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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER 0-20791
AMARILLO BIOSCIENCES, INC. (NAME OF
SMALL BUSINESS ISSUER IN ITS CHARTER)
TEXAS 75-1974352
(State of other jurisdiction of (I.R.S. Employer
incorporation or or organization) Identification No.)
800 WEST 9TH AVENUE, AMARILLO, TEXAS 79101
(Address of principal executive offices) (Zip Code)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE: (806) 376-1741
Securities registered under Section 12(b) of the Exchange Act:
None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, Par Value $.01
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X
No -----
-----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Revenues for its most recent fiscal year were $652,658.
As of March 17, 1998, there were outstanding 5,414,232 shares of the
registrant's common stock, par value $.01, which is the only class of common or
voting stock of the registrant. As of that date, the aggregate market value of
the shares of common stock held by nonaffiliates of the registrant (based on
the closing price for the common stock on the NASDAQ SmallCap Market) was
approximately $12,110,010.00.
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PART I
The following contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed in the forward-looking statements as a result of certain factors,
including those set forth in "Management's 1998 Plan of Operation" as well as
those discussed elsewhere in this Form 10-KSB. The following discussion should
be read in conjunction with the Financial Statements and the Notes thereto
included elsewhere in this Form 10-KSB.
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Amarillo Biosciences, Inc. (the "Company" or "ABI"), a development-stage
company incorporated in 1984, 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,
fibromyalgia, hepatitis B, hepatitis C and myeloproliferative diseases. 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
will be an effective treatment for diseases or conditions for which current
therapies are inadequate.
The Company owns or licenses twelve United States patents relating to
low dose oral natural IFNa. Since 1992, the Company has filed with the U.S.
Food and Drug Administration ("FDA"), and there now are in effect, eight
Investigational New Drug ("IND") Applications covering indicated uses for low
dose oral IFNa, including treatment of Sjogren's syndrome, fibromyalgia and
myeloproliferative diseases. The Company is seeking regulatory approvals in
certain foreign countries to test low dose oral IFNa in the treatment of
hepatitis B and C.
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. The Company believes that cost savings will result
from the availability of more information 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.
The Company has 7 full-time employees and one part-time employee. The
Company makes extensive use of consultants in business and research and
development, and paid consulting fees to 48 consultants in 1997.
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HUMAN HEALTH APPLICATIONS
Sjogren's Syndrome. Sjogren's syndrome is a chronic autoimmune disorder
characterized by 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 the sensation
of burning in the eyes, dry mouth, stinging in the tongue, painful throat,
swollen lymph glands and dryness in the vagina. Oral candidiasis (a fungus
infection of the mouth) may also arise as a result of reduced saliva flow.
Although Sjogren's syndrome is not life threatening, it can cause extreme
discomfort.
The Sjogren's Syndrome Foundation, Inc. estimates that there are
approximately two to three 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 be used
in lieu of, 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.
A phase II trail was completed in late 1997. At the end of 12 weeks,
ninety patients who took placebo or interferon were evaluable. Patients given
150 IU three times per day had a significant (p<0.014) increase in stimulated
saliva production. Subjective measures of relief of dryness also favored the
same interferon group.
Hepatitis C. The Company has licensed such technology from a Canadian
university and prepared an Investigational New Drug submission in Canada and is
conducting a clinical trial to evaluate oral IFNa pre-treatment as a means of
increasing the effectiveness of parenteral IFNa therapy in hepatitis C
patients. An estimated 40 million worldwide chronic cases of HCV are believed
by the Company to be candidates for this treatment.
HIV. ABI approved the start of two new studies in HIV+ patients. In
California, HIV+ patients with oral warts are being treated with oral
interferon. In Mississippi HIV+ patients with xerostomia (dry mouth) are being
treated with oral interferon. In June 1997, the National Institutes of Health
("NIH") terminated enrollment in a clinical trial of the use of low dose oral
IFNa therapy for the treatment of AIDS-related symptoms. The stated reason for
the termination was the slow rate of patient accrual.
Fibromyalgia. Another phase II trial in fibromyalgia patients in Texas was
approved in 1997. A total of 120 patients will be enrolled to receive
interferon or placebo in an effort to reproduce the positive effects noted in
our previous study and to further define the most effective dose schedule.
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Myeloproliferative Diseases. ABI has filed an IND to test 3 chronic
myeloproliferative diseases at the Mayo clinic. These 3 chronic
myeloproliferative disorders (polycythemia vera, primary thrombocythemia and
agnogenic myeloid metaplasia) are clonal hematopoietic cell disorders with
origin at the multipotent stem cell level. ABI will test low dose oral IFNa as
a treatment for these disorders.
STRATEGIC ALLIANCE WITH HBL
Hayashibara Biochemical Laboratories, Inc. ("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 can be maintained for up to 18 months at
room temperature and up to three years if the product is refrigerated. 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 September 1997, HBL and ABI entered license agreements granting
exclusive rights to ABI to develop interferon gamma for oral use in humans and
for all routes of administration in animals, and tumor necrosis factor alpha
for oral and topical uses in humans and for all routes of administration in
animals; the rights were granted worldwide, except Japan. The Company is
dependent on HBL as the sole supplier of products in human health.
AGREEMENTS WITH ISI AND OTHERS
In October 1989, the Company entered into a Manufacturing and Supply
Agreement with Interferon Sciences, Inc. ("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
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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 pursuant to which ISI granted back
to the Company any right to sublicense 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 312,500 shares of the
Common Stock of ISI, a public company, for $625,000. Following a 4:1 reverse
split in March 1997, the Company sold 65,000 shares of ISI stock, leaving a
balance of 13,125 shares at December 31, 1997.
PATENTS AND PROPRIETARY RIGHTS
In July 1997, ABI and Hoffmann-La Roche (HLR) entered a license
agreement whereby ABI was granted patent rights to make, have made, use and
sell natural interferon alpha in the USA, under US Patent No. 4,503,035, owned
by HLR. This license will require ABI to pay a royalty to HLR on sales in the
USA until March 2002.
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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 pursing
production of, among other things, biologics from cell cultures, genetically
engineered drugs and natural and chemically synthesized drugs. Almost all of
these 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 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.
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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 ("IND") or Investigational New Animal
Drug ("INAD") applications, (ii) initial clinical studies to define safety and
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 preforming 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.
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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 complaint 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 regulations. 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.
The Company asserts that the manufacture or use of IFNa does not pose an
environmental hazard. Other regulatory agencies, such as the Occupational
Safety and Health Administration, also 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.
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RESEARCH AND DEVELOPMENT
During the years ended December 31, 1997 and 1996, the Company incurred
expenses of $1,650,415 and $766,871 respectively, resulting from Company-
sponsored research and development activities. Research and development is
expected to remain a significant component of the Company's business. The
Company has arranged for others to perform substantially all of its clinical
research and intends to continue to do so while utilizing its staff for
monitoring such research. Prior to 1997, the company did not classify
expenditures as research and development until a study commenced and a project
number was assigned. Starting in 1997, the company recognized as research and
development preliminary activities leading up to a study including meeting with
prospective research partners. In addition, certain facility expenses were
recognized as directly supporting research and development activities.
Research and development expenses for 1996 were restated from $644,368 to
$766,871 to reflect these changes. Research and development increased in 1997
due primarily to the completion of the Phase II trial for Sjogren's syndrome.
Spending on Sjogren's syndrome amounted to $507,078 in 1997, and $173,691 was
spent on the common cold study in 1997. See also ITEM 6, "MANAGEMENT'S 1998
PLAN OF OPERATION - Research and Development".
ITEM 2. DESCRIPTION OF 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 use.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Since August 8, 1996, the Company's common stock has traded on the NASDAQ
SmallCap Market. The range of high and low sales prices as quoted on the NASDAQ
SmallCap Market for each quarter of 1997 and for the last two quarters of 1996
are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------------- -----------------------------------
Quarter High Low High Low
------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
First 8 3/4 3 3/4 N/A N/A
Second 4 1/2 3 5/8 N/A N/A
Third 4 1/4 3 1/2 5 3/4 4 3/4
Fourth 5 1/2 3 1/4 5 1/2 4 1/2
</TABLE>
As of February 20, 1998, the Company had approximately 600 shareholders
of record.
ITEM 6. MANAGEMENT'S 1998 PLAN OF OPERATION
The Company's Management has developed a Plan of Operation for 1998. As
a development stage company, the Company continues to engage in research and
development activities focused on developing biologics for the treatment of
human and animal diseases. Other than very limited sales in past years of
natural IFNa in Kenya, the Company has not commenced any product
commercialization and, until such time as it does, will not generate
significant product revenues. The Company's accumulated deficit has continued
to grow, from $6,574,163 at December 31, 1996, to $9,045,415 at December 31,
1997. Operating losses are expected to continue for the foreseeable future and
until such time as the Company is able to attain sales levels sufficient to
support its operations.
In 1998 the Company will continue its research and development
activities, as well as the collateral activities necessary to support research
and development. The Company's expenditure of financial resources in 1998 will
fall principally into five broad categories, as follows: Research and
Development; Personnel; Consulting and Professional (other than legal and
accounting); Legal and Accounting; and Public Relations, Investor Relations, and
Shareholder Relations. The Company's expectations and goals with respect to
these categories will be addressed separately below, by category:
RESEARCH AND DEVELOPMENT
Until it achieves commercial product sales, the Company's business is
research and development, and this is the area where the Company's principal
efforts will be expended in 1998. The Company has budgeted approximately
$680,000 for expenditure in 1998 on research and development, exclusive of
amounts to be expended on the Company's Phase III Sjogren's Syndrome trial, as
that budget is still in development. The budgeted amount does include $150,000
for
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payments to a contract research organization to assist the Company in preparing
and implementing its Sjogren's Syndrome development program. Services to be
rendered by that organization will include strategic overview, market overview,
market research strategy, and recommendations regarding a clinical development
program. Of course, the actual Sjogren's Syndrome development program,
including the Phase III trial, will involve substantial additional
expenditures.
The budgeted amount for Research and Development in 1998 includes
approximately $32,000 for four different mechanism of action/basic science
studies, $8,900 for an already completed cattle study, and approximately
$450,000 for human clinical trials, which includes some final costs relating to
completed studies. Other indications which will receive attention by the
Company in 1998 are Hepatitis C, Fibromyalgia, and the treatment of dry mouth
and oral warts in AIDS patients.
PERSONNEL
In addition to its intellectual property, the Company's principal assets
are its personnel. The Company has been successful in controlling its
personnel costs, both by maintaining its principal location in Amarillo, Texas,
and by ensuring maximum efficiency and utilization of existing personnel. The
Company has budgeted approximately $550,000 for personnel expenses in 1998,
including salaries, payroll taxes, worker's compensation insurance, directors
and officers general liability insurance, and group life, health, dental, and
liability insurance.
At the present time, the President and CEO of the Company, Joseph M.
Cummins, is also serving as the Company's Chief Financial Officer. Management
foresees a need to recruit a qualified individual to serve the company in the
finance and accounting areas. It has not yet been determined whether such
individual will be full-time or part-time, and the Company's 1998 personnel
budget therefore does not include salary or fringe benefits for such a person,
although the Company's consulting and professional budget (see below) does
include $24,000 as estimated costs for financial and accounting consulting,
until such a person is employed by the Company.
In addition as the research and development programs progress,
Management foresees a possible need for an additional operating officer. The
Company's personnel budget does not include any amounts relating to salary or
fringe benefits for such an officer.
CONSULTING AND PROFESSIONAL (EXCEPT LEGAL AND ACCOUNTING)
The Company has budgeted approximately $230,000 for expenditure on
professional consultants in 1998. Consulting fees are expected to be paid to
the Company's scientific advisory board; to certain directors who perform
specific consulting tasks at the Company's request; and to a number of
independent consultants, in connection with the Company's Research and
Development projects. The Company will continue to use the services of
consultants to complement the Company's small full-time staff, where such is a
more efficient utilization of the Company's resources.
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LEGAL AND ACCOUNTING
Although the Company is not involved in litigation, it has budgeted
legal expenses of approximately $190,000 in 1998. Almost 50% of the Company's
legal expenditures will be for preparation and filing of patents, and for
maintenance of existing patents in a number of countries. Other legal expenses
will be related to compliance with laws and regulations affecting public
companies, licensing and contracting, and general corporate matters. The
Company does not presently have an in-house legal staff, nor does it intend to
put such a staff in place in 1998.
PUBLIC RELATIONS, INVESTOR RELATIONS AND SHAREHOLDER RELATIONS
The Company recognizes that its ability to raise capital will depend, to
some extent, upon its relations with both potential future investors, and its
existing shareholders. In turn, such relationships are built upon the
foundation of adequate, timely, and comprehensible communications.
Accordingly, the Company has budgeted approximately $125,000 for expenditure on
these items in 1998. The expenditures will include payments to the Company's
public relations consultants, as well as the Company's expenses in attending a
number of meetings with analysts and institutional investors. The Company has
also budgeted sufficient amounts to maintain its new web site
(www.amacell.com).
LIQUIDITY NEEDS
The principal budget items discussed above, along with other
miscellaneous costs and expenses, will cause the Company to expend
approximately $2,200,000 in 1998, not counting the substantial expense of the
Company's Phase III Sjogren's Syndrome trial, and the possible additional
personnel costs referred to under "Personnel", above. Even though it is
unlikely that all expenses related to the Company's Phase III Sjogren's
Syndrome trial would be expended in 1998, it is nevertheless possible that
aggregate 1998 cash expenditures will exceed $3,000,000. At December 31, 1997,
the Company had total current assets of $6,957,131. The Company had interest
income during 1997 in the amount of $411,700, but such will decrease, as the
Company expends more of its capital reserves. Management therefore estimates
that the Company will be able to maintain its current level of operations only
through approximately year end 1999, or perhaps through the first quarter of
2000, without an influx of additional capital. The Company will therefore
require additional financing to fully fund its development projects. The
Company has no current arrangements with respect to or sources of additional
financing. Furthermore, the Company could be required to seek additional
financing sooner than currently anticipated.
