<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 1997
REGISTRATION NO. 333-23319
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ASCENT PEDIATRICS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 2834 04-3047405
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
------------------------
187 BALLARDVALE STREET, WILMINGTON, MASSACHUSETTS 01887 (508) 658-2500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ALAN R. FOX
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ASCENT PEDIATRICS, INC.
187 BALLARDVALE STREET
WILMINGTON, MASSACHUSETTS 01887
(508) 658-2500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID E. REDLICK, ESQ. DOUGLAS A. ZINGALE, ESQ.
HALE AND DORR LLP MINTZ, LEVIN, COHN, FERRIS,
60 STATE STREET GLOVSKY & POPEO, P.C.
BOSTON, MASSACHUSETTS 02109 ONE FINANCIAL CENTER
(617) 526-6000 BOSTON, MASSACHUSETTS 02111-2657
(617) 542-6000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Dated May 16, 1997
2,000,000 SHARES
[ASCENT PEDIATRICS LOGO]
COMMON STOCK
------------------------
All of the shares of Common Stock, par value $.00004 per share (the "Common
Stock"), offered hereby are being sold by Ascent Pediatrics, Inc. ("Ascent" or
the "Company").
Prior to this offering there has been no public market for the Common Stock
of the Company. It is estimated that the initial public offering price of the
Common Stock will be between $11.00 and $13.00 per share. See "Underwriting" for
a discussion of the factors to be considered in determining the initial public
offering price. The Common Stock has been approved for quotation on the Nasdaq
National Market, upon notice of issuance, under the symbol "ASCT."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............. $ $ $
Total(3)............... $ $ $
==================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated to be $800,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 300,000
additional shares of Common Stock at the Price to Public, less Underwriting
Discounts and Commissions to cover over-allotments, if any. If all such
additional shares are purchased, the total Price to Public, Underwriting
Discounts and Commissions, and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, and subject to their right to reject
orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates for the shares will be made at the
offices of Cowen & Company, New York, New York, on or about , 1997.
------------------------
COWEN & COMPANY
VOLPE BROWN WHELAN & COMPANY
ADAMS, HARKNESS & HILL, INC.
, 1997
<PAGE> 3
Finally, a pharmaceutical company dedicated to satisfying the "toughest
customers" in the world.
[Picture of a boy in overalls holding a baseball sitting on stairs next to
bulldog]
[LOGO]
ASCENT
PEDIATRICS, INC.
Developing Medicines Just For
Kids
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING,
MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET AND MAY
IMPOSE PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus, including "Risk Factors" herein. Ascent is a development
stage company and, to date, has generated no revenues from product sales. See
"Risk Factors -- Early Stage of Development; History of Operating Losses and
Cumulative Deficit." Except as otherwise indicated, all information in this
Prospectus assumes no exercise of the Underwriters' over-allotment option and
reflects (i) the conversion of all outstanding shares of the Company's
Convertible Preferred Stock into an aggregate of 4,440,564 shares of Common
Stock upon the consummation of this offering (the "Preferred Stock Conversion")
and (ii) a 0.85-for-one reverse stock split of the Common Stock of the Company
to be effected immediately prior to the effective date of the registration
statement of which this Prospectus is a part.
THE COMPANY
Ascent Pediatrics, Inc. ("Ascent" or the "Company"), is a drug development
and marketing company focused exclusively on the pediatric market. The Company's
strategy is to address unmet medical needs of children through the development
of differentiated, proprietary products based on approved compounds with well
known clinical profiles. Ascent is developing a range of pharmaceuticals
designed to improve upon currently available products for common pediatric
illnesses through the application of its drug delivery and reformulation
technologies. The Company is developing most of these products for sale on a
prescription basis. By developing products based on currently approved drugs,
rather than new chemical entities, Ascent believes that it can reduce regulatory
and development risks and shorten the product development cycle. In addition,
Ascent believes that market acceptance of its products will be enhanced by the
familiarity of pediatricians with the compounds that serve as the basis of these
products. The Company plans to introduce its first three products to the market
in the second half of 1997 and has seven other principal products in
development. The Company intends to market its products in the United States
through a direct sales force focused exclusively on the pediatric market.
