously paid to it; provided, however, that if the Company shall terminate
this Agreement pursuant to Section 10(a) hereof or if the Underwriter shall
terminate this Agreement pursuant to Sections 6 (except Section 6(g) and except
if the failure to satisfy the conditions set forth in Section 6 results from the
failure of the underwriting arrangements to satisfy the requirements of the NASD
or from objection thereto by the Commission or the NASD), 10(b)(i) or 10(b)(ii)
hereof, then the Company will reimburse the Underwriter only for its accountable
out-of-pocket expenses up to a maximum of $75,000, less such $50,000. In no
event, however, will the Underwriter, in the event the offering is terminated,
be entitled to retain or receive more than an amount equal to its actual
accountable out-of-pocket expenses.
(k) The Company intends to apply the net proceeds from the sale of the
Shares for the purposes set forth in the Prospectus. No portion of the net
proceeds from the sale of the Shares will be used to repay any indebtedness
other than the repayment of $1,000,000 to Hayashibara Biochemical Labaratories,
16
<PAGE>
Inc. The Company will file with the Commission all required reports on Form SR
in accordance with the provisions of Rule 463 promulgated under the Act and will
provide a copy of each such report to the Underwriter and its counsel.
(l) During the period of twelve (12) months from the date hereof, none of
the Company's officers, directors or security holders, will offer for sale or
sell or otherwise dispose of, directly or indirectly, any Securities of the
Company, in any manner whatsoever, whether pursuant to Rule 144 of the
Regulations or otherwise, without the prior written consent of the Underwriter.
The Company will deliver to the Underwriter the undertakings as of the date
hereof of its officers, directors and security holders to this effect.
(m) The Company will not file any registration statement relating to the
offer or sale of any of the Company's securities, including any registration
statement on Form S-8, during the twelve (12) months following the date hereof
without the Underwriter's prior written consent.
(n) The Company maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(o) The Company will use its best efforts to maintain the listing of the
Shares on NASDAQ and, if so qualified, on the National Market System of NASDAQ
for so long as the Shares are qualified for such listing.
(p) The Company will, concurrently with the Effective Date, register the
class of equity securities of which the Shares are a part under Section 12(g) of
the Exchange Act and the Company will maintain the registration for a minimum of
five years after the Effective Date.
(q) Subject to the sale of the Offered Shares, the Underwriter and its
successors will have the right to designate a nominee for election, at its or
their option, either as a member of or a non-voting advisor to the Board of
Directors of the Company, and the Company will use its best efforts to cause
such nominee to
17
<PAGE>
be elected and continued in office as a director of the Company or as such
advisor until the expiration of five years from the Effective Date. Each of the
Company's current officers, directors and [security holders] [Principal
Shareholders] agrees to vote all of the Common Shares owned by such person so as
to elect and continue in office such nominee of the Underwriter. Following the
election of such nominee as a director or advisor, such person shall receive no
more or less compensation than is paid to other non-officer directors of the
Company for attendance at meetings of the Board of Directors of the Company and
shall be entitled to receive reimbursement for all reasonable costs incurred in
attending such meetings including, but not limited to, food, lodging and
transportation. The Company agrees to indemnify and hold such director or
advisor harmless, to the maximum extent permitted by law, against any and all
claims, actions, awards and judgments arising out of his service as a director
or advisor and, in the event the Company maintains a liability insurance policy
affording coverage for the acts of its officers and directors, to include such
director or advisor as an insured under such policy. The rights and benefits of
such indemnification and the benefits of such insurance shall, to the extent
possible, extend to the Underwriter insofar as it may be or may be alleged to be
responsible for such director or advisor. The Company will deliver to the
Underwriter the undertakings as of the date hereof of its current officers,
directors and security holders to vote their shares of Common Stock in
accordance with the provisions of this Section 5(q).
If the Underwriter does not exercise its option to designate a member of or
advisor to the Company's Board of Directors, the Underwriter shall nonetheless
have the right to send a representative (who need not be the same individual
from meeting to meeting) to observe each meeting of the Board of Directors. The
Company agrees to give the Underwriter notice of each such meeting and to
provide the Underwriter with an agenda and minutes of the meeting no later than
it gives such notice and provides such items to the directors.
(r) The Company agrees to employ the Underwriter or a designee of the
Underwriter as a financial consultant on a non-exclusive basis for a period of
three years from the Closing Date, pursuant to a separate written consulting
agreement between the Company and the Underwriter and/or such designee, at an
annual rate of Thirty Thousand Dollars ($30,000) (exclusive of any accountable
out-of-pocket expenses) payable in full in advance, with the first payment to be
made on the Closing Date. In addition, the consulting agreement shall provide
that the Company will pay the Underwriter a finder's fee in the event that the
Underwriter originates a merger, acquisition, joint venture or other transaction
to which the Company is a party. The Company further
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<PAGE>
agrees to deliver a duly and validly executed copy of said consulting agreement,
in form and substance acceptable to the Underwriter, on the Closing Date.
(s) The Company shall retain a transfer agent for the Common Shares,
reasonably acceptable to the Underwriter, for a period of five years following
the Effective Date. In addition, for a period of five years from the Effective
Date, the Company, at its own expense, shall cause such transfer agent to
provide the Underwriter, if so requested in writing, with copies of the
Company's daily transfer sheets and when requested by the Underwriter, a current
list of the Company's security holders, including a list of the beneficial
owners of securities held by a depository trust company and other nominees.
(t) The Company hereby agrees, at its sole cost and expense, to supply and
deliver to the Underwriter, within a reasonable period from the date hereof,
four bound volumes, including the Registration Statement, as amended or
supplemented, all exhibits to the Registration Statement, the Prospectus and all
other underwriting documents.
(u) The Company shall, as of the date hereof, have applied for listing in
Standard & Poor's Corporation Records Service (including annual report
information) or Moody's Industrial Manual (Moody's OTC Industrial Manual not
being sufficient for these purposes) and shall use its best efforts to have the
Company listed in such manual at or prior to the Effective Date and shall
maintain such listing for a period of five years from the Effective Date.
(v) For a period of five years from the Effective Date, the Company shall
provide the Underwriter, on a not less than annual basis, with internal
forecasts setting forth projected results of operations for each quarterly and
annual period in the two fiscal years following the respective dates of such
forecasts. Such forecasts shall be provided to the Underwriter more frequently
than annually if prepared more frequently by management, and revised forecasts
shall be prepared and provided to the Underwriter when required to reflect more
current information, revised assumptions or actual results that differ
materially from those set forth in the forecasts.
(w) For a period of five (5) years from the Effective Date, or until such
earlier time as the Common Shares are listed on the New York Stock Exchange or
the American Stock Exchange, the Company shall cause its legal counsel to
provide the Underwriter with a list, to be updated at least annually, of those
states in which the Common Shares may be traded in non-issuer transactions under
the Blue Sky laws of the 50 states.
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(x) For a period of five years from the Effective Date, the Company shall
continue to retain Ernst & Young LLP (or such other nationally recognized
accounting firm acceptable to the Underwriter) as the Company's independent
public accountants.
(aa) For a period of five years from the Effective Date, the Company, at
its expense, shall cause its independent certified public accountants, as
described in Section 5(y) above, to review (but not audit) the Company's
financial statements for each of the first three fiscal quarters prior to the
announcement of quarterly financial information, the filing of the Company's
10-QSB quarterly report and the mailing of quarterly financial information to
stockholders.
(ab) For a period of three (3) years following the Effective Date, the
Company will not, without the Underwriter's prior written consent, increase or
authorize an increase in the compensation of Joseph Cummins, Charles Hughes or
Alan Richards without the prior written approval of the Underwriter, which such
approval shall be predicated upon, among other things (i) the performance of the
Company, (ii) the performance of the employee, and (iii) inflationary trends and
other economic conditions; further, the Company and Joseph Cummins shall have
entered into an amendment to his employment agreement extending its term to a
date which is at least three (3) years after the Effective Date;
(ac) For a period of twenty-five days from the Effective Date, the Company
will not issue press releases or engage in any other publicity without the
Underwriter's prior written consent, other than normal and customary releases
issued in the ordinary course of the Company's business or those releases
required by law.
(ad) The Company will retain a financial public relations firm reasonably
acceptable to the Underwriter;
(ae) For a period of three (3) years following the Effective Date, the
Company will promptly submit to the Underwriter copies of all accountants'
management reports and similar correspondence between the Company's accountants
and the Company;
(af) For a period of three (3) years following the Effective Date, the
Company will not offer or sell any of its securities pursuant to Regulation S
without the prior written consent of the Underwriter; and
(ag) For a period of four (4) years following the Effective Date, the
Company will provide to the Underwriter ten (10) days written notice prior to
any issuance by the Company of
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any equity securities or securities exchangeable for or convertible into equity
securities of the Company, except for (i) shares of Common Stock issuable upon
exercise of currently outstanding options and warrants or conversion of
currently outstanding convertible securities and (ii) options available for
future grant pursuant to any stock option plan in effect on the Effective Date.
6. Conditions of the Underwriter's Obligation to Purchase Shares from the
Company. The obligation of the Underwriter to purchase and pay for the Offered
Shares which it has agreed to purchase from the Company is subject (as of the
date hereof and the Closing Date) to the accuracy of and compliance in all
material respects with the representations and warranties of the Company herein,
to the accuracy of the statements of the Company or its officers made pursuant
hereto, to the performance in all material respects by the Company of its
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement will have become effective not later than
____.M., New York City time, on the day following the date of this Agreement, or
at such later time or on such later date as the Underwriter may agree to in
writing; prior to the Closing Date, no stop order suspending the effectiveness
of the Registration Statement will have been issued and no proceedings for that
purpose will have been initiated or will be pending or, to the best of the
Underwriter's or the Company's knowledge, will be contemplated by the
Commission; and any request on the part of the Commission for additional
information will have been complied with to the satisfaction of Underwriter's
Counsel.
(b) At the time that this Agreement is executed and at the Closing Date,
there will have been delivered to the Underwriter a signed opinion of Lowenthal,
Landau, Fischer & Bring, P.C., counsel for the Company ("Company Counsel"),
dated as of the date hereof or the Closing Date, as the case may be (and any
other opinions of counsel referred to in such opinion of Company Counsel or
relied upon by Company Counsel in rendering their opinion), reasonably
satisfactory to Underwriter's Counsel, to the effect that:
(i) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas, with full power and
authority, corporate and other, and all licenses, permits, certifications,
registrations, approvals, consents and franchises to own or lease and operate
its properties and to conduct its business as described in the Registration
Statement. The Company is duly qualified to do business as a foreign corporation
and is in good standing in all jurisdictions wherein such qualification is
necessary and failure so to qualify could have a material adverse effect on the
financial condition,
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results of operations, business or properties of the Company. To the best of
Company Counsel's knowledge, other than the Subsidiaries the Company has no
subsidiaries.
Each Subsidiary is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas, with full power and
authority, corporate and other, and all licenses, permits, certifications,
registrations, approvals, consents and franchises to own or lease and operate
its properties and to conduct its business as described in the Registration
Statement. Each Subsidiary is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions wherein such
qualification is necessary and failure so to qualify could have a material
adverse effect on the financial condition, results of operations, business or
properties of such Subsidiary.
The Company owns all of the issued and outstanding shares of capital stock
of each Subsidiary, free and clear of any security interests, liens,
encumbrances, claims and charges, and all of such shares have been duly
authorized and validly issued and are fully paid and nonassessable.
(ii) The Company has full power and authority, corporate and other, to
execute, deliver and perform this Agreement, the Consulting Agreement and the
Underwriter's Warrants and to consummate the transactions contemplated hereby
and thereby. The execution, delivery and performance of this Agreement, the
Consulting Agreement and the Underwriter's Warrants by the Company, the
consummation by the Company of the transactions herein and therein contemplated
and the compliance by the Company with the terms of this Agreement, the
Consulting Agreement and the Underwriter's Warrants have been duly authorized by
all necessary corporate action, and each of this Agreement and the Consulting
Agreement has been duly executed and delivered by the Company. of this Agreement
and the Consulting Agreement is (assuming for the purposes of this opinion that
it is valid and binding upon the other party thereto) and, when executed and
delivered by the Company on the Closing Date, the Underwriter's Warrants will
be, valid and binding obligations of the Company, enforceable in accordance with
their respective terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
rights of creditors generally and the discretion of courts in granting equitable
remedies and except that enforceability of the indemnification provisions set
forth in Section 7 hereof and the contribution provisions set forth in Section 8
hereof may be limited by the federal securities laws or public policy underlying
such laws.
(iii) The execution, delivery and performance of this Agreement, the
Consulting Agreement and the
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Underwriter's Warrants by the Company, the consummation by the Company of the
transactions herein and therein contemplated and the compliance by the Company
with the terms of this Agreement, the Consulting Agreement and the Underwriter's
Warrants do not, and will not, with or without the giving of notice or the lapse
of time, or both, (A) result in a violation of the certificate of incorporation
or by-laws of the Company, (B) result in a breach of or conflict with any terms
or provisions of, or constitute a default under, or result in the modification
or termination of, or result in the creation or imposition of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company or any Subsidiary pursuant to any indenture, mortgage, note, contract,
commitment or other material agreement or instrument to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary or any of the
Company's or any Subsidiary's properties or assets are or may be bound or
affected; (C) violate any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of the Company's or any
Subsidiary's properties or business; or (D) have any effect on any permit,
certification, registration, approval, consent, license or franchise necessary
for the Company or any Subsidiary to own or lease and operate its properties and
to conduct its business or the ability of the Company to make use thereof. The
opinions described in clauses (B) and (D) of this Section 6(b)(iii) may be given
to the best of Company Counsel's knowledge.
(iv) To the best of Company Counsel's knowledge, no authorization,
approval, consent, order, registration, license or permit of any court or
governmental agency or body (other than under the Act, the Regulations and
applicable state securities or Blue Sky laws) is required for the valid
authorization, issuance, sale and delivery of the Shares or the Underwriter's
Warrants to the Underwriter, and the consummation by the Company of the
transactions contemplated by this Agreement, the Consulting Agreement or the
Underwriter's Warrants.
(v) The Registration Statement has become effective under the Act; to the
best of Company Counsel's knowledge, no stop order suspending the effectiveness
of the Registration Statement has been issued, and no proceedings for that
purpose have been instituted or are pending, threatened or contemplated under
the Act or applicable state securities laws.
(vi) The Registration Statement and the Prospectus, as of the Effective
Date, and each amendment or supplement thereto as of its effective or issue date
(except for the financial statements and other financial data included therein
or omitted therefrom, as to which Company Counsel need not express an
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<PAGE>
opinion) comply as to form in all material respects with the requirements of the
Act and Regulations; and the conditions for use of a registration statement on
Form SB-2 have been satisfied by the Company.
(vii) The descriptions in the Registration Statement and the Prospectus of
statutes, regulations, government classifications, contracts and other documents
(including opinions of such counsel); and the response to Item 13 of Form SB-2
have been reviewed by Company Counsel, and, based upon such review, are accurate
in all material respects and present fairly the information required to be
disclosed, and there are no material statutes, regulations or government
classifications, or, to the best of Company Counsel's knowledge, material
contracts or documents, of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not so described or filed as required.
None of the material provisions of the contracts or instruments described
above violates any existing applicable law, rule, regulation, judgment, order or
decree of any governmental agency or court having jurisdiction over the Company
or any Subsidiary or any of their assets or businesses, including, without
limitation, those relating to the production, development, research, marketing
or commercialization of biologics.
(viii) The outstanding Common Shares and outstanding options to purchase
Common Shares have been duly authorized and validly issued. The outstanding
Common Shares are fully paid and nonassessable. The outstanding options and
warrants to purchase Common Shares constitute the valid and binding obligations
of the Company, enforceable in accordance with their terms. None of the
outstanding Common Shares, options to purchase Common Shares has been issued in
violation of the preemptive rights of any shareholder of the Company. None of
the holders of the outstanding Common Shares is subject to personal liability
solely by reason of being such a holder. The offers and sales of the outstanding
Common Shares and outstanding options to purchase Common Shares were at all
relevant times either registered under the Act and the applicable state
securities or Blue Sky laws or exempt from such registration requirements. The
authorized Common Shares and outstanding options to purchase Common Shares
conform to the description thereof contained in the Registration Statement and
Prospectus. To the best of Company Counsel's knowledge, except as set forth in
the Prospectus, no holders of any of the Company's securities has any rights,
"demand", "piggyback" or otherwise, to have such securities registered under the
Act.
(ix) The issuance and sale of the Shares
24
<PAGE>
have been duly authorized and, when the Shares have been issued and duly
delivered against payment therefor as contemplated by this Agreement, the Shares
will be validly issued, fully paid and nonassessable, and the holders thereof
will not be subject to personal liability solely by reason of being such
holders. The Shares are not subject to preemptive rights of any shareholder of
the Company. The certificates representing the Shares are in proper legal form.
(x) The issuance and sale of the Common Shares issuable upon exercise of
the Underwriter's Warrants have been duly authorized and, when such Common
Shares have been duly delivered against payment therefor, as contemplated by the
Under- writer's Warrants, such Common Shares will be validly issued, fully paid
and nonassessable. Holders of Common Shares issuable upon exercise of the
Underwriter's Warrants will not be subject to personal liability solely by
reason of being such holders. Neither the Underwriter's Warrants nor the Common
Shares issuable upon exercise thereof will be subject to preemptive rights of
any shareholder of the Company. The Common Shares issuable upon exercise of the
Underwriter's Warrants have been duly reserved for issuance upon exercise of the
Underwriter's Warrants in accordance with the provisions of the Underwriter's
Warrants.
(xi) Upon delivery of the Offered Shares to the Underwriter against payment
therefor as provided in this Agreement, the Underwriter (assuming it is a bona
fide purchaser within the meaning of the Uniform Commercial Code) will acquire
good title to the Offered Shares, free and clear of all liens, encumbrances,
equities, security interests and claims.
(xii) Assuming that the Underwriter exer- cises the over-allotment option
to purchase the Optional Shares and makes payment therefor in accordance with
the terms of this Agreement, upon delivery of the Optional Shares to the
Underwriter hereunder, the Underwriter (assuming it is a bona fide purchaser
within the meaning of the Uniform Commercial Code) will acquire good title to
the Optional Shares, free and clear of any liens, encumbrances, equities,
security interests and claims.
(xiii) To the best of Company Counsel's knowledge, there are no claims,
actions, suits, proceedings, arbitrations, investigations or inquiries before
any governmental agency, court or tribunal, foreign or domestic, or before any
private arbitration tribunal, pending or threatened against the Company or any
Subsidiary, or involving the Company's or any Subsidiary's properties or
business, other than as described in the Prospectus, such description being
accurate, and other than litigation incident to the kind of business conducted
by the Company which, individually and in the aggregate, is not material.
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<PAGE>
(xiv) The Company and each Subsidiary each owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks, service
marks, copyrights, rights, trade secrets, confidential information, processes
and formulations used or proposed to be used in the conduct of its business as
described in the Prospectus (collectively the "Intangibles"); to the best of
Company Counsel's knowledge, neither the Company nor any Subsidiary has
infringed or is infringing with the rights of others with respect to
Intangibles; and, to the best of Company Counsel's knowledge, neither the
Company nor any Subsidiary has received any notice of conflict with the asserted
rights of others with respect to Intangibles which might, singly or in the
aggregate, materially adversely affect its business, results of operations or
financial condition and such counsel is not aware of any licenses with respect
to the Intangibles which are required to be obtained by the Company. The
opinions described in this Section 6(b)(xiv) may be given by Company Counsel in
reliance on the opinion of an attorney, reasonably acceptable to Underwriter's
Counsel, practicing in the patent area.
(xv) Company Counsel has participated in reviews and discussions in
connection with the preparation of the Registration Statement and the
Prospectus, and in the course of such reviews and discussions and such other
investigation as Company Counsel deemed necessary, no facts came to its
attention which lead it to believe that (A) the Registration Statement (except
as to the financial statements and other financial data contained therein, as to
which Company Counsel need not express an opinion), on the Effective Date,
contained any untrue statement of a material fact required to be stated therein
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, or that (B) the Prospectus (except as to the
financial statements and other financial data contained therein, as to which
Company Counsel need not express an opinion) contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
In rendering its opinion, Company Counsel may rely upon (A) opinions of
local counsel acceptable to Underwriter's Counsel with respect to matters
relating to the laws of any jurisdiction other than New York or the United
States of America; and (B) the certificates of government officials and officers
of the Company as to matters of fact, provided that Company Counsel shall state
that they have no reason to believe, and do not believe, that they are not
justified in relying upon such opinions
26
<PAGE>
or such certificates of government officials and officers of the
Company as to matters of fact, as the case may be.
The opinion letter delivered pursuant to this Section 6(b) shall state that
any opinion given therein qualified by the phrase "to the best of our knowledge"
is being given by Company Counsel after due investigation of the matters therein
discussed.
(c) At the Closing Date, there will have been delivered to the Underwriter
a signed opinion of Underwriter's Counsel, dated as of the Closing Date, to the
effect that the opinions delivered pursuant to Section 6(b) hereof appear on
their face to be appropriately responsive to the requirements of this Agreement,
except to the extent waived by the Underwriter, specifying the same, and with
respect to the incorporation and legal existence of the Company, the validity of
the Shares sold by the Company, the validity of this Agreement (subject, as to
the enforcement of remedies, to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the rights of creditors
generally and the discretion of courts in granting equitable remedies and except
that enforceability of the indemnification provisions set forth in Section 7
hereof and the contribution provisions set forth in Section 8 hereof may be
limited by the federal securities laws or public policy underlying such laws)
and such other related matters as the Underwriter may require.
(d) At the Closing Date (i) the Registration State- ment and the Prospectus
and any amendments or supplements thereto will contain all material statements
which are required to be stated therein in accordance with the Act and the
Regulations and will conform in all material respects to the requirements of the
Act and the Regulations, and 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; (ii) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there will not have been any material adverse change in the
financial condition, results of operations or general affairs of the Company
from that set forth or contemplated in the Registration Statement and the
Prospectus, except changes which the Registration Statement and the Prospectus
indicates might occur after the Effective Date; (iii) since the respective dates
as of which information is given in the Registration Statement and the
Prospectus, there shall have been no material transaction, contract or agreement
entered into by the Company, other than in the ordinary course of business,
which would be required to be set
27
<PAGE>
forth in the Registration Statement and the Prospectus, other than as set forth
therein; and (iv) no action, suit or proceeding at law or in equity will be
pending or, to the best of the Company's knowledge, threatened against the
Company which is required to be set forth in the Registration Statement and the
Prospectus, other than as set forth therein, and no proceedings will be pending
or, to the best of the Company's knowledge, threatened against the Company
before or by any federal, state or other commission, board or administrative
agency wherein an unfavorable decision, ruling or finding would materially
adversely affect the business, property, financial condition or results of
operations of the Company, other than as set forth in the Registration Statement
and the Prospectus. At the Closing Date, there will be delivered to the
Underwriter a certificate signed by the Chairman of the Board or the President
or a Vice President of the Company, dated the Closing Date, evidencing
compliance with the provisions of this Section 6(d) and stating that the
representations and warranties of the Company set forth in Section 4 hereof were
accurate and complete in all material respects when made on the date hereof and
are accurate and complete in all material respects on the Closing Date as if
then made; that the Company has performed all covenants and complied with all
conditions required by this Agreement to be performed or complied with by the
Company prior to or as of the Closing Date; and that, as of the Closing Date, no
stop order suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been initiated or, to the best
of his knowledge, are contemplated or threatened. In addition, the Underwriter
will have received such other and further certificates of officers of the
Company as the Underwriter or Underwriter's Counsel may reasonably request.
(e) At the time that this Agreement is executed and at the Closing Date,
the Underwriter will have received a signed letter from Ernst & Young LLP, dated
the date such letter is to be received by the Underwriter and addressed to it,
confirming that it is a firm of independent public accountants within the
meaning of the Act and Regulations and stating that: (i) insofar as reported on
by them, in their opinion, the financial statements of the Company included in
the Prospectus comply as to form in all material respects with the applicable
accounting requirements of the Act and the applicable Regulations; (ii) on the
basis of procedures and inquiries (not constituting an examination in accordance
with generally accepted auditing standards) consisting of a reading of the
unaudited interim financial statements of the Company, if any, appearing in the
Registration Statement and the Prospectus and the latest available unaudited
interim financial statements of the Company, if more recent than that appearing
in the Registration Statement and Prospectus, inquiries of officers of the
Company responsible for financial and accounting matters as to the transactions
and events subsequent to the date of the latest
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audited financial statements of the Company, and a reading of the minutes of
meetings of the shareholders, the Board of Directors of the Company and any
committees of the Board of Directors, as set forth in the minute books of the
Company, nothing has come to their attention which, in their judgment, would
indicate that (A) during the period from the date of the latest financial
statements of the Company appearing in the Registration Statement and Prospectus
to a specified date not more than three business days prior to the date of such
letter, there have been any decreases in net current assets or net assets as
compared with amounts shown in such financial statements or decreases in net
sales or increases in total or per share net loss compared with the
corresponding period in the preceding year or any change in the capitalization
or long-term debt of the Company, except in all cases as set forth in or
contemplated by the Registration Statement and the Prospectus, and (B) the
unaudited interim financial statements of the Company, if any, appearing in the
Registration Statement and the Prospectus, do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Regulations or are not fairly presented in conformity with generally accepted
accounting principles and practices on a basis substantially consistent with the
audited financial statements included in the Registration Statement or the
Prospectus; and (iii) they have compared specific dollar amounts, numbers of
shares, numerical data, percentages of revenues and earnings, and other
financial information pertaining to the Company set forth in the Prospectus
(with respect to all dollar amounts, numbers of shares, percentages and other
financial information contained in the Prospectus, to the extent that such
amounts, numbers, percentages and information may be derived from the general
accounting records of the Company, and excluding any questions requiring an
interpretation by legal counsel) with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
(f) There shall have been duly tendered to the Underwriter certificates
representing the Offered Shares to be sold on the Closing Date.
(g) The NASD shall have indicated that it has no objection to the
underwriting arrangements pertaining to the sale of the Shares by the
Underwriter.
(h) No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to the Closing Date or
the Option Closing Date, as the case may be, for any member firm of the NASD to
execute
29
<PAGE>
transactions (as principal or as agent) in the Shares, and no proceedings for
the purpose of taking such action shall have been instituted or shall be
pending, or, to the best of the Underwriter's or the Company's knowledge, shall
be contemplated by the Commission or the NASD. The Company represents at the
date hereof, and shall represent as of the Closing Date or Option Closing Date,
as the case may be, that it has no knowledge that any such action is in fact
contemplated by the Commission or the NASD.
(i) The Company meets the current and any existing proposed criteria for
inclusion of the Shares in NASDAQ.
(j) All proceedings taken at or prior to the Closing Date or the Option
Closing Date, as the cas may be, in connection with the authorization, issuance
and sale of the Shares shall be reasonably satisfactory in form and substance to
the Underwriter and to Underwriter's Counsel, and such counsel shall have been
furnished with all such documents, certificates and opinions as they may request
for the purpose of enabling them to pass upon the matters referred to in Section
6(c) hereof and in order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company, the performance of any
covenants of the Company, or the compliance by the Company with any of the
conditions herein contained.
If any of the conditions specified in this Section 6 have not been
fulfilled, this Agreement may be terminated by the Underwriter on notice to the
Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Underwriter, each
officer, director, partner, employee and agent of the Underwriter, and each
person, if any, who controls the Underwriter 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
in respect thereof), to which they or any of them may become subject under the
Act or under any other statute or at common law or otherwise, and, except as
hereinafter provided, will reimburse the Underwriter and each such person, if
any, for any legal or other expenses reasonably incurred by them or any of them
in connection with investigating or defending any actions, whether or not
resulting in any liability, insofar as such losses, claims, damages, expenses,
liabilities or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained (i) in the Registration
Statement, in any Preliminary Prospectus or in the Prospectus (or the
Registration Statement or Prospectus as from time to time amended or
supplemented) or (ii) in any application or other document executed
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<PAGE>
by the Company, or based upon written information furnished by or on behalf of
the Company, filed in any jurisdiction in order to qualify the Shares under the
securities laws thereof (hereinafter "application"), or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, in light of the circumstances under which they were
made, unless such untrue statement or omission was made in such Registration
Statement, Preliminary Prospectus, Prospectus or application in reliance upon
and in conformity with information furnished in writing to the Company in
connection therewith by the Underwriter or any such person through the
Underwriter expressly for use therein; provided, however, that the indemnity
agreement contained in this Section 7(a) with respect to any Preliminary
Prospectus will not inure to the benefit of the Underwriter (or to the benefit
of any other person that may be indemnified pursuant to this Section 7(a)) if
(A) the person asserting any such losses, claims, damages, expenses or
liabilities purchased the Shares which are the subject thereof from the
Underwriter or other indemnified person; (B) the Underwriter or other
indemnified person failed to send or give a copy of the Prospectus to such
person at or prior to the written confirmation of the sale of such Shares to
such person; and (C) the Prospectus did not contain any untrue statement or
alleged untrue statement or omission or alleged omission giving rise to such
cause, claim, damage, expense or liability.
(b) The Underwriter agrees to indemnify and hold harmless the Company, each
of its directors, each of its officers who have signed the Registration
Statement and each person, if any, who controls the Company 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 in respect thereof), to which they or any of them may become
subject under the Act or under any other statute or at common law or otherwise,
and, except as hereinafter provided, will reimburse the Company and each such
director, officer or controlling person for any legal or other expenses
reasonably incurred by them or any of them in connection with investigating or
defending any actions, whether or not resulting in any liability, insofar as
such losses, claims, damages, expenses, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of a material
fact contained (i) in the Registration Statement, in any Preliminary Prospectus
or in the Prospectus (or the Registration Statement or Prospectus as from time
to time amended or supplemented) or (ii) in any application (including any
application for registration of the Shares under state securities or Blue Sky
laws), or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, in light of the
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circumstances under which they were made, but only insofar as any such statement
or omission was made in reliance upon and in conformity with information
furnished in writing to the Company in connection therewith by the Underwriter
expressly for use therein.
(c) Promptly after receipt of notice of the commencement of any action in
respect of which indemnity may be sought against any indemnifying party under
this Section 7, the indemnified party will notify the indemnifying party in
writing of the commencement thereof, and the indemnifying party will, subject to
the provisions hereinafter stated, assume the defense of such action (including
the employment of counsel satisfactory to the indemnified party and the payment
of expenses) insofar as such action relates to an alleged liability in respect
of which indemnity may be sought against the indemnifying party. After notice
from the indemnifying party of its election to assume the defense of such claim
or action, the indemnifying party shall no longer be liable to the indemnified
party under this Section 7 for any legal or other expenses subsequently incurred
by the indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that if, in the reasonable
judgment of the indemnified party or parties, it is advisable for the
indemnified party or parties to be represented by separate counsel, the
indemnified party or parties shall have the right to employ a single counsel to
represent the indemnified parties who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the indemnified parties
thereof against the indemnifying party, in which event the fees and expenses of
such separate counsel shall be borne by the indemnifying party. Any party
against whom indemnification may be sought under this Section 7 shall not be
liable to indemnify any person that might otherwise be indemnified pursuant
hereto for any settlement of any action effected without such indemnifying
party's consent, which consent shall not be unreasonably withheld.
8. Contribution. To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 7 hereof
(subject to the limitations thereof) and it is finally determined, by a
judgment, order or decree not subject to further appeal, that such claim for
indemnification may not be enforced, even though this Agreement expressly
provides for indemnification in such case; or (ii) any indemnified or
indemnifying party seeks contribution under the Act, the Exchange Act, or
otherwise, then the Company (including, for this purpose, any contribution made
by or on behalf of any director of the Company, any officer of the Company who
signed the Registration Statement and any controlling person of the Company) as
one entity and the Underwriter (including, for this purpose, any contribution by
or on behalf of each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Act or
32
<PAGE>
Section 20(a) of the Exchange Act and each officer, director, partner, employee
and agent of the Underwriter) as a second entity, shall contribute to the
losses, liabilities, claims, damages and expenses whatsoever to which any of
them may be subject, so that the Underwriter is responsible for the proportion
thereof equal to the percentage which the underwriting discount per Share set
forth on the cover page of the Prospectus represents of the initial public
offering price per Share set forth on the cover page of the Prospectus and the
Company is responsible for the remaining portion; provided, however, that if
applicable law does not permit such allocation, then, if applicable law permits,
other relevant equitable considerations such as the relative fault of the
Company and the Underwriter in connection with the facts which resulted in such
losses, liabilities, claims, damages and expenses shall also be considered. The
relative fault, in the case of an untrue statement, alleged untrue statement,
omission or alleged omission, shall be determined by, among other things,
whether such statement, alleged statement, omission or alleged omission relates
to information supplied by the Company or by the Underwriter, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, alleged statement, omission or alleged omission. The
Company and the Underwriter agree that it would be unjust and inequitable if the
respective obligations of the Company and the Underwriter for contribution were
determined by pro rata or per capita allocation of the aggregate losses,
liabilities, claims, damages and expenses or by any other method of allocation
that does not reflect the equitable considerations referred to in this Section
8. No person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) will be entitled to contribution from any person who
is not guilty of such fraudulent misrepresentation. For purposes of this Section
8, each person, if any, who controls the Underwriter within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act and each officer,
director, partner, employee and agent of the Underwriter will have the same
rights to contribution as the Under-writer, and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, each officer of the Company who has signed the
Registration Statement and each director of the Company will have the same
rights to contribution as the Company, subject in each case to the provisions of
this Section 8. Anything in this Section 8 to the contrary notwithstanding, no
party will be liable for contribution with respect to the settlement of any
claim or action effected without its written consent. This Section 8 is intended
to supersede, to the extent permitted by law, any right to contribution under
the Act or the Exchange Act or otherwise available.
9. Survival of Indemnities, Contribution, Warranties and Representations.
The respective indemnity and contribution
33
<PAGE>
agreements of the Company and the Underwriter contained in Sections 7 and 8
hereof, and the representations and warranties of the Company contained herein
shall remain operative and in full force and effect, regardless of any
termination or cancellation of this Agreement or any investigation made by or on
behalf of the Underwriter, the Company or any of its directors and officers, or
any controlling person referred to in said Sections, and shall survive the
delivery of, and payment for, the Shares.
10. Termination of Agreement.
(a) The Company, by written or telegraphic notice to the Underwriter, or
the Underwriter, by written or telegraphic notice to the Company, may terminate
this Agreement prior to the earlier of (i) 11:00 A.M., New York City time, on
the first full business day after the Effective Date; or (ii) the time when the
Underwriter, after the Registration Statement becomes effective, releases the
Offered Shares for public offering. The time when the Underwriter "releases the
Offered Shares for public offering" for the purposes of this Section 10 means
the time when the Underwriter releases for publication the first newspaper
advertisement, which is subsequently published, relating to the Offered Shares,
or the time when the Underwriter releases for delivery to members of a selling
group copies of the Prospectus and an offering letter or an offering telegram
relating to the Offered Shares, whichever will first occur.
(b) This Agreement, including without limitation, the obligation to
purchase the Shares and the obligation to purchase the Optional Shares after
exercise of the option referred to in Section 3 hereof, are subject to
termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and payment for all the Offered Shares or the
Optional Shares, as the case may be, if, prior to such time, any of the
following shall have occurred: (i) the Company withdraws the Registration
Statement from the Commission or the Company does not or cannot expeditiously
proceed with the public offering; (ii) the representations and warranties in
Section 4 hereof are not materially correct or cannot be complied with; (iii)
trading in securities generally on the New York Stock Exchange or the American
Stock Exchange will have been suspended; (iv) limited or minimum prices will
have been established on either such Exchange; (v) a banking moratorium will
have been declared either by federal or New York State authorities; (vi) any
other restrictions on transactions in securities materially affecting the free
market for securities or the payment for such securities, including the Offered
Shares or the Optional Shares, will be established by either of such Exchanges,
by the Commission, by any other federal or state agency, by action of the
Congress or by Executive Order; (vii) trading in any securities of the Company
shall have been suspended or halted
34
<PAGE>
by any national securities exchange, the NASD or the Commission; (viii) there
has been a materially adverse change in the condition (financial or otherwise),
prospects or obligations of the Company; (ix) the Company will have sustained a
material loss, whether or not insured, by reason of fire, flood, accident or
other calamity; (x) any action has been taken by the government of the United
States or any department or agency thereof which, in the judgment of the
Underwriter, has had a material adverse effect upon the market or potential
market for securities in general; or (xi) the market for securities in general
or political, financial or economic conditions will have so materially adversely
changed that, in the judgment of the Underwriter, it will be impracticable to
offer for sale, or to enforce contracts made by the Underwriter for the resale
of, the Offered Shares or the Optional Shares, as the case may be.
(c) If this Agreement is terminated pursuant to Section 6 hereof or this
Section 10 or if the purchases provided for herein are not consummated because
any condition of the Underwriter's obligations hereunder is not satisfied or
because of any refusal, inability or failure on the part of the Company to
comply with any of the terms or to fulfill any of the conditions of this
Agreement, or if for any reason the Company shall be unable to or does not
perform all of its obligations under this Agreement, the Company will not be
liable to the Underwriter for damages on account of loss of anticipated profits
arising out of the transactions covered by this Agreement, but the Company will
remain liable to the extent provided in Sections 5(j), 7, 8 and 9 of this
Agreement.
11. Information Furnished by the Underwriter to the Company. It is hereby
acknowledged and agreed by the parties hereto that for the purposes of this
Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and 8
hereof, the only information given by the Underwriter to the Company for use in
the Prospectus are the statements set forth in the last sentence of the last
paragraph on the cover page, the statement appearing in the last paragraph on
page __ with respect to stabilizing the market price of Shares, the information
in the __ paragraph on page __ with respect to concessions and reallowances, and
the information in the ___ paragraph on page ___ with respect to the
determination of the public offering price, as such information appears in any
Preliminary Prospectus and in the Prospectus.
12. Notices and Governing Law. All communications here- under will be in
writing and, except as otherwise provided, will be delivered at, or mailed by
certified mail, return receipt requested, or telegraphed to, the following
addresses: if to the Underwriter, to 650 Fifth Avenue, New York, New York 10019,
Attention: William G. Walters, with a copy to Tenzer Greenblatt
35
<PAGE>
LLP, Attention: Robert J. Mittman, Esq., 405 Lexington Avenue, New
York, New York 10174; if to the Company, addressed to it at 800
West 9th Avenue, Amarillo, Texas 79101, Attention: Dr. Joseph
Cummins, with a copy to Lowenthal, Landau, Fischer & Bring, 250
Park Avenue, New York, New York 10177, Attention: Robert E. Fischer, Esq.
This Agreement shall be deemed to have been made and delivered in New York
City and shall be governed as to validity, interpretation, construction, effect
and in all other respects by the internal laws of the State of New York. The
Company (1) agrees that any legal suit, action or proceeding arising out of or
relating to this Agreement shall be instituted exclusively in New York State
Supreme Court, County of New York, or in the United States District Court for
the Southern District of New York, (2) waives any objection which the Company
may have now or hereafter to the venue of any such suit, action or proceeding,
and (3) irrevocably consents to the jurisdiction of the New York State Supreme
Court, County of New York, and the United States District Court for the Southern
District of New York in any such suit, action or proceeding. The Company further
agrees to accept and acknowledge service of any and all process which may be
served in any such suit, action or proceeding in the New York State Supreme
Court, County of New York, or in the United States District Court for the
Southern District of New York and agrees that service of process upon the
Company mailed by certified mail to the Company's address shall be deemed in
every respect effective service of process upon the Company, in any such suit,
action or proceeding.
13. Parties in Interest. This Agreement is made solely for the benefit of
the Underwriter, the Company and, to the extent expressed, any person
controlling the Company or the Underwriter, each officer, director, partner,
employee and agent of the Underwriter, the directors of the Company, its
officers who have signed the Registration Statement, and their respective
executors, administrators, successors and assigns, and, no other person will
acquire or have any right under or by virtue of this Agreement. The term
"successors and assigns" will not include any purchaser of the Shares from the
Underwriter, as such purchaser.
36
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed duplicates hereof, whereupon it will
become a binding agreement between the Company and the Underwriter in accordance
with its terms.
Very truly yours,
AMARILLO BIOSCIENCES, INC.
By_______________________
Name:
Title:
Confirmed and accepted in
New York, N.Y., as of the
date first above written:
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By__________________________
Name: William G. Walters
Title: Chairman
Each of the undersigned hereby accepts
and agrees to be bound by the provisions
of Sections 5(l) of this Agreement, as
the same may be applicable to such
person as an officer, director or
shareholder of the Company.
________________________________________
________________________________________
________________________________________
________________________________________
37
<PAGE>
AMARILLO CELL CULTURE COMPANY, INCORPORATED
RESTATED ARTICLES OF INCORPORATION
ARTICLE I
AMARILLO CELL CULTURE COMPANY, INCORPORATED, pursuant to the
provisions of Article 4.07 of the Texas Business Corporation Act, hereby adopts
Restated Articles of Incorporation which accurately copy the Articles of
Incorporation and all amendments thereto that are in effect to date and as
further amended by such Restated Articles of Incorporation as hereinafter set
forth and which contain no other change in any provision thereof.
ARTICLE II
The Articles of Incorporation of the Corporation are amended
by the Restated Articles of Incorporation as follows:
Article Four is amended in its entirety, to read as follows:
"ARTICLE FOUR
The Corporation shall have authority to issue ten million
(10,000,000) shares of capital stock, one cent ($.01) par value.
No holder of shares of any class of the Corporation shall have
the preemptive right to subscribe for or acquire additional shares of
the Corporation of the same or any other class, whether such shares
shall be hereby or hereafter authorized; and no holder of shares of any
class of the Corporation shall have any right to acquire any shares
which may be held in the Treasury of the Corporation. All such
additional or Treasury shares may be sold for such consideration, at
such time, and to such person or persons as the Board of Directors may
from time to time determine.
The Corporation may purchase, directly or indirectly, its own
shares to the extent of the aggregate of unrestricted capital surplus
available therefor and unrestricted reduction surplus available
therefor."
ARTICLE III
The amendment made by these Restated Articles of Incorporation
has been effected in conformity with the provisions of the Texas Business
Corporation Act and such Restated Articles of Incorporation and the amendment
made by the Restated Articles of Incorporation were duly adopted by
<PAGE>
the Shareholders of the Corporation on the 11th day of May,
1993.
ARTICLE IV
The number of shares of the Corporation outstanding at the
time of such adoption was 250,466; and the number of shares entitled to vote
thereon was 250,466. The number of shares voted for such amendment was 233,802,
and the number of shares voted against such amendment was zero.
ARTICLE V
The amendment, as adopted by the Shareholders of the
Corporation, provides for an exchange of issued shares, on a ten-for-one basis,
to be effected in the following manner: Upon filing of the Restated Articles of
Incorporation with the Secretary of State of the State of Texas, the Corporation
shall notify each Shareholder of such filing, and shall request that each
Shareholder return to the Corporation all certificates evidencing shares of
stock in the Corporation. Upon receipt by the Corporation from each Shareholder
of the certificate or certificates evidencing that Shareholder's stock in the
Corporation (or in lieu thereof, upon receipt of a properly executed and
notarized Affidavit of Loss and Indemnity, in form acceptable to the
Corporation), the Corporation shall re-issue to that Shareholder a certificate
evidencing a number of shares which shall equal ten times the number of shares
evidenced by the surrendered certificate(s). The amendment effects no change in
the par value of the authorized stock of the Corporation.
ARTICLE VI
The amendment effects a change in the amount of stated capital
of the Corporation, as the amendment increases the amount of stated capital of
the Corporation to an amount which is ten times the pre-amendment amount. The
amount of stated capital, as changed by such amendment, is $25,046.60.
-2-
<PAGE>
ARTICLE VII
The Articles of Incorporation and all amendments and
supplements thereto are hereby superseded by the following Restated Articles of
Incorporation which accurately copy the entire text thereof and as amended as
above set forth:
ARTICLE ONE
The name of the Corporation is AMARILLO CELL CULTURE COMPANY,
INCORPORATED.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose or purposes for which the Corporation is organized
are:
(1) To transact all lawful business of every
kind and character for which a Corporation may be
incorporated under the Texas Business Corporate
Act.
(2) To prepare, write, make, provide, record, transcribe,
computerize, and/or generate data, information, articles, papers,
forms, projections, figures, and the application of the same, as well
as to disseminate and publish such materials and documentation thereof,
and to market and sell the same.
(3) To develop, write, make, buy, file, prepare, license,
sublicense patents related to medicine, veterinary medicine, and/or
agriculture and to market and sell the same.
(4) To make, have made, use, sell or otherwise transfer
substances intended for human or nonhuman administration which, or the
use or manufacture of which, is covered in whole or in part by a claim
of a Licensed Patent in the country of manufacture,use, or sale.
(5) To engage for profit in the business of professional
consultations in such form and manner as will serve the medical,
veterinary medical, agricultural and/or livestock industries, as well
as related industries.
(6) To purchase, own, hold, operate, rent, lease, sell, convey
and deal in real property, personal property and services incidental to
the purposes of the Corporation, subject to Part Four, Texas
Miscellaneous Corporation Laws Act.
ARTICLE FOUR
The Corporation shall have authority to issue ten million
(10,000,000) shares of capital stock, one cent ($.01) par value.
No holder of shares of any class of the Corpo-
ration shall have the preemptive right to subscribe
-3-
<PAGE>
for or acquire additional shares of the Corporation of the same or any
other class, whether such shares shall be hereby or hereafter
authorized; and no holder of shares of any class of the Corporation
shall have any right to acquire any shares which may be held in the
Treasury of the Corporation. All such additional or Treasury shares may
be sold for such consideration, at such time, and to such person or
persons as the Board of Directors may from time to time determine.
The Corporation may purchase, directly or indirectly, its own
shares to the extent of the aggregate of unrestricted capital surplus
available therefor and unrestricted reduction surplus available
therefor.
ARTICLE FIVE
The Corporation will not commence business until it has
received for the issuance of its shares a consideration of the value of
One Thousand Dollars ($1,000), consisting of money, labor done or
property actually received.
ARTICLE SIX
The address of the Corporation's registered office is 6666
Amarillo Boulevard West, Amarillo, Texas 79106, Potter County, Texas,
and the name of its registered agent at such address is JOSEPH M.
CUMMINS.
DATED this ____ day of May, 1993.
AMARILLO CELL CULTURE COMPANY,
INCORPORATED
By: /s/ Edward Sherwood
-------------------------------
Edward Sherwood, President
THE STATE OF TEXAS ss.
COUNTY OF POTTER ss.
BEFORE ME, a notary public, on this day personally appeared
EDWARD SHERWOOD, known to me to be the person whose name is subscribed to the
foregoing document and, being by me first duly sworn, declares that the
statements therein contained are true and correct.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this ____ day of
__________________, 1993.
/s/
-------------------------------
Notary Public, State of Texas
My Commission Expires:_________
-4-
<PAGE>
AMARILLO CELL CULTURE COMPANY, INCORPORATED
RESTATED ARTICLES OF INCORPORATION
ARTICLE I
AMARILLO CELL CULTURE COMPANY, INCORPORATED, pursuant to the
provisions of Article 4.07 of the Texas Business Corporation Act, hereby adopts
Restated Articles of Incorporation which accurately copy the Articles of
Incorporation and all amendments thereto that are in effect to date and as
further amended by such Restated Articles of Incorporation as hereinafter set
forth and which contain no other change in any provision thereof.
ARTICLE II
The Articles of Incorporation of the Corporation are amended
by the Restated Articles of Incorporation as follows:
Article One is amended in its entirety, to read as follows:
"ARTICLE ONE
The name of the Corporation is
AMARILLO BIOSCIENCES, INC."
Article Four is amended, by adding the following as the last
paragraph of said Article Four:
"The right to cumulate votes in the
election of Directors is expressly pro-
hibited."
Article Six is amended in its entirety, to read as follows:
"ARTICLE SIX
The address of the Corporation's registered office is 800 West
9th Street, Amarillo, Texas 79101, and the name of its registered agent at such
address is Joseph M. Cummins."
ARTICLE III
The amendment made by these Restated Articles of Incorporation
has been effected in conformity with the provisions of the Texas Business
Corporation Act and such Restated Articles of Incorporation and the amendment
made by the Restated Articles of Incorporation were duly adopted by the
Shareholders of the Corporation on the 14th day of May, 1996.
-1-
<PAGE>
ARTICLE IV
The number of shares of the Corporation outstanding at the
time of such adoption was 3,035,232; and the number of shares entitled to vote
thereon was 3,035,232. The number of shares voted for such amendment was
2,170,524, and the number of shares voted against such amendment was 317,520.
ARTICLE V
The amendment effects no change in the amount of stated
capital of the Corporation.
ARTICLE VI
A new Article Seven is added to the Articles of Incorporation,
stating the current names and addresses of the Directors of the Corporation,
which Article VII shall read as follows:
"ARTICLE VII
The names and addresses of the Directors of the
Corporation are:
NAME ADDRESS
Joseph M. Cummins 800 W. 9th
Amarillo, TX 79101
Katsuaki Hayashibara 800 W. 9th
Amarillo, TX 79101
James Cook 800 W. 9th
Amarillo, TX 79101
Dennis Moore 800 W. 9th
Amarillo, TX 79101
Steve Chen 800 W. 9th
Amarillo, TX 79101
Dr. James Page 800 W. 9th
Amarillo, TX 79101
ARTICLE VII
The Articles of Incorporation and all amendments and
supplements thereto are hereby superseded by the following Restated Articles of
Incorporation which accurately copy the entire text thereof and as amended as
above set forth:
-2-
<PAGE>
ARTICLE ONE
The name of the Corporation is AMARILLO BIOSCIENCES, INC.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose or purposes for which the Corporation is organized
are:
(1) To transact all lawful business of every kind and
character for which a Corporation may be incorporated under the Texas
Business Corporate Act.
(2) To prepare, write, make, provide, record, transcribe,
computerize, and/or generate data, information, articles, papers,
forms, projections, figures, and the application of the same, as well
as to disseminate and publish such materials and documentation thereof,
and to market and sell the same.
(3) To develop, write, make, buy, file, prepare, license,
sublicense patents related to medicine, veterinary medicine, and/or
agriculture and to market and sell the same.
(4) To make, have made, use, sell or otherwise transfer
substances intended for human or nonhuman administration which, or the
use or manufacture of which, is covered in whole or in part by a claim
of a Licensed Patent in the country of manufacture,use, or sale.
(5) To engage for profit in the business of professional
consultations in such form and manner as will serve the medical,
veterinary medical, agricultural and/or livestock industries, as well
as related industries.
(6) To purchase, own, hold, operate, rent, lease, sell, convey
and deal in real property, personal property and services incidental to
the purposes of the Corporation, subject to Part Four, Texas
Miscellaneous Corporation Laws Act.
ARTICLE FOUR
The Corporation shall have authority to issue ten million
(10,000,000) shares of capital stock, one cent ($.01) par value.
No holder of shares of any class of the Corporation shall have
the preemptive right to subscribe for or acquire additional shares of
the Corporation of the same or any other class, whether such shares
shall be hereby or hereafter authorized; and no holder of shares of any
class of the Corporation shall have any right to acquire any shares
which may be held in the Treasury of the Corporation. All such
additional or Treasury shares may be sold for such consideration, at
such time, and to such person or persons as the Board of Directors may
from time to time determine.
-3-
<PAGE>
The Corporation may purchase, directly or indirectly, its own
shares to the extent of the aggregate of unrestricted capital surplus
available therefor and unrestricted reduction surplus available
therefor.
The right to cumulate votes in the election of directors is
expressly prohibited.
ARTICLE FIVE
The Corporation will not commence business until it has
received for the issuance of its shares a consideration of the value of
One Thousand Dollars ($1,000), consisting of money, labor done or
property actually received.
ARTICLE SIX
The address of the Corporation's registered office is 800 West
9th Street, Amarillo, Texas 79101, and the name of its registered agent
at such address is JOSEPH M. CUMMINS.
ARTICLE SEVEN
The names and addresses of the Directors of the Corporation
are:
NAME ADDRESS
Joseph M. Cummins 800 W. 9th
Amarillo, TX 79101
Katsuaki Hayashibara 800 W. 9th
Amarillo, TX 79101
James Cook 800 W. 9th
Amarillo, TX 79101
Dennis Moore 800 W. 9th
Amarillo, TX 79101
Steve Chen 800 W. 9th
Amarillo, TX 79101
Dr. James Page 800 W. 9th
Amarillo, TX 79101
DATED this 16th day of May, 1996.
AMARILLO BIOSCIENCES, INC.
By:/s/ Joseph M. Cummins
----------------------------
Joseph M. Cummins, President
-4-
<PAGE>
THE STATE OF TEXAS ss.
COUNTY OF POTTER ss.
BEFORE ME, a notary public, on this day personally appeared
JOSEPH M. CUMMINS, known to me to be the person whose name is subscribed to the
foregoing document and, being by me first duly sworn, declares that the
statements therein contained are true and correct.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, this 16th day of
May, 1996.
/s/ Mary Sehorn
-------------------------------
Notary Public, State of Texas
My Commission Expires: 6-1-97
-5-
BYLAWS
OF
AMARILLO CELL CULTURE COMPANY, INCORPORATED
ARTICLE I
SHAREHOLDERS
Section 1. Annual Meeting. The annual meeting of shareholders shall
be held on the 2nd Tuesday in May of each year at 10:00 A.M. if not a legal
holiday, and if a legal holiday, then on the next succeeding business day, or at
such other time or on such other date as may be fixed by resolution of the Board
of Directors, for the purpose of electing directors. Any business may be
transacted at an annual meeting, except as otherwise provided by law or by these
Bylaws.
Section 2. Special Meeting. A special meeting of shareholders may be
called at any time by the holders of at least ten percent (10%) of the
outstanding stock entitled to be voted at such meeting, by the Board of
Directors, by the Chairman of the Board, if any, or by the President. Only such
business shall be transacted at a special meeting as may be stated or indicated
in the notice of such meeting.
Section 3. Place. The annual meeting of shareholders may be held at
any place within or without the State
<PAGE>
of Texas designated by the Board of Directors. Special meetings of shareholders
may be held at any place within or without the State of Texas designated by the
Board of Directors or, in the absence of such designation, by the chief
executive officer. Any meeting may be held at any place within or without the
State of Texas designated in a waiver of notice of such meeting signed by
shareholders. Meetings of shareholders shall be held at the principal office of
the Corporation unless another place is designated for meetings in the manner
provided herein.
Section 4. Notice. Written or printed notice stating the place, day
and hour of each meeting of shareholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten (10) nor more than fifty (50) days before the date of the meeting,
either personally or by mail, to each shareholder of record entitled to vote at
such meeting.
Section 5. Quorum. The holders of at least a majority of the
outstanding stock entitled to vote thereat and present in person or by proxy,
shall constitute a quorum. Except as otherwise required by law, the Articles of
Incorporation or these Bylaws, the act of a majority of the stock at any meeting
at which a quorum is present shall be the act of the shareholders' meeting. The
shareholders present at any
-2-
<PAGE>
meeting, though less than a quorum, may adjourn the meeting, and any business
may be transacted at the adjournment that could be transacted at the original
meeting. No notice of adjournment, other than the announcement at the meeting,
need be given.
Section 6. Proxies. At all meetings of shareholders, a shareholder
may vote either in person or by proxy executed in writing by the shareholder or
by his duly authorized attorney-in-fact. Such proxies shall be filed with the
Secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after eleven (11) months from the date of its execution unless
otherwise provided in the proxy. Each proxy shall be revocable unless expressly
provided therein to be irrevocable or unless otherwise made irrevocable by law.
Section 7. Voting of Shares. Each outstanding share of a class
entitled to vote upon a matter submitted to a vote at a meeting of shareholders
shall be entitled to one vote on such matter.
Section 8. List of Shareholders. A complete list of shareholders
entitled to vote at each shareholders' meeting, arranged in alphabetical order,
with the address of and number of shares held by each, shall be prepared by the
Secretary and filed at the registered office of the
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Corporation and shall be subject to inspection by any shareholder during usual
business hours for a period of ten (10) days prior to such meeting and shall be
produced at such meeting and at all times during such meeting be subject to
inspection by any shareholder.
Section 9. Action Without Meeting. Any action permitted or required
by law, by these Bylaws or by the Articles of Incorporation of the Corporation
to be taken at a meeting of shareholders of the Corporation may be taken without
a meeting or by means of conference telephone as provided in Article VI, Section
6 of the Bylaws.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Term of Office. The business and property of
the Corporation shall be managed by the Board of Directors, and subject to the
restrictions imposed by law, the Articles of Incorporation or by these Bylaws,
they may exercise all the powers of the Corporation.
The Board of Directors shall consist of not less than one nor more
than thirty directors, as so determined from time to time by resolution of the
Board of Directors. Within the above limits, the number of directors may be
increased or decreased (provided such decrease does not
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shorten the term of any incumbent director) from time to time by resolution of
the Board of Directors.
Each director shall hold office for the term for which he is elected
and until his successor shall have been elected and qualified. Directors need
not be shareholders nor residents of Texas. Any director may be removed from
office, with or without cause, by a majority vote of the shareholders at any
meeting at which a quorum of shareholders is present; provided that, if the
Articles of Incorporation do not expressly deny to shareholders the right of
cumulative voting for the election of directors and if less than the entire
Board is to be removed, no one of the directors may be removed if the votes cast
against his removal would be sufficient to elect him if then cumulatively voted
at an election of the entire Board of Directors.
Any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors. A director elected to fill a vacancy shall be
elected for the unexpired term of his predecessor in office. In case of any
increase in the number of directors, the additional directors shall be elected
at an annual meeting or at a special meeting of shareholders called for that
purpose.
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Section 2. Meetings of Directors. The directors may hold their
meetings and may have an office and keep the books of the Corporation, except as
otherwise provided by statute, in such place or places in the State of Texas, or
outside the State of Texas, as the Board of Directors may from time to time
determine.
Section 3. First Meeting. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the shareholders, and no notice of such meeting shall be
necessary.
Section 4. Election of Officers. At the first meeting of the Board of
Directors in each year at which a quorum shall be present, held next after the
annual meeting of shareholders, the Board of Directors shall proceed to the
election of the officers of the Corporation.
Section 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as shall be designated from
time to time by resolution of the Board of Directors. Notice of such regular
meetings shall not be required.
Section 6. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the
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Chairman of the Board, if any, the President, or by a majority of the directors
for the time being in office. Each such special meeting shall be held at such
time and place as shall be designated by the officer or directors calling such
meeting.
Section 7. Notice. The Secretary shall give notice of each special
meeting in person, or by mail or telegraph to each director at least 24 hours
before the time of such meeting. The attendance of a director at any meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called or convened.
Notice may also be waived in writing as provided in Article VI, Section 4 of
these Bylaws. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or written waiver of notice of such meeting.
Section 8. Quorum. A majority of the directors fixed in the manner
provided in these Bylaws shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there be less than a
quorum present, a majority of those present or any director solely present may
adjourn the meeting from time to time without
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further notice. The act of a majority of the directors present at a meeting at
which a quorum is in attendance shall be the act of the Board of Directors,
unless the act of a greater number is required by the Articles of Incorporation
or by these Bylaws.
Section 9. Order of Business. At meetings of the Board of Directors,
business shall be transacted in such order as from time to time the Board may
determine.
At meetings of the Board of Directors, the Chairman of the Board, if
any, shall preside. In the absence of the Chairman of the Board, the President
shall preside, and in the absence of the President, a chairman shall be chosen
by the Board from among the directors present.
The Secretary of the Corporation shall act as secretary of the
meetings of the Board of Directors, but in the absence of the Secretary, the
presiding officer may appoint any person to act as secretary of the meeting.
Section 10. Compensation. Directors as such shall not receive any
stated salary for their services, but by resolution of the Board a fixed sum and
expense of attendance, if any, may be allowed for attendance at such regular or
special meetings of the Board; provided, that nothing contained herein shall be
construed to preclude any director
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from serving the Corporation in any other capacity or receiving compensation
therefor.
Section 11. Presumption of Assent. A director of the Corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Secretary of the Corporation immediately after
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
Section 12. Action Without Meeting. Any action permitted or required
by law, by these Bylaws or by the Articles of Incorporation of the Corporation,
to be taken at a meeting of the Board of Directors or any committee thereof may
be taken without a meeting or by means of conference telephone as provided in
Article VI, Section 6 of these Bylaws.
Section 13. Committees of Directors. The Board of Directors, by
resolution adopted by a majority of the full Board of Directors, may designate
from among its members an
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executive committee and one or more other committees, each of which, to the
extent provided in such resolution, shall have and may exercise all of the
authority of the Board of Directors, except that no such committee shall have
the authority of the Board of Directors in reference to amending the Articles of
Incorporation, approving a merger or consolidation, recommending to the
shareholders the sale, lease or exchange of all or substantially all of the
property and assets of the Corporation otherwise than in the usual and regular
course of business, recommending to the shareholders a voluntary dissolution of
the Corporation or a revocation thereof, amending, altering or repealing the
Bylaws of the Corporation or adopting new Bylaws for the Corporation, filling
vacancies in or removing members of the Board of Directors or any such
committee, fixing the compensation of any member of such committee or altering
or repealing any resolution of the Board of Directors which by its term provides
that it shall not be so amendable or repealable, and, unless such resolution
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of shares of the Corporation.