THE YEAR 2000 ISSUE
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous results by
or at the year 2000.
The Company has addressed the year 2000 issue, and has concluded that it
will not be materially adversely affected, due to the nature of the Company's
computer hardware and software, and the nature of the Company's business
activities. Specifically, the Company is not dependent
12
<PAGE> 13
upon mainframe hardware, or custom software, but rather utilizes personal
computers which run non-customized, commercially available business software,
all of which has been upgraded to deal with year 2000 issues. In addition, the
Company has not yet contracted for the conduct of its Phase III Sjogren's
Syndrome trials, and before doing so, will be able to ensure that the contract
research organization has made all necessary provisions for dealing with year
2000 issues.
FORWARD-LOOKING STATEMENTS
Certain statements made in this Plan of Operation and elsewhere in this
report are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Act"). Forward-looking
statements include, without limitation, any statement that may predict,
forecast, indicate or imply future results, performance, achievements, costs or
expenses and may contain words such as "believe", "anticipate", "expect",
"estimate", "project", "budget", or words or phrases of similar meaning.
Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from those projected in the forward-looking
statements. Such risks and uncertainties are detailed from time to time in
reports filed by the Company with the SEC, including Forms 8-K, 10-Q and 10-K,
and include among others the following: promulgation and implementation of
regulations by the U.S. Food and Drug Administration ("USFDA"); promulgation
and implementation of regulations by foreign governmental instrumentalities
with functions similar to those of the USFDA; costs of research and development
and clinical trials, including without limitation, costs of clinical supplies,
packaging and inserts, patient recruitment, trial monitoring, trial evaluation,
and publication; and possible difficulties in enrolling a sufficient number of
qualified patients for certain clinical trials. The Company is also dependent
upon a broad range of general economic and financial risks, such as possible
increases in the costs of employing and/or retaining qualified personnel and
consultants, and possible inflation which might affect the Company's ability to
remain within its budget forecasts. The principal uncertainties to which the
Company is presently subject are its present inability to determine the
eventual overall costs of its Phase III trial in Sjogren's Syndrome; its
inability to ensure that the results of that trial, or any other trials
performed by the Company, will be sufficiently favorable to ensure eventual
regulatory approval for commercial sales; and its inability to accurately
budget at this time the possible costs associated with hiring and retaining of
additional personnel to assist the Company both with its operations, and with
its finance and accounting functions.
The risks cited here are not exhaustive. Other sections of this report
may include additional factors which could adversely impact the Company's
business and future prospects. Moreover, the Company is engaged in a very
competitive and rapidly changing industry. New risk factors emerge from time
to time and it is not possible for management to predict all such risk factors,
nor can it assess the impact of all such risk factors on the Company's
business, or the extent to which any factor or combination of factors may cause
actual results to differ materially from those projected in any forward-looking
statements. Given these risks and uncertainties, investors should not place
undue reliance on forward-looking statements as a prediction of actual future
events.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements of the Company are set forth beginning on page
F-1 immediately following the signature page of this report.
13
<PAGE> 14
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
As of March 17, 1998, the directors and executive officers of the
Company were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Joseph Cummins, DVM, Ph.D. (1)(3) . . . . . . . 55 Chairman of the Board, President, Chief
Executive Officer, Chief Financial Officer
and Director
Stephen Chen, Ph.D. (2)(4) . . . . . . . . . . 48 Director
James Cook (1)(3) . . . . . . . . . . . . . . . 63 Director
Thomas D'Alonzo (1)(2) . . . . . . . . . . . . 54 Director
Katsuaki Hayashibara (3)(4) . . . . . . . . . . 54 Director
Brian McLean, M.D. (3) . . . . . . . . . . . . 38 Director
Dennis Moore, DVM (1)(4) . . . . . . . . . . . 51 Director
James Page, M.D. (1)(2) . . . . . . . . . . . . 71 Director
</TABLE>
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Finance Committee.
(4) 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 as Chief Financial Officer since October 1997.
He received a Ph.D. degree in 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.
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
health care 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.
14
<PAGE> 15
James Cook has been a director of the Company since 1988. He has been
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.
Thomas D'Alonzo has been a director of the Company since 1997. He has
been President of Pharmaceutical Product Development, Inc., a global clinical
research organization, since 1996, was President of GENVEC, Inc., from 1993 to
1996, and was President of Glaxo, Inc. from 1983 to 1993.
Katsuaki Hayashibara has been a director of the Company since 1994. Mr.
Hayashibara was named Director of the Overseas Business Development Division of
Hayashibara Company, Ltd. in January 1997. Prior to 1997, Mr. Hayashibara
served as Director of Research and Development for HBL.
Brian McLean has been a director of the Company since September 1996.
Dr. McLean is an M.D. and received an MBA degree from UCLA in 1992. He is a
partner in a venture capital firm in New York City.
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. Since 1995, Dr. Moore has been involved in managing his
personal investments.
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 August 1996, if
so requested by Whale Securities Co., L.P., the underwriter of the Company's
initial public offering (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 named Dr. Brian McLean its designee in
August 1996.
15
<PAGE> 16
COMPLIANCE WITH SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires directors and officers of the Company and persons who
own more than 10 percent of the Company's common stock to file with the
Securities and Exchange Commission (the "Commission") initial reports of
ownership and reports of changes in ownership of the common stock. Directors,
officers and more than 10 percent shareholders are required by the Exchange Act
to furnish the Company with copies of all Section 16(a) forms they file.
During 1996, Hayashibara Biochemical Laboratories, Inc., a 10%
shareholder of the Company, did not file a Form 4 (Statement of Changes in
Beneficial Ownership) within the time required by Section 16(a) of the Exchange
Act. The subject transaction was reported on the Form 5 statement for 1997,
Schedule 13G was timely filed in 1996, and the holdings were correctly reported
in the Company's 1996 10-KSB, and in the 1996 Annual Report to Shareholders and
Proxy Statement.
Other than mentioned above, to the Company's knowledge, based solely on
a review of the copies of such reports furnished to the Company and written
representations that no other reports were required during the year ended
December 31, 1997, all filings applicable to its directors, officers and more
than 10 percent beneficial owners were timely filed.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth for the three years ended December 31,
1997 compensation paid by the Company to its Chairman of the Board, President
and Chief Executive Officer; and to its Executive Vice-President and Chief
Financial Officer. None of the Company's other executive officers had annual
salary and bonus in excess of $100,000 for services rendered during any of the
three years ended December 31, 1997.
16
<PAGE> 17
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER COMPENSATION
- --------------------------- ---- ----------- ---------- ---------------------
<S> <C> <C> <C> <C>
Dr. Joseph Cummins, Chairman
of the Board, President and
Chief Executive Officer . . . . 1997 $120,000 $20,000 $ 12,000 (3)
1996 120,000 -- 252,000 (4)
1995 120,000 500 --
Charles Hughes, Executive Vice-
President and Chief Financial
Officer (1) . . . . . . . . . 1997 147,435 (2) -- 10,333 (3)
1996 75,000 10,000 157,575 (5)
</TABLE>
(1) Mr. Hughes terminated his employment with the Company on September 8,
1997
(2) Includes both 1997 salary and severance payments.
(3) Represents a Company contribution to the Simplified Employee Pension
Plan.
(4) Represents the value of 30,000 shares of common stock issued at $5.00
per share and payment of withholding tax requirements in settlement of
restricted stock grants and a Company contribution of $12,000 to the
Simplified Employee Pension Plan.
(5) Represents the value of 19,000 shares of common stock issued at $5.00
per share and payment of withholding tax requirements in settlement of
restricted stock grants and a Company contribution of $7,500 to the
Simplified Employee Pension Plan.
OPTION GRANTS IN 1997
The following table sets forth certain information relating to options
granted in 1997 to the executive officers named above, to purchase shares of
Common Stock of the Company.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK % OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED (#) IN 1997 ($/SH) DATE
---- ----------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Joseph Cummins . . . . . . . . . . . . 7,000 30.4% $4.27 (1) 09/06/2002
</TABLE>
(1) The fair market value of the Common Stock on the date of the grant was
$3.875 per share.
17
<PAGE> 18
AGGREGATED OPTION EXERCISES AT DECEMBER 31, 1997
AND YEAR-END OPTION VALUES
The following table sets forth information for the executive officers
named above, regarding the exercise of options during 1997 and unexercised
options held at the end of 1997.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON VALUE OF UNEXERCISED
STOCK UNDERLYING IN-THE-MONEY
SHARES VALUE UNEXERCISED OPTIONS AT OPTIONS AT
ACQUIRED ON REALIZED DECEMBER 31, 1997 (#) DECEMBER 31, 1997 ($) (1)
EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------- -------- ------------------------- -------------------------
Joseph Cummins -- -- -- / 14,500 -- / 6,860
<S> <C>
</TABLE>
(1) Calculated based on the closing price of the Common Stock ($5.25) as
reported by NASDAQ on December 31, 1997.
DIRECTOR COMPENSATION FOR LAST FISCAL YEAR
<TABLE>
<CAPTION>
CASH COMPENSATION SECURITY GRANTS
-------------------------------- ----------------
NUMBER OF
SECURITIES
MEETING FEES CONSULTING UNDERLYING
NAME (1) FEES (2) OPTIONS
---- ------------ ----------- -----------
<S> <C> <C> <C>
Stephen Chen, Ph.D. $4,000 $41,400 5,000
James Cook 4,000 5,000 5,000
Thomas D'Alonzo 3,000 2,000 15,000
Katsuaki Hayashibara 4,000 -- 5,000
Brian McLean, M.D. 3,000 1,000 5,000
Dennis Moore, D.V.M. 4,000 8,200 5,000
James Page, M.D. 4,000 5,400 5,000
</TABLE>
(1) Each director receives a fee of $1,000 for in-person attendance at
each regular directors' meeting.
(2) Each director receives $1,200 per day for employment on special
projects or assignments.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
As of December 31, 1997, there were 5,414,232 shares of the Company's
common stock outstanding. The following table sets forth as of December 31,
1997, the beneficial ownership of each person who owns more than 5% of such
outstanding common stock:
18
<PAGE> 19
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENT OF TOTAL
---------------- ---------------- ----------------
<S> <C> <C>
Hayashibara Biochemical Laboratories, Inc.
2-3 Shimoishii 1-chome
Okayama 700, Japan 1,232,856 22.8%
Dr. Joseph Cummins
800 West 9th Avenue
Amarillo, Texas 79101 684,784 (1) 12.7%
Mesa Operating Limited Partnership
P.O. Box 2009
Amarillo, Texas 79189-2009 315,120 5.8%
Mochida Pharmaceutical Co., Ltd.
7, Yotsuya 1-chome
Shinjuku-Ku
Tokyo 160, Japan 300,000 5.5%
</TABLE>
(1) Includes an aggregate of 343,918 shares of Common Stock held by Joseph
Cummins as trustee under certain trusts for the benefit of his
children and 9,590 shares owned by Dr. Cummins wife.
The following table sets forth the beneficial ownership of the
Company's stock as of December 31, 1997 by each director, and by all executive
officers and directors as a group:
<TABLE>
<CAPTION>
DIRECTORS NUMBER OF SHARES PERCENT OF TOTAL
--------- ---------------- ----------------
<S> <C> <C>
Joseph Cummins 684,784 (1) 12.7%
Dennis Moore 149,616 2.8%
James Cook 66,600 (2) 1.2%
Katsuaki Hayashibara 48,240 1.0%
Stephen Chen 1,800 *
Thomas D'Alonzo 1,000 *
Brian McLean -- --
James Page -- --
Total Group (all directors and
executive officers - 8 persons) 952,040 17.6%
</TABLE>
* Less than 1%
(1) Includes an aggregate of 343,918 shares of Common Stock held by Joseph
Cummins as trustee under certain trusts for the benefit of his
children and 9,590 shares owned by Dr. Cummins' wife.
(2) All of such shares are owned jointly with Mr. Cook's wife.
19
<PAGE> 20
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has relied significantly on HBL, the largest shareholder
of the Company, for a substantial portion of its capital requirements. From
1989 to 1996, HBL has provided an aggregate of $9,000,000 of funding pursuant
to the Development Agreement, purchased from the Company an aggregate of
661,620 shares of common stock for a total purchase price of $2,444,300 and
made loans to the Company aggregating $3,600,000, of which $1,000,000 loaned
after March 31, 1996 was repaid simultaneously with the consummation of the
IPO. As of December 31, 1997, the outstanding amount of the Company's
indebtedness to HBL (including accrued interest) was $2,691,356. HBL owns
1,232,856 shares, approximately 23% 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.
Pursuant to a Stock Purchase Agreement entered into in September 1987
between the Company and Mesa, Inc. ("Mesa"), which owns 315,120 shares of
common stock, the Company has agreed that for as long as Mesa is a shareholder
of the Company, the Company shall not without the prior written approval of
Mesa engage in any repurchase or redemption of its issued and outstanding
shares of common stock, unless such repurchase or redemption is offered, pro
rata, to all then existing shareholders.
During the years ended December 31, 1997 and 1996, the Company paid
$88,000 and $81,600, respectively, for legal services rendered by Morris,
Moore, Moss and Douglass, P.C. Edward Morris, the Secretary of the Company, is
a member of such firm.
Although the Company believes that the foregoing transactions were on
terms no less favorable to the Company than would have been available from
unaffiliated third parties in arm's length transactions, there can be no
assurance that this is the case. All future transactions and loans between the
Company and its officers, directors and 5% shareholders will be on terms no
less favorable to the Company than could be obtained from independent third
parties. There can be no assurance, however, that future transactions or
arrangements between the Company and its affiliates will be advantageous, that
conflicts of interest will not arise with respect thereto or that if conflicts
do arise, that they will be resolved in favor of the Company.