The United States market for prescription pharmaceutical products for
children age 16 years and younger was estimated by Scott-Levin, a healthcare
consulting firm ("Scott-Levin"), to be approximately $3.5 billion in 1996,
representing a compound annual growth rate of approximately 9% over the 1992
level. Despite the size of the pediatric pharmaceutical market, the Company
believes that this market has been underserved by the large pharmaceutical
companies and will be receptive to a company whose sole mission is developing
and marketing drugs for children. Pharmaceutical companies historically have
concentrated their drug development efforts on the adult market or have pursued
pediatric presentations only as product line extensions. In addition, there are
a number of drug administration and patient compliance issues particular to the
pediatric market which result from the unpleasant taste and texture, frequent
dosing regimens, complex or difficult delivery methods or unfavorable side
effect profiles of certain drugs. The Company believes that the special needs of
this market and the relatively low number of drugs developed specifically for
pediatric use have resulted in an opportunity to address unmet medical needs of
children.
In January 1997, the Division of Anti-Infective Drugs of the United States
Food and Drug Administration (the "FDA") notified Ascent that it recommended
approval of the Company's New Drug Application ("NDA") for Primsol trimethoprim
solution, a prescription antibiotic for the treatment of ear infections in
patients age six months to twelve years, with a label reflecting that Primsol
solution would not be a product for first line therapy (i.e., the first course
of treatment selected in most instances by a physician) for this indication. The
FDA has not yet approved the Company's NDA for Primsol solution. Trimethoprim
for the treatment of ear infections in children is currently available only in
combination with a sulfa compound that is associated with allergic reactions.
Primsol solution contains trimethoprim only and in clinical trials demonstrated
a more favorable side effect profile than the combination therapy. Because of
this improved side effect profile, the Company believes that pediatricians will
be more likely to prescribe an antibiotic comprised only of trimethoprim for the
treatment of ear infections in children than they historically have been to
prescribe the combination therapy. In March 1997, the Company entered into an
agreement with Upsher-Smith Laboratories, Inc. ("Upsher-Smith"), to acquire the
currently marketed Feverall line of acetaminophen rectal suppository products.
The Company plans to introduce Primsol solution and Feverall suppositories to
the
3
<PAGE> 5
market in the second half of 1997, along with Pediamist, an over-the-counter
nasal saline spray developed by Ascent that uses a metering device to facilitate
pediatric use.
In addition to these three products, the Company has seven other products
in various stages of development. Prednisolone sodium phosphate syrup is a
steroid for the treatment of inflammation, including inflammation resulting from
respiratory conditions, for which the Company expects to file Abbreviated New
Drug Applications ("ANDAs") with the FDA in the second half of 1997. Pediatemp
acetaminophen controlled-release beads is an analgesic and antipyretic for the
treatment of pain and fever for which the Company recently completed Phase III
clinical trials and, subject to the results of these trials being satisfactory,
plans to file an NDA in the second half of 1997. Pediavent albuterol
controlled-release suspension is a bronchodilator for the treatment of asthma
which currently is in Phase I clinical trials. Cromolyn sodium cream is a
topical cream for the treatment of moderate to severe contact dermatitis which
currently is in Phase I clinical trials. Cromolyn sodium controlled-release
nasal spray is a drug for the treatment of nasal allergies that is undergoing
preclinical testing. The Company also is developing a line of over-the-counter
cough/cold products and an over-the-counter acetaminophen controlled-release
solution.
Ascent believes that an important part of fulfilling its mission of
becoming a leader in the development and marketing of pediatric pharmaceuticals
is the establishment of a corporate identity. Accordingly, even before the
launch of its first products, Ascent has initiated a program to familiarize
pediatricians with the Ascent name. Ascent is establishing a domestic sales
organization to promote the Company's products to high prescribing
pediatricians, influential pediatricians and pediatric nurses. Ascent plans to
supplement these activities with telemarketing, direct mail and advertisements
in speciality pediatric journals. Ascent also intends to promote its products
directly to managed care providers in order to obtain inclusion on these
providers' formularies and has retained a consulting firm to assist it in this
process.