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ARTICLE III
OFFICERS
Section 1. Number, Titles and Term of Office. The officers of the
Corporation shall be a President, one or more Vice-Presidents, a Secretary, a
Treasurer and, if the Board of Directors so elects, a Chairman of the Board and
such other officers as the Board of Directors may from time to time elect or
appoint. Each officer shall hold office until his successor shall have been duly
elected and qualified or until his death or until he shall resign or shall have
been removed in the manner hereinafter provided. One person may hold more than
one office, except that the President shall not hold the office of Secretary. No
officer, except the Chairman of the Board, must be a director.
Section 2. Removal. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the Corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
Section 3. Vacancies. A vacancy in the office of any officer
may be filled by a vote of a majority of the directors.
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Section 4. Powers and Duties of the Chief Executive Officer. The
President shall be the chief executive officer of the Corporation unless the
Board of Directors designates the Chairman of the Board as chief executive
officer. Subject to the control of the Board of Directors, the chief executive
officer shall have general executive charge, management and control of the
properties, business and operations of the Corporation with all such powers as
may be reasonably incident to such responsibilities; he may agree upon and
execute all leases, contracts, evidences of indebtedness and other obligations
in the name of the Corporation and may sign all certificates for shares of
capital stock of the Corporation; and shall have such other powers and duties as
designated in accordance with these Bylaws and as from time to time may be
assigned to him by the Board of Directors.
Section 5. Powers and Duties of the Chairman of the Board. If
elected, the Chairman of the Board shall preside at all meetings of the
shareholders and of the Board of Directors; and he shall have such other powers
and duties as designated in these Bylaws and as from time to time may be
assigned to him by the Board of Directors.
Section 6. Powers and Duties of the President. The President, if any,
shall have the authority to agree upon
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and execute all leases, contracts, evidences of indebtedness, and other
obligations in the name of the Corporation; unless the Board of Directors
otherwise determines, he shall, in the absence of the Chairman of the Board of
if there be no Chairman of the Board, preside at all meetings of the
stockholders and (should he be a director) of the Board of Directors; and he
shall have such other powers and duties as designated in accordance with these
Bylaws and as from time to time may be assigned to him by the Board of
Directors.
Section 7. Vice-Presidents. In the absence of the Chairman of the
Board, if any, or President, or in the event of their inability or refusal to
act, a Vice-President designated by the Board of Directors shall perform the
duties of the Chairman of the Board, if any, or the President, as the case may
be, and when so acting shall have all the powers of and be subject to all the
restrictions upon the Chairman of the Board, if any, or the President. In the
absence of a designation by the Board of Directors of a Vice-President to
perform the duties of the Chairman of the Board, if any, or President, the
Vice-President who is senior in terms of time as a Vice-President of the
Corporation shall so act. The Vice-Presidents shall perform such other duties
and have such other powers as the Board of Directors may from time to time
prescribe.
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Section 8. Treasurer. The Treasurer shall have custody of all the
funds and securities of the Corporation which come into his hands. When
necessary or proper, he may endorse, on behalf of the Corporation, for
collection checks, notes and other obligations and shall deposit the same to the
credit of the Corporation in such bank or banks or depositories as shall be
designated in the manner prescribed by the Board of Directors, and he may sign
all receipts and vouchers for payments made to the Corporation, either alone or
jointly with such other officer as is designated by the Board of Directors.
Whenever required by the Board of Directors, he shall render a statement of his
cash account, he shall enter or cause to be entered regularly in the books of
the Corporation to be kept by him for that purpose full and accurate accounts of
all moneys received and paid out on account of the Corporation; he shall perform
all acts incident to the position of Treasurer subject to the control of the
Board of Directors; and he shall, if required by the Board of Directors, give
such bond for the faithful discharge of his duties in such form as the Board of
Directors may require.
Section 9. Assistant Treasurer. Each Assistant Treasurer shall have
the usual powers and duties pertaining to his office, together with such other
powers and duties as
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may be assigned to him by the Board of Directors. The Assistant Treasurers shall
exercise the powers of the Treasurer during that officer's absence or inability
to act.
Section 10. Secretary. The Secretary shall keep the minutes of all
meetings of the Board of Directors and the minutes of all meetings of the
shareholders, in books provided for that purpose; he shall attend to the giving
and serving of all notices; he may in the name of the Corporation attest to all
contracts of the Corporation and affix the seal of the Corporation thereto; he
may sign with the President all certificates for shares of the capital stock of
the Corporation; he shall have charge of the certificate books, transfer books
and stock ledgers, and such other books and papers as the Board of Directors may
direct, all of which shall at all reasonable times be open to inspection of any
director upon application at the office of the Corporation during business
hours, and he shall in general perform all duties incident to the office of
Secretary, subject to the control of the Board of Directors.
Section 11. Assistant Secretaries. Each Assistant Secretary shall
have the usual powers and duties pertaining to his office, together with such
other powers and duties as may be assigned to him by the Board of Directors or
the Secretary. The Assistant Secretaries shall exercise the
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powers of the Secretary during that officer's absence or inability to act.
ARTICLE IV
INDEMNIFICATION AND INSURANCE OF
DIRECTORS AND OFFICERS
Each director and each officer or former director or officer of this
Corporation or each person who may have served at request as a director or
officer of another corporation in which it owned shares of capital stock or of
which it is a creditor, shall be indemnified by the Corporation against
liabilities imposed upon him and expenses reasonably incurred by him in
connection with any claim made against him, or any action, suit or proceeding to
which he may be a party by reason of his being, or having been such director or
officer, and against such sums as independent counsel selected by the Board of
Directors shall deem reasonable payment made in settlement of any such claim,
action, suit or proceeding primarily with a view of avoiding expenses of
litigation; provided, however, that no director or officer shall be indemnified
with respect to matters as to which he shall be adjudged in such action, suit or
proceeding to be liable for negligence or misconduct in performance of duty, or
with respect to any matters which shall be settled by the payment of sums which
counsel selected by the Board of
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Directors shall not deem reasonable payment made primarily with a view to
avoiding expenses of litigation, or with respect to matters for which such
indemnification would be against public policy. Such right of indemnification
shall be in addition to any other rights to which directors or officers may be
entitled.
This Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise against any liability asserted against him and incurred by him
in any such capacity or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability.
ARTICLE V
CAPITAL STOCK
Section 1. Certificates of Shares. The certificates for shares of the
capital stock of the Corporation shall be in such form as shall be approved by
the Board of Directors. The certificates shall be signed by the Chairman of the
Board, if any, or the President, and also by the
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Secretary or an Assistant Secretary or by the Treasurer or an Assistant
Treasurer and may be sealed with the seal of this Corporation or a facsimile
thereof. Where any such certificate is countersigned by a transfer agent, or
registered by a registrar, either of which is other than the Corporation itself
or an employee of the Corporation, the signatures of any such Chairman of the
Board, if any, or President and Secretary or Assistant Secretary or Treasurer or
Assistant Treasurer may be facsimiles. They shall be consecutively numbered and
shall be entered in the books of the Corporation as they are issued and shall
exhibit the holder's name and number of shares.
Section 2. Transfer of Shares. The shares of stock of the Corporation
shall be transferable only on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys or legal
representatives, upon surrender and cancellation of certificates for a like
number of shares.
Section 3. Closing of Transfer Books. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders, or
any adjournment thereof, or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purpose, the
Board of Directors of the
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Corporation may provide that the stock transfer books shall be closed for a
stated period but not to exceed in any case fifty (50) days. If the stock
transfer books shall be closed for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of shareholders, such books shall
be closed for at least ten (10) days immediately preceding such meeting. In lieu
of closing the stock transfer books, the Board of Directors may fix in advance a
date as the record date for any such determination of shareholders, such date in
any case to be not more than fifty (50) days and, in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
If the stock transfer books are not closed and no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders or shareholders entitled to receive payment of a dividend, the date
on which the notice of the meeting is mailed or date on which the resolution of
the Board of Directors declaring such dividend is adopted, as the case may be,
shall be the record date for such determination of shareholders.
Section 4. Regulations. The Board of Directors shall have power
and authority to make all such rules and regulations as they may deem
expedient concerning the issue,
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transfer and registration or the replacement of certificates for shares of
capital stock of the Corporation.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 1. Offices. Until the Board of Directors otherwise
determines, the registered office of the Corporation required by the Texas
Business Corporation Act to be maintained in the State of Texas, shall be the
registered office named in the original Articles of Incorporation of the
Corporation, or such other office as may be designated from time to time by the
Board of Directors in the manner provided by law. Such registered office need
not be identical to the principal place of business of the Corporation.
Section 2. Fiscal Year. The fiscal year of the Corporation shall be
such as the Board of Directors shall by resolution establish.
Section 3. Seal. The seal of the Corporation shall be such as from
time to time may be approved by the Board of Directors.
Section 4. Notice and Waiver of Notice. Whenever any notice whatever
is required to be given under the provisions of these Bylaws, said notice shall
be deemed to be sufficient if given by depositing the same in a post office
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box in a sealed postpaid wrapper addressed to the person entitled thereto at his
post office address, as it appears on the books of the Corporation, and such
notice shall be deemed to have been given on the day of such mailing. A waiver
of notice, signed by the person or persons entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent thereto.
Section 5. Resignations. Any director or officer may resign at any
time. Such resignation shall be made in writing and shall take effect at the
time specified therein, or if no time is specified, at the time of its receipt
by the Chairman of the Board, if any, the President or Secretary. The acceptance
of a resignation shall not be necessary to make it effective, unless expressly
so provided in the resignation.
Section 6. Action Without Meeting or By Use of Conference Telephone.
Any action permitted or required by law, these Bylaws or by the Articles of
Incorporation of the Corporation, to be taken at a meeting of the shareholders,
the Board of Directors or any committee designated by the Board of Directors may
be taken without a meeting if a consent in writing, setting forth the action so
taken, is signed by all the shareholders or members of the Board of Directors or
committee, as the case may be. Such consent
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shall have the same force and effect as a unanimous vote at a meeting, and may
be stated as such in any document or instrument filed with the Secretary of
State. Subject to the requirement for notice of meetings, shareholders, members
of the Board of Directors, or members of any committee designated by the Board
of Directors, may participate in and hold a meeting of such shareholders, Board
of Directors or committee, as the case may be, by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in such a meeting shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section 7. Securities of Other Corporations. The chief executive
officer (or any other officers designated by the Board of Directors) of the
Corporation shall have power and authority to transfer, endorse for transfer,
vote, consent or take any other action with respect to any securities of another
issuer which may be held or owned by the Corporation and to make, execute and
deliver any waiver, proxy or consent with respect to any such securities.
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ARTICLE VII
AMENDMENTS
These Bylaws may be altered, amended, or repealed by the affirmative
vote of the holders of a majority of the outstanding stock at any annual
meeting, or at any special meeting if notice of the proposed amendment be
contained in the notice of said special meeting, or by the affirmative vote of a
majority of the full Board of Directors at any regular or special meeting,
provided notice of said proposed amendment be contained in the notice of the
meeting.
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WARRANT AGREEMENT dated as of ______, 1996 between Amarillo
Biosciences, Inc., a Texas corporation (the "Company"), and Whale Securities
Co., L.P. (hereinafter referred to as the "Underwriter").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter
warrants ("Warrants") to purchase up to 200,000 shares (the "Shares") of common
stock of the Company, $.01 par value (the "Common Stock"); and
WHEREAS, the Underwriter has agreed, pursuant to the
underwriting agreement (the "Underwriting Agreement") dated ____________, 1996
between the Underwriter and the Company, to act as the underwriter in connection
with the Company's proposed public offering (the "Public Offering") of 2,000,000
shares of Common Stock at an initial public offering price of $5.00 per share of
Common Stock; and
WHEREAS, the Warrants issued pursuant to this Agreement are
being issued by the Company to the Underwriter or officers and partners of the
Underwriter and members of the selling group and/or their officers or partners,
in consideration for, and as part of the Underwriter's compensation in
connection with, the Underwriter acting as the underwriter pursuant to the
Underwriting Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the premises, the payment
by the Underwriter to the Company of TWO HUNDRED DOLLARS ($200), the agreements
herein set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Grant.
The Underwriter, and/or its designees who are officers or
partners of the Underwriter or members of the Selling Group in connection with
the Public Offering, are hereby granted the right to purchase, at any time from
__________, 1996 [Effective Date] until 5:00 P.M., New York City time, on
_______, 2001 (the "Warrant Exercise Term"), up to 200,000 Shares at an initial
exercise price (subject to adjustment as provided in Article 8 hereof) of $7.00
per Share.
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificates")
delivered and to be delivered pursuant to this Agreement shall be in the form
set forth as Exhibit A, attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions and other variations as
required or permitted by this Agreement.
3. Exercise of Warrants.
3.1 Cash Exercise. The Warrants initially are exercisable at a
price of $7.00 per Share, payable in cash or by check to the order of the
Company, or any combination of cash or check, subject to adjustment as provided
in Article 8 hereof. Upon surrender of the Warrant Certificate with the annexed
Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Shares purchased, at the
Company's principal offices in Texas (presently located at 800 West 9th Avenue,
Amarillo, Texas 79101) the registered holder of a Warrant Certificate ("Holder"
or "Holders") shall be entitled to receive a certificate or certificates for the
Shares so purchased. The purchase rights represented by each Warrant Certificate
are exercisable at the option of the Holder hereof, in whole or in part (but not
as to fractional shares of the Common Stock). In the case of the purchase of
less than all the Shares purchasable under any Warrant Certificate, the Company
shall cancel said Warrant Certificate upon the surrender thereof and shall
execute and deliver a new Warrant Certificate of like tenor for the balance of
the Shares purchasable thereunder.
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3.2 Cashless Exercise. At any time during the Warrant Exercise
Term, the Holder may, at its option, exchange this Warrant, in whole or in part
(a "Warrant Exchange"), into the number of Shares determined in accordance with
this Section 3.2, by surrendering this Warrant at the principal office of the
Company or at the office of its transfer agent, accompanied by a notice stating
such Holder's intent to effect such exchange, the number of Shares to be
exchanged and the date on which the Holder requests that such Warrant Exchange
occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the
date specified in the Notice of Exchange or, if later, the date the Notice of
Exchange is received by the Company (the "Exchange Date"). Certificates for the
Shares issuable upon such Warrant Exchange and, if applicable, a new warrant of
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like tenor evidencing the balance of the Shares remaining
subject to this Warrant, shall be issued as of the Exchange Date and delivered
to the Holder within three (3) days following the Exchange Date. In connection
with any Warrant Exchange, this Warrant shall represent the right to subscribe
for and acquire the number of Shares (rounded to the next highest integer) equal
to (i) the number of Shares specified by the Holder in its Notice of Exchange
(the "Total Number") less (ii) the number of Shares equal to the quotient
obtained by dividing (A) the product of the Total Number and the existing
Exercise Price (as hereinafter defined) by (B) the current market value of a
share of Common Stock.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of
certificates for the Shares shall be made forthwith (and in any event within
three business days thereafter) without charge to the Holder thereof including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Article 5
hereof) be issued in the name of, or in such names as may be directed by, the
Holder thereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
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The Warrant Certificates and the certificates representing the
Shares shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company. Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
The Warrant Certificates and, upon exercise of the Warrants,
in part or in whole, certificates representing the Shares shall bear a legend
substantially similar to the following:
"The securities represented by this certificate and the other
securities issuable upon exercise thereof have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may not
be offered or sold except (i) pursuant to an effective registration
statement under the Act, (ii) to the extent applicable, pursuant to
Rule 144 under the Act (or any similar rule under such Act relating to
the disposition of securities), or (iii) upon the delivery by the
holder to the Company of an opinion of counsel, reasonably satisfactory
to counsel to the Company, stating that an exemption from registration
under such Act is available."
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5. Restriction on Transfer of Warrants.
The Holder of a Warrant Certificate, by its acceptance
thereof, covenants and agrees that the Warrants are being acquired as an
investment and not with a view to the distribution thereof, and that the
Warrants may not be sold, transferred, assigned, hypothecated or otherwise
disposed of, in whole or in part, for a period of [one (1) year] from the date
hereof, except to officers or partners of the Underwriter or to any member of
the selling group participating in the distribution to the public of the Common
Stock and/or their respective officers or partners.
6. Price.
6.1 Initial and Adjusted Exercise Price. The initial exercise
price of each Warrant shall be $7.00 per Share. The adjusted exercise price
shall be the price which shall result from time to time from any and all
adjustments of the initial exercise price in accordance with the provisions of
Article 8 hereof.
6.2 Exercise Price. The term "Exercise Price" herein shall
mean the initial exercise price or the adjusted exercise price, depending upon
the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of 1933. The
Warrants and the Shares have not been registered for purposes of public
distribution under the Securities Act of 1933, as amended (the "Act").
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<PAGE>
7.2 Registrable Securities. As used herein the term
"Registrable Security" means each of the Warrants, the Shares and any shares of
Common Stock issued upon any stock split or stock dividend in respect of such
Shares; provided, however, that with respect to any particular Registrable
Security, such security shall cease to be a Registrable Security when, as of the
date of determination, (i) it has been effectively registered under the Act and
disposed of pursuant thereto, (ii) registration under the Act is no longer
required for the immediate public distribution of such security or (iii) it has
ceased to be outstanding. The term "Registrable Securities" means any and/or all
of the securities falling within the foregoing definition of a "Registrable
Security." In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable Security"
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Article 7.
-7-
<PAGE>
7.3 Piggyback Registration. If, at any time during the seven
years following the date of this Agreement, the Company proposes to prepare and
file one or more post-effective amendments to the registration statement filed
in connection with the Public Offering or any new registration statement or
post-effective amendments thereto covering equity or debt securities of the
Company, or any such securities of the Company held by its shareholders (in any
such case, other than in connection with a merger, acquisition or pursuant to
Form S-8 or successor form), (for purposes of this Article 7, collectively, a
"Registration Statement"), it will give written notice of its intention to do so
by registered mail ("Notice"), at least thirty (30) business days prior to the
filing of each such Registration Statement, to all holders of the Registrable
Securities. Upon the written request of such a holder (a "Requesting Holder"),
made within twenty (20) business days after receipt of the Notice, that the
Company include any of the Requesting Holder's Registrable Securities in the
proposed Registration Statement, the Company shall, as to each such Requesting
Holder, use its best efforts to effect the registration under the Act of the
Registrable Securities which it has been so requested to register ("Piggyback
Registration"), at the Company's sole cost and expense and at no cost or expense
to the Requesting Holders. Notwithstanding the provisions of this Section 7.3,
the Company shall have the right at any time after it shall have given written
notice pursuant to this Section 7.3 (irrespective of whether any written request
for inclusion of such securities shall have already been made) to elect not to
file any such proposed Registration Statement, or to withdraw the same after the
filing but prior to the effective date thereof.
7.4 Demand Registration.
(a) At any time during the Warrant Exercise Term, any
"Majority Holder" (as such term is defined in Section 7.4(d) below) of the
Registrable Securities shall have the right (which right is in addition to the
piggyback registration rights provided for under Section 7.3 hereof),
exercisable by written notice to the Company (the "Demand Registration
Request"), to have the Company prepare and file with the Securities and Exchange
Commission (the "Commission"), on one occasion, at the sole expense of the
Company, a Registration Statement and such other documents, including a
prospectus, as may be necessary (in the opinion of both counsel for the Company
and counsel for such Majority Holder), in order to comply with the provisions of
the Act, so as to permit a public offering and sale of the Registrable
Securities by the holders thereof, for nine (9) consecutive months.
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<PAGE>
(b) The Company covenants and agrees to give written notice of
any Demand Registration Request to all holders of the Registrable Securities
within ten (10) days from the date of the Company's receipt of any such Demand
Registration Request. After receiving notice from the Company as provided in
this Section 7.4(b), holders of Registrable Securities may request the Company
to include their Registrable Securities in the Registration Statement to be
filed pursuant to Section 7.4(a) hereof by notifying the Company of their
decision to include such securities within ten (10) days of their receipt of the
Company's notice.
(c) In addition to the registration rights provided for under
Section 7.3 and subsection (a) of this Section 7.4, at any time during the
Warrant Exercise Term, any Majority Holder (as defined below in Section 7.4(d))
of Registrable Securities shall have the right, exercisable by written request
to the Company, to have the Company prepare and file with the Commission, on one
occasion in respect of all holders of Registrable Securities, a Registration
Statement so as to permit a public offering and sale of such Registrable
Securities for nine (9) consecutive months, provided, however, that all costs
incident thereto shall be at the expense of the holders of the Registrable
Securities included in such Registration Statement. If a Majority Holder shall
give notice to the Company at any time of its or their desire to exercise the
registration right granted pursuant to this Section 7.4(c), then within ten (10)
days after the Company's receipt of such notice, the Company shall give notice
to the other holders of Registrable Securities, advising them that the Company
is proceeding with such registration and offering to include therein the
Registrable Securities of such holders, provided they furnish the Company with
such appropriate information in connection therewith as the Company shall
reasonably request in writing.
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<PAGE>
(d) The term "Majority Holder" as used in this Section 7.4
shall mean any holder or any combination of holders of Registrable Securities,
if included in such holders' Registrable Securities are that aggregate number of
Shares (including Shares already issued and Shares issuable pursuant to the
exercise of outstanding Warrants) as would constitute a majority of the
aggregate number of Shares (including Shares already issued and Shares issuable
pursuant to the exercise of outstanding Warrants) included in all of the
Registrable Securities.
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<PAGE>
7.5 Covenants of the Company With Respect to Registration. The
Company covenants and agrees as follows:
(a) In connection with any registration under Section 7.4
hereof, the Company shall file the Registration Statement as expeditiously as
possible, but in no event later than twenty (20) business days following receipt
of any demand therefor, shall use its best efforts to have any such Registration
Statements declared effective at the earliest possible time, and shall furnish
each holder of Registrable Securities such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs, fees and expenses in
connection with all Registration Statements filed pursuant to Sections 7.3 and
7.4(a) hereof including, without limitation, the Company's legal and accounting
fees, printing expenses, and blue sky fees and expenses. The holders of
Registrable Securities included in any Registration Statement filed pursuant to
Section 7.4(c) hereof will pay all costs, fees and expenses in connection with
such registration.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Registrable Securities included in a
Registration Statement for offering and sale under the securities or blue sky
laws of such states as are requested by the holders of such securities,
[provided that the Company shall not be obligated to execute or file any general
consent to service of process or to qualify as a foreign corporation to do
business under the laws of any such jurisdiction].
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<PAGE>
(d) The Company shall indemnify any holder of the Registrable
Securities to be sold pursuant to any Registration Statement and any underwriter
or person deemed to be an underwriter under the Act and each person, if any, who
controls such holder or underwriter or person deemed to be an underwriter within
the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange
Act of 1934, as amended ("Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which any
of them may become subject under the Act, the Exchange Act or otherwise, arising
from such registration statement to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify the
Underwriters contained in Section 7 of the Underwriting Agreement and to provide
for just and equitable contribution as set forth in Section 8 of the
Underwriting Agreement.
(e) Any holder of Registrable Securities to e sold pursuant to
a Registration Statement, and its successors and assigns, shall severally, and
not jointly, indemnify, the Company, its officers and directors and each person,
if any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished in writing by or on behalf of such holder, or its successors or
assigns, for specific inclusion in such Registration Statement to the same
extent and with the same effect as the provisions contained in Section 7 of the
Underwriting Agreement pursuant to which the Underwriters have agreed to
indemnify the Company and to provide for just and equitable contribution as set
forth in Section 8 of the Underwriting Agreement.
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<PAGE>
(f) Nothing contained in this Agreement shall be construed as
requiring any Holder to exercise his Warrants prior to the initial filing of any
Registration Statement or the effectiveness thereof.
(g) If the Company shall fail to comply with the provisions of
this Article 7, the Company shall, in addition to any other equitable or other
relief available to the holders of Registrable Securities, be liable for any or
all incidental, special and consequential damages sustained by the holders of
Registrable Securities, requesting registration of their Registrable Securities.
(h) Except as set forth in Section 7.5(j) hereof, the Company
shall not permit the inclusion of any securities other than the Registrable
Securities to be included in any Registration Statement filed pursuant to
Section 7.4 hereof, or permit any other registration statement to be or remain
effective during the effectiveness of a Registration Statement filed pursuant to
Section 7.4 hereof, without the prior written consent of the Majority Holders,
which consent shall not be unreasonably withheld.
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<PAGE>
(i) The Company shall deliver promptly to each holder of
Registrable Securities participating in the offering in which such Holder's
shares are being registered pursuant to Section 7.3 hereof and requesting the
correspondence and memoranda described in this Section 7.5(i) and to the
managing underwriter, if any, copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda relating
to discussions with the Commission or its staff with respect to the Registration
Statement and permit each holder of Registrable Securities and underwriters to
do such investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the Registration Statement as it deems
reasonably necessary to comply with applicable securities laws or rules of the
National Association of Securities Dealers, Inc. Such investigation shall
include access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times and as often as any such holder
of Registrable Securities or underwriter shall reasonably request.
(j) Upon the written request therefor by any holders of
Registrable Securities, the Company shall include in the Registration Statement
covering any of the Registrable Securities any other securities of the Company
held by such holders of Registrable Securities as of the date of filing of such
Registration Statement, including, without limitation, restricted shares of
Common Stock, options, warrants or any other securities convertible into shares
of Common Stock.
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<PAGE>
8. Adjustments of Exercise Price and Number of Shares.
8.1 Computation of Adjusted Price. In case the Company shall
at any time after the date hereof pay a dividend in shares of Common Stock or
make a distribution in shares of Common Stock, then upon such dividend or
distribution the Exercise Price in effect immediately prior to such dividend or
distribution shall forthwith be reduced to a price determined by dividing:
(a) an amount equal to the total number of shares of Common
Stock outstanding immediately prior to such dividend or distribution multiplied
by the Exercise Price in effect immediately prior to such dividend or
distribution, by
(b) the total number of shares of Common Stock outstanding
immediately after such issuance or sale. For the purposes of any computation to
be made in accordance with the provisions of this Section 8.1, the Common Stock
issuable by way of dividend or other distribution on any stock of the Company
shall be deemed to have been issued immediately after the opening of business on
the date following the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution.
8.2 Subdivision and Combination. In case the Company shall at
any time subdivide or combine the outstanding shares of Common Stock, the
Exercise Price shall forthwith be proportionately decreased in the case of
subdivision or increased in the case of combination.
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<PAGE>
8.3 Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Article 8, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full Share by multiplying a number equal to the Exercise Price in effect
immediately prior to such adjustment by the number of Shares issuable upon
exercise of the Warrants immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
8.4 Reclassification, Consolidation, Merger, etc. In case of
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), or in the case of any
consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holders shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holders were the owners of the shares of
Common Stock underlying the Warrants immediately prior to any such events at a
price equal to the product of (x) the number of shares issuable upon exercise of
the Warrants and (y) the Exercise Price in effect immediately prior to the
record date for such reclassification, change, consolidation, merger, sale or
conveyance as if such Holders had exercised the Warrants.
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<PAGE>
8.5 Determination of Outstanding Shares of Common Stock. The
number of shares of Common Stock at any one time outstanding shall include the
aggregate number of shares issued or issuable upon the exercise of options,
rights, warrants and upon the conversion or exchange of convertible or
exchangeable securities.
8.6 Dividends and Other Distributions with Respect to
Outstanding Securities. In the event that the Company shall at any time prior to
the exercise of all Warrants declare a dividend (other than a dividend
consisting solely of shares of Common Stock or a cash dividend or distribution
or otherwise distribute to its shareholders any monies, assets, property,
rights, evidences of indebtedness, securities (other than shares of Common
Stock), whether issued by the Company or by another person or entity, or any
other thing of value, the Holder or Holders of the unexercised Warrants shall
thereafter be entitled, in addition to the shares of Common Stock or other
securities receivable upon the exercise thereof, to receive, upon the exercise
of such Warrants, the same monies, property, assets, rights, evidences of
indebtedness, securities or any other thing of value that they would have been
entitled to receive at the time of such dividend or distribution. At the time of
any such dividend or distribution, the Company shall make appropriate reserves
to ensure the timely performance of the provisions of this Subsection 8.6.
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8.7 Subscription Rights for Shares of Common Stock or Other
Securities. In the case the Company or an affiliate of the Company shall at any
time after the date hereof and prior to the exercise of all the Warrants issue
any rights to subscribe for shares of Common Stock or any other securities of
the Company or of such affiliate to all the shareholders of the Company, the
Holders of the unexercised Warrants shall be entitled, in addition to the shares
of Common Stock or other securities receivable upon the exercise of the
Warrants, to receive such rights at the time such rights are distributed to the
other shareholders of the Company.
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon
the surrender hereof by the registered Holder at the principal executive office
of the Company, for a new Warrant Certificate of like tenor and date
representing in the aggregate the right to purchase the same number of Shares in
such denominations as shall be designated by the Holder thereof at the time of
such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
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<PAGE>
10. Elimination of Fractional Interests.
The Company shall not be required to issue certificates
representing fractions of shares of Common Stock and shall not be required to
issue scrip or pay cash in lieu of fractional interests, it being the intent of
the parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of shares of Common Stock.
11. Reservation and Listing of Securities.
The Company shall at all times reserve and keep avail- able
out of its authorized shares of Common Stock, solely for the purpose of issuance
upon the exercise of the Warrants, such number of shares of Common Stock as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock issuable upon such exercise shall be duly and validly
issued, fully paid, non-assessable and not subject to the preemptive rights of
any shareholder. As long as the Warrants shall be outstanding, the Company shall
use its best efforts to cause all shares of Common Stock issuable upon the
exercise of the Warrants to be listed on or quoted by NASDAQ or listed on such
national securities exchanges as requested by the Underwriter.
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<PAGE>
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as
conferring upon the Holder or Holders the right to vote or to consent or to
receive notice as a shareholder in respect of any meetings of shareholders for
the election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company. If, however, at any time prior to
the expiration of the Warrants and their exercise, any of the following events
shall occur:
(a) the Company shall take a record of the
holders of its shares of Common Stock for the purpose of
entitling them to receive a dividend or distribution payable
otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) the Company shall offer to all the
holders of its Common Stock any additional shares of capital
stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up
of the Company (other than in connection with a consolidation
or merger) or a sale of all or substantially all of its
property, assets and business as an entirety shall be
proposed; or
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<PAGE>
(d) reclassification or change of the
outstanding shares of Common Stock (other than a change in par
value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), consolidation of
the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the
Company is the surviving corporation and which does not result
in any reclassification or change of the outstanding shares of
Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as
aforesaid), or a sale or conveyance to another corporation of
the property of the Company as an entirety is proposed; or
(e) The Company or an affiliate of the
Company shall propose to issue any rights to subscribe for
shares of Common Stock or any other securities of the Company
or of such affiliate to all the shareholders of the Company;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or distribution, or the issuance of any convertible
or exchangeable securities or subscription rights, options or warrants, or any
proposed dissolution, liquidation, winding up or sale.
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<PAGE>
13. Notices.
All notices, requests, consents and other communications
hereunder shall be in witing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to a registered Holder of the
Warrants, to the address of such Holder as shown on the books
of the Company; or
(b) If to the Company, to the address set
forth in Section 3 of this Agreement or to such other address
as the Company may designate by notice to the Holders.
14. Supplements and Amendments.
The Company and the Underwriter may from time to time
supplement or amend this Agreement without the approval of any Holders of
Warrant Certificates in order to cure any ambiguity, to correct or supplement
any provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Underwriter may deem
necessary or desirable and which the Company and the Underwriter deem not to
adversely affect the interests of the Holders of Warrant Certificates.
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<PAGE>
15. Successors.
All the covenants and provisions of this Agreement by or for
the benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
16. Termination.
This Agreement shall terminate at the close of business on
__________, 2004. Notwithstanding the foregoing, this Agreement will terminate
on any earlier date when all Warrants have been exercised and all the Shares
issuable upon exercise of the Warrants have been resold to the public; provided,
however, that the provisions of Section 7 shall survive such termination until
the close of business on _________, 2007.
17. Governing Law.
This Agreement and each Warrant Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the laws of said
State.
18. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Underwriter and any other
registered holder or holders of the Warrant Certificates, Warrants or the Shares
any legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and the
Underwriter and any other holder or holders of the Warrant Certificates,
Warrants or the Shares.
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<PAGE>
19. Counterparts.
This Agreement may be executed in any number of counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
[SEAL] AMARILLO BIOSCIENCES, INC.
By:
------------------------------
Name:
Title:
Attest:
- -----------------------
WHALE SECURITIES, CO., L.P.
By: Whale Securities Corp.,
General Partner
By:__________________________________
Name: William G. Walters
Title: Chairman
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<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, _________, 199_
No. W- _______ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that _______________
____________ or registered assigns, is the registered holder of _______ Warrants
to purchase, at any time from _______, 1996 until 5:00 P.M. New York City time
on ________, 2001 ("Expiration Date"), up to 200,000 shares ("Shares") of
fully-paid and non-assessable common stock, $.01 par value ("Common Stock"), of
Amarillo Biosciences, Inc., a Texas corporation (the "Company"), at the initial
exercise price, subject to adjustment in certain events (the "Exercise Price"),
of $7.00 per Share upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the warrant agreement dated as of
____________, 1996 between the Company and Whale Securities Co., L.P. (the
"Warrant Agreement"). Payment of the Exercise Price may be made in cash, or by
certified or official bank check in New York Clearing House funds payable to the
order of the Company, or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., New York City
time, on the Expiration Date, at which time all Warrants evidenced hereby,
unless exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to in a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
<PAGE>
The Warrant Agreement provides that upon the occurrence of
certain events, the Exercise Price and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certificate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax, or
other governmental charge imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof, and of any distribution to the holder(s) hereof, and for
all other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated: ___________, 1996 AMARILLO BIOSCIENCES, INC.
[SEAL] By:
---------------------------
Name:
Title:
Attest:
- ----------------------
<PAGE>
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in New York Clearing House Funds to the order of
__________________ in the amount of $ , all in accordance with the terms hereof.
The undersigned requests that a certificate for such Shares be registered in the
name of , whose address is __________________, and that such Certificate be
delivered to __________________, whose address is _____________.
Dated: Signature:
---------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
-------------------------------------
-------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ________________________________________
hereby sells, assigns and transfers unto ____________________________________
- -----------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________, Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate)
- -------------------------------
- -------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
AGREEMENT effective as of the 1st day of April 1984, between UNIVERSITY
PATENTS, INC., a Delaware corporation having its principal office at 537 Newtown
Avenue, Norwalk, Connecticut 06852 (hereinafter referred to as "UPI") and the
Amarillo Cell Culture Co., a Texas corporation having its principal place of
business at 3538 Barclay St., Amarillo, Texas 79109 (hereinafter referred to as
"Licensee").
W I T N E S S E T H:
WHEREAS, JOSEPH M. CUMMINS, D.V.M. (the "Inventor") while a member of the
faculty of the College of Veterinary Medicine, UNIVERSITY OF ILLINOIS, invented
"Delivery of Biologically Active Components of Heterologous Species Interferon
Isolates" (the "Invention") as more fully set forth in United States Patent
Application Serial No. 415,525 filed September 7, 1982, which Invention is the
property of THE UNIVERSITY OF ILLINOIS FOUNDATION; and
WHEREAS, UPI, by virtue of agreements with the UNIVERSITY OF ILLINOIS
FOUNDATION and the UNIVERSITY OF ILLINOIS has the exclusive right to license the
Invention; and
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WHEREAS, licensee desires to acquire an exclusive license under such
Invention and to engage in development activities related to applications
thereof;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and other good and valuable consideration, the receipt of
which is acknowledged by the Parties; IT IS AGREED:
ARTICLE I - Definitions
(a) "Licensed Patents" shall mean United States Patent Application Serial
No. 415,525 entitled "Delivery of Biologically Active Components of Heterologous
Species Interferon Isolates" and any patents issuing thereon, including any
continuations, divisions, and/or reissues thereof.
(b) "Licensed Product" shall mean any substance which, or the use or
manufacture of which, is covered in whole or in part by a claim of a issued
Licensed Patent in the country of manufacture, use or sale.
(c) "Net Selling Price" shall mean the gross selling price of a Licensed
Product, including all packaging, instructional or other charges made to a
purchaser, but less customary trade discounts and refunds or credits allowed for
returns or defective articles. If
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Licensed Products are sold in transactions which are not bona fide arm's-length
transactions, Net Selling Price for such sales shall be valued as equal to
commercial sales of similar Licensed Products to unrelated third parties in
similar quantities.
ARTICLE II - The License
(a) UPI hereby grants to Licensee an exclusive license under the Licensed
Patents, to make, have made, use, sell or otherwise transfer Licensed Products.
(b) The license hereby granted shall include the right of LICENSEE to
grant written sublicenses, provided that LICENSEE shall include all sales of
Licensed Products by all sublicensees in its statements to UPI as though all of
such sales by sublicensees were in fact made by LICENSEE hereunder.
In addition to the foregoing, LICENSEE agrees that it will remit to UPI,
fifty percent (50%) of any option fee, license fee or other "front-end payment"
which it may receive from a sublicensee and which is creditable against earned
royalties.
LICENSEE agrees to deliver to UPI a true and correct copy of each and
every sublicense entered into by LICENSEE within thirty (30) days after
execution thereof and shall promptly advise UPI in writing of any modification
(and supply a copy of same) or termination of
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each sublicense. Upon termination of this agreement, all such sublicenses shall
be assigned to UPI.
ARTICLE III - Consideration
(a) Within one hundred and twenty (120) days after the effective date
hereof, Licensee shall transfer to UPI, a ten percent (10%) equity interest in
Licensee.
(b) LICENSEE shall pay to UPI an earned royalty of four percent (4%) of
the Net Selling Price of Licensed Product made, used, sold or otherwise
transferred hereunder by or for LICENSEE.
(c) Annual minimum royalties shall be required as follows:
For the first year of the exclusive license no minimum royalty shall
be due;
For the second year of the exclusive license, two thousand ($2,000)
dollars;
For the third License Year of the exclusive license, four thousand
($4,000) dollars; and
For the fourth and all succeeding License Years of the exclusive
license, six thousand ($6,000) dollars.
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ARTICLE IV - Remittances, Records and Reports Under the License
(a) Accrual. Royalties shall accrue when Licensed Products are first sold,
or otherwise transferred by or for Licensee. Licensed Products shall be
considered sold when billed out.
(b) Payment.
(1) Earned Royalties. Payments of earned royalties shall be made to
UPI within sixty (60) days following the end of each calendar quarter of each
year for all Licensed Products sold or otherwise transferred by Licensee during
the said calendar quarter. Such payment shall be accompanied by a statement
certified to UPI by an officer of Licensee which shall give sufficient
information from which to calculate the amount of royalties due hereunder,
including, but not limited to, the total quantity and New Selling Prices of
Licensed Products sold for which royalty has accrued during the preceding
calendar quarter and the aggregate royalties due. Statements shall also be
submitted in the event no sales of Licensed Products took place.
(2) Minimum payments. Licensee agrees that the minimum amounts set
forth in ARTICLE III (c) are to be paid to UPI together with the remittance made
for the last accounting period of the applicable year in the event earned
royalties for such year do not reach the amount set forth, and that the minimum
amount for each year shall become a present obligation of Licensee to UPI on the
first day of each year.
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(c) Inspection. Licensee shall keep records in sufficient detail to permit
the determination of royalties payable hereunder and, at the request and expense
of UPI, will permit an independent Certified Public Accountant acceptable to
both UPI and Licensee to examine, in confidence, during ordinary business hours
once in each calendar year such records as may be necessary to verify or
determine royalties paid or payable under this Agreement.
ARTICLE V - Enforcement of Patents
In the event Licensee alleges that a third party infringes a Licensed
Patent or an Improvement, the prima facie determination of infringement shall be
made by an Independent Patent Attorney (IPA) satisfactory to both UPI and
Licensee, at their joint cost and expense.
(a) If the IPA finds that there is no prima facie evidence of infringement
by the alleged infringer, then Licensee's obligation to pay royalties under this
Agreement shall continue without abatement.
(b) If the IPA finds prima facie evidence of the alleged infringement:
(1) UPI may elect to institute an infringement action against any
such third party, which election shall be made no later than one hundred twenty
(120) days after the determination of prima facie infringement, as aforesaid, in
which event:
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(i) Licensee shall continue to pay royalties during the pendency
of the action; and
(ii) If UPI finally prevails, Licensee shall continue to pay
royalties as set forth in ARTICLE III hereof: provided that
if UPI is required to grant a license to the infringer, then
Licensee's royalty rate shall be reduced to the lowest rate
granted to such an infringer;
(iii) If UPI finally loses:
(A) Because the third party is held not to be infringing,
Licensee will continue to pay royalties as set forth in
ARTICLE III hereof;
(B) Because the patent is held invalid, Licensee may cease
paying royalties in the country in which such
invalidity has been finally adjudicated, provided that
Licensed Products are covered or the use thereof are
covered only by claims which have been held invalid.
(2) If UPI elects not to institute an action as aforesaid, Licensee
may elect to institute an action against such third party, in which event:
(i) During the pendency of such action, Licensee may suspend
payment of royalties under the patent in suit in the country
of such action to the extent of any costs actually incurred
in such action; and
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(ii) If Licensee finally prevails, it shall thereafter resume
paying royalties as set forth in ARTICLE III hereof and
shall retain all damages which it may collect; and
(iii) If Licensee finally loses:
(A) Because the third party is held not to be infringing,
Licensee shall thereafter resume paying royalties as
set forth in ARTICLE III thereof and shall, in
addition, pay to UPI such royalty payments as were
suspended under the terms of ARTICLE V(b)(2)(i)
hereof;
(B) Because the patent is held invalid, Licensee may
thereafter cease paying royalties on sales of Licensed
Products in the country in which such invalidity has
been finally adjudicated provided that Licensed
Products are covered or the use thereof are covered
only by claims which have been held invalid.
(3) Licensee shall not be entitled to recover, as a credit or
otherwise, royalties paid before a final judgment of invalidity.
(4) It is agreed by UPI and Licensee that if UPI elects to initiate
an infringement action under paragraph (b) (1) of this ARTICLE V in response to
an alleged infringement in any country, Licensee may not elect the course of
action described in paragraph (2) as to a subsequent infringer in that country
until the first action is finally determined unless otherwise agreed to by UPI.
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(5) UPI shall have the right to assign its rights and accompanying
obligations under this ARTICLE V to the Trustees of the University of Illinois
or The University of Illinois Foundation to participate in any litigation. In
the event of such assignment the assignee will have all rights and all
obligations of UPI provided by ARTICLE V.
ARTICLE VI - Termination
(a) The term of this Agreement shall be from the effective date hereof
until the expiration of the last to expire of the Licensed Patents.
(b) Licensee may terminate this Agreement, in whole or with respect to any
Licensed Patent:
(1) Upon 30 days prior written notice to any anniversary hereof or
(2) At any time for cause. Non issuance of a United States Patent
from U.S. Patent Application Serial No. 415,525 within two years
of the effective date hereof shall be deemed "cause".
(c) If Licensee shall at any time default in any obligation under this
Agreement, included but not limited to failing to make any report, pay any
royalties or minimums, or permit the inspection of its books and records as
hereinabove required, and such default shall
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not be cured within sixty (60) days after written notice from UPI to Licensee,
specifying the nature of the default, or in the event Licensee pays into escrow
royalties which have accrued hereunder, then UPI shall have the right to
terminate the license granted to Licensee hereunder by giving written notice to
Licensee and such termination shall become effective on the thirtieth (30th) day
after giving of such notice.
(d) Any termination pursuant hereto shall not relieve Licensee or UPI of
any obligation or liability accrued hereunder prior to such termination, nor
rescind or give rise to any right to rescind anything done or any payments made
or other consideration given hereunder prior to the time such termination shall
not affect in any manner any rights of either party arising out of this
Agreement prior to such termination.
ARTICLE VII - Warranty
UPI warrants and represents that it has the full right and power to grant
the license set forth in ARTICLE II and that there are no outstanding
agreements, assignments or encumbrances inconsistent with the provisions of this
Agreement other than as expressly set forth herein. UPI makes no other
representation or warranty, express or implied, nor does UPI assume any
obligations with respect to infringement of patents of others arising as a
result of Licensee's activities under this agreement.
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ARTICLE VIII - Communication
Any payment, notice or other communication required or permitted to be
made or given to either Party hereto pursuant to this Agreement shall be
sufficiently made or given on the date of mailing if sent to such Party by
certified or registered mail, postage prepaid, addressed to it at its address
set forth or to such other address as it shall designate by written notice given
to the other Party as follows:
In the case of UPI:
President
University Patents, Inc.
P.O. Box 6080
Norwalk, Connecticut 06852
In the case of Licensee:
President
The Amarillo Cell Culture Co.
3538 Barclay Street
Amarillo, Texas 79109
ARTICLE IX - Miscellaneous
(a) This Agreement will not be binding upon the parties until it has been
signed hereinbelow by or on behalf of each party, in which event it shall be
effective as of the date first above written. No amendment or modification
hereof shall be valid or binding upon the Parties unless made in writing and
signed as aforesaid.
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(b) This agreement embodies the entire understanding of the parties and
shall supersede all previous communications, representations or undertakings,
either verbal or written between the Parties relating to the subject matter
hereof
(c) If any provision or provisions of this Agreement shall be held to be
invalid, illegal, or enforceable, the validity, legality, and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
(d) This Agreement shall be construed, and the legal relations between the
Parties determined, in accordance with the law of the State of Illinois, U.S.A.
(e) LICENSEE shall have no right to use the name or other designations of
the UNIVERSITY OF ILLINOIS in connection with any sales or promotion of Licensed
Products without the express written consent of the UNIVERSITY OF ILLINOIS.
(f) LICENSEE will exert its best efforts to produce and market Licensed
Product during the term of this Agreement.
(g) All overdue payments, minimums and/or royalties shall bear interest
from the date such payment, minimum and/or royalty was due and payable at the
prime rate of interest quoted in the Wall Street Journal as of the due date.
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(h) The headings of the several sections are inserted for convenience of
reference only, and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
IN WITNESS THEREOF, the Parties hereto have caused this Agreement to be
duly executed as of the date first above written.
UNIVERSITY PATENTS, INC.
WITNESS: /s/ Daniel Koppley By: /s/ C. Whirles
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AMARILLO CELL CULTURE CO.
WITNESS: /s/ Carolyn Orr By: /s/ Joseph M. Cummins, Jr.
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Title: President
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AMENDMENT NO. 1
TO AGREEMENT DATED APRIL 1, 1984
BETWEEN UNIVERSITY PATENTS, INC. AND
AMARILLO CELL CULTURE COMPANY, INCORPORATED
WHEREAS, UNIVERSITY PATENTS, INC., a Delaware corporation ("UPI"),
and AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation
("LICENSEE"), entered into that certain Agreement dated April 1, 1984, a copy of
which is attached hereto; and further
WHEREAS, the parties desire to amend said Agreement in certain
respects;
THEREFORE, in consideration of these presents and for other good and
adequate consideration the receipt and sufficiency of which are acknowledged by
the execution hereof, the parties hereto agree as follows:
1. The above referenced Agreement of April 1, 1984, is hereby amended
as follows:
a. On page 3 of the Agreement, the second paragraph under Paragraph
(b) is amended in its entirety, to read as follows:
"In addition to the foregoing, LICENSEE agrees that it will remit
to UPI, fifty percent (50%) of any front-end option fee, license
fee or other "front-end payment". Any such amounts remitted by
LICENSEE to UPI shall be credited against the royalty payments
provided for under Article III, Paragraphs (b) and (c), below."
2. Except as expressly amended by this Amendment No. 1, the terms and
provisions of the Agreement remain in full force and effect, and the parties
hereto hereby ratify and confirm said Agreement, as amended.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
1 to Agreement dated April 1, 1984 to be duly executed to become effective as of
this the 26th day of July, 1984.
UNIVERSITY PATENTS, INC.
WITNESS: /s/ Susan Garland By: /s/ Daniel Koppley
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Vice President
AMARILLO CELL CULTURE CO.
WITNESS: /s/ Mary Thomas By: /s/ Joseph M. Cummins
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Joseph M. Cummins
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AMENDMENT
This Amendment, effective as of the 20th day of April 1988, between
University Patents, Inc., a Delaware corporation having its principal office at
1465 Post Road East, Westport, Connecticut 06880 (hereinafter referred to as
"UPI") and the Amarillo Cell Culture Company, Inc., a Texas corporation having
its principal place of business at 6666 Amarillo Boulevard West, Amarillo, Texas
79106 (hereinafter referred to as "Licensee").
WITNESSETH
WHEREAS UPI and Licensee are parties to a License Agreement dated April 1,
1984, covering an invention titled "DELIVERY OF BIOLOGICALLY ACTIVE COMPONENTS
OF HETEROLOGOUS SPECIES INTERFERON ISOLATES" (the "Invention").
WHEREAS UPI and Licensee desire to amend the License Agreement responsive to
developments since the Agreement was executed.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and other good and valuable consideration, the receipt of
which is acknowledged by the Parties; IT IS AGREED:
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1. The definition of "Licensed Patents" under Article I, Paragraph (a) shall
be amended to read as follows:
"Licensed Patents" shall mean United States Patent Application Serial
No. 415,525 entitled "DELIVERY OF BIOLOGICALLY ACTIVE COMPONENTS OF
HETEROLOGOUS SPECIES INTERFERON ISOLATES" issuing on July 31, 1984, as U.S.
Patent 4,462,985 and any other patents issuing thereon, including any
continuations, divisions, and/or reissues thereof, and any foreign
counterparts, including specifically Japanese Patent Application No.
56502921, filed August 18, 1981.
2. Add new subparagraph (d) under Article III -- Consideration, as follows:
(d) Licensee shall be responsible for and shall pay all costs of
prosecution and issuance of Japanese Patent Application No. 56502921 in the
Japanese Patent Office.
3. Paragraph (b) (1) under Article V shall be revised to read as follows:
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(1) UPI may elect to institute an infringement action against any such
third party, which election shall be made no later than ninety (90) days
after the determination of Prima facie infringement, as aforesaid, in which
event:
(i) Licensee shall continue to pay royalties during the pendency of
the action; and
(ii) If UPI finally prevails, Licensee shall continue to pay royalties
as set forth in ARTICLE III hereof; provided that if UPI is required to
grant a license to the infringer, then Licensee's royalty rate shall be
reduced to the lowest rate granted to such an infringer;
(iii) If UPI finally loses:
(A) Because the third party is held not to be infringing,
Licensee will continue to pay royalties as set forth in ARTICLE III
hereof;
(B) Because the patent is held invalid, Licensee may cease paying
royalties in the country in which such invalidity has been finally
adjudicated provided that Licensed Products are covered or the use
thereof are covered only by claims which have been held invalid.
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4. All other terms of the License Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
executed as of the date first above written.
UNIVERSITY PATENTS, INC.
By: /s/ C. Whirles
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Title: Chairman
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WITNESS:
/s/ Jeane E. Hancock
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AMARILLO CELL CULTURE CO.
WITNESS: /s/ Crystal Shelton By: /s/ Joseph M. Cummins
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Title: President
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LICENSE AGREEMENT
Agreement effective as of the 22 day of March, 1988 between the AMARILLO CELL
CULTURE COMPANY, INCORPORATED, a Texas corporation having its principal office
at 6666 Amarillo Blvd. West Amarillo, Texas 79106 (hereinafter referred to as
"ACC") and THE TEXAS A&M UNIVERSITY SYSTEM (hereinafter referred to as "TAMUS")
with its principal offices in College Station, Texas 77843.
WITNESSETH
WHEREAS, JOSEPH M. CUMMINS, D.V.M. (the "Inventor") while an employee of
The Texas Agricultural Experiment Station (TAES), a part of TAMUS, invented (1)
"METHOD OF REGULATING APPETITE AND EFFICIENCY OF FOOD UTILIZATION EMPLOYING
INTERFERON" as described and claimed in United States Patent No. 4,497,795
issued February 5, 1985; (2) "METHOD OF USING INTERFERON IN LOW DOSAGE TO
REGULATE APPETITE AND EFFICIENCY OF FOOD UTILIZATION" as described and claimed
in pending U.S. Patent Application Serial No. 688,868 filed January 4, 1985; (3)
"LOW DOSAGE OF INTERFERON TO ENHANCE VACCINE EFFICIENCY" as described and
claimed in pending U.S. Patent Application Serial No. 814,317 filed December 30,
1985; and (4) "IMPROVED METHOD OF ADMINISTERING INTERFERON" as described and
claimed in pending U.S. Patent Application Serial No. 044,317 filed April 30,
1987 collectively "the Inventions".
WHEREAS, TAMUS is the owner of the Inventions by assignment from the
Inventor;
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WHEREAS, ACC is the owner of "Treatment of Immuno-Resistant Disease" as
described and claimed in U.S. Patent Application Serial No. 927,834 filed Nov.
6, 1986 and a continuation-in-part of that application, U.S. Patent Application
Serial No. 110,501 filed October 26, 1987, each also related to the
administration of interferon which patent applications ACC desires to assign to
TAMUS and include in this License Agreement;
WHEREAS, Inventions (3) and (4) above are already the subject of a License
Agreement between ACC and TAMUS dated April 1, 1987;
WHEREAS, ACC and TAMUS desire to rescind and replace the existing License
Agreement as herein provided, by entering into a new master License Agreement
covering patent rights in all of the Inventions;
WHEREAS, the parties recognize that TAMUS has not demonstrated operability
and effectiveness of the Inventions on a commercial basis, and further recognize
that technical, marketing development and time consuming state and federal
regulatory approval of the Inventions will be required for commercialization;
WHEREAS, ACC desires the right to file and/or prosecute (at ACC's expense)
continuations, continuations-in-part, divisions, or foreign counterparts
covering the Inventions, and that such continuations, continuations-in-part,
divisions or foreign counterparts shall be included in this license;
WHEREAS, ACC desires the right to choose a patent attorney to handle
patent applications covering the Inventions;
WHEREAS, ACC desires to acquire an exclusive license of the Inventions to
engage in product development and sales activities; and
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NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and other good and valuable consideration, the receipt of
which is acknowledged by the parties; IT IS AGREED:
ARTICLE I
DEFINITIONS
As used herein, the following terms shall have the following meanings:
1.1 "PATENT RIGHTS" shall mean:
(1) subject matter within the scope of any valid claim of United
States Patent No. 4,497,795 entitled "METHOD OF REGULATING
APPETITE AND EFFICIENCY OF FOOD UTILIZATION EMPLOYING
INTERFERON", foreign counterparts of said patent and
(2) any valid claim of any patent issuing on any one of
(a) U.S. Patent Application Serial Number 688,868 filed January
4, 1985;
(b) U.S. Patent Application Serial No. 814,317 filed December
30, 1985;
(c) U.S. Patent Application Serial No. 044,317 filed April 30,
1987;
(d) U.S. Patent Application Serial No 927,834 filed November 6,
1986;
(e) U.S. Patent Application Serial No. 110,501 filed October 26,
1987;
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including any continuations, continuations-in-part, divisions,
foreign counterparts, and/or reissues of said patent or patent
applications,
(3) subject matter within any valid claim of a TAMUS owned patent of
the inventor which dominates the subject matter of any patents or applications
set forth in paragraphs (1) or (2), above.
1.2 "LICENSED PATENT" (Schedule A) shall mean the patent or patents, U.S.
and foreign, with claims defining "PATENT RIGHTS."
1.3 "LICENSED PRODUCT" shall mean any product which is for use in any
species, the sale, use or manufacture of which, would infringe a claim of a
LICENSED PATENT except for grant of this license.
1.4 "NET SELLING PRICE" shall mean the gross selling price of a LICENSED
PRODUCT, including all packaging, instructional or other charges made to a
purchaser, but less customary trade discounts and refunds or credits allowed for
returns or defective products. If LICENSED PRODUCTS are sold in transactions
which are not bona fide arm's-length transactions, NET SELLING PRICE for such
sales shall be valued as equal to commercial sales of similar LICENSED PRODUCTS
to unrelated third parties in similar quantities.
When a LICENSED PRODUCT contains an interferon product in combination with
one or more other biologically active or nutritional ingredients, the "NET
SELLING PRICE" therefor shall be the lesser of
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one-half of the "NET SELLING PRICE" determined as otherwise specified herein, or
twice the documented cost of the interferon in the LICENSED PRODUCT.
1.5 "LICENSE YEAR" shall mean the twelve-month period beginning on the
first day of the first month after LICENSE APPROVAL, and each twelve month
period thereafter.
1.6 "AFFILIATE" shall mean a corporation, company, partnership, or other
business entity which controls or is controlled by, or is under common control
with, the designated party. In the case of a corporation or company, "control"
means ownership either directly or indirectly of at least fifty percent (50%) of
the shares of stock entitled to vote for the election of directors.
1.7 "LICENSE FEE" shall mean the amount paid for the granting of a license
to PATENT RIGHTS.
1.8 "LICENSE APPROVAL" shall mean the date that this agreement is formally
signed by representatives of TAMUS and ACC.
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ARTICLE II
THE LICENSE
2.1 TAMUS hereby grants to ACC an exclusive worldwide right and license to
PATENT RIGHTS under any LICENSED PATENT, to make, have made, use, sell or
otherwise transfer LICENSED PRODUCTS for use in all species.
2.2 The license hereby granted shall include the right of ACC to grant
written sublicenses provided that ACC shall include all sales of LICENSED
PRODUCTS by all sublicensees in its statements to TAMUS and all such sales shall
be treated for purposes of Paragraph 3.2 and 3.3 of this Agreement as though all
of such sales by sublicensees were in fact made by ACC.
In addition to the foregoing, ACC agrees that it will remit to TAMUS fifty
percent (50%) of any option fee, license fee or other "front-end payment" which
it may receive from a sublicensee with respect to any manufacture, use or sale
of a LICENSED PRODUCT intended for application to all species. Reimbursement for
research, patent, or other expenses actually incurred shall not be considered a
"front end" fee as long as ACC provides documentation of expenses. Any
remittance by ACC to TAMUS under this paragraph shall be credited against earned
royalties payable by ACC to TAMUS under 3.2, 3.3, or 3.4 of this Agreement.
ACC agrees to deliver to TAMUS a true and correct copy of each and every
sublicense entered into by ACC within thirty (30) days after execution thereof
and shall promptly advise TAMUS in writing of any
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modification (and supply a copy of same) or termination of each sublicense. Upon
termination of this Agreement, ACC's rights in all such sublicenses shall be
assigned to TAMUS.
ARTICLE III
CONSIDERATION
3.1 ACC agrees to pay a license fee in the amount of ONE HUNDRED TWENTY
THOUSAND DOLLARS ($120,000) to be paid to TAMUS, which payment shall be credited
against payments due to TAMUS pursuant to paragraphs (3.2), (3.3) and (3.4) of
this Article III. The payment of ONE HUNDRED TWENTY THOUSAND DOLLARS ($120,000)
is to be made in four (4) equal quarterly installments without interest. The
first installment of THIRTY THOUSAND DOLLARS ($30,000) shall be made within 45
days of March 15, 1988. The other installments of THIRTY THOUSAND DOLLARS
($30,000) each shall be paid by June 15, 1988, September 15, 1988 and December
15, 1988. Failure to make these payments, after notice and demand by TAMUS, and
failure of ACC to cure default within fifteen (15) days, shall cause this
Agreement to be null and void and of no further force or effect, any other
provision of this Agreement notwithstanding, and TAMUS shall retain any
installments theretofore received by it.
3.2 ACC shall pay to TAMUS an earned royalty of Two and Four-tenths percent
(2.4%) of the NET SELLING PRICE of all LICENSED PRODUCTS sold by or for ACC or
any licensee of ACC in a country where PATENT RIGHTS exist. The earned royalty
percentage shall be applied only once
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to the NET SELLING PRICE regardless of the possibility that manufacture, use or
sale of a LICENSED PRODUCT may be covered by more than one LICENSED PATENT.
3.3 If other U.S. patents dominating LICENSED PRODUCTS, and not assigned
to or owned by TAMUS, are in force, requiring ACC to pay other royalty payments,
then for each LICENSED PRODUCT burdened by such royalty payments, the royalties
payable under Article 3.2 above shall be reduced to One and Two-tenths percent
(1.2%) of the NET SELLING PRICE.
3.4 ACC agrees to pay to TAMUS guaranteed annual minimum royalties as
follows:
(a) For the third LICENSE YEAR of the exclusive license, a total of
TEN THOUSAND DOLLARS ($10,000); and
(b) For the fourth and all succeeding LICENSE YEARS of the exclusive
license, a total of FIFTEEN THOUSAND DOLLARS ($15,000) per year.
3.5 Joseph M. Cummins, President of ACC and the Inventor, shall execute
the Waiver and Release attached hereto as Schedule B and the Assignment attached
hereto as Schedule C and such executed Assignment and Waiver and Release shall
be a part of this Agreement and effective upon execution.
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ARTICLE IV
DUE DILIGENCE CRITERIA
ACC shall exercise diligence in the marketing and commercialization of
LICENSED PRODUCTS by its own acts or through acts of its Affiliates or
sublicensees.
ARTICLE V
REMITTANCES. RECORDS AND REPORTS UNDER THE LICENSE
5.1 Accrual. Royalties shall accrue when LICENSED PRODUCTS are first sold
to a non-AFFILIATE of ACC by or for ACC or a sublicensee of ACC. LICENSED
PRODUCTS shall be considered sold when billed or invoiced.