20
<PAGE> 21
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<CAPTION>
EXHIBIT INDEX
NUMBER DESCRIPTION
------ -----------
<S> <C>
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.
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.
10.9* Employment Agreement dated as of March 4, 1994 between the Company and Dr. Joseph M.
Cummins, 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.
</TABLE>
21
<PAGE> 22
<TABLE>
NUMBER DESCRIPTION
------ -----------
<S> <C>
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, Amended and Restated as of May 13, 1997.
10.21 Outside Director and Advisor Stock Option Plan, Amended and Restated as of May 13, 1997.
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.
10.24* Stock Purchase Agreement dated as of September 21, 1987 between Mesa Operating Limited
Partnership and the Company.
10.25* Research License and Supply Agreement dated May 20, 1996 between the Company and Virbac
S.A.
10.26 License Agreement dated July 22, 1997, between Hoffmann-La Roche Inc., and the Company.
10.27 Distribution Agreement dated January 12, 1998, between Global Damon Pharmaceutical and
the Company.
10.28 Distribution Agreement dated September 17, 1997, between HBL and the Company (TNF-A).
10.29 Distribution Agreement dated September 17, 1997, between HBL and the Company (IFN-G).
21. Subsidiaries of the Company. The following sets forth the name and jurisdiction of
incorporation of each subsidiary of the Company. All of such subsidiaries are wholly-
owned by the Company.
</TABLE>
<TABLE>
<CAPTION>
NAME JURISDICTION OF INCORPORATION
---- -----------------------------
<S> <C>
VANGUARD BIOSCIENCES, INC. TEXAS
VELDONA USA, INC. TEXAS
VELDONA AFRICA, INC. TEXAS
VELDONA POLAND, INC. TEXAS
ABI TAIWAN, INC. TEXAS
AMARILLO CELL OF CANADA, INC. TEXAS
27. Financial Data Schedule
</TABLE>
*The Exhibit is incorporated by reference to the exhibit of the same number to
the Company's Registration Statement on Form SB-2 filed with and declared
effective by the Commission (File No. 333-4413) on August 8, 1996.
22
<PAGE> 23
REPORTS ON FORM 8-K
No reports on Form 8-K have been filed for the quarter ended December
31, 1997.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMARILLO BIOSCIENCES, INC.
By: /s/ JOSEPH M CUMMINS
--------------------------------------------
Joseph M. Cummins, Chairman of the Board,
President, Chief Financial Officer and Chief
Executive Officer
Date: March 24, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C>
/s/ JOSEPH M. CUMMINS Chairman of the Board, March 24, 1998
- ----------------------------------- President, Chief Financial Officer,
Director and Chief Executive Officer
/s/ STEVE CHEN Director March 26, 1998
- -----------------------------------
Steve Chen
/s/ JAMES COOK Director March 27, 1998
- -----------------------------------
James Cook
/s/ DENNIS MOORE Director March 26, 1998
- -----------------------------------
Dennis Moore
/s/ JAMES PAGE Director March 25, 1998
- -----------------------------------
James Page
</TABLE>
<PAGE> 25
Amarillo Biosciences, Inc.
and Subsidiaries
(companies in the development stage)
Consolidated Financial Statements
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 1997 and 1996 . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the years ending December 31, 1997 and
1996 and cumulative from June 25, 1984 (inception) through December 31, 1997 . . . . . F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the years ending
December 31, 1997 and 1996 and cumulative from June 25, 1984 (inception)
through December 31, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ending December 31, 1997 and
1996 and cumulative from June 25, 1984 (inception) through December 31, 1997 . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . F-8
</TABLE>
F-1
<PAGE> 26
Report of Independent Auditors
The Board of Directors
Amarillo Biosciences, Inc.
We have audited the accompanying consolidated balance sheets of Amarillo
Biosciences, Inc. and subsidiaries (companies in the development stage) as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years then
ended. 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. The financial statements for the period June
25, 1984, (inception) through December 31, 1991, were audited by other auditors
whose report dated July 12, 1992, which has been furnished to us, expressed an
unqualified opinion on those statements. The financial statements for the
period June 25, 1984, (inception) through December 31, 1991, include total
revenues and net loss of $643,566 and $3,901,236, respectively. Our opinion on
the statements of operations, stockholders' equity (deficit), and cash flows
for the period June 25, 1984, (inception) through December 31, 1997, insofar as
it relates to amounts for prior periods through December 31, 1991, is based
solely on the report of other auditors.
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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Amarillo Biosciences, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for the years then ended, and the period
from June 25, 1984 (inception) through December 31, 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
February 6, 1998
Dallas, Texas
F-2
<PAGE> 27
Amarillo Biosciences, Inc.
and Subsidiaries
(companies in the development stage)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1997 1996
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 879,170 $ 2,799,297
Marketable securities 6,007,182 5,984,370
Other current assets 70,779 107,535
------------ ------------
Total current assets 6,957,131 8,891,202
Property and equipment, net 125,179 144,507
Patent license, net of accumulated amortization of $73,824 and $66,471 in
1997 and 1996, respectively 51,176 58,529
Organizational costs, net of accumulated amortization of $4,962 and
$4,667 in 1997 and 1996, respectively 1,122 330
Investment in ISI common stock 114,023 471,500
------------ ------------
Total assets $ 7,248,631 $ 9,566,068
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 74,754 $ 138,298
Accrued interest expense 91,356 273,296
Accrued legal expense 28,341 --
Accrued vacation 19,000 19,000
Other accrued expense 617 46,357
------------ ------------
Total current liabilities 214,068 476,951
Notes payable 2,600,000 2,300,000
------------ ------------
Total liabilities 2,814,068 2,776,951
============ ============
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par value:
Authorized shares -10,000,000
Issued shares- 5,414,232 in 1997 and 1996 54,142 54,142
Additional paid-in capital 13,392,138 13,312,638
Deficit accumulated during the development stage (9,045,415) (6,574,163)
Unrealized gain (loss) on marketable securities 33,698 (3,500)
------------ ------------
Total stockholders' equity 4,434,563 6,789,117
------------ ------------
Total liabilities and stockholders' equity $ 7,248,631 $ 9,566,068
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 28
Amarillo Biosciences, Inc.
and Subsidiaries
(companies in the development stage)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
CUMULATIVE FROM
JUNE 25, 1984
YEAR ENDED YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Contract revenues $ -- $ 417,140 $ 9,000,000
Interferon sales 396 6,805 420,974
Interest income 411,700 196,842 1,117,818
Sublicense fees -- 5,000 113,334
Royalty income -- -- 31,544
Gain on sale of ISI stock 188,562 -- 188,562
Other 52,000 43,000 604,371
------------ ------------ ------------
652,658 668,787 11,476,603
Expenses:
Research and development expenses 1,650,415 766,871 9,979,594
Selling, general, and administrative
expenses 1,355,435 1,394,041 9,807,480
Interest expense 118,060 126,063 699,944
------------ ------------ ------------
3,123,910 2,286,975 20,487,018
------------ ------------ ------------
Loss before income taxes (2,471,252) (1,618,188) (9,010,415)
Income tax expense -- -- 35,000
------------ ------------ ------------
Net loss $ (2,471,252) $ (1,618,188) $ (9,045,415)
============ ============ ============
Basic and diluted net loss per share $ (0.46) $ (0.41)
============ ============
Weighted average shares outstanding 5,414,232 3,939,912
============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 29
Amarillo Biosciences, Inc.
and Subsidiaries
(companies in the development stage)
Consolidated Statements of Stockholders' Equity (Deficit)
Cumulative from June 25, 1984 (Inception) through December 31, 1997
<TABLE>
<CAPTION>
ADDITIONAL
ISSUANCE COMMON STOCK PAID IN
PRICE SHARES AMOUNT CAPITAL
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
1984
Initial issuance for cash $ 0.29 84,000 $ 840 $ 23,660
Initial issuance in exchange for legal fees 0.29 30,000 300 8,450
Initial issuance in exchange for services and
research and development costs 0.01 1,086,000 10,860 (9,955)
1985
Issuance for cash 0.83 102,000 1,020 83,980
Issuance in exchange for professional fees,
salaries and research services 0.83 10,800 108 8,892
1986
Issuance in exchange for professional fees,
salaries and services 0.83 22,800 228 18,772
Treasury stock purchase; 11,040 shares at cost -- -- --
Issuance for cash 0.83-1.25 182,352 1,824 154,626
Issuance in exchange for professional fees,
salaries and research services 0.83 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
stockholder 2.50 54,540 545 135,805
1991
Repayment of note receivable from stockholder -- $ -- $ --
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 loss on investments -- -- --
--------- ------------ ------------
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 loss on investments -- -- --
--------- ------------ ------------
Balance at December 31, 1995 3,048,672 30,487 3,589,591
1996
Issuance for cash 5.00 2,300,000 23,000 9,354,502
Issuance for stock grant 5.00 79,000 790 394,210
Warrants issued for cash -- -- 200
Cancellation of treasury stock (13,440) (135) (25,865)
Net loss for year ended December 31, 1996 -- -- --
Adjustment to unrealized loss on investments -- -- --
--------- ------------ ------------
Balance at December 31, 1996 5,414,232 54,142 13,312,638
1997
Net loss for year ended December 31, 1997 -- -- --
Adjustment to unrealized gain (loss) on
investment -- -- --
Options issued for professional services -- -- 79,500
--------- ------------ ------------
Balance at December 31, 1997 5,414,232 $ 54,142 $ 13,392,138
========= ============ ============
<CAPTION>
DEFICIT
ACCUMULATED UNREALIZED NOTE
DURING THE GAIN (LOSS) RECEIVABLE TOTAL
DEVELOPMENT ON FROM TREASURY STOCKHOLDERS'
STAGE INVESTMENT STOCKHOLDER STOCK EQUITY
----------- ---------- ----------- ----------- -------------
<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
stockholder -- -- (136,350) -- --
1991
Repayment of note receivable from stockholder $ -- $ -- $ 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 loss on investments -- (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 loss on investments -- 57,316 -- -- 57,316
----------- --------- --------- ----------- -----------
Balance at December 31, 1995 (4,955,975) -- -- (26,000) (1,361,897)
1996
Issuance for cash -- -- -- -- 9,377,502
Issuance for stock grant -- -- -- -- 395,000
Warrants issued for cash -- -- -- -- 200
Cancellation of treasury stock -- -- -- 26,000 --
Net loss for year ended December 31, 1996 (1,618,188) -- -- -- (1,618,188)
Adjustment to unrealized loss on investments -- (3,500) -- -- (3,500)
----------- --------- --------- ----------- -----------
Balance at December 31, 1996 (6,574,163) (3,500) -- -- 6,789,117
1997
Net loss for year ended December 31, 1997 (2,471,252) -- -- -- (2,471,252)
Adjustment to unrealized gain (loss) on
investment -- 37,198 -- -- 37,198
Options issued for professional services -- -- -- -- 79,500
----------- --------- --------- ----------- -----------
Balance at December 31, 1997 $(9,045,415) $ 33,698 $ -- $ -- $ 4,434,563
=========== ========= ========= =========== ===========
See accompanying notes.
</TABLE>
F-5
<PAGE> 30
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 YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,471,252) $ (1,618,188) $ (9,045,415)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 21,388 18,280 170,980
Amortization 7,648 7,686 83,742
Discount on investment in ISI (125,325) -- 24,675
Recognition of deferred sub-license fees
-- -- (32,844)
Organization costs (1,087) -- (11,040)
Gain (loss) on sale of assets 1,002 -- (7,373)
Common stock issued for stock grant
-- 395,000 469,100
Common stock issued for services -- -- 53,505
Options issued for services 79,500 -- 79,500
Changes in operating assets and liabilities:
Other current assets 36,756 (81,140) (70,779)
Accounts payable (63,544) (9,976) 74,754
Accrued expenses (199,339) (248,890) 139,314
Deferred contract revenue -- (417,140) --
-------------- -------------- --------------
Net cash used in operating activities (2,714,253) (1,954,368) (8,071,881)
INVESTING ACTIVITIES
Sale (purchase) of marketable securities (22,812) (5,984,370) (6,007,182)
Capital expenditures (12,688) (48,194) (311,857)
Proceeds from sale of equipment 9,626 -- 23,071
Purchase of patent license -- -- (125,000)
Sale of (investment in) ISI common stock 520,000 -- (105,000)
-------------- -------------- --------------
Net cash used in investing activities 494,126 (6,032,564) (6,525,968)
</TABLE>
F-6
<PAGE> 31
Amarillo Biosciences, Inc.
and Subsidiaries
(companies in the development stage)
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
CUMULATIVE
FROM JUNE 25,
1984
(INCEPTION)
YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Receipt of sub-license fees $ -- $ -- $ 32,844
Proceeds from notes payable 300,000 300,000 2,600,000
Repayment of note receivable from stockholder for
purchase of common stock -- -- 136,350
Issuance of common stock -- 9,377,702 12,733,825
Acquisition of treasury stock -- -- (26,000)
------------ ------------ ------------
Net cash provided by financing activities 300,000 9,677,702 15,477,019
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (1,920,127) 1,690,770 879,170
Cash and cash equivalents at beginning of period 2,799,297 1,108,527 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 879,170 $ 2,799,297 $ 879,170
============ ============ ============
SUPPLEMENTAL INFORMATION
Cash paid for income taxes $ -- $ -- $ 37,084
============ ============ ============
Cash paid for interest $ -- $ 6,466 $ 6,466
============ ============ ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 32
Amarillo Biosciences, Inc. and Subsidiaries
(companies in the development stage)
Notes to Consolidated Financial Statements
December 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTS POLICIES
ORGANIZATION
Amarillo Biosciences, Inc. (the Company), formerly Amarillo Cell Culture
Company, Inc., is a development stage company incorporated on June 25, 1984,
for the purpose of developing and marketing, within the United States and
internationally, eleven 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 stockholders. The
Company's development-stage-through-1991 activities were financed primarily
through the issuance of common stock. From 1991 to August 1996, such activities
were financed under an agreement (described in Note 4) with a major
stockholder. In August 1996, the Company completed its initial public offering
receiving net proceeds of approximately $9,378,000.