Ascent seeks competitive protection for its products in a variety of ways,
including the creation of proprietary formulations using technologies, such as
taste masking and controlled-release systems, that are covered by patents or
patent applications owned by or licensed to the Company or its suppliers.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby................................. 2,000,000 shares
Common Stock to be outstanding after the offering........... 6,638,719 shares(1)
Use of proceeds............................................. To fund a portion of the
purchase price of the Feverall
product line and for product
development and sales and
marketing costs and general
corporate purposes.
Proposed Nasdaq National Market symbol...................... ASCT
</TABLE>
- ---------------
(1) Reflects the Preferred Stock Conversion. Excludes (i) 1,675,248 shares
reserved for issuance upon the exercise of options and warrants outstanding
as of March 31, 1997 at a weighted average exercise price of $6.28 per
share, (ii) up to an aggregate of 583,332 shares of Common Stock (assuming
an initial public offering price of $12.00 per share) issuable upon the
conversion of the Company's Convertible Subordinated Secured Notes (the
"Triumph Notes") in the aggregate original principal amount of $7,000,000
issued or issuable no later than the closing of this offering and (iii)
561,073 shares of Common Stock at an exercise price of $0.01 per share and
218,195 shares of Common Stock at an exercise price of $5.29 per share
reserved for issuance upon the exercise of warrants issued or issuable in
connection with the Triumph Notes (the "Triumph Warrants"). Warrants for
699,783 shares referred to in clause (i) of the preceding sentence contain a
cashless exercise feature which, if exercised in full prior to the closing
of this offering (and assuming an initial public offering price of $12.00
per share), would result in the issuance of 266,072 shares of Common Stock
with no additional proceeds to the Company. See "Dilution,"
"Capitalization," "Certain Transactions" and "Description of Capital Stock."
4
<PAGE> 6
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
COMBINED PRO ----------------------------- CUMULATIVE
FORMA 1997 FROM INCEPTION
YEAR ENDED DECEMBER 31, YEAR ENDED COMBINED (MARCH 16,
---------------------------------------------- DECEMBER 31, PRO 1989) TO
1992 1993 1994 1995 1996 1996(1) 1996 1997 FORMA(1) MARCH 31, 1997
------- ------- ------- ------- ---------- ------------ ----- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues............. $ -- $ -- $ -- $ 304 $ -- $ 3,877 $ -- $ -- $ 795 $ 304
Costs and expenses:
Cost of sales...... -- -- -- -- -- 1,434 -- -- 356 --
Research and
development...... 558 1,221 2,551 2,986 3,761 3,761 475 1,528 1,528 13,538
Selling, general
and
administrative... 706 723 1,141 1,532 2,805 5,142 428 973 1,606 9,176
------- ------- ------- ------- ---------- ---------- ----- ---------- ---------- --------
Loss from
operations......... (1,264) (1,944) (3,692) (4,214) (6,566) (6,460) (903) (2,501) (2,695) (22,410)
Interest income...... 47 123 147 113 79 79 25 73 73 826
Interest expense..... -- -- -- -- -- (468) -- (20) (147) (20)
Gain on sale of fixed
assets............. -- -- -- -- -- -- -- 9 9 9
------- ------- ------- ------- ---------- ---------- ----- ---------- ---------- --------
Net loss............. $(1,217) $(1,821) $(3,545) $(4,101) $ (6,487) $ (6,849) $(878) $ (2,439) $ (2,760) $(21,595)
======= ======= ======= ======= ========== ========== ===== ========== ========== ========
Pro forma and
combined pro forma
net loss per
share(2)........... $ (1.48) $ (1.56) $ (0.56) $ (0.63)
========== ========== ========== ==========
Pro forma weighted
average common and
common equivalent
shares(2).......... 4,384,197 4,384,197 4,384,197 4,384,197
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------------------------------
COMBINED PRO FORMA
AS
ACTUAL COMBINED PRO FORMA(1) ADJUSTED(1)(3)
-------- --------------------- ------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities..................... $ 8,300 $ 7,154 $ 28,674
Working capital...................................................... 6,431 35 21,555
Total assets......................................................... 9,672 20,172 41,692
Long-term debt, net of current portion............................... 2,020 4,514 4,514
Redeemable preferred stock........................................... 25,010 -- --
Deficit accumulated during the development stage..................... (22,292) (22,292) (22,292)
Total stockholders' equity (deficit)................................. (19,437) 8,079 29,599
</TABLE>
- ---------------
(1) Presented on a combined pro forma basis to give effect to (i) the probable
acquisition of the Feverall product line from Upsher-Smith for $11,500,000