5.2 Payment.
(a) General. All payments, under paragraph 3.2-3.4, to TAMUS shall be
made to TAMUS in College Station, Texas within forty-five (45)
days following the end of each six (6) months of each LICENSE
YEAR for all LICENSED PRODUCTS sold by ACC or a sublicensee of
ACC during the six (6) months. Such payment shall be accompanied
by a certified statement to TAMUS, by an officer of ACC which
shall give sufficient information from which to calculate the
amount of royalties due hereunder, including, but not limited to,
the total quantity and NET SELLING PRICES of LICENSED PRODUCTS
sold for which royalty has accrued during the preceding six (6)
months,
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and the aggregate royalties due. Statements shall also be
submitted in the event no sales of LICENSED PRODUCTS took place.
(b) Minimum Payment. ACC agrees that the amount required to achieve
payment of the minimum royalty due set forth in Article 3.4 is to
be due and payable to TAMUS together with the remittance made for
the last accounting period of the applicable LICENSE YEAR in the
event earned royalties for such LICENSE YEAR do not reach the
minimum amounts set forth.
(c) Payments hereunder shall be made in U.S. dollars in the United
States. With respect to sales in countries outside the United
States, royalties shall be payable in U.S. dollars at the
official rate of exchange prevailing on the last day of each
quarter during the accounting period in which royalties accrue.
5.3 Inspection. ACC shall keep records in sufficient detail to permit the
determination of royalties payable hereunder and, at the request and expense of
TAMUS, will permit an independent Certified Public Accountant to examine, in
confidence, during ordinary business hours once each LICENSE YEAR such records
as may be necessary to verify or determine royalties paid or payable under this
Agreement. Said records shall be open and available for a period of four (4)
years following the rendering by ACC of a royalty report.
10
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ARTICLE VI
PATENT PROSECUTION
6.1 TAMUS grants ACC the right to file and prosecute patent applications
including continuations, continuations-in-part, divisions, foreign counterparts
and reissues thereof which relate to LICENSED PRODUCTS and PATENT RIGHTS.
Upon full execution of this agreement, ACC agrees to accept responsibility
for filing, prosecution to issuance and maintenance of patent applications
and/or patents which relate to LICENSED PRODUCTS and PATENT RIGHTS including
foreign filings already made by TAMUS. It is understood that any such patent
applications filed or prosecuted by ACC hereunder shall remain the property of
TAMUS.
6.2 TAMUS shall disclose to ACC the complete texts of all patent
applications filed by TAMUS which relate to LICENSED PRODUCTS as well as all
information received concerning the institution or possible institution of any
interference, opposition, re-examination, reissue, revocation, nullification or
any official proceeding involving Patent Right anywhere in the world. ACC shall
keep TAMUS promptly and fully informed of the course of patent prosecution or
other proceedings.
6.3 In the event that ACC elects not to file or to continue to prosecute
or maintain any patent or patent applications encompassing PATENT RIGHTS, it
shall so notify TAMUS at least two (2) months prior to taking (or not taking)
any action which would result in abandonment, withdrawal or lapse of such patent
or patent
11
<PAGE>
applications. TAMUS shall then have the right to continue maintenance or
prosecution of such patent or application, at its own expense.
6.4 ACC shall receive a credit against royalties payable to TAMUS under
Article III hereof for half (50%) of ACC's documented expenses for patent
filings and prosecution under this article and all (100%) of ACC's documented
expenses for maintenance fees.
ARTICLE VII
ENFORCEMENT OF PATENTS
ACC shall notify TAMUS timely of any probable infringement which comes to
its attention, and is empowered:
7.1 To bring suit in its own name, or, if required by law, jointly with
TAMUS, for infringement of PATENT RIGHTS. Any recovery, award or settlement made
to plaintiff as a result of suit for infringement shall be treated as an
addition to NET SELLING PRICE of LICENSED PRODUCT; provided, however, that ACC
and TAMUS shall each recover its cost of litigation from any recovery, award, or
settlement in computing NET SELLING PRICE. TAMUS reserves the right to represent
itself in any infringement suit.
7.2 To settle any claim or suit for infringement of PATENT RIGHTS by
granting the infringing party a sublicense under the provisions of this
Agreement.
12
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ARTICLE VIII
TERM AND TERMINATION
8.1 This Agreement shall be in effect until the date of the last to expire
of LICENSED PATENTs and will remain in effect unless terminated earlier in
accordance with the provisions of this Article VIII, or as otherwise provided in
this Agreement.
8.2 ACC may surrender and thereby terminate this Agreement, or license
grant hereunder, at any time upon ninety (90) days prior written notice to
TAMUS.
8.3 In the event ACC shall at any time fail to make payments (except for
the payment provided under paragraph 3.1, above), render reports, meet the
diligence requirement, or otherwise abide by the terms herein provided, TAMUS
shall have the right to notify ACC in writing of such default and that TAMUS
intends to terminate this Agreement unless such default is cured by ACC with in
sixty (60) days from receipt by ACC of such notice. Then and in such event, this
Agreement and the license and rights granted by it shall thereby terminate with
respect only to the species in that country in which the default occurred.
8.4 This agreement may be terminated by TAMUS at its option and without
prejudice to any other remedy to which it may be entitled at
13
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law or in equity, or elsewhere under this Agreement, by giving written notice of
termination to ACC if the latter should:
(a) Be adjudicated a voluntary or involuntary bankrupt;
(b) Institute or suffer to be instituted any proceeding for a
reorganization or rearrangement of its affairs;
(c) Make an assignment for the benefit of creditors;
(d) Become insolvent or have a receiver of its assets or property
appointed; or
(e) Allow any final judgment against it, after final determination of
any appeal, to remain unsatisfied for a period of thirty (30)
days or longer; provided, however that if such judgement shall be
satisfied prior to termination of this agreement, then such
judgement shall thereupon cease to be grounds for termination.
8.5 Upon termination of this Agreement for any reason, ACC shall
immediately cease use of the PATENT RIGHTS; and the assignment in Schedule A and
the release in Schedule B shall become null and void and be of no further force.
8.6 Termination of the Agreement or any license granted hereunder by
either party for any reason, other than termination pursuant to paragraph 3.1,
above, shall not relieve the parties of any obligation accruing prior to such
termination.
14
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ARTICLE IX
REPRESENTATIONS AND INDEMNITIES
9.1 TAMUS represents that it has the full right and power to grant the
License set forth in Article II and that there are no outstanding agreements,
assignments or encumbrances inconsistent with the provisions of this Agreement
other than as expressly set forth herein. TAMUS makes no other representation or
warranty, express or implied, nor does TAMUS assume any obligations with respect
to infringement of patents of others arising as a result of ACC's activities
under this Agreement.
In the event any third party asserts or claims rights in one or more
LICENSED PATENTS inconsistent with said representation, and ACC becomes involved
in litigation to defend or assert its rights under this Agreement, TAMUS agrees
to cooperate with ACC in such action and ACC shall receive a credit against
royalties under 3.2, 3.3 and 3.4 equal to its reasonable costs of such action.
9.2 ACC will indemnify TAMUS against any causes of action arising from
ACC's commercialization of the Inventions, PATENT RIGHTS and/or LICENSED
PRODUCTS.
ARTICLE X
THIRD PARTY AND COMPULSORY LICENSES
10.1 In the event that a third party shall file any legal action against
ACC for patent infringement based upon a dominant patent owned or licensed by
said third party, ACC shall be entitled to deduct from any royalty amounts due
and payable to TAMUS an amount representing ten percent (10%) of its billed cost
for legal services directly related to
15
<PAGE>
the defense of such action. ACC shall notify TAMUS immediately upon receipt of
notice of the filing of any such action. ACC hereby agrees that in no event
shall TAMUS be responsible for the amount of any cost or legal fees exceeding
the ten percent (10%) described above.
10.2 In the event that a governmental agency in any country or territory
grants or compels TAMUS to grant a license to any third party for a LICENSED
PRODUCT, ACC shall have the benefit in such country or territory of the terms
granted to such Third Party to the extent that such terms are more favorable
than those of this Agreement.
ARTICLE XI
COMMUNICATION
Any payment, notice or other communication required or permitted to be
made or given to either party hereto pursuant to this Agreement shall be
sufficiently made or given on the date of mailing if sent to such party by
certified or registered mail, postage prepaid, addressed to it at its address
set forth below or to such other address as it shall designate by written notice
given to the other party as follows:
In the case of ACC:
Dr. Joseph M. Cummins, President
Amarillo Cell Culture Company, Incorporated
6666 Amarillo Blvd. West
Amarillo, Texas 79106
In the case of TAMUS:
System Patent Administrator
The Texas A&M University System
College Station, Texas 77843
16
<PAGE>
With a copy to:
Melvin J. DeGeeter
Coordinator of Research Development for Industrial Relations
The Texas Agricultural Experiment Station
Texas A&M University
College Station, Texas 77843-2162
ARTICLE XII
ASSIGNABILITY
This Agreement and the rights and privileges thereof are not assignable or
otherwise transferable by either party without the prior written consent and
approval of the other party except under one of the following circumstances: (i)
they may be transferred with the business and goodwill of that part of the
business to which the license hereunder relates, provided that the transferee
shall, without delay, accept in writing the provisions of this Agreement and
agree to become in all respects bound thereby in the place of the transferror;
or (ii) ACC may assign its rights hereunder to an Affiliate of ACC.
ARTICLE XIII
MISCELLANEOUS
13.1 This Agreement will not be binding upon the parties until it has been
signed herein below by or on behalf of each party, in which event it shall be
effective as of the date first above written. No amendment or modification
hereof shall be valid or binding upon the parties unless made in writing and
signed as aforesaid.
13.2 This Agreement embodies the entire understanding of the parties with
respect to LICENSED PATENTS and shall supersede all previous communications,
representations, undertakings, or agreements
17
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either verbal or written between the parties relating to the subject matter
hereof.
13.3 If any provision or provisions of this Agreement shall be held to be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
13.4 This Agreement shall be construed, and the legal relations between
the parties determined, in accordance with the law of the State of Texas, USA.
13.5 ACC shall have no right to use the name or other designation of TAMUS
or any Part of TAMUS in connection with any sales or promotion of LICENSED
PRODUCTS without the express written consent of TAMUS.
13.6 This Agreement rescinds and replaces in its entirety that certain
License Agreement between ACC and TAMUS dated April 1, 1987.
13.7 All overdue payments, minimums and/or royalties, unless otherwise
specifically provided, shall bear interest from the date such payment, minimum
and/or royalty was due and payable at the "Prime Rate" of interest quoted in the
"Wall Street Journal" as of the due date, not to exceed the maximum legal rate
of interest permitted by the laws of the State of Texas.
18
<PAGE>
13.8 The headings of the several sections are inserted for convenience or
reference only, and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
AMARILLO CELL CULTURE COMPANY, THE TEXAS A&M UNIVERSITY SYSTEM
INCORPORATED
/s/ Joseph M. Cummins /s/ Perry L. Adkisson
- ----------------------------- -------------------------------
Joseph M. Cummins, President Perry L. Adkisson, Chancellor
February 18, 1988 3-22-88
- ----------------------------- -------------------------------
Date Date
19
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Schedule A (attachment to
License Agreement dated
March 22 , 1988)
------------
ASSIGNMENT
FOR GOOD AND VALUABLE CONSIDERATION the receipt, sufficiency and adequacy
of which are hereby acknowledged, the undersigned, does hereby:
SELL, ASSIGN AND TRANSFER to THE TEXAS A&M UNIVERSITY SYSTEM (The
"Assignee"), a Texas State Agency having a place of business at College Station,
Texas, the entire right, title and interest for the United States and all
foreign countries in and to any and all improvements which are disclosed in
United States Patent Application Serial Number 927,834 filed November 6, 1986
and a Continuation-in-part of that Patent Application with Serial Number 110,501
filed October 26, 1987. The title of the Application, Serial Number is 927,834
is "Treatment of Immune-Resistant Disease". The assignment shall include such
applications and all divisional, continuing, substitute, renewal, reissue and
all other applications for patent which have been or shall be issued in the
United States and all foreign countries on such improvements; and specifically
including the right to file foreign applications under the provisions of any
convention or treaty and claim priority based on such application in the United
States;
AUTHORIZE AND REQUEST the issuing authority to issue any and all United
States and foreign patents granted on such improvements to the Assignee;
WARRANT AND COVENANT that no assignment, grant, mortgage, license or other
agreement with any third party affecting the rights and property herein conveyed
is in existence, and that the full right to convey the same as herein expressed
is possessed by the undersigned;
COVENANT, when requested and at the expense of the Assignee, to carry out
in good faith the intent and purpose of this assignment, the undersigned will
execute all divisional, continuing, substitute, renewal, reissue, and all other
patent applications on any and all such improvements; execute all rightful
oaths, declarations, assignments, powers of attorney and other papers:
communicate to the Assignee all facts known to the undersigned relating to such
improvements and the history thereof; and generally do everything possible which
the Assignee shall consider desirable for vesting title to such improvements in
the Assignee, and for securing, maintaining and enforcing proper patent
protection for such improvements;
TO BE BINDING on the heirs, assigns, representatives and successors of the
undersigned and extend to the successors, assigns and nominees of the Assignee.
(Signature) /s/ Joseph M. Cummins Date Mar 11, 1988
--------------------------------------- -----------------
Name: Dr. Joseph M. Cummins, President
Amarillo Cell Culture Canpany,
Incorporated
STATE OF Texas )
-----------
) ss.
COUNTY OF Potter
-----------)
BEFORE ME, the undersigned authority, on this 11th day of March, 1988
personally appeared Josep M. Cummins, known to me to be the person whose name is
subscribed to the foregoing instrument and acknowledged to me that he executed
the same of his own free will for the purposes and consideration therein
expressed.
/s/ Mary Ann Hofmann
---------------------
[SEAL] Notary Public Officer
<PAGE>
Schedule B (attachment to
License Agreement dated
March 22 , 1988)
------------
WAIVER AND RELEASE
For and in partial consideration of grant of an exclusive license by Texas
A&M University System ("TAMUS") to Amarillo Cell Culture Company, Incorporated
("ACC") under Patent Rights as defined in, and under the terms of, the attached
License Agreement, and for other valuable consideration, the receipt of which is
hereby acknowledge, Joseph M. Cummins, individually, and not as President of
ACC, does hereby waive any and all rights he may have as a former TAMUS Employee
and Inventor under TAMUS patent policy to a share of royalties received by
TAMUS, and derived from the Patent Rights as defined in the attached License
Agreement. Said Joseph M. Cummins does hereby release TAMUS from any obligation
it has under TAMUS patent policy to share with the Inventor Joseph M. Cummins
accrued or future royalties derived from said defined Patent Rights and only
from those defined Patent Rights. Term of this waiver and release are binding to
the heirs, assigns, representatives and successors of the undersigned and extend
to the successors and nominees of the Assignee.
/s/ Joseph M. Cummins
--------------------------------
Joseph M. Cummins
Mrs. Joseph Cummins hereby agrees to this waiver and release and
terminates any benefits she may receive from Dr. Joseph Cummins' rights as a
former TAMUS Employee and Inventor as stated above.
/s/ Brenda K. Cummins
--------------------------------
Brenda K. Cummins
STATE OF TEXAS )
) ss.
COUNTY OF Potter
-----------)
Before me, a Notary Public within and for said County and State, appeared
Joseph M. Cummins, who acknowledged execution of the foregoing Waiver and
Release. Witness my hand and Notarial Seal this 11th day of March, 1988
/s/ Mary Ann Hofmann
--------------------------------
Notary Public
MARY ANN HOFMANN
--------------------------------
Printed Name
My Commission Expires: 12-10-96
-----------
My County of Residence: Randall
-----------
<PAGE>
SCHEDULE C
FIVE INTERFERON PATENTS
1. United States Patent Number 4,497,795 - "Appetite and Feed/Gain"
2. Continuation-in-Part Patent Application filed January 4, 1985 entitled
"Method of Using Interferon in Low Dosage to Regulate Appetite and
Efficiency of Food Utilization"
3. United States Patent Application Serial Number 814,317 filed December 30,
1985 entitled "Low Dosage of Interferon to Enhance Vaccine Efficiency"
4. United States Patent Application Serial Number 044,317 filed April 30, 1987
entitled "Improved Method of Administering Interferon"
5. United States Patent Application Serial Number 927,834 filed November 6,
1986 entitled "Treatment of Immune-Resistant Disease"
20
LICENSE AGREEMENT
THIS LICENSE AGREEMENT is made and effective this 20th day of October,
1989, by and between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas
corporation with its principal place of business at 6666 Amarillo Boulevard
West, Amarillo, Texas 79106 (hereinafter "ACC") and INTERFERON SCIENCES, INC.,
with its principal place of business at 783 Jersey Avenue, New Brunswick, New
Jersey 08901 (hereinafter "ISI") (ACC and ISI are hereinafter collectively
referred to as the "Parties").
WHEREAS, ACC owns or controls patents and patent applications directed to
the oral administration of interferons for the prophylactic and therapeutic
treatment of animals and human beings and has expertise in such uses of
interferon;
WHEREAS, ACC has already conducted or contracted for the conduct of
preliminary tests demonstrating the efficacy of orally administered interferon,
including cell culture derived interferons, in several vertebrate species,
including humans;
WHEREAS, ISI has substantial expertise in the production and use of cell
culture derived human leukocyte interferon alpha (hereinafter, "IFN-a") and has
proprietary
<PAGE>
rights and know-how in the field of production, purification and formulation of
IFN-a;
WHEREAS, ISI has ongoing research programs and product development efforts
directed to the use of human IFN-a in human medicine and desires to expand use
of human IFN-a to new human applications;
WHEREAS, ACC desires to promote non-human applications of its proprietary
technology relating to administration of interferon and acknowledges that such
efforts would be facilitated by the availability of a source of FDA-approved
IFN-a for ACC and its Third Party Licensees;
WHEREAS, ISI has received FDA approval of a natural human IFN-a containing
product ("IFN ALFA-N-3") with therapeutic claims in humans;
WHEREAS, ACC desires to be the exclusive agent for distribution of ISI IFN
ALFA-N-3 for oral use in non-human species, all as provided in that certain
Manufacturing and Supply Agreement of even date herewith, between the Parties;
WHEREAS, ISI desires to acquire a worldwide co-exclusive license under
ACC's patents and patent applications for the manufacture, use and sale of human
IFN-a formulations for oral use in human beings; and
WHEREAS, ACC has disclosed to ISI ACC Technical Information including
preliminary animal and human data and
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copies of ACC patents and pending patent applications, and ISI has disclosed to
ACC certain ISI Technical Information;
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein, ISI and ACC agree as follows:
ARTICLE I
DEFINITIONS
1.1. "ACC" and "ISI" shall mean and include not only the indicated company,
but also its Affiliates and permitted Assignees.
1.2. "Affiliate" means a corporation, company, partnership, or other
business entity which controls or is controlled by, or is under common control
with, the designated party. In the case of a corporation or company, "control"
means ownership either directly or indirectly of at least Fifty Percent (50%) of
the shares of stock entitled to vote for the election of directors.
1.3. "Agreement" or "License Agreement" means this Agreement and all
Exhibits hereto.
1.4. "Assignee" means any assignee or sublicensee of rights under this
Agreement.
1.5. "Distributor" means any purchaser, other than a Manufacturing
Sublicensee, of Licensed Products from ISI, its Affiliates or permitted
assignees.
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<PAGE>
1.6. "Invention" means the use of interferons as disclosed and claimed in
one or more Licensed Patents.
1.7. "ISI Interferon" means the ISI natural human IFN-a (IFN ALFA-N3) used
to formulate IFN ALFA-N3-containing formulation(s) presently approved by the
FOOD AND DRUG ADMINISTRATION ("FDA") for use as a treatment of human genital
warts and which is produced, purified and formulated by ISI utilizing ISI
Technical Information. It is contemplated that ISI Interferon will be utilized
in the formulation of Licensed Products hereunder.
1.8. "Licensed Patent(s)" means those United States Patents and patent
applications listed in Exhibit "A" hereof, and any continuations,
continuations-in-part, divisions, reissues or extensions thereof, and each
foreign counterpart of each United States Patent and patent application listed
in Exhibit "A" and any extensions thereof, and any new patents, patent
applications, continuations, continuations in part, divisions, reissues or
extensions, filed or controlled by ACC either heretofore, or in the future,
covering oral use of interferon in the human species.
1.9. "Licensed Product" means dose formulations or compositions containing
interferon derived from any species and designated, detailed, or labeled for
oral use in human species.
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<PAGE>
1.10. "Manufacturing Sublicensee" means any Assignee of any of ISI's rights
under this Agreement, under an arrangement (other than by virtue of a change or
control of ISI) which requires or contemplates the manufacture of ISI Interferon
by such Assignee.
1.11. "Net Sales Value" shall mean the gross selling price paid to ISI by a
Distributor, including any royalty, for Licensed Product, including all
packaging, instructional or other charges made to a Distributor, but less
customary trade discounts and refunds or credits allowed for return of defective
products. If Licensed Products are sold in transactions which are not bona fide
arms-length transactions, Net Sales Value for such sales shall be valued as
equal to commercial sales of similar Licensed Products to unrelated third
parties in similar quantities.
1.12. "Technical Information" means all information, reports, results,
inventions, know-how, materials, and any other technical and scientific data,
specifications and formulae directly related to the development, regulatory
approval, manufacture, testing, use, marketing and/or sale of Licensed Products
or other interferon-containing compositions, and any non-public information
relevant to the business of the Parties which is necessarily disclosed by one to
the other during the Parties' conduct under this Agreement. "ACC Technical
Information" refers to Technical Information
-5-
<PAGE>
originating with ACC or which ACC has obtained through its contractual
relationships with third parties. "ISI Technical Information" refers to
Technical Information originating with ISI. "Technical Information" when not
otherwise specified herein means ACC Technical Information and ISI Technical
Information.
1.13. "Territory" shall mean all countries of the world, except Japan.
1.14. "Third Party Licensees" refers to third parties licensed by ACC under
Licensed Patents to use and/or sell interferon-containing products designated,
detailed or labeled for use in non-human species.
1.15. "University Agreements" shall mean the agreement dated March 22,
1988, between ACC and the TEXAS A&M UNIVERSITY SYSTEM and the agreement dated
April 1, 1984, between ACC and UNIVERSITY PATENTS, INC., and Amendment No. 1
thereto, dated July 26, 1984, all of which are attached hereto as Exhibit "B".
ARTICLE II
THE LICENSE GRANT
2.1. ACC grants to ISI, subject to the terms of this License Agreement, a
royalty-bearing co-exclusive license under Licensed Patents and under ACC
Technical Information to make, have made, use and sell Licensed
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<PAGE>
Products labeled for use only in human species in the Territory. The rights
hereby granted are co-exclusive with ACC's and its sublicensees' rights to make,
have made, use and sell HBL interferon under the HBL Agreement attached hereto
as Exhibit "D", and with ACC's and its sublicensees' rights to make, have made,
use and sell their own non-human interferon for use only in animals.
2.2. ISI shall have the right to grant sublicenses under the license
granted herein. For purposes of this Paragraph 2.2, "sublicense" shall mean a
sublicense by ISI of some, but less than all, of its rights under this License
Agreement, and shall not require ACC's consent, such as would be required for an
Assignment under Paragraph 11.5. All such sublicenses shall be made expressly
subject to the terms and provisions of this Agreement. ISI shall, within thirty
(30) days of the execution of each sublicense, provide to ACC a copy of each
sublicense granted hereunder and shall promptly advise ACC in writing of any
modification (and supply a copy of same) or termination of each sublicense. Upon
termination of this Agreement, all such sublicenses shall be automatically
terminated, and all such sublicenses shall contain an express provision to that
effect.
-7-
<PAGE>
ARTICLE III
CONSIDERATION
3.1. ISI shall pay to ACC a royalty of * of the Net
Sales Value of Licensed Products sold by ISI to Distributors.
3.2. The obligation to pay a royalty shall be imposed only once in respect
of a particular unit of Licensed Product, regardless of the number of Licensed
Patents
- -------------
* Confidential Treatment has been requested
-7.1-
<PAGE>
embracing the Licensed Product and/or the manufacture and/or use thereof.
3.3. Further in consideration of the grant of license under ARTICLE II
hereof, ISI shall execute and deliver the Manufacturing and Supply Agreement (a
counterpart of which is attached hereto as Exhibit "C") on the date of this
Agreement.
3.4. In addition to the payments provided in Paragraph 3.1, above, within
thirty (30) days of receipt by ISI, ISI agrees that it will remit to ACC *
of any option fee, license fee, or other payment, except royalty
or specific research or patent expense reimbursements, and except payments
received for sale of its stock at the then fair market value thereof, which it
may receive from a Distributor, and * of any and all payments
of whatsoever nature, except specific research or patent expense reimbursements,
and except payment received for sale of its stock at the then fair market value
thereof, which it may receive from a Manufacturing Sublicensee.
3.5. ISI shall maintain records of all ISI expenditures with respect to its
business efforts toward development of Licensed Products hereunder and such
records shall be sufficient to show the clinical indication for which each such
expenditure is made. ISI shall provide ACC by January
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<PAGE>
31 of each year during the term of this Agreement, and upon the expiration of
three (3) years from the date of this Agreement, a report of ongoing efforts for
the development of each clinical indication for Licensed Products, including a
report of all expenditures by ISI for each indication with respect to
formulation development, pre-clinical and clinical testing, regulatory approval
efforts, manufacturing facility development/procurement, product packaging,
marketing/sales strategy, and any other areas into which ISI's reasonable
business efforts in accordance with this paragraph should reasonably be
categorized. Such a report shall be prepared more often if ACC so requests in
writing, and if ACC pays to ISI the expenses incurred by ISI in generating such
additional reports. It is understood that ACC will receive such information as
ISI Technical Information, and ACC shall use it only for the purpose of
monitoring ISI's efforts to develop Licensed Products under this Agreement.
3.6. Upon the expiration of three (3) years from the date of this
Agreement, ISI shall provide to ACC within thirty (30) days of ACC's request,
copies of all data relating to the development of Licensed Products generated by
ISI or by others for ISI during the term of this Agreement to that date.
-9-
<PAGE>
ISI shall expend for development of Licensed Products hereunder, a total of
at least * over the three
(3) year period commencing on the date of this Agreement, for all indications
for use of human interferon in humans, and a total of at least *
over the three (3) year period commencing on the
date of this Agreement, for the use of non-human interferons for human
indications.
3.7. This License Agreement, and all rights licensed hereunder by ACC to
ISI, shall terminate upon the expiration of five (5) years from the date hereof,
unless ISI or its Manufacturing Sublicensee shall be marketing Licensed Products
in the United States at that date; provided, however, that such termination date
shall be extended from year to year, and this Agreement shall not terminate, so
long as ISI continues to expend a minimum of *
per year toward development of Licensed Products related to the use
of human interferon in humans, and a minimum of *
per year toward development of Licensed Products related to
the use of non-human interferons in human indications hereunder ("Extension
Payments"). If ISI should elect to
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continue this Agreement in force by making such Extension Payments, ISI shall so
notify ACC in writing within thirty (30) days of the expiration of five (5)
years from the date of this Agreement. Thereupon, ISI shall have a period of
twelve (12) calendar months during which to make such expenditures, and to
document the same to ACC. If ISI
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wishes, ISI may, at its election, satisfy said Extension Payment obligation by
paying said * , as the case may be, to ACC within said twelve (12)
month period, in which case said Extension Payment shall be treated as prepaid
royalty, and applied to future obligations payable by ISI to ACC under ARTICLE
III of this Agreement. If sufficient royalties shall not have been earned by ACC
under the terms of this Agreement prior to its termination to offset all such
prepaid royalties, then any excess amounts of prepaid royalties shall be
nonrefundable, and shall be retained by ACC.
If at any time after the expiration of five (5) years from the date hereof
ISI should commence marketing Licensed Products in the United States under this
Agreement, then ISI shall thereupon no longer be required to make Extension
Payments to hold this Agreement in force, but ISI shall not be entitled to the
return or refund of any Extension Payments theretofore made. If at anytime after
the expiration of five (5) years from the date of this Agreement, ISI should no
longer be marketing any Licensed Products in the U.S., then this Agreement and
ISI's rights thereunder shall thereupon terminate, unless ISI begins or
recommences such Extension Payments all as set forth above. Until the
termination of this Agreement pursuant to ARTICLE V, ISI may hold this Agreement
in force at all times after expiration of
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five (5) years from the date hereof, by either (i) marketing Licensed Products
in the U.S., or (ii) making Extension Payments.
With respect to the making of Extension Payments by ISI, this Agreement may
be held in force, as provided above, as to indications for use of human
interferon in humans, by making the * annual Extension Payments, and this
Agreement may be held in force as to indications for of non-human interferons in
humans by making the * annual Extension Payments.
3.8. In the United States, ISI shall commence marketing of each Licensed
Product within one hundred eighty (180) days after receiving approval of the New
Drug Application ("NDA") for that Licensed Product.
3.9. Upon request by ACC, ISI shall provide ACC a list of each country,
other than the United States, in which ISI or any Manufacturing Sublicensee is
marketing Licensed Product, identifying the Licensed Products, and details of
distribution, for each such country.
3.10. The Parties to this Agreement contemplate the possibility that ISI's
sale of Licensed Products under this Agreement may be subject to competition
from oral interferon products sold by other companies; accordingly, the Parties
hereto agree as follows:
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(a) ISI shall be required to pay to ACC the full amounts set forth in ARTICLE
III, above, regardless of whether or not other companies may be competing
against ISI with respect to the same indications.
(b) The provisions of Paragraph (a) above notwithstanding, if ISI shall have
demonstrated that sales of Licensed Product shall not be "economically
viable" due to market competition from oral interferon products of
companies other than HBL, then the royalty set forth in Paragraph (a)
above shall be
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reduced, to that point mutually agreed upon by ACC and ISI, where such
sales shall become, or may be expected to become, "economically viable".
For purposes of this provision, "economically viable" shall mean that such
product sales, standing alone and without reference to other sales by ISI,
will generate a net profit for ISI after taking into account costs of
production and distribution, and royalties payable to ACC. In computing the
amount of net profit on sales for purposes of this provision, none of ISI's
general or indirect overhead, research and development costs, or
depreciation shall be allocated to such sales as costs. If ACC and ISI
should be unable to agree upon that royalty which would insure "economic
viability", they shall jointly appoint an independent certified public
accounting firm to make such determination, and the determination of such
firm shall be final and conclusive. Such firm shall be one which has not
previously been employed by either ACC or ISI. The expense of such firm
shall be equally shared by ACC and ISI.
ARTICLE IV
REMITTANCES, RECORDS AND REPORTS
4.1. ISI shall keep accurate records in sufficient detail to enable
the royalties payable hereunder to be determined. ACC shall have the right to
nominate an independent public accountant, acceptable to and approved by ISI,
which approval shall not be unreasonably withheld. Once in each calendar year,
said accountant shall have access to the records of ISI relating to royalty
payments under this License Agreement during reasonable business hours for the
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purpose of verifying the accuracy of the reports and payments made during the
current year and/or the preceding calendar year. Said accountant shall disclose
to ACC only information relative to the accuracy of the reports and the payments
made in accordance with this License Agreement. Any and all fees charged by said
accountant shall be paid by ACC except, if ACC's auditors should find
discrepancies in ISI's quarterly reports that resulted in under-reporting or
underpayment by a factor greater than Ten Percent (10%) of the amount due, then
ISI shall reimburse ACC for the cost of the audit conducted on the sales and/or
payments for that country.
4.2. With respect to sales to Distributors, payment of royalties shall be
made to ACC within forty-five (45) days following the end of each calendar
quarter of each year for all Licensed Products sold by or for ISI during said
calendar quarter, and royalties to ACC shall accrue when Licensed Products are
first sold, or otherwise transferred by or for ISI, and Licensed Products shall
be considered sold when billed out. With respect to amounts received by ISI from
Manufacturing Sublicensees, payment shall be made to ACC within forty-five (45)
days following the end of each
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calendar quarter of each year for all payments received by ISI from
Manufacturing Sublicensees during said calendar quarter. All payments to ACC
shall be accompanied by statements certified by an officer of ISI which give
sufficient information from which to calculate the amount of payment due
hereunder, including the total quantity and Net Sales Value of each Licensed
Product sold to Distributors for which royalty has accrued during the preceding
calendar quarter, the amounts received by ISI from all Manufacturing
Sublicensees during the preceding calendar quarter, and the aggregate amounts
payable to ACC. A statement shall also be submitted in the event that no amounts
are payable to ACC.
4.3. Payments hereunder shall be made in U.S. Dollars in the United States.
With respect to sales to Distributors in countries outside the United States,
royalties shall accrue in the currency of the country in which the sales are
made and royalties shall be payable to ACC in U.S. Dollars at the official rate
of exchange prevailing on the last day of the quarter during which the royalties
accrued.
4.4. Any assignment under this Agreement shall require Assignee's
compliance with the record keeping, royalty payment and record review provisions
of this Agreement.
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ARTICLE V
TERM AND TERMINATION
5.1. This Agreement shall remain in effect until the date of the last to
expire of the Licensed Patents unless terminated earlier in accordance with the
proviSions of this ARTICLE V or as otherwise provided in this Agreement.
5.2. ISI may surrender and thereby terminate this Agreement at any time
upon ninety (90) days' prior written notice to ACC.
5.3. In the event ISI shall at any time fail to make payments, render
reports, meet the diligence or Extension Payment requirements of ARTICLE III, or
otherwise fail to abide by the terms herein provided, ACC may notify ISI in
writing of such default and ACC's intent to terminate this License Agreement
unless such default is cured by ISI within sixty (60) days from receipt by ISI
of such notice. If such default is not cured within the sixty (60) day period,
ACC may provide ISI with written notice of termination, and this Agreement and
the license and rights granted by it shall thereupon terminate.
5.4. This Agreement may be terminated by ACC at its option and without
prejudice to any other remedy to which it may be entitled at law or in equity or
elsewhere in this
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Agreement, by giving written notice of termination to ISI if the latter should:
(a) Be adjudicated a voluntary or involuntary bankrupt;
(b) Institute or suffer to be instituted any proceeding for
a reorganization or rearrangement of its affairs;
(c) Make an assignment for the benefit of creditors;
(d) Have a receiver of its assets or property appointed.
5.5. If at any time ISI should cease the conduct of its interferon
manufacturing business, then it is agreed by the Parties that this License
Agreement may thereupon be terminated by ACC, upon thirty (30) days written
notice; provided, however, that if ISI shall have theretofore assigned its
rights hereunder to a Manufacturing Sublicensee, under terms and conditions
requiring said Manufacturing Sublicensee to continue to manufacture and supply
ISI Interferon to ACC pursuant to the terms and conditions of the Manufacturing
and Supply Agreement, then this Agreement may not be terminated by ACC upon
ISI's cessation of the conduct of its interferon manufacturing business, but may
be terminated by ACC upon cessation by said Manufacturing Sublicensee of the
conduct of its interferon manufacturing business, upon thirty (30) days written
notice, unless said Manufacturing Sublicensee has
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made arrangements satisfactory to ACC, for continuation of the manufacturing and
supply to ACC of ISI Interferon.
If the ability of ISI to supply Manufactured Products (as defined in the
Manufacturing and Supply Agreement) in the quantity and quality provided therein
shall have been interrupted for a period of six (6) months or more, and if such
interruption in supply was not the result of force majeure such as acts of God,
strikes, wars, fire, inability to obtain raw materials, or civil disturbances,
then as soon thereafter as ACC's inventories of Manufactured Products shall be
or become exhausted, this License Agreement may thereupon be terminated by ACC,
upon thirty (30) days written notice.
5.6. Termination of this License Agreement or any license granted hereunder
by either Party for any reason shall not relieve the Parties of any obligation
accruing prior to such termination.
5.7. On termination by ISI of this License Agreement for any reason, except
natural termination in accordance with Paragraph 5.1 upon expiration of the
last-to-expire of Licensed Patents, ISI shall cease to use or evaluate the
Invention and shall cease to both make and sell Licensed Products and shall
surrender to ACC all of ACC's confidential documents and information that it may
have received during the term of this License Agreement. Any accrued royalties
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shall be paid to ACC within thirty (30) days of the termination of this
Agreement.
ARTICLE VI
ENFORCEMENT OF LICENSED PATENTS
6.1. In the event ISI alleges that a third party infringes a Licensed
Patent, a prima facie determination of infringement shall be made by an
Independent Patent Attorney ("IPA") satisfactory to both ISI and ACC, at their
joint cost and expense.
6.2. If the IPA finds that there is no prima facie infringement by the
alleged infringer, then ISI's obligation to pay royalties under this License
Agreement shall continue without abatement.
6.3. If the IPA finds prima facie evidence of the alleged infringement:
6.3.1. ACC or ACC's licensor may elect to institute an infringement action
against any such third party, which election shall be made no later than one
hundred twenty (120) days after the determination of prima facie infringement as
aforesaid, in which event ISI shall continue to pay royalties during the
pendency of the action; and
6.3.2. Whether or not ACC or its licensor finally prevails, ISI shall
continue to pay royalties as set forth in ARTICLE III hereof.
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6.3.3. If ACC or its licensor elects not to institute an action as
aforesaid, ISI may elect to institute an action against a third party in which
event:
(a) During the pendency of such action, ISI may suspend
payment of royalties under the Licensed Patent in suit
in the country of such action to the extent of any
costs actually incurred in such action; and
(b) If ISI finally prevails it shall thereafter pay to ACC
the amount of all royalties, the payment of which had
been suspended under Paragraph 6.3.3(a), above, and
shall resume paying royalties as set forth in ARTICLE
III hereof, but may deduct from such amounts payable to
ACC, ISI's actual out-of-pocket costs incurred in
pursuing such litigation; in addition, ISI shall retain
all damages which it may collect, but will pay to ACC
Ten Percent (10%) of such damages as are compensatory
damages for lost sales; and
(c) If ISI finally loses the infringement action, ISI shall
thereafter resume paying royalties as set forth in
ARTICLE III and shall, in addition, pay to ACC such
royalty payments as were suspended under the terms of
Paragraph 6.3.3(a) hereof.
6.3.4. If ISI elects to prosecute an in- fringement action, it shall be
responsible for all fees and costs incurred therein.
6.3.5. Each party shall reasonably cooperate with the other Party in the
conduct of the proceedings, whether joint or not (such as by joining in name
only);
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however, where ACC or its licensor is joined in any such proceedings in name
only as a necessary party and not at its election, ISI shall indemnify and hold
harmless ACC and its licensor from and against any and all actions, claims, and
counterclaims brought against ACC and/or its licensor, and ISI agrees to pay all
expenses, damages and costs which may be finally assessed against ACC or its
licensor in such actions, claims and counterclaims.
6.4. In the event of a final judgment of invalidity, ISI shall not be
entitled to recover, as a credit or otherwise, any royalties theretofore paid.
6.5. It is agreed by ACC and ISI that if ACC elects to initiate an
infringement action under Paragraph 6.3.1 in response to an alleged infringement
in any country, ISI may not elect the course of action described in Paragraph
6.3.3 as to a subsequent infringer in that country until the first action is
finally determined, unless otherwise agreed to by ACC.
ARTICLE VII
ALLEGED INFRINGEMENT BY ISI
If ISI or a customer thereof (hereinafter "Defendant") is named as a
defendant in a lawsuit charging Defendant with patent infringement as a result
of its sale and/or use of a Licensed Product, when and only when such an
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allegation of infringement arises specifically from uses which are described in
a Licensed Patent or an application for a Licensed Patent, and Defendant
provides ACC with copies of the complaint (or similar paper) and all papers
associated with such suit, ISI shall have the right to establish an escrow
account for the mutual benefit of ACC and ISI. For so long as the lawsuit is
pending, including during any appeal from any judgment or decision of any court
having jurisdiction of the suit, ISI shall have the right to deposit one-half
(1/2) of the royalty payments to be paid to ACC under ARTICLE III hereof into
said escrow account.
The amounts deposited into the escrow account may be used toward
Defendant's out-of-pocket monetary expenses actually incurred in defending the
lawsuit, limited to attorneys' fees, costs and any damages assessed against
Defendant based specifically and only on such use or sale of Licensed Products
by Defendant. The escrow account shall be established as one or more interest
bearing, federally insured accounts. The agreement establishing the escrow
account shall require the escrow agent to provide ACC and ISI with accurate
accounting reports, to reimburse ISI for its said expenses as approved in
writing by ACC, and to remit to ACC any balance left in said account immediately
after the lawsuit is finally adjudicated or otherwise resolved. ACC
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shall approve all of said out-of-pocket expenses for reimbursement by the escrow
agent provided the expenses are accurately documented for ACC and shown to be
reasonably necessary to the defense of the lawsuit or any actual payment of
assessed damages. ISI shall have no recourse against ACC concerning such lawsuit
other than as herein specifically provided.
Nothing in this ARTICLE VII shall be construed as allowing ISI to establish
an escrow account, if Defendant is named as a defendant in a lawsuit charging
Defendant with patent infringement as a result of ISI's or other Defendant's
manufacture and/or purification of a Licensed Product. Both Parties recognize
and hereby acknowledge that claims of patent infringement may be asserted by
other persons or entities which claims may relate to the manufacture, sale
and/or use of ISI Interferon. In the event such claims are asserted by other
persons or entities against either of the Parties hereto, or their Affiliates or
sublicensees, it is agreed and understood that neither the provisions of ARTICLE
VI, nor the foregoing provisions of this ARTICLE VII shall apply, that neither
Party shall have the obligation to defend such a suit for or at the request of
the other Party, that either Party may defend such a suit against itself at its
own, sole expense, and that no royalties paid hereunder shall
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be reduced, withheld or escrowed by virtue of such suit, provided, however, that
if such suit is brought against Defendant within two (2) years of ISI's having
received any license fees under Paragraph 3.4 of this Agreement, and if ISI
elects not to defend such suit, ISI shall reimburse to ACC the full amount of
such license fees.
ARTICLE VIII
WARRANTY
8.1. ACC warrants and represents that it has the full right and power to
grant the license set forth in ARTICLE II hereof, that the University Agreements
are now in effect and that all payments and other actions required for the
University Agreements to remain in effect for the duration of this License
Agreement will be made or taken as the case may be.
8.2. ACC warrants that there are no outstanding agreements, assignments or
encumbrances inconsistent with provisions of this License Agreement that would
limit or infringe on this License Agreement, and the rights granted hereunder.
8.3. ISI warrants that the manufacture of ISI Interferon is fully compliant
with all applicable state and federal regulations, including regulations
promulgated under the Federal Food, Drug and Cosmetic Act. ISI further
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represents and warrants that it owns or has access to FDA approved facilities
for the manufacture of ISI Interferon and formulation of FDA compliant
formulations therefrom.
ARTICLE IX
DISCLAIMERS AND INDEMNIFICATION
9.1. ACC makes no representation or warranty that the sale of Licensed
Products will not infringe any third party patent, nor does ACC assume any
obligations with respect to infringements of patents of others arising as a
result of ISI's activities under this License Agreement except as otherwise
expressly provided in this License Agreement.
9.2. ACC makes no covenant either to defend any infringement charge by a
third party or to initiate action against infringers of any Licensed Patent
except as otherwise expressly provided in this License Agreement.
9.3. ACC makes no representation or warranty concerning the potential
profitability of Licensed Products and shall not be liable for failure of
licensee to obtain a profit or income from Licensed Products.
9.4. ACC SHALL NOT BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY,
EXPRESSED OR IMPLIED, AS TO THE CONDITION, MERCHANTABILITY, DESIGN, OPERATION OR
FITNESS FOR USE OF LICENSED PRODUCTS OR ANY OTHER REPRESENTATION OR
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WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO LICENSED PRODUCTS OR
LICENSED PATENTS. ACC EXPRESSLY MAKES NO WARRANTY OF VALIDITY OF PATENTS
LICENSED HEREUNDER.
9.5. ISI agrees that it shall indemnify and save ACC harmless from any and
all claims, demands, actions and causes of action against ACC, whether
groundless or not, in connection with any and all injuries, losses, damages or
liability of any kind whatsoever, arising, directly or indirectly, out of the
use, manufacture, distribution and/or sale of Licensed Products by or through
ISI or its Affiliates or sublicensees, whether or not the claims, demands,
actions or causes of action are alleged to have resulted in whole or in part
from the negligent acts or omissions of ACC, or from acts or omissions of such
persons for which they are or any of them would otherwise be strictly liable.
This indemnification obligation shall include, without limiting the generality
of the foregoing, reasonable attorneys' fees and other costs or expenses
incurred in connection with the defense of any and all such claims, demands,
actions or causes of action and shall extend to the officers, employees and
agents of ACC. This indemnification obligation does not extend to any
occurrences or events except those occurring in the use, manufacture,
distribution and/or sale of Licensed Products by or through ISI, its Affiliates
or sublicensees.
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ARTICLE X
CONFIDENTIALITY
10.1. ACC owns or is licensed under confidential or secret information
relating to the Invention, and it is the intention of ACC to maintain this
confidentiality.
10.2. ISI possesses trade secrets and technical and marketing information
that are proprietary to ISI, and it is its intention to maintain the
confidentiality of its proprietary information.
10.3. Each Party agrees to maintain confidential and secret all Technical
Information which may be disclosed or provided to it by the other Party and that
the Parties may together subsequently acquire in relation to the Invention and
which is designated in writing by clearly identifiable legend as being
confidential or secret in character.
10.4. Each Party's obligation to the other (to maintain confidentiality)
hereunder shall terminate with respect to any particular item and only said item
of the disclosing Party's confidential Technical Information, when the recipient
Party can demonstrate that such item of information:
10.4.1. Is publicly known and available through some means other than
by the recipient Party's act or omission; or
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10.4.2. Was in the recipient Party's possession prior to its
disclosure by the other Party, provided that written evidence of such
possession is established; or
10.4.3. Has come into the recipient Party's possession through a third
party free of any obligation of confidentiality to the disclosing Party,
where said third party has acquired said information lawfully and not under
circumstances forbidding its disclosure.
10.5. Neither Party will permit the other Party's confidential Technical
Information or any part thereof to be disclosed to third parties or to employees
except on a "need-to-know" basis and each will maintain confidential or secret
information and/or documents with the same precautions it uses to safeguard its
own confidential or secret information.
10.6. Each Party will notify the other promptly if it has knowledge that a
third party possesses Technical Information of the other Party related to the
Invention.
10.7. ISI shall have the right to use ACC's Technical Information to the
extent reasonably necessary to accomplish the objectives of this License
Agreement, including specifically the right to disclose such information to its
Affiliates, actual and potential sublicensees, third party contract consultants
and scientific investigators (from
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whom ISI shall secure Confidential Disclosure Agreements) and to regulatory
agencies in support of applications for regulatory agency approval to make, test
and/or sell Licensed Products.
ARTICLE XI
MISCELLANEOUS
11.1. Force Majeure. The failure of ISI, ACC, or any of their Affiliates or
sublicensees to take any act required by this License Agreement if occasioned by
an act of God or the public enemy, fire, explosion, perils of the sea, floods,
drought, war, riot, sabotage, accident, embargo or any circumstance of like or
different character beyond the reasonable control of the Party so failing or by
the interruption or delay in transportation, inadequacy, or shortage or failure
of the supply of materials and/or equipment, equipment breakdown, labor trouble
or compliance with any order, direction, action or request of any governmental
officer, department or agency and whether in any case such circumstances now
exists or hereafter arises, shall not subject said Party to any liability to the
other.
11.2. Arbitration. The parties hereto desire to avoid and settle without
litigation future disputes which may arise between them relative to this
Agreement. Accordingly, the parties agree to engage in good faith negotiations
to
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resolve any such dispute. In the event they are unable to resolve any such
dispute by negotiation, such dispute shall be submitted to arbitration as
follows: If arbitration is initiated by ISI, it shall be held in the State of
Texas, U.S.A. in compliance with the Commercial Arbitration Rules of the
American Arbitration Association. If arbitration is initiated by ACC, it shall
be held in New York, New York in compliance with the Commercial Arbitration
Rules of the American Arbitration Association. The arbitration award shall be
final and binding upon the parties hereto and may be filed with and enforced by
any competent court having competent jurisdiction to enforce said award.
11.3. Communication. Any payment, notice or other communication required or
permitted to be made or given to either Party pursuant to this License Agreement
shall be sufficiently made or given on the date of sending if sent to such Party
by certified or registered mail or by Federal Express or a similar overnight
courier service, postage or delivery charge prepaid, or by telex or telefax
addressed to it at its address set forth below, or to such other address(es) as
it may have designated by written notice given to the other Party:
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In case of ISI:
Dr. Sam Ronel,
President Interferon Sciences, Inc.
783 Jersey Avenue
New Brunswick, New Jersey 08901
and
Ms. Irene Frangos
National Patent Development Corp.
9 West 57th Street
New York, New York 10019
In case of ACC:
Dr. Joe Cummins,
President Amarillo Cell Culture Company, Inc.
6666 Amarillo Boulevard West
Amarillo, Texas 79106
11.4. Amendments to Agreement. This License Agreement constitutes the
entire agreement between the Parties hereto on this subject matter and
supersedes all previous arrangements whether written or oral. Any amendment or
modification of this License Agreement shall be effective only if made in
writing, and executed by both Parties.
11.5. Assignment. This License Agreement may be assigned in whole by ACCC
to any person or entity and may be assigned in whole by ISI to any of its
Affiliates. It shall otherwise not be assignable by ISI without the prior
written consent of ACC, which consent shall not be unreasonably withheld. This
Agreement shall inure to
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the benefit of the permitted Assignees or successors of ISI and/or ACC.
11.6. Enforceability. If one or more of the provisions of this License
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions hereof shall not in any
way be affected or impaired thereby. To the extent permitted by law, each Party
waives any provision of law which renders any provision herein invalid, illegal
or unenforceable in any respect.
IN WITNESS WHEREOF, the Parties hereunto have caused this instrument to be
executed in duplicate by their duly authorized representatives as of the date
first above written.
ACC: ISI:
AMARILLO CELL CULTURE COMPANY, INTERFERON SCIENCES, INC.
INCORPORATED
By: /s/ Joseph M. Cummins By: /s/ Sam Ronel
-------------------------- ---------------------
Dr. Joseph M. Cummins Dr. Sam Ronel
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MANUFACTURING AND SUPPLY AGREEMENT
THIS AGREEMENT is made and effective this 20th day of October, 1989, by and
between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation with
its principal place of business at 6666 Amarillo Boulevard West, Amarillo, Texas
79106 (hereinafter "ACC") and INTERFERON SCIENCES, INC., with its principal
place of business at 783 Jersey Avenue, New Brunswick, New Jersey 08901
(hereinafter "ISI") (ACC and ISI collectively referred to hereinafter as the
"Parties").
WHEREAS, ACC and ISI have entered into a License Agreement of even date
herewith under which ACC grants to ISI a license under ACC owned or licensed
patents and under ACC technical information for ISI's manufacture, use and sale
of interferon-containing products labeled for oral use in human species;
WHEREAS, ISI has substantial expertise in the production and use of cell
culture derived human leukocyte interferon (hereinafter "IFN ALFA-N3") and has
proprietary rights and know-how in the field of production, purification and
formulation of IFN ALFA-N3;
WHEREAS, ACC desires to promote non-human applications of its proprietary
technology relating to oral administration of interferon and desires to make
available to its
<PAGE>
animal health licensees or distributors pre-formulated interferon-containing
compositions packaged and labeled for use and sale consistent with ACC's
distribution needs or ACC's grant of license to said animal health licensees;
WHEREAS, ISI has indicated its willingness to manufacture and utilize ISI
IFN ALFA-N3 to formulate and bulk package interferon-containing compositions in
accordance with the FDA requirements which may be applicable from time to time;
WHEREAS, ISI has received FOOD AND DRUG ADMINISTRATION ("FDA") approval of
a natural IFN ALFA-N3-containing product with a therapeutic claim in humans;
WHEREAS, each ISI Interferon-containing product manufactured or formulated
by ISI shall fall within the scope of regulations promulgated under the FDA and
shall require additional approval of the Food and Drug Administration prior to
sale or use in any species;
WHEREAS, ISI has indicated its willingness to allow ACC or ACC's animal
health third party licensees to reference the FDA Drug Master File for ISI IFN
ALFA-N3;
WHEREAS, ACC desires to be the exclusive agent for distribution of ISI IFN
ALFA-N3 for oral use in non-human species;
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NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein, ISI and ACC agree as follows:
ARTICLE I
DEFINITIONS
1.1. "ACC" and "ISI" shall mean and include not only the indicated company,
but also its Affiliates and permitted assignees.
1.2. "Affiliate" means a corporation, company, partnership, or other
business entity which controls or is controlled by, or is under common control
with, the designated party. In the case of a corporation, "control" means
ownership either directly or indirectly of at least fifty percent (50%) of the
shares of stock entitled to vote for the election of directors.
1.3. "ISI Interferon" means the natural IFN ALFA-N3 used for the
formulation of ISI's natural IFN ALFA-N3-containing formulation(s) approved by
the FDA for use in the treatment of human genital warts, and which is produced,
purified and formulated by ISI utilizing ISI Technical Information. ISI
Interferon shall be utilized in the formulation of Products, Manufactured
Products and Reformulated Products hereunder.
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1.4. "License Agreement" means the license agreement between ISI and ACC
entered into of even date herewith.
1.5. "Manufactured Products" shall mean ISI Interferon, packaged in
accordance with FDA approved dosage forms; as of the date of this Agreement,
this comprises vials containing five (5) million International Units ("IU")
each.
1.6. "Net Sales Value" shall mean the gross selling price of Products sold
by ACC, including all packaging, instructional or other charges made to a
purchaser, but less ACC's actual out-of-pocket costs related to packaging,
labeling, and instructional materials, and less customary trade discounts or
credits allowed for return of defective products. If Products are sold in
transactions which are not bona fide arms-length transactions, Net Sales Value
for such sales shall be valued as equal to the commercial sale of similar
Products to unrelated third parties in similar quantities.
1.7. "Products" means compositions containing ISI Interferon, designated,
detailed, or labelled for oral use in any non-human species.
1.8. "Reformulated Product" means Manufactured Product diluted or otherwise
reformulated by ISI at ACC's expense, pursuant to ACC's requirements.
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1.9. "Sublicensee" shall mean any person or entity licensed by ACC under
patents and/or Technical Information owned by or licensed to ACC for the use and
sale of interferon-containing products for oral administration to nonhuman
species.
1.10. "Technical Information" means all information, reports, results,
inventions, licenses, know-how, improvements, materials, and any other technical
and scientific data, specifications and formulae directly related to
development, regulatory approval, manufacture, testing, use, marketing and/or
sale of Products or other interferon-containing compositions, and any non-public
information relevant to the business of the Parties which is necessarily
disclosed by one to the other during the Parties' performance under this
Agreement. "ACC Technical Information" refers to Technical Information
originating with ACC or which ACC has developed through its contractual
relationships with third parties. For the purpose of this Agreement, ACC
Technical Information shall include Technical Information from Sublicensees
pertinent to development, manufacture and sale of Products by said Sublicensee.
"ISI Technical Information" refers to Technical Information originating with ISI
or which ISI has obtained through its contractual relationships with third
parties. "Technical Information" when not otherwise
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specified herein means both ACC Technical Information and ISI Technical
Information.
ARTICLE II
ISI OBLIGATIONS
2.1. Subject to the terms and conditions of this Agreement, ISI shall
supply Manufactured Product for oral use in non-human species exclusively to
ACC, and to no other persons or entities. Manufactured Product shall be supplied
in response to issuance by ACC of written purchase orders delivered to ISI
specifying the identity of the quantity to be supplied, along with any special
instructions/requests regarding supply and/or delivery.
2.2. ISI agrees to allow right of reference to ISI's FDA Drug Master File
for ISI Interferon and to do such other acts that are reasonably necessary, and
within ISI's control, to facilitate FDA approval of Products, and ISI also
hereby agrees to consult with ACC concerning FDA regulatory affairs, to review
ACC documents to be submitted to FDA, to provide persons knowledgeable in FDA
regulatory affairs for periodic travel to FDA, and to take such other actions as
may be necessary from time to time to facilitate FDA approval of ISI
Interferon-containing formulations for non-human use. ISI further agrees to
provide, subject to compliance with applicable FDA regulations, sufficient ISI
Interferon for
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formulation development, preliminary animal studies and clinical trials as are
appropriate and necessary to support application for FDA approval and
commercialization of Products. ISI's provision of ISI Interferon for animal
testing and formulation development purposes shall be at no direct cost to ACC
as long as no more than fifteen (15) million IU are required by ACC during any
six (6) month period for such testing and development.
2.3. Upon request by ACC, ACC and ISI agree to negotiate in good faith to
enter into an agreement for delivery of Reformulated Products in labeled
containers, ready for delivery to end-users, including instructions. ISI shall
be entitled to additional compensation for such packaging, labels and
instructions, which compensation will be based upon ISI's actual out-of-pocket
costs to provide such packaging, labelling and instructions, including, without
limitation, development costs. ACC and ISI agree to negotiate in good faith,
upon request by ACC for such packaging, labelling, and instructions, to agree to
any further matters as to which agreement may be required, such as materials
employed, manufacturing and production time, delivery dates, etc.
In the event ISI, in the course of reformulating Manufactured Product into
Reformulated Product, should
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discover any novel, patentable technology, such technology shall be the sole
property of ISI.
2.4. In the event ISI is sued by any person or entity for infringement of
any United States patent relating to the production of ISI's IFN ALFA-N3, ISI
may elect, at its sole discretion, during the time period such suit remains
pending or on appeal, to terminate deliveries in the United States to ACC under
this Agreement; in which case, ACC shall not be required to recommence accepting
deliveries in the United States except upon its prior written consent. In
addition, at ACC's request, and upon receipt by ISI from ACC of ISI's estimated
out-of-pocket costs of compliance, ISI will undertake to make its best effort to
modify the formulations and protocols of ISI's IFN ALFA-N3, to avoid any alleged
conflict with any patents. ISI does not hereby guarantee the success of any such
undertaking.
ARTICLE III
CONSIDERATION TO ISI; DUE DILIGENCE
3.1. ISI shall receive a transfer fee from ACC in the amount of
per million international units ("IU") (the "Base Price") of
Manufactured Product delivered by ISI to ACC, or for ACC's account, pursuant to
the terms and conditions of this Agreement.
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The risk of loss or damage in shipping shall be borne by ACC. The Base
Price shall be increased (but not decreased) on January 1, 1990 and January 1,
1991 by an amount equal to the Base Price multiplied by the percentage increase
in the Consumer Price Index (as hereinafter defined) (or such other index as the
parties may agree) since November 1, 1989. The Consumer Price Index shall mean
the Consumer Price Index for all Urban Consumers for New York, New York-
Northeastern New Jersey published by the Bureau of Labor Statistics, United
States Department of Labor, based on the period 1967 equaling 100, or the
supplement or successor thereto if publication of such index should be
discontinued. On January 1, 1992, and each January 1 thereafter, the price shall
be reset to an amount equal to the higher of (i) the Base Price, adjusted
through such date for CPI, or (ii) ISI's direct costs of manufacturing a vial of
Manufactured Product (excluding any depreciation costs) as of such date.
ISI shall make available to ACC its records reflecting its direct costs. If
ACC and ISI shall be unable to agree on price, they shall jointly appoint an
independent certified public accounting firm to make such determination, and the
determination of such firm shall be final and conclusive. The expenses of such
firm shall be equally shared by ACC and ISI.
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ISI shall also receive from ACC or Sublicensee a manufacturing and supply
fee equal to * of the Net Sales Value of products labeled for
use in equine species and * of the Net Sales Value of products
labeled for all other non-human species. In addition to the transfer and
manufacturing and supply fees, ISI shall receive * of any
license fee, option fee, or other payment, except royalty or specific research
or patent expense reimbursements, and except payments received by ACC for sale
of its stock at the then fair market value thereof, which ACC may receive for
the assignment or sublicense of rights under this Agreement to the sale and/or
use of ISI IFN ALFA-N3. The transfer and manufacturing and supply fees payable
to ISI for Manufactured Products delivered to ACC shall accrue on delivery and
shall be payable to ISI within forty-five (45) days of the close of the calendar
quarter in which the products are sold by ACC, and each calendar quarter
thereafter, and Products shall be considered sold when billed out.
3.2. For purposes of calculating the manufacturing and supply fee payable
under this ARTICLE III, "Products" as used in this ARTICLE III, and in Paragraph
1.6 of ARTICLE I, shall mean any human IFN ALFA-N3 containing packaged dose
formulations or compositions [except any interferon-
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containing product manufactured or produced by Hayashibara Biochemical
Laboratories, Inc., or its affiliates ("HBL")] designated or detailed and
labeled for oral use in non-human species, whether or not manufactured by ISI,
unless one of the following exceptions applies, in which case "Products", for
purposes of calculating the manufacturing and supply fee payable under this
ARTICLE III, shall have the meaning set forth in Paragraph 1.7:
Exception No. 1: If another human IFN ALFA-N3 is "clinically significantly
better" for a particular indication. "Clinically significantly better" shall
mean that it is better, with respect to a clinically significant attribute, as
determined from the results of a test, which test shall be designed by ACC. ACC
shall inform ISI of all test specifications and parameters, and will make any
changes reasonably requested by ISI. The means of the variables will be tested
at alpha = .05, and beta error and power of test will be calculated. The power
must be eighty percent (80%) or greater. Mean separations will be calculated by
an approved statistical method. If the test result indicates that there is a
ninety-five percent (95%) or better probability that the other IFN ALFA-N3
performs more favorably with respect to the clinical response being tested, then
said IFN ALFA-N3 shall be deemed, for purposes of this Agreement,
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to be "clinically significantly better" than the ISI IFN ALFA-N3.