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
stockholders (including the major stockholder) 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 accounts of the
Company and its wholly-owned subsidiaries, Amarillo Cell of Canada, Inc.,
Veldona Africa, Inc., Veldona Poland, Inc., Veldona USA, Inc., Vanguard
Biosciences, Inc. and ABI Taiwan, Inc. (all 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 AND INVESTMENT IN ISI COMMON STOCK
Marketable securities and the investment in ISI common stock are classified as
held-to-maturity and available-for-sale, respectively. Held-to-maturity
securities are carried at amortized cost and mature in June 1998.
Available-for-sale securities are carried at fair value, with any unrealized
gain or loss reported as a separate component of stockholders' 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-8
<PAGE> 33
Amarillo Biosciences, Inc. and Subsidiaries
(companies in the development stage)
Notes to Consolidated Financial Statements (Continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTS 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.
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., Vanguard Biosciences, Inc. and ABI Taiwan,
Inc.
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 Accounts 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) was recorded as earned based on research and administrative costs
incurred. Amounts received in advance of services to be performed were recorded
as deferred revenue until expenses were incurred. The remaining balance of all
contract revenue received from HBL was recorded as earned in 1996.
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 7, 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.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation utilizing Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25). In October 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards Number 123, Accounting for Stock Based
F-9
<PAGE> 34
Amarillo Biosciences, Inc. and Subsidiaries
(companies in the development stage)
Notes to Consolidated Financial Statements (Continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTS POLICIES (CONTINUED)
Compensation (SFAS 123). Under the provisions of SFAS 123, the Company has
elected to continue to apply the provisions of APB 25 to its stock-based
compensation arrangements and provide supplementary financial statement
disclosures as required under SFAS 123.
BASIC AND DILUTED NET LOSS PER SHARE
Net loss per share is based on the number of weighted average shares
outstanding. The effect of warrants and options outstanding (see Note 7) is
anti-dilutive. The effect of adopting Statement of Financial Accounting
Standards Number 128, Earnings Per Share, was not material.
RECLASSIFICATION
Certain amounts have been reclassified from selling, general and administrative
expenses to research and development expenses in 1996 and the period from June
25, 1984 (inception) through December 31, 1996 to conform to the current year
presentation. The impact of the reclassification was approximately $108,000 and
$1,234,000 for 1996 and the period from June 25, 1984 (inception) through
December 31, 1996, respectively.
2. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Land $ 8,000 $ 8,000
Building 94,532 94,532
Furniture and equipment 117,943 132,807
Automobile 13,688 29,741
------------ ------------
234,163 265,080
Less accumulated depreciation 108,984 120,573
------------ ------------
$ 125,179 $ 144,507
============ ============
</TABLE>
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 $1,000,000 note plus
accrued interest of $300,000 due September 25, 1996 was renewed in a new note
to HBL for $1,300,000 due September 25, 2001 which accrues interest at the rate
of 4 1/2%. The $1,000,000 note plus accrued interest of $300,000 due September
16, 1997 was renewed in a new note to HBL for $1,300,000 due September 16, 2002
which accrues interest at the rate of 4 1/2%. Each of the notes provide 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,
1997. 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, 1997:
On March 13, 1992, the Company entered into a Joint Development and
Manufacturing/Supply Agreement with HBL (the Development Agreement), a major
stockholder (see Note 7) under which HBL will formulate, manufacture, and
supply HBL interferon for the Company or any sub-licensee. In exchange, HBL is
entitled to
F-10
<PAGE> 35
Amarillo Biosciences, Inc. and Subsidiaries
(companies in the development stage)
Notes to Consolidated Financial Statements (Continued)
4. MANUFACTURING AND SUPPLY AGREEMENTS (CONTINUED)
receive a transfer fee, specified royalties and a portion of any payment
received by the Company for sub-license of rights under this agreement. The
agreement further provides that the Company sub-license to HBL the right to
market HBL interferon for oral use in humans and in non-human, warm-blooded
species in Japan, in exchange for the Company receiving a royalty fee based on
net sales. On June 1, 1994, the Company 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 non-human, 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 provided $9,000,000 in research funding to
the Company. Costs incurred under the Development Agreement amounted to $0 and
$417,140 in the years ended December 31, 1997 and 1996, respectively, and
$9,000,000 cumulative from June 25, 1984 (inception) through December 31, 1997.
The agreement also provides that a royalty fee be paid to HBL. The initial term
of the agreement is for seven years, but it 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), then a 1% stockholder 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 non-human 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 agreement
will be in force for seven years after ISI's receipt of the first purchase
order from the Company and thereafter as long as net sales of such products by
the Company meet certain levels.
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 sub-license 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 sub-license
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, 1997, the Company had
commitments to provide additional funding of approximately $223,000 under these
agreements.
7. COMMON STOCK
In May 1993, the stockholders 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
stockholders 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 non-cash 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 stockholders and the 200,100 shares purchased by HBL in the
public offering, give HBL control of 23% of the outstanding common stock, or
1,232,856 shares at December 31, 1997.
F-11
<PAGE> 36
Amarillo Biosciences, Inc. and Subsidiaries
(companies in the development stage)
Notes to Consolidated Financial Statements (Continued)
7. COMMON STOCK (CONTINUED)
In July 1992, the Board of Directors approved restricted stock grants to three
employees which allowed 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 allowed 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. In August 1996,
79,000 shares of common stock (net of required federal withholdings of 47,000
shares) were issued to the other three employees. The issuance and withholding
were in full satisfaction of the three employees original 126,000 shares in
stock grants. Total charges to compensation expense recognized by the Company
for the year ended December 31, 1996 and cumulative from June 25, 1984
(inception) through December 31, 1997 were $515,156 and $735,000, respectively.
In August 1996, the Company completed its initial public offering and issued
5,300,000 shares of common stock resulting in net proceeds of approximately
$9,377,702.
The Company has (i) 200,000 shares of Common Stock reserved for issuance upon
exercise of Warrants granted to the Company's Underwriter (exercisable through
August 2000 at $8.10 per share); (ii) an aggregate of 188,500 shares of Common
Stock reserved for issuance upon the exercise of stock options outstanding
under the Company's 1996 Employee Stock Option Plan and the Company's Outside
Director and Advisor Stock Option Plan (collectively, the Plans), 23,875 of
which are currently exercisable; and (iii) an aggregate of 161,500 shares of
Common Stock reserved for issuance upon exercise of stock options which are
available for future grant under the Plans.
During 1997, the Company granted 30,000 options to outside professionals for
services which vested immediately at an exercise price of $4.25 (fair market
value of the common stock at the date of the grant). The Company recognized
$79,500 (representing the fair value of the options) in expense relating to
these grants.
Under a stock purchase agreement with a stockholder. 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 stockholders.
8. STOCK OPTION PLAN
The Company has elected to follow APB 25 and related interpretations in
accounting for its stock-based compensation. Under APB 25, because the
exercise price of the Company's stock options has been equal to or greater than
the market price of the underlying stock on the date of grant, no compensation
expense has been recognized.
During 1996, the Company introduced two stock option plans: the 1996 Employee
Stock Option Plan (Employee Plan) and the Outside Director and Advisor Stock
Option Plan (Director Plan). The Employee Plan has authorized the grant of
options to employees for up to a maximum of 200,000 shares of the Company's
common stock. All options granted have five to ten year terms and become
exercisable over a four to five year period. The option price is equal to 100%
to 110% of the fair value of the common stock on the date of grant depending on
the percentage of common stock owned by the optionee on the grant date. The
Director Plan allows options to purchase a maximum of 150,000 shares of the
Company's common stock to be granted to outside directors and scientific
advisors to the Company at an exercise price equivalent to 100% of the fair
market value of the common stock on the date of grant. The ten year options
become exercisable over a period of five years.
Supplemental information regarding net loss and net loss per share is required
by SFAS 123 and has been determined as if the Company had accounted for its
stock options under the fair value method of that Statement. The fair value for
these options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions for 1997:
risk-free interest rate of 6.61%;
F-12
<PAGE> 37
Amarillo Biosciences, Inc. and Subsidiaries
(companies in the development stage)
Notes to Consolidated Financial Statements (Continued)
8. STOCK OPTION PLAN (CONTINUED)
dividend yield of 0%; volatility factors of the expected market price of the
Company's common stock of .692; and a weighted-average expected life of the
option of 4.9 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period and the expense for
1997 and 1996 are not necessarily indicative of the effects on reported net
income (loss) for future years. The Company's pro forma information as of
December 31, is as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Pro forma net loss $ (2,544,335) $ (1,635,839)
Pro forma basic and diluted net loss per share $ (0.47) $ (0.41)
</TABLE>
Based on the Black-Scholes method, the fair value of the options granted as of
December 31, is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Number of options issued at fair market value of stock 66,000 128,000
Weighted-average fair value of options $2.48 $2.52
Weighted-average exercise price of options $3.94 $5.08
Number of options issued in excess of fair market
value of stock 7,000 7,500
Weighted-average fair value of options $2.11 $1.78
Weighted-average exercise price of options $4.27 $5.50
</TABLE>
A summary of the Company's stock option activity, and related information for
the year ended December 31, is as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ --------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
---------- -------------- ---------- --------------
<S> <C> <C> <C>
Outstanding, beginning of year 135,500 $ 5.10 -- $ --
Granted 73,000 3.97 135,500 5.10
Expired, unexercised (20,000) 5.25 -- --
Exercised -- -- -- --
---------- ----------
Outstanding, end of year 188,500 $ 4.64 135,500 $ 5.10
========== ==========
Exercisable at end of year 23,875 $ 5.08 -- --
========== ==========
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 ranged from
$3.875 to $5.50. The weighted-average remaining contractual life of those
options is 9.33 years.
F-13
<PAGE> 38
Amarillo Biosciences, Inc. and Subsidiaries
(companies in the development stage)
Notes to Consolidated Financial Statements (Continued)
9. EMPLOYEE BENEFIT PLAN
The Company has a Simplified Employee Pension Plan (the Plan) which is a
contributory plan that covers all employees of the Company. Contributions to
the Plan are at the discretion of the Company. The plan expense for the years
ended December 31, 1997 and 1996, and cumulative from June 25, 1984 (inception)
through December 31, 1997 was $49,131, $46,357 and $200,857, respectively.
10. 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:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax liability:
Prepaid expenses $ 24,065 $ 34,456
Deferred tax assets:
Net operating loss and AMT carryforward 2,599,564 1,981,494
Accrued interest and note payable 235,061 194,921
Depreciation and amortization 116,520 91,698
Other 67,509 53,481
----------- -----------
3,018,654 2,321,594
Valuation allowance for deferred tax assets (2,994,589) (2,287,138)
----------- -----------
Total deferred tax assets, net of valuation allowance
24,065 34,456
----------- -----------
Net deferred taxes $ -- $ --
=========== ===========
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards of
approximately $7,539,000 for federal income tax purposes expiring in 2006
through 2011. The ability of the Company to utilize these carryforwards may be
limited should changes in stockholder ownership occur in the future.
At December 31, 1997, 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.
11. CONTINGENCIES
The Company is not a party to any litigation and is not aware of any pending
litigation or unasserted claims or assessments as of December 31, 1997.
12. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company has and expects to have
transactions with related parties, including stockholders. In addition to the
transactions disclosed elsewhere in these financial statements, such related
party transactions included legal fees of approximately $88,000 and $81,600
paid to Morris, Moore, Moss and Douglass, P.C., a member of which is an officer
and stockholder of the Company, in 1997 and 1996, respectively. The Company
also employs various stockholders as researchers and consultants and pays fees
based on contractual agreements.
F-14
<PAGE> 39
Amarillo Biosciences, Inc. and Subsidiaries
(companies in the development stage)
Notes to Consolidated Financial Statements (Continued)
13. SETTLEMENT OF LITIGATION
Commencing in 1993, the Company was the plaintiff in litigation involving a
patent infringement action in New Zealand. In May 1996, a settlement was
reached whereby the Company: (1) amended its manufacturing and supply agreement
with ISI to allow the sub-license 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 sub-license 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
August 1997, the Company discounted the ISI stock (quoted price $1.66 per share
at December 31, 1996) to a carrying value of $471,500 at December 31, 1996 and
during 1995 charged $150,000 to selling, general and administrative expenses
and charged $3,500 to unrealized loss on marketable securities in 1996.
During 1997, after a four for one reverse stock split, the Company sold 65,000
shares of ISI stock for $580,850 and realized a gain on the sale of $188,562.
F-15
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------------- -----------------------------------------------------------------------------------------------
<S> <C>
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.
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.
10.9* Employment Agreement dated as of March 4, 1994 between the Company and Dr. Joseph M. Cummins, 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.
</TABLE>
<PAGE> 41
<TABLE>
<S> <C>
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, Amended and Restated as of May 13, 1997.
10.21 Outside Director and Advisor Stock Option Plan, Amended and Restated as of May 13, 1997.
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.
10.24* Stock Purchase Agreement dated as of September 21, 1987 between Mesa Operating Limited Partnership and the
Company.
10.25* Research License and Supply Agreement dated May 20, 1996 between the Company and Virbac S.A.
10.26 License Agreement dated July 22, 1997, between Hoffmann-La Roche Inc., and the Company.
10.27 Distribution Agreement dated January 12, 1998, between Global Damon Pharmaceutical and the Company.
10.28 Distribution Agreement dated September 17, 1997, between HBL and the Company (TNF-A).
10.29 Distribution Agreement dated September 17, 1997, between HBL and the Company (IFN-G).
21. Subsidiaries of the Company. The following sets forth the name and jurisdiction of incorporation of each
subsidiary of the Company. All of such subsidiaries are wholly-owned by the Company.