plus the cost of certain related inventory (assumed for this purpose to be
$235,696) as if such acquisition had occurred on January 1, 1996 with
respect to Statement of Operations Data and on March 31, 1997 with respect
to Balance Sheet Data, (ii) the issuance of $5,000,000 of Triumph Notes no
later than the closing of this offering presented as if this transaction
occurred on January 1, 1996 with respect to Statement of Operations Data and
on March 31, 1997 with respect to Balance Sheet Data with such Triumph Notes
recorded as a liability (after allocating $1,668,746 as value attributable
to warrants) of $3,331,254, which will be accreted up to the Triumph Notes'
face value of $5,000,000 over the term of the Triumph Notes and such
accretion in the amount of $1,668,746 will be recorded as interest expense
in addition to the stated interest rate, (iii) the Preferred Stock
Conversion and (iv) the reclassification of $2,505,740 of warrant
obligations to additional paid in capital as described in Note L to Notes to
Financial Statements. See "Capitalization," "Certain Transactions" and
"Unaudited Combined Pro Forma Financial Statements."
(2) See Note B to Notes to Financial Statements for information concerning the
computation of pro forma net loss per share and shares used in computing pro
forma net loss per share.
(3) Reflects the sale of the 2,000,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $12.00 per
share and the application of net proceeds therefrom, after deducting the
underwriting discounts and commissions and estimated offering expenses
payable by the Company. See "Capitalization," "Use of Proceeds" and "Certain
Transactions."
5
<PAGE> 7
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors, in addition to the other information
contained in this Prospectus, should be carefully considered in evaluating the
Company and its business before purchasing the shares of Common Stock offered
hereby. This Prospectus contains forward-looking statements. For this purpose,
any statements contained herein that are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," "intends" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by such forward-looking statements. These
factors include, without limitation, those set forth below and elsewhere in this
Prospectus.
EARLY STAGE OF DEVELOPMENT; HISTORY OF OPERATING LOSSES AND CUMULATIVE DEFICIT
Ascent is a development stage company. The Company has incurred net
operating losses since its inception. At March 31, 1997, the Company's
cumulative deficit was approximately $22,292,000. Such losses have resulted
primarily from costs incurred in the Company's product development programs and
from general and administrative costs associated with the Company's product
development. No revenues have been generated by the Company from product sales.
The Company expects to incur additional operating losses over at least the next
two years, as it continues its product development programs and establishes a
sales and marketing organization, and expects cumulative losses to increase. The
Company expects that losses will fluctuate from quarter to quarter and that such
fluctuations may be substantial. The Company's ability to achieve profitability
is dependent in part upon obtaining regulatory approval for new products,
commercial acceptance of products that are introduced to the market after
required approvals have been obtained and the successful development and
commercialization of its products. There can be no assurance that the Company
will obtain required regulatory approvals, successfully develop, commercialize,
manufacture and market its products or ever achieve sales or profitability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNCERTAINTY RELATED TO APPROVAL OF PRIMSOL TRIMETHOPRIM SOLUTION
In January 1997, the Division of Anti-Infective Drugs of the FDA notified
Ascent that it recommended approval of the Company's NDA for Primsol
trimethoprim solution for the treatment of acute otitis media ("AOM"), or middle
ear infection, for children age six months to twelve years, with a label
reflecting that Primsol solution would not be a product for first line therapy
for this indication. However, the FDA has not yet granted such marketing
approval, and there can be no assurance that such approval in fact will be
granted or as to the timing thereof. In October 1996, Ascent filed a second NDA
with the FDA covering a more concentrated formulation of Primsol solution.
Ascent plans to introduce this improved formulation as the Primsol solution
product that it brings to market. If the Company does not receive approval of
its NDA for this more concentrated formulation on a timely basis, the Company
would introduce the first formulation as the Primsol solution product that it
brings to market (provided it receives marketing approval for such formulation).