Exception No. 2: If it is not economically feasible to use ISI's IFN
ALFA-N3 in the market in question. The determination of economic feasibility
shall be made by ACC, but such determination shall be reasonable, and made in
good faith. Specifically, the mere availability of a less expensive human IFN
ALFA-N3 shall not constitute or render ISI's IFN ALFA-N3 "economically
unfeasible". By way of explanation, and not by way of limitation, the following
circumstances would constitute ISI's IFN ALFA-N3 "economically unfeasible":
(a) If ACC shall be required to pay to ISI and any other person or
entity, exclusive of University of Illinois and Texas A&M University,
combined royalties in excess of * of the Net Sales
Value of Products. ISI will assist ACC, upon request by ACC, in negotiating
a royalty to any person or entity for use and/or infringement of any United
States patent, and will attempt to negotiate such royalty at the lowest
rate possible; in the event such negotiated royalty should exceed *
of Net Sales Value, then ISI hereby agrees to a reduction in
the royalty payable to it under Paragraph 3.1, above, so that the combined
royalties payable by ACC to ISI and all other
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persons or entities combined shall not exceed * of Net
Sales Value of Products sold for use in equine species, and *
of the Net Sales Value of Products sold for use in other non-human
species; provided further, however, that ISI shall not be required, without
its consent, to reduce the royalty payable to ISI under Paragraph 3.1,
above, for sales of products labeled for non-equine, non-human species, to
less than * , but if ISI should decline to reduce
such royalties payable to it to less than * , and if the
combined royalties payable by ACC to ISI and all other persons or entities
combined, exclusive of payments to University of Illinois and Texas A&M
University, should exceed * , then ISI's IFN ALFA-N3
would be deemed "economically unfeasible"; or
(b) If ACC and/or ISI shall have been sued by any person or entity
with respect to an alleged patent violation. In such case, ISI's human IFN
ALFA-N3 would be once again deemed "economically feasible" if such lawsuit
(including any appeal thereof) were settled, dismissed, or otherwise
finally concluded favorably to ISI and/or ACC, or if a license fee
acceptable to ACC were negotiated with such other person or entity, and a
license fee negotiated with such other person or entity shall be
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deemed acceptable to ACC as long as combined royalties payable by ACC
to ISI and all other persons or entities combined, exclusive of payments to
University of Illinois and Texas A&M University, should not exceed fifteen
percent (15%).
Exception No. 3: ISI shall be unable to provide ACC's bona fide
requirements of Manufactured Product for a period of at least six (6) months. In
such case, ACC agrees to use ISI IFN ALFA-N3 in its products, to the extent it
is available, in preference to use of all interferons, other than HBL
interferons; provided, however, that once ACC has applied for regulatory
approval or commenced sale or use of an Interferon other than ISI IFN ALFA-N3 or
HBL interferon in a particular market or markets because of the unavailability
of ISI IFN ALFA-N3, then ACC may thereafter continue with the regulatory
approval, sale or use of such non-ISI/HBL Interferon in such markets, and such
activities shall continue to fall within this Exception No. 3, even though ISI
IFN ALFA-N3 becomes available after the commencement of the regulatory approval
process, sale, or use of such non-ISI/HBL Interferon.
Exception No. 4: Any sales under that certain agreement dated October 14,
1988 by and between ACC and
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ZOECON CORPORATION, a Sandoz company (the "Zoecon Agreement"). Under the Zoecon
Agreement, ACC has licensed to ZOECON CORPORATION rights pertaining to the use
of interferon in the canine and feline species. This Exception No. 4 shall
terminate and be of no further force or effect upon the expiration or
termination for any reason of the Zoecon / Agreement.
Exception No. 5: Any sales, aggregating less than * in retail sales
per annum, provided that if the sales exceed * per year ACC will pay ISI
* of the net sales under an agreement to be entered into by and between ACC
and DR. MAX GARRISON and/or MICRO CHEMICAL, INC., a Texas corporation (the
"Garrison Agreement"). The Garrison Agreement will provide only for a
non-exclusive, non-transferrable license to DR. GARRISON or MICRO CHEMICAL, INC.
or their nominee, for manufacture and/or sale exclusively within the State of
Texas, of natural human interferon for use solely in the bovine species. This
Exception No. 5 shall terminate, and be of no further force or effect, upon the
expiration, or termination for any reason, of the Garrison Agreement.
Except for sales and activities falling within Exceptions No. 1 through 5,
above, ACC agrees to utilize ISI Interferon in preference to all other
interferons except HBL Interferon.
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3.3. ACC shall maintain records of all ACC expenditures with respect to its
business efforts toward development of Products hereunder and such records shall
be sufficient to show the clinical indication for which each such expenditure is
made. ACC shall provide ISI by January 31 of each year during the term of this
Agreement, and upon the expiration of three (3) years from the date of this
Agreement, a report of ongoing efforts for the development of each clinical
indication for Products, including a report of all expenditures by ACC for each
indication with respect to formulation development, pre-clinical and clinical
testing, regulatory approval efforts, manufacturing facility
development/procurement, product packaging, marketing/sales strategy, and any
other areas into which ACC's reasonable business efforts in accordance with this
paragraph should reasonably be categorized. Such a report shall be prepared more
often if ISI so requests in writing, and if ISI pays to ACC the expenses
incurred by ACC in generating such additional reports. It is understood that ISI
will receive such information as ACC Technical Information, and ISI shall use it
only for the purpose of monitoring ACC's efforts to develop Products under this
Agreement.
3.4. Upon the expiration of three (3) years from the date of this
Agreement, ACC shall provide to ISI within
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thirty (30) days of ISI's request, copies of all data relating to the
development of Products generated by ACC or by others for ACC during the term of
this Agreement to that date.
ACC shall expend a total of at least *
over a three (3) year period, for all indications
combined, toward development of Products hereunder.
3.5. This Agreement, and all rights granted hereunder by ISI to ACC, may be
terminated by ISI upon the expiration of five (5) years from the date hereof,
unless ACC shall be marketing Products in the United States at that date;
provided, however, that such termination date shall be extended from year to
year, and this Agreement shall not be terminable, so long as ACC continues to
expend a minimum of * per year
toward development of Products hereunder ("Extension Payments"). If ACC should
elect to continue this Agreement in force by making such Extension Payments, ACC
shall so notify ISI in writing within thirty (30) days of the expiration of five
(5) years from the date of this Agreement. Thereupon, ACC shall have a period of
twelve (12) calendar months during which to make such expenditures, and to
document the same to ISI. If ACC wishes, ACC may, at its election, satisfy said
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Extension Payment obligation by paying said Extension Payment to ISI within said
twelve (12) month period, in which case said payment shall be treated as prepaid
royalty, and applied to future obligations payable by ACC to ISI under ARTICLE
III of this Agreement. If sufficient royalties shall not have been earned by ISI
under the terms of this Agreement prior to its termination to offset all such
prepaid royalties, then any excess amounts of prepaid royalties shall be
nonrefundable, and shall be retained by ISI.
If at any time after the expiration of five (5) years from the date hereof
ACC should commence marketing Products in the United States under this
Agreement, then ACC shall thereupon no longer be required to make Extension
Payments to hold this Agreement in force, but ACC shall not be entitled to the
return or refund of any Extension Payments theretofore made. If at anytime after
the expiration of five (5) years from the date of this Agreement, ACC should no
longer be marketing any Products in the U.S., then this Agreement and ACC's
rights thereunder shall thereupon be terminable at the option of ISI, unless ACC
begins or recommences such Extension Payments all as set forth above. Until the
termination of this Agreement pursuant to ARTICLE V, ACC may hold this Agreement
in force at all times after expiration of five (5) years from the date hereof,
by either
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(i) marketing Products in the U.S., or (ii) making Extension Payments.
3.6. In the United States, ACC shall commence marketing of each Product
within one hundred eighty (180) days after receiving approval of the New Animal
Drug Application ("NADA") for that Product.
3.7. Upon request by ISI, ACC shall provide ISI a list of each country,
other than the United States, in which ACC is marketing Product, identifying the
Products, and details of distribution, for each such country.
3.8. Nothing in this Agreement is intended to burden ACC with any
development requirements whatsoever relating to species other than swine, cattle
or poultry.
3.9. ACC shall have the right to grant sublicenses under the License
granted herein. All shall sublicenses shall be made expressly subject to the
terms and provisions of this Agreement. ACC shall, within thirty (30) days of
the execution of each sublicense, provide to ISI a copy of each sublicense
granted hereunder and shall promptly advise ISI in writing of any modification
(any supply a copy of same) or termination of each sublicense. Upon termination
of this Agreement, all such sublicenses shall be automatically terminated, and
all such sublicenses shall contain an express provision to that effect.
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ARTICLE IV
REMITTANCES, RECORDS, REPORTS, PROJECTIONS,
AND PRODUCTION CAPACITY
4.1. ACC and its Affiliates shall keep accurate records in sufficient
detail to enable determination of the fees payable to ISI hereunder. ACC shall
require the same of Sublicensees. ISI shall have the right to designate an
independent public accountant, acceptable to and approved by ACC, its Affiliates
or Sublicensees whose records are to be inspected in accordance with this
paragraph, which approval shall not be unreasonably withheld. Once in each
calendar year, said accountant shall have access to the records of ACC and its
Affiliates and Sublicensees relating to fee payments under this Manufacturing
and Supply Agreement during reasonable business hours for the purpose of
verifying the accuracy of the reports and payments made during the calendar year
and/or the preceding calendar year. Said accountant shall disclose to ISI only
information relative to the accuracy of the reports and the payments made in
accordance with this Agreement, and in no event are sales, quantities and prices
to individual customers to be disclosed to ISI. Any and all fees charged by said
accountant shall be paid by ISI, except if ISI's auditor should find
discrepancies in ACC's and/or any of its Affiliates or Sublicensees quarterly
reports that resulted in under-reporting or underpayment of fees on sales
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of Products by a factor greater than ten percent (10%) of the amount due, ACC,
its Affiliates or Sublicensee, as appropriate, shall reimburse ISI for the cost
of that audit.
4.2. Payment of fees to ISI hereunder shall be made within forty-five (45)
days following the end of each calendar quarter of each year for all Products
sold by or for ACC and its Affiliates and or its Sublicensees during said
calendar quarter, beginning with the calendar quarter in which Products are
first sold by ACC, its Affiliates, or one of its Sublicensees. Such fee payment
shall be accompanied by a statement certified by an officer of ACC or its
Affiliate or Sublicensee as appropriate, which provide sufficient information
from which to calculate the amount of fees due hereunder, including the total
quantity and Net Sales Value of Products sold for which a fee has accrued during
the preceding calendar quarter and the aggregate fees due. A statement shall
also be submitted to ISI in the event that no sales of Products are made.
4.3. Payments hereunder shall be made in U.S. Dollars. With respect to
sales of Products in countries outside the United States, manufacturing and
supply fees shall accrue in the currency of the country in which the sales are
made and shall be payable to ISI in U.S. Dollars at
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the official rate of exchange prevailing on the last day of the quarter during
which the royalties accrued.
4.4. ACC shall require in its agreements with all of its Sublicensees that
said Sublicensee shall comply with the record keeping, fee payment and record
review provisions of this Agreement.
4.5. Within ninety (90) days of the date hereof, ACC will furnish ISI with
its projected requirements for Manufactured Product(s) during the remainder of
1989, and for 1990. The projected requirements for such periods shall be at
least ten (10) million IU per month. Subject to Paragraph 4.6, ISI shall use its
best efforts to deliver the Manufactured Product(s) in accordance with ACC's
projected requirements.
4.6. ISI agrees to maintain the capacity to manufacture at least ten (10)
million IU of Manufactured Product per month, through December 31, 1990, and at
least fifty (50) million IU per month, from and after January 1, 1991, for sale
and delivery to ACC under this Agreement. ISI also agrees to exercise its best
effort to manufacture and deliver such additional quantities of Manufactured
Product as may be necessary to provide ACC with its bona fide marketing
requirements (hereinafter, "Additional Quantities"). If in spite of exercising
its best efforts, should ISI still be
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unable to furnish Additional Quantities requested by ACC from time to time in
the future, then ACC shall have the right (but not the obligation) to fund, at
ACC's sole cost and expense, such expansion of ISI's manufacturing capacity as
may be necessary, in order to satisfy such requirements.
4.7. ISI agrees that ACC may place into inventory or stockpile any amounts
of Manufactured Product purchased hereunder, as ACC may deem necessary to
provide for its future needs.
4.8. If at any time ISI should be unable to supply Additional Quantities,
then ACC may obtain and use an alternative interferon or interferons. ACC may
begin clinical trials with respect to such other interferons, in anticipation of
its possible requirement to use such interferons in the future.
ARTICLE V
WARRANTIES
ISI warrants to ACC that Manufactured Product delivered to ACC, its
Affiliates, or Sublicensees shall be FDA approved product. It is understood that
ISI makes no other warranty, express or implied, and all implied warranties or
warranties of merchantability and fitness for a particular purpose which are
beyond the aforesaid stated warranty obligations are hereby disclaimed and
excluded.
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ARTICLE VI
DISCLAIMERS AND INDEMNIFICATION
6.1. ISI makes no representation or warranty that the manufacture of
Manufactured Products or sale of Products will not infringe any third party
patent, nor does ISI assume any obligations with respect to infringements of
patents of others arising as a result of ACC's activities under this Agreement
except as otherwise expressly provided in this Agreement.
6.2. ISI makes no covenant either to defend any infringement charge by a
third party or to initiate action against infringers of any of its patents
except as otherwise expressly provided in this Agreement.
6.3 ISI makes no representation or warranty concerning the potential
profitability of sales of Products and shall not be liable for failure of
licensee to obtain a profit or income from such sales.
6.4. ISI SHALL NOT BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY,
EXCEPT AS ELSEWHERE EXPRESSLY SET FORTH IN THIS AGREEMENT, AS TO THE CONDITION,
MERCHANTABILITY, DESIGN, FUNCTION OR FITNESS FOR USE OF PRODUCTS. ISI EXPRESSLY
MAKES NO WARRANTY OF VALIDITY OF ITS PATENTS.
6.5. ACC agrees that it shall indemnify and save ISI harmless from any and
all claims, demands, actions and
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causes of action against ISI, whether groundless or not, in connection with any
and all injuries, losses, damages or liability of any kind whatsoever, arising,
directly or indirectly, out of the use, distribution, and/or sale of Products by
or through ACC or its Affiliates or Sublicensees, provided that the Manufactured
Product to which said claim or claims pertain complies with FDA requirements at
the time of its delivery. ISI shall notify ACC in writing within ten (10) days
of its receipt of any claim, demand or lawsuit. Upon assumption by ACC of its
duty to defend, ACC will have control of the claim, demand or lawsuit, and
except as may be necessary to prevent lapse of its legal rights, ISI shall be
required to incur no expense with regard to said claim, demand or lawsuit. ISI
shall, at ACC's request, provide reasonable assistance in defense of any such
claim, demand or lawsuit.
6.6. ISI shall indemnify and hold harmless ACC, its employees, Affiliates
and Sublicensees from any and all judgments, liabilities, costs and expenses,
including attorneys' fees, in connection with any claims, demands, and lawsuits
arising from the sale of Products prepared from Manufactured Product not in
compliance with FDA requirements as of the time of delivery, and further in
connection with any claims, demands or lawsuits alleging non-compliance with
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applicable State or Federal Regulations during formulation/manufacture of
Manufactured Products, and for infringement of any property right, including
patent, trademark, copyright, or trade secret, arising out of the use of any
apparatus, method or raw material by ISI to produce and/or formulate
Manufactured Product. ACC shall notify ISI in writing within ten (10) days of
its receipt of any claim, demand or lawsuit. Upon assumption by ISI of its duty
to defend, ISI will have control of the claim, demand or lawsuit and, except as
may be necessary to prevent lapse of its legal rights, ACC shall be required to
incur no expense with regard to said claim, demand or lawsuit. ACC shall, at
ISI's request, provide reasonable assistance in the defense of any such claim,
demand or lawsuit.
ARTICLE VII
TERM OR TERMINATION; DEFAULT
7.1. Unless sooner terminated as hereinafter provided, this Agreement shall
remain in effect for a period of seven (7) years from the date of ISI's receipt
of the first purchase order for Manufactured Product hereunder. After that
initial term, the Agreement shall be automatically renewed for successive three
(3) year terms ("Renewal Terms") as long as the Net Sales Value of Products sold
by ACC, its Affiliates, or Sublicensees exceeds *
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* during the last calendar year of the previous term, unless
ACC notifies ISI at least ninety (90) days prior to the end of the initial term
or of any Renewal Term of its election to terminate this Agreement.
7.2. ISI may terminate this Agreement at any time after the end of the
first Renewal Term if Net Sales Value for the last preceding calendar year did
not exceed * , by providing written notice
to ACC at least one hundred twenty (120) days prior to the effective date of
such termination.
7.3. If ACC shall at any time during the initial term or any subsequent
Renewal Term of this Agreement default in any obligation hereunder or fail to
pay any payment due from ACC, and such default shall no' be cured within sixty
(60) days after written notice from ISI to ACC specifying the nature of the
default, ISI may terminate this Agreement, or may demand specific performance.
7.4. If ISI shall, at any time during the initial term or any subsequent
Renewal Terms of this Agreement, default in any obligation hereunder and such
default shall not be cured within sixty (60) days after written notice form ACC
to ISI specifying the nature of the default, ACC may terminate this Agreement,
or may demand specific performance.
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7.5. Any termination pursuant to this Article shall not relieve ISI of any
obligation to fill purchase orders placed with ISI prior to termination.
Similarly any termination shall not relieve ACC of any obligation to ISI to pay
royalties for sales of Product(s) containing ISI Interferon delivered by ISI
prior to termination.
7.6. The exercise by either Party of any right of termination shall not
constitute a waiver of any other rights or remedies available to such party for
violation of the terms of this Agreement or under applicable law.
ARTICLE VIII
CONFIDENTIALITY
8.1. ACC owns or is licensed under confidential or secret information
relating to Manufactured Products and the use of same in non-human species, and
it is the intention of ACC to maintain this confidentiality.
8.2. ISI Possesses trade secrets and technical and marketing information
that are proprietary to ISI, and it is its intention to maintain the
confidentiality of its proprietary information.
8.3. Each Party agrees to maintain confidential and secret all information
which may be disclosed or provided to it by the other Party and that the Parties
may together
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subsequently acquire in relation to Products or Manufactured Products or
Reformulated Products and which is designated in writing by clearly identifiable
legend as being confidential or secret in character.
8.4. Each Party's obligation to the other (to maintain confidentiality)
hereunder shall terminate with respect to any particular item and only said item
of the disclosing Party's confidential information, when the recipient Party can
demonstrate that such item of information:
8.4.1. Is publicly known and available through some means other than
by the recipient Party's act or omission; or
8.4.2. Was in the recipient Party's possession prior to its disclosure
by the other Party, provided that written evidence of such possession is
established; or
8.4.3. Has come into the recipient Party's possession through a third
party free of any obligation- of confidentiality to the disclosing Party,
where said third party has acquired said information lawfully and not under
circumstances forbidding its disclosure.
8.5. Neither Party will permit confidential or secret information or any
part thereof to be disclosed to third parties or to employees except on a
"need-to-know"
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basis and each will maintain confidential or secret information and/or documents
with the same precautions it uses to safeguard its own confidential or secret
information.
8.6. Each Party will notify the other promptly if it has knowledge that a
third party possesses confidential or secret information of the other Party
related to Products or Reformulated Products or Manufactured Products.
8.7. ACC shall have the right to reference ISI's FDA Drug Master Files for
ISI's Interferon ALFA-N3, in seeking FDA approval for Products. In addition, ACC
shall have the right, on request, to receive from ISI all information and data
used or developed by ISI in manufacturing Reformulated Products, in the event
ACC has contracted with a third party for the manufacture of such Products.
ARTICLE IX
MISCELLANEOUS
9.1. Survival. ARTICLES VII, VIII, and IX shall survive any termination of
this Agreement.
9.2. Purchase Orders. All purchase orders placed by ACC, its Affiliates or
its Sublicensees for Manufactured Products shall be subject to the terms and
conditions of this Agreement, notwithstanding any other agreements between the
Parties or contrary provisions in any documents related to the orders.
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9.3. Force Majeure. The failure of ISI, any of its Affiliates or
Sublicensees or ACC to take any act required by this License Agreement if
occasioned by an act of God or the public enemy, fire, explosion, perils of the
sea, floods, drought, war, riot, sabotage, accident, embargo or any circumstance
of like or different character beyond the reasonable control of the Party so
failing or by the interruption or delay in transportation, inadequacy, or
shortage or failure of the supply of materials and/or equipment, equipment
breakdown, labor trouble or compliance with any order, direction, action or
request of any governmental officer, department or agency and whether in any
case such circumstance now exists or hereafter arises, shall not subject said
Party to any liability to the other.
9.4. Arbitration. The parties hereto desire to avoid and settle without
litigation future disputes which may arise between them relative to this
Agreement. Accordingly, the parties agree to engage in good faith negotiations
to resolve any such dispute. In the event they are unable to resolve any such
dispute by negotiation, such dispute shall be submitted to arbitration as
follows: If arbitration is initiated by ISI, it shall be held in the State of
Texas, U.S.A. in compliance with the Commercial Arbitration Rules of the
American Arbitration Association. If arbitration is
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initiated by ACC, it shall be held in New York, New York in compliance with the
Rules of the Commercial Arbitration Rules of the American Arbitration
Association. The arbitration award shall be final and binding upon the parties
hereto and may be filed with and enforced by any court of competent jurisdiction
to enforce said award.
9.5. Communication. Any payment, notice or other communication required or
permitted to be made or given to either Party hereto pursuant to this Agreement
shall be sufficiently made or given on the date of sending if sent to such Party
by certified or registered mail or by Federal Express or a similar overnight
courier service, postage or delivery charge prepaid, or by telex or telefax
addressed to it at its address set forth, or to such other address(es) as it may
designate by written notice given to the other Party as follows:
In case of ISI:
Dr. Sam Ronel, President
Interferon Sciences, Inc.
783 Jersey Avenue
New Brunswick, New Jersey 08901
and
Ms. Irene Frangos
National Patent Development Corp.
9 West 57th Street
New York, New York 10019
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In case of ACC:
Dr. Joe Cummins, President
Amarillo Cell Culture Company, Inc.
6666 Amarillo Boulevard West
Amarillo, Texas 79106
9.6. Amendments to Agreement. This Agreement constitutes the entire
agreement between the Parties hereto with respect to ISI's manufacture and
supply of Manufactured Products and ACC's sale of Products, and supersedes all
previous arrangements whether written or oral. Any amendment or modification of
this License Agreement shall be effective only if made in writing, and executed
by both Parties.
9.7. Assignment. This Agreement shall not be assignable by ISI to any
person or entity other than an ISI Affiliate without the prior written consent
of ACC, which consent shall not be unreasonably withheld. This Agreement shall
not be assignable by ACC to any person or entity other than an ACC Affiliate or
a Sublicensee without the prior written consent of ISI, which consent shall not
be unreasonably withheld.
9.8. Enforceability. If one or more of the provisions of this Agreement
shall be held to be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired thereby. To the extent permitted by law, each Party waives
any provision of law
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which renders any provision herein invalid, illegal or unenforceable in any
respect.
9.9. Nature Of Relationship. Nothing herein shall be construed to place the
Parties in a relationship of partners or joint venturers, nor does this
Agreement make either Party the agent or legal representative of the other for
any purpose whatsoever. The Parties further agree that no representation shall
be made by either Party that would create an apparent agency, employment,
partnership or joint venture. Neither Party shall have the power, express or
implied, to obligate or bind the other in any manner whatsoever.
9.10. Headings. The headings of the several sections of this Agreement are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
9.11. Waiver. No provision of this Agreement shall be deemed waived, unless
such waiver is in writing and signed by the Party against which the waiver is
sought to be enforced. The waiver by either of the Parties hereto of any breach
of any provision hereof by the other Party shall not be construed to be either a
waiver of any succeeding breach of any such provision or a waiver of the
provision itself.
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IN WITNESS WHEREOF, the Parties hereunto have caused this Manufacturing and
Supply Agreement to be executed in duplicate by their duly authorized
representatives as of the date first above written.
ACC:
AMARILLO CELL CULTURE COMPANY,
INCORPORATED
By: /s/ Joseph M. Cummins
--------------------------------
Dr. Joseph M. Cummins
ISI:
INTERFERON SCIENCES, INC.
By: /s/ Sam Ronel
--------------------------------
Dr. Sam Ronel
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<PAGE>
JOINT DEVELOPMENT AND MANUFACTURING/SUPPLY AGREEMENT
THIS AGREEMENT is made and effective this 13th day
of March, 1992, by and between AMARILLO CELL CULTURE COMPANY,
INCORPORATED, a Texas corporation with it principal place of
business at 2505 Lakeview Drive, Suite 104, Amarillo, Texas
79109-1527 (hereinafter "ACC") and HAYASHIBARA BIOCHEMICAL
LABORATORIES, INC., with its principal place of business at
2-3, Shimoishii 1-chome, Okayama 700, Japan (hereinafter "HBL")
(ACC and HBL collectively referred to hereinafter as the
"Parties").
WHEREAS, HBL has substantial expertise in the
production and use of hamster culture derived human
lympho-bastoid interferon (hereinafter "IFN-a") and has
proprietary rights and know-how in the field of production,
purification and formulation of IFN-a;
WHEREAS, ACC desires to promote applications of its
proprietary technology relating to oral administration of
interferon in all species and desires to make available to its
human and animal health licensees or distributors
preformulated interferon-containing compositions packaged and
labeled for use and sale consistent with ACC's distribution
needs or ACC's grant of license to said human or animal health
licensees;
<PAGE>
WHEREAS, HBL and ACC desire to enter into a joint
development arrangement, pursuant to which HBL will render a
broad range of support and assistance to ACC, both as an
interferon supplier and as a development partner;
WHEREAS, ACC desires to have the exclusive right to
distribute HBL IFN-a for oral use in non-human warm-blooded
species worldwide, and in human species worldwide except
Japan;
WHEREAS, ACC and HBL have heretofore entered into
that certain Manufacturing and Supply Agreement effective
October 4, 1989, which Agreement is hereby terminated, and
superseded in its entirety by the present Agreement;
NOW, THEREFORE, for and in consideration of the
mutual covenants contained herein, HBL and ACC agree as
follows:
ARTICLE I
DEFINITIONS
1.1. "Agreement" means this Joint Development and
Manufacturing/Supply Agreement.
1.2. "Sublicensee" shall mean any person or entity
licensed by ACC under patents and/or Technical Information
owned by or licensed to ACC for the use and sale of
interferon-containing products for oral administration to any
warm-blooded species. Copies of all sublicenses and
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documents relating thereto will be submitted to HBL within
thirty (30) days of execution.
1.3. "Affiliate" means a corporation, company,
partnership, or other business entity which controls or is
controlled by, or is under common control with, the
designated party. In the case of a corporation, "control"
means ownership either directly or indirectly of at least
fifty percent (50%) of the shares of stock entitled to vote
for the election of directors.
1.4. "Manufactured Product(s)" shall mean HBL
interferon-containing products, which meet all product
specifications contained in the Product Specification Sheet.
1.5. "Product Specification Sheet" for any
Manufactured Product means a listing of product
specifications for each Manufactured Product named to this
Agreement, as prepared by ACC and/or the Sublicensee for whom
said product is to be manufactured, and shall include all
specifications necessary and appropriate under applicable
laws or regulations to define the product formulation, its
container, labeling and package design.
1.6. "Net Sales Value" shall mean the gross
selling price of a Manufactured Product or other
interferon-containing product, as the case may be, sold by
ACC, its Affiliates or Sublicensees, after the product is
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diluted into packaged dose formulations or compositions
designated or detailed and labeled for oral use in any
warm-blooded species, including all packaging, instructional or
other charges made to a purchaser, but less ACC's actual
out-of-pocket costs related to packaging, labeling, and
instructional materials, and less customary trade discounts or
credits allowed for return of defective products. If products
are sold in transactions which are not bona fide arms-length
transactions, Net Sales Value for such sales shall be valued as
equal to the commercial sale of similar product to unrelated
third parties in similar quantities.
1.7. "Technical Information' means all information,
reports, results, inventions, licenses, know-how, improvements,
materials, and any other technical and scientific data,
specifications and formulae directly related to development,
regulatory approval, manufacture, testing, use, marketing and/or
sale of Manufactured Product or other interferon-containing
compositions, and any non-public information relevant to the
business of the Parties which is necessarily disclosed by one to
the other during the Parties' performance under this Agreement.
"ACC Technical Information" refers to Technical Information
originating with ACC or which ACC has developed through its
contractual relationships with third parties. For the purpose of
this Agreement, ACC
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Technical Information shall include Technical Information from
Sublicensees pertinent to development, manufacture and sale of
Manufactured product or other interferon-containing
compositions by said Sublicensee. "HBL Technical Information"
refers to Technical Information originating with HBL or which
HBL has obtained through its contractual relationships with
third parties. "Technical Information" when not otherwise
specified herein means both ACC Technical Information and HBL
Technical Information.
1.8. "HBL Interferon" means the natural IFN-a used
for the formulation of HBL's natural IFN-a-containing
formulation(s) for use in the treatment of human renal cell
carcinoma in Japan, presently under the manufacturing and
commercializing approval of the Ministry of Health and Welfare
in Japan, and which is produced, purified and formulated by
HBL utilizing HBL Technical information. HBL Interferon shall
be utilized in the formulation of Manufactured Product
hereunder.
ARTICLE II
HBL OBLIGATIONS
2.1. Subject to the terms and conditions of this
Agreement, HBL shall supply HBL Interferon for low dosage,
oral use in non-human warm-blooded species worldwide, and for
low dosage, oral use in human species worldwide excepting
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Japan, exclusively to ACC and/or Sublicensee, and to no other
persons or entities. HBL shall formulate, manufacture, and
supply Manufactured Product in accordance with Product
Specification Sheets for delivery to ACC and/or Sublicensee
f.o.b. HBL's manufacturing facilities. Manufactured Product
shall be delivered for shipment to ACC or its Sublicensee in
tablet or lozenge form, or, at ACC's request, packaged in bulk.
Manufactured Product shall be supplied in response to issuance
by ACC or Sublicensee of written purchase orders delivered to
HBL specifying the identity of the Manufactured Product(s),
and the quantity to be supplied, along with any special
instructions/requests regarding the supply and/or delivery of
the specified product or products.
2.2. Manufactured Products produced by HBL hereunder
shall conform to all specifications listed on the corresponding
Product Specification Sheet(s). HBL shall make no change in
the raw materials, place of manufacture, method of manufacture,
or quality control testing of Manufactured Products unless
agreed to in advance by ACC and/or Sublicensee in writing. HBL
will supply with each shipment of Manufactured Products a
certificate of compliance with the respective Product
Specification Sheet and HBL shall provide, upon request,
quality control data and records setting forth the basis of
such certificate of compliance.
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2.3. HBL agrees to cooperate with ACC and/or Sublicensee
to assist with their development of a Product Specification Sheet
for each Manufactured Product. HBL agrees to allow right of
reference to HBL's FDA Biologics Master File for HBL Interferon and
to do such other acts that are reasonably necessary, and within
HBL's control, to facilitate FDA approval of HBL
Interferon-containing formulations for oral use (that is,
Manufactured Products diluted into packaged dose formulations or
composition designated or detailed and labeled for oral use in human
or non-human warm-blooded species). HBL further agrees to provide,
subject to compliance with applicable FDA regulations, sufficient
HBL Interferon for formulation development, preliminary human and
animal studies and clinical trials as are appropriate and necessary
to support application for FDA approval and commercialization of the
contemplated Manufactured Products.
2.4. Upon request by ACC, HBL will enter into an agreement
with ACC for delivery of Manufactured Products in labeled
containers, ready for delivery to end-users, including instructions.
HBL shall be entitled to additional compensation for such packaging,
labels and instructions, which compensation will be based upon HBL's
actual out-of- pocket costs to provide such packaging, labelling and
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instructions, including, without limitation, development
costs. ACC and HBL agree to negotiate in good faith, upon
request by ACC for such packaging, labelling, and
instructions, to agree to any further matters as to which
agreement may be required, such as materials employed,
manufacturing and production time, delivery dates, etc.
2.5. HBL shall provide nine million dollars U.S.
($9,000,000) in funding to ACC ("Research Funding"). The
funding schedule, which may be adjusted by mutual consent of
the Parties, shall be as follows:
During Calendar Year 1992 $3.5 million
During Calendar Year 1993 $4.0 million
During Calendar Year 1994 $1.5 million
HBL shall not be required to advance the 1993 and
1994 amounts to ACC unless and until INDA and INADA filings
required to be made by ACC under Paragraph 3.2, below, shall
have been timely made.
The Research Funding shall be used per business
plan(s) to be provided to HBL by ACC, but is summarized as
follows:
R&D on products for humans, U.S. $5.7 million
R&D on products for animal health $2.0 million
R&D on products for humans, International $1.3 million
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<PAGE>
ARTICLE III
CONSIDERATION; DUE DILIGENCE
3.1. HBL shall receive a transfer fee from ACC or
Sublicensee in the amount of * per 200 IU, 200
mg tablet or lozenge, or comparable tablet or lozenge, which
price shall include the interferon contained therein, maltose,
other required ingredients, interferon assays, and technical
assistance. If interferon is shipped in bulk, at ACC's
request, HBL shall still be entitled to the above described
transfer fee, based on the number of tablets manufactured from
the bulk product. If interferon is formulated, at ACC's
request, into tablets or lozenges by HBL in Japan, then in
addition to the above transfer fee, HBL shall also be entitled
to be reimbursed for incremental costs actually incurred by
HBL with regard to tableting and packaging, including labor
and materials. HBL shall also receive from ACC or Sublicensee,
as consideration for the Research Funding, a fractional,
undivided interest in future sales ("Royalty"), as follows:
a. * on the first one
hundred million dollars ($100,000,000) of Net Sales Value of
interferon-containing products sold by ACC for oral use in
humans, worldwide, and * on Net Sales Value
--------------
* Confidential treatment has been requested
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of all such products sold for such uses, over and above one
hundred million dollars ($100,000,000); and
b. * of Net Sales Value of
Manufactured Products sold by ACC for oral use in animals,
worldwide; and
c. * of Net Sales Value of
products containing interferons other than HBL interferon, for
oral use in animals, worldwide, until six million dollars
($6,000,000) has been received by HBL with respect to such
payments, and thereafter, * .
ACC shall provide to HBL, at least annually, proposed
budgets for the expenditure of the Research Funding. In
addition, there shall be created an Advisory Committee
consisting of at least four (4) persons, half of whom shall be
named by HBL and half of whom shall be named by ACC. The
Advisory Committee shall provide advice, assistance and
direction to ACC, with regard to the expenditure of the
Research Funding.
In addition to the transfer fees and Royalty, HBL
shall receive * of any license fee, option
fee, or other payment, except royalty or specific research or
patent expense reimbursements, which ACC may receive for the
sublicense of rights under this Agreement to the sale and/or
use of HBL Interferon (hereinafter, * . The transfer
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fees payable to HBL for Manufactured Products delivered to ACC
or Sublicensees shall accrue on delivery and shall be payable
to HBL within forty-five (45) days of the close of the
calendar quarter in which the products are sold to ACC or
Sublicensees, and each calendar quarter thereafter. The
* shall be payable to HBL within forty-five (45) days of the
close of the calendar quarter in which ACC receives any
payment from which such * fee should be calculated.
HBL shall also-have access to ACC Technical
Information for use in marketing HBL Interferon for use in
humans in Japan, and HBL is hereby granted by ACC a limited,
exclusive license under ACC Technical Information and certain
of its patents for oral use of HBL Interferon in humans in
Japan. HBL will pay ACC a future sales interest of *
of the Net Sales Value of sales of HBL
Interferon by HBL, its Affiliates, licensees or transferees,
for oral use in humans in Japan. For purposes of this
paragraph, "Net Sales Value" shall be calculated for sales by
HBL, its Affiliates, licensees or transferees in the same
manner as Net Sales Value is calculated for sales by ACC, its
Affiliates or sublicensees
3.2. ACC shall apply its reasonable efforts to
proceed with the development, regulatory approval process, and
marketing of at least two (2) clinical indications for
Manufactured Products, and shall file at least one (1)
Investigatory New Drug Application ("INDA"), and one (1)
Investigatory New Animal Drug Application ("INADA") for a
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Manufactured Product with the FDA within one (1) year of the
date of this Agreement. ACC shall maintain records of all ACC
expenditures with respect to its business efforts toward
development of Manufactured Products hereunder and such
records shall be sufficient to show the clinical indication
for which each such expenditure is made. ACC shall provide HBL
by January 31 of each year during the term of this Agreement,
a report of on-going efforts for the development of each
clinical indication for Manufactured Products, including a
report of all expenditures by ACC for each indication with
respect to formulation development, preclinical and clinical
testing, regulatory approval efforts, product packaging,
marketing/sales strategy, and any other areas into which ACC's
reasonable business efforts in accordance with this paragraph
should reasonably be categorized. Such a report shall be
prepared more often if HBL so requests in writing. It is
understood that HBL will receive such information as ACC
confidential information, and HBL shall use it only for the
purpose of monitoring ACC's efforts to develop Manufactured
Products under this Agreement.
3.3. At any time after one (1) year from the date of
this Agreement, ACC shall provide to HBL within thirty (30)
days of HBL's request, copies of all data relating to the
development of Manufactured Products generated by ACC or
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by others for ACC during the term of this Agreement to that
date. A determination shall thereupon be made, on an
indication-by-indication basis, identifying those clinical
indications as to which ACC has made a "significant
development effort". For the purposes of this Paragraph 3.3,
a "significant development effort" shall be deemed to have
been made with respect to each indication for which ACC has
either (1) made expenditures of at least *
for pre-clinical/clinical testing and for
which ACC has submitted to FDA an INDA or an INADA, or (2)
actually commenced lawful marketing of Manufactured Products
for that indication in any country.
3.4. With respect to all commercially viable
indications for any warm-blooded species for which the
"significant development effort" criteria under Paragraph 3.3
above have not been met, HBL shall continue to supply ACC
with HBL Interferon for use in such indications, but HBL
shall also be free to supply HBL Interferon to any other
entity, for use in such indications. This shall not be
construed as a license of rights under ACC patents or patent
applications, the only such license being as set forth in
Paragraph 3.1.
3.5. In the United States, ACC or its Sublicensee
shall commence marketing of each Manufactured Product within
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one hundred eighty (180) days after receiving approval of the
New Drug Application ("NDA") or the New Animal Drug
Application ("NADA") for that Manufactured Product.
3.6. ACC shall apply for regulatory approval in
Europe, Canada, and (for animal applications only) Japan, for
each Manufactured Product within one (1) year of ACC's
receipt of the approval of its NDA or NADA for that
Manufactured Product in the United States, and ACC (or its
Sublicensee) shall market that Manufactured Product in such
country within one (1) year of receiving regulatory approval of
that Manufactured Product in that country. For purposes of this
Paragraph 3.6, "Europe" shall be deemed to be the European
Economic Community ("EEC"), and application for approval
and/or marketing in any EEC member nation shall satisfy the
requirements of this Paragraph, with regard to Europe. Upon
request by HBL, ACC shall provide HBL a list of each country,
other than the United States, in which ACC or its Sublicensee
is marketing Manufactured Product, identifying the
Manufactured Products, and details of distribution, for each
such country.
ARTICLE IV
MANAGEMENT, REMITTANCES, RECORDS,
REPORTS, AND PROJECTIONS
4.1. ACC and its Affiliates or Sublicensees shall
keep accurate records in sufficient detail to enable
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determination of the fees and Royalty payable to HBL hereunder.
ACC shall require the same of Sublicensees. HBL shall
have the right to designate an independent public accountant,
acceptable to and approved by ACC, its Affiliates or
Sublicensees whose records are to be inspected in accordance with
this paragraph, which approval shall not be unreasonably
withheld. Once in each calendar year, said accountant shall
have access to the records of ACC and its Affiliates and
Sublicensees relating to fee and Royalty payments under this
Joint Development and Manufacturing/Supply Agreement during
reasonable business hours for the purpose of verifying the
accuracy of the reports and payments made during the calendar
year and/or the preceding calendar year. Said accountant may
disclose to HBL any information relative to the accuracy of
the reports and the payments made in accordance with this
Agreement. Any and all fees charged by said accountant shall
be paid by HBL, except if HBL's auditor should find
discrepancies in ACC's and/or any of its Affiliates or Sublicensees
quarterly reports that resulted in under-reporting or underpayment
of fees or Royalty by a factor greater than ten percent (10%) of the
amount due, ACC, its Affiliates or Sublicensee, as appropriate,
shall reimburse HBL for the cost of that audit.
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4.2. Payment of Royalty to HBL hereunder shall be made
within forty-five (45) days following the end of each calendar
quarter of each year for all products sold by or for ACC and its
Affiliates and/or its Sublicensees during said calendar quarter,
beginning with the calendar quarter in which products are first
sold by ACC, its Affiliates, or one of its Sublicensees. Such
Royalty payment shall be accompanied by a statement certified by
an officer of ACC or its Affiliate or Sublicensee as appropriate,
which provides sufficient information from which to calculate the
amount of the payments due hereunder, including the total quantity
and Net Sales Value of products sold for which a Royalty has
accrued during the preceding calendar quarter, and the aggregate
payment due. A statement shall also be submitted to HBL in the
event that no sales of products are made.
4.3. Payments hereunder shall be made in U.S. Dollars
and remitted to the bank account designated by HBL. With respect
to sales in countries outside the United States, Royalty shall
accrue in the currency of the country in which the sales are made
and shall be payable to HBL in U.S. Dollars at the official rate
of exchange prevailing on the last day of the quarter during which
the Royalty accrued.
4.4. ACC shall require in its agreements with all
of its Affiliates or Sublicensees that said Affiliates or
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Sublicensee shall comply with the record keeping, payment
record review provisions of this Agreement.
ARTICLE V
WARRANTIES
HBL warrants to ACC that Manufactured Products delivered to
ACC, its Affiliates, or Sublicensees shall conform to all
specifications listed on the Product Specification Sheet(s) for said
Manufactured Product(s) at the time of its delivery, provided that
HBL shall be compensated separately, as hereinbefore provided, for
any packaging or labeling performed at the request of ACC. It is
understood that HBL makes no other warranty, express or implied, and
all implied warranties or warranties of merchantability and fitness
for a particular purpose which are beyond the aforesaid stated
warranty obligations are hereby disclaimed and excluded.
ARTICLE VI
DISCLAIMERS AND INDEMNIFICATION
6.1. HBL makes no representation or warranty that
the manufacture or sale of Manufactured Products will not
infringe any third party patent, nor does HBL assume any
obligations with respect to infringements of patents of
others arising as a result of ACC's activities under this
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Agreement except as otherwise expressly provided in this
Agreement.
6.2. HBL makes no covenant either to defend any
infringement charge by a third party or to initiate action
against infringers of any of its patents except as otherwise
expressly provided in this Agreement.
6.3. HBL makes no representation or warranty
concerning the potential profitability of sales of
Manufactured Products and shall not be liable for failure of
licensee to obtain a profit or income from such sales.
6.4. HBL SHALL NOT BE DEEMED TO HAVE MADE ANY
REPRESENTATION OR WARRANTY, EXCEPT AS ELSEWHERE EXPRESSLY SET
FORTH IN THIS AGREEMENT, AS TO THE CONDITION, MERCHANTABILITY,
DESIGN, FUNCTION OR FITNESS FOR USE OF MANUFACTURED PRODUCTS.
6.5. ACC agrees that it shall indemnify and save
HBL harmless from any and all claims, demands, actions and
causes of action against HBL, whether groundless or not, in
connection with any and all injuries, losses, damages or
liability of any kind whatsoever, arising, directly or
indirectly, out of the use, distribution, and/or sale of
Manufactured Products by or through ACC or its Affiliates or
Sublicensees, provided that the Manufactured Product to which
said claim or claims pertain complies with the requirements
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of its corresponding Product Specification Sheet applicable at
the time of its delivery. HBL shall notify ACC in writing
within ten (10) days of its receipt of any claim, demand or
lawsuit. Upon assumption by ACC of its duty to defend, ACC will
have control of the claim, demand or lawsuit, and except as may
be necessary to prevent lapse of its legal rights, HBL shall be
required to incur no expense with regard to said claim, demand
or lawsuit. HBL shall, at ACC's request, provide reasonable
assistance in defense of any such claim, demand or lawsuit.
ARTICLE VII
TERM OR TERMINATION; DEFAULT
7.1. Unless sooner terminated as hereinafter
provided, this Agreement shall remain in effect for a period of
seven (7) years from the date of this Agreement. After that
initial term, the Agreement shall be automatically renewed for
successive three (3) year terms subject to the prior written
agreement of the Parties (hereinafter called "Renewal Terms")
7.2. HBL may terminate this Agreement at any time after
the end of the first Renewal Term if Net Sales Value for the last
preceding calendar year did not exceed one hundred thousand
dollars ($100,000), by providing written notice to ACC at least
ninety (90) days prior to the effective date of such termination.
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7.3. If ACC shall at any time during the initial
term or any subsequent Renewal Term of this Agreement default
in any obligation hereunder or fail to pay any payment due,
and such default shall not be cured within sixty (60) days
after written notice from HBL to ACC specifying the nature of
the default, HBL may terminate this Agreement, or may demand
specific performance.
7.4. If HBL shall, at any time during the initial
term or any subsequent Renewal Terms of this Agreement,
default in any obligation hereunder and such default shall
not be cured within sixty (60) days after written notice from
ACC to HBL specifying the nature of the default, ACC may
terminate this Agreement, or may demand specific performance.
7.5. Any termination pursuant to this Article
shall not relieve HBL of any obligation to fill purchase
orders placed with HBL prior to termination.
7.6. The above provisions of this ARTICLE VII
notwithstanding, ACC's obligation hereunder to pay Royalty to
HBL shall survive the termination of this Agreement, and
shall be perpetual, if HBL timely accomplishes all of the
Research Funding pursuant to Paragraph 2.5. In addition, the
obligation of HBL to pay to ACC a future sales interest on
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sales of HBL interferon for oral use in humans in Japan shall
survive the termination of this Agreement, and shall be
perpetual, and ACC's grant herein to HBL of a limited exclusive
license under certain of its patents, as set forth and
described in Section 3.1 above, is a completed grant, and
shall not be subject to rescission for any cause whatsoever.
7.7. The exercise by either Party of any right of
termination shall not constitute a waiver of any other rights
or remedies available to such party for violation of the
terms of this Agreement or under applicable law.
ARTICLE VIII
CONFIDENTIALITY
8.1. ACC owns or is licensed under confidential or
secret information relating to interferon-containing products
and the use of same in human and non-human species, and it is
the intention of ACC to maintain this confidentiality.
8.2. HBL possesses trade secrets and technical and
marketing information that are proprietary to HBL, and it is
its intention to maintain the confidentiality of its proprietary
information.
8.3. Each Party agrees to maintain confidential
and secret all information which may be disclosed or provided
to it by the other Party and that the Parties may together
subsequently acquire in relation to interferon-containing
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products and which is designated in writing by clearly
identifiable legend as being confidential or secret in character.
8.4. Each Party's obligation to the other (to maintain
confidentiality) hereunder shall terminate with respect to any
particular item and only said item of the disclosing Party's
confidential information, when the recipient Party can
demonstrate that such item of information:
8.4.1. Is publicly known and available through
some means other than by the recipient Party's act or
omission; or
8.4.2. Was in the recipient Party's possession
prior to its disclosure by the other Party, provided that written
evidence of such possession is established; or
8.4.3. Has come into the recipient Party's
possession through a third party free of any obligation of
confidentiality to the disclosing Party, where said third party
has acquired said information lawfully and not under
circumstances forbidding its disclosure.
8.5. Neither Party will permit confidential or
secret information or any part thereof to be disclosed to
third parties or to employees except on a "need-to-know"
basis and each will maintain confidential or secret
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information and/or documents with the same precautions it
uses to safeguard its own confidential or secret information.
8.6. Each Party will notify the other promptly if
it has knowledge that a third party possesses confidential or
secret information of the other Party related to
interferon-containing products.
8.7. ACC shall have the right to use HBL's confidential
or secret information to the extent reasonably necessary to
accomplish the objectives of this Agreement, including
specifically the right to disclose such information to its
Affiliates, actual and potential Sublicensees, third party
contract consultants and scientific investigators (from whom ACC
shall secure Confidential Disclosure Agreements) and to
regulatory agencies in support of applications for regulatory
agency approval to make, test and/or sell interferon-containing
products.
ARTICLE IX
MISCELLANEOUS
9.1. Survival. ARTICLES VII, VIII, and IX, and
the obligations described in Paragraph 7.6 (subject to any
conditions set forth in said Paragraph 7.6), shall survive
any termination of this Agreement.
9.2. Purchase Orders. All purchase orders placed
by ACC, its Affiliates or Sublicensees for Manufactured
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Products shall be subject to the terms and conditions of this
Agreement, notwithstanding any other agreements between the
Parties or contrary provisions in any documents related to
the orders.
9.3. Force Majeure. The failure of HBL, ACC, or any
of their Affiliates or Sublicensees to take any act required
by this Agreement if occasioned by an act of God or the
public enemy, fire, explosion, perils of the sea, floods,
drought, war riot, sabotage, accident, embargo or any
circumstance of like or different character beyond the
reasonable control of the Party so failing or by the
interruption or delay in transportation, inadequacy, or
shortage or failure of the supply of materials and/or
equipment, equipment breakdown, labor trouble or compliance
with any order, direction, action or request of any
governmental officer, department or agency and whether in any
case such circumstance now exists or hereafter arises, shall
not subject said Party to any liability to the other.
9.4. Arbitration. The parties hereto desire to
avoid and settle without litigation future disputes which may
arise between them relative to this Agreement. Accordingly,
the parties agree to engage in good faith negotiations to
resolve any such dispute. In the event they are unable to
resolve any such dispute by negotiation, such dispute shall
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be submitted to arbitration as follows: If arbitration is
initiated by HBL, it shall be held in the State of Texas,
U.S.A. in compliance with the Commercial Arbitration Rules of
the American Arbitration Association. If arbitration is
initiated by ACC, it shall be held in Tokyo, Osaka, Japan in
compliance with the Rules of the Japan Commercial Arbitration
Association. The arbitration award shall be final and
binding upon the parties hereto and may be filed with and
enforced by any competent court having competent jurisdiction
to enforce said award.
9.5. Communication. Any payment, notice or other
communication required or permitted to be made or given to either
Party hereto pursuant to this Agreement shall be sufficiently made
or given on the date of sending if sent to such Party by certified
or registered mail or by Federal Express or a similar overnight
courier service, postage or delivery charge prepaid, or by telex
or telefax addressed to it at its address set forth, or to such
other address(es) as it may designate by written notice given to the
other Party as follows:
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In case of HBL:
Mr. Katsuaki Hayashibara
Manager, R&D Center
Hayashibara Biochemical Laboratories,
Inc.
2-3, Shimoishii 1-chome
Okayama 700, Japan
In case of ACC:
Dr. Joe Cummins, President
Amarillo Cell Culture Company, Inc.
2505 Lakeview Drive, Suite 104
Amarillo, Texas 79109-1527
9.6. Amendments to Agreement. This Agreement
constitutes the entire agreement between the Parties hereto
with respect to all of the matters herein addressed, and
supersedes all previous arrangements whether written or oral,
including but not limited to the Manufacturing and Supply
Agreement of October 4, 1989. Any amendment or modification
of this Agreement shall be effective only if made in writing,
and executed by both Parties.
9.7. Assignment. This Agreement shall not be
assignable by HBL to any person or entity other than an HBL
Affiliate without the prior written consent of ACC, which
consent shall not be unreasonably withheld. This Agreement
shall not be assignable by ACC to any person or entity other
than an ACC Affiliate or a Sublicensee without the prior
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<PAGE>
written consent of HBL, which consent shall not be unreasonably
withheld.
9.8. Enforceability. If one or more of the provisions
of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity, legality or enforceability of the
remaining provisions hereof shall not in any way be affected or
impaired thereby. To the extent permitted by law, each Party
waives any provision of law which renders any provision herein
invalid, illegal or unenforceable in any respect.
9.9. Nature of Relationship. Nothing herein shall be
construed to place the parties in a relationship of partners or
joint venturers, nor does this Agreement make either party the
agent or legal representative of the other for any purposes
whatsoever. The parties further agree that no representation shall
be made by either party that would create an apparent agency,
employment, partnership or joint venture. Neither party shall have
the power express or implied, to obligate or bind the other in any
manner whatsoever. For U.S. federal income tax purposes, both
parties agree that the transactions contemplated by the Agreement
should be characterized as follows:
a. The Research Funding to be provided by
HBL pursuant to Paragraph 2.5 is in payment for the Royalty
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<PAGE>
granted by ACC to HBL in Paragraphs 3.1 a., b., and c., and
in consideration of HBL's right to receive the "50% Fee".
b. The transfer fee of $.05 per tablet or
lozenge, provided in Paragraph 3.1, is compensation or
reimbursement to HBL for the manufacture and delivery of
product as therein described.
c. The 8% royalty granted by HBL to ACC
under Paragraph 3.1 is in consideration of the receipt by HBL
of the limited exclusive license under the U.S. patents
described in such provision.
9.10. Headings. The headings of the several
sections of this Agreement are inserted for convenience of
reference only and are not intended to be a part of or to
affect the meaning or interpretation of this Agreement.
9.11. Waiver. No provision of this Agreement shall be
deemed waived, unless such waiver is in writing and signed by
the Party against which the waiver is sought to be enforced. The
waiver by either of the Parties hereto of any breach of any
provision hereof by the other Party shall not be construed to be
either a waiver of any succeeding breach of any such provision
or a waiver of the provision itself.
9.12. Governmental Approval. In the event HBL has
to obtain the approval from the appropriate governmental
authorities of Japan to deliver HBL interferon or
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Manufactured Products to the country in where ACC, ACC's
Affiliates or Sublicensees will use and/or market HBL interferon
or Manufactured Products, HBL's obligation pertaining
to the supply of the said materials to the said country shall
be subject to such approval granted in writing to HBL.
IN WITNESS WHEREOF, the Parties hereunto have
caused this Joint Development and Manufacturing/Supply
Agreement to be executed in duplicate by their duly authorized
representatives as of the date first above written.
ACC: HBL:
AMARILLO CELL CULTURE COMPANY, HAYASHIBARA BIOCHEMICAL
INCORPORATED LABORATORIES, INC.
By: /s/ Joseph M. Cummins By: /s/ Ken Hayashibara
--------------------------- -----------------------------
Dr. Joseph M. Cummins, Mr. Ken Hayashibara,
President President
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<PAGE>
FIRST AMENDMENT TO JOINT DEVELOPMENT AND
MANUFACTURING/SUPPLY AGREEMENT
THIS FIRST AMENDMENT TO JOINT DEVELOPMENT AND MANUFACTURING/SUPPLY
AGREEMENT is made and effective this 17th day of January, 1996, by and between
AMARILLO CELL CULTURE COMPANY, INC., a Texas corporation with principal place of
business at 800 W. 9th Avenue, Amarillo, Texas 79101 (hereinafter "ACC") and
HAYASHIBARA BIOCHEMICAL LABORATORIES, INC. with principal place of business at
2-3, Shimoishii 1-Chome, Okayama 700, Japan (hereinafter "HBL") (ACC and HBL
being hereinafter collectively referred to as the "Parties").
WHEREAS, HBL and ACC have entered into that certain Joint Development
and Manufacturing/Supply Agreement dated March 13, 1992 ("Agreement"); and
further;
WHEREAS, the Parties wish to clarify the definition of "Net Sales
Value" as contained in the Agreement, and to modify the transfer fee payable by
ACC to HBL for bulk interferon, not shipped in the form of tablets or lozenges;
NOW, THEREFORE, in consideration of these presents and for other good
and valuable consideration the receipt and sufficiency of which are evidenced by
the execution hereof, the Parties hereby agree as follows:
FIRSTLY, Section 1.6 of the Agreement, "Net Sales Value", shall be and
hereby is amended to hereafter read in its entirety as follows:
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<PAGE>
"1.6. "Net Sales Value" shall mean the amount of cash and/or other
consideration actually received by ACC or its Affiliates, with
respect to the sale by ACC, its Affiliates, or Sublicensees of a
Manufactured Product or other interferon-containing product, as the
case may be, after the product is diluted into packaged dose
formulations or compositions designated or detailed and labeled for
oral use in any warm-blooded species, including all packaging,
instructional or other charges made to a purchaser, but less ACC'S (or
its Affiliate's) actual out-of-pocket costs related to packaging,
labeling, and instructional materials, and less customary trade
discounts or credits allowed for return of defective products. If
products are sold in transactions which are not bona fide arms-length
transactions, Net Sales Value for such sales shall be valued as equal
to the commercial sale of similar products to unrelated third parties
in similar quantities."
SECONDLY, the introductory paragraph of Section 3.1 of the Agreement
shall be and hereby is amended to hereafter read in its entirety as follows:
"3.1. HBL shall receive a transfer fee from ACC or its Affiliate in the
amount of * per 200 International Unit ("IU") 200 mg
tablet or lozenge, or comparable tablet or lozenge, f.o.b. Okayama,
Japan, which price shall include the interferon contained therein,
maltose, other required ingredients, interferon assays, and technical
assistance. If HBL Interferon is shipped in bulk, as may be requested
by ACC for use in formulating products for use in animals, HBL shall
receive in lieu of the above, the amount of * per
one million (1,000,000) IU of HBL interferon, f.o.b. Okayama, Japan. If
interferon is formulated, at ACC's request, into tablets or lozenges by
HBL in Japan, then in addition to the above transfer fee, HBL shall
also be entitled to be reimbursed for incremental Costs actually
incurred by HBL with regard to tableting and packaging, including labor
and materials. HBL shall also receive from ACC or its Affiliate, as
consideration for the Research Funding, a fractional, undivided
interest in future sales ("Royalty") , as follows:"
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EXCEPT as hereinabove expressly amended, the Agreement shall continue
in full force and effect according to its terms.
IN WITNESS WHEREOF, the Parties hereto have caused this First Amendment
to Joint Development and Manufacturing/Supply Agreement to be executed in
duplicate by their duly authorized representatives as of the date first above
written.
ACC: HBL:
AMARILLO CELL CULTURE HAYASHIBARA BIOCHEMICAL
COMPANY INCORPORATED LABORATORIES, INC.
By: /s/ Joseph Cummins By: /s/ Ken Hayashibara
----------------------------- ---------------------------------
Dr. Joseph Cummins Mr. Ken Hayashibara
President President
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<PAGE>
ADDENDUM TO MANUFACTURING/SUPPLY AGREEMENTS
This Agreement is made and effective this 10th day of May, 1996, by and
between Amarillo Cell Culture Company, Incorporated, a Texas corporation with
its principal place of business at 800 West 9th Avenue, Amarillo, Texas 79106
(hereinafter "ACC") and Hayashibara Biochemical Laboratories, Inc., with its
principal place of business at 2-3 Shimoishii 1-chome, Okayama, 700 Japan
(hereinafter "HBL").
RECITALS
ACC and HBL are parties to a Joint Development and Manufacturing/Supply
Agreement dated March 13, 1992 (the "Oral Interferon Manufacturing/Supply
Agreement") and a Manufacturing/Supply Agreement dated June 1, 1994 (the
"Non-Oral Interferon Manufacturing/Supply Agreement"), with view of ACC's and
HBL's cooperation and collaboration in the development and commercialization of
oral and non-oral applications of interferon in humans and animals.
Each of those existing Manufacturing/Supply Agreements contemplate, in
part, ACC's development and manufacture of interferon-containing products.
HBL has developed patented technology relating to the stabilization and
formulation of interferon-containing products.
ACC desires to acquire, and HBL has expressed willingness to grant, a
license to use HBL patented technology for the formulation and manufacture of
stabilized interferon-containing products.
THEREFORE, ACC and HBL agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1 The terms "Affiliate", "HBL Interferon" and "HBL Technical
Information" will have the same definitions as set forth in the Oral Interferon
Manufacturing/Supply Agreement and the Non-Oral Interferon Manufacturing/Supply
Agreement.
1.2 "Licensed Patents" means U.S. Patent 5,489,577, titled Semi-Solid
Pharmaceutical Agent And Process To Produce The Same; U.S. Patent 4,816,445,
titled Crystalline a-Maltose; U.S. Patent 4,996,196, titled Novel Desiccant And
Dehydration Therewith; and U.S. Patent 4,870,059, titled Dehydration Of Hydrous
Matter With Anhydrous Maltose, and the patents issuing on any foreign
counterparts of those U.S. patents and any other patent issuing as a result of a
reissue application, continuation, reexamination, substitution or division of
any of those applications or patents referred to in this paragraph.
1.3 "Licensed Product" means any HBL Interferon-containing product, the
use, manufacture or sale of which would infringe one or more valid claims of
Licensed Patents.