<CAPTION>
NAME JURISDICTION OF INCORPORATION
----------------------------- -----------------------------
<S> <C>
VANGUARD BIOSCIENCES, INC. TEXAS
VELDONA USA, INC. TEXAS
VELDONA AFRICA, INC. TEXAS
VELDONA POLAND, INC. TEXAS
ABI TAIWAN, INC. TEXAS
AMARILLO CELL OF CANADA, INC. TEXAS
27. Financial Data Schedule
</TABLE>
*The Exhibit is incorporated by reference to the exhibit of the same number to
the Company's Registration Statement on Form SB-2 filed with and declared
effective by the Commission (File No. 333-4413) on August 8, 1996.
<PAGE> 1
EXHIBIT 10.20
AMARILLO BIOSCIENCES, INC.
1996 EMPLOYEE STOCK OPTION PLAN
AMENDED AND RESTATED AS OF
MAY 13, 1997
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:
-1-
<PAGE> 2
(i) designate the employees or classes of
employees eligible to participate in the
Plan;
(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
Securities Exchange act of 1934 (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
-2-
<PAGE> 3
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. 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 two hundred thousand (200,000) 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.
-3-
<PAGE> 4
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 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
-4-
<PAGE> 5
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 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 exerciseability 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
-5-
<PAGE> 6
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 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
-6-
<PAGE> 7
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 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.
-7-
<PAGE> 8
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.
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
-8-
<PAGE> 9
(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 shareholders,
(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.
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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. 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.
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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. 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 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 affect 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
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limitation the National Market System of the
National Association of Securities Dealers,
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 closing 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 quoted 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
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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.
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.
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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 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.
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<PAGE> 1
EXHIBIT 10.21
AMARILLO BIOSCIENCES, INC.
OUTSIDE DIRECTOR AND ADVISOR STOCK OPTION PLAN
AMENDED AND RESTATED AS OF
MAY 13, 1997
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:
(i) designate the Directors and Advisors eligible
to participate in the Plan;
(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.
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<PAGE> 2
(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) 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
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.
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<PAGE> 3
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 shares of Common Stock which may be
issued under the Plan shall be one hundred fifty thousand (150,000) 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.
(a) 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 non-qualified
stock options ("Options") to purchase for cash the number of shares of Common
Stock allotted by the Committee.
(b) Each Outside Director 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
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<PAGE> 4
Company or appointment by the Board to fill a vacancy. 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
automatically 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, although additional Options may be awarded by the Committee.
(c) Each Scientific Advisor who is not also serving as an
Outside Director 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. The foregoing notwithstanding, any Scientific Advisor who
has previously received an Option award as an Outside Director shall not
automatically be awarded any additional Options as a Scientific Advisor,
although additional Options may be awarded by the Committee.
(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 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.
(f) Options granted under the Plan shall comply with the
applicable provisions of Rule 16b-3 promulgated under the 1934 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 1934 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.
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<PAGE> 5
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
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.
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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 disability" 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.
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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 1934 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 1934 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").
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
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(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 shareholders,
(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 1934 Act,
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.
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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.
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
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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.
Unless otherwise provided in the agreement with the Optionee,
Options shall not be assignable or transferable by the recipient thereof,
except by will or by the laws of descent and distribution, and during the life
of the recipient, such award shall be exercisable only by such person or by
such person's guardian or legal representative. If provided in the agreement
with the Optionee, Options and rights may be transferred by the holder to
Permitted Transferees, provided that there cannot be any consideration for the
transfer. "Permitted Transferee" means a member of a holder's immediate
family, trusts for the benefit of such immediate family members, and
partnerships in which the holder and such immediate family members are the only
partners. An immediate family member shall include a holder's descendants,
spouse, and spouses of descendants.
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.
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.
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(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 limitation
the National Market System of the National
Association of Securities Dealers, 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 closing 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 quoted 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.
(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.
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(h) "Shares" or "shares," unless otherwise specified,
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) Subject to subsection (b), 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 extend the term of the Plan. ABI
shall seek and obtain shareholder approval of any amendment to increase the
number of shares of Common Stock which may be issued under the Plan or for any
other amendment to the Plan to the extent that such increase or other amendment
requires shareholder approval under the requirements of the stock exchange or
market system under which shares of Common Stock of the Company are then listed
or the Internal Revenue Code of 1986 or other laws then in effect and
applicable to the Company and 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 rights under an award previously
granted to him.
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EXHIBIT 10.26
LICENSE AGREEMENT
License Agreement, dated as of July 22, 1997, between Amarillo
Biosciences, Inc., a Texas corporation with offices at 800 West Ninth Avenue,
Amarillo, Texas 79101-3206 ("ABI"), and Hoffmann-La Roche Inc., a New Jersey
corporation with offices at 340 Kingsland Street, Nutley, New Jersey 07110
("HLR").
WITNESSETH:
WHEREAS, ABI has developed technology and information relating to the
field of the use of oral a-interferon for the treatment of human and animal
diseases and disorders (this field hereinafter referred to as "The Field").
WHEREAS, HLR is the owner of certain patent rights in the field of human
alpha interferon, including U.S. Patent No. 4,503,035 (the "Patent") expiring
March 5, 2002 (the "Patent Expiration Date") and continuations, divisions or
reissues thereof relating to homogeneous alpha interferon, (hereinafter
collectively referred to as the "HLR Patent Rights");
WHEREAS, ABI desires to obtain a license from HLR under the HLR Patent
Rights to make, have made, use, and sell in the United States natural (non-
recombinant) human alpha interferon preparations in dosage forms for the
treatment of animal and human diseases, and HLR is agreeable to grant such a
license to ABI; and
NOW, THEREFORE, in consideration of the mutual covenants herein
contained the parties agree as follows:
<PAGE> 2
1. DEFINITIONS.
(a) "Licensed Product" means dosage forms of natural (non-
recombinant) human alpha-interferon for the treatment of animal and human
diseases, the manufacture, use or sale of which would, but for this License,
infringe a valid claim under HLR Patent Rights.
(b) "Affiliate" shall mean any entity controlling, controlled
by or under common control with the named entity. Without limiting the
generality of the foregoing, Genentech, Inc. shall not be considered to be an
Affiliated Company of HLR.
2. GRANT OF LICENSE.
HLR hereby grants to ABI and its Affiliates a non-exclusive and,
subject to the terms of this Agreement, irrevocable and perpetual, right and
license under the HLR Patent Rights (including the Patent) to make, have made,
use, import, offer to sell and sell in the United States Licensed Product. ABI
shall have the right to sublicense under this Agreement with the understanding
that sales of Licensed Product by sublicensee(s) shall be included in Net Sales
under this Agreement. ABI will provide HLR with a copy of any sublicense
granted hereunder within sixty (60) days of granting such a sublicense.
3. ROYALTIES.
(a) If any use of the Licensed Product is approved by the FDA,
ABI shall give HLR notice of such approval not later than twenty business days
after the date ABI is informed of such approval.
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(b) (i) ABI shall pay to HLR a percentage fee (the
"Percentage Fee") based upon Net Sales (as hereinafter defined) of Licensed
Product during each Annual Period (as hereinafter defined). "Net Sales" shall
mean the invoiced amount of Licensed Product, either made in the United States
or imported into the United States, and sold by ABI, less actual trade
discounts, returns, allowances, charges for customs duty, freight, and sales,
use, and other similar taxes (except income taxes), if any. The "Annual Period"
shall be the calendar year, except that the first Annual Period shall be from
the date of the first commercial sale of the Licensed Product by ABI or a
Marketing Partner to the next December 31 (or to the date of termination of
this Agreement, if earlier), and the last Annual Period shall be from the last
January 1 during the term of this Agreement to the earlier of (A) the Patent
Expiration Date and (B) the date of termination of this Agreement.
(ii) The Percentage Fee that ABI shall pay to HLR for
each Annual Period shall be an amount equal to 8% of Net Sales during such
Annual Period up to $20,000,000 and 9.5% of Net Sales during such Annual Period
in excess of $20,000,000.
(iii) ABI shall deliver to HLR within 45 days following
the end of each three month period (other than the last three month period)
during each Annual Period, a statement signed by the chief financial officer of
ABI and certified as accurate, indicating the amount of Net Sales during such
three month period. Each such statement shall also indicate the number,
description,
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and invoice price of Licensed Product sold during the period covered, the
amount of actual trade discounts, returns, allowances, charges for customs
duty, freight, and sales, use, and other similar taxes which may be deducted
therefrom, and a computation of the amount of the Percentage Fee payable
hereunder in respect of such Net Sales for such period. Such statement shall be
furnished to HLR whether or not any Licensed Products have been sold during the
period for which such statement is due.
(iv) ABI shall deliver to HLR within 45 days following
the end of each Annual Period, a report certified by the chief financial
officer of ABI covering such Annual Period and containing the same information
required to be contained in the statements referred to in Section 3(b)(iii).
(v) The Percentage Fee shall be paid quarterly for each
Annual Period. The Percentage Fee for each three month period (other than the
last three month period) during each Annual Period shall be paid simultaneously
with the delivery of the statement referred to in Section 3(b)(iii) relating to
such three month period during such Annual Period, and the Percentage Fee for
the last three month period of each Annual Period shall be paid simultaneously
with the delivery of the report referred to in Section 3 (b)(iv) relating to
such Annual Period. The Percentage Fee for each such three month period shall
be computed on the basis of Net Sales from the beginning of such Annual Period
through the last day of the most recent three month period, with a credit for
the Percentage Fee theretofore paid to HLR for such Annual Period.
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(c) ABI shall prepare and maintain complete and accurate books
of account and records covering all transactions relating to this Agreement.
HLR and its duly authorized representatives shall have the right, at the sole
cost and expense of HLR, during regular business hours, on not more than one
occasion during any 12 month period, to examine such books of account and
records with respect to the subject matter and the terms of this Agreement. All
such books of account and records shall be kept available by ABI for at least
three years after the Annual Period to which they relate.
4. TERM AND TERMINATION.
(a) This License Agreement shall come into full force and
effect as date of the last signature on the signature page and shall continue
in full force and effect until the expiration date of U.S. Patent No. 4,503,035
unless sooner terminated in accordance with sections 4(b) or 4(c).
(b) ABI shall have the right to terminate this Agreement at
any time upon at least 30 days' written notice, after which time this Agreement
shall be of no further force or effect other than the obligation of ABI to pay
HLR any royalties payable as of the date of termination.
(c) If ABI shall fail to perform in any material respect any
material term, condition, or covenant in this Agreement on its part to be
performed and such default shall continued uncured for a period of 30 days
after a notice of default specifying the nature of the default has been given
to ABI by HLR, HLR shall have the right to terminate this Agreement upon
written notice, at which
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time this Agreement shall be of no further force or effect other than the
obligation of ABI to pay HLR any royalties payable as of the date of
termination.
(d) The following sections shall survive expiration or
termination of this License Agreement for any reason: 4(b), 4(c), 4(d), 5(b),
6(i) and 6(j).
5. PATENT INFRINGEMENT.
(a) HLR shall retain the sole right at HLR's sole discretion,
to enforce the Patent Rights against third party infringers.
(b) Nothing in this License Agreement shall be construed as
representation made or warranty given by HLR that the exercise or practice by
ABI of the rights granted by HLR to ABI hereunder will not infringe the patent
rights of a third party that dominate the claims of the Patent Rights.
6. MISCELLANEOUS.
(a) All reports, approvals, and notices required or permitted
by this Agreement to be given to a party shall be in writing and shall be
deemed to be duly given if personally delivered or mailed by certified or
registered mail, return receipt requested, to the party concerned at its
address as set forth on page 1 above (or at such other address as a party may
specify by notice to the other). All reports, approvals, and notices given to
ABI shall be addressed to the attention of its President, and all reports,
approvals, and notices given to HLR shall be addressed to the attention of its
Corporate Secretary and all payments in cash
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made to HLR shall be sent to Hoffmann-La Roche Inc., P.O. Box 12069, Newark,
New Jersey 07100.
(b) Neither party may sell, assign, transfer, or otherwise
convey any of its rights or delegate any of its duties under this Agreement
without the prior written consent of the other, except to a corporation which
has succeeded to substantially acquire all the business and assets of the
assignor and assumed in writing its obligations under this Agreement or to a
corporation surviving a merger or consolidation to which the party to this
Agreement is a party. Any attempted sale, assignment, transfer, conveyance, or
delegation in violation of this Section 6(b) shall be void.
(c) This Agreement contains the entire understanding and
agreement between the parties hereto with respect to the subject matter hereof,
supersedes all prior oral and written understandings and agreements relating
thereto, and may not be modified, discharged, or terminated orally.
(d) Nothing herein contained shall be construed to constitute
the parties hereto as partners or as joint venturers, or either as agent of the
other.
(e) This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey, without giving effect to
principles of conflict of laws.
(f) Any waiver by either party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach
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of any other provision of this Agreement. The failure of a party to insist upon
strict adherence to any term of this Agreement on one or more occasions shall
not be considered a waiver or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this Agreement.
Any waiver must be in writing.
(g) If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
(h) This Agreement may be executed in counterparts, each of
which shall be deemed an original, but both of which together shall constitute
one and the same instrument.
(i) Nothing contained herein shall be construed to grant
either party hereto the right to use, for advertising, publicity or any other
purposes, the name, trade name or trademark, or contraction, abbreviation or
simulation thereof, of the other party hereto.
(j) ABI does hereby indemnify and agrees to save and hold HLR
harmless of and from any and all liabilities, claims, causes of action, suits,
losses, damages, and reasonable expenses (including, but not limited to,
reasonable attorneys' fees and expenses) for which HLR may become liable or may
incur or be compelled to pay in any action or claim (including, but not limited
to, any action or claim relating to products liability) against HLR
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for or by reason of the manufacture, use, or sale of the Licensed Product by
ABI. HLR shall give ABI prompt written notice of any such action or claim and
ABI may then, in its sole discretion, take such action as it deems advisable to
defend such action or claim on behalf of HLR. In the event appropriate action
is not taken by ABI within 20 days of its receipt of notice from HLR, HLR shall
have the right to defend such action or claim, but no settlement thereof may be
made without the approval of ABI. In any case, ABI and HLR shall keep each
other fully advised of all developments and shall cooperate fully with each
other in all respects in connection with any such defense as is made.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
the day and year first above written.