If the FDA were not to grant marketing approval of either formulation of Primsol
solution for this indication, or if there were significant delays in such
approval, the business, financial condition and operating results of the Company
would be adversely affected, possibly materially. In addition, in the event that
Primsol solution does not receive marketing approval for this indication prior
to the cold and flu season in the second half of 1997, the Company's
establishment of a dedicated marketing staff and sales force and the
introduction of any other products by the Company would be delayed, possibly
materially, which could have a material adverse effect on the Company's
business, financial condition and operating results. Ascent currently does not
plan to introduce any products to the market until it receives Primsol solution
marketing approval for this indication. See "Business -- Products and Products
Under Development -- Primsol Trimethoprim Solution."
PRODUCTS IN DEVELOPMENT; TECHNOLOGICAL UNCERTAINTY
Ascent has not yet introduced any product into the market. Although the
Company has completed development of certain of its products, many of the
Company's product candidates are in development and
6
<PAGE> 8
require additional formulation, preclinical studies, clinical trials and
regulatory approval prior to any commercial sales. With respect to certain
product candidates, the Company must successfully address a number of
technological challenges to complete its development efforts. In addition, there
can be no assurance that the Company will be permitted to undertake and complete
human clinical trials of certain of the Company's potential products, either in
the United States or elsewhere, or, if permitted, that such products will be
demonstrated to be safe and efficacious. The administration of any product the
Company develops may produce undesirable side effects that could result in the
interruption, delay or suspension of clinical trials. In addition, there can be
no assurance that any of the Company's product candidates will obtain the
approval of the FDA or other regulatory approvals or that any approved product
will be capable of being produced in commercial quantities at reasonable cost
and successfully marketed.
LIMITED SALES AND MARKETING EXPERIENCE
The Company expects to market and sell its products in the United States
through its own dedicated marketing staff and sales force. The Company has
limited experience in marketing and sales and has only recently begun to recruit
a marketing staff and sales force. The Company believes that its success will
depend in significant part upon its ability to recruit, train and retain a
dedicated marketing staff and sales force capable of promoting its products.
Significant additional expenditures, management resources and time will be
required for the Company to assemble a marketing staff and sales force. There
can be no assurance that the Company will be able to attract and build a
satisfactory marketing staff and sales force, that the Company will be able to
assemble a marketing staff and sales force on a timely basis, that the cost of
establishing a marketing staff and sales force will be justifiable in light of
product revenues or that the Company's direct marketing and sales efforts will
be successful. Should the Company fail to recruit and train a marketing staff
and sales force on a timely basis, or otherwise fail in its marketing and sales
efforts, its business, financial condition and operating results would be
materially adversely affected. See "Business -- Sales and Marketing."
UNCERTAINTY OF MARKET ACCEPTANCE OF PRODUCTS
Although many of the Company's product candidates are reformulations of
compounds marketed by other manufacturers, there can be no assurance that these
products or other current or future products of the Company will achieve market
acceptance. The commercial success of the Company's products and products under
development, when and if any required approval for marketing by the FDA or any
other regulatory agency is obtained, will depend, in significant part, on such
products' efficacy, side effect profile, taste, dosing frequency, method of
administration, patent and other proprietary position, brand name recognition
and price. Another important factor will be the timing of market introduction of
the Company's or competitive products. Earlier entrants in the market often
obtain and maintain significant market share relative to later entrants.
The commercial success of the Company's products also will depend in
significant part upon their acceptance by pediatricians, pediatric nurses and
third party payors (particularly managed care providers). Acceptance of the
Company's products by pediatricians, pediatric nurses and third party payors
will in turn be dependent upon the success of the Company's marketing and sales
activities. There can be no assurance that pediatricians, pediatric nurses and
third party payors will accept the Company's products on a timely basis or at
all. In addition, in order to stimulate demand for its products, the Company may
be required to, among other things, offer substantial price discounts. Failure
to achieve market acceptance would have a material adverse effect on the
Company's business, financial condition and operating results.