1.4 "HBL Anhydrous Maltose" refers to anhydrous maltose or other
anhydrous oligosaccharide manufactured by HBL using HBL Technical Information
and sold by HBL or its Affiliates for use in pharmaceutical formulations.
1.5 "Territory" means (a) the United States, Canada and Mexico for
Licensed Products labeled for non-oral use in human and non-human warm-blooded
species; (b) all countries of the world for Licensed Products labeled for
oral-use in non-humans and (c) all countries of the world except Japan for
Licensed Products labeled for oral use in humans.
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ARTICLE II
LICENSE GRANT
2.1 HBL grants to ACC and its Affiliates a non-exclusive license under
Licensed Patents to make, have made, use, sell, offer for sale and import
Licensed Products in the Territory.
2.2 ACC has the right to grant sublicenses under the license granted
herein, but only with the prior written approval of HBL which shall not be
unreasonably withheld.
ARTICLE III
ACC OBLIGATION
3.1 ACC will purchase its requirements for anhydrous maltose for
manufacture of Licensed Products from HBL (HBL Anhydrous Maltose) and ACC agrees
to provide HBL with semi-annual reports showing its projected requirements for
HBL Anhydrous Maltose for the six months following.
3.2 Other than those royalties and transfer fees provided for in the
existing Manufacturing/Supply Agreements, ACC will pay no royalty to HBL on
sales of Licensed Products.
ARTICLE IV
TERM AND TERMINATION
The term of the non-exclusive license granted hereunder is the same as
that of the respective manufacturing/supply agreements supplemented by this
Addendum.
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ARTICLE V
MISCELLANEOUS
5.1 HBL represents that it has the right to grant the non-exclusive
license to Licensed Patents under Paragraph 2.1.
5.2 HBL and ACC agree that the terms of this Addendum are to be
incorporated into and form part of each of the existing Oral Interferon
Manufacturing/Supply Agreement and the Non-Oral Interferon Manufacturing/Supply
Agreement. The terms herein are to be considered in addition to and not in
amendment of any of the terms of those existing agreements) which terms remain
in full force and effect. To the extent that one or more of the terms of this
Addendum are determined to be inconsistent with the terms of those existing
agreements, the intent of the original terms will govern the obligations of the
parties.
Agreed to by ACC and HBL:
ACC: HBL:
AMARILLO CELL CULTURE COMPANY HAYASHIBARA BIOCHEMICAL
INCORPORATED LABORATORIES, INC.
By: /s/ Joseph M. Cummins By: /s/ Ken Hayashibara
------------------------------- -----------------------------
Joseph M. Cummins, President Ken Hayashibara, President
-4-
AMENDED AND RESTATED AGREEMENT
THE AGREEMENT ("Agreement") made and effective as of the 27th day of
November, 1990, by and between MITSUBISHI CORPORATION, a corporation organized
and existing under the laws of Japan and having its principal place of business
at 6-3 Marunouchi 2-chome, Chiyoda-ku, Tokyo, Japan (hereinafter "MC") and
AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation with its
principal place of business at 800 W. 9th, Amarillo, Texas, U.S.A. 79101
(hereinafter "ACC"), is hereby amended and restated in full as of this 24th day
of November 1992.
W I T N E S S E T H:
WHEREAS, ACC has rights and obligations under an agreement with HAYASHIBARA
BIOCHEMICAL LABORATORIES (hereinafter "HBL"), a Japanese corporation, to develop
HBL human interferon alpha for its low-dose oral therapeutic or prophylactic
applications in humans (hereinafter "Product"); and
WHEREAS, ACC owns patents, know-how and other technical data concerning the
use of Product in low, orally-administered doses with numerous potential
clinical indications;
WHEREAS, ACC desires to achieve the development, testing, registration,
production, commercialization and distribution of Product for as many clinical
indications as possible, in as many countries of the world as possible, for use
in humans, and desires the assistance of MC in formulating and implementing a
strategy to achieve these goals;
WHEREAS, MC possesses a world-wide network that is active in promoting the
development, licensing, commercialization, marketing and distribution of
pharmaceutical products and desires to assist ACC in achieving the above-stated
goals;
NOW, THEREFORE, in consideration of mutual covenants and agreements
contained herein, MC and ACC agree as follows:
l. APPOINTMENT. ACC hereby appoints MC as its exclusive representative, and
MC accepts such appointment by ACC, to (a) license ACC's rights and/or patents
and/or know-how and other technical information related to Product (in cases in
which ACC deems a license to be the most appropriate path for developing,
testing, registering and marketing Product for a certain indication in a certain
market); (b) assist ACC to market and distribute Product (in cases in which ACC
decides to develop, test, register and market Product for a certain application
in a certain market under its own auspices); and (c) ship Product on
<PAGE>
behalf of ACC to all persons and entities, for all applications for humans in
all countries of the world except Japan, the United States, Thailand, Kenya,
Tanzania, Rwanda, Burundi, Zambia, Zimbabwe, Malawi, Botswana and Uganda (all
non-excluded markets being hereinafter referred to as the "Exclusive Markets").
ACC shall not appoint any other representative or otherwise commission any
person or entity other than MC to represent ACC in the licensing or distribution
of Product for use in humans in the Exclusive Markets or render any services the
same as, similar to, or competitive with, any of the services as provided for in
Article 2 below. In addition, ACC shall not itself market or sell Product, or
license any third party to develop, market or sell Product, in the Exclusive
Markets other than through MC, except in accordance with the terms and
conditions hereof.
2. SERVICES TO BE PROVIDED BY MC. MC shall render, or cause its
subsidiaries to render on behalf of MC, the following services to ACC:
(a) Development of Strategy. MC shall assist ACC in developing a global
strategy for the commercialization of Product for all applications for use in
humans in all major potential markets.
(b) Negotiations with Potential Licensees. In cases in which ACC deems a
license to be the most appropriate path to commercialization for Product in a
certain market, MC shall identify potential licensees and exert its best efforts
to negotiate with such potential licensees regarding a license, subject to the
final approval of ACC. ACC and/or HBL may also identify potential licensees, and
in such cases, ACC may negotiate directly with such potential licensees, or may
authorize HBL to do so on its behalf, without MC being present, although MC
shall be immediately advised of the execution of any licensing agreement.
(c) Establishment of Distribution Channels. In cases in which ACC decides
to develop, test, register and produce Product under its own auspices, MC shall
exert its best efforts to arrange for the distribution of Product in the
intended market (l) through direct sales by MC and/or (2) through direct sales
by ACC arranged through the agency of MC and/or (3) through the negotiation and
conclusion of agreements with local distributors, subject to the final approval
of ACC.
In the case of (l), ACC and MC shall negotiate the price of Product sold to
MC by ACC, and MC shall have the right to determine the terms of sales to
customers, including pricing.
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In the case of (2), MC shall determine the terms of sales to customers,
including pricing, subject to the final approval of ACC.
(d) Shipping and Delivery. MC shall, on behalf of ACC, make necessary
arrangements for the shipment and delivery of Product to licensees, distributors
and customers in the Exclusive Markets.
(e) Administration of Payments. MC shall administer the flow of payments
due to ACC from licensees, distributors, and customers in the Exclusive Markets.
MC shall not, however, be held liable by ACC for non-payment by the above
parties, except where MC has otherwise agreed to serve as a guarantor of credit.
(f) Registration Assistance. While primary responsibility for registering
Product in markets not covered by licensing agreements rests with ACC, MC shall,
if requested by ACC, employ at MC's expense to an extent deemed reasonable by
MC, its global network of experts to support ACC's registration efforts in ways
including, but not limited to, identifying local registration requirements,
negotiating with local registration authorities, identifying and negotiating
with local testing facilities, and administering the flow of
registration-related information.
3. RESPONSIBILITIES OF ACC.
(a) Product Development. ACC shall exert that effort which ACC deems
necessary and appropriate to register and otherwise develop Product for major
potential unlicensed markets covered by this Agreement. ACC does not guarantee
that it will be able to achieve registration and other aspects of Product
development in any market covered by this Agreement.
(b) Coordination of Actions Affecting Strategy. ACC agrees to consult with
MC prior to taking any action, such as shipping samples to third parties or
initiating clinical tests, that may have a material impact on overall strategy
in the markets covered by this Agreement; however, ACC shall make the final
determination with respect to action on any such matters. In addition, MC and
ACC shall jointly review any such actions that were taken in the relevant
markets prior to the signing of this Agreement.
(c) Supply of Information by ACC. ACC shall supply MC with such information
as MC may request from time to time in order to enable MC to most effectively
render the services described in Article 2 above.
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<PAGE>
4. CONFIDENTIALITY. Except as permitted in writing by ACC, MC and its
subsidiaries involved in assisting in the performance of the services listed in
Article 2, above, shall treat as confidential and appropriately safeguard, both
during the life of this Agreement and thereafter until such time as it comes
into the public domain, all information clearly identified by ACC as
confidential.
5. COMPENSATION TO MC. ACC shall pay MC and MC shall have the right to
collect from ACC ten percent (10%) of any license fee and/or option fee, and
five percent (5%) of any royalties paid to ACC or an ACC subsidiary during the
life of the license, with respect to any license agreement relating to the
Product in the Exclusive Markets; provided that such license agreement is
executed either (a) during the term of this Agreement (or any renewal hereof),
or (b) within two (2) years after the expiration of this Agreement (or any
renewal hereof) in the case of a license agreement with a party contacted by MC
or introduced by MC to ACC prior to such expiration. Such amounts shall be due
and payable to MC within thirty (30) days after ACC's receipt of such license
downpayment or option fee, or royalty, as the case may be. In addition, ACC
shall pay to MC and MC shall be entitled to collect from ACC, during the period
set forth in Article 8, below, a commission of five percent (5%) of the net
sales value of each shipment of Product by any person or entity to any person or
entity in the Exclusive Markets. All such commissions shall be due and payable
to MC within thirty (30) days after ACC's receipt of payment for such shipment.
For purposes of this Article, "net sales value" shall mean the invoice amount
payable to ACC or an ACC subsidiary minus returns allowed by ACC. Shipping and
freight insurance costs shall not be deducted before calculating payments to MC.
For purposes of this Article 5, a license agreement shall be considered to
be a license agreement "relating to the Product in the Exclusive Markets", to
the extent it contemplates or permits sale or delivery of Product into the
Exclusive Markets, or to the extent sale or delivery into the Exclusive Markets
actually occurs; and in either case, the fee to which MC shall be entitled under
the foregoing provisions shall be prorated, based upon the actual amount of
Product sold or delivered into the Exclusive Markets. In order to simplify
accounting, ACC will, to the extent feasible, enter into separate license
agreements pertaining to Exclusive Markets, and to excluded markets.
In the event the degree of effort required from MC to execute shipments in
a particular country should in MC's opinion render the aforesaid five percent
(5%) shipping commission inadequate, MC shall so notify ACC, and shall provide
ACC with such data and information which MC believes justifies a
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<PAGE>
higher shipping commission. Under those circumstances, ACC and MC shall make a
good faith effort to negotiate a reasonable and appropriate shipping commission.
In the event they are unable to agree upon a shipping commission, then with
respect to that country, this Agreement shall be of no further force or effect,
and neither party shall have any liabilities or obligations hereunder, and ACC
shall be free to employ another or other agents or consultants with respect to
that country.
6. INDEMNIFICATION. ACC shall indemnify, defend and hold harmless MC from
any claim, demand, suit, damage and cost arising from third party claims arising
in relation to Product including, but not limited to, patent infringement
disputes and product liability claims.
7. ASSIGNMENT. ACC shall not assign this Agreement partially or totally to
any third party (except its wholly-owned subsidiaries) without the prior written
consent of MC. No assignment shall relieve ACC of any of its obligations or
liabilities to MC hereunder, including any payments due to MC unless MC so
consents in writing.
8. TERM OF AGREEMENT. This Agreement shall remain in effect through
November 26, 2000, and shall thereafter be automatically renewed for successive
renewal periods of three (3) years, unless either party notifies the other in
writing that it elects not to renew the Agreement at least twelve (12) months
before the commencement of any such renewal period.
Notwithstanding the expiration of the term of this Agreement, MC's
appointment and compensation as exclusive shipping agent and all other terms and
conditions in this Agreement shall remain in effect with regard to shipments
made in connection with any license executed either (a) during the term of this
Agreement (or any renewal hereof), or (b) within two (2) years after the
expiration of this Agreement (or any renewal hereof) in the case of a license or
agreement with a party contacted by MC or introduced by MC to ACC prior to such
expiration; and in the case of shipments in the Exclusive Markets not in
connection with any license by ACC, for the life of the supply relationship
between ACC and the party to or for whom such shipments are made, if such supply
relationship was initiated during either (a) the term of this Agreement (or any
renewal hereof), or (b) within two (2) years after the expiration of this
Agreement (or any renewal hereof) in the case of a supply relationship with a
party contacted by MC or introduced by MC to ACC prior to such expiration. For
purposes of this Agreement, a "supply relationship" shall consist of any
marketing, distribution or similar arrangement, under which ACC provides Product
to any person or entity, with a view toward commercial sales of Product; and a
supply relationship shall be deemed to
-5-
<PAGE>
have been "initiated" with a party upon the first to occur of (a) the execution
of a written marketing, distribution or similar arrangement with such party, or
(b) the actual commencement of delivery of Product to such party, with a view
toward commercial sales.
9. MINIMUM ACTIVITY. In each country in which ACC desires to license,
market or distribute Product for use in humans, MC shall be allowed to negotiate
during the term of this Agreement with potential licensees or distributors (as
the case may be) with respect to a particular indication, until twelve (12)
months after the granting of approval. If no license or distribution
arrangements have been concluded with respect to said indication within said
time period, then with respect to said indication in said country, ACC shall
then and thereupon be free to make its own license, marketing or distribution
arrangements, and in that case, MC shall not be entitled to any portion of any
licensing fee or royalties received by ACC, but shall be entitled to the
shipping commission provided in Article 5 above, subject, however, to the terms
and conditions of said Article 5.
10. ARBITRATION. The parties hereto desire to avoid and settle without
litigation future disputes which may arise between them relative to this
Agreement. Accordingly, the parties agree to engage in good faith negotiations
to resolve any such dispute. In the event they are unable to resolve any such
dispute by negotiation, such dispute shall be submitted to arbitration as
follows:
(a) If arbitration is initiated by MC, it shall be held in
the State of Texas, U.S.A., and conducted pursuant to
the Commercial Arbitration Rules of the American
Arbitration Association.
(b) If arbitration is initiated by ACC, it shall be held in
Tokyo, Japan, and conducted pursuant to the Rules of
the Japan Commercial Arbitration Association.
The arbitration award shall be final and binding upon the parties hereto and
may be filed with, and enforced by, any court having jurisdiction to enforce
said award.
11. GOVERNING LAW. This Agreement shall be governed by the substantive law
of the State of Texas, without regard to conflict of law principles.
12. SEVERABILITY. If any one or more of the provisions contained in this
Agreement shall be held to be invalid, illegal or unenforceable in any respect,
the validity, legality
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<PAGE>
and enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired.
13. NO WAIVER. No failure or delay on the part of either party in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude any other or further exercise thereof or of any other right,
power or privilege.
14. ENTIRE AGREEMENT. This document constitutes the full understanding
between the parties with reference to the subject matter hereof, and supersedes
any prior oral or written statements or agreements the parties may have had.
Neither party shall claim any amendment, modification, or release from any
provision of this Agreement by mutual agreement, acknowledgement, or otherwise,
unless such amendment, modification or release is in a writing signed by the
other party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their duly authorized officers or representatives, and
each duplicate of which shall be considered as an original.
AMARILLO CELL CULTURE COMPANY, INCORPORATED
By: /s/ Edward Sherwood
--------------------------------------------
Name (print): Edward Sherwood
Title: President
MITSUBISHI CORPORATION
By: /s/ Takuji Nakamura
--------------------------------------------
Name (print): Takuji Nakamura
Title: General Manager, Fine Chemicals
Business Development Department
-7-
JAPAN ANIMAL HEALTH LICENSE AGREEMENT
THIS AGREEMENT is made and effective this 20th day of January,
1993, by and between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas
corporation with its principal place of business at 800 W. 9th, Amarillo, Texas
79101 (hereinafter "ACC") and HAYASHIBARA BIOCHEMICAL LABORATORIES, INC., with
its principal place of business at 2-3, Shimoishii 1-chome, Okayama 700, Japan
(hereinafter "HBL") (ACC and HBL collectively referred to hereinafter as the
"Parties").
WHEREAS, ACC and HBL have heretofore entered into that certain
Joint Development and Manufacturing/Supply Agreement dated March 13, 1992 (the
"1992 Agreement"); and further
WHEREAS, the 1992 Agreement contemplated the commercialization
by ACC of HBL's hamster culture derived human lymphoblastoid interferon
(hereafter, "HBL interferon"), for oral administration in all species worldwide,
except for humans in Japan; and further
WHEREAS, in the 1992 Agreement ACC granted to HBL a limited
exclusive license for oral use of HBL interferon in humans in Japan; and further
WHEREAS, the 1992 Agreement provided for HBL access to ACC
Technical Information (as therein defined) for use in marketing HBL interferon
for use in humans in Japan; and further
<PAGE>
WHEREAS, ACC now desires to grant, and HBL now desires to
receive, a limited exclusive license for use of HBL interferon in animals in
Japan;
NOW, THEREFORE, for and in consideration of the mutual
covenants contained herein, HBL and ACC agree as follows:
1. HBL shall have access to ACC Technical Information for use
in marketing HBL interferon for use in animals in Japan, and HBL is hereby
granted by ACC a limited exclusive license under ACC Technical Information and
certain of its patents for oral use of HBL interferon in animals in Japan. HBL
will pay ACC a future sales interest of * of the Net Sales
Value of sales of HBL interferon by HBL, its Affiliates, licensees or
transferees for oral use in animals in Japan. For purposes of this license, "Net
Sales Value" shall be calculated for sales by HBL, its Affiliates, licensees or
transferees in the same manner as Net Sales Value is calculated under the 1992
Agreement for sales by ACC, its Affiliates or sublicensees; and "Affiliate(s)"
shall have the meaning set forth in the 1992 Agreement.
2. No license fee, option fee or other up-front payment is
payable with respect to this license, the sole consideration being that set
forth in Paragraph 1, above.
3. ACC is hereby relieved from the requirement, set forth in
Section 3.6 of the 1992 Agreement, to apply for regulatory approval for animal
applications in Japan.
- --------
* Confidential treatment has been requested
<PAGE>
4. In the event of a conflict between this Agreement and the
1992 Agreement, this Agreement shall control. Except for any such conflict, and
except as expressly herein modified, the 1992 Agreement remains in full force
and effect.
5. This Agreement shall remain in effect for a period of seven
(7) years from the date of this Agreement. After that initial term, the
Agreement shall be automatically renewed for successive three (3) year terms
subject to the prior written agreement of the parties.
IN WITNESS WHEREOF, the Parties hereto have caused this Japan
Animal Health License Agreement to be executed in duplicate by their duly
authorized representatives as of the date first above written.
ACC:
AMARILLO CELL CULTURE
COMPANY, INCORPORATED
By:/s/ Edward Sherwood
----------------------------
Dr. Edward Sherwood,
President
By:/s/ Joseph M. Cummins
----------------------------
Dr. Joseph M. Cummins,
Director of Animal Research
and Development
HBL:
HAYASHIBARA BIOCHEMICAL
LABORATORIES, INC.
By:/s/ Ken Hayashibara
----------------------------
Mr. Ken Hayashibara,
President
EMPLOYMENT CONTRACT
This Employment Contract ("Contract") is entered into by and
between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation
("Employer"), and ALAN B. RICHARDS ("Employee"). ACC and its controlled
subsidiaries shall be hereinafter collectively referred to as "ACC Companies".
Employer hereby employs Employee, and Employee accepts employment, on the
following terms and conditions.
ARTICLE I
TERM OF EMPLOYMENT
1.01. By this Contract, Employer employs Employee, and
Employee accepts employment with Employer, and with such ACC Companies as
Employer shall designate, until this Contract shall have been terminated by
either party by the serving of six months' advance, written notice of such
termination upon the other party.
ARTICLE II
COMPENSATION
2.01. As compensation for all services rendered under this
Contract, Employee shall be paid by Employer a salary of SEVEN THOUSAND
EIGHTY-THREE AND 33/100 DOLLARS ($7,083.33) per month, payable at least monthly
during the term of this Contract. The amount paid is to be prorated for any
partial employment period.
<PAGE>
ARTICLE III
DUTIES OF EMPLOYEE
3.01. Employee is employed as Director, Clinical and
Regulatory Affairs, of Employer, and shall work at 800 W. 9th Street, Amarillo,
the principal offices of Employer, and at such other place(s) in the City of
Amarillo as Employer may direct. Employee shall perform the duties of Director,
Clinical and Regulatory Affairs, as such duties may be further set forth in the
Bylaws of Employer, or by resolution of the Board of Directors of Employer.
Employee shall devote his entire productive time, ability, attention and
energies to the business of Employer during the term of this Contract, except as
below provided, and during such time, Employee shall not directly or indirectly
render any services of a business, commercial or professional nature to any
other person or organization, whether or not for compensation, without the prior
consent of the Board of Directors of Employer.
ARTICLE IV
EMPLOYEE'S OBLIGATIONS AS TO INSURANCE
4.01. Employee agrees to submit to physical examination as may
be required for the obtaining by Employer of insurance on Employee's life, and
agrees to consent to the issuance of a policy or policies of insurance on his
life, such policies to be owned by Employer, and naming Employer as beneficiary.
Upon termination of Employee's employment for any reason, and if requested by
Employee, Employer shall
-2-
<PAGE>
assign any such policy to Employee, so that Employee shall have the option of
keeping the policy in force at Employee's expense. The foregoing
notwithstanding, Employer shall be entitled to retain the accumulated cash value
of any such policy.
ARTICLE V
EMPLOYEE BENEFITS
5.01. If Employer provides hospital, surgical, medical,
dental, group life insurance, or other fringe benefits to its employees, or any
of them, at any time during the term of this Contract, Employee shall be
entitled to participate in such benefits, on terms and conditions at least as
favorable as those accorded to other employees of Employer, subject to
insurability.
ARTICLE VI
REIMBURSEMENT OF EXPENSES INCURRED BY EMPLOYEE
6.01. Employee is authorized to incur reasonable business
expenses for promoting the business of Employer, including expenditures for
entertainment and travel. Employer will reimburse Employee for all such expenses
upon Employee's presentation of written expense vouchers, itemizing such
expenditures.
ARTICLE VII
PROPERTY RIGHTS OF PARTIES
7.01. Employee has had access to and become
familiar with, and during the term of continued employment,
-3-
<PAGE>
will continue to have access to and become familiar with, various trade secrets,
consisting of formulas, devices, secret inventions, processes, compilations of
information, records, and specifications owned by ACC Companies and regularly
used in the operation of ACC Companies. Employee shall not disclose any such
trade secrets directly or indirectly nor use them in any way either during the
term of this Contract or at any time thereafter except as required in the course
of his employment. All files, records, documents, drawings, specifications,
equipment and similar items relating to the business of ACC Companies, whether
or not prepared by Employee, shall remain the exclusive property of ACC
Companies and shall not be removed from the premises of Employer under any
circumstances, except in pursuit of the trade and business of ACC Companies.
7.02. On the termination of employment or whenever requested
by Employer, Employee shall immediately deliver to Employer all property in
Employee's possession or under Employee's control belonging to ACC Companies,
including but not limited to all accounting records, computer terminals and
tapes, disks, or other data storage mechanisms, accounting machines, and all
office furniture and fixtures, supplies and other personal property in the
possession or under the control of Employee, in good condition, ordinary wear
and tear excepted, and including without limitation all correspondence
-4-
<PAGE>
files, research data, and patent information or data, of every
sort.
7.03. Employee does not claim any rights or interests in and
to trade secrets, formulas, devices, inventions, processes, patents,
applications, continuations, copyrights, trademarks, compilations of
information, records, specifications, rights, interests and data of any other
sort, affecting or pertaining directly or indirectly to the business of ACC
Companies as now conducted, or to the patents, trade secrets, and other rights
now owned by ACC Companies.
7.04. Employee agrees that he will promptly and fully inform
and disclose to Employer all inventions, designs, improvements and discoveries
that Employee may have during the term of this Contract that pertain or relate
to the business of ACC Companies or to any experimental work carried on by ACC
Companies, whether conceived by Employee alone or with others and whether or not
conceived during regular working hours. All such inventions, designs,
improvements and discoveries shall be the exclusive property of Employer.
Employee shall assist ACC Companies in obtaining patents on all such inventions,
designs, improvements and discoveries deemed patentable by ACC Companies, and
shall execute all documents and do all things necessary to obtain such patents
for Employer or ACC Companies.
7.05. It is contemplated that Employee in the
course of his employment will be engaged in work involving
-5-
<PAGE>
various patents and secret processes owned by ACC Companies. All experiments,
developments, formulas, patterns, devices, secret inventions and compilations of
information, records, and specifications regarding such matters are trade
secrets, which Employee shall not disclose directly or indirectly to anyone
other than ACC Companies or their agents, or use in any way, either during the
term of this Contract or at any time after the termination of this Contract,
except as required in the course and scope of his employment.
7.06. During the term of this Contract, Employee shall not
directly or indirectly either as an employee, employer, consultant, agent,
principal, partner, stock holder, corporate officer, director, or in any other
individual or representative capacity engage or participate in any business that
is in competition in any manner whatsoever with the business of ACC Companies;
provided, however, that Employee may without restriction invest in
professionally managed mutual funds, where the investment decision regarding
specific securities is made by the fund manager, and not by Employee; and
Employee may purchase, own and sell stock or other securities of pharmaceutical
companies, as long as Employee is not directly or indirectly through one or more
intermediaries in control of or controlled by or under common control with any
such company. Furthermore, upon the termination of this Contract, Employee
expressly agrees not to engage or participate directly or indirectly in any
business that is in
-6-
<PAGE>
competition with the business of ACC Companies, for a period of three (3) years;
and further provided, that no business will be considered to be in competition
with ACC Companies unless its business relates to the manufacture, sale, testing
or development of products containing alpha interferon. Employer and Employee
recognize and agree that ACC Companies may obtain or develop additional
technologies from time to time, and if that is the case, Employer may expand the
terms of this non-competition provision by giving written notice to Employee of
the additional technologies that are to be protected.
7.07. In the event of a breach by Employee of any provisions
of this Article VII, the parties hereto agree that Employer, in addition to any
other remedies to which Employer may be entitled at law, shall be entitled to
the remedy of specific performance, it being understood and agreed by the
parties hereto that damages may be difficult to ascertain, and that an award of
damages would in all probability not sufficiently compensate Employer for any
breach by Employee of such provisions. ACC Companies are intended third-party
beneficiaries of the provisions of this Article VII.
ARTICLE VIII
RESTRICTED STOCK GRANT
8.01. Employer has heretofore granted to Employee
a restricted stock grant. It is the desire and intention of
Employer and Employee that said stock grant remain in force;
-7-
<PAGE>
for purposes of clarification, said terms and conditions are herein set forth,
so that the provisions contained in this Article VIII do not constitute a new
grant, but are by way of confirmation of the existing grant. Should the
provisions in this Article VIII vary in any manner from the provisions of any
prior grant, these present provisions shall control. Where required by
applicable laws or regulations, or by administrative necessity, the Board of
Directors of Employer may prescribe additional terms and conditions regarding
the issuance and administration of the restricted stock grant, as long as such
additional terms and conditions (1) do not conflict with the terms and
conditions hereinafter set forth, and (2) are no less favorable than those
applying to the restricted stock grants received by other employees of Employer.
8.02. Employee has received from Employer a restricted stock
grant of forty thousand (40,000) shares of the voting common stock of Employer.
No certificates shall be issued, and the grant shall be subject to forfeiture,
and said shares shall enjoy no rights with respect to voting, dividends,
liquidation, or any other matter, but shall simply have the status of unissued
shares, until the following events occur, at which time the hereinafter
stipulated number of shares subject to this grant shall be released from
restrictions, and certificates therefor shall be issued:
-8-
<PAGE>
(a) FDA approval of any Hayashibara Biochemical
Laboratories' Interferon-containing product
owned or licensed by an ACC Company, for use
in humans, for sale in the U.S.: 29,000
shares.
(b) Sale of all or substantially all of the assets
of Employer; sale by any ACC Company(s) of all
or substantially all of the rights of the ACC
Companies, collectively, to rights, patents,
products and technology relating to the use of
interferon-containing products in humans; a
tender offer by any person or entity not
currently a shareholder of Employer, for 50%
or more of the issued and outstanding stock of
Employer; or a merger, consolidation, or other
reorganization of Employer, pursuant to which
Employer is not the surviving company: 40,000
shares. In the event of the occurrence of any
the events described in this Paragraph (b),
Employee shall receive from Employer the
number of shares in question, prior to the
consummation of the stated event, so that he
may and shall participate in said stated event
on the same basis as other shareholders of
Employer.
(c) Initial public offering of common stock of Em-
ployer: 40,000 shares. In the event of an
initial public offering, the subject shares
shall be issued to Employee prior to the com-
mencement of said offering. Employer shall
not be required to negotiate piggy-back regis-
tration rights on behalf of any of its share-
holders, but if it does so, Employee shall be
entitled to participate in said piggy-back
registration on the same basis as other share-
holders of Employer.
(d) Expiration of eight (8) years from September
1, 1992: 40,000 shares.
8.03. Any other provision of this Article VIII
notwithstanding, no more than 40,000 shares in the aggregate, from all events
combined, shall ever be issuable to Employee pursuant to this restricted stock
grant.
-9-
<PAGE>
8.04. In the event of the death or complete disability of
Employee, or a voluntary termination of employment (which shall include the
resignation of Employee, or the giving of a notice of termination of this
Contract, or a successor or amended employment contract, by Employee pursuant to
Section 1.01, above), any stock not theretofore issued to Employee shall be
forfeited.
8.05. Upon the giving of a notice of termination of this
Contract (or a successor or amended employment contract) by Employer pursuant to
Section 1.01, above, then upon discharge of Employee by Employer, fifty percent
(50%) of the stock not theretofore issued shall be forfeited, and the other
fifty percent (50%) shall be issued forthwith to Employee.
8.06. The shares subject to the restricted grant are shares of
the common stock of Employer as presently constituted, but if and whenever,
prior to the issuance by Employer of any shares of the stock subject to this
grant, Employer shall effect a subdivision or reduction of shares or other
capital readjustment, the payment of a stock dividend, or other increase or
reduction of the number of shares of the stock outstanding without receiving
compensation in money, services or property, the number of shares of stock then
remaining subject to this grant, and not theretofore issued, shall (a) in the
event of an increase in the number of outstanding shares, be proportionately
increased, and (b) in
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<PAGE>
the event of a reduction in the number of outstanding shares,
be proportionately reduced.
ARTICLE IX
ENTIRETY OF AGREEMENT; AMENDMENTS; SURVIVAL
9.01. This Contract supersedes all other agreements, either
oral or in writing, between the parties to this Contract with respect to the
employment of Employee by Employer. This Contract contains the entire
understanding of the parties and all of the covenants and agreements between the
parties with respect to such employment.
9.02. This Contract may be amended only by an instrument
signed in writing by both parties; and provided further, that no amendment may
be executed on behalf of Employer, except pursuant to a resolution of the Board
of Directors of Employer.
9.03. The following provisions shall survive the
expiration of this Agreement: ARTICLES VII, VIII and IX.
IN WITNESS WHEREOF, this Contract is executed by the
undersigned as of this 4th day of March, 1994.
EMPLOYEE: EMPLOYER:
AMARILLO CELL CULTURE COMPANY,
INCORPORATED
/s/ Alan B. Richards By: /s/ Edward Sherwood
- ----------------------------- -------------------------------
ALAN B. RICHARDS EDWARD SHERWOOD, President
-11-
<PAGE>
AMENDMENT TO EMPLOYMENT CONTRACT
THIS AMENDMENT TO EMPLOYMENT CONTRACT ("Amendment") is entered
into by and between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas
corporation ("Employer") and ALAN B.
RICHARDS ("Employee").
WHEREAS, Employer and Employee have heretofore entered into
that certain Employment Contract (the "Contract"), dated March 4, 1994; and
further
WHEREAS, the Contract has not been terminated by either
Employer or Employee pursuant to Section 1.01 thereof; and further
WHEREAS, on April 16, 1996, Employer declared a twenty percent
(20%) stock dividend to all holders of record of its common stock as of such
date (the "Stock Dividend"); and further
WHEREAS, Employer and Employee desire to hereby
amend certain provisions of the Contract;
THEREFORE, in consideration of these presents and for other
good and valuable consideration the receipt and sufficiency of which are
evidenced by the execution hereof, Employer and Employee hereby agree that the
Contract shall be amended as follows:
1. Employer and Employee agree that, notwithstand-
ing the first sentence of Section 8.02 of the Contract and
giving effect to the Stock Dividend, Employer's obligations to
-1-
<PAGE>
Employee pursuant to Section 8.02(c) of the Contract shall be fully satisfied
and discharged upon the issuance by Employer to Employee, simultaneously with
the consummation of an initial public offering of common stock of Employer, of
thirty thousand (30,000) shares of the voting common stock of Employer, and the
deposit to Employer's payroll tax withholding account, for benefit of Employee,
of ninety thousand dollars ($90,000.00) cash. After such issuance of stock and
such withholding deposit, Employer shall have no more obligations whatsoever to
Employee under any provision of Article VIII of the Contract.
2. Employee acknowledges and agrees that his rights to a
piggyback registration under certain circumstances, as set forth in Section
8.02(c) of the Contract, pertain only to an initial public offering of common
stock by Employer; and that from and after the consummation of said initial
public offering, Employee shall have no rights to any piggyback registration,
including without limitation, the right to participate in a piggyback
registration (if any) which might be effected by Employer from time to time in
the future, on behalf of any other shareholder.
3. Except as herein expressly amended, all terms
and conditions of the Contract shall remain in full force and
effect, as therein provided.
-2-
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed by
the undersigned as of this the 1st day of May, 1996.
EMPLOYEE: EMPLOYER:
AMARILLO CELL CULTURE COMPANY,
INCORPORATED
/s/ Alan B. Richards By:/s/ Joseph M. Cummins
- --------------------------- -----------------------------
ALAN B. RICHARDS Joseph M. Cummins, President
-3-
EMPLOYMENT CONTRACT
This Employment Contract ("Contract") is entered into by and
between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation
("Employer"), and JOSEPH M. CUMMINS ("Employee"). ACC and its controlled
subsidiaries shall be hereinafter collectively referred to as "ACC Companies".
Employer hereby employs Employee, and Employee accepts employment, on the
following terms and conditions.
ARTICLE I
TERM OF EMPLOYMENT
1.01. By this Contract, Employer employs Employee, and
Employee accepts employment with Employer, and with such ACC Companies as
Employer shall designate, until this Contract shall have been terminated by
either party by the serving of six months' advance, written notice of such
termination upon the other party.
ARTICLE II
COMPENSATION
2.01. As compensation for all services rendered under this
Contract, Employee shall be paid by Employer a salary of TEN THOUSAND AND NO/100
DOLLARS ($10,000.00) per month, payable at least monthly during the term of this
Contract. The amount paid is to be prorated for any partial employment period.
<PAGE>
ARTICLE III
DUTIES OF EMPLOYEE
3.01. Employee is employed as Director of Animal Research and
Development, and shall work at 800 9th Street, Amarillo, the principal offices
of Employer, and at such other place(s) in the City of Amarillo as Employer may
direct. Employee shall perform the duties of Director of Animal Research and
Development, as such duties may be further set forth in the Bylaws of Employer,
or by resolution of the Board of Directors of Employer. Employee shall devote
his entire productive time, ability, attention and energies to the business of
Employer during the term of this Contract, except as below provided, and during
such time, Employee shall not directly or indirectly render any services of a
business, commercial or professional nature to any other person or organization,
whether or not for compensation, without the prior consent of the Board of
Directors of Employer.
ARTICLE IV
EMPLOYEE'S OBLIGATIONS AS TO INSURANCE
4.01. Employee agrees to submit to physical examination as may
be required for the obtaining by Employer of insurance on Employee's life, and
agrees to consent to the issuance of a policy or policies of insurance on his
life, such policies to be owned by Employer, and naming Employer as beneficiary.
Upon termination of Employee's employment for any reason, and if requested by
Employee, Employer shall
-2-
<PAGE>
assign any such policy to Employee, so that Employee shall have the option of
keeping the policy in force at Employee's expense. The foregoing
notwithstanding, Employer shall be entitled to retain the accumulated cash value
of any such policy.
ARTICLE V
EMPLOYEE BENEFITS
5.01. If Employer provides hospital, surgical, medical,
dental, group life insurance, or other fringe benefits to its employees, or any
of them, at any time during the term of this Contract, Employee shall be
entitled to participate in such benefits, on terms and conditions at least as
favorable as those accorded to other employees of Employer, subject to
insurability.
ARTICLE VI
REIMBURSEMENT OF EXPENSES INCURRED BY EMPLOYEE
6.01. Employee is authorized to incur reasonable business
expenses for promoting the business of Employer, including expenditures for
entertainment and travel. Employer will reimburse Employee for all such expenses
upon Employee's presentation of written expense vouchers, itemizing such
expenditures.
ARTICLE VII
PROPERTY RIGHTS OF PARTIES
7.01. Employee has had access to and become
familiar with, and during the term of continued employment,
-3-
<PAGE>
will continue to have access to and become familiar with, various trade secrets,
consisting of formulas, devices, secret inventions, processes, compilations of
information, records, and specifications owned by ACC Companies and regularly
used in the operation of ACC Companies. Employee shall not disclose any such
trade secrets directly or indirectly nor use them in any way either during the
term of this Contract or at any time thereafter except as required in the course
of his employment. All files, records, documents, drawings, specifications,
equipment and similar items relating to the business of ACC Companies, whether
or not prepared by Employee, shall remain the exclusive property of ACC
Companies and shall not be removed from the premises of Employer under any
circumstances, except in pursuit of the trade and business of ACC Companies.
7.02. On the termination of employment or whenever requested
by Employer, Employee shall immediately deliver to Employer all property in
Employee's possession or under Employee's control belonging to ACC Companies,
including but not limited to all accounting records, computer terminals and
tapes, disks, or other data storage mechanisms, accounting machines, and all
office furniture and fixtures, supplies and other personal property in the
possession or under the control of Employee, in good condition, ordinary wear
and tear excepted, and including without limitation all correspondence
-4-
<PAGE>
files, research data, and patent information or data, of every
sort.
7.03. With the exception of inventor royalties currently owned
by Employee, arising out of his previous employment by the University of
Illinois and Texas A&M University, and relating to certain royalty payments
receivable by Employee with respect to certain licenses heretofore granted by
said Universities, Employee hereby promises and agrees to convey and assign to
Employer any and all other rights or interests he may now have in and to trade
secrets, formulas, devices, inventions, processes, patents, applications,
continuations, copyrights, trademarks, compilations of information, records,
specifications, rights, interests and data of every other sort, affecting or
pertaining directly or indirectly to the business of ACC Companies as now
conducted, or to the patents, trade secrets, and other rights nor owned by ACC
Companies. In further clarification of the preceding sentence, it is not
Employee's intention to retain individually any such rights or interests, other
than those heretofore specifically excepted. Except for the rights heretofore
excepted, Employee does not claim any rights or interests in and to trade
secrets, formulas, devices, inventions, processes, patents, applications,
continuations, copyrights, trademarks, compilations of information, records,
specifications, rights, interests and data of any other sort, affecting or
pertaining directly or indirectly to the business of ACC
-5-
<PAGE>
Companies as now conducted, or to the patents, trade secrets, and other rights
now owned by ACC Companies.
7.04. Employee agrees that he will promptly and fully inform
and disclose to Employer all inventions, designs, improvements and discoveries
that Employee may have during the term of this Contract that pertain or relate
to the business of ACC Companies or to any experimental work carried on by ACC
Companies, whether conceived by Employee alone or with others and whether or not
conceived during regular working hours. All such inventions, designs,
improvements and discoveries shall be the exclusive property of Employer.
Employee shall assist ACC Companies in obtaining patents on all such inventions,
designs, improvements and discoveries deemed patentable by ACC Companies, and
shall execute all documents and do all things necessary to obtain such patents
for Employer or ACC Companies.
7.05. It is contemplated that Employee in the course of his
employment will be engaged in work involving various patents and secret
processes owned by ACC Companies. All experiments, developments, formulas,
patterns, devices, secret inventions and compilations of information, records,
and specifications regarding such matters are trade secrets, which Employee
shall not disclose directly or indirectly to anyone other than ACC Companies or
their agents, or use in any way, either during the term of this Contract or at
any time
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<PAGE>
after the termination of this Contract, except as required in
the course and scope of his employment.
7.06. During the term of this Contract, Employee shall not
directly or indirectly either as an employee, employer, consultant, agent,
principal, partner, stock holder, corporate officer, director, or in any other
individual or representative capacity engage or participate in any business that
is in competition in any manner whatsoever with the business of ACC Companies;
provided, however, that Employee may without restriction invest in
professionally managed mutual funds, where the investment decision regarding
specific securities is made by the fund manager, and not by Employee; and
Employee may purchase, own and sell stock or other securities of pharmaceutical
companies, as long as Employee is not directly or indirectly through one or more
intermediaries in control of or controlled by or under common control with any
such company. Furthermore, upon the termination of this Contract, Employee
expressly agrees not to engage or participate directly or indirectly in any
business that is in competition with the business of ACC Companies, for a period
of three (3) years; and further provided, that no business will be considered to
be in competition with ACC Companies unless its business relates to the
manufacture, sale, testing or development of products containing alpha
interferon. Employer and Employee recognize and agree that ACC Companies may
obtain or develop additional technologies from time to
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time, and if that is the case, Employer may expand the terms of this
non-competition provision by giving written notice to Employee of the additional
technologies that are to be protected.
7.07. In the event of a breach by Employee of any provisions
of this Article VII, the parties hereto agree that Employer, in addition to any
other remedies to which Employer may be entitled at law, shall be entitled to
the remedy of specific performance, it being understood and agreed by the
parties hereto that damages may be difficult to ascertain, and that an award of
damages would in all probability not sufficiently compensate Employer for any
breach by Employee of such provisions. ACC Companies are intended third-party
beneficiaries of the provisions of this Article VII.
ARTICLE VIII
RESTRICTED STOCK GRANT
8.01. Employer has heretofore granted to Employee a restricted
stock grant. It is the desire and intention of Employer and Employee that said
stock grant remain in force; for purposes of clarification, said terms and
conditions are herein set forth, so that the provisions contained in this
Article VIII do not constitute a new grant, but are by way of confirmation of
the existing grant. Should the provisions in this Article VIII vary in any
manner from the provisions of any prior grant, these present provisions shall
control. Where required by applicable laws or regulations, or by
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administrative necessity, the Board of Directors of Employer may prescribe
additional terms and conditions regarding the issuance and administration of the
restricted stock grant, as long as such additional terms and conditions (1) do
not conflict with the terms and conditions hereinafter set forth, and (2) are no
less favorable than those applying to the restricted stock grants received by
other employees of Employer.
8.02. Employee has received from Employer a restricted stock
grant of forty thousand (40,000) shares of the voting common stock of Employer.
No certificates shall be issued, and the grant shall be subject to forfeiture,
and said shares shall enjoy no rights with respect to voting, dividends,
liquidation, or any other matter, but shall simply have the status of unissued
shares, until the following events occur, at which time the hereinafter
stipulated number of shares subject to this grant shall be released from
restrictions, and certificates therefor shall be issued:
(a) FDA approval of any Hayashibara Biochemical
Laboratories' Interferon-containing product
owned or licensed by an ACC Company, for use
in humans, for sale in the U.S.: 29,000
shares.
(b) Sale of all or substantially all of the assets
of Employer; sale by any ACC Company(s) of all
or substantially all of the rights of the ACC
Companies, collectively, to rights, patents,
products and technology relating to the use of
interferon-containing products in humans; a
tender offer by any person or entity not
currently a shareholder of Employer, for 50%
or more of the issued and outstanding stock of
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Employer; or a merger, consolidation, or other
reorganization of Employer, pursuant to which
Employer is not the surviving company: 40,000
shares. In the event of the occurrence of any
the events described in this Paragraph (b),
Employee shall receive from Employer the
number of shares in question, prior to the
consummation of the stated event, so that he
may and shall participate in said stated event
on the same basis as other shareholders of
Employer.
(c) Initial public offering of common stock of Em-
ployer: 40,000 shares. In the event of an
initial public offering, the subject shares
shall be issued to Employee prior to the com-
mencement of said offering. Employer shall
not be required to negotiate piggy-back regis-
tration rights on behalf of any of its share-
holders, but if it does so, Employee shall be
entitled to participate in said piggy-back
registration on the same basis as other share-
holders of Employer.
(d) Expiration of eight (8) years from September
1, 1992: 40,000 shares.
8.03. Any other provision of this Article VIII
notwithstanding, no more than 40,000 shares in the aggregate, from all events
combined, shall ever be issuable to Employee pursuant to this restricted stock
grant.
8.04. In the event of the death or complete disability of
Employee, or a voluntary termination of employment (which shall include the
resignation of Employee, or the giving of a notice of termination of this
Contract, or a successor or amended employment contract, by Employee pursuant to
Section 1.01, above), any stock not theretofore issued to Employee shall be
forfeited.
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<PAGE>
8.05. Upon the giving of a notice of termination of this
Contract (or a successor or amended employment contract) by Employer pursuant to
Section 1.01, above, then upon discharge of Employee by Employer, fifty percent
(50%) of the stock not theretofore issued shall be forfeited, and the other
fifty percent (50%) shall be issued forthwith to Employee.
8.06. The shares subject to the restricted grant are shares of
the common stock of Employer as presently constituted, but if and whenever,
prior to the issuance by Employer of any shares of the stock subject to this
grant, Employer shall effect a subdivision or reduction of shares or other
capital readjustment, the payment of a stock dividend, or other increase or
reduction of the number of shares of the stock outstanding without receiving
compensation in money, services or property, the number of shares of stock then
remaining subject to this grant, and not theretofore issued, shall (a) in the
event of an increase in the number of outstanding shares, be proportionately
increased, and (b) in the event of a reduction in the number of outstanding
shares, be proportionately reduced.
ARTICLE IX
ENTIRETY OF AGREEMENT; AMENDMENTS; SURVIVAL
9.01. This Contract supersedes all other agreements, either
oral or in writing, between the parties to this Contract with respect to the
employment of Employee by Employer. This Contract contains the entire
understanding of
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the parties and all of the covenants and agreements between
the parties with respect to such employment.
9.02. This Contract may be amended only by an instrument
signed in writing by both parties; and provided further, that no amendment may
be executed on behalf of Employer, except pursuant to a resolution of the Board
of Directors of Employer.
9.03. The following provisions shall survive the
expiration of this Agreement: ARTICLES VII, VIII and IX.
IN WITNESS WHEREOF, this Contract is executed by the
undersigned as of this 4th day of March, 1994.
EMPLOYEE: EMPLOYER:
AMARILLO CELL CULTURE COMPANY,
INCORPORATED
/s/ Alan B. Richards By:/s/ Joseph M. Cummins
- --------------------------- -----------------------------
ALAN B. RICHARDS Joseph M. Cummins, President
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<PAGE>
AMENDMENT TO EMPLOYMENT CONTRACT
THIS AMENDMENT TO EMPLOYMENT CONTRACT ("Amendment") is entered
into by and between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas
corporation ("Employer") and JOSEPH M.
CUMMINS ("Employee").
WHEREAS, Employer and Employee have heretofore entered into
that certain Employment Contract (the "Contract"), dated March 4, 1994; and
further
WHEREAS, the Contract has not been terminated by either
Employer or Employee pursuant to Section 1.01 thereof; and further
WHEREAS, on April 16, 1996, Employer declared a twenty percent
(20%) stock dividend to all holders of record of its common stock as of such
date (the "Stock Dividend"); and further
WHEREAS, Employer and Employee desire to hereby amend
certain provisions of the Contract;
THEREFORE, in consideration of these presents and for other
good and valuable consideration the receipt and sufficiency of which are
evidenced by the execution hereof, Employer and Employee hereby agree that the
Contract shall be amended as follows:
1. Employer and Employee agree that, notwithstanding the first
sentence of Section 8.02 of the Contract and giving effect to the Stock
Dividend, Employer's obligations to Employee pursuant to Section 8.02(c) of the
Contract shall be fully satisfied and discharged upon the issuance by Employer
to Employee,
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simultaneously with the consummation of an initial public offering of common
stock of Employer, of thirty thousand (30,000) shares of the voting common stock
of Employer, and the deposit to Employer's payroll tax withholding account, for
benefit of Employee, of ninety thousand dollars ($90,000.00) cash. After such
issuance of stock and such withholding deposit, Employer shall have no more
obligations whatsoever to Employee under any provision of Article VIII of the
Contract.
2. Employee acknowledges and agrees that his rights to a
piggyback registration under certain circumstances, as set forth in Section
8.02(c) of the Contract, pertain only to an initial public offering of common
stock by Employer; and that from and after the consummation of said initial
public offering, Employee shall have no rights to any piggyback registration,
including without limitation, the right to participate in a piggyback
registration (if any) which might be effected by Employer from time to time in
the future, on behalf of any other shareholder.
3. Section 1.01 of the Contract is hereby amended, and
shall hereinafter read in its entirety as follows:
"1.01 By this Contract, Employer employs Employee and
Employee accepts employment with Employer and with
such ACC Companies as Employer shall designate,
through December 31, 1999; however, this Contract may
be terminated earlier by Employer for cause, at its
option, by giving written notice of termination to
Employee, without prejudice to any other remedy to
which Employer may be entitled either at law, in
equity or under this Contract. "For cause," as used
in this Section 1.01, shall mean and include any of
the following events:
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<PAGE>
(a) Misappropriation or embezzlement by Employee
involving Employer or an ACC Company;
(b) The conviction in any jurisdiction of
Employee for any crime involving an ACC
Company which constitutes a felony; or
(c) Employee's material violation of any of the
material provisions of this Contract;
provided, however, that Employer shall give
written notice of Employee's violation of
such provisions and Employee shall have a
period of twenty (20) business days to cure
such violation.
(d) Employee shall have become Disabled (as de-
fined in Section 2.01, below), and said Dis-
ability shall have continued for a period of
twelve (12) consecutive months, or a period
of twelve (12) months in any twenty-four
(24) month period. All determinations
regarding the existence and continuation of
a Disability shall be made as provided in
Section 2.01, below.
Termination of this Contract for cause shall be
effective upon written notice thereof to Employee.
Employee shall thereupon be entitled to compensation
earned prior to the date of termination, computed pro
rata up to and including the date of termination,
shall be entitled to no further compensation, and
will be relieved of all duties and obligations under
this Contract as of the date of termination;
provided, however, that the provisions of Article VII
("Property Rights of Parties"), and Article IX
("Entirety of Agreement; Amendment; Survival"), shall
survive both the expiration of this Contract, or any
earlier termination."
4. Section 2.01 of the Contract is hereby amended, by
adding the following at the end of the present 2.01:
"In the event Employee becomes Disabled (as
hereinafter defined), Employee shall continue to
receive compensation from employer as follows:
(i) during the first three (3) months following
a determination of Disability, Employee
shall receive compensation at the rate of
one hundred percent (100%) of salary;
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<PAGE>
(ii) during the fourth through the sixth month
following a determination of Disability,
Employee shall receive compensation at the
rate of seventy-five percent (75%) of
salary;
(iii) during the seventh through the ninth month
following a determination of Disability,
Employee shall receive compensation at the
rate of fifty percent (50%) of salary; and
(iv) during the tenth through the twelfth month
following a determination of Disability and
thereafter during the continuance of such
Disability until such time as this Contract
may be terminated as hereinbefore provided,
Employee shall receive compensation at the
rate of twenty-five percent (25%) of salary.
For purposes of determining the percentage of salary
and the duration of payment thereof to which Employee
is entitled following a determination of Disability,
if Employee resumes full-time employment hereunder
after such determination and thereafter becomes
Disabled again, such succeeding period of Disability
shall be deemed a continuation of the prior period of
Disability unless a period of at least six continuous
months of active full-time employment has elapsed
since the conclusion of the prior period of
Disability.
Notwithstanding anything to the contrary contained in
this Section 2.01:
(i) any and all amounts payable to Employee
hereunder during any period of Disability
shall be reduced by any disability income
insurance proceeds paid to Employee under
any policies owned by and paid for by the
Employer; and
(ii) Employee shall be conclusively deemed to be
Disabled for purposes of this Agreement
during any period in which he receives
disability insurance proceeds from an
insurance carrier pursuant to clause (i).
For all purposes of this Contract, "Disability"
(including the adjective "Disabled") shall mean
Employee's inability by reason of physical or mental
incapacity to perform the customary duties of his
employment for a period of three (3) consecutive
months or a period of three (3) months in any
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<PAGE>
consecutive six (6) month period. If any dispute
arises as to the existence of Employee's Disability,
such dispute shall be resolved by two licensed
physicians, one selected by the Board of Directors of
Employer (other than Employee) and one selected by
Employee. If the two physicians so selected cannot
agree as to whether or not Employee is Disabled, the
two physicians so selected shall designate a third
physician and the determination of two of the three
physicians so selected as to whether or not Employee
is Disabled shall be final and binding on the parties
for all purposes."
5. Except as herein expressly amended, all terms and
conditions of the Contract shall remain in full force and effect,
as therein provided.
IN WITNESS WHEREOF, this Amendment is executed by the
undersigned as of this the 1st day of May, 1996.
EMPLOYEE: EMPLOYER:
AMARILLO CELL CULTURE COMPANY,
INCORPORATED
/s/ JOSEPH M. CUMMINS By: /s/ Charles Hughes
- --------------------------- -----------------------------
JOSEPH M. CUMMINS Charles Hughes
Vice-President, Finance and
Administration
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EMPLOYMENT CONTRACT
This Employment Contract ("Contract") is entered into by and
between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas corporation
("Employer"), and CHARLES HUGHES ("Employee"). ACC and its controlled
subsidiaries shall be hereinafter collectively referred to as "ACC Companies".
Employer hereby employs Employee, and Employee accepts employment, on the
following terms and conditions.
ARTICLE I
TERM OF EMPLOYMENT
1.01. By this Contract, Employer employs Employee, and
Employee accepts employment with Employer, and with such ACC Companies as
Employer shall designate, until this Contract shall have been terminated by
either party by the serving of six months' advance, written notice of such
termination upon the other party.
ARTICLE II
COMPENSATION
2.01. As compensation for all services rendered under this
Contract, Employee shall be paid by Employer a salary of SIX THOUSAND ONE
HUNDRED SIXTY-SEVEN AND NO/100 DOLLARS ($6,167.00) per month, payable at least
monthly during the term of this Contract. The amount paid is to be prorated for
any partial employment period.
<PAGE>
ARTICLE III
DUTIES OF EMPLOYEE
3.01. Employee is employed as Chief Financial Officer of
Employer, and shall work at 800 9th Street, Amarillo, the principal offices of
Employer, and at such other place(s) in the City of Amarillo as Employer may
direct. Employee shall perform the duties of Chief Financial Officer, as such
duties may be further set forth in the Bylaws of Employer, or by resolution of
the Board of Directors of Employer. Employee shall devote his entire productive
time, ability, attention and energies to the business of Employer during the
term of this Contract, and during such time, Employee shall not directly or
indirectly render any services of a business, commercial or professional nature
to any other person or organization, whether or not for compensation, without
the prior consent of the Board of Directors of Employer.
ARTICLE IV
EMPLOYEE'S OBLIGATIONS AS TO INSURANCE
4.01. Employee agrees to submit to physical examination as may
be required for the obtaining by Employer of insurance on Employee's life, and
agrees to consent to the issuance of a policy or policies of insurance on his
life, such policies to be owned by Employer, and naming Employer as beneficiary.
Upon termination of Employee's employment for any reason, and if requested by
Employee, Employer shall
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<PAGE>
assign any such policy to Employee, so that Employee shall have the option of
keeping the policy in force at Employee's expense. The foregoing
notwithstanding, Employer shall be entitled to retain the accumulated cash value
of any such policy.
ARTICLE V
EMPLOYEE BENEFITS
5.01. If Employer provides hospital, surgical, medical,
dental, group life insurance, or other fringe benefits to its employees, or any
of them, at any time during the term of this Contract, Employee shall be
entitled to participate in such benefits, on terms and conditions at least as
favorable as those accorded to other employees of Employer, subject to
insurability.
ARTICLE VI
REIMBURSEMENT OF EXPENSES INCURRED BY EMPLOYEE
6.01. Employee is authorized to incur reasonable business
expenses for promoting the business of Employer, including expenditures for
entertainment and travel. Employer will reimburse Employee for all such expenses
upon Employee's presentation of written expense vouchers, itemizing such
expenditures.
ARTICLE VII
PROPERTY RIGHTS OF PARTIES
7.01. Employee has had access to and become
familiar with, and during the term of continued employment,
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<PAGE>
will continue to have access to and become familiar with, various trade secrets,
consisting of formulas, devices, secret inventions, processes, compilations of
information, records, and specifications owned by ACC Companies and regularly
used in the operation of ACC Companies. Employee shall not disclose any such
trade secrets directly or indirectly nor use them in any way either during the
term of this Contract or at any time thereafter except as required in the course
of his employment. All files, records, documents, drawings, specifications,
equipment and similar items relating to the business of ACC Companies, whether
or not prepared by Employee, shall remain the exclusive property of ACC
Companies and shall not be removed from the premises of Employer under any
circumstances, except in pursuit of the trade and business of ACC Companies.
7.02. On the termination of employment or whenever requested
by Employer, Employee shall immediately deliver to Employer all property in
Employee's possession or under Employee's control belonging to ACC Companies,
including but not limited to all accounting records, computer terminals and
tapes, disks, or other data storage mechanisms, accounting machines, and all
office furniture and fixtures, supplies and other personal property in the
possession or under the control of Employee, in good condition, ordinary wear
and tear excepted, and including without limitation all correspondence
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<PAGE>
files, research data, and patent information or data, of every
sort.
7.03. Employee does not claim any rights or interests in and
to trade secrets, formulas, devices, inventions, processes, patents,
applications, continuations, copyrights, trademarks, compilations of
information, records, specifications, rights, interests and data of any other
sort, affecting or pertaining directly or indirectly to the business of ACC
Companies as now conducted, or to the patents, trade secrets, and other rights
now owned by ACC Companies.
7.04. Employee agrees that he will promptly and fully inform
and disclose to Employer all inventions, designs, improvements and discoveries
that Employee may have during the term of this Contract that pertain or relate
to the business of ACC Companies or to any experimental work carried on by ACC
Companies, whether conceived by Employee alone or with others and whether or not
conceived during regular working hours. All such inventions, designs,
improvements and discoveries shall be the exclusive property of Employer.
Employee shall assist ACC Companies in obtaining patents on all such inventions,
designs, improvements and discoveries deemed patentable by ACC Companies, and
shall execute all documents and do all things necessary to obtain such patents
for Employer or ACC Companies.
7.05. It is contemplated that Employee in the
course of his employment will be engaged in work involving
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<PAGE>
various patents and secret processes owned by ACC Companies. All experiments,
developments, formulas, patterns, devices, secret inventions and compilations of
information, records, and specifications regarding such matters are trade
secrets, which Employee shall not disclose directly or indirectly to anyone
other than ACC Companies or their agents, or use in any way, either during the
term of this Contract or at any time after the termination of this Contract,
except as required in the course and scope of his employment.
7.06. During the term of this Contract, Employee shall not
directly or indirectly either as an employee, employer, consultant, agent,
principal, partner, stock holder, corporate officer, director, or in any other
individual or representative capacity engage or participate in any business that
is in competition in any manner whatsoever with the business of ACC Companies;
provided, however, that Employee may without restriction invest in
professionally managed mutual funds, where the investment decision regarding
specific securities is made by the fund manager, and not by Employee; and
Employee may purchase, own and sell stock or other securities of pharmaceutical
companies, as long as Employee is not directly or indirectly through one or more
intermediaries in control of or controlled by or under common control with any
such company. Furthermore, upon the termination of this Contract, Employee
expressly agrees not to engage or participate directly or indirectly in any
business that is in
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competition with the business of ACC Companies, for a period of three (3) years;
and further provided, that no business will be considered to be in competition
with ACC Companies unless its business relates to the manufacture, sale, testing
or development of products containing alpha interferon. Employer and Employee
recognize and agree that ACC Companies may obtain or develop additional
technologies from time to time, and if that is the case, Employer may expand the
terms of this non-competition provision by giving written notice to Employee of
the additional technologies that are to be protected.
7.07. In the event of a breach by Employee of any provisions
of this Article VII, the parties hereto agree that Employer, in addition to any
other remedies to which Employer may be entitled at law, shall be entitled to
the remedy of specific performance, it being understood and agreed by the
parties hereto that damages may be difficult to ascertain, and that an award of
damages would in all probability not sufficiently compensate Employer for any
breach by Employee of such provisions. ACC Companies are intended third-party
beneficiaries of the provisions of this Article VII.