AMARILLO BIOSCIENCES, INC. HOFFMAN-LA ROCHE, INC.
By:____________________________ By:____________________________
Name: Joseph M. Cummins, Name: George W. Johnston
DVM, Ph.D.
Title: President and CEO Title: Vice President
Date: July 22, 1997 Date: July 22, 1997
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EXHIBIT 10.27
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT ("Agreement") is made and
effective this 12th day of January, 1998, by and between AMARILLO BIOSCIENCES,
INC., a Texas corporation with its principal place of business at 800 W. 9th,
Amarillo, Texas 79101 (hereinafter "SUPPLIER") and GLOBAL DAMON PHARMACEUTICAL,
a company organized under the laws of the Republic of Korea with its principal
place of business at Rm #1803, Garden Tower Building, 98-78 Wooni-Dong,
Chongro-Ku, Seoul, Korea (hereinafter "DISTRIBUTOR") (SUPPLIER and DISTRIBUTOR
are hereinafter collectively referred to as the "Parties"). MITSUBISHI
CORPORATION is SUPPLIER'S shipping agent with respect to product shipped to
DISTRIBUTOR under this Agreement.
WHEREAS, SUPPLIER and its contract suppliers have substantial
expertise in the production and use of interferon alpha (hereinafter, "IFN-a")
and have proprietary rights and know-how in the field of production,
purification and formulation of IFN-a;
WHEREAS, SUPPLIER is willing to disclose to DISTRIBUTOR
SUPPLIER Technical Information including preliminary human data; and
WHEREAS, SUPPLIER has an exclusive worldwide license to market
and distribute HBL IFN (as defined in ARTICLE I, below), and desires to provide
HBL IFN to DISTRIBUTOR on the terms and conditions herein set forth, and
DISTRIBUTOR desires to obtain the right to test, distribute and market HBL IFN
on the terms and conditions herein set forth;
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NOW, THEREFORE, for and in consideration of the mutual
covenants contained herein, and for other good and adequate consideration the
receipt and sufficiency of which are evidenced by the execution hereof,
DISTRIBUTOR and SUPPLIER agree as follows:
ARTICLE I
DEFINITIONS
1.1. "SUPPLIER" and "DISTRIBUTOR" shall mean and include
not only the indicated company, but also such company's 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" means this Distribution Agreement.
1.4. "Assignee" means any permitted assignee or
sublicensee of rights under this Agreement.
1.5. "HBL IFN" means the culture derived human
lympho-blastoid interferon alpha used for the formulation by HAYASHIBARA
BIOCHEMICAL LABORATORIES, INC. ("HBL") of natural IFN alpha-containing
formulations for use in the treatment of human renal cell carcinoma and
hepatitis B and C in Japan, which may be produced, purified and formulated by
HBL in Japan, or under license from HBL in Japan, or elsewhere.
1.6. "Licensed Indications" means the human diseases of
hepatitis B, hepatitis C, and primary liver cancer.
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1.7. "Licensed Product" means a dose formulation or
composition containing HBL IFN and designated, detailed, or labeled for oral
use in the treatment of any Licensed Indication.
1.8. "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 Product or other IFN-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. "SUPPLIER Technical Information" refers to Technical
Information originating with SUPPLIER or which SUPPLIER has obtained through
its contractual relationships with third parties. "DISTRIBUTOR Technical
Information" refers to Technical Information originating with DISTRIBUTOR or
which DISTRIBUTOR has obtained through its contractual relationships with third
parties. "Technical Information" when not otherwise specified herein means both
SUPPLIER Technical Information and DISTRIBUTOR Technical Information.
ARTICLE II
GRANT OF DISTRIBUTION RIGHTS
2.1. SUPPLIER grants to DISTRIBUTOR and DISTRIBUTOR
accepts, subject to the terms of this Agreement, the exclusive right to use
Licensed Product for testing or trials, and upon proper regulatory approval,
for marketing and distribution to treat the Licensed Indications in Korea.
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2.2. The distribution rights granted to DISTRIBUTOR under
this Agreement shall commence on the effective date of this Agreement and shall
terminate immediately upon the termination or expiration of this Agreement.
2.3. DISTRIBUTOR shall have the right to use and sell
Licensed Product only in Korea. DISTRIBUTOR shall not seek customers, establish
any branch or maintain any distribution depot for Licensed Product in any
country other than Korea. DISTRIBUTOR shall not sell Licensed Product to any
customer in any country other than Korea or to any customer in Korea if to the
knowledge of DISTRIBUTOR such customer intends to resell the Licensed Product
in any country other than Korea.
2.4. All Licensed Product sold by DISTRIBUTOR shall bear
SUPPLIER'S trademark or logo, acknowledging SUPPLIER as developer and
manufacturer. Alternatively, DISTRIBUTOR may recommend to SUPPLIER for its
approval one or more other registerable trademarks for the Licensed Products in
Korea. If needed, SUPPLIER shall apply for any new trademark registration, and
SUPPLIER shall own all rights to such trademarks. SUPPLIER hereby grants to
DISTRIBUTOR during the term of this Agreement the exclusive license to use such
trademarks in Korea in connection with the use or sale of Licensed Products.
DISTRIBUTOR shall not directly or indirectly use any of SUPPLIER'S trademarks
or part thereof, or any mark or name confusingly similar thereto, as part of
its corporate or
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business name or in any other manner, except that (1) DISTRIBUTOR may identify
itself as an authorized distributor of SUPPLIER and (2) on SUPPLIER'S written
consent DISTRIBUTOR may use SUPPLIER'S trademarks relating to the Licensed
Product for display purposes in connection with solicitation of orders for
Licensed Product from customers in Korea, and in any other manner previously
approved by SUPPLIER in writing. In addition, DISTRIBUTOR shall not register
any of SUPPLIER'S trademarks or any mark or name closely resembling them.
2.5. DISTRIBUTOR agrees to cooperate with and assist
SUPPLIER, at SUPPLIER'S expense, in the protection of trademarks, patents, or
copyrights owned by or licensed to SUPPLIER and shall inform SUPPLIER
immediately of any infringements or other improper action with respect to such
trademarks, patents, or copyrights that shall come to the attention of
DISTRIBUTOR.
2.6. In the event SUPPLIER or an Affiliate of SUPPLIER
obtains at any time during the term of this Agreement US FDA approval of an HBL
interferon-containing product for oral use in humans in any indication other
than a Licensed Indication, then SUPPLIER will thereupon extend to DISTRIBUTOR
a right of first refusal to the distribution rights for any such indication(s)
in the Republic of Korea. SUPPLIER and DISTRIBUTOR shall negotiate in good
faith, with the goal of entering into a distribution agreement with respect to
any such products. In the event the Parties should fail to reach agreement with
respect to one or more indications, SUPPLIER may (at its election) provide to
DISTRIBUTOR in writing an
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itemization of the material terms and provisions which SUPPLIER wishes to have
contained in such an agreement. Thereupon, DISTRIBUTOR shall have a period of
sixty (60) days during which DISTRIBUTOR may accept such terms, and offer to
enter into a distribution agreement with SUPPLIER, on that basis. In the event
DISTRIBUTOR fails to acknowledge its acceptance of such terms in writing within
said sixty (60) day period, SUPPLIER shall thereupon be permitted to enter into
a distribution agreement with an entity other than DISTRIBUTOR, upon the same
terms and conditions which had been noticed to DISTRIBUTOR, or upon terms and
conditions no less favorable to SUPPLIER, nor more favorable to the
distributor, than those terms previously noticed to DISTRIBUTOR. However, in
the event SUPPLIER does not enter into such an agreement with another entity
within six (6) months of the expiration of said sixty (60) day notice period,
all of the terms and provisions of this Paragraph 2.6 shall once again be of
full force and effect, and SUPPLIER shall not thereafter enter into any such
distribution agreement with respect to sale or use of such products in Korea,
without once again granting to DISTRIBUTOR the aforesaid right of first
refusal.
ARTICLE III
SUPPLY OF PRODUCT
3.1. Subject to the terms and conditions of this
Agreement, SUPPLIER shall supply Licensed Product for testing and (upon
approval) sale in the country of Korea exclusively to DISTRIBUTOR, and to no
other persons or entities. Licensed Product
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shall be supplied in response to issuance by DISTRIBUTOR of written purchase
orders delivered to SUPPLIER specifying the quantity to be supplied, along with
any special instructions/requests regarding supply and/or delivery. Foil
stripping will be included at no additional cost, if requested by DISTRIBUTOR.
3.2. SUPPLIER agrees to allow DISTRIBUTOR right of
reference to SUPPLIER'S US FDA Drug Master File for HBL IFN and to do such
other acts that are reasonably necessary, and within SUPPLIER'S control, to
facilitate approval of HBL IFN-containing lozenges in Korea for use in Licensed
Indications, and SUPPLIER also hereby agrees to consult with DISTRIBUTOR
concerning regulatory affairs, to review documents to be submitted to Korean
agencies for approval, and to take such other actions as may be necessary from
time to time to facilitate approval of Licensed Products for sale and use in
Korea. SUPPLIER also agrees to provide clinical data from its past, current or
future studies, that would be relevant to the testing, use or sale of Licensed
Products. SUPPLIER further agrees to provide, at its actual cost, sufficient
HBL IFN-containing lozenges for preliminary studies and clinical trials as may
be appropriate and necessary to support applications for approval and
commercialization of such products, including (if requested by DISTRIBUTOR)
placebo, packaging, instructions, and inserts.
3.3. SUPPLIER shall provide to DISTRIBUTOR any support or
assistance requested by DISTRIBUTOR with respect to regulatory and clinical
activities, on a fully reimbursed basis.
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ARTICLE IV
CONSIDERATION
4.1. For all Licensed Product supplied by SUPPLIER to
DISTRIBUTOR (other than quantities provided for trials pursuant to Paragraph
3.2 above), SUPPLIER shall receive from DISTRIBUTOR the amount of two dollars
($2.00) per HBL IFN-containing lozenge, foil-stripped, plus SUPPLIER'S actual
costs for any additional packaging, labeling, instructions, and other inserts
requested by DISTRIBUTOR. The price shall be further adjusted from time to time
as may be necessary to reflect any increase in the Producers Price Index, Drugs
and Pharmaceuticals, Subdivision Code 063, after the date of this Agreement. In
addition, the price shall be further increased to reflect any increases for (i)
the incremental cost of any raw material or combination of raw materials that
increases by more than twenty percent (20%) from SUPPLIER'S cost at the date of
this Agreement, and (ii) the incremental cost arising from changes in product
specifications, manufacturing, testing, or release of the product. After
December 31, 2002, the price paid by DISTRIBUTOR shall be increased by fifty
cents ($.50) per lozenge for the remaining term of this Agreement, in addition
to any prior and/or subsequent adjustments made pursuant to the foregoing
provisions of this Paragraph 4.1. DISTRIBUTOR shall receive product at the
named port of destination in the Republic of Korea and the shipping
arrangements shall be made by SUPPLIER'S nominated shipping agent. DISTRIBUTOR
shall pay CIF price at the named port of destination in Republic of Korea
against the invoice price containing shipping
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charge, freight, and insurance, in addition to the product price specified
above. Title to product purchased by DISTRIBUTOR shall transfer to DISTRIBUTOR,
and DISTRIBUTOR shall pay all freight charges and bear the risk of loss and
damage, from the time product is placed at the disposal of ship's rail at the
port of destination.
4.2. From and after the Effective Date of this Agreement,
DISTRIBUTOR shall proceed with reasonable diligence, and shall make its best
effort, to seek and obtain, and to maintain, in each case at its own cost and
expense and without any contribution from SUPPLIER, all necessary licenses or
approvals required to be issued by the Republic of Korea or any agency or
instrumentality thereof as a pre-condition to the import and sale of Licensed
Products, and including any pricing or reimbursement approvals, and will
diligently market all approved Licensed Products throughout the term of this
Agreement. DISTRIBUTOR will conduct clinical trials at its own expense
(including conduct of Phase I, II and III trials, if required). Any approvals,
import licenses, or other licenses ultimately issuing from the Republic of
Korea or any agency or instrumentality thereof authorizing import and/or sale
of any Licensed Product shall be issued in the name of SUPPLIER, if permitted
by Korean law and regulations; and otherwise, shall be issued in the name of
DISTRIBUTOR for use only pursuant to this Agreement. If at any time during the
term of this Agreement DISTRIBUTOR should no longer be actively prosecuting the
application for any such approval or license, or if, having obtained such
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approval or license, DISTRIBUTOR should no longer be actively developing or
marketing any Licensed Product under this Agreement, SUPPLIER shall have the
option to request assignment of such applications, approvals, and/or licenses
from DISTRIBUTOR, and upon such request by SUPPLIER to DISTRIBUTOR, DISTRIBUTOR
shall thereupon assign to SUPPLIER or its designee all of DISTRIBUTOR'S right,
title and interest in and to all such applications, approvals and/or licenses,
to the extent permitted by Korean law and regulations.
4.3. DISTRIBUTOR shall provide SUPPLIER by January 31 of
each year during the term of this Agreement, a report of ongoing efforts for
the development of Licensed Products, including a report of efforts by
DISTRIBUTOR with respect to formulation development, pre-clinical and clinical
testing, regulatory approval efforts, marketing/sales strategy, and any other
areas into which DISTRIBUTOR'S reasonable business efforts in accordance with
this paragraph may reasonably be categorized. Such report shall be accompanied
by labelling, instructions, promotional and other support materials developed
for DISTRIBUTOR'S sales force, patients, physicians, or other outside parties.