COMPETITION
Competition in the pediatric pharmaceutical market is intense. Several
large pharmaceutical companies with significant research, development, marketing
and manufacturing operations market pediatric products in addition to products
for the adult market. These competitors include Glaxo Wellcome Inc., Eli Lilly
and Company, the Mead Johnson Division of Bristol-Myers Squibb, Inc., the
Ortho-McNeil Pharmaceutical Division of Johnson & Johnson Inc., Pfizer Inc., the
Ross Products Division of Abbott Laboratories Inc., Schering-Plough Corporation
and the Wyeth-Lederle Vaccines and Pediatrics Division of American Home
Products, Inc.
7
<PAGE> 9
Many of the companies against which Ascent will compete have substantially
greater name recognition and greater financial, technical and human resources
than Ascent. In addition, many of these competitors have significantly greater
experience than the Company in undertaking preclinical testing and human
clinical trials of pharmaceutical products and obtaining FDA and other
regulatory approvals of products for use in health care. Accordingly, the
Company's competitors may succeed in obtaining FDA or other regulatory approvals
for products more rapidly than the Company. Furthermore, subject to obtaining
required regulatory clearances, Ascent will compete against these larger
companies with respect to manufacturing efficiency and marketing capabilities,
areas in which Ascent has limited or no experience. These competitors may
introduce competitive pricing pressures that may adversely affect Ascent's sales
levels and margins. Moreover, many of these competitors offer well established,
broad product lines and services not offered by the Company. Many of the
products and services offered by these competitors have well known brand names
that have been promoted over many years.
The Company expects to market many of its product candidates as alternative
treatments for pediatric indications for which products with the same active
ingredient are well entrenched in the market. For example, the Company intends
to market Primsol, a trimethoprim antibiotic, for the treatment of AOM, an
indication for which pediatricians often prescribe the well-known combination
therapies Bactrim and Septra, which also contain trimethoprim. Similarly,
Pediatemp acetaminophen controlled-release beads will compete against Tylenol
liquid for children. The Company's product candidates also will face competition
from other products that do not contain the same active ingredient but are used
for the same indication and are well entrenched within the pediatric market. For
example, Primsol solution will compete against other antibiotics, including
amoxicillin. Moreover, many of the Company's potential products that are
reformulations of existing drugs of other manufacturers may have limited patent
or other competitive protection. There can be no assurance that pediatricians,
pediatric nurses and third party payors will prefer the Company's products to
existing products. See "Business -- Competition."
The Company plans to apply for three year protection for certain products
under the Drug Price Competition and Patent Term Restoration Act of 1984 (the
"Waxman-Hatch Act") from the approval of a potential competitor's ANDA which is
based on the Company's clinical trial results. There can be no assurance that
any of the Company's products will qualify for protection under the Waxman-Hatch
Act or, if any product does so qualify, that the statutory protection will
enhance the competitive position of such product. See "Business -- Government
Regulation."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's future capital requirements will depend on many factors,
including continued progress in its product development programs, the magnitude
of these programs, the results of preclinical studies and clinical trials, the
time and costs involved in obtaining regulatory approvals, the costs involved in
filing, prosecuting, enforcing and defending patent claims, competing
technological and market developments, the ability of the Company to establish
and maintain a sales and marketing capability and product development,
manufacturing and marketing relationships, and the costs and success of
commercialization activities and arrangements. The Company's business strategy
requires a significant commitment of funds to conduct clinical testing of
potential products, to pursue regulatory approval of such products and to
establish sales and marketing capabilities and manufacturing relationships
necessary to bring such products to market.