ARTICLE VIII
RESTRICTED STOCK GRANT
8.01. Employer hereby grants to Employee a re-
stricted stock grant, subject to the terms and conditions
hereinafter set forth in this Article VIII. Where required by
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<PAGE>
applicable laws or regulations, or by administrative necessity, the Board of
Directors of Employer may prescribe additional terms and conditions regarding
the issuance and administration of the restricted stock grant, as long as such
additional terms and conditions (1) do not conflict with the terms and
conditions hereinafter set forth, and (2) are no less favorable than those
applying to the restricted stock grants received by other employees of Employer.
8.02. The restricted stock grant is for twenty-five thousand
(25,000) shares of the voting common stock of Employer. No certificates shall be
issued, and the grant shall be subject to forfeiture, and said shares shall
enjoy no rights with respect to voting, dividends, liquidation, or any other
matter, but shall simply have the status of unissued shares, until the following
events occur, at which time the hereinafter stipulated number of shares subject
to this grant shall be released from restrictions, and certificates therefor
shall be issued:
(a) FDA approval of any Hayashibara Biochemical
Laboratories' Interferon-containing product
owned or licensed by an ACC Company, for use
in humans, for sale in the U.S.: 17,857
shares.
(b) Sale of all or substantially all of the assets
of Employer; sale by any ACC Company(s) of all
or substantially all of the rights of the ACC
Companies, collectively, to rights, patents,
products and technology relating to the use of
interferon-containing products in humans; a
tender offer by any person or entity not
currently a shareholder of Employer, for 50%
or more of the issued and outstanding stock of
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Employer; or a merger, consolidation, or other
reorganization of Employer, pursuant to which
Employer is not the surviving company: 25,000
shares. In the event of the occurrence of any
the events described in this Paragraph (b),
Employee shall receive from Employer the
number of shares in question, prior to the
consummation of the stated event, so that he
may and shall participate in said stated event
on the same basis as other shareholders of
Employer.
(c) Initial public offering of common stock of Em-
ployer: 25,000 shares. In the event of an
initial public offering, the subject shares
shall be issued to Employee prior to the com-
mencement of said offering. Employer shall
not be required to negotiate piggy-back regis-
tration rights on behalf of any of its share-
holders, but if it does so, Employee shall be
entitled to participate in said piggy-back
registration on the same basis as other share-
holders of Employer.
(d) Expiration of eight (8) years from June 1,
1994: 25,000 shares.
8.03. Any other provision of this Article VIII
notwithstanding, no more than 25,000 shares in the aggregate, from all events
combined, shall ever be issuable to Employee pursuant to this restricted stock
grant.
8.04. In the event of the death or complete disability of
Employee, or a voluntary termination of employment (which shall include the
resignation of Employee, or the giving of a notice of termination of this
Contract, or a successor or amended employment contract, by Employee pursuant to
Section 1.01, above), any stock not theretofore issued to Employee shall be
forfeited.
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8.05. Upon the giving of a notice of termination of this
Contract (or a successor or amended employment contract) by Employer pursuant to
Section 1.01, above, then upon discharge of Employee by Employer, fifty percent
(50%) of the stock not theretofore issued shall be forfeited, and the other
fifty percent (50%) shall be issued forthwith to Employee.
8.06. The shares subject to the restricted grant are shares of
the common stock of Employer as presently constituted, but if and whenever,
prior to the issuance by Employer of any shares of the stock subject to this
grant, Employer shall effect a subdivision or reduction of shares or other
capital readjustment, the payment of a stock dividend, or other increase or
reduction of the number of shares of the stock outstanding without receiving
compensation in money, services or property, the number of shares of stock then
remaining subject to this grant, and not theretofore issued, shall (a) in the
event of an increase in the number of outstanding shares, be proportionately
increased, and (b) in the event of a reduction in the number of outstanding
shares, be proportionately reduced.
ARTICLE IX
ENTIRETY OF AGREEMENT; AMENDMENTS; SURVIVAL
9.01. This Contract supersedes all other agreements, either
oral or in writing, between the parties to this Contract with respect to the
employment of Employee by Employer. This Contract contains the entire
understanding of
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the parties and all of the covenants and agreements between
the parties with respect to such employment.
9.02. This Contract may be amended only by an instrument
signed in writing by both parties; and provided further, that no amendment may
be executed on behalf of Employer, except pursuant to a resolution of the Board
of Directors of Employer.
9.03. The following provisions shall survive the
expiration of this Agreement: ARTICLES VII, VIII and IX.
IN WITNESS WHEREOF, this Contract is executed by the
undersigned as of this 1st day of June, 1994.
EMPLOYEE: EMPLOYER:
AMARILLO CELL CULTURE COMPANY,
INCORPORATED
/s/ Charles Hughes By:/s/ Edward Sherwood
- --------------------------- ----------------------------------
CHARLES HUGHES EDWARD SHERWOOD, President
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<PAGE>
AMENDMENT TO EMPLOYMENT CONTRACT
THIS AMENDMENT TO EMPLOYMENT CONTRACT ("Amendment") is entered
into by and between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas
corporation ("Employer") and CHARLES HUGHES ("Employee").
WHEREAS, Employer and Employee have heretofore entered into
that certain Employment Contract (the "Contract"), dated June 1, 1994; and
further
WHEREAS, the Contract has not been terminated by either
Employer or Employee pursuant to Section 1.01 thereof; and further
WHEREAS, on April 16, 1996, Employer declared a twenty percent
(20%) stock dividend to all holders of record of its common stock as of such
date (the "Stock Dividend"); and further
WHEREAS, Employer and Employee desire to hereby
amend certain provisions of the Contract;
THEREFORE, in consideration of these presents and for other
good and valuable consideration the receipt and sufficiency of which are
evidenced by the execution hereof, Employer and Employee hereby agree that the
Contract shall be amended as follows:
1. Employer and Employee agree that, notwithstand-
ing the first sentence of Section 8.02 of the Contract and
giving effect to the Stock Dividend, Employer's obligations to
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<PAGE>
Employee pursuant to Section 8.02(c) of the Contract shall be fully satisfied
and discharged upon the issuance by Employer to Employee, simultaneously with
the consummation of an initial public offering of common stock of Employer, of
nineteen thousand (19,000) shares of the voting common stock of Employer, and
the deposit to Employer's payroll tax withholding account, for benefit of
Employee, of fifty-five thousand dollars ($55,000.00) cash. After such issuance
of stock and such withholding deposit, Employer shall have no more obligations
whatsoever to Employee under any provision of Article VIII of the Contract.
2. Employee acknowledges and agrees that his rights to a
piggyback registration under certain circumstances, as set forth in Section
8.02(c) of the Contract, pertain only to an initial public offering of common
stock by Employer; and that from and after the consummation of said initial
public offering, Employee shall have no rights to any piggyback registration,
including without limitation, the right to participate in a piggyback
registration (if any) which might be effected by Employer from time to time in
the future, on behalf of any other shareholder.
3. Except as herein expressly amended, all terms
and conditions of the Contract shall remain in full force and
effect, as therein provided.
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<PAGE>
IN WITNESS WHEREOF, this Amendment is executed by
the undersigned as of this the 1st day of May, 1996.
EMPLOYEE: EMPLOYER:
AMARILLO CELL CULTURE COMPANY,
INCORPORATED
/s/ Charles Hughes By:/s/ Edward Sherwood
- --------------------------- ----------------------------------
CHARLES HUGHES EDWARD SHERWOOD, President
-3-
MANUFACTURING/SUPPLY AGREEMENT
THIS AGREEMENT is made and effective this 1st day of June,
1994, by and between AMARILLO CELL CULTURE COMPANY, INCORPORATED, a Texas
corporation with its principal place of business at 800 W. 9th, Amarillo, Texas
79101 (hereinafter "ACC") and HAYASHIBARA BIOCHEMICAL LABORATORIES, INC., with
its principal place of business at 2-3, Shimoishii l-chome, Okayama 700, Japan
(hereinafter "HBL") (ACC and HBL collectively referred to hereinafter as the
"Parties").
WHEREAS, HBL has substantial expertise in the production and
use of HBL Interferon (hereinafter defined) and has proprietary rights and
know-how in the field of production, purification and formulation of HBL
Interferon;
WHEREAS, HBL and ACC have heretofore entered into that certain
Joint Development and Manufacturing/Supply Agreement dated March 13, 1992
(hereinafter, the "Development Agreement") regarding development of
interferon-containing products for oral administration;
WHEREAS, ACC and HBL now desire to promote applications of
technology relating to non-oral administration of interferon in all species and
ACC desires to use, formulate, test, and/or market interferon or
interferon-containing products for such purposes;
WHEREAS, ACC also desires to be able to sell HBL Interferon to
persons or entities who may formulate their own
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<PAGE>
interferon-containing products for non-oral applications, and who may test and
market such products, or alternatively, who may contract with ACC or others to
formulate, test or market such products;
WHEREAS, it is the desire of HBL and ACC that ACC have the
exclusive right to use, formulate, test or market HBL Interferon for non-oral
use in both humans and non-human warm-blooded species in North America; and the
exclusive right to sell or otherwise distribute HBL Interferon to other persons
or entities for use, formulation, testing, or marketing of non-oral applications
in both human and non-human warm-blooded species in North America;
NOW, THEREFORE, for and in consideration of the mutual
covenants contained herein, HBL and ACC agree as follows:
ARTICLE I
DEFINITIONS
1.1. "Agreement" means this Manufacturing/Supply
Agreement.
1.2. "Affiliate" means a corporation, company, partnership, or
other business entity which controls or is controlled by, or is under common
control with, the designated party. In the case of a corporation, "control"
means ownership either directly or indirectly of at least fifty percent (50%) of
the shares of stock entitled to vote for the election of directors.
-2-
<PAGE>
1.3. "Technical Information" means all information, reports,
results, inventions, licenses, know-how, improvements, materials, and any other
technical and scientific data, specifications and formulae directly related to
development, regulatory approval, manufacture, testing, use, marketing and/or
sale of HBL Interferon or other interferons or interferon-containing
compositions, and any non-public information relevant to the business of the
Parties which is necessarily disclosed by one to the other during the Parties'
performance under this Agreement. "ACC Technical Information" refers to
Technical Information originating with ACC or which ACC has developed or has
obtained through its contractual relationships with third parties. "HBL
Technical Information" refers to Technical Information originating with HBL or
which HBL has developed or has obtained through its contractual relationships
with third parties. "Technical Information" when not otherwise specified herein
means both ACC Technical Information and HBL Technical Information.
1.4. "HBL Interferon" means the natural Interferon-alpha
("IFN-a") used for the formulation of natural IFN-a-containing formulation(s)
for use in the treatment of human renal cell carcinoma and Hepatitis B in Japan,
presently under the manufacturing and commercializing approval of the Ministry
of Health and Welfare in Japan, and which is produced by HBL utilizing HBL
Technical Information.
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<PAGE>
ARTICLE II
HBL OBLIGATIONS
2.1. Subject to the terms and conditions of this Agreement,
HBL shall manufacture and supply HBL Interferon for nonoral use in human and
non-human warm-blooded species in the United States, Canada and Mexico (herein,
"North America") exclusively to ACC, and to no other persons or entities, for
either use, formulation, testing and/or marketing by ACC, or for resale or other
distribution by ACC to other persons or entities for use, formulation, testing,
and/or marketing; provided, however, that ACC shall not resell or otherwise
distribute HBL Interferon to other persons or entities for formulation, testing
and/or marketing by such other persons or entities without first obtaining HBL's
written approval, which approval shall not be unreasonably withheld. HBL shall
manufacture and supply HBL Interferon for delivery to ACC f.o.b. HBL's
manufacturing facilities, or for delivery at other locations by agreement of the
Parties, packaged in bulk, and such product shall be supplied in response to
issuance by ACC of written purchase orders delivered to HBL specifying the
quantity to be supplied, along with any special instructions/requests regarding
the supply and/or delivery of the product.
2.2. HBL agrees to allow right of reference to HBL's FDA
Biologics Master File(s) for HBL Interferon (and corresponding Canadian files)
and to do such other acts as are reasonably necessary, and within HBL's control,
to facilitate US FDA (or
-4-
<PAGE>
Canadian or Mexican) approval of HBL interferon-containing formulations for
non-oral use.
ARTICLE III
CONSIDERATION
3.1. HBL shall receive a transfer fee from ACC in the amount
of eight dollars ($8.00) per million (1,000,000) International Units of HBL
Interferon.
ARTICLE IV
REMITTANCES
4.1. Payments hereunder shall be made in U.S. Dollars and
remitted to the bank account designated by HBL, and shall be due upon shipment
of product, or if product is delivered to ACC at an HBL facility, upon delivery.
ARTICLE V
WARRANTIES
HBL makes no warranty, express or implied, and all implied
warranties or warranties of merchantability and fitness for a particular purpose
are hereby disclaimed and excluded.
ARTICLE VI
DISCLAIMERS AND INDEMNIFICATION
6.1. HBL makes no representation or warranty that the
manufacture or sale of Manufactured Products will not infringe any third party
patent, nor does HBL assume any obligations with respect to infringements of
patents of others arising as a result
-5-
<PAGE>
of ACC's activities under this Agreement except as otherwise expressly provided
in this Agreement.
6.2. HBL makes no covenant either to defend any infringement
charge by a third party or to initiate action against infringers of any of its
patents except as otherwise expressly provided in this Agreement.
6.3. HBL makes no representation or warranty concerning the
potential profitability of sales of Manufactured Products and shall not be
liable for failure of licensee to obtain a profit or income from such sales.
6.4. HBL SHALL NOT BE DEEMED TO HAVE MADE ANY REPRESEN-
TATION OR WARRANTY AS TO THE CONDITION, MERCHANTABILITY, DESIGN,
FUNCTION OR FITNESS FOR USE OF MANUFACTURED PRODUCTS.
6.5. ACC agrees that it shall indemnify and save HBL harmless
from any and all claims, demands, actions and causes of action against HBL,
whether groundless or not, in connection with any and all injuries, losses,
damages or liability of any kind whatsoever, arising, directly or indirectly,
out of the use, distribution, and/or sale of HBL Interferon by or through ACC.
HBL shall notify ACC in writing within ten (10) days of its receipt of any
claim, demand or lawsuit. Upon assumption by ACC of its duty to defend, ACC will
have control of the claim, demand or lawsuit, and except as may be necessary to
prevent lapse of its legal rights, HBL shall be required to incur no expense
with regard to said claim, demand or lawsuit. HBL shall, at ACC's request,
-6-
<PAGE>
provide reasonable assistance in defense of any such claim, demand
or lawsuit.
ARTICLE VII
TERM OR TERMINATION; DEFAULT
7.1. Unless sooner terminated as hereinafter provided, this
Agreement shall remain in effect for a period of five (5) years from the date of
this Agreement. After said initial term, the Agreement shall be automatically
renewed for successive five (5) year terms subject to the prior written
agreement of the Parties (hereinafter called "Renewal Terms").
7.2. If ACC shall at any time during the initial term or any
subsequent Renewal Term of this Agreement default in any obligation hereunder or
fail to pay any payment due, and such default shall not be cured within sixty
(60) days after written notice from HBL to ACC specifying the nature of the
default, HBL may terminate this Agreement, or may demand specific performance.
7.3. If HBL shall, at any time during the initial term or any
subsequent Renewal Terms of this Agreement, default in any obligation hereunder
and such default shall not be cured within sixty (60) days after written notice
from ACC to HBL specifying the nature of the default, ACC may terminate this
Agreement, or may demand specific performance.
7.4. Any termination pursuant to this Article shall not
relieve HBL of any obligation to fill purchase orders placed with HBL prior to
termination.
-7-
<PAGE>
7.5. The exercise by either Party of any right of termination
shall not constitute a waiver of any other rights or remedies available to such
party for violation of the terms of this Agreement or under applicable law.
ARTICLE VIII
CONFIDENTIALITY
8.1. ACC owns or is licensed under confidential or secret
information relating to interferon-containing products and the use of same in
human and non-human species, and it is the intention of ACC to maintain this
confidentiality.
8.2. HBL possesses trade secrets and technical and
marketing information that are proprietary to HBL, and it is its
intention to maintain the confidentiality of its proprietary
information.
8.3. Each Party agrees to maintain confidential and secret all
information which may be disclosed or provided to it by the other Party and that
the Parties may together subsequently acquire in relation to
interferon-containing products and which is designated in writing by clearly
identifiable legend as being confidential or secret in character.
8.4. Each Party's obligation to the other (to maintain
confidentiality) hereunder shall terminate with respect to any particular item
and only said item of the disclosing Party's confidential information, when the
recipient Party can demonstrate that such item of information:
-8-
<PAGE>
8.4.1. Is publicly known and available through
some means other than by the recipient Party's act or omission; or
8.4.2. Was in the recipient Party's possession
prior to its disclosure by the other Party, provided that written
evidence of such possession is established; or
8.4.3. Has come into the recipient Party's
possession through a third party free of any obligation of confidentiality to
the disclosing Party, where said third party has acquired said information
lawfully and not under circumstances forbidding its disclosure.
8.5. Neither Party will permit confidential or secret
information or any part thereof to be disclosed to third parties or to employees
except on a "need-to-know" basis and each will maintain confidential or secret
information and/or documents with the same precautions it uses to safeguard its
own confidential or secret information.
8.6. Each Party will notify the other promptly if it has
knowledge that a third party possesses confidential or secret information of the
other Party related to interferon-containing products.
8.7. ACC shall have the right to use HBL's confidential or
secret information to the extent reasonably necessary to accomplish the
objectives of this Agreement, including specifically the right to disclose such
information to its Affiliates, actual and potential purchasers or transferees,
third-party contract
-9-
<PAGE>
consultants and scientific investigators (from whom ACC shall secure
Confidential Disclosure Agreements) and to regulatory agencies in support of
applications for regulatory agency approval to make, test and/or sell
interferon-containing products.
ARTICLE IX
MISCELLANEOUS
9.1. Survival. ARTICLES VII, VIII, and IX shall survive
any termination of this Agreement.
9.2. Force Majeure. The failure of HBL, ACC, or any of their
Affiliates to take any act required by this Agreement if occasioned by an act of
God or the public enemy, fire, explosion, perils of the sea, floods, drought,
war, riot, sabotage, accident, embargo or any circumstance of like or different
character beyond the reasonable control of the Party so failing or by the
interruption or delay in transportation, inadequacy, or shortage or failure of
the supply of materials and/or equipment, equipment breakdown, labor trouble or
compliance with any order, direction, action or request of any governmental
officer, department or agency and whether in any case such circumstance now
exists or hereafter arises, shall not subject either Party to any liability to
the other.
9.3. Arbitration. The Parties hereto desire to avoid and
settle without litigation future disputes which may arise between
them relative to this Agreement. Accordingly, the Parties agree to
engage in good faith negotiations to resolve any such dispute. In
-10-
<PAGE>
the event they are unable to resolve any such dispute by negotiation, such
dispute shall be submitted to arbitration as follows: If arbitration is
initiated by HBL, it shall be held in the State of Texas, U.S.A. in compliance
with the Commercial Arbitration Rules of the American Arbitration Association.
If arbitration is initiated by ACC, it shall be held in Tokyo, Osaka, Japan in
compliance with the Rules of the Japan Commercial Arbitration Association. The
arbitration award shall be final and binding upon the Parties hereto and may be
filed with and enforced by any competent court of competent jurisdiction to
enforce said award.
9.4. Communication. Any payment, notice or other communication
required or permitted to be made or given to either Party hereto pursuant to
this Agreement shall be sufficiently made or given on the date of sending if
sent to such Party by certified or registered mail or by an overnight courier
service, postage or delivery charge prepaid, or by telex or telefax addressed to
it at its address set forth, or to such other address(es) as it may designate by
written notice given to the other Party as follows:
In case of HBL:
Mr. Katsuaki Hayashibara
Manager, R&D Center
Hayashibara Biochemical Laboratories, Inc.
2-3, Shimoishii l-chome
Okayama 700, Japan
In case of ACC:
Dr. Edward Sherwood, President
Amarillo Cell Culture Company, Inc.
800 W. 9th
Amarillo, Texas 79101
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<PAGE>
9.5. Amendments to Agreement. This Agreement constitutes the
entire agreement between the Parties hereto with respect to all of the matters
herein addressed, and supersedes all previous arrangements whether written or
oral, covering the same subject matter. Any amendment or modification of this
Agreement shall be effective only if made in writing, and executed by both
Parties.
This Agreement does not replace, supersede or amend the
Development Agreement, which is and remains in full force and effect. In the
event of a conflict between this Agreement and the Development Agreement, the
terms of the Development Agreement shall control.
9.6. Assignment. This Agreement shall not be assignable by HBL
to any person or entity other than an HBL Affiliate without the prior written
consent of ACC, which consent shall not be unreasonably withheld. This Agreement
shall not be assignable by ACC to any person or entity other than an ACC
Affiliate without the prior written consent of HBL, which consent shall not be
unreasonably withheld.
9.7. Enforceability. If one or more of the provisions of this
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality or enforceability of the remaining provisions hereof shall not in any
way be affected or impaired thereby. To the extent permitted by law, each Party
waives any provision of law which renders any provision herein invalid, illegal
or unenforceable in any respect.
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<PAGE>
9.8. Nature of Relationship. Nothing herein shall be construed
to place the Parties in a relationship of partners or joint venturers, nor does
this Agreement make either party the agent or legal representative of the other
for any purposes whatsoever. The Parties further agree that no representation
shall be made by either party that would create an apparent agency, employment,
partnership or joint venture. Neither party shall have the power express or
implied, to obligate or bind the other in any manner whatsoever.
9.9. Headings. The headings of the several sections of
this Agreement are inserted for convenience of reference only and
are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
9.10. Waiver. No provision of this Agreement shall be deemed
waived, unless such waiver is in writing and signed by the Party against which
the waiver is sought to be enforced. The waiver by either of the Parties hereto
of any breach of any provision hereof by the other Party shall not be construed
to be either a waiver of any succeeding breach of any such provision or a waiver
of the provision itself.
9.11. Governmental Approval. In the event HBL has to
obtain the approval from the appropriate governmental authorities
of Japan to deliver HBL Interferon to the country in which ACC will
use and/or market HBL interferon or products containing HBL
Interferon, HBL's obligation pertaining to the supply of the said
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<PAGE>
product to the said country shall be subject to such approval granted in writing
to HBL.
9.12. No Third-Party Beneficiaries. This Agreement
contemplates no third-party beneficiaries, and no person or entity,
other than the Parties or their permitted assignees, shall have any
rights whatsoever under this Agreement.
IN WITNESS WHEREOF, the Parties hereunto have caused this
Manufacturing/Supply Agreement to be executed in duplicate by their
duly authorized representatives as of the date first above written.
ACC: HBL:
AMARILLO CELL CULTURE COMPANY, HAYASHIBARA BIOCHEMICAL
INCORPORATED LABORATORIES, INC.
By:/s/ Edward Sherwood By:/s/ Ken Hayashibara
--------------------------- ------------------------------
Dr. Edward Sherwood Mr. Ken Hayashibara
President President
-14-
SETTLEMENT AGREEMENT
BETWEEN:
AMARILLO CELL CULTURE COMPANY INCORPORATED, A Texas Corporation with its
principal place of business at 800 W. 9th Avenue, Amarillo, Texas 79101
(hereinafter called "ACC")
AND
INTERFERON SCIENCES INC. with its principal place of business at 783 Jersey
Avenue, New Brunswick, New Jersey 08901 (hereinafter called "ISI")
AND
PHARMA PACIFIC MANAGEMENT PTY. LTD. of 103-105 Pipe Road, Laverton,
Victoria, Australia (hereinafter called "PPM")
AND
PHARMA PACIFIC PTY. LTD. of 103-105 Pipe Road, Laverton, Victoria,
Australia (hereinafter called "PPP")
AND
PHARMA PACIFIC LTD., c/o 81 Carlton Gore Road, Newmarket, Auckland, New
Zealand (hereinafter called "PPL")
AND
FERNZ CORPORATION LIMITED, 81 Carlton Gore Road, Newmarket, Auckland, New
Zealand
A. Whereas ACC has entered into an agreement with ISI on 20th October 1989,
which provides, inter alia, that ACC grants to ISI licenses to use the
Licensed Patents to make the Licensed Products in the Territory. ("The
ACC/ISI Agreement")
B. ACC has instituted proceedings against Fernz Corporation Limited, PPM, PPP
and PPL (collectively referred to as "Fernz") alleging that Fernz has
infringed ACC Patent No. 222457 ("the New Zealand Patent"). Fernz has
counterclaimed by alleging, inter alia, that the New Zealand Patent is not
valid. The proceedings are
4/27/95
<PAGE>
issued out of the High Court of New Zealand Auckland Registry being C.L.
No. 52-93. ("the New Zealand Proceedings")
C. PPM has instituted opposition proceedings in Australia opposing the grant
of Australian Patent Application No. 625431 (12227/88) in the name of Texas
A & M University System. ("the Australian Proceedings")
D. PPM has instituted opposition proceedings in Europe opposing the grant of
ACC's European Patent, being Patent No. 0341258 ("the European Opposition
Proceedings").
E. Fernz denies the allegations of infringement.
F. ACC denies that its New Zealand Patent is invalid.
G. The parties wish to settle the Proceedings on the terms and conditions as
set out hereafter.
H. ACC and ISI have amended the ACC/ISI Agreement to transfer ISI rights to
sublicense Licensed Patents back to ACC.
THE PARTIES AGREE AS FOLLOWS:
1. ACC shall grant to PPM a non-exclusive sub-license of the Licensed Patents
to make, have made, use and sell Licensed Products labeled for use only in
human species in the Territory and for the Term as set out in the PPM/ACC
Sub-License Agreement ("the Fernz License").
2. In the event that there are residual rights in Licensed Patents held by ACC
for which PPM would require a license to make, use and sell the Licensed
Products in the Territory, then ACC covenants not to sue PPM in respect of
those residual rights.
3. Immediately upon this Settlement Agreement becoming effective in accordance
with the provisions of clause 6 herein the parties shall by consent seek an
order that the claims which each has made against the other in the New
Zealand Proceedings be dismissed with no order as to costs. Each party
shall bear its own costs of and incidental to the New Zealand proceedings.
4. PPM shall discontinue its opposition to the Australian Proceedings.
Each of the parties to the Australian Proceedings shall bear its own costs
of and incidental to the Australian Proceedings.
4/27/95
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<PAGE>
5. PPM shall discontinue its opposition to the European Opposition
Proceedings. Each of the parties to the European Opposition Proceedings
shall bear its own costs of and incidental to the European Opposition
Proceedings.
6. This Settlement Agreement shall become effective upon the execution of the
Fernz License.
7. ACC and ISI hereby release and forever discharge Fernz and all of its
subsidiaries, related companies, affiliates, holding company, directors,
servants, advisors, consultants and agents from and against any and all
claims, demands, actions, proceedings, or costs whatsoever which ACC and
ISI have or may have or, but for the execution of these terms of
settlement, might otherwise have had before execution of these terms of
settlement arising out of or in any way connected with:
(i) the New Zealand Proceedings;
(ii) the Australian Proceedings;
(iii) the European Opposition Proceedings; and
(iv) any conduct by Fernz or its subsidiaries, related companies,
affiliates, holding company, directors, servants, advisors,
consultants and agents in respect of the manufacture, use, sale,
distribution, or dealing in low dose oral interferon tablets or
formulations which infringe or allegedly infringe the New Zealand
Patent and any counterparts of the New Zealand Patent in any
jurisdiction in the world.
It is understood that such release and discharge shall not apply to any
breach or alleged breach of the terms of the Fernz License.
8. Fernz hereby releases and forever discharges ACC and ISI and all of their
subsidiaries, related companies, affiliates, holding company, directors,
servants, advisors, consultants and agents from and against any and all
claims, demands, actions, proceedings or costs whatsoever which Fernz has
or may now have or, but for the execution of these terms of settlement,
might otherwise have had before the execution of these terms of settlement
arising out of or in any way connected with:
(i) the New Zealand Proceedings;
(ii) the Australian Proceedings; and
(iii) the European Opposition Proceedings.
4/27/95
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<PAGE>
9. This Settlement Agreement shall be governed by and construed in accordance
with the laws of New Zealand and all parties hereby submit to the exclusive
jurisdiction of the courts of New Zealand.
DATED this 27th day of April, 1995.
/s/ Joseph M. Cummins Date: 27 April 1995
- ----------------------------------------- --------------
Signed : Joseph M. Cummins, President
For and on behalf of AMARILLO CELL
CULTURE COMPANY, INCORPORATED
/s/ Larry Gordon Date: 27 April 1995
- ----------------------------------------- --------------
Signed by: Larry Gordon, Vice President & General Counsel
For and on behalf of INTERFERON SCIENCES, INC.
/s/ Robert Reis Date: 27 April 1995
- ----------------------------------------- --------------
Signed by: Robert Reis, General Manager
For and on behalf of PHARMA PACIFIC
MANAGEMENT PTY. LTD.
4/27/95
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<PAGE>
/s/ Robert Reis Date: 27 April 1995
- ----------------------------------------- --------------
Signed by: Robert Reis, General Manager
For and on behalf of PHARMA PACIFIC PTY. LTD.
/s/ Date: 27 April 1995
- ----------------------------------------- --------------
Signed by:
For and on behalf of PHARMA PACIFIC LTD.
/s/ Date: 27 April 1995
- ----------------------------------------- --------------
Signed by:
For and on behalf of FERNZ CORPORATION LIMITED
4/27/95
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AMENDMENT OF ACC/ISI LICENSE AGREEMENT
This Agreement is made and effective this 27th day of April, 1995, by and
between Amarillo Cell Culture Company, Incorporated, a Texas corporation with
its principal place of business at 800 West 9th Avenue, Amarillo, Texas 79101
(hereinafter "ACC") and Interferon Sciences, Inc., with its principal place of
business at 783 Jersey Avenue, New Brunswick, New Jersey 08901 (hereinafter
"ISI") (ACC and ISI are hereinafter collectively referred to as the "Parties").
Whereas ACC and ISI entered into a license agreement effective October 20,
1989, in which ACC granted a limited exclusive license to ISI, with right to
sublicense, to use the Licensed Patents, to make, use and sell the Licensed
Products in the Territory (the "ACC/ISI License Agreement").
ACC has instituted proceedings against Fernz Corporation Limited and other
companies (collectively referred to as "Fernz") in proceedings before the High
Court of New Zealand Auckland Registry being C.L. No. 52-93, alleging that Fernz
has infringed New Zealand Patent No. 222457, and Fernz has counterclaimed
alleging, inter alia, that the New Zealand Patent is not valid.
ISI is named as a counterclaim defendant in the New Zealand proceedings.
Pharma Pacific Management Pty. Ltd. ("PPM"), a subsidiary of Fernz Corporation
Limited, has instituted opposition proceedings in Australia opposing the
grant of Australian Patent Application No 625431 (12227/88) in the name of Texas
A & M University System.
4/27/95
<PAGE>
PPM has instituted opposition proceedings in Europe opposing grant of
European Patent No. 0341258.
The patents and patent applications contested by Fernz and PPM are among
the Licensed Patents in the ACC/ISI License Agreement.
ACC alleges that ISI is in breach of certain material obligations under the
ACC/ISI License Agreement.
ISI has not yet sublicensed any rights under the ACC/ISI License Agreement.
ISI, ACC and PPM have indicated willingness to settle the pending
litigation and opposition matters by grant of a sublicense to PPM and purchase
of shares of stock in ISI by ACC and PPM.
ACC desires that ISI grant back to ACC the right to sublicense Licensed
Patents under the ACC/ISI Agreement so that ACC can enter the Sublicense
Agreement, attached as Exhibit A, with PPM in settlement of the pending
litigation and patent opposition matters.
ACC, ISI and PPM have indicated willingness to execute the Settlement
Agreement attached as Exhibit B.
NOW, THEREFORE, in consideration of the premises and other valuable
consideration, ACC and ISI agree as follows:
1. ISI and ACC agree to execute the Settlement Agreement with PPM attached as
Exhibit B.
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4/27/95
<PAGE>
2. ACC shall purchase shares of stock in ISI to the value of Six Hundred
Twenty Five Thousand Dollars ($625,000.00) within two (2) business days of
receipt by ACC of collected funds from payment by PPM under Paragraph 3 of the
Sublicense Agreement. The per share stock price shall be Two Dollars ($2.00) per
share.
The issue and sale of the ISI Common Stock to ACC has not been and will not
be registered under the Securities Act of 1933, as amended (the "Act"), in
reliance upon the applicability of Section 4(2) of the Act to the transaction
contemplated hereby. In furtherance of such reliance, certificates representing
the ISI Common Stock will bear a restrictive legend to the effect that the ISI
Common Stock may not be sold without registration under the Act, absent an
available exemption from the registration provisions of the Act, and appropriate
"stop transfer" instructions will be issued to the transfer agent for ISI Common
Stock. ACC acknowledges that it has had access to such knowledge about ISI as is
customarily found in a registration statement filed under the Act, agrees that
it is acquiring the ISI Common Stock for investment and not with a view to
distribution and acknowledges that ISI has no obligation to register the ISI
Common Stock under the Act. In addition, ACC agrees that for a period of two
years from the date hereof, it will not sell, pledge, hypothecate or otherwise
transfer the ISI Common Stock without the express prior written consent of ISI.
3. ISI hereby grants back to ACC ISI's right to grant sublicenses under the
license granted in Section 2.2 of the ACC/ISI License Agreement provided that
ISI shall retain the
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right to grant sublicenses under the ACC/ISI agreement for use of ISI Interferon
under Licensed Patents, and ISI acknowledges that such grant back effectively
converts its coexclusive license under Licensed Patents and under ACC Technical
Information to a nonexclusive license.
4. ACC shall pay ISI one-half (1/2) of all royalties in excess of ACC's
royalty obligations to ACC's licensor, Texas A&M University System (TAMUS),
received by ACC from PPM under Paragraph 4 of the PPM/ACC Sub-license Agreement.
After deduction of its obligations to TAMUS, ACC shall also pay ISI one-half
(1/2) all royalties, option fees, license fees or other payments received by ACC
from any other sublicensee of Licensed Patents except specific research or
patent expense reimbursements, and except payments received for sale of its
stock at the fair market value thereof.
5. ACC contends that ISI has breached its obligation under Section 3.6 of the
ACC/ISI License Agreement to expend at least One Hundred Thousand Dollars
($100,000.00) over the three-year period commencing on the date of that
Agreement for the use of non-human interferons for human indications. ACC hereby
forgives and releases ISI for any claim ACC has against ISI based on that
alleged breach of contract.
6. ISI hereby grants back to ACC all rights held by ISI under the ACC/ISI
License Agreement pertinent to use of non-human interferons in humans, thus
discharging ISI from
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<PAGE>
additional payments with respect to such indications under Paragraph 3.7 of the
ACC/ISI License Agreement.
7. ACC hereby releases ISI from its obligation under Paragraph 3.7 of the
ACC/ISI Agreement to expend a minimum of Fifty Thousand Dollars ($50,000) per
year toward development of Licensed Products related to the use of human
interferon in humans.
8. Sections 1.8, and 1.9 of the ACC/ISI License Agreement shall be revised as
follows:
1.8 "Licensed Patent(s)" means those United States Patents and patent
applications listed in Exhibit "A" hereof, and any continuations,
continuations-in-part, divisions, reissues or extensions thereof, and
each foreign counterpart of each United States Patent and patent
application listed in Exhibit "A" and any extensions thereof.
1.9 Licensed Product(s) means dose formulations or compositions containing
ISI Interferon and designated, detailed, or labeled for oral use in
human species, and which are within the scope of a claim of a Licensed
Patent in the country where such products arc manufactured or sold.
9. Paragraphs 6.1-6.5 under Article VI, Enforcement of Licensed Patents, shall
be deleted in their entirety and replaced with the following:
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<PAGE>
6.1 Each of the parties to this Agreement shall immediately give notice
in writing to the other parties of any infringement or threatened
infringement of any of the Licensed Patents which at any time comes to
its knowledge.
6.2 Where an infringement of any Licensed Patent occurs by a third party
in a country where ISI or an Affiliated Company or agent is selling
Licensed Products for use in that country then ACC and ISI agree to
meet and negotiate to define the most practical business and
economically feasible strategy for action to address the matter.
Facts pertinent to such discussions shall include, but are not limited
to, whether or not the third party infringing product is regulation
compliant, and the extent of negative impact sales of such product has
had or reasonably will have on the market for the Licensed Product in
the country.
6.3 ACC or ACC's licensor shall have the option, at their own expense, to
institute proceedings for infringement. If the alleged infringing
product is not regulation compliant, ACC shall take reasonable steps
to stop such regulation noncompliant activity by request or petition
to the relevant policing regulatory agency. If the infringing product
is being sold by a third party in compliance with applicable drug
regulations,
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<PAGE>
ISI can request that ACC bring an infringement action against that
third party at the equally shared cost of ISI and ACC. If ACC
institutes such infringement action, royalties payable by ISI in the
country of infringement shall be paid into an interest bearing escrow
account in the joint names of ACC and ISI, established by ACC and
approved by ISI, until such time as the matter is resolved or a court
of appropriate authority finally determines the validity or otherwise
of the Licensed Patent being asserted in the infringement action. If
the Licensed Patent is held invalid and the court's decision is not or
cannot be appealed and if the Licensed Patent is the only basis for
identifying ISI's product as a Licensed Product, the royalties paid
into escrow shall be refunded to ISI with accrued interest; otherwise
the royalties paid into escrow shall be paid to ACC with accrued
interest. ISI and ACC shall be entitled to recover their share of the
costs from any damages awarded in such action, and any settlement
shall be with the consent of ISI which shall not be unreasonably
withheld. If ACC does not institute such action within ninety (90)
days of ISI's written request, ISI's obligation to pay royalties on
sales of Licensed Products in the country of infringement shall be
suspended for the duration of the infringing activity.
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<PAGE>
6.4 In the event that proceedings are instituted by any third party
against ISI for infringement of any of the Licensed Patents, then ACC
shall indemnify ISI in respect of all costs, claims, demands,
proceedings or liabilities (including all legal fees) made or incurred
by ISI as a consequence of defending such infringement proceedings.
10. Paragraph 11.2, Arbitration, shall be amended to read as follows:
11.2 Dispute Resolution/Arbitration
The parties hereto desire to avoid and settle without litigation
any future disputes which may arise between them relative to this
Agreement. Accordingly, the parties agree to engage in good faith
negotiations to resolve any such dispute. In the event they are unable
to resolve any such dispute by negotiation, such dispute shall be
resolved as follows:
Any dispute between ACC and ISI regarding whether or not an ISI
product is a Licensed Product, thus requiring that ISI's sales of same
are subject to payment of royalties under Paragraph 3.1, shall be
resolved by decision of an Independent Patent Attorney ("IPA")
satisfactory to both ISI and ACC at their joint cost and expense. The
IPA shall be selected from patent attorneys in the country where ACC
contends that a product sold by ISI is a Licensed Product(s) under the
terms of this agreement. The IPA shall provide a reasoned decision
-8-
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<PAGE>
based on brief/exhibits by ACC, response brief/exhibits by ISI and
reply/exhibits (if any) by ACC. ACC and ISI agree to accept the
decision of the IPA. If the IPA finds that the product in dispute is a
Licensed Product, ISI will pay ACC all royalties due on sales of the
Licensed Product with the next account and payment to ACC under
Article IV.
Any other dispute shall be submitted to arbitration as follows:
If arbitration is initiated by ISI, it shall be held in the State of
Texas, U.S.A. in compliance with the commercial Arbitration Rules of
the American Arbitration Association. If arbitration is initiated by
ACC it shall be held in New York New York, in compliance with the
commercial Arbitration Rules of the American Arbitration Association.
The arbitration award shall be final and binding upon the parties
hereto and may be filed with and enforced by any competent court
having competent jurisdiction to enforce said award.
11. Article VIII Warranty of the ACC/ISI License Agreement shall be amended to
include new Paragraph 8.4 as follows:
8.4 The Licensed Patents are believed to be valid. For the purposes of this
Agreement, a Licensed Patent, when granted, shall be presumed valid unless held
invalid by a court of competent jurisdiction.
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<PAGE>
12. Exhibit "A" to the ACC/ISI License Agreement shall be amended to add the
following:
"Method for Prevention of Parasitic Infection" as described and
claimed in U.S. Patent No. 5,215,741, issued June 1, 1993.
13. All other terms of the ACC/ISI License Agreement, to the extent that
they are not inconsistent with the amendments recited herein, shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in duplicate by their duly authorized representatives as of the date
first above written.
ACC: ISI:
AMARILLO CELL CULTURE INTERFERON SCIENCES, INC.
COMPANY, INCORPORATED
/s/ JOSEPH M. CUMMINS /s/ LAWRENCE M. GORDON
- ----------------------------------- -----------------------------------
By: Joseph M. Cummins, President By: Larry Gordon, Vice President
& General Counsel
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PPM/ACC SUB-LICENSE AGREEMENT
BETWEEN:
PHARMA PACIFIC MANAGEMENT PTY. LTD. of 103-105 Pipe Road, Laverton,
Victoria Australia (hereinafter called "PPM")
of the one part,
AND
AMARILLO CELL CULTURE COMPANY INCORPORATED, a Texas Corporation with its
principal place of business at 800 W. 9th Avenue, Amarillo Texas 79101
(hereinafter called "ACC")
of the second part
WHEREAS:
A. Pursuant to an Agreement made the 20th day of October 1989 ACC granted to
Interferon Sciences, Inc. ("ISI") a license pursuant to the Licensed
Patents (as that term is therein defined) to make, have made, use and sell
Licensed Products (as that term is therein defined), with the right to
grant sub-licenses to third parties.
B. ACC and ISI have amended that Agreement inter alia to transfer ISI's right
to sublicense Licensed Patents back to ACC.
C. ACC wishes to grant to PPM rights to use the Licensed Patents.
THIS AGREEMENT PROVIDES AS FOLLOWS:
1. DEFINITIONS:
"Affiliated Company" means any company, corporation, partnership or other
business entity which is a subsidiary of PPM or of which PPM is a
subsidiary, or which is a subsidiary of a company of which PPM is also a
subsidiary or which otherwise controls or is under common control with PPM.
In the case of a corporation or company "control" means ownership, either
directly or indirectly of at least Fifty Percent (50%) of the shares of
stock entitled to vote for the election of directors.
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"Individual Patent" means any one or more of any continuation,
continuations-in-part, divisions, reissues or extensions, each foreign
counterpart and any patent application or any patent comprising the
Licensed Patents.
"Licensed Patent" means those United States Patents and patent applications
listed in Schedule 1 and any continuations, continuations-in-part,
divisions, reissues or extensions thereof, and each foreign counterpart of
each United States Patent and patents and patent applications listed in
Schedule 1 and any extensions thereof.
"Licensed Product" means dose formulations or compositions comprising human
interferon designated, detailed or labelled for use in humans, including
human interferon produced using recombinant DNA technology but excluding
interferonalpha secreted by normal non-transformed human leukocytes in
response to viral induction.
"Net Sales Value" means the arms length gross selling price paid to PPM or
its Affiliate Company or agents for Relevant Licensed Products exclusive of
documented costs of packaging materials, charges for freight, insurance,
taxes, and exclusive of customary discounts, refunds, credits, rebates and
the like. In the case of a sale by PPM to an Affiliated Company royalties
shall be calculated on the price which would be charged if the transaction
were an arms length transaction with an unrelated company. Best evidence of
such price shall be the average price actually charged by PPM or any
Affiliated Company to any unrelated third parties in the then most recent
sales of Relevant Licensed Products.
"Territory" means all countries of the world except Japan.
"Relevant Licensed Product" means a product the manufacture, use or sale of
which would constitute an infringement of the Licensed Patent without the
license or consent of the proprietor of the Licensed Patent (or any other
relevant licensor or party having the right to grant a license).
2. LICENSE GRANT
ACC hereby grants to PPM, a royalty bearing non-exclusive sublicense under
the Licensed Patents to make, have made, use and sell Licensed Products
labeled for use only in human species in the Territory.
3. RESEARCH AND PATENT REIMBURSEMENT
In consideration of the grant of the license contained herein, PPM shall,
within 48 hours of PPM's receipt and execution of a facsimile copy of this
Agreement executed by ACC and the Settlement Agreement executed by ACC and
ISI and PPM's receipt of a facsimile copy of the amendment to the ACC/ISI
License Agreement executed
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by ACC and ISI, pay by wire transfer to ACC the sum of US *
toward reimbursement of ACC for research and expenses incurred in
connection with Licensed Patents.
4. ROYALTY
PPM shall pay to ACC royalties as follows:
(i) A * royalty on sales of Relevant Licensed Products sold within or
sold and intended by PPM for use within the United States of America.
(ii) A * royalty on sales of Relevant Licensed Products sold within or
sold and intended by PPM for use within those countries other than the
United States of America in which Individual Patents are currently in
force and for so long as they remain in force.
(iii) No royalties in those countries other than those described in clause
4(i) and 4(ii) above in which ACC does not hold a Licensed Patent.
The obligation to pay a royalty shall be imposed only once on each Relevant
Licensed Product when sold within or sold and intended by PPM for use
within the countries referred to in clause 4(i) and 4(ii) regardless of the
number of Licensed Patents embracing the Relevant Licensed Product for the
manufacture, use or sale of such Relevant Licensed Product and regardless
of intervening sales between PPM and any Affiliated Company.
Royalties shall be calculated on Net Sales Value.
5. LICENSE FEE
PPM shall also pay to ACC by wire transfer a license fee in the sum of US
* which fee shall be deducted from the first royalty payments due
by PPM to ACC pursuant to clause 4 herein in respect of sales of Relevant
Licensed Products.
6. MANUFACTURE
In consideration of the payment of the sums set out in clauses 3 and 5 and
the royalties on sales set out in clauses 4(i) and 4(ii), PPM shall be
entitled to manufacture Licensed Products in New Zealand or elsewhere in
the Territory without having to pay any additional monies for such
manufacture to ACC. PPM shall be entitled to carry out the manufacture,
sale and distribution of the Licensed Products itself or engage agents,
distributors or other third parties to do so.
- -----------
* Confidential Treatment has been requested.
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<PAGE>
7. TERM
This Agreement shall remain in effect until one day before the date of the
last to expire of the Licensed Patents unless terminated in accordance with
the provisions of this Agreement. Where one or more patents comprising the
Licensed Patents expires on different due dates in different countries, the
Relevant Licensed Products sold shall not bear royalties unless, at the
time of sale of the Relevant Licensed Products in, or intended by PPM for
use in, a country, the Licensed Patents in that country are still in force.
8. WARRANTIES
ACC covenants, agrees and warrants to PPM that:
(i) The Licensed Patents are believed to be valid. For the purpose of this
Agreement, a Licensed Patent, when granted, shall be presumed valid
unless held invalid by a court of competent jurisdiction.
(ii) No third parties' patents or other rights will be infringed by PPM's
licensed activities pursuant to this Agreement provided that the
elements of such activities that are alleged to provide basis for a
claim of infringement are specifically described in a Licensed Patent,
and provided further that ACC makes no warranty regarding
noninfringement of Hoffmann-LaRoche U.S. Patent No. 4,503,035 or any
counterparts thereof.
(iii) ACC has the capacity to enter into this Agreement and to grant the
rights and licenses granted herein to the extent they are consistent
with the rights held by ACC under the relevant agreements identified
in subclause (v) below.
(iv) ACC has not granted any rights to third parties in respect of the
Licensed Patents regarding use of interferon in humans, except for
grants by ACC to ISI and to Hayashibara Biochemical Laboratories, Inc.
("HBL") of rights in Japan.
(v) ACC shall not grant any rights or licenses to any third parties
inconsistent with the grant of rights to PPM hereunder.
(vi) The only relevant agreements governing the rights and licenses in
respect of the Licensed Patents currently in effect are the agreements
referred to in Recital A, an agreement dated 13 March 1992 granting to
HBL rights to make, use or sell interferon-containing products in
Japan, ACC's license agreement with Texas A&M University System
("TAMUS") dated 22 March 1988 and the related Patent Assignment dated
21 April 1994 by TAMUS to ACC of New Zealand Patent No. 222,457.
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<PAGE>
(vii) ACC shall make all royalty, and other payments due under, and shall
not breach any of the terms of, nor shall it surrender the license
granted to it under, the Agreement made between TAMUS and ACC on 22
March 1988.
9. INFORMATION:
ACC shall keep PPM advised of any patents, continuations,
continuations-in-part, divisions, reissues or extensions, re-examination
requests, notices of opposition, applications for revocation, progress of
applications for opposition or revocation, cessation or expiry of patents
in a timely manner in respect of the Licensed Patents. PPM shall keep all
such information confidential.
10. ACCOUNTS AND PAYMENT
PPM shall within 45 days after the end of each calendar quarter provide ACC
with a report of sales of the Relevant Licensed Products and the amounts
due for royalties. The report shall provide sufficient information from
which to calculate the amount of royalties payable including the total
quantity and Net Sales Value of all Relevant Licensed Product sold during
the preceding calendar quarter and the amounts payable to ACC. A statement
shall also be submitted even where no amounts are payable to ACC. PPM shall
at the same time remit to ACC the amount due.
11. CURRENCY
All royalties and other payments due shall be made in U.S. dollars in the
United States. Where sales are made in countries outside the United States,
royalties shall accrue in the currency in which the sales are made and
royalties shall be payable to ACC in U.S. dollars at the official rate of
exchange prevailing on the 20th day following the conclusion of each
calendar quarter.
12. BOOKS AND RECORDS
PPM shall keep proper books of accounts which clearly indicate the volume
of sales and all other financial data and documentation necessary for
calculation of the Net Sales Value of the Relevant Licensed Products and
the amounts due in respect of royalties. PPM shall also require its
Affiliate Companies and its agents to keep books of accounts and
manufacturing and shipping records and to make periodic reports of same to
PPM as necessary and appropriate to enable PPM to calculate the amounts due
in respect of royalties.
ACC may nominate an independent public accountant, acceptable to and
approved by PPM (which approval shall not be unreasonably withheld), once
in each calendar
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year, to inspect the books of account of PPM and other records and reports
deemed reasonably necessary for inspection by said accountant during
reasonable business hours for the purpose of verifying the accuracy of the
reports and payments made by PPM during the preceding calendar year. Such
accountant shall not disclose any information related to PPM's financial
matters but shall certify to ACC the accuracy of the reports and payments
made by PPM in accordance with this Agreement. All fees charged by such
accountant shall be paid by ACC except if there are discrepancies in PPM's
quarterly reports which result in under reporting or under payment by a
factor greater than 10% of the amount due. In such instance PPM shall
reimburse ACC for the accountant's costs other than as required by law. ACC
shall not make any public disclosure of the PPM reports or royalty rates
referred to in this agreement. To the extent disclosure of such information
to a third party is required in the ordinary course of ACC's business, such
disclosure shall be made subject to the recipient's agreement to hold such
information in confidence.
13. PATENT VALIDITY
If an Individual Patent in any country comprising the Territory, shall in
any action for infringement or proceeding for revocation or re-examination
be declared to be invalid on any ground whatsoever, all royalties payable in
respect of sales of Relevant Licensed Products solely under that Individual
Patent (and not under any other Individual Patent) in or intended for use in
that country shall, as from the date of any final order or declaration of
invalidity, cease to be payable.
From the commencement of any such action or proceeding, PPM shall pay
royalties accruing in the relevant country into an interest bearing escrow
account in the joint names of ACC and PPM, established by ACC and approved
by PPM, until such time as the matter is resolved or a court of appropriate
authority finally determines the validity or otherwise of the Individual
Patent. If the Individual Patent is held invalid and the court's decision is
not or cannot be appealed, the royalties paid into escrow shall be refunded
to PPM with accrued interest; otherwise the royalties paid into escrow shall
be paid to ACC with accrued interest.
14. ASSIGNMENT
Any assignment by ACC of rights in Licensed Patents shall be subject to the
ACC Agreement with ISI dated 20th October 1989 and as amended the 27th day
of April, 1995, prior grants by ACC to HBL of rights in Japan, and this
sublicense agreement.
15. SUB-LICENSES
PPM shall not have the right to grant Sub-Licenses under the License granted
to it, provided, however, that PPM shall have the right to contract with an
Affiliated
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<PAGE>
Company or an agent to manufacture, to distribute or to sell Licensed
Products on behalf of PPM under this Agreement.
16. SCOPE OF RIGHTS GRANTED
PPM has reviewed ACC's pre-existing relevant license agreements with Texas
A & M University System dated 22 March 1988, and the agreement with ISI
dated 20 October 1989 and as amended on the 27th day of April, 1995, and
PPM acknowledges its understanding that ACC/ISI cannot grant any rights to
PPM beyond those or inconsistent with those now held by ACC under those
pre-existing agreements. PPM and ACC agree that the terms and scope of
rights granted hereunder shall be interpreted accordingly.
17. PATENT FEES
ACC shall pay all renewal and other fees necessary to keep the Licensed
Patents in force and valid.
18. INFRINGEMENT
Each of the parties to this Agreement shall immediately give notice in
writing to the other parties of any infringement or threatened infringement
of any of the Licensed Patents which at any time comes to its knowledge.
Where an infringement of any Individual Patent occurs by a third party in a
country where PPM or an Affiliated Company or agent is selling Relevant
Licensed Products for use in that country then ACC and PPM agree to meet
and negotiate to define the most practical business and economically
feasible strategy for action to address the matter. Facts pertinent to such
discussions shall include, but are not limited to, whether or not the third
party infringing product is regulation compliant, and the extent of
negative impact sales of such product has had or reasonably will have on
the market for the Relevant Licensed Product in the country.
ACC or ACC's licensor shall have the option, at their own expense, to
institute proceedings for infringement. If the alleged infringing product
is not regulation compliant, ACC shall take reasonable steps to stop such
regulation noncompliant activity by request or petition to the relevant
policing regulatory agency. If the infringing product is being sold by a
third party in compliance with applicable drug regulations, PPM can request
that ACC bring an infringement action against that third party at the
equally shared cost of PPM and ACC. If ACC institutes such infringement
action, royalties payable by PPM in the country of infringement shall be
paid into escrow in accordance with the provisions of clause 13 herein; PPM
and ACC shall be entitled to recover their share of the costs from any
damages awarded in such action; and any settlement shall be with the
consent of PPM which shall not
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be unreasonably withheld. If ACC does not institute such action within
ninety (90) days of PPM's written request, PPM's obligation to pay
royalties on sales of Relevant Licensed Products in the country of
infringement shall be suspended for the duration of the infringing
activity.
In the event that proceedings are instituted by any third party against PPM
for infringement of any of the Licensed Patents, then ACC shall indemnify
PPM in respect of all costs, claims, demands, proceedings or liabilities
(including all legal fees) made or incurred by PPM as a consequence of
defending such infringement proceedings.
19. APPLICATIONS FOR REGULATORY APPROVAL OF LICENSED PRODUCTS
PPM shall use its best efforts to assure that its licensed activities
hereunder shall be compliant with all applicable laws, regulations and
rules in the country in the Territory where such activities are or will be
conducted. With each quarterly statement from PPM to ACC under clause 10
above, PPM shall advise ACC of all applications for regulatory approval of
manufacture or use or sale of Licensed Products hereunder which are
pending, made, withdrawn or granted in countries where there exists an
Individual Patent. PPM shall also provide ACC with copies of any
advertising, package inserts, clinical reports and the like intended for
public dissemination detailing the claims of therapeutic efficacy made or
to be made by PPM or its Affiliates for Licensed Products in each country
where Licensed Products are to be distributed for sale. To the extent such
information is not otherwise available to the public ACC shall hold such
information in confidence and not disclose it to any third party.
20. GRANT OF RESIDUAL RIGHTS
In the event that for whatever reason, any residual rights in Licensed
Patents reside in ACC, which cannot or have not been granted to PPM
pursuant to this Agreement, which PPM might require in order to make, use
and sell the Licensed Products in the Territory, then ACC hereby covenants
not to sue PPM on the basis of said residual rights in Licensed Patents.
21. PURCHASE OF ISI STOCK
PPM agrees to purchase stock in ISI to the value of US $125,000.00 by wire
transfer within 48 hours of PPM's receipt and execution of a facsimile copy
of this Agreement executed by ACC and the Settlement Agreement executed by
ACC and ISI and PPM's receipt of a facsimile copy of the amendment to the
ACC/ISI License Agreement executed by ACC and ISI. The per share stock
price shall be Two Dollars (U.S. $2.00) per share.
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The issue and sale of the ISI Common Stock to PPM has not been and will not
be registered under the Securities Act of 1933, as amended (the "Act"), in
reliance upon the applicability of Section 4(2) of the Act to the
transaction contemplated hereby. In furtherance of such reliance,
certificates representing the ISI Common Stock will bear a restrictive
legend to the effect that the ISI Common Stock may not be sold without
registration under the Act, absent an available exemption from the
registration provisions of the Act, and appropriate "stop transfer"
instructions will be issued to the transfer agent for ISI Common Stock. PPM
acknowledges that it has had access to such knowledge about ISI as is
customarily found in a registration statement filed under the Act, agrees
that it is acquiring the ISI Common Stock for investment and not with a
view to distribution, and acknowledges that ISI has no obligation to
register the ISI Common Stock under the Act. In addition, PPM agrees that
for a period of two years from the date hereof, it will not sell, pledge,
hypothecate or otherwise transfer the ISI Common Stock, without the
express prior written consent of ISI.
22. VENUE
Should suit be brought by ACC under this Sub-License Agreement, venue shall
be in the State of Victoria, Australia; and if suit should be brought by
PPM under this Sub-License Agreement, venue shall be in the State of Texas,
USA.
23. DISPUTE RESOLUTION
Any dispute between ACC and PPM regarding whether or not a Licensed Product
is a Relevant Licensed Product, thus requiring that PPM's sales of same are
subject to payment of royalties under clause 4 shall be resolved by
decision of an Independent Patent Attorney ("IPA") satisfactory to both PPM
and ACC at their joint cost and expense. The IPA shall be selected from
patent attorneys in the country where ACC contends that the Licensed
Product(s) sold by PPM is a Relevant Licensed Product(s) under the terms of
this agreement. The IPA shall provide a reasoned decision based on
brief/exhibits by ACC, response brief/exhibits by PPM and reply/exhibits
(if any) by ACC. ACC and PPM agree to accept the decision of the IPA. If
the IPA finds that the Licensed Product in dispute is a Relevant Licensed
Product, PPM will pay ACC all royalties due on sales of the Relevant
Licensed Product with the next account and payment to ACC under clause 10
hereof
24. TERMINATION
This Agreement shall only be terminated by ACC as provided hereafter and
not otherwise. In the event that PPM does not pay royalties properly due
under this Agreement, as determined by an IPA under clause 23 above, in
any country comprising the Territory then PPM agrees to cease and desist
its sales of the Relevant Licensed Product in that country and to submit to
a voluntary injunction
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against infringement in that country or shall make payment of all royalties
then accrued and due in that country. If PPM is otherwise in default under
this Agreement for non-payment of royalties in a country comprising the
Territory, ACC shall forward to PPM a notice in writing specifying that PPM
is in default in paying royalties with respect to such country and
requiring PPM to rectify the default within 30 days. In the event PPM does
not make the payment properly due in respect to such country within the 30
days then ACC shall be entitled to terminate the license in that country.
25. NOTICES
All notices that are required or authorized to be given under this
Agreement shall be in writing and may be served by sending express air mail
post, personal delivery or telex or facsimile to the registered office of
the other party and shall be deemed to have been duly served in the case of
such postage on the third business day after the date upon which the notice
was properly addressed and so posted or in the case of personal delivery
upon actual delivery or in the case of telex or facsimile when the
error-free correct answer back code is received.
DATED this 27th day of April, 1995.
/s/ Robert Reis
- -------------------------------------------
Signed by: Robert Reis, General Manager
For and on behalf of PHARMA PACIFIC
MANAGEMENT PTY. LTD.
/s/ Joseph M. Cummins
- -------------------------------------------
Signed by: Joseph M. Cummins, President
For and on behalf of AMARILLO CELL
CULTURE COMPANY, INCORPORATED
4/27/95
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SCHEDULE I
AMARILLO CELL CULTURE CO., INC.
800 WEST 9TH AVENUE
AMARILLO, TEXAS 79101 USA
1. "METHOD OF REGULATING APPETITE AND EFFICIENCY OF FOOD UTILIZATION
EMPLOYING INTERFERON" as described and claimed in United States Patent
No. 4,497,795 issued February 5, 1985 in the USA. Also issued in
Argentina, Australia, Canada, France, Italy, New Zealand, and South
Africa. Pending in Germany.
2. "METHOD OF USING INTERFERON IN LOW DOSAGE TO REGULATE APPETITE AND
EFFICIENCY OF FOOD UTILIZATION" as described and claimed in United
States Patent No, 4,820,515 issued April 11, 1989 in the USA. Also
issued in Argentina, Australia, Canada, France, Italy, New Zealand,
and South Africa. Pending in Germany.
3. "LOW DOSAGE OF INTERFERON TO ENHANCE VACCINE EFFICIENCY" as described
and claimed in United States Patent No, 4,820,514 issued April 11,
1989 in the USA. Also issued in Australia, Austria, Belgium, France,
Germany, United Kingdom, Italy, Luxembourg, Netherlands, New Zealand,
Sweden and Switzerland.
4. "TREATMENT OF IMMUNO-RESISTANT DISEASE" as described and claimed in
United States Patent No, 5,019,382 issued May 28, 1991. Also issued in
South Africa and New Zealand. Filed in Australia, Canada, Denmark,
Ireland, Korea, Norway, the OAPI countries, and the European Patents
Community (EPC).