Such a report shall be prepared more often if SUPPLIER so requests in writing,
if SUPPLIER pays to DISTRIBUTOR the expenses incurred by DISTRIBUTOR in
generating such additional reports. It is understood that SUPPLIER will receive
all such information as DISTRIBUTOR Technical Information.
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4.4. DISTRIBUTOR shall seek SUPPLIER'S approval of
protocols for proposed clinical studies, and will share the results of such
studies with SUPPLIER. DISTRIBUTOR shall provide to SUPPLIER full access to all
of the data related to IFN-a generated by any trials, tests or studies
conducted by or for DISTRIBUTOR, or under contract from DISTRIBUTOR, or under
its auspices, and whether such trials, tests or studies are conducted before or
after drug approval. For purposes of this Section 4.4, "full access" shall mean
and include copies of all data related to IFN-a generated by such trials, tests
or studies, and copies of any analyses or compilations prepared by or for
DISTRIBUTOR, or under contract from DISTRIBUTOR, or under its auspices. All
such data, results, and compilations shall constitute DISTRIBUTOR Technical
Information under this Agreement.
4.5. At any time during the term of this Agreement,
DISTRIBUTOR shall provide to SUPPLIER, within thirty (30) days of SUPPLIER'S
request, copies of all data not previously provided to SUPPLIER, relating to
the testing and development of Licensed Product generated by DISTRIBUTOR or by
others for DISTRIBUTOR during the term of this Agreement, to that date.
4.6. DISTRIBUTOR shall commence marketing of a Licensed
Product within twelve (12) months after receiving government approval for
commercial sale of such product in Korea. DISTRIBUTOR shall use its best
efforts to advertise, promote and sell such product within Korea after
approval, and in that regard, SUPPLIER shall pay to DISTRIBUTOR the sum of
fifty cents ($.50) per lozenge
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purchased by DISTRIBUTOR, for DISTRIBUTOR'S use in marketing and promotion.
Such funds shall be paid to DISTRIBUTOR on an annual basis with respect to
lozenges purchased by DISTRIBUTOR during that year, against receipt by SUPPLIER
of a current marketing and promotion budget prepared by DISTRIBUTOR.
4.7. Unless specifically authorized in writing by
SUPPLIER, DISTRIBUTOR shall not sell, or offer for sale, or act as sales agent
for the solicitation of orders for any products (other than Licensed Products)
that contain any interferon derived from any species and designated, detailed,
or labeled for oral use for any Licensed Indication. SUPPLIER shall not
authorize any third parties, directly or indirectly, to market or sell any
interferon in Korea for oral use in the treatment of any Licensed Indication.
4.8. DISTRIBUTOR shall provide medical, pharmacovigilance
and other appropriate customer support services in connection with sale of
Licensed Products, and will report to SUPPLIER on a timely basis all material
adverse reactions, product complaints and other relevant customer feedback.
DISTRIBUTOR agrees to advise SUPPLIER fully with respect to all health, safety,
environmental, and other standards, specifications, and other requirements
imposed by law, regulation, or order in Korea and applicable to Licensed
Product. DISTRIBUTOR shall also advise SUPPLIER of all instructions, warnings,
and labels applicable to Licensed Product that are necessary or desirable under
laws, regulations, or practices in Korea. SUPPLIER shall be entitled to
increase the price charged to DISTRIBUTOR by the amount of any increase in
SUPPLIER'S cost of manufacturing attributable to compliance with any such
safety standards, specifications, labels or other requirements.
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ARTICLE V
ORDERS AND SHIPMENTS
5.1. 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, DISTRIBUTOR will furnish SUPPLIER with its
projected requirements for HBL IFN-containing lozenges during the next
succeeding calendar year. DISTRIBUTOR may amend its projected requirements from
time-to-time, provided, however, that SUPPLIER shall be obligated only to make
its best effort to comply with any requests 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 SUPPLIER be required to
deliver to DISTRIBUTOR hereunder, an amount of HBL IFN which exceeds the amount
SUPPLIER is able, in good faith, to acquire from HBL, or from HBL's contract
manufacturers. HBL IFN delivered under this Agreement by SUPPLIER to
DISTRIBUTOR may be delivered in the form of 150 I.U. lozenges, unless otherwise
agreed by both Parties. 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 SUPPLIER to DISTRIBUTOR. If DISTRIBUTOR should at any time desire
some other composition or formulation, it shall specify the requested
composition or formulation in writing to SUPPLIER, and SUPPLIER
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shall exercise its best efforts to obtain such composition or formulation;
provided, however, that SUPPLIER shall not be responsible for any loss, cost or
damages of whatsoever nature which may arise to DISTRIBUTOR, its Affiliates,
purchasers, or distributees by reason of SUPPLIER'S inability, for whatever
reason, to obtain such alternate formulation; and further provided that
SUPPLIER shall be entitled to be compensated for any cost or expense incurred
by it in obtaining such alternate composition or formulation. Subject to the
foregoing, SUPPLIER shall use its best efforts to deliver HBL IFN-containing
lozenges in accordance with DISTRIBUTOR'S projected requirements and product
specifications.
5.2. SUPPLIER shall ship product within fifteen (15) days
of request by DISTRIBUTOR, against an irrevocable letter of credit (or other
financial surety acceptable to SUPPLIER or to the agent nominated by SUPPLIER)
in an amount sufficient to cover the CIF price payable to SUPPLIER or the agent
nominated by SUPPLIER under Paragraph 4.1 above. The letter of credit shall be
issued by a financial institution acceptable to SUPPLIER or to the agent
nominated by SUPPLIER, shall be in U.S. dollars and shall not expire until the
final payment for the respective shipment has been made to SUPPLIER or to the
agent nominated by SUPPLIER.
5.3. Orders of product for commercial sales shall be made
for "full lot" quantities of one hundred thousand (100,000) lozenges. A minimum
of two hundred thousand (200,000) lozenges shall be purchased by DISTRIBUTOR
during each year during the term of this Agreement, commencing with the first
full calendar year after all necessary approvals for marketing and
reimbursement have been obtained.
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ARTICLE VI
TERM AND TERMINATION
6.1. This Agreement and all rights granted hereunder by
each Party shall terminate upon December 31, 2007, provided, however, that if
DISTRIBUTOR does not commence one (1) Phase I, Phase II or Phase III trial, as
may be required or advisable, within one (1) year after DISTRIBUTOR receives
all supporting documentation required for application to the Health Authority
for approval of commencement of such trial; and after approval of at least one
(1) Licensed Product, place orders for minimum annual shipments as provided in
Paragraph 5.3, above; then SUPPLIER shall have the right to terminate this
Agreement upon thirty (30) days prior written notice to DISTRIBUTOR.
DISTRIBUTOR will proceed diligently to obtain market approval according to a
timetable to be agreed upon between SUPPLIER and DISTRIBUTOR by December 31,
1998. In this connection, SUPPLIER and DISTRIBUTOR agree and stipulate that the
time required to obtain market approval might reasonably be expected to be five
(5) years from commencement of a Phase I trial; three (3) to four (4) years
from commencement of a Phase II trial; and two (2) to three (3) years from
commencement of a Phase III trial.
6.2. Termination of this Agreement for any reason shall
not relieve the Parties of any obligation accruing prior to such termination.
In addition, ARTICLE VIII ("Confidentiality") shall survive termination of this
Agreement.
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6.3. On termination of this Agreement for any reason,
DISTRIBUTOR shall cease to use or evaluate any HBL IFN-containing products in
its possession and shall cease to sell Licensed Product and shall surrender to
SUPPLIER all SUPPLIER Technical Information that it may have received during
the term of this Agreement, and shall assign any license it holds on behalf of
SUPPLIER in accordance with Paragraph 4.2, above. Any accrued payment
obligations shall be paid within thirty (30) days of the termination of this
Agreement.
ARTICLE VII
WARRANTY AND INDEMNIFICATION
7.1. SUPPLIER 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 humans in the country of Korea. SUPPLIER
further warrants that at the time of shipment, all product supplied by it (i)
shall meet product specifications as set forth in this Agreement, or as
otherwise previously agreed in writing between SUPPLIER and DISTRIBUTOR; (ii)
shall not be adulterated or misbranded; and (iii) shall be manufactured in
accordance with good manufacturing practices. SUPPLIER shall indemnify and hold
DISTRIBUTOR harmless from any and all costs, expenses, damages, judgments, and
liabilities incurred by or rendered against DISTRIBUTOR arising from any claim
made or suit brought as a result of a breach by SUPPLIER of its warranties
under this Paragraph 7.1.
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7.2. DISTRIBUTOR warrants that its operations and
activities in Korea shall be in compliance with Korean law, statutes and
regulations; and DISTRIBUTOR shall indemnify and hold SUPPLIER harmless from
any and all costs, expenses, damages, judgments, and liabilities incurred by or
rendered against SUPPLIER or its affiliates arising from the use, testing,
recall, labelling, promotions, sale or distribution of Licensed Product.
ARTICLE VIII
CONFIDENTIALITY
8.1. SUPPLIER owns or is licensed under confidential or
secret information relating to the Licensed Products, and DISTRIBUTOR intends
to conduct trials in Korea which will generate confidential or secret
information relating to the Licensed Products, and it is the intention of both
SUPPLIER and DISTRIBUTOR to maintain this confidentiality.
8.2. Each Party agrees to maintain confidential and secret
all Technical Information which 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 Technical Information, when the
recipient Party can demonstrate that such item of information:
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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
lawfully and not under circumstances forbidding its disclosure.
8.4. Neither Party will permit the other Party's 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 such
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 an unauthorized third party possesses Technical Information of
the other Party.
8.6. DISTRIBUTOR shall have the right to use SUPPLIER'S
Technical Information, and to access SUPPLIER'S US FDA Drug Master File for HBL
IFN, to the extent reasonably necessary to accomplish the objectives of this
Agreement, including specifically the right to disclose such information to its
contract consultants and scientific investigators (from whom DISTRIBUTOR shall
secure Confidential Non-Disclosure Agreements) and to regulatory agencies in
support of applications for regulatory agency approval to make, test and/or
sell Licensed Product.
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8.7. SUPPLIER shall have the right to use DISTRIBUTOR'S
Technical Information for the purposes of designing protocols and studies
outside Korea, and for submission to regulatory authorities in any country
other than Korea, in connection with an application for drug approval.
ARTICLE IX
MISCELLANEOUS
9.1. Force Majeure. The failure of DISTRIBUTOR, SUPPLIER,
or any of their Affiliates to take any action required by this Agreement if
such failure is 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 exist or hereafter arise,
shall not subject said Party to any liability to the other.
9.2. Communication. Any payment, notice or other
communication required or permitted to be made or given to either Party
pursuant to this Agreement shall be sufficiently made or given on the date of
sending if sent to such Party by certified or
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registered mail, facsimile transmission, or by courier service, postage or
delivery charge prepaid, addressed to it at its address set forth below, or to
such other address as it may have designated by written notice given to the
other Party:
In case of DISTRIBUTOR:
President
Global Damon Pharmaceutical
Suite 1803, Garden Tower Building
98-78 Wooni-Dong, Chongro-Ku
Seoul, Korea
Fax: 82-2-3673-2369
In case of SUPPLIER:
President
Amarillo Biosciences, Inc.
800 W. 9th
Amarillo, Texas 79101
Fax: 806/376-9301
And:
Edward L. Morris
Morris, Moore, Moss & Douglass, P.C.
P. O. Box 15208
Amarillo, TX 79105
9.3. Amendments to Agreement. This 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 Agreement shall be effective only if made in writing, and
executed by both Parties.
9.4. Enforceability. 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.
9.5. Relationship of Parties. All purchases and resales of
Licensed Product by DISTRIBUTOR shall be for DISTRIBUTOR'S own
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account as a principal and not as an agent of SUPPLIER. DISTRIBUTOR shall act
in all respects as an independent contractor and not as a representative or
agent of SUPPLIER. This Agreement shall not be construed to create a
relationship of partners, joint venturers, brokers, employees, agents, master
or servant between the Parties. Neither Party shall have any right or authority
to assume or create any responsibility, express or implied, in the name of the
other Party or to bind the other Party in any manner whatsoever.
9.6. Assignment. Neither Party hereto shall assign any of
its rights under this Agreement to another person or entity without the prior
written consent of the other Party, which consent shall not be unreasonably
withheld.
9.7. Dispute Resolution.
A. Conciliation. All disputes arising between
the Parties concerning the validity, construction, or effect of this Agreement,
or the rights and obligations created hereunder, shall be brought before a
conciliation committee of executives representing both Parties that shall,
within two (2) weeks after being informed of the dispute, attempt to work out a
recommendation for settlement of the dispute and transmit such recommendation
to both Parties for due consideration.
B. Arbitration. Any dispute that cannot be
settled amicably by conciliation as provided above shall be heard, settled, and
decided by binding arbitration. Such arbitration if initiated by SUPPLIER shall
take place in Seoul, Korea; and if initiated by DISTRIBUTOR shall take place in
Amarillo, Texas,
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U.S.A. In each case, the arbitration will take place under applicable laws and
regulations in force at the specified situs. The award in such arbitration
shall be final and enforceable in any court of competent jurisdiction.
9.8. Governing Language. The English language of this
Agreement shall govern and control any translations of the Agreement into any
other language. Documents furnished by DISTRIBUTOR to SUPPLIER under the terms
of this Agreement shall be furnished in English, or alternatively, may be
furnished in Korean, accompanied by an English translation.
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.