Based on its current operating plan, the Company anticipates that its
existing capital resources, together with the proceeds of this offering and
interest earned thereon, the net proceeds from the issuance of an additional
$5,000,000 of Triumph Notes and internally generated funds, will be adequate to
satisfy its capital requirements for at least the next 24 months. The Company
anticipates that it may be required to raise substantial additional funds from a
number of potential sources, including through collaborative relationships and
public or private financings. No assurance can be given that additional
financing will be available, or, if available, that it will be available on
acceptable terms. If additional funds are raised by issuing equity securities,
further dilution to then existing stockholders will result. Additionally, the
terms of the financing may adversely affect the holdings or the rights of the
then existing stockholders. If adequate funds are not available, the Company may
be required to significantly curtail one or more of its product development
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programs or product commercialization efforts, or obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates or
products which the Company would otherwise pursue on its own. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
UNCERTAINTY OF IDENTIFICATION OR ACQUISITION OF NEW PRODUCT CANDIDATES AND NEW
TECHNOLOGIES
The success of the Company depends in part upon its ability to identify and
develop or obtain rights to pharmaceuticals suitable for pediatric use. There
can be no assurance that the Company will be successful in identifying and
developing pharmaceuticals suitable for pediatric use or in acquiring such
rights. The Company's success also depends upon its ability to apply its drug
delivery and reformulation technologies to produce proprietary products. There
can be no assurance that the Company will be able to develop additional
technologies or obtain rights from third parties to additional technologies on
reasonable terms, or at all.
UNPROVEN SAFETY AND EFFICACY OF PRODUCTS; UNCERTAINTIES RELATED TO CLINICAL
TRIALS
In order to obtain regulatory approval for the commercial sale of many of
its products, the Company is conducting or plans to conduct clinical trials to
demonstrate that such products are safe and effective. There can be no assurance
that any of these clinical trials will be successfully completed within any
specified time period, if at all. The results from early clinical trials may not
be predictive of results that will be obtained in large-scale clinical trials,
and there can be no assurance that the Company's clinical trials will
demonstrate the safety and effectiveness of any products or will result in
marketable products.
The rate of completion of the Company's clinical trials is dependent upon,
among other things, the rate of patient enrollment. Patient enrollment is a
function of many factors, including the size of the patient population, the
nature of the protocol, the proximity of patients to clinical sites and the
eligibility criteria for the study. Historically, recruiting children to
participate in clinical trials has been difficult, as parents are reluctant to
permit their children to take experimental medications. Delays in planned
patient enrollment may result in increased costs, program delays, or both, which
could have a material adverse effect on the Company.
The Company has contracted with clinical research organizations for the
conduct of all of its clinical trials and expects to continue to do so for the
foreseeable future. There can be no assurance that such entities will conduct
the clinical trials successfully. The Company relies on scientific, technical
and clinical data supplied by its academic and industry collaborators and
licensors in the design, development and evaluation of product candidates. There
can be no assurance that there are no errors or omissions in such data that
would materially adversely affect the development of these products.
NO ASSURANCE OF REGULATORY APPROVAL; EXTENSIVE GOVERNMENT REGULATION
The production and the marketing of the Company's products and the
Company's ongoing product development activities are and will be subject to
extensive regulation by numerous federal, state and local governmental
authorities in the United States and abroad. The Company has had only limited
experience in filing or pursuing applications necessary to gain regulatory
approvals. Preclinical testing of the Company's product candidates is subject to
Good Laboratory Practice ("GLP") requirements and the manufacture of products is
subject to Good Manufacturing Practice ("GMP") requirements prescribed by the
FDA.
Many of the products that the Company is developing will be subject to the
NDA regulatory process. This process generally includes preclinical studies,
clinical trials and ongoing post-approval testing of each compound to establish
or monitor its safety and effectiveness for the intended indications, typically
takes many years and requires the expenditure of substantial resources. The
Company has limited experience in filing or pursuing applications necessary to
gain regulatory approval. There can be no assurance that, even after the
performance of clinical studies and the expenditure of resources, regulatory
approval will be obtained for any products developed by the Company on a timely
basis, if at all. The Company's analysis of data obtained from preclinical and
clinical activities is subject to confirmation and interpretation by regulatory
authorities which could delay, limit or prevent FDA regulatory approval. The
Company or the FDA may suspend clinical trials
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at any time if the participants in such trials are being exposed to
unanticipated or unacceptable health risks. Moreover, if regulatory approval to
market a product is granted, such approval may entail limitations on the
indicated uses for which it may be marketed. See "Business -- Government
Regulation."