5. "METHOD FOR REDUCING SIDE EFFECTS OF CANCER THERAPY" as described and
claimed in United States Patent No, 5,017,371 issued May 21, 1991.
Also issued in Australia, Austria, Belgium, France, Germany, Hungary,
Italy, Luxembourg, Netherlands, Sweden, Switzerland, and United
Kingdom. Filed in Canada and Japan.
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6. "METHOD FOR PREVENTION OF PARASITIC INFECTlON" as described and
claimed in U.S. Patent No. 5,215,741 issued June 1, 1993 in the USA.
7. "PHARMACEUTICAL COMPOSITION CONTAINING INTERFERON FOR BUCCAL
ADMINISTRATION" as described and claimed in European Patent No.
03431258, issued March 2, 1994 in Austria, Belgium, France, Germany,
Italy, Luxembourg, Netherlands, Sweden, Switzerland, and United
Kingdom. The patents will expire November 6, 2007.
4/27/95
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LICENSE AND SUPPLY AGREEMENT
THIS AGREEMENT is made and effective this 10th day of July, 1995, by and
between VELDONA AFRICA, INC., a Texas corporation with its principal place
business at 800 West 9th Avenue, Amarillo, Texas 79101, USA (hereinafter "VA")
and INNOVATIVE THERAPEUTICS, LTD., a Kenyan corporation with its principal place
of business at 1.5 Kitasuru Rd., P.O. Box 24593, Nairobi, Kenya (hereinafter
"ITL"). VA and ITL are hereinafter collectively referred to as the "Parties".
WHEREAS, VA and/or its suppliers have substantial expertise in the
production and use of HBL Interferon (hereinafter defined) and have
proprietary rights and know-how in the field of production, purification and
formulation of HBL Interferon;
WHEREAS, ITL desires to act as the exclusive distributor of pre-formulated
interferon-containing compositions packaged and labeled for sale for oral use in
humans in Kenya and for such purpose, to purchase HBL Inteferon from VA;
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein, ITL and VA agree as follows:
ARTICLE I
DEFINITIONS
1.1. "Affiliate" means a corporation, company, partnership, or other
business entity which controls or is controlled by, or is under common control
with, the designated party. In the case of a corporation, "control" means
ownership either directly or indirectly of at least fifty percent (50%) of the
shares of stock entitled to vote for the election of directors.
1.2. "Agreement" means this License and Supply Agreement.
1.3. "HBL Interferon" means the natural human interferon-alpha which is
produced by Hayashibara Biochemical Laboratories, Inc. (HBL) utilizing HBL
Technical Information under the manufacturing and commercializing approval of
the Ministry of Health and Welfare in Japan.
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1.4. "Invention" means the use of interferon-alpha or
interferon-alpha-containing products in warm-blooded species.
1. 5 . "Licensed Indications" shall mean the Acquired Immunodeficiency
Syndrome (AIDS) and chronic infection with the hepatitis B virus, or any other
indication which shall become a Licensed Indication pursuant to Section 3.4.
1.6. "Licensed Product" means dose formulations or compositions containing
any interferon (i.e., not just HBL Interferon) and designated, detailed, or
labeled for oral use for any indication in humans.
1.7. "Technical Information" means all information, reports, results,
inventions, licenses, know-how, improvements, materials, and any other technical
and scientific data, specifications and formulae directly related to
development, regulatory approval, manufacture, testing, use, marketing and/or
sale of Licensed Product, and any non-public information relevant to the
business of the Parties which is necessarily disclosed by one to the other
during the Parties' performance under this Agreement. "VA Technical Information"
refers to Technical Information originating from VA or which VA has developed
through its contractual relationships with third parties. "ITL Technical
Information" refers to Technical Information originating from ITL or which ITL
has obtained through its contractual relationships with third parties. When not
otherwise specified herein "Technical Information" means both VA Technical
Information and ITL Technical Information.
1.8. "VA" and "ITL" shall mean and include not only the indicated company,
but also its Affiliates and permitted assignees.
ARTICLE II
SUPPLY OF HBL INTERFERON
2.1. Subject to registration approval and to the terms and conditions of
this Agreement, VA shall supply HBL Interferon to ITL on an exclusive basis for
oral use in humans for the treatment of Licensed Indications in Kenya. HBL
Interferon shall be delivered to ITL at the hereinafter stipulated price, f.o.b.
Nairobi, Kenya. ITL shall pay all Kenyan customs, duties, or fees imposed on HBL
Interferon delivered to ITL. HBL Interferon shall be supplied as provided in
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Paragraph 2.3, below, in response to issuance by ITL of written purchase orders
delivered to VA specifying the quantity to be supplied, along with any special
instructions/requests regarding the supply and/or delivery of the product.
2.2. VA agrees to make available the right of reference to VA's or HBL's
FDA Biologics Master File for HBL Interferon as applicable to facilitate
regulatory approval of HBL Interferon-containing formulations for oral use in
humans for the treatment of Licensed Indications in Kenya.
2.3. Product Deliverability. VA shall provide to ITL, for the consideration
set forth in Article III of this Agreement, HBL Interferon under the following
conditions:
HBL Interferon delivered under this Agreement by VA to ITL may be delivered
in the form of lozenges containing One Hundred Fifty (150) International Units
of HBL Interferon each. Such lozenges may contain such other ingredients as are
permitted to be contained in lozenges approved by U.S. FDA for U.S. trials
and/or sales, and the exact composition of such lozenges shall be disclosed in
writing by VA to ITL. These HBL Interferon-containing lozenges will be provided
in labelled containers, ready for delivery to end-users, including instructions.
VA reserves the right to change the HBL Interferon concentration, in
consultation with ITL, based on clinical trial results obtained by either VA or
ITL.
All shipments of HBL Interferon shall be subject to VA having received from
ITL written purchase orders at least ninety (90) days prior to any delivery date
requested by ITL. Such written purchase orders shall specify the quantity of HBL
Interferon to be delivered and the date by which such delivery is required.
Payment for all deliveries shall be made in cash or current funds in an amount
sufficient to pay for the requested delivery, or by a letter of credit
guaranteeing payment, satisfactory to VA as to form and issuer, with such
payment to be made at least thirty (30) days prior to the requested date of
delivery to ITL. Any condition or circumstance described in Paragraph 9.2
("Force Majeure"), whether suffered by or affecting VA, or its supplier, HBL,
shall excuse performance hereunder until such condition and its effects on
supply of HBL Interferon shall have been alleviated.
Within ninety (90) days of the date hereof, and at least ninety (90) days
prior to the commencement of each calendar year during the term of this
Agreement, ITL will furnish VA with
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its projected requirements for HBL IFN during the next succeeding calendar year.
ITL may amend its projected requirements from time-to-time, provided, however,
that VA shall be obligated only to make its best effort to comply with any
projections in excess of annual projections received by it at least ninety (90)
days prior to the commencement of the calendar year in question. Under no
circumstances shall VA be required to deliver to ITL hereunder, an amount of HBL
IFN which exceeds the amount VA is able, in good faith, to acquire from HBL or
HBL's contract manufacturer. Subject to the foregoing, VA shall use its best
efforts to deliver HBL IFR in accordance with ITL's projected requirements.
ARTICLE III
LICENSE GRANT; PURCHASE OF PRODUCT
3.1. License to Distribute and Sell Product. VA hereby grants to ITL an
exclusive license to sell (either directly or through distributors) Licensed
Product for oral use in humans for the treatment of the Acquired
Immunodeficiency Syndrome and the treatment of chronic infection with hepatitis
B virus, in Kenya during the term of this Agreement. If regulatory approval for
the use of Licensed Product in the treatment of a Licensed Indication in Kenya
allows regulatory approval to be obtained in Uganda and/or Tanzania, this
license shall be extended to those countries for the applicable Licensed
Indication at the time marketing approval of Licensed Product is obtained.
During the term of this Agreement, neither ITL nor any of its principals shall
use, test, formulate, market or otherwise employ any other interferon or
interferon-containing products in humans in any manner. For purchase of HBL
Interferon, ITL shall pay VA the amounts set forth below.
3.2. Price for HBL Interferon. As payment for HBL Interferon purchased by
ITL from VA pursuant to this Agreement, ITL shall pay to VA *
for each HBL Interferon-containing lozenge.
3.3. Restrictions on Use and Sale. Neither ITL nor any of its principals
shall use, test, formulate, market or otherwise employ HBL Interferon for any
use whatsoever, except for the testing and marketing of HBL
Interferon-containing lozenges for oral use in the treatment of Licensed
Indications in humans in Kenya with the following exception. ITL may submit a
protocol to VA for a clinical trial of Licensed Product for use in the treatment
of a human disease condition other than
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* Confidential Treatment has been requested.
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a Licensed Indication. If the protocol and any and all applications for
regulatory approval are approved by VA as set forth in Section 3.5, below, and
regulatory approval to market Licensed Product is obtained by ITL, the disease
condition shall become a Licensed Indication subject to all of the provisions of
this Agreement.
3 4. Data and Clinical Trials. During the term of this Agreement, VA and
ITL shall share with each other relevant clinical trial results obtained by
either of them pertaining to oral use of HBL Interferon in the treatment of
Licensed Indications in humans, and each Party hereto shall grant to the other,
rights of reference, for any purpose not inconsistent with the other terms and
provisions of this Agreement, to all pertinent regulatory filings. VA shall have
the right to include data generated from ITL sponsored clinical trials in
regulatory submissions outside of Kenya. If such data is used as a primary
source to obtain distribution approval in a country other than Kenya, VA shall
transfer to ITL, contemporaneous with the gaining of final regulatory approval,
the equivalent of * in Licensed Product for each
marketing approval, after the first one, obtained outside of Kenya.
ITL shall at its expense conduct all clinical trials and seek all necessary
approvals in Kenya. At least 60 days prior to the initiation of any clinical
trial to be conducted under the terms of this Agreement, the final protocol for
that clinical trial must be submitted by ITL to VA for approval. No such
clinical trial will be initiated without the prior written approval of VA. VA
shall provide to ITL, free of charge, HBL IFN-containing lozenges and placebo
lozenges necessary to conduct approved clinical trials on the condition that ITL
will manage the clinical trials and insure that they are conducted in a manner
consistent with a protocol approved by VA. VA reserves the right to terminate
lozenge deliveries and seek damages if the approved protocol is not adhered to
by ITL, its collaborators or investigators. At least 30 days prior to the
submission by ITL of any application for regulatory approval of Licensed Product
for a Licensed Indication or any other disease condition studied under the terms
of this Agreement, the final version of the application must be provided by ITL
to VA for approval. No such application for regulatory approval will be
submitted by ITL without the prior written approval of VA.
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* Confidential Treatment has been requested.
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<PAGE>
ARTICLE IV
TERM OR TERMINATION; DEFAULT
4.1. Unless sooner terminated as hereinafter provided, this Agreement shall
remain in effect for a period of five (5) years from the date of this Agreement.
4.2. If either Party shall at any time during the term of this Agreement
default in any obligation hereunder or fail to pay any payment due, and such
default shall not be cured within sixty (60) days after written notice from the
other Party specifying the nature of the default, the noticing Party may
terminate this Agreement, or may demand specific performance.
4.3. Any termination pursuant to this Article shall not relieve either
Party of any obligation to fill purchase orders placed prior to termination, or
to pay for any product actually delivered, at any time during the term of the
Agreement.
4.4. If this Agreement is terminated by either party for any reason prior
to the term set forth in Section 4.1, above, neither ITL nor any of its
principals shall use, test, formulate, market or otherwise employ any
interferon-containing product for any purpose in humans for a period of four (4)
years from the date of termination.
ARTICLE V
PATENT APPLICATIONS, OWNERSHIP, AND ENFORCEMENT
ITL understands and acknowledges that VA currently owns no issued patents
in Kenya. Furthermore, VA has no obligation under this Agreement to file any
patent applications in Kenya. VA may, however, in its sole discretion, file one
or more patent applications in Kenya. As between ITL and VA, VA shall have the
sole right to file patent applications covering the Invention, or the
manufacture or sale of Licensed Product, or any other interferon-containing
products, for use in warm-blooded species. Any VA patents which cover the
treatment of Licensed Indications in humans in Kenya, if and when issued, shall
then and thereupon be and become subject to the terms and conditions of this
Agreement for the consideration hereinbefore expressed, and for no additional
consideration, and shall be deemed licensed to ITL, and such license shall
continue in force and effect until the termination of this Agreement under other
provisions hereof ITL shall cooperate fully with VA in all matters relating to
the filing, issuance or maintenance of any such patents. In the event any
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such patents issue or otherwise become effective in Kenya, the enforcement of
any and all such patents, including without limitation the prosecution of any
lawsuits to enforce such patents, shall be at the sole discretion of VA;
provided, however, that if ITL should request such enforcement, and advance all
funds necessary to enforce such patents (including without limitation legal fees
and expenses) and indemnify VA against any loss, cost or expense arising from
such enforcement action, then VA shall use its best efforts to enforce such
patents.
ARTICLE VI
WARRANTY
6.1. VA represents and warrants that as of the date of this Agreement, it
is the exclusive owner of the right to sell and distribute HBL IFN for oral use
in warm-blooded species in Kenya.
6.2. ITL warrants that all of its operations and activities in Kenya will
be in compliance with applicable laws, statutes and regulations.
ARTICLE VII
DISCLAIMERS AND INDEMNIFICATION
7.1. VA makes no representation or warranty that the sale of Licensed
Product will not infringe any third party patent, nor does VA assume any
obligations with respect to infringements of patents of others arising as a
result of ITL's activities under this Agreement.
7.2. VA makes no covenant to defend any infringement charge by a third
party, nor, except as otherwise herein expressly provided, to initiate action
against infringers of any VA Patent.
7.3. Neither ITL nor VA makes any representation or warranty concerning the
potential profitability of sales of Licensed Product.
7.4. VA SHALL NOT BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY,
EXPRESSED OR IMPLIED, AS TO THE CONDITION, MERCHANTABILITY, DESIGN, OPERATION OR
FITNESS FOR USE OF LICENSED PRODUCT OR HBL INTERFERON OR ANY OTHER
REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO
LICENSED PRODUCT, HBL
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INTERFERON, OR PATENTS. VA EXPRESSLY MAKES NO WARRANTY OF VALIDITY OF ANY
PATENTS NOW OR HEREINAFTER LICENSED HEREUNDER.
7. 5. ITL shall at all times during the continuance of this Agreement offer
for sale and sell the Licensed Products as goods manufactured by VA and shall
not make any representation or give any warranty in respect of the Licensed
Products other than those notified in writing from time to time by VA to ITL.
7.6. ITL shall sell the Licensed Products in the same condition as they
are received by it from VA and shall not alter, remove or in any way tamper with
the Licensed Products or with any marks or numbers on the Licensed Products.
7.7. ITL undertakes to and agrees with VA that at all times during the
continuance of this Agreement it will use its best endeavors to promote and
extend sales of the Licensed Products throughout Kenya or as otherwise agreed by
advertising and by the distribution of printed matter subject however to the
specific prior approval in writing, in all cases, of VA to the formal manner,
extent and wording of such advertising and such distributed matter and without
recourse to VA for any expense incurred unless such expense is specifically
authorized by VA in writing.
7. 8. ITL shall use every effort to safeguard the property rights and
interest of VA in its patents, trademarks, emblems and other intellectual
property rights in or relating to the Licensed Products and will assist VA at
the request of VA in taking all steps to defend the rights of VA other than by
institution of legal proceedings.
7.9. ITL shall observe all directions and instructions given to it by VA in
relation to the sale and distribution of the Licensed Products and in the
absence of any such directions or instructions in relation to any particular
matter will act in such manner as ITL reasonably considers to be most beneficial
to VA's interests.
7.10. ITL shall comply with all applicable laws, bye laws and requirements
of any governmental or regulatory authority in relation to the sale and
distribution of the Licensed Products.
7.11. ITL shall indemnify and keep indemnified VA from and against any and
all loss, damage or liability suffered and legal fees and costs incurred by VA
resulting from breach of this Agreement including any act, neglect or default by
ITL's employees, agents or licensees.
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7.12. VA shall indemnify and keep indemnified ITL or HBL and against any
and all loss, damage or liability suffered and legal fees and costs incurred by
ITL resulting from breach of this Agreement including any act, neglect or
default by VA's employees, agents or licensees.
ARTICLE VIII
CONFIDENTIALITY
8.1. VA owns or is licensed under confidential or secret information
relating to interferon-containing products and the use of same in human and
non-human species, and it is the intention of VA to maintain this
confidentiality.
8.2. Each Party agrees to maintain confidential and secret all Technical
Information which has been or may be disclosed or provided to it by the other
Party or that the Parties may together subsequently acquire.
8.3. Each Party's obligation to the other (to maintain confidentiality)
hereunder shall terminate with respect to any particular item and only said item
of the disclosing Party's confidential information, when the recipient Party can
demonstrate that such item of information:
8.3.1. Is publicly known and available through some means other than
by the recipient Party's act or omission; or
8.3.2. Was in the recipient Party's possession prior to its disclosure
by the other Party, provided that written evidence of such possession is
established; or
8.3.3. Has come into the recipient Party's possession through a third
party free of any obligation of confidentiality to the disclosing Party,
where said third party has acquired said information lawfullly and not
under circumstances forbidding its disclosure.
8.4. Neither Party will permit confidential or secret information or any
part thereof to be disclosed to third parties or to employees except on a
"need-to-know" basis and each will maintain confidential or secret information
and/or documents with the same precautions it uses to safeguard its own
confidential or secret information.
8.5. Each Party will notify the other promptly if it has knowledge that a
third party possesses confidential or secret information of the other Party
related to interferon-containing products.
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8.6. lTL shall have the right to use VA's confidential or secret
information to the extent reasonably necessary to accomplish the objectives of
this Agreement, including specifically the right to disclose such information to
its Affiliates, third-party contract consultants and scientific investigators
(from whom ITL shall secure Confidential Disclosure Agreements) and to
regulatory agencies in support of applications for regulatory agency approval to
test and/or sell Licensed Product in Kenya.
ARTICLE IX
MISCELLANEOUS
9.1. Survival. ARTICLES IV, VII, VIII and IX shall survive any termination
of
this Agreement.
9.2. Force Majeure. The failure of ITL, VA, or any of their Affiliates to
take any action required by this Agreement if occasioned by an act of God or the
public enemy, fire, explosion, perils of the sea, floods, drought, war, riot,
sabotage, accident, disease (human or animal), embargo or any circumstance of
like or different character beyond the reasonable control of the Party so
failing or by the interruption or delay in transportation, inadequacy, or
shortage or failure of the supply of materials and/or equipment, equipment
breakdown, labor trouble or compliance with any order, direction, action or
request of any governmental officer, department or agency and whether in any
case such circumstance now exists or hereafter arises, shall not subject said
Party to any liability to the other.
9.3. Communication. Any payment, notice or other communication required or
permitted to be made or given to either Party hereto pursuant to this Agreement
shall be sufficiently made or given on the date of sending if sent to such Party
by certified or registered mail or by DHL Worldwide Express or a similar courier
service, postage or delivery charge prepaid, or by telex or telefax addressed to
it at its address set forth, or to such other address(es) as it may designate by
written notice given to the other Party as follows:
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In case of ITL:
Casey Burns
Animal Agro Products, Ltd.
1.5 Kitasuru Road
P.O. Box 24593
Nairobi, Kenya
In case of VA:
Martin J. Cummins
Veldona Africa, Inc.
800 West 9th Avenue
Amarillo, Texas 79101 USA
9.4. Amendments to Agreement. This Agreement constitutes the entire
Agreement between the Parties hereto with respect to all of the matters herein
addressed, and supersedes all previous arrangements whether written or oral
except that certun agreement by and between ITL and ACC Kenya, Inc. (now Veldona
Africa, Inc.) dated October 26, 1991 which shall remain in full force. Any
amendment or modification of this Agreement shall be effective only if made in
writing, and executed by both Parties. Each party hereby releases any claims or
causes of action against the other party arising from any prior agreement, and
each party acknowledges it currently has no claims or causes of action against
the other party.
9.5. Assignment. This Agreement shall not be assignable by ITL to any
person or entity other than a ITL Affiliate without the prior written consent of
VA. This Agreement shall not be assignable by VA to any person or entity other
than an VA Affiliate without the prior written consent of ITL.
9.6. Enforceability. If one or more of the provisions of this Agreement
shall be held to be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remaining provisions hereof shall not in any way be
affected or impaired thereby. To the extent permitted by law, each Party waives
any provision of law which renders any provision herein invalid, illegal or
unenforceable in any respect.
9.7. Nature of Relationship. Nothing herein shall be construed to place the
parties in a relationship of partners or joint venturers, nor does this
Agreement make either Party the
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agent or legal representative of the other for any purposes whatsoever. The
parties further agree that no representation shall be made by either Party that
would create an apparent agency, employment, partnership or joint venture.
Neither Party shall have the power, express or implied, to obligate or bind the
other in any manner whatsoever.
9.8. Headings. The headings of the several sections of this Agreement are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
9.9. Waiver. No provision of this Agreement shall be deemed waived, unless
such waiver is in writing and signed by the Party against which the waiver is
sought to be enforced. The waiver by either of the Parties hereto of any breach
of any provision hereof by the other Party shall not be construed to be either a
waiver of any succeeding breach of any such provision or a waiver of the
provision itself
9.10. Governmental Approval. In the event VA or its supplier has to obtain
approval from any governmental authorities to deliver HBL Interferon under this
Agreement, VA's obligation pertaining to the supply of the said materials shall
be subject to such approval being granted.
9.11. Venue. Any action brought by VA to enforce or construe this
Agreement, or for damages hereunder, shall be brought in a court in the
Republic of Kenya. Any action brought by ITL to enforce or construe this
Agreement, or for damages hereunder, shall be brought in a court of appropriate
jurisdiction (state or federal, as the case may be) in Potter County, Texas,
U.S.A.
9.12. Trademarks. VA reserves the right to select the name under which
Licensed Product will be marketed in Kenya, Uganda and Tanzania, with the
exception of the drug registered in Kenya for AIDS conditions which shall be
called "KEMRON(R)".
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IN WITNESS WHEREOF, the Parties hereunto have caused this License
and Supply Agreement to be executed in duplicate by their duly authorized
representatives as of the date first above written.
VA: ITL:
VELDONA AFRICA INC. INNOVATIVE THERAPEUTICS, LTD.
By: /s/ MARTIN J. CUMMINS By: /s/ CASEY BURNS
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Martin J. Cummins Casey Burns
President Managing Director
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PRICING AMENDMENT
VELDONA AFRICA, INC. AND
INNOVATIVE THERAPEUTICS, LTD.
THIS PRICING AMENDMENT is entered into and effective this 5th day of
December 1995, by and between VELDONA AFRICA, INC., a Texas corporation with
principal place of business at 800 West 9th Avenue, Amarillo, Texas 79101 USA
("VA"), and INNOVATIVE THERAPEUTICS, LTD., a Kenyan corporation with principal
place of business at 1.5 Kitasuru Road, P.O. Box 24593, Nairobi, Kenya ("ITL").
VA and ITL are hereinafter collective referred to as the "Parties."
WHEREAS, VA and ITL have heretofore entered into a Letter Agreement dated
October 26, 1991, entitled "Payment to ACC on the 80,000 Tablets Imported by ITL
under Import License 013156"; and a License and Supply Agreement dated July 10,
1995; and further
WHEREAS, the Parties desire to amend the pricing provisions set forth in
said Agreements, as hereinafter provided;
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein, VA and ITL agree as follows:
In Section 2.3, "Product Deliverability," of the License and Supply
Agreement, the sentence which presently reads "These HBL Interferon-containing
lozenges will be provided in labelled containers, ready for delivery to
end-users, including instructions," is hereby amended to read as follows:
<PAGE>
"These HBL Interferon-containing lozenges will be provided packaged in
bulk, without labelled containers or instructions, and ITL shall
provide at its expense such packaging, labelling, and instructions as
may be required for distribution and delivery to end-users."
Section 3.2 of the License and Supply Agreement is hereby amended in its
entirety, to read as follows:
"3.2 Price for HBL Interferon. As payment for HBL Interferon purchased
by ITL from VA pursuant to this Agreement, ITL shall pay to VA the
following prices:
3.2.1 Until the first to occur of October 31, 1996, or the
completion of payment by ITL to VA for 200,000 lozenges from and
after December 1, 1995, the price shall be * per lozenge.
3.2.2 Thereafter, the price shall be * per lozenge.
3.2.3 The parties stipulate and agree that as of December 1, 1995,
* was owed by ITL to VA for purchase of lozenges delivered
prior to that date; accordingly, during such time as the purchase
price (as provided above) is * per lozenge, an additional *
per lozenge (for a total of * per lozenge) shall be paid by ITL
to VA, to be applied to the reduction of said indebtedness; and
during such time as the purchase price (as provided above) is *
per lozenge, ITL shall pay to VA an additional * per lozenge to
be applied to the reduction of said indebtedness; in each case,
until and only until such indebtedness shall have been fully
reduced, at which time ITL shall no longer be required to make said
incremental payments, but shall pay only the amounts set forth in
Paragraphs 3.2.1 and 3.2.2, above.
Except as herein explicitly provided, the License and Supply Agreement of
July 10, 1995 between VA and ITL is and shall remain in full force and effect;
however, the Letter Agreement of October 26, 1991 between VA and ITL is
superseded by this Pricing Amendment, and shall have no further force or effect.
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* Confidential Treatment has been requested.
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IN WITNESS WHEREOF, the Parties hereto have caused this Pricing Amendment
to be executed in duplicate by their duly authorized representatives as of the
date first above written.
VA: ITL:
VELDONA AFRICA, INC. INNOVATIVE THERAPEUTICS, LTD.
By: /s/ Martin J. Cummins By: /s/ Casey Burns
-------------------------- ------------------------
Martin J. Cummins Casey Burns
President Managing Director
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License Agreement Between
MCGILL UNIVERSITY
and
AMARlLLO CELL CULTURE COMPANY, INC.
Effective the 25th of September, 1995
1 PREAMBLE
1.1 Identification of the Parties
1.1.1 This LICENSE AGREEMENT is entered into between MCGILL
UNIVERSITY (hereinafter referred to "MCGILL"), with principal offices
at 845 Sherbrooke St. W., Montreal, Quebec, Canada H3A 2T5, and
AMARILLO CELL CULTURE COMPANY, INC. (hereinafter referred to as
"ACC"), a corporation organized under the laws of the State of Texas,
having a principal office at 800 W. 9th, Amarillo, Texas 79101, U.S.A.
1.1.2 This LICENSE AGREEMENT is effective as of the date
indicated above.
1.2 Licensee Representations
1.2.1 ACC desires to obtain exclusive license rights to the
LICENSED PATENT, under the terms and conditions of this LICENSE
AGREEMENT.
1.2.2 ACC represents that it has sponsored clinical studies of
the use of interferon in the treatment of hepatitis B and C under the
supervision of Dr. Elliot Alpert of the Deparment of Medicine of
MCGILL.
1.2.3 Dr. Elliot Alpert of MCGILL's Department of Medicine has
developed technology which might be patentable in some countries,
relating to a method for the treatment of hepatitis B and C infection
using interferon.
1.2.4 ACC desires to support additional research on this method
for the treatment of hepatitis B and C infection using interferon and
to support the efforts to obtain patent protection on this method
1.3 Licensor Representations
1.3.1 MCGILL is the owner of the entire right, title and interest
in the LICENSED PATENT.
1.3.2 Dr. Elliot Alpert, M.D. of the Department of Medicine, the
MCGILL inventor of the invention embodied in the LICENSED PATENT, as
defined herein, has assigned his interest(s) in the LICENSED PATENT to
MCGILL which has the exclusive right to enter into this LICENSE
AGREEMENT granting ACC exclusive rights to the LICENSED PATENT.
1.3.3 MCGILL is an institution of higher education and is not in
the business of commercially developing ideas, inventions, or other
types of intellectual property which are a byproduct of research
performed to further MCGILL's goals and objectives.
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1.4 Now Therefore
In consideration of the foregoing premises, the mutual covenants
and obligations hereinafter contained, and other good and valuable
consideration, MCGILL and ACC agree as follows:
2 DEFINITIONS
2.1 Usage
For the purposes of this LICENSE AGREEMENT, the following terms,
words, and phrases, when used in the singular or plural, shall have
the meanings given to them in this Section.
2.2 Licensor
"MCGILL UNIVERSITY," as abbreviated "MCGILL," means the
university by that name having its principal office at 845 Sherbrooke
St. W., Montreal, Quebec, Canada H3A 2T5, and shall also include all
AFFILIATES. MCGILL is the licensor in this LICENSE AGREEMENT.
2.3 Licensee
"AMARILLO CELL CULTURE COMPANY, INC.", as abbreviated "ACC,"
means the corporation by that name having a principal office at 800 W
9th, Amarillo, TX 79101 and shall also include all AFFILIATES. ACC is
the licensee in this LICENSE AGREEMENT.
2.4 Affiliate
"AFFILIATE" means, with respect to a party of this LICENSE
AGREEMENT, any individual or entity which directly or indirectly
controls, is controlled by, or is under common control with such
party. The term "control" means possession, direct or indirect, of the
powers to direct or cause the direction of the management or policies
of a person or entity; whether through ownership of equity
participation, voting securities, or beneficial interests; by
contract; by Agreement; or otherwise.
2.5 Calendar Year
"CALENDAR YEAR" means a period of twelve (12) months in the
Gregorian Calendar beginning on January l and ending on December 31.
2.6 Date of Commercialization
"DATE OF COMMERCIALIZATION" means the date that the LICENSED
PRODUCT(S) are first marketed or publicly made available.
2.7 Distributor
"DISTRIBUTOR" means any person or ENTITY engaged by ACC, or any
agent or representative of ACC, to distribute any LICENSED PRODUCT(S)
to any RETAIL OUTLET or END USER, either directly or indirectly
through other distributors.
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2.8 Effective Date
"EFFECTIVE DATE" means the date indicated above upon which which
this LICENSE AGREEMENT becomes effective.
2.9 End User
"END USER" means any person licensed to USE LICENSED PRODUCT(S)
for his/her own personal use, or any ENTITY licensed to USE LICENSED
PRODUCT(S) in the regular conduct of its own business and not for
licensing to other ENTITIES or individuals.
2.10 Entity
"ENTITY" means a corporation, an association, a joint venture, a
partnership, a trust, a business, an individual, a government or
political subdivision thereof, including an agency, or any other
organization which can exercise independent legal standing.
2.11 Fair Market Value
"FAIR MARKET VALUE" means the gross sales price or value which
ACC would realize from an unaffiliated, unrelated buyer in an arm's
length sale or exchange of consideration for an identical item or
service sold or provided in the same quantity and at the same time and
place as the sale or exchange for which the FAIR MARKET VALUE is to be
determined.
2.12 License Agreement
"LICENSE AGREEMENT" means the license agreement, defined by the
document in which this paragraph appears. This LICENSE AGREEMENT is
between MCGILL, as licensor, and ACC as licensee. Also included in
this LICENSE AGREEMENT are all Exhibits attached hereto and all
amendments which may be made thereto.
2.13 Licensed Patent
"LICENSED PATENT(S)" means (1) those patent applications or
patent(s) listed in Exhibit A, which is attached hereto and made a
part hereof, any continuations, continuations-in-part, divisions,
patents of addition, reissues, reexaminations, or extensions of any of
the foregoing, provided that MCGILL is the owner thereof, and (2)
patent(s) issuing on the patent applications listed in Exhibit A, all
applications for United States or foreign patents based on the listed
United States patents and listed patent applications, any patents
granted hereafter on said United States or foreign applications, and
any continuations, continuations-in-part, divisions, patents of
addition, applications for reissue, reissues, reexaminations, or
extensions of any of the foregoing, provided that MCGILL is the owner
thereof.
2.14 Licensed Product
"LICENSED PRODUCT" means any product with label or package insert
instructions, apparatus or method, the production, manufacture, sale,
lease, USE, or practice of which would infringe one or more valid
LICENSED PATENT claims.
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2.l5 Net Sales
2.15.1 "NET SALES" means gross monies; or the monetary equivalent
of consideration, Invoiced, billed, or received by ACC (whether
received by ACC from an AFFILIATE, DISTRIBUTOR, RETAlL OUTLET, or some
other party, not a SUBLICENSEE) attributable to ACC's sale, lease, or
Transfer of any LICENSED PRODUCT; less qualifying costs directly
attributable to) such USE, sales, lease, or transfer and actually
allowed or borne by ACC. Such qualifying costs shall be limited to
costs of the following
2.15.1.1 DISTRIBUTOR discounts
2.15.12 Credits or refunds, not exceeding the original or
customary billing or invoice amount, for claims or returns.
2.15.1.3 Packaging.
2.15.1.4 Prepaid transportation insurance premiums.
2.15.1.5 Prepaid outbound transportation expenses.
2.15.1.6 Handling charges.
2.15.1.7 Taxes; including sales, use, turnover, excise,
import, export, and other taxes or duties, separately billed or
invoiced, and borne by ACC, imposed by a government agency on
such sales, lease, or transfer.
2.15.2 A LICENSED PRODUCT shall be deemed sold, leased, or
transferred at the time ACC bills, invoices, ships, or received
payment for such LICENSED PRODUCT.
2.15.3 In the event any LICENSED PRODUCT is incorporated into a
larger product or broader USE, not considered in its totality to be a
licensed PRODUCT, the monetary value of such incorporated LICENSED
PRODUCT shall be the higher (A) the money received by ACC for similar
LICENSED PRODUCT PRODUCT in an Equivalent quantity and in an arm's
length transaction with a unauthorized third party, occurring, at or
near the same time and location, or (B) after taking into
consideration ACC's cost of the larger product with the incorporated
LICENSED PRODUCT, that portion of the money or monetary equivalent of
the larger product, fairly attributable to the value added or saved by
incorporation of the Licensed Product.
2.15.4 LICENSED PRODUCT(S) USED in testing clinical trials, or as
marketing samples to dcvelop or promote the LICENSED PRODUCT(S) shall
not be lncluded as LICENSED PRODUCT(S) sold, leased, or transferred
under the definition of NET SALES; provided the LICENSED PRODUCT(S)
are supplied to the user at no cost.
2.16 Research Agreement
"RESEARCH AGREEMENT" means the sponsored research agreement for
collaboration at the Phase II/III stage of development of the LICENSED
PATENT(S).
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2.17 Retail Outlet
"RETAIL OUTLET" shall mean any person, firm, or ENTITY through
which any LICENSED PRODUCT is made directly available to END USERS
through the purchase of a direct or implied license for such LICENSED
PRODUCT(S).
2.18 Sublicensee
"SUBLICENSEE" means any ENTITY, not a DISTRIBUTOR, RETAIL OUTLET,
or an AFFILIATE of ACC, which is licensed by ACC, pursuant to the
authority granted in this LICENSE AGREEMENT, with rights to the
LICENSED PATENT(S) beyond those rights commonly granted an END USER.
2.19 Territory
"TERRITORY" means the world.
2.20 Use
"USE" means any form of practice or utilization of the LICENSED
PATENT, LICENSED PRODUCT(S), or any portion thereof.
3 GRANT
3.1 Grant of Rights
3.1.1 Subject to the terms and conditions of this LICENSE AGREEMENT,
MCGILL hereby grants to ACC exclusive royalty-bearing license rights to
practice in the TERRITORY the LICENSED PATENT for the term of this LICENSE
AGREEMENT.
3.1.2 This grant will extend to and authorize the manufacture, sale,
lease or other transfer of LICENSED PRODUCTS(S) through an AFFILIATE,
DISTRIBUTOR, or RETAIL OUTLET and shall authorize END USERS' USE of
LICENSED PRODUCT(S) transferred by ACC or ACC's AFFILIATES, DISTRIBUTORS,
or RETAIL OUTLETS.
3.2 Rights to Sublicense
3.2.1 The license rights granted under this LICENSE AGREEMENT shall
specifically include the right for ACC to grant sublicenses. ACC agrees
that any sublicense it grants to any third party shall be granted under the
following conditions:
3.2.1.1 Any sublicense grant of rights to the LICENSED PATENT
shall require MCGILL's written approval prior to execution by the
proposed sublicensee. Any sublicense shall not be valid until written
approval is obtained from MCGILL. Such approval shall not be
unreasonably withheld.
3.2.1.2 All sublicenses granted by ACC shall expressly provide
that all ACC's obligations to MCGILL in this LICENSE AGREEMENT shall
be binding upon the SUBLICENSEE,
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as if the SUBLICENSEE were a party to this LICENSE AGREEMENT. Each
sublicense shall specifically reference this LICENSE AGREEMENT and all
rights retained by MCGILL or required to be granted back to MCGILL
from ACC or a SUBLICENSEE.
3.2.1.3 ACC shall annually forward to MCGILL a copy of royalty
reports received by ACC from its SUBLICENSEE(S) during the preceding
CALENDAR YEAR. Such reports must contain adequate detail to allow
MCGILL to confirm the accuracy of royalty payments received from each
SUBLICENSEE.
3.2.1.4 All royalty payments made by SUBLICENSEE, as required by
this LICENSE AGREEMENT, shall be made in United States currency,
unless otherwise approved in advance by MCGILL.
3.2.1.5 No sublicense agreement shall relieve ACC of any of its
obligations under this LICENSE AGREEMENT, including the obligation to
pay MCGILL royalties on LICENSED PRODUCTS.
3.2.1.6 Each sublicense agreement shall include a provision
stating that the sublicense agreement shall automatically be modified
or terminated, in whole or in part, upon any modification or
termination, in whole or in part, of this LICENSE AGREEMENT. Such
modification or termination of the sublicense agreement shall be
consistent with and reflect the modifications or termination of this
LICENSE AGREEMENT.
3.3 Rights Reserved
3.3.1 Notwithstanding the exclusive license granted herein, MCGILL
specifically reserves the rights to manufacture, have manufactured or USE
the LICENSED PATENT for its own internal, academic, non-commercial
purposes, including continuing research, development, testing, and other
similar USES. MCGlLL's reserved rights under this section shall not include
the right to grant END USER licenses to any nonaffiliated third parties.
3.3.2 This LICENSE AGREEMENT shall not be interpreted or construed as
granting to ACC rights, express or implied, by estoppel or otherwise, to
any patents, patent applications, inventions, methods, technical
information, confidential information, proprietary information, expertise,
know-how, trade secrets, or knowledge not specifically licensed by this
LICENSE AGREEMENT as LICENSED PATENT; and all rights not expressly granted
ACC by this LICENSE AGREEMENT are expressly reserved by MCGILL. The words
used in this Subsection are intended to have their broadest possible
meanings, and are not to be limited by definitions set forth in this
LICENSE AGREEMENT.
3.4 Rights Granted Back To Licensor
3.4.1 ACC hereby grants to MCGILL nonexclusive, nontransferable
license rights to USE any patented or non-patented technology, know-how,
developments and INVENTIONS relating to the method for the treatment of
hepatitis B or C infection using interferon, necessary for Dr. Alpert to
further his research and in such case such USE shall be specifically
limited to MCGILL's internal, academic non-commercial purposes only.
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4 TERM AND TERMINATION
4.1 Term of Agreement
The term of this LICENSE AGREEMENT shall commence on its EFFECTIVE
DATE and shall end on the date upon which the last to expire of the
LICENSED PATENT claims expires, whether by statute or otherwise, unless it
earlier terminates by operation of law or by acts of the parties in
accordance with the terms of this LICENSE AGREEMENT.
4.2 Licensee's Rights to Termination
ACC may terminate this LICENSE AGREEMENT at any given time by giving
written notice of its intent to terminate at least sixty (60) days prior to
actual termination.
4.3 Licensor's Rights to Termination
4.3.1 This LICENSE AGREEMENT may be terminated, in whole or in part,
by MCGILL if ACC fails to timely make royalty payments or reports, or
breaches any other material portion of this LICENSE AGREEMENT and does not
cure such failure or breach within thirty (30) days following notice from
McGill specifying such failure or breach.
4.3.2 In the event ACC ceases conducting business in the normal
course, becomes insolvent, makes a general assignment for the benefit of
creditors, suffers or permits the appointment of a receiver for its
business or assets, or avails itself of, or becomes subject to, any
proceedings under the U.S. Federal Bankruptcy Act or any other statute of
any state or country relating to insolvency or the protection of creditor
rights, this LICENSE AGREEMENT shall immediately and automatically
terminate at the occurrence of any such event.
4.4 Results of Termination
4.4.1 Termination of this LICENSE AGREEMENT shall not release MCGILL
or ACC from any obligation or liability to the other which shall have
matured prior to termination, nor shall termination rescind or require
repayment of any payment or consideration made or given by either party,
except as otherwise provided herein. If the terms of this LICENSE AGREEMENT
expressly state that a right or obligation shall survive termination of
this LICENSE AGREEMENT, such right or obligation shall survive termination
to the degree necessary to allow complete fulfillment or discharge of the
right or obligation. The following rights and obligations, in addition to
others as provided herein, shall survive termination. (A) ACC shall make
all reports as required herein prior to termination, and additionally shall
prepare a termination report as reasonably required by MCGILL. (B) ACC
shall pay all royalties or other payments due MCGILL accrued or accruable
for payment prior to or after termination, and all such royalties and
payments accruable prior to termination shall become immediately due and
payable at the time of termination. (C) At all times both before and for
two (2) years after termination, ACC shall maintain all records required
to be kept herein and shall allow MCGILL audit privileges as defined
herein.
4.4.2 Upon termination of this LICENSE AGREEMENT, all rights granted
ACC shall cease and ACC shall then only have a right to exercise its own
rights in the LICENSED PATENT(S).
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5 LICENSING CONSIDERATION
5.1 License Issue Fee
In consideration of the license granted herein, the costs incurred and
services rendered by MCGILL, ACC shall, on the EFFECTIVE DATE, pay to
MCGILL a license issue fee of five thousand United States dollars (US
$5,000). The license issue fee shall be nonrefundable; however, it may be
credited against royalties required by this LICENSE AGREEMENT. During any
payment period, no credit given shall exceed fifty percent (50%) of the
amount of earned royalty payable to MCGILL.
6 ROYALTIES
6.1 Earned Royalties
In consideration for the license granted in this LICENSE AGREEMENT,
ACC shall make payments to MCGILL in the manner designated below, an earned
royalty of two percent (2%) of NET SALES beginning on the DATE OF
COMMERCIALIZATION and continuing until termination of this LICENSE
AGREEMENT.
6.2 Earned Royalty Adjustments
6.2.1 Upon the expiration or abandonment of LICENSED PATENT(S) in each
country, ACC shall have no obligation to pay MCGILL any further royalties
in such country.
6.2.2 Should a suit be brought in a United States District Court or a
request for reexamination be made at the US Patent and Trademark Office
challenging the validity of all patent claims of a LICENSED PATENT or the
proprietary nature of the LICENSED PATENT, all earned royalties payable by
ACC to MCGILL, according to this LICENSE AGREEMENT, shall be paid into an
escrow account, acceptable to both MCGILL and ACC, and shall be held
pending final determination of the challenge. If the challenge results in a
final determination invalidating such claims or proprietary nature of the
LICENSED PATENT, all royalties held in escrow shall be returned to ACC. If
all or a significant part of the claims are upheld or if the proprietary
nature of the LICENSED PATENT is upheld against the challenge, the escrowed
royalties shall be paid to MCGILL.
6.2.3 ACC shall continue to pay earned royalties under this LICENSE
AGREEMENT notwithstanding any actual or alleged infringement of the
LICENSED PATENT.
6.2.4 If ACC is obligated to pay royalties to a third party in order
to distribute a LICENSED PRODUCT, ACC shall have a right to withhold from
the payments to MCGILL the royalties paid to such third party provided that
the payments to MCGILL shall not be reduced to less than fifty percent
(50%) of the amount specified in this Agreement.
6.3 Minimum Royalty
6.3.1 In order to maintain the license granted herein, ACC shall pay
to MCGILL an annual minimum royalty of ten thousand United States dollars
(US $10,000) for each calendar year this LICENSE AGREEMENT is in effect,
beginning with the third anniversary of the EFFECTlVE DATE. Should this
LICENSE AGREEMENT terminate after the third anniversary of the EFFECTIVE
DATE
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on a date other than an anniversary of the EFFECTIVE DATE of this LICENSE
AGREEMENT, a prorated portion of the minimum royalty amount shall be paid.
6.3.2 Minimum royalty payments shall be nonrefundable and shall be
credited only against earned royalties payable by ACC to MCGILL in the
calendar year for which the minimum is payable.
6.4 Pass Through Royalty
6.4.1 In addition to all other royalties payable hereunder, ACC shall
pay to MCGILL a "pass through royalty" of forty percent (40%) on all
royalty payments and all other considerations (which shall specifically
include, but not be limited to, all license issue fees, earned royalties,
minimum royalties and milestone payments but which shall exclude research
and development payments, grants, equity payments and manufacturing
payments) received for LICENSED PRODUCT(S) by ACC from any SUBLICENSEE;
where such royalty payments and considerations are exchanged for rights
granted pursuant to this LICENSE AGREEMENT beyond those rights normally
granted END USERS.
6.4.2 Pass through royalty payments shall be paid to MCGILL in
conjunction with ACC's earned royalty payments. Pass through royalty
payments shall be accompanied by written reports, as required with ACC's
earned royalty payments, sufficient to allow MCGILL to audit the activities
of each SUBLICENSEE.
6.5 Single Royalty per Product
No provision of this LICENSE AGREEMENT shall be construed as requiring
the payment of more than a single royalty per single LICENSED PRODUCT
practiced, USED, manufactured, produced, sold, leased or transferred by ACC
regardless of the number of patentable or patented claims in the LICENSED
PATENT incorporated into the LICENSED PRODUCT.
6.6 Diligence Payments
6.6.1 If ACC has not filed an investigational new drug (IND)) or
similiar application with the Canadian Health and Welfare Canada (Health
Protection Branch) and/or the U.S. Food and Drug Administration, relating
to the LICENSED PRODUCT, within twelve (12) months of the EFFECTIVE DATE,
ACC shall pay MCGILL fifty thousand United States dollars (US $50,000) in
order to maintain rights under this LICENSE AGREEMENT.
6.6.2 If ACC has not commenced Phase II Clinical Trials in the United
States or Canada on LICENSED PRODUCT within thirty-six (36) months of the
EFFECTIVE DATE, ACC shall pay MCGILL fifty thousand United States dollars
(US $50,000) in order to maintain rights under this LICENSE AGREEMENT.
6.6.3 If ACC has not commenced Phase III Clinical Trials in the United
Stales or Canada on LICENSED PRODUCT within forty-eight (48) months of the
EFFECTIVE DATE, ACC shall pay MCGILL fifty thousand United States dollars
(US $50,000) in order to maintain rights under this LICENSE AGREEMENT.
6.7 Milestone Payments
ACC shall, upon the first occurrence of the following development
milestones, immediately make payments to MCGILL of the amounts listed
below:
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Event Amount
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Filing of IND on LICENSED PRODUCT US$ 5,000
New Drug Application (NDA) submission US$ 50,000
on LICENSED PRODUCT
NDA Approval of LICENSED PRODUCT US$120,000
6.8 Research Program
Within six months of the EFFECTIVE DATE of this Agreement ACC shall
negotiate in good faith a mutually acceptable RESEARCH AGREEMENT with
MCGILL with terms and consideration as usual and customary for MCGILL's
Phase II/III clinical trials and to notify MCGILL when these clinical
trials become necessary. The RESEARCH AGREEMENT shall include a budget,
reports, accounting requirements, budget overrun limitations and a mutually
acceptable research proposal.
7 PAYMENTS AND REPORTS
7.1 Payments
7.1.1 Any amount due MCGILL as the result of each LICENSED PRODUCT
being USED, sold, leased, or transferred pursuant to the license rights
granted through this LICENSE AGREEMENT shall accrue at the time ACC
receives payment for such LICENSED PRODUCT. All amounts accrued for the
benefit of MCGILL shall be deemed held in trust for the benefit of MCGILL
until payment of such amounts is made pursuant to this LICENSE AGREEMENT.
7.1.2 Unless otherwise specified in this LICENSE AGREEMENT, all
payment amounts due MCGILL under this LICENSE AGREEMENT shall be paid
within forty five (45) days following the end of the CALENDAR YEAR in which
such payment accrues or ACC otherwise incurs the obligation to pay such
amounts.
7.1.3 All such payments shall be remitted to MCGILL's address given in
the notification provision of this LICENSE AGREEMENT or to such other
address as MCGILL shall direct.
7.1.4 ACC shall pay to MCGILL a one-time late fee of 20% of any
payment required under this LICENSE AGREEMENT, if the payment is more than
fifteen (15) days late. Such late fee shall be paid within thirty (30) days
after the date on which the required payment was due. In addition, ACC
shall pay to MCGILL interest on any amounts not paid when due. Such
interest will accrue from the fifteenth (15) day after the payment was due
at a rate of five percent (5%) per annum, and the interest payment will be
due and payable on the first day of each month after interest begins to
accrue until full payment of all amounts due MCGILL is made.
7.2 Payments in United States Dollars
ACC shall make payment of any amounts due MCGILL under this LICENSE
AGREEMENT in United States dollars.
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7.3 Reports
7.3.1 ACC shall keep, at its own expense, accurate books of account,
using accepted accounting procedures, detailing all data necessary to
calculate and easily audit any payments due MCGILL from ACC under this
LICENSE AGREEMENT.
7.3.2 Each payment made to MCGILL shall be accompanied by a written
report summarizing, in sufficient detail to allow MCGILL to verify all
payment amounts, the data used to calculate the amounts paid. Each report
pertaining to royalty payments for the applicable accounting period shall
specifically include the following, as applicable:
(A) NET SALES amounts.
(B) Royalties due.
(C) Gross consideration amounts, including sales revenues, fees,
revenues, or monies invoiced, billed or received for all
LICENSED PRODUCTS.
(D) Qualifying costs, by category of cost, deducted from gross
consideration to derive NET SALES.
(E) Number of LICENSED PRODUCT(S) sold.
(F) NET SALES broken down by country.
(G) Date ACC or an AFFILIATE sells each LICENSED PRODUCT.
(H) Any offset amounts claimed by ACC.
8 PERFORMANCE
8.1 Best Efforts
During the term of this LICENSE AGREEMENT, ACC shall use its
reasonable efforts to commercialize the LICENSED PATENT in at least one
country in the TERRITORY.
9 PATENT MAINTENANCE
9.1 Licensor to maintain LICENSED PATENT
9.1.1 ACC shall be solely responsible for the payment of all
preparation, filing, maintenance and other fees required in order to
maintain the LICENSED PATENT(S) for which ACC desires to maintain the
license rights. At least thirty (30) days prior to the time payment of such
fees is required, ACC shall make the necessary payment and give MCGILL
written notice that such fees have been paid. If MCGILL does not timely
receive such notice or if ACC notifies MCGILL that it will not make a
payment because it no longer has an interest in a LICENSED PATENT in a
certain country, MCGILL may, in its discretion, pay the fees and in such
case MCGILL shall have a right to exercise its own rights to such LICENSED
PATENT in such country.
9.1.2 ACC shall have the ultimate responsibility for meeting all
payment, cost, and filing deadlines concerning the LICENSED PATENT(S). ACC
shall have no claim of damages against MCGILL, its officers,
administrators, or employees, should any such payment or cost not be made
or any such deadline not be met, and MCGILL's failure to meet any such
deadline or pay any such fee or cost shall not be considered a breach of
this LICENSE AGREEMENT.
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10 WARRANTIES
10.1 No warranty of merchantability of LICENSED PATENT
MCGILL WARRANTS THAT IT HAS OBTAINED ALL OF DR. ALPERT'S RIGHTS, TITLE
AND INTEREST IN THE LICENSED PATENT(S), AND THAT TO MCGILL'S KNOWLEDGE, NO
OTHER PERSON OR ENTITY OTHER THAN ACC OWNS ANY RIGHTS, TITLE OR INTEREST IN
THE LICENSED PATENT(S). MCGILL MAKES NO WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, WITH RESPECT TO THE LICENSED PATENT, NOT EXPRESSLY SET FORTH IN
THIS AGREEMENT. ALL MCGILL DELIVERABLES ARE MADE AVAILABLE TO ACC STRICTLY
ON AN "AS IS" BASIS. MCGILL DOES NOT WARRANT THAT THE LICENSED PATENT IS
ERROR FREE OR THAT IT WILL MEET ACC REQUIREMENTS. ALL IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY
DISCLAIMED AND EXCLUDED. THE ENTIRE RISK AS TO THE RESULTS AND PERFORMANCE
OF LICENSED PATENT, DELIVERABLES, AND ANY PRODUCTS, SERVICES OR METHODS
BASED ON THE LICENSED PATENT IS ASSUMED BY ACC.
10.2 No warrant of liability for LICENSED PRODUCT
MCGILL MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES, EXPRESS OR
IMPLIED, AND ASSUMES NO LIABILITIES OR RESPONSIBILITES WITH RESPECT TO THE
USE, SALE, OR OTHER DISPOSITION BY ACC, ANY AFFILIATE, VENDEES OR
TRANSFEREES OF LICENSED PRODUCT(S).
11 INFRINGEMENT
11.1 Obligation to notify
Should ACC become aware of any infringement or potential infringement
of the LICENSED PATENT, ACC shall give MCGILL prompt written notice
detailing the facts concerning such infringement or potential infringement.
11.2 Obligation to enforce
In the event ACC shall have actual notice of a substantial
infringement of a LICENSED PATENT intellectual property rights, ACC shall
have the obligation, within six (6) months of receiving notice, to (A) stop
the infringement, (B) file suit against the infringer, or (C) provide
MCGILL with reasonable evidence showing that the infringer intends to enter
into a sublicense or settlement agreement in which future infringement will
be halted. Should such obligation not be fulfilled, MCGILL shall have the
right, as its sole remedy, at its own expense and for its own benefit, to
bring any action it deems necessary to stop the infringement and recover
any damages, profits, and awards which might be obtained and to change, on
the second occurrence of ACC's failure to perform such obligation, any
exclusive license rights granted to ACC through this LICENSE AGREEMENT
automatically to nonexclusive rights, and thereafter have the exclusive
right to grant licenses to the LICENSED PATENT(S).
12
<PAGE>
12 GENERAL PROVISIONS
12.1 Assignment
This LICENSE AGREEMENT may be assigned or transferred by ACC without
the prior written consent of MCGILL. ACC shall notify MCGILL of any such
assignment.
12.2 Attorneys' Fees
In the event any suit or other proceeding is reasonably necessary and
is commenced to construe, enforce, or terminate any provision of this
LICENSE AGREEMENT, the nonprevailing party shall pay the prevailing party,
in addition to all other amounts to which the prevailing may be entitled, a
reasonable sum for attorneys' fees and costs incurred by the prevailing
party in such suit or proceeding.
12.3 Entire Agreement
This LICENSE AGREEMENT constitutes the entire agreement and
understanding between MCGILL and ACC with respect to the subject matter
hereof, and any modification of this LICENSE AGREEMENT shall be in writing
and shall be signed by a duly authorized representative of both MCGILL and
ACC. There are no understandings, representations, or warranties between
MCGILL and ACC concerning the subject matter hereof except as expressly set
forth in this LICENSE AGREEMENT.
12.4 Governing Law
This LICENSE AGREEMENT shall be deemed to have been made in the
Province of Quebec and shall be governed and construed in accordance with
the laws of the Province of Quebec.
12.5 Headings
The section and subsection titles and headings contained in this
LICENSE AGREEMENT are for convenience of reference only. Such titles and
headings do not form a part of this LICENSE AGREEMENT, shall not define or
limit the scope of the sections or subsections, and shall not affect the
construction or interpretation of any of the sections or subsections.
12.6 Notices
All notices, reports, payments, requests, consents, demands and other
communications between MCGILL and ACC, pertaining to subjects related to
this LICENSE AGREEMENT, shall be in writing and shall be deemed duly given
and effective (A) when actually received by mail or personal delivery, or
(B) when sent by telecopier, telex or other similar means of electronic
communication on the second day following the sending thereof at the
address set forth below, or to such other address as may be later
designated by written notice from either party to the other party:
MCGILL's Notification Address:
Director, Office of Technology Transfer, 3550 University St.,
Montreal, Quebec, Canada H3A 2A7; fax: (514) 398-8479.
13
<PAGE>
ACC's Notification Address:
Chief Financial Officer, AMARILLO CELL CULTURE COMPANY, INC., 800 W.
9th, Amarillo, TX 79101, U.S.A.; fax: (806) 376-9301.
12.7 Use of Name
ACC shall not, without prior written consent from MCGILL in each
specific case (except as required by law), use MCGILL's name, trademark(s),
or any adaptations thereof.
12.8 Waiver of Rights
In order to be effective, any waiver, by either party, of any right
under this LICENSE AGREEMENT, must be in writing signed by an authorized
representative of the party making the waiver. No such waiver or failure of
MCGILL or ACC to enforce a right or strict performance under this LICENSE
AGREEMENT shall be deemed to be a waiver or forbearance which would in any
way prevent MCGILL or ACC from subsequently asserting or exercising any
such rights, making a claim not specifically waived, or requiring strict
performance of this LICENSE AGREEMENT. No such waiver or failure to enforce
shall affect the validity of this LICENSE AGREEMENT or be a continuing
waiver excusing compliance with any provision of this LICENSE AGREEMENT in
the future.
12.9 Language
The parties hereto hereby acknowledge that they have required this
LICENSE AGREEMENT to be drawn up in the English language. Les parties
reconnaissent avoir demande que le present contrat de licence soit redige
en langue anglaise.
12.10 Signatures
IN WITNESS WHEREOF, MCGILL and ACC have caused this LICENSE AGREEMENT
to be executed in duplicate originals by their duly authorized
representative.
LICENSOR: LICENSEE:
MCGILL UNIVERSITY AMARILLO CELL CULTURE
COMPANY, INC.
Representing Licensor: Representing Licensee:
/s/ (Illegible) /s/ Joseph M. Cummins
- ---------------------------------- ------------------------------------
Signature Signature
September 26, 1995 Sep 25, 1995
- ---------------------------------- ------------------------------------
Date Date
/s/ R.D. Brassinger /s/ Joseph M. Cummins
- ---------------------------------- ------------------------------------
Name of Representative Name of Representative
Associate Director, OTT President & CEO
- ----------------------- ---------------
Tille of Representative Title of Representative
/s/ Margo Critchley /s/ Charles H. Hughes
- ---------------------------------- ------------------------------------
Witness Witness
14
<PAGE>
Exhibit A
Title: Oral Interferon Potentiated Treatment of Hepatitis B or Hepatitis C
Inventor: Elliot Alpert
Assignee: McGill University
U.S. Application Serial No.----------------------
Filing Date: ------------------------------------
ACC Application to be prepared and filed by ACC patent attorneys, in
consultation with MCGILL's Office of Technology Transfer, before November 1,
1995 based on data obtained from clinical studies of the use of interferon in
treatment of hepatitis B or C under the supervision of Dr. E. Alpert of the
Department of Medicine of McGill Univeristy; the application will include claims
to a method of potentiating the efficacy of parenterally administered interferon
by oral/pharyngeal contact of low dose interferon.
15
<PAGE>
CONSULTING AGREEMENT
____________, 1996
Amarillo Biosciences, Inc.
800 West 9th Avenue
Amarillo, Texas 79101
Attention: Dr. Joseph M. Cummins, President
Dear Dr. Cummins:
This will confirm the arrangements, terms and conditions
pursuant to which Whale Securities Co., L.P., (the "Consultant"), has been
retained to serve as a financial consultant and advisor to Amarillo Biosciences,
Inc., a Texas corporation (the "Company"), on a non-exclusive basis for a period
of two (2) years commencing on ________________, 1996 [the Closing Date]. The
undersigned hereby agrees to the following terms and conditions:
1. Duties of Consultant. Consultant shall, at the request of
the Company, upon reasonable notice, render the following services to the
Company from time to time:
(a) Consulting Services. Consultant will provide
such financial consulting services and advice pertaining to the Company's
business affairs as the Company may from time to time reasonably request.
Without limiting the generality of the foregoing, Consultant will assist the
Company in developing, studying and evaluating financing and merger and
acquisition proposals based upon documentary information provided to the
Consultant by the Company.
(b) Financing. Consultant will assist and represent
the Company in obtaining both short and long-term financing. The Consultant will
be entitled to additional compensation under certain circumstances in accordance
with the terms set forth in Section 3 hereof.
(c) Wall Street Liaison. Consultant will, when
appropriate, arrange meetings between representatives of the Company and
individuals and financial institutions in the investment community, such as
security analysts, portfolio managers and market makers.
The services described in this Section 1 shall be rendered by
Consultant without any direct supervision by the Company and at such time and
place and in such manner (whether by conference, telephone, letter or otherwise)
as Consultant may determine.