SUPPLIER: DISTRIBUTOR:
AMARILLO BIOSCIENCES, INC. GLOBAL DAMON PHARMACEUTICAL
By: By:
-------------------------------- --------------------------------
Joseph M. Cummins, D. K. Kim, President
President
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EXHIBIT 10.28
DISTRIBUTION AGREEMENT:
TNF-A: HUMAN, ORAL AND TOPICAL; OTHER SPECIES, ALL ROUTES
THIS AGREEMENT is made and effective this 17th day of
September, 1997, by and between AMARILLO BIOSCIENCES, INC., a Texas corporation
with its principal place of business at 800 W. 9th, Amarillo, Texas 79101
(hereinafter "ABI") and HAYASHIBARA BIOCHEMICAL LABORATORIES, INC., with its
principal place of business at 2-3, Shimoishii l-chome, Okayama 700, Japan
(hereinafter "HBL") (ABI and HBL collectively referred to hereinafter as the
"Parties").
WHEREAS, HBL desires to grant to ABI, and ABI desires to have,
the exclusive right to distribute HBL's human tumor necrosis factor alpha
(hereinafter, "HBL TNF-a") for oral and topical use in human species and use by
all routes of administration in non-human species worldwide, except Japan;
NOW, THEREFORE, for and in consideration of the mutual
covenants contained herein, HBL and ABI agree as follows:
SECTION 1. RIGHT TO DISTRIBUTE. HBL hereby grants to ABI the
exclusive right to distribute products containing HBL TNF-a for oral and topical
use in human species and use by all routes of administration in non-human
species worldwide, except Japan.
SECTION 2. CONSIDERATION. HBL shall receive a transfer fee
from ABI in the amount of (US) five cents ($.05)
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per 200 Japanese Reference Unit ("JRU") 200 mg tablet or lozenge, or comparable
tablet or lozenge, f.o.b. Okayama, Japan, which price shall include the TNF-a
contained therein, maltose, other required ingredients, TNF-a assays, and
technical assistance. If HBL TNF-a is shipped in bulk, as may be requested by
ABI, HBL shall receive, in lieu of the above, the amount of (US) one hundred
fifty and no/100 dollars ($150.00) per two hundred thousand (200,000) JRU of HBL
TNF-a, f.o.b. Okayama, Japan. If HBL TNF-a is formulated at ABI'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 ABI or its affiliate, a manufacturing and
supply fee equal to eight percent (8%) of the Net Sales Value of HBL
TNF-a-containing products sold by ABI for use in any species, worldwide. Net
Sales Value for this purpose shall mean the amount of cash and/or other
consideration actually received by ABI or its affiliates or sublicensees, with
respect to the sale by ABI, its affiliates, or sublicensees of a HBL
TNF-a-containing product after the product is diluted into packaged dose
formulations or compositions designated or detailed and labeled for use in any
species, including all packaging, instructional or other charges made to a
purchaser, but less ABI's (or its
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affiliate's or sublicensee'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.
Payment of the manufacturing and supply fee of eight percent
(8%) of Net Sales Value 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 ABI
and its affiliates and/or its sublicensees during said calendar quarter,
beginning with the calendar quarter in which products are first sold by ABI, its
affiliates, or sublicensees. Such fee payment shall be accompanied by a
statement certified by an officer of ABI 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 fee 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.
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Payments 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, fees 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 fee
accrued.
In addition to the aforesaid fees, HBL shall receive fifty
percent (50%) of any license fee, option fee, or other payment, except royalty
or specific research or patent expense reimbursements, which ABI may receive for
the sublicense of rights under this Agreement to the sale and/or use of HBL TNF-
a (hereinafter, "50% fee"). The transfer fees payable to HBL for products
delivered to ABI 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 ABI, its affiliate or sublicensee, and each calendar
quarter thereafter. The 50% fee shall be payable to HBL within forty-five (45)
days of the close of the calendar quarter in which ABI receives any payment from
which such 50% fee should be calculated.
SECTION 3. RECORD KEEPING. ABI and its affiliates or
sublicensees shall keep accurate records in sufficient detail to enable
determination of the fees payable to HBL hereunder.
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SECTION 4. TERM. Unless sooner terminated as hereinafter
provided, this Agreement shall remain in effect for a period of ten (10) years
from the date of this Agreement. After that initial term, the Agreement shall be
automatically renewed for successive three (3) year terms unless one of the
Parties gives written notice of termination to the other prior to commencement
of the renewal term. Any termination pursuant to this paragraph shall not
relieve HBL of any obligation to fill purchase orders placed with HBL prior to
termination.
If ABI 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 ABI specifying the nature of the
default, HBL may terminate this Agreement, or may demand specific performance.
SECTION 5. CONFIDENTIALITY. 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 HBL TNF-a-containing products and which is designated in writing by
clearly identifiable legend as being confidential or secret in character.
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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:
(1) Is publicly known and available through some means other
than by the recipient Party's act or omission; or
(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
(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.
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.
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 HBL TNF-a-containing products.
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ABI 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 ABI shall secure
Confidential Disclosure Agreements) and to regulatory agencies in support of
applications for regulatory agency approval to make, test and/or sell HBL
TNF-a-containing products.
SECTION 6. MISCELLANEOUS.
(1) Force Majeure. The failure of HBL, ABI, 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.
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(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 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 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 ABI, 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.
(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 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
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it may designate by written notice given to the other Party as follows:
In case of HBL:
Mr. Katsuaki Hayashibara
Director, Overseas Business Development
Hayashibara Company, Ltd.
2-3, Shimoishii l-chome
Okayama 700, Japan
In case of ABI:
Dr. Joe Cummins, President
Amarillo Biosciences, Inc.
800 W. 9th
Amarillo, Texas 79101
(4) 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 ABI, which consent shall not be unreasonably withheld. This Agreement
shall not be assignable by ABI to any person or entity other than an ABI
affiliate or a sublicensee without the prior written consent of HBL, which
consent shall not be unreasonably withheld.
(5) 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
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implied, to obligate or bind the other in any manner whatsoever.
(6) Governmental Approval. In the event HBL has to obtain the
approval from appropriate governmental authorities of Japan to deliver HBL TNF-a
or products containing HBL TNF-a to the country in where ABI, ABI's affiliates
or sublicensees will use and/or market HBL TNF-a or products containing HBL
TNF-a, HBL's obligation pertaining to the supply of the said materials to the
said country shall be subject to the receipt by HBL of such written approval.
IN WITNESS WHEREOF, the Parties hereunto have caused this
Distribution Agreement to be executed in duplicate by their duly authorized
representatives as of the date first above written.
ABI: HBL:
AMARILLO BIOSCIENCES, INC. HAYASHIBARA BIOCHEMICAL
LABORATORIES, INC.
By: /s/ JOSEPH M. CUMMINS By: /s/ KEN HAYASHIBARA
-------------------------------- --------------------------------
Dr. Joseph M. Cummins Mr. Ken Hayashibara
President President
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EXHIBIT 10.29
DISTRIBUTION AGREEMENT:
TNF-A: HUMAN, ORAL AND TOPICAL; OTHER SPECIES, ALL ROUTES
THIS AGREEMENT is made and effective this 17th day of
September 1997, by and between AMARILLO BIOSCIENCES, INC., a Texas corporation
with its principal place of business at 800 W. 9th, Amarillo, Texas 79101
(hereinafter "ABI") and HAYASHIBARA BIOCHEMICAL LABORATORIES, INC., with its
principal place of business at 2-3, Shimoishii l-chome, Okayama 700, Japan
(hereinafter "HBL") (ABI and HBL collectively referred to hereinafter as the
"Parties").
WHEREAS, HBL desires to grant to ABI, and ABI desires to have,
the exclusive right to distribute HBL's human tumor necrosis factor alpha
(hereinafter, "HBL TNF-a") for oral and topical use in human species and use by
all routes of administration in non-human species worldwide, except Japan;
NOW, THEREFORE, for and in consideration of the mutual
covenants contained herein, HBL and ABI agree as follows:
SECTION 1. RIGHT TO DISTRIBUTE. HBL hereby grants to ABI the
exclusive right to distribute products containing HBL TNF-a for oral and topical
use in human species and use by all routes of administration in non-human
species worldwide, except Japan.
SECTION 2. CONSIDERATION. HBL shall receive a transfer fee
from ABI in the amount of (US) five cents ($.05)
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per 200 Japanese Reference Unit ("JRU") 200 mg tablet or lozenge, or comparable
tablet or lozenge, f.o.b. Okayama, Japan, which price shall include the TNF-a
contained therein, maltose, other required ingredients, TNF-a assays, and
techni- cal assistance. If HBL TNF-a is shipped in bulk, as may be requested by
ABI, HBL shall receive, in lieu of the above, the amount of (US) one hundred
fifty and no/100 dollars ($150.00) per two hundred thousand (200,000) JRU of HBL
TNF-a, f.o.b. Okayama, Japan. If HBL TNF-a is formulated at ABI'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 ABI or its affiliate, a manufacturing and
supply fee equal to eight percent (8%) of the Net Sales Value of HBL
TNF-a-containing products sold by ABI for use in any species, worldwide. Net
Sales Value for this purpose shall mean the amount of cash and/or other
consideration actually received by ABI or its affiliates or sublicensees, with
respect to the sale by ABI, its affiliates, or sublicensees of a HBL
TNF-a-containing product after the product is diluted into packaged dose
formulations or compositions designated or detailed and labeled for use in any
species, including all packaging, instructional or other charges made to a
purchaser, but less ABI's (or its
-2-
<PAGE> 3
affiliate's or sublicensee'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.
Payment of the manufacturing and supply fee of eight percent
(8%) of Net Sales Value 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 ABI
and its affiliates and/or its sublicensees during said calendar quarter,
beginning with the calendar quarter in which products are first sold by ABI, its
affiliates, or sublicensees. Such fee payment shall be accompanied by a
statement certified by an officer of ABI 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 fee 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.
-3-
<PAGE> 4
Payments 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, fees 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 fee
accrued.
In addition to the aforesaid fees, HBL shall receive fifty
percent (50%) of any license fee, option fee, or other payment, except royalty
or specific research or patent expense reimbursements, which ABI may receive for
the sublicense of rights under this Agreement to the sale and/or use of HBL
TNF-a (hereinafter, "50% fee"). The transfer fees payable to HBL for products
delivered to ABI 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 ABI, its affiliate or sublicensee, and each calendar
quarter thereafter. The 50% fee shall be payable to HBL within forty-five (45)
days of the close of the calendar quarter in which ABI receives any payment from
which such 50% fee should be calculated.
SECTION 3. RECORD KEEPING. ABI and its affiliates or
sublicensees shall keep accurate records in sufficient detail to enable
determination of the fees payable to HBL hereunder.
-4-
<PAGE> 5
SECTION 4. TERM. Unless sooner terminated as hereinafter
provided, this Agreement shall remain in effect for a period of ten (10) years
from the date of this Agreement. After that initial term, the Agreement shall
be automatically renewed for successive three (3) year terms unless one of the
Parties gives written notice of termination to the other prior to commencement
of the renewal term. Any termination pursuant to this paragraph shall not
relieve HBL of any obligation to fill purchase orders placed with HBL prior to
termination.
If ABI 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 ABI specifying the nature of the
default, HBL may terminate this Agreement, or may demand specific performance.
SECTION 5. CONFIDENTIALITY. 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 HBL TNF-a-containing products and which is designated in writing by
clearly identifiable legend as being confidential or secret in character.
-5-
<PAGE> 6
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:
(1) Is publicly known and available through some means other
than by the recipient Party's act or omission; or
(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
(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.
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.
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 HBL TNF-a-containing
products.
-6-
<PAGE> 7
ABI 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 ABI shall secure
Confidential Disclosure Agreements) and to regulatory agencies in support of
applications for regulatory agency approval to make, test and/or sell HBL
TNF-a-containing products.
SECTION 6. MISCELLANEOUS. (1) Force Majeure. The failure of
HBL, ABI, 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.
-7-
<PAGE> 8
(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 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 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 ABI, 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.
(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 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
-8-
<PAGE> 9
it may designate by written notice given to the other Party as follows:
In case of HBL:
Mr. Katsuaki Hayashibara
Director, Overseas Business Development
Hayashibara Company, Ltd.
2-3, Shimoishii l-chome
Okayama 700, Japan
In case of ABI:
Dr. Joe Cummins, President
Amarillo Biosciences, Inc.
800 W. 9th
Amarillo, Texas 79101
(4) 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 ABI, which consent shall not be unreasonably withheld. This Agreement
shall not be assignable by ABI to any person or entity other than an ABI
affiliate or a sublicensee without the prior written consent of HBL, which
consent shall not be unreasonably withheld.
(5) 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
-9-
<PAGE> 10
implied, to obligate or bind the other in any manner whatsoever.
(6) Governmental Approval. In the event HBL has to obtain the
approval from appropriate governmental authorities of Japan to deliver HBL TNF-a
or products containing HBL TNF-a to the country in where ABI, ABI's affiliates
or sublicensees will use and/or market HBL TNF-a or products containing HBL
TNF-a, HBL's obligation pertaining to the supply of the said materials to the
said country shall be subject to the receipt by HBL of such written approval.
IN WITNESS WHEREOF, the Parties hereunto have caused
this Distribution Agreement to be executed in duplicate by
their duly authorized representatives as of the date first
above written.
ABI: HBL:
- --- ---
AMARILLO BIOSCIENCES, INC. HAYASHIBARA BIOCHEMICAL
LABORATORIES, INC.
By: /s/ JOSEPH M. CUMMINS By: /s/ KEN HAYASHIBARA
----------------------------------- --------------------------------
Dr. Joseph M. Cummins Mr. Ken Hayashibara
President President
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 879,170
<SECURITIES> 6,007,182
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,957,131
<PP&E> 234,163
<DEPRECIATION> 108,984
<TOTAL-ASSETS> 7,248,631
<CURRENT-LIABILITIES> 214,068
<BONDS> 2,600,000
0
0
<COMMON> 54,142
<OTHER-SE> 4,380,421
<TOTAL-LIABILITY-AND-EQUITY> 7,248,631
<SALES> 396
<TOTAL-REVENUES> 652,658
<CGS> 0
<TOTAL-COSTS> 1,650,415
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118,060
<INCOME-PRETAX> (2,471,252)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,471,252)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,471,252)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
</TABLE>