<PAGE>
2. Compensation. As compensation for Consultant's services
hereunder, the Company shall pay to Consultant an annual fee of Thirty Thousand
Dollars ($30,000) payable in full, in advance, with the first payment due on
__________________, 1996 [the Closing Date].
3. Additional Compensation in Certain Circumstances. In
addition to the financial consulting services described in Section 1 above,
Consultant may bring the Company in contact with persons, whether individuals or
entities, that may be suitable candidates for providing the Company with, or may
lead the Company to other individuals or entities that may provide the Company
with, debt or equity financing or that may be suitable candidates, or may lead
the Company to such suitable candidates, to purchase substantially all of the
stock or assets of the Company, merge with the Company, or enter into a joint
venture or other transaction with the Company. If, at any time up until the
second anniversary of the date hereof, the Company enters into an agreement with
any such persons or their affiliates, or with any persons introduced to the
Company by any such persons or their affiliates, pursuant to which the Company
obtains debt or equity financing or pursuant to which substantially all of the
Company's stock or assets is purchased or the Company is merged with or into
another entity, or pursuant to which the Company enters into a joint venture or
other transaction, the Company will pay to Consultant, in accordance with the
formula set forth below, additional compensation based on the aggregate of all
proceeds received by the Company (the "Consideration") in such transaction (the
"Transaction").
The additional compensation to be paid will be paid upon the
closing of the Transaction, by certified check, in the following amounts:
5% of the first $5,000,000 of the consideration paid in
the Transaction;
4% of the consideration in excess of $5,000,000 and up
to $6,000,000;
3% of the consideration in excess of $6,000,000 and up
to $7,000,000;
2% of the consideration in excess of $7,000,000 and up
to $8,000,000; and
1% of any consideration in excess of $8,000,000.
<PAGE>
4. Available Time. Consultant shall make available such time
as it, in its sole discretion, shall deem appropriate for the performance of its
obligations under this agreement and may in certain circumstances be entitled to
additional compensation in connection therewith.
5. Relationship. Nothing herein shall constitute Consultant as
an employee or agent of the Company, except to such extent as might hereinafter
be agreed upon for a particular purpose. Except as might hereinafter be
expressly agreed, Consultant shall not have the authority to obligate or commit
the Company in any manner whatsoever.
6. Confidentiality. Except in the course of the performance of
its duties hereunder, Consultant agrees that it shall not disclose any trade
secrets, know-how, or other proprietary information not in the public domain
learned as a result of this Agreement unless and until such information becomes
generally known.
7. Assignment and Termination. This Agreement shall not be
assignable by any party except to successors to all or substantially all of the
business of either party for any reason whatsoever without the prior written
consent of the other party, which consent may be arbitrarily withheld by the
party whose consent is required.
8. Governing Law. This Agreement shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be construed in accordance with the laws of said State.
Very truly yours,
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By:
----------------------------------
Name: William G. Walters
Title: Chairman
AGREED AND ACCEPTED:
AMARILLO BIOSCIENCES, INC.
By:
------------------------------
Name:
Title:
RESEARCH AGREEMENT
THIS AGREEMENT made and entered into this 25th day of March 1996 by and
between Ajinomoto Co., Inc. at 1-15-1 Kyobashi, Chuo-ku, Tokyo, 104 Japan
(hereinafter called "AJICO") and Amarillo Cell Culture Co., Inc. at 800 West
Ninth Avenue, Amarillo, Texas 791013206 (hereinafter called "ACC").
WHEREAS ACC is a leading company in the world exploring oral application of
interferon alpha (hereinafter called "IFNa ") for the treatment and prevention
of human and animal disease, but has never tried oral IFNa application into
dairy cattle for the treatment of mastitis, and
WHEREAS AJICO is a leading amino acids and peptides manufacturer in the
world and showed a desire to explore a possible application of IFNa into
mastitis prevention and treatment.
NOW, THEREFORE, the parties hereto agree as follows:
1. AJICO will conduct a small research study to determine whether oral IFNa
can be used for the treatment and prevention of mastitis in dairy cattle. All
research study expenses will be under the direct supervision of AJICO and are
the sole responsibility of AJICO (hereinafter called "PROJECT").
2. ACC will support the PROJECT with best effort by providing consultation
and advise, experimental protocol in written form and IFNa free of charge to
AJICO upon request of AJICO.
3. AJICO shall have the final authority to determine the scope and content
of any publication, provided that such authority shall be exercised with
reasonable regard for the commercial interests of ACC. It is the intent of the
parties that no publication will contain any confidential information disclosed
by ACC without ACC'S prior written permission. ACC may request AJICO to delay
publishing such proposed publication for a maximum of an additional sixty (60)
days.
4. AJICO will discuss the results of PROJECT with ACC. If AJICO obtains a
promising result, ACC will discuss future business development with AJICO in
good faith on the basis of equal or proportional sharing of risk and profit.
<PAGE>
If AJICO obtains any invention or improvements relating to oral IFNa
application resulting from PROJECT, ACC will discuss the ownership in good
faith.
5. ACC will hold in confidence and shall not disclose to any third party
without prior written consent of AJICO any confidential information obtained
from AJICO.
6. This AGREEMENT will become effective on the first date above written and
will continue in effect for a period of two (2) years, provided, however, that
clause five (5) above will survive for a period of five (5) years.
IN WITNESS WHEREOF, the parties hereto have executed this AGREEMENT in
duplicate in English by their duly authorized representatives as of the date
first above written.
AMARILLO CELL CULTURE COMPANY, INC.
BY:/s/ Joseph M. Cummins DATE: 3/25/96
----------------------------- ---------------
Joseph M. Cummins, DVM, PhD
President and CEO
AJINOMOTO COMPANY, INC.
BY:/s/ Yoshihiro Nakamura DATE: 3/25/96
----------------------------- ---------------
Yoshihiro Nakamura, PhD
Deputy General Manager
Planning & Development Department
AMARILLO BIOSCIENCES, INC.
1996 EMPLOYEE STOCK OPTION PLAN
ARTICLE I -- GENERAL
1.01. Purposes.
The purposes of this 1996 Employee Stock Option Plan (the
"Plan") are to: (1) closely associate the interests of the management of
AMARILLO BIOSCIENCES, INC. ("ABI") and its Subsidiaries and Affiliates
(collectively referred to as the "Company") with the shareholders by reinforcing
the relationship between participants' rewards and shareholder gains; (2)
provide management with an equity ownership in the Company commensurate with
Company performance, as reflected in increased shareholder value; (3) maintain
competitive compensation levels; and (4) provide an incentive to management for
continuous employment with the Company.
1.02. Administration.
(a) The Plan shall be administered by a Committee of directors
appointed by the Board of Directors of ABI (the "Committee"), as constituted
from time to time. The Committee shall consist of at least two members of the
Board. Notwithstanding anything in this Section 1.02 to the contrary, so long as
any equity security of the Company is registered under Section 12 of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or any successor
statute, all authority to exercise discretion with respect to participation in
the Plan by persons who are (i) "officers" within the meaning of the applicable
Securities and Exchange Commission rules and regulations relating to Section 16
of the 1934 Act, or any successor statute, (ii) directors of the Company and/or
(iii) beneficial owners of more than ten percent (10%) of any class of equity
securities of the Company who are otherwise eligible to participate in the Plan,
and the timing, pricing, amounts and other terms and conditions of awards
granted under the Plan to such officers, directors and beneficial owners, shall
be vested in the Committee, if all of the members of the Committee are
disinterested persons within the meaning ascribed to such term in Rule 16b-3
promulgated under the 1934 Act, or within any successor definition or under any
successor rule ("disinterested persons").
(b) The Committee shall have the authority, in its
sole discretion and from time to time to:
(i) designate the employees or classes of
employees eligible to participate in the
Plan;
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<PAGE>
(ii) grant awards provided in the Plan in such
form and amount as the Committee shall
determine;
(iii) impose such limitations, restrictions and
conditions upon any such awards as the
Committee shall deem appropriate; and
(iv) interpret the Plan, adopt, amend and rescind
rules and regulations relating to the Plan,
and make all other determinations and take
all other action necessary or advisable for
the implementation and administration of the
Plan.
(c) Decisions and determinations of the Committee on all
matters relating to the Plan shall be in its sole discretion and shall be
conclusive. No member of the Committee shall be liable for any action taken or
decision made in good faith relating to the Plan or any award thereunder.
(d) With respect to persons subject to Section 16 of the 1934
Act, transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successor under the 1934 Act. To the extent any
provision of the Plan or action by the Board of Directors or the Committee fails
to so comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Board of Directors or the Committee, as applicable.
(e) All usual and reasonable expenses of the Committee shall
be paid by the Company, and no member shall receive compensation with respect to
his services for the Committee except as may be authorized by the Board of
Directors. The Board of Directors and the Committee may employ attorneys,
consultants, accountants or other persons, and the Board of Directors, the
Committee, the Company and its officers and directors shall be entitled to rely
upon the advice, opinions or valuations of any such persons. All actions taken
and all interpretations and determinations made by the Board of Directors or the
Committee in good faith shall be final and binding upon all Employees who have
received awards, and upon the Company and all other interested persons. No
member of Board of Directors or the Committee shall be personally liable for any
action, determination, or interpretation taken or made in good faith with
respect to the Plan or awards made thereunder, and the Company shall indemnify
and hold harmless each member of the Board of Directors or the Committee against
all loss, cost, expenses or damages, occasioned by any act or omission to act in
connection with any such action, determination or interpretation under or of
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<PAGE>
the Plan, consistent with the Company's certificate of
incorporation and bylaws.
1.03. Eligibility for Participation.
Participants in the Plan shall be selected by the Committee
from among the employees of the Company. In making this selection and in
determining the form and amount of awards, the Committee shall consider any
factors deemed relevant, including the individual's functions, responsibilities,
value of services to the Company and past and potential contributions to the
Company's profitability and sound growth.
1.04. Types of Awards Under Plan.
Awards under the Plan will be in the form of Incentive Stock
Options, as described in Article II; provided, however, that Limited Rights, as
described in Article III, may be awarded with respect to Options concurrently or
previously awarded.
1.05. Aggregate Limitation on Awards.
(a) Shares of stock which may be issued under the Plan shall
be authorized and unissued or treasury shares of Common Stock of ABI ("Common
Stock"). The maximum number of shares of Common Stock which may be issued under
the Plan shall be one hundred fifty thousand (150,000) shares. The maximum
number of shares of Common Stock with respect to which Incentive Stock Options
may be granted in any one year to any employee shall not exceed 50,000.
(b) In addition to shares of Common Stock actually issued
pursuant to the exercise of Incentive Stock Options, there shall be deemed to
have been issued a number of shares equal to the number of shares of Common
Stock in respect of which Limited Rights (as described in Article III) shall
have been exercised.
(c) Any shares of Common Stock subject to an Incentive Stock
Option which for any reason is terminated unexercised or expires shall again be
available for issuance under the Plan, but shares subject to an Incentive Stock
Option which are not issued as a result of the exercise of Limited Rights shall
not again be available for issuance under the Plan.
1.06. Effective Date and Term of Plan.
(a) The Plan shall become effective on the date
approved by the holders of a majority of the shares of Common
-3-
<PAGE>
Stock present in person or by proxy and entitled to vote at the 1996 Annual
Meeting of Shareholders of ABI.
(b) No awards shall be made under the Plan after the last day
of the Company's 2001 fiscal year provided, however, that the Plan and all
awards made under the Plan prior to such date shall remain in effect until such
awards have been satisfied or terminated in accordance with the Plan and the
terms of such awards.
ARTICLE II -- INCENTIVE STOCK OPTIONS
2.01. Award of Incentive Stock Options.
The Committee may, from time to time and subject to the
provisions of the Plan and such other terms and conditions as the Committee may
prescribe, grant to any participant in the Plan one or more "Incentive Stock
Options," intended to qualify as such under the provisions of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") ("Incentive Stock
Options") to purchase for cash the number of shares of Common Stock allotted by
the Committee. The date an Incentive Stock Option is granted shall mean the date
selected by the Committee as of which the Committee allots a specific number of
shares to a participant pursuant to the Plan.
2.02. Incentive Stock Option Agreements.
The grant of an Incentive Stock Option shall be evidenced by a
written Incentive Stock Option Agreement, executed by the Company and the holder
of an Incentive Stock Option (the "Optionee"), stating the number of shares of
Common Stock subject to the Incentive Stock Option evidenced thereby, and in
such form as the Committee may from time to time determine.
2.03. Incentive Stock Option Price.
The Option Price per share of Common Stock deliverable upon
the exercise of an Incentive Stock Option shall be 100% of the Fair Market Value
of a share of Common Stock on the date the Incentive Stock Option is granted;
provided, however, that with respect to any Optionee who owns stock possessing
more than 10% of the total combined voting power of all classes of stock of ABI
or of its parent or Subsidiary corporation (with such ownership determined in
view of the attribution provisions of Section 424(d) of the Code), the Option
Price per share of Common Stock deliverable upon the exercise of an Incentive
Stock Option shall be 110% of the Fair Market Value of a share of Common Stock
on the date the Incentive Stock Option is granted. The Committee shall
-4-
<PAGE>
determine the date on which an option is granted, provided that such date is
consistent with the Code and any applicable rules or regulations thereunder; in
the absence of such determination, the date on which the Committee adopts a
resolution granting an option shall be considered the date on which such option
is granted, provided the Employee to whom the option is granted is promptly
notified of the grant and a written option agreement is duly executed as of the
date of the resolution.
2.04. Term and Exercise.
Each Incentive Stock Option for employees who are not 10%
owners is exercisable during a period of ten years from the date of grant
thereof (the "Option Term"), subject to the Vesting Schedule for Employees who
are not 10% Owners, set forth below. With respect to any Optionee who at the
time the Option is granted owns stock possessing more than 10% of the total
combined voting power of all classes of stock of ABI or of its parent or
Subsidiary corporation (with such ownership determined pursuant to the
attribution rules set forth in Section 424(d) of the Code), each Incentive Stock
Option is exercisable during a period of five years from the date of grant
thereof, subject to the Vesting Schedule for Employees who are 10% Owners, set
forth below. No Incentive Stock Option shall be exercisable after the expiration
of its Option Term. The Committee may also, in its sole discretion, accelerate
the exercisability of any option or installment thereof at any time.
Vesting Schedule for Employees who are not 10% Owners. Options
awarded shall be exercisable, subject to the other terms and conditions of the
Plan, only upon the expiration of the designated number of years of active
employment with the Company from date of award, as provided below:
20% of Options awarded - 1 year
40% of Options awarded - 2 years
60% of Options awarded - 3 years
80% of Options awarded - 4 years
100% of Options awarded - 5 years
Vesting Schedule for Employees who are 10% Owners.
25% of Options awarded - 1 year
50% of Options awarded - 2 years
75% of Options awarded - 3 years
100% of Options awarded - 4 years
Except as provided in Sections 2.06, 2.07 and 2.08 hereof, no
Incentive Stock Option shall be exercised at any
-5-
<PAGE>
time unless the holder thereof is then a regular full-time employee of the
Company or one of its subsidiaries.
2.05. Maximum Amount of Incentive Stock Option Grant.
In no event shall the aggregate Fair Market Value of all
Common Stock (determined at the time the option is granted) with respect to
which Incentive Stock Options are exercisable for the first time by an
individual during any calendar year (under all plans of the Company and its
subsidiaries) exceed $100,000.
2.06. Death of Optionee.
(a) Upon the death of the Optionee, any Incentive Stock Option
exercisable on the date of death may be exercised by the Optionee's estate or by
a person who acquires the right to exercise such Incentive Stock Option by
bequest or inheritance or by reason of the death of the Optionee, provided that
such exercise occurs within both the remaining Option Term of the Incentive
Stock Option and one year after the Optionee's death.
(b) The provisions of this Section shall apply notwithstanding
the fact that the Optionee's employment may have terminated prior to death, but
only to the extent of any Incentive Stock Options exercisable on the date of
death.
2.07. Retirement or Disability.
Upon the termination of the Optionee's employment by reason of
permanent disability (as defined herein) or retirement (as determined by the
Committee), the Optionee may, within 36 months from the date of such termination
of employment, exercise any Incentive Stock Options to the extent such Incentive
Stock Options were exercisable at the date of such termination of employment.
Notwithstanding the foregoing, the tax treatment available pursuant to Section
422 of the Code upon the exercise of an Incentive Stock Option will not be
available to an Optionee who exercises any Incentive Stock Options more than (i)
12 months after the date of termination of employment due to permanent
disability or (ii) three months after the date of termination of employment due
to retirement. For purposes hereof, "permanent disability" shall have the
meaning set forth in Section 22(e)(3) of the Code or any successor provision
thereto.
2.08. Termination for Other Reasons.
Except as provided in Sections 2.06 and 2.07 or
except as otherwise determined by the Committee, all Incentive
-6-
<PAGE>
Stock Options shall terminate upon the termination of the Optionee's employment;
provided, however, that if the Optionee's employment was involuntarily
terminated (with or without cause), Optionee may exercise, during a 90-day
period commencing with date of termination, all Options theretofore vested, or
which vest during said 90-day period, under the Vesting Schedules set forth in
Paragraph 2.04, above. At the end of the 90-day period, all rights of such
Optionee under any then outstanding option or right shall terminate and shall be
forfeited immediately as to any unexercised portion thereof.
2.09. Manner of Payment.
Each Stock Option Agreement shall set forth the procedure
governing the exercise of the Stock Option granted thereunder, and shall provide
that, upon such exercise in respect of any shares of Common Stock subject
thereto, the Optionee shall pay to the Company, in full, the Option Price for
such shares with cash or in shares of the Common Stock, valued at the Fair
Market Value per Share on the date of exercise.
2.10. Issuance of Shares.
As soon as practicable after receipt of payment, the Company
shall deliver to the Optionee a certificate or certificates for such shares of
Common Stock. The Optionee shall become a shareholder of the Company with
respect to Common Stock represented by share certificates so issued and as such
shall be fully entitled to receive dividends, to vote and to exercise all other
rights of a shareholder.
2.11. Effect of Exercise.
The exercise of any Stock Option shall cancel that number of
related Limited Rights, if any, which is equal to the number of shares of Common
Stock purchased pursuant to said Option.
2.12. Rule 16b-3 Exemption.
Options granted under the Plan shall comply with the
applicable provisions of Rule 16b-3 promulgated under the 1934 Act, or any
successor, and shall contain such additional conditions or restrictions as may
be required thereunder to qualify for the maximum exemption from Section 16 of
the 1934 Act with respect to Plan transactions.
-7-
<PAGE>
ARTICLE III -- LIMITED RIGHTS
3.01. Award of Limited Rights.
Concurrently with or subsequent to the award of any Incentive
Stock Option, the Committee may, subject to the provisions of the Plan and such
other terms and conditions as the Committee may prescribe, award to the Optionee
with respect to each Option, a related limited right permitting the Optionee,
during a specified limited time period, to be paid the appreciation on the
Common Stock in lieu of exercising the Option ("Limited Right").
3.02. Limited Rights Agreement.
Limited Rights granted under the Plan shall be evidenced by
written agreements in such form as the Committee may from time to time
determine.
3.03. Exercise Period.
Limited Rights shall (and must) be exercised immediately
preceding or simultaneous with the date of a Change in Control of ABI (the
"Exercise Period"), and all Limited Rights held by the Optionee shall be
exercised during such Exercise Period, without regard to the Vesting Schedules
set forth in Paragraph 2.04; provided, however, that if a Change in Control
shall have occurred without notice or opportunity for exercise of Limited
Rights, then the Limited Rights shall be exercised as soon as practicable after
a determination has been made that a "Change in Control" has occurred, or has
been deemed to have occurred.
As used in the Plan, a "Change in Control" shall be
deemed to have occurred if
(a) individuals who were directors of ABI, immediately prior
to a Control Transaction shall cease, within one year of such Control
Transaction, to constitute a majority of the Board of Directors of ABI (or of
the Board of Directors of any successor to ABI or to all or substantially all of
its assets), or
(b) any entity, person or Group other than ABI or a Subsidiary
of ABI or Hayashibara Biochemical Laboratories, Inc. or an Affiliate thereof
acquires shares of ABI in a transaction or series of transactions that result in
such entity, person or Group directly or indirectly owning beneficially
fifty-one percent (51%) or more of the outstanding shares.
-8-
<PAGE>
As used herein, "Control Transaction" shall be
(i) any tender offer for or acquisition of
capital stock of ABI,
(ii) any merger, consolidation, or sale of all
or substantially all of the assets of ABI
which has been approved by the sharehold-
ers,
(iii) any contested election of directors of
ABI, or
(iv) any combination of the foregoing;
which results in a change in voting power sufficient to elect a majority of the
Board of Directors of ABI. As used herein, "Group" shall mean persons who act in
concert as described in Sections 13(d)(3) and/or 14(d)(2) of the Securities
Exchange
Act of 1934, as amended.
3.04. Amount of Payment.
The amount of payment to which an Optionee shall be entitled
upon the exercise of each Limited Right shall be equal to 100% of the amount, if
any, which is equal to the difference between the Fair Market Value per share of
Common Stock covered by the related Option on the date the Option was granted
and the Market Price of a share of such Common Stock. Market Price is defined to
be the greater of (i) the highest price per share of the Company's Common Stock
paid in connection with any Change in Control and (ii) the highest price per
share of the Company's Common Stock paid pursuant to an unsolicited brokerage
transaction during the 60-day period prior to the Change in Control.
3.05. Form of Payment.
Payment of the amount to which an Optionee is entitled upon
the exercise of Limited Rights, as determined pursuant to Section 3.04, shall be
made solely in cash.
3.06. Effect of Exercise.
If Limited Rights are exercised, the Stock Options related to
such Limited Rights cease to be exercisable to the extent of the number of
shares with respect to which the Limited Rights were exercised. Upon the
exercise or termination of the Options related to such Limited Rights, the
Limited Rights granted with respect thereto terminate to the
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<PAGE>
extent of the number of shares as to which the related Options
were exercised or terminated.
3.07. Retirement or Disability.
Upon termination of the Optionee's employment with the Company
by reason of permanent disability or retirement (as each is determined by the
Committee), the Optionee may, within 36 months from the date of termination,
exercise any Limited Right to the extent such Limited Right is otherwise
exercisable during such 36-month period.
3.08. Death of Optionee or Termination for Other Reasons.
Except as provided in Section 3.07, or except as otherwise
determined by the Committee, all Limited Rights granted under the Plan shall
terminate upon the termination of the Optionee's employment with the Company, or
upon the death of the Optionee.
ARTICLE IV -- MISCELLANEOUS
4.01. General Restriction.
Each award under the Plan shall be subject to the requirement
that, if at any time the Committee shall determine that (i) the listing,
registration or qualification of the shares of Common Stock subject or related
thereto upon any securities exchange or under any state or federal law, or (ii)
the consent or approval of any government regulatory body, or (iii) an agreement
by the grantee of an award with respect to the disposition of shares of Common
Stock, is necessary or desirable as a condition of, or in connection with, the
granting of such award or the issue or purchase of shares of Common Stock
thereunder, such award may not be consummated in whole or in part unless such
listing, registration, qualification, consent, approval or agreement shall have
been effected or obtained free of any conditions not acceptable to the
Committee.
4.02. Non-Assignability.
No award under the Plan shall be assignable or transferable by
the recipient thereof, except by will or by the laws of descent and
distribution, or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended. During the life of the recipient, such award shall be exercisable only
by such person or by such person's guardian or legal representative.
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<PAGE>
4.03. Right to Terminate Employment.
Nothing in the Plan or in any agreement entered into pursuant
to the Plan shall confer upon any participant the right to continue in the
employment of the Company or effect any right which the Company may have to
terminate the employment of such participant.
4.04. Non-Uniform Determinations.
The Committee's determinations under the Plan (including
without limitation determinations of the persons to receive awards, the form,
amount and timing of such awards, the terms and provisions of such awards and
the agreements evidencing same) need not be uniform and may be made by it
selectively among persons who receive, or are eligible to receive, awards under
the Plan, whether or not such persons are similarly situated.
4.05. Rights as a Shareholder.
The recipient of any award under the Plan shall have no rights
as a shareholder with respect thereto unless and until certificates for shares
of Common Stock are issued to him.
4.06. Definitions.
In this Plan the following definitions (along with other
definitions set forth elsewhere in the Plan) shall apply:
(a) "Affiliate" means any person or entity which directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with ABI.
(b) "Fair Market Value" means, as of any date, the
value of Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national
market system, including without limita-
tion the National Market System of the
National Association of Securities Deal-
ers, Inc. Automated Quotation ("NASDAQ")
System, the Fair Market Value of a Share
of Common Stock shall be the closing
sales price for such stock (or the clos-
ing bid, if no sales were reported) as
quoted on such system or exchange (or the
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<PAGE>
exchange with the greatest volume of trading
in Common Stock) on the date of grant, as
reported in The Wall Street Journal or such
other source as the Board deems reliable;
(ii) If the Common Stock is quoted on the
NASDAQ System (but not on the National
Market System thereof) or regularly quot-
ed by a recognized securities dealer but
selling prices are not reported, the Fair
Market Value of a Share of Common Stock
shall be the mean between the bid and
asked prices for the Common Stock on the
last market trading day prior to the day
of determination, as reported in The Wall
--------
Street Journal or such other source as
--------------
the Board deems reliable; or
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value
thereof shall be determined in good faith by
the Committee.
(c) "Option" means Incentive Stock Option.
(d) "Option Price" means the purchase price per
share of Common Stock deliverable upon the exercise of an
Incentive Stock Option.
(e) "Subsidiary" means any corporation of which, at the time
more than 50% of the shares entitled to vote generally in an election of
directors are owned directly or indirectly by ABI or any Subsidiary thereof.
4.07. Leaves of Absence.
The Committee shall be entitled to make such rules,
regulations and determinations as it deems appropriate under the Plan in respect
of any leave of absence taken by the recipient of any award. Without limiting
the generality of the foregoing, the Committee shall be entitled to determine
(i) whether or not any such leave of absence shall constitute a termination of
employment within the meaning of the Plan and (ii) the impact, if any, of any
such leave of absence on awards under the Plan theretofore made to any recipient
who takes such leave of absence.
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<PAGE>
4.08. Newly Eligible Employees.
The Committee shall be entitled to make such rules,
regulations, determinations and awards as it deems appropriate in respect of any
employee who becomes eligible to participate in the Plan or any portion thereof
after the commencement of an award or incentive period.
4.09. Adjustments.
In the event of any change in the outstanding Common Stock by
reason of a stock dividend or distribution, recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like, the
Committee shall appropriately adjust the number of shares of Common Stock which
may be issued under the Plan, the number of shares of Common Stock subject to
Options theretofore granted under the Plan, the Option Price of Options
theretofore granted under the Plan, the amount and terms of any Limited Rights
theretofore awarded under the Plan, and any and all other matters deemed
appropriate by the Committee.
4.10. Amendment of the Plan.
(a) The Committee may, without further action by the
shareholders and without receiving further consideration from the participants,
amend this Plan or condition or modify awards under this Plan in response to
changes in securities or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Plan or to comply with stock exchange
rules or requirements.
(b) The Committee may at any time and from time to time
terminate or modify or amend the Plan in any respect, except that without
shareholder approval the Committee may not (i) increase the maximum number of
shares of Common Stock which may be issued under the Plan (other than increases
pursuant to Section 4.10), (ii) extend the period during which any award may be
granted or exercised, or (iii) extend the term of the Plan. The termination or
any modification or amendment of the Plan, except as provided in subsection (a),
shall not without the consent of a participant, affect his or her rights under
an award previously granted to him or her.
4.11. Disposition of Option Shares; Withholding Taxes.
Upon the disposition (within the meaning of Code Section
424(c)) of shares of Common Stock acquired pursuant to the exercise of an
Incentive Stock Option prior to the expiration of the holding period
requirements of Code Section 422(a)(1), the Optionee shall be required to give
notice to
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<PAGE>
the Company of such disposition and the Company shall have the right to require
the Optionee to pay to the Company the amount of any taxes that are required by
law to be withheld with respect to such disposition.
-14-
AMARILLO BIOSCIENCES, INC.
OUTSIDE DIRECTOR AND ADVISOR STOCK OPTION PLAN
ARTICLE I -- GENERAL
1.01. Purposes.
The purposes of this Outside Director and Advisor Stock Option
Plan (the "Plan") are to: (1) closely associate the interests of the Outside
Directors and Scientific Advisors of AMARILLO BIOSCIENCES, INC. ("ABI") and its
Subsidiaries and Affiliates (collectively referred to as the "Company") with the
shareholders by reinforcing the relationship between participants' rewards and
shareholder gains; (2) provide ABI's Outside Directors and Scientific Advisors
with an equity ownership in the Company commensurate with Company performance,
as reflected in increased shareholder value; and (3) provide an incentive to
Outside Directors and Scientific Advisors for continuous association with the
Company. The Plan is not an incentive stock option plan within the meaning of
Section 422 of the Internal Revenue Code of 1986 (the "Code").
1.02. Administration of the Plan.
(a) The Plan shall be administered by a Committee of persons
appointed by the Board of Directors of ABI (the "Committee"), as constituted
from time to time. The Committee shall consist of at least two members of the
Board.
(b) The Committee shall have the authority, in its sole
discretion and from time to time, to interpret the Plan, adopt, amend and
rescind rules and regulations relating to the Plan, and make all other
determinations and take all other action necessary or advisable for the
implementation and administration of the Plan.
(c) Decisions and determinations of the Committee on all
matters relating to the Plan shall be conclusive. No member of the Committee
shall be liable for any action taken or decision made in good faith relating to
the Plan or any award thereunder.
(d) The foregoing provisions of this Section 1.02
notwithstanding, all Options granted under this Plan shall be automatic and
non-discretionary, shall be made as set forth in Article II ("Stock Options"),
and neither the Committee nor the Board of Directors of the Company nor any
other person shall have any discretion to select which Outside Directors and/or
Scientific Advisors shall be granted Options, or to
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<PAGE>
determine the number of shares to be covered by Options
granted to such persons.
(e) With respect to persons subject to Section 16 of the 1934
Act, transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successor under the 1934 Act. To the extent any
provision of the Plan or action by the Board of Directors or the Committee fails
to so comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Board of Directors or the Committee, as applicable.
(f) All usual and reasonable expenses of the Committee shall
be paid by the Company, and no member shall receive compensation with respect to
his services for the Committee except as may be authorized by the Board of
Directors. The Board of Directors and the Committee may employ attorneys,
consultants, accountants or other persons, and the Board of Directors, the
Committee, the Company and its officers and directors shall be entitled to rely
upon the advice, opinions or valuations of any such persons. All actions taken
and all interpretations and determinations made by the Board of Directors or the
Committee in good faith shall be final and binding upon all person who have
received awards, and upon the Company and all other interested persons. No
member of Board of Directors or the Committee shall be personally liable for any
action, determination, or interpretation taken or made in good faith with
respect to the Plan or awards made thereunder, and the Company shall indemnify
and hold harmless each member of the Board of Directors or the Committee against
all loss, cost, expenses or damages, occasioned by any act or omission to act in
connection with any such action, determination or interpretation under or of the
Plan, consistent with the Company's certificate of incorporation and bylaws.
1.03. Awards Under Plan.
Each award under the Plan will include both:
(i) Stock Options, as described in Article
II; and
(ii) Limited Rights, as described in Article
III.
1.04. Aggregate Limitation on Awards.
(a) Shares of stock which may be issued under the
Plan shall be authorized and unissued or treasury shares of
Common Stock of ABI ("Common Stock"). The maximum number of
-2-
<PAGE>
shares of Common Stock which may be issued under the Plan shall be one hundred
thousand (100,000) shares.
(b) In addition to shares of Common Stock actually issued
pursuant to the exercise of Stock Options, there shall be deemed to have been
issued a number of shares equal to the number of shares of Common Stock in
respect of which Limited Rights (as described in Article III) shall have been
exercised.
(c) Any shares of Common Stock subject to a Stock Option which
for any reason is terminated unexercised or expires shall again be available for
issuance under the Plan, but shares subject to a Stock Option which are not
issued as a result of the exercise of Limited Rights shall not again be
available for issuance under the Plan.
1.05. Effective Date and Term of Plan.
(a) The Plan shall become effective on the date approved by
the holders of a majority of the shares of Common Stock present in person or by
proxy and entitled to vote at the 1996 Annual Meeting of Shareholders of ABI.
(b) No awards shall be made under the Plan after the last day
of the Company's 2001 fiscal year provided, however, that the Plan and all
awards made under the Plan prior to such date shall remain in effect until such
awards have been satisfied or terminated in accordance with the Plan and the
terms of such awards.
ARTICLE II -- STOCK OPTIONS
2.01. Award of Stock Options.
All grants of Stock Options to Outside Directors and/or
Scientific Advisors under the Plan shall be automatic and non-discretionary and
shall be made strictly in accordance with the following provisions:
(a) No person shall have any discretion to select which
Outside Directors and/or Scientific Advisors shall be granted Stock Options or
to determine the number of shares to be covered by Options granted to such
persons.
(b) Each person serving as an Outside Director on the date the
Plan becomes effective pursuant to Section 1.05(a) above, shall be awarded an
Option to purchase ten thousand (10,000) shares. The effective date of such
awards shall be the first business day following the acceleration of
effectiveness of ABI's 1996 registration statement, under the
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<PAGE>
Securities Act of 1933, registering 2,000,000 shares of Common Stock for sale to
the public. Each Outside Director not so serving on the date the Plan becomes
effective shall be automatically granted an Option to purchase ten thousand
(10,000) shares on the date on which such person first becomes an Outside
Director, whether through election by the shareholders of the Company or
appointment by the Board to fill a vacancy; provided, however, that if such
Outside Director assumes such position prior to the effective date of ABI's
registration statement described above, the effective date of the award shall be
the first business day following the acceleration of effectiveness of such
registration statement. The foregoing notwithstanding, any Outside Director who
has previously received an Option award as a Scientific Advisor under Section
2.01(c), below, shall be awarded, in his capacity as an Outside Director, an
Option to purchase only five thousand (5,000) shares, instead of ten thousand
(10,000) shares.
(c) Each person serving as an Scientific Advisor on the date
the Plan becomes effective pursuant to Section 1.05(a) above, who is not also
serving as an Outside Director, shall be awarded an Option to purchase five
thousand (5,000) shares. The effective date of such awards shall be the first
business day following the acceleration of effectiveness of ABI's 1996
registration statement, under the Securities act of 1933, registering 2,000,000
shares of Common Stock for sale to the public. Each Scientific Advisor not so
serving on the date the Plan becomes effective shall be automatically granted an
Option to purchase five thousand (5,000) shares on the date on which such person
first becomes a Scientific Advisor; provided, however, that if such Scientific
Advisor assumes such position prior to the effective date of ABI's registration
statement described above, the effective date of the award shall be the first
business day following the acceleration of effectiveness of such registration
statement. The foregoing notwithstanding, any Scientific Advisor who has
previously received an Option award as an Outside Director shall not be awarded
any additional Options as a Scientific Advisor.
(d) In the event any Option granted under the Plan would cause
the number of shares subject to outstanding Options plus the number of shares
previously purchased under Options to exceed the total number of shares
available for issuance under the Plan, then the remaining Options shall be
granted to persons qualifying for same, on a pro rata basis, and no further
grants shall be made until such time, if any, as additional shares become
available for grant under the Plan through action of the shareholders to
increase the number of
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<PAGE>
shares which may be issued under the Plan or through cancellation or expiration
of Options previously granted hereunder.
(e) Options may be granted only to Outside Directors and/or
Scientific Advisors. All Options shall be automatically granted in accordance
with the terms of this Section 2.01.
(f) Options granted under the Plan shall comply with the
applicable provisions of Rule 16b-3 promulgated under the Securities and
Exchange Act of 1934 (the "Exchange Act"), or any successor provisions thereto,
and shall contain such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
2.02. Stock Option Agreements.
The grant of a Stock Option shall be evidenced by a written
Stock Option Agreement, executed by the Company and the holder of a Stock Option
(the "Optionee"), stating the number of shares of Common Stock subject to the
Stock Option evidenced thereby, and in such form as the Committee may from time
to time determine.
2.03. Stock Option Price.
The Option Price per share of Common Stock deliverable upon
the exercise of a Stock Option shall be 100% of the Fair Market Value of a share
of Common Stock on the date the Stock Option is granted.
2.04. Term and Exercise.
Each Stock Option may be exercised during a period of ten
years from the date of grant thereof (the "Option Term"), subject to the vesting
schedule set forth below. No Stock Option shall be exercisable after the
expiration of its Option Term.
Vesting Schedule. Options awarded shall be exercisable,
subject to the other terms and conditions of the Plan, only upon the expiration
of the designated number of years of active association with the Company as an
Outside Director or Scientific Advisor, from date of award, as provided below:
20% of Options awarded - 1 year
40% of Options awarded - 2 years
60% of Options awarded - 3 years
80% of Options awarded - 4 years
100% of Options awarded - 5 years
-5-
<PAGE>
2.05. Manner of Payment.
Each Stock Option Agreement shall set forth the procedure
governing the exercise of the Stock Option granted thereunder, and shall provide
that, upon such exercise in respect of any shares of Common Stock subject
thereto, the Optionee shall pay to the Company, in full, the Option Price for
such shares with cash or in shares of the Common Stock, valued at the Fair
Market Value per Share on the date of exercise.
2.06. Issuance of Shares.
As soon as practicable after receipt of payment, the Company
shall deliver to the Optionee a certificate or certificates for such shares of
Common Stock. The Optionee shall become a shareholder of the Company with
respect to Common Stock represented by share certificates so issued and as such
shall be fully entitled to receive dividends, to vote and to exercise all other
rights of a shareholder.
2.07. Death of Optionee.
(a) Upon the death of the Optionee, any rights to the extent
exercisable on the date of death may be exercised by the Optionee's estate, or
by a person who acquires the right to exercise such Stock Option by bequest or
inheritance or by reason of the death of the Optionee, provided that such
exercise occurs within both the remaining effective term of the Stock Option and
one year after the Optionee's death.
(b) The provisions of this Section shall apply notwithstanding
the fact that the Optionee's association may have terminated prior to death, but
only to the extent of any rights exercisable on the date of death.
2.08. Disability.
Upon termination of the Optionee's association by reason of
permanent disability (as defined herein), the Optionee may, within 36 months
from the date of termination, exercise any Stock Options to the extent such
Options are exercisable during such 36-month period. Notwithstanding the
foregoing, the tax treatment available pursuant to Section 422 of the Code upon
the exercise of an Incentive Stock Option will not be available to an Optionee
who exercises any Incentive Stock Options more than (i) 12 months after the date
of termination of employment due to permanent disability or (ii) three months
after the date of termination of employment due to retirement. For purposes
hereof, "permanent disabili-
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<PAGE>
ty" shall have the meaning set forth in Section 22(e)(3) of the Code or any
successor provision thereto.
2.09. Termination for Other Reasons.
Except as provided in Sections 2.07 and 2.08, or except as
otherwise determined by the Committee, all Stock Options shall terminate upon
the termination of the Optionee's association with the Company as an Outside
Director or Scientific Advisor; provided, however, that if the Optionee's
association was involuntarily terminated (with or without cause), Optionee may
exercise, during a 90-day period commencing with date of termination, all
Options theretofore vested, or which vest during said 90-day period, under the
Vesting Schedule set forth in Paragraph 2.04, above. At the end of the 90-day
period, all rights of such Optionee under any then outstanding option or right
shall terminate and shall be forfeited immediately as to any unexercised portion
thereof.
2.10. Effect of Exercise.
The exercise of any Stock Option shall cancel that number of
related Limited Rights, if any, which is equal to the number of shares of Common
Stock purchased pursuant to said Option.
2.11. Rule 16b-3 Exemption.
Options granted under the Plan shall comply with the
applicable provisions of Rule 16b-3 promulgated under the Securities and
Exchange Act of 1934 (the "Exchange Act"), or any successor provisions thereto,
and shall contain such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
ARTICLE III -- LIMITED RIGHTS
3.01. Award of Limited Rights.
Concurrently with the award of each Stock Option, there shall
automatically be awarded to the Optionee, with respect to each Option, a related
limited right permitting the Optionee, during a specified limited time period,
to be paid the appreciation on the Common Stock in lieu of exercising the Option
("Limited Right").
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<PAGE>
3.02. Limited Rights Agreement.
Limited Rights granted under the Plan shall be evidenced by
written agreements in such form as the Committee may from time to time
determine.
3.03. Exercise Period.
Limited Rights shall (and must) be exercised immediately
preceding or simultaneous with the date of a Change in Control of ABI (the
"Exercise Period"), and all Limited Rights held by the Optionee shall be
exercised during such Exercise Period, without regard to the Vesting Schedule
set forth in Paragraph 2.04; provided, however, that if a Change in Control
shall have occurred without notice or opportunity for exercise of Limited
Rights, then the Limited Rights shall be exercised as soon as practicable after
a determination has been made that a "Change in Control" has occurred, or has
been deemed to have occurred.
As used in the Plan, a "Change in Control" shall be
deemed to have occurred if
(a) individuals who were directors of ABI immediately prior to
a Control Transaction shall cease, within one year of such Control Transaction,
to constitute a majority of the Board of Directors of ABI (or of the Board of
Directors of any successor to ABI or to all or substantially all of its assets),
or
(b) any entity, person or Group other than ABI or a Subsidiary
of ABI or Hayashibara Biochemical Laboratories, Inc. or an Affiliate thereof
acquires shares of ABI in a transaction or series of transactions that result in
such entity, person or Group directly or indirectly owning beneficially
fifty-one percent (51%) or more of the outstanding shares.
As used herein, "Control Transaction" shall be
(i) any tender offer for or acquisition of
capital stock of ABI,
(ii) any merger, consolidation, or sale of all
or substantially all of the assets of ABI
which has been approved by the sharehold-
ers,
(iii) any contested election of directors of
ABI, or
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<PAGE>
(iv) any combination of the foregoing;
which results in a change in voting power sufficient to elect a majority of the
Board of Directors of ABI. As used herein, "Group" shall mean persons who act in
concert as described in Sections 13(d)(3) and/or 14(d)(2) of the Securities
Exchange
Act of 1934, as amended.
3.04. Amount of Payment.
The amount of payment to which an Optionee shall be entitled
upon the exercise of each Limited Right shall be equal to 100% of the amount, if
any, which is equal to the difference between the Fair Market Value per share of
Common Stock covered by the related Option on the date the Option was granted
and the Market Price of a share of such Common Stock. Market Price is defined to
be the greater of (i) the highest price per share of the Company's Common Stock
paid in connection with any Change in Control and (ii) the highest price per
share of the Company's Common Stock paid pursuant to an unsolicited brokerage
transaction during the 60-day period prior to the Change in Control.
3.05. Form of Payment.
Payment of the amount to which an Optionee is entitled upon
the exercise of Limited Rights, as determined pursuant to Section 3.04, shall be
made solely in cash.
3.06. Effect of Exercise.
If Limited Rights are exercised, the Stock Options related to
such Limited Rights cease to be exercisable to the extent of the number of
shares with respect to which the Limited Rights were exercised. Upon the
exercise or termination of the Options related to such Limited Rights, the
Limited Rights granted with respect thereto terminate to the extent of the
number of shares as to which the related Options were exercised or terminated.
3.07. Disability.
Upon termination of the Optionee's association with the
Company as either an Outside Director or Scientific Advisor by reason of
permanent disability (as determined by the Committee), the Optionee may, within
36 months from the date of termination, exercise any Limited Right to the extent
such Limited Right is otherwise exercisable during such 36- month period.
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<PAGE>
3.08. Death of Optionee or Termination for Other Reasons.
Except as provided in Section 3.07, or except as otherwise
determined by the Committee, all Limited Rights granted under the Plan shall
terminate upon the termination of the Optionee's association with the Company as
either an Outside Director or Scientific Advisor or upon the death of the
Optionee.
ARTICLE IV -- MISCELLANEOUS
4.01. General Restriction.
Each award under the Plan shall be subject to the requirement
that, if at any time the Committee shall determine that (i) the listing,
registration or qualification of the shares of Common Stock subject or related
thereto upon any securities exchange or under any state or federal law, or (ii)
the consent or approval of any government regulatory body, or (iii) an agreement
by the grantee of an award with respect to the disposition of shares of Common
Stock, is necessary or desirable as a condition of, or in connection with, the
granting of such award or the issue or purchase of shares of Common Stock
thereunder, such award may not be consummated in whole or in part unless such
listing, registration, qualification, consent, approval or agreement shall have
been effected or obtained free of any conditions not acceptable to the
Committee.
4.02. Non-Assignability.
No award under the Plan shall be assignable or transferable by
the recipient thereof, except by will or by the laws of descent and
distribution, or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended. During the life of the recipient, such award shall be exercisable only
by such person or by such person's guardian or legal representative.
4.03. Right to Terminate Association.
Nothing in the Plan or in any agreement entered into pursuant
to the Plan shall confer upon any participant the right to continue in
association with the Company or affect any right which the Company or the
shareholders of the Company may have to terminate the association of such
participant.
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<PAGE>
4.04. Rights as a Shareholder.
The recipient of any award under the Plan shall have no rights
as a shareholder with respect thereto unless and until certificates for shares
of Common Stock are issued to him.
4.05. Definitions.
In this Plan the following definitions (along with other
definitions elsewhere set forth in the Plan) shall apply:
(a) "Affiliate" means any person or entity which directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with ABI.
(b) "Board" means the Board of Directors of ABI.
(c) "Fair Market Value" means, as of any date, the
value of Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national
market system, including without limita-
tion the National Market System of the
National Association of Securities Deal-
ers, Inc. Automated Quotation ("NASDAQ")
System, the Fair Market Value of a Share
of Common Stock shall be the closing
sales price for such stock (or the clos-
ing bid, if no sales were reported) as
quoted on such system or exchange (or the
exchange with the greatest volume of
trading in Common Stock) on the date of
grant, as reported in The Wall Street
---------------
Journal or such other source as the Board
-------
deems reliable;
(ii) If the Common Stock is quoted on the
NASDAQ System (but not on the National
Market System thereof) or regularly quot-
ed by a recognized securities dealer but
selling prices are not reported, the Fair
Market Value of a Share of Common Stock
shall be the mean between the bid and
asked prices for the Common Stock on the
last market trading day prior to the day
of determination, as reported in The Wall
--------
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<PAGE>
Street Journal or such other source as
the Board deems reliable; or
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value
thereof shall be determined in good faith by
the Committee.
(d) "Option" or "Stock Option" means all or any
Options granted under the Plan.
(e) "Option Price" means the purchase price per share of
Common Stock deliverable upon the exercise of a Stock Option.
(f) "Outside Director" means a director of ABI, who
is not an employee of the Company.
(g) "Scientific Advisor" means a person named by
the Board of Directors of ABI to serve on the Company's Board
of Scientific Advisors.
(h) "Shares" or "shares," unless otherwise speci-
fied, shall mean shares of Common Stock.
(i) "Subsidiary" means any corporation of which, at the time,
more than 50% of the shares entitled to vote generally in an election of
directors are owned directly or indirectly by ABI or any Subsidiary thereof.
4.06. Adjustments.
In the event of any change in the outstanding Common Stock by
reason of a stock dividend or distribution, recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like, the
Committee shall appropriately adjust the number of shares of Common Stock which
may be issued under the Plan, the number of shares of Common Stock subject to
Options theretofore granted under the Plan, the Option Price of Options
theretofore granted under the Plan, the amount and terms of any Limited Rights
theretofore awarded under the Plan, and any and all other matters deemed
appropriate by the Committee.
4.07. Amendment of the Plan.
(a) The Committee may, without further action by the
shareholders and without receiving further consideration from the participants,
amend this Plan or condition or modify awards under this Plan in response to
changes in securities or other laws or rules, regulations or regulatory
interpretations
-12-
<PAGE>
thereof applicable to this Plan or to comply with stock exchange rules or
requirements.
(b) The Committee may at any time and from time to time
terminate or modify or amend the Plan in any respect, except that the Committee
may not (i) increase the maximum number of shares of Common Stock which may be
issued under the Plan, (ii) extend the period during which any Option or Limited
Right may be exercised, (iii) extend the term of the Plan, (iv) modify in any
way the terms of the Plan which affect the automatic award of Options or Limited
Rights, or (v) award any Options or Limited Rights. The termination or any
modification or amendment of the Plan, except as provided in subsection (a),
shall not without the consent of a participant affect his rights under an award
previously granted to him.
(c) Notwithstanding subparagraphs (a) and (b), this Plan may
not be amended more than once every six (6) months other than to comport with
changes in the Code, the Employee Retirement Security Act of 1974, or the rules
thereunder.
-13-
AMARILLO BIOSCIENCES, INC.
800 West 9th Avenue
Amarillo, Texas 79101
Name
Address
City, State
Dear Mr. :
In consideration of your continued service as an officer and/or
director of Amarillo Biosciences, Inc. (the "Company"), the Company shall to the
extent provided herein indemnify you and hold you harmless from and against any
and all "Losses" (as defined below) which you may incur by reason of your
election or service as a director, officer, employee, agent, fiduciary or
representative of the Company or any "Related Entity" (as defined below) to the
fullest extent permitted by law.
1. (a) "Losses" mean all liabilities, "Costs and Expenses" (as
defined below), amounts of judgments, fines, penalties or excise taxes (or other
amounts assessed, surcharged or levied under the Employee Retirement Income
Security Act of 1974, as amended) and amounts paid in settlement of or incurred
in defense of any settlement in connection with any threatened, pending or
completed claim, action, suit or proceeding, whether civil, criminal,
administrative or investigative, and whether brought by or in the right of the
Company or otherwise, and appeals in which you may become involved, as a party
or otherwise, by reason of acts or omissions in your capacity as and while
serving as a director, officer, employee, agent, fiduciary or representative of
the Company or any Related Entity.
(b) A "Related Entity" means any corporation, partnership, joint
venture, trust or other entity or enterprise in which the Company is in any way
interested, or in or as to which you are serving at the Company's request or on
its behalf, as a director, officer, employee, agent, fiduciary or representative
including, but not limited to, any employee benefit plan or any corporation of
which the Company or any Related Entity is, directly or indirectly, a
stockholder or creditor.
(c) "Costs and Expenses" means all reasonable costs and expenses
incurred by you in investigating, defending or appealing any threatened, pending
or completed claim, action, suit or proceeding including, without limitation,
counsel fees and disbursements.
2. Costs and Expenses shall be paid promptly by the Company as
they are incurred or shall be advanced on your behalf as may be appropriate
against delivery of invoices therefor (whether or not it may ultimately be
determined that you are entitled to be indemnified
3358_1
1
<PAGE>
by the Company on account thereof); provided, however, that if it shall
ultimately be determined by final decision of a court of competent jurisdiction
that you are not entitled to be indemnified on account of any Costs or Expenses
for which you have theretofore received payment or reimbursement, you shall
promptly repay such amount to the Company.
3. The Company shall indemnify you and hold you harmless from
and against any and all Losses which you may incur if you are a party to or
threatened to be made a party to or otherwise involved in any proceeding or
action (other than a proceeding or action by or in the right of the Company to
procure a judgment in its favor), unless it is determined that you did not act
in good faith and in a manner reasonably believed by you to be in, or not
opposed to, the best interests of the Company and, in the case of a criminal
proceeding or action, in addition, that you had reasonable cause to believe that
your conduct was unlawful.
4. The Company shall indemnify you and hold you harmless from
and against any and all Losses which you may incur if you are a party to or
threatened to be made a party to any proceeding or action by or in the right of
the Company to procure a judgment in its favor, unless it is determined that you
did not act in good faith and in a manner reasonably believed by you to be in,
or not opposed to, the best interests of the Company, except that no
indemnification for Losses shall be made under this Paragraph 4 in respect of
any claim, issue or matter as to which you shall have been adjudged to be liable
to the Company, unless and only to the extent that any court in which such
action or proceeding was brought shall determine upon application that, despite
the adjudication of liability, but in view of all the circumstances of the
matter, you are fairly and reasonably entitled to indemnity for such expenses as
such court shall deem proper.
5. Anything hereinabove to the contrary notwithstanding,
"Losses" shall not include, and you shall not be entitled to indemnification
under this agreement on account of (i) amounts payable by you to the Company or
any Related Entity in satisfaction of any judgment or settlement in the
Company's or such Related Entity's favor, or any amount payable on account of
profits realized by you in the purchase or sale of securities of the Company or
any Related Entity within the meaning of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or similar provisions of state law; (ii)
Losses in connection with which it is otherwise determined that you are not
entitled to indemnification as a matter of law or public policy; or (iii) Losses
to the extent you are indemnified by the Company otherwise than pursuant to this
Agreement, including any Losses for which payment is made to you under an
insurance policy.
6. Termination of any action, suit or proceeding by judgment,
order, settlement or conviction, upon a plea of nolo contendere or its
equivalent will not, of itself, create any presumption that you did not act in
good faith and in a manner which you reasonably believed to be in or not opposed
to the best interest of the Company or a Related Entity and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that your
conduct was unlawful. The determination that you are not entitled to be
indemnified for Losses hereunder by reason of the provisions of Paragraphs 3 or
4 or clause (ii) of Paragraph 5 may
3358_1
2
<PAGE>
be made either by the Company's Board of Directors (by majority vote of
disinterested directors or directors who are not parties to or the subject of
the same or any similar claim, action, suit or proceeding), by independent legal
counsel (who may be the outside counsel regularly employed by the Company) or by
the stockholders of the Company, as the Company's Board of Directors shall
determine.
7. The right to indemnification or advances of Costs and
Expenses as provided in this Agreement shall be enforceable by you in any court
of competent jurisdiction. The burden of proving that indemnification is not
appropriate shall be on the Company. Neither the failure of the Company
(including its Board of Directors or independent legal counsel) to have made a
determination prior to the commencement of such action that indemnification is
proper in the circumstances because you have met the applicable standard of
conduct, nor an actual determination by the Company (including its Board of
Directors or independent legal counsel) that you have not met such applicable
standard of conduct shall be a defense to the action or create a presumption
that you have not met the applicable standard of conduct. Costs and expenses,
including counsel fees, reasonably incurred by you in connection with
successfully establishing your right to indemnification, in whole or in part, in
any such action shall also be indemnified by the Company.
8. You agree to give prompt notice to the Company of any claim
with respect to which you seek indemnification and, unless a conflict of
interest shall exist between you and the Company with respect to such claim, you
will permit the Company to assume the defense of such claim with counsel of its
choice. Whether or not such defense is assumed by the Company, the Company will
not be subject to any liability for any settlement made without its consent. The
Company will not consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to you a release from all liability with respect to such
claim or litigation. If the Company is not entitled to, or does not elect to,
assume the defense of a claim, the Company will not be obligated to pay the fees
and expenses of more than one counsel for you and any other directors or
officers of the Company who are indemnified pursuant to similar indemnity
agreements with respect to such claim, unless a conflict of interest shall exist
between such indemnified party and any other of such indemnified parties with
respect to such claim, in which event the Company will be obligated to pay the
fees and expenses of an additional counsel for each indemnified party or group
of indemnified parties with whom a conflict of interest exists.
9. The Company's obligation to indemnify you under this
Agreement is in addition to any other rights to which you may otherwise be
entitled by operation of law, vote of the Company's stockholders or directors or
otherwise and will be available to you whether or not the claim asserted against
you is based upon matters which occurred before the date of this Agreement.
10. The obligation of the Company to indemnify you with respect
to Losses which you may incur by reason of your service as a director, officer,
employee, agent,
3358_1
3
<PAGE>
fiduciary or representative of the Company or a Related Entity, as provided
under this Agreement, shall survive the termination of your service in such
capacities and shall inure to the benefit of your heirs, executors and
administrators.
11. If you are entitled under this Agreement or otherwise to
indemnification by the Company for some or a portion of the Losses actually and
reasonably incurred by you but not, however, for the total amount thereof, the
Company shall nevertheless indemnify you for the portion of the Losses to which
you are entitled.
12. It is the intention of the parties to this Agreement to
provide for indemnification in all cases and under all circumstances where to do
so would not violate applicable law (and notwithstanding any limitations
permitted, but not required by statute) and the terms and provisions of this
Agreement shall be interpreted and construed consistent with that intention.
Nonetheless, if any provision of this Agreement or any indemnification made
under this Agreement shall for any reason be determined by any court of
competent jurisdiction to be invalid, unlawful or unenforceable under current or
future laws, such provision shall be fully severable and the remaining
provisions of this agreement shall not otherwise be affected thereby, but will
remain in full force and effect and, to the fullest extent possible, shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or nonenforceable.
13. No amendment, modification, termination or cancellation of
this Agreement shall be effective unless in writing signed by both the Company
and you.
14. This Agreement shall be governed by the laws of the state of
Texas without giving effect to the principles of conflict of laws.
Your signature below will evidence your agreement and acceptance
with respect to the foregoing.
Very truly yours,
AMARILLO BIOSCIENCES, INC.
By:___________________________
[Name]
AGREED TO AND ACCEPTED:
_____________________________
[Name]
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4
<PAGE>
CONSULTING AGREEMENT
____________, 1996
Amarillo Biosciences, Inc.
800 West 9th Avenue
Amarillo, Texas 79101
Attention: Dr. Joseph M. Cummins, President
Dear Dr. Cummins:
This will confirm the arrangements, terms and conditions
pursuant to which Whale Securities Co., L.P., (the "Consultant"), has been
retained to serve as a financial consultant and advisor to Amarillo Biosciences,
Inc., a Texas corporation (the "Company"), on a non-exclusive basis for a period
of two (2) years commencing on ________________, 1996 [the Closing Date]. The
undersigned hereby agrees to the following terms and conditions:
1. Duties of Consultant. Consultant shall, at the request of
the Company, upon reasonable notice, render the following services to the
Company from time to time:
(a) Consulting Services. Consultant will provide
such financial consulting services and advice pertaining to the Company's
business affairs as the Company may from time to time reasonably request.
Without limiting the generality of the foregoing, Consultant will assist the
Company in developing, studying and evaluating financing and merger and
acquisition proposals based upon documentary information provided to the
Consultant by the Company.
(b) Financing. Consultant will assist and represent
the Company in obtaining both short and long-term financing. The Consultant will
be entitled to additional compensation under certain circumstances in accordance
with the terms set forth in Section 3 hereof.
(c) Wall Street Liaison. Consultant will, when
appropriate, arrange meetings between representatives of the Company and
individuals and financial institutions in the investment community, such as
security analysts, portfolio managers and market makers.
The services described in this Section 1 shall be rendered by
Consultant without any direct supervision by the Company and at such time and
place and in such manner (whether by conference, telephone, letter or otherwise)
as Consultant may determine.
<PAGE>
2. Compensation. As compensation for Consultant's services
hereunder, the Company shall pay to Consultant an annual fee of Thirty Thousand
Dollars ($30,000) payable in full, in advance, with the first payment due on
__________________, 1996 [the Closing Date].
3. Additional Compensation in Certain Circumstances. In
addition to the financial consulting services described in Section 1 above,
Consultant may bring the Company in contact with persons, whether individuals or
entities, that may be suitable candidates for providing the Company with, or may
lead the Company to other individuals or entities that may provide the Company
with, debt or equity financing or that may be suitable candidates, or may lead
the Company to such suitable candidates, to purchase substantially all of the
stock or assets of the Company, merge with the Company, or enter into a joint
venture or other transaction with the Company. If, at any time up until the
second anniversary of the date hereof, the Company enters into an agreement with
any such persons or their affiliates, or with any persons introduced to the
Company by any such persons or their affiliates, pursuant to which the Company
obtains debt or equity financing or pursuant to which substantially all of the
Company's stock or assets is purchased or the Company is merged with or into
another entity, or pursuant to which the Company enters into a joint venture or
other transaction, the Company will pay to Consultant, in accordance with the
formula set forth below, additional compensation based on the aggregate of all
proceeds received by the Company (the "Consideration") in such transaction (the
"Transaction").
The additional compensation to be paid will be paid upon the
closing of the Transaction, by certified check, in the following amounts:
5% of the first $5,000,000 of the consideration paid in
the Transaction;
4% of the consideration in excess of $5,000,000 and up
to $6,000,000;
3% of the consideration in excess of $6,000,000 and up
to $7,000,000;
2% of the consideration in excess of $7,000,000 and up
to $8,000,000; and
1% of any consideration in excess of $8,000,000.
<PAGE>
4. Available Time. Consultant shall make available such time
as it, in its sole discretion, shall deem appropriate for the performance of its
obligations under this agreement and may in certain circumstances be entitled to
additional compensation in connection therewith.
5. Relationship. Nothing herein shall constitute Consultant as
an employee or agent of the Company, except to such extent as might hereinafter
be agreed upon for a particular purpose. Except as might hereinafter be
expressly agreed, Consultant shall not have the authority to obligate or commit
the Company in any manner whatsoever.
6. Confidentiality. Except in the course of the performance of
its duties hereunder, Consultant agrees that it shall not disclose any trade
secrets, know-how, or other proprietary information not in the public domain
learned as a result of this Agreement unless and until such information becomes
generally known.
7. Assignment and Termination. This Agreement shall not be
assignable by any party except to successors to all or substantially all of the
business of either party for any reason whatsoever without the prior written
consent of the other party, which consent may be arbitrarily withheld by the
party whose consent is required.
8. Governing Law. This Agreement shall be deemed to be a
contract made under the laws of the State of New York and for all purposes shall
be construed in accordance with the laws of said State.
Very truly yours,
WHALE SECURITIES CO., L.P.
By: Whale Securities Corp.,
General Partner
By:
----------------------------------
Name: William G. Walters
Title: Chairman
AGREED AND ACCEPTED:
AMARILLO BIOSCIENCES, INC.
By:
------------------------------
Name:
Title:
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated February 1, 1996,
except for Note 13, as to which the date is May 14, 1996, in the Registration
Statement (Form SB-2) and related Prospectus of Amarillo Biosciences, Inc. for
the registration of 2,000,000 shares of its common stock.
ERNST & YOUNG LLP
Dallas, Texas
May 21, 1996