Failure to comply with applicable regulatory requirements can, among other
things, result in fines, suspension or withdrawal of regulatory approvals,
product recalls, seizure of products, operating restrictions and criminal
prosecutions. FDA policy may change and additional government regulations may be
established that could prevent or delay regulatory approval of the Company's
product candidates. In addition, a marketed product, its manufacturer and its
manufacturing facilities are subject to continual review and periodic
inspections, and subsequent discovery of previously unknown problems with a
product, manufacturer or facility may result in restrictions on such product or
manufacturer, including withdrawal of the product from the market. There can be
no assurance that additional statutes or regulations applicable to the Company's
business will not be adopted, impose substantial additional costs upon or
otherwise adversely affect the Company's operations.
The Company is also subject to numerous and varying foreign regulatory
requirements governing the design and conduct of clinical trials and the
manufacturing and marketing of its products. The approval procedure varies among
countries and can involve additional testing, and the time required to obtain
approval may differ from that required to obtain FDA approval. The foreign
regulatory approval process may include all of the risks associated with
obtaining FDA approval set forth above. There can be no assurance that foreign
regulatory approvals will be obtained on a timely basis, if at all.
DEPENDENCE ON THIRD PARTY MANUFACTURING; RISKS RELATED TO SOLE SOURCE OF SUPPLY
The Company has no manufacturing facilities and has to date relied, and
plans in the future to rely, upon third parties to manufacture the Company's
products in accordance with GMP for preclinical testing, clinical trial and
commercial purposes. In addition, the Company has not arranged for the
production of certain of its product candidates in commercial quantities, and it
is possible that the Company will encounter difficulties in scaling up the
production of these product candidates. Although there are a number of
manufacturers that operate under GMP regulations capable of manufacturing
certain of the Company's products, in the event that the Company is unable to
obtain contract manufacturing, or obtain such manufacturing on commercially
reasonable terms, it may not be able to develop and commercialize its products
as planned. Where third-party arrangements are established, the Company will
depend upon such third parties to perform their obligations in a timely manner.
There can be no assurance that third parties depended upon by the Company will
perform and any failures by third parties may delay clinical trial development
or the submission of products for regulatory approval, impair the Company's
ability to commercialize its products as planned and deliver products on a
timely basis, or otherwise impair the Company's competitive position, which
could have a material adverse effect on the Company's business, financial
condition and operating results.
Certain of the Company's supply arrangements require that Ascent buy all of
the Company's requirements of a particular product exclusively from the other
party to the contract. Moreover, for many of its products, Ascent has qualified
only one supplier, even though the contractual arrangement with the supplier may
permit Ascent to qualify an alternative manufacturer. Any interruption in supply
from any of the Company's manufacturers or the inability of these manufacturers
to manufacture the Company's products in accordance with GMP could have a
material adverse effect on the Company's business, financial condition and
operating results. See "Business -- Manufacturing and Distribution."
In the future, the Company may establish its own manufacturing facilities
if it becomes economically attractive to do so. In order for the Company to
establish a manufacturing facility, the Company would require substantial
additional funds and be required to hire and retain significant additional
personnel and comply with the extensive GMP regulations of the FDA.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The Company's success depends in part on its ability to develop patentable
products and obtain patent or other proprietary rights protection for its
products, both in the United States and in other countries. The
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Company intends to file applications as appropriate for patents and other
protection covering both its products and processes. However, the patent
positions of pharmaceutical firms, including Ascent, are generally uncertain and
involve complex legal and factual questions. Moreover, because the Company's
product candidates are reformulations of existing off-patent drugs, any patent
protection afforded will be significantly narrower than a patent on the active
ingredient itself. In particular, the Company does not expect that
composition-of-matter patent protection will be available for the active
ingredients in its products. No assurance can be given that patents will issue
from any patent applications owned by or licensed to the Company or that, if
patents do issue, the claims allowed will be sufficiently broad to protect the
Company's products or technology. In addition, no assurance can be given that
any issued patents owned by or licensed to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company.
The commercial success of the Company will also depend in part on its
neither infringing patents or other proprietary rights granted to competitors or
others nor breaching the technology licenses upon which the Company's products
are based. The Company's licenses of third party patents and patent applications
impose various commercialization, sublicensing, royalty and other payment,
insurance and other obligations on the Company. Failure of the Company to comply
with these requirements could result in termination of the licenses. Competitors
of the Company and other third parties hold issued patents and pending patent
applications which may result in claims of infringement against the Company or
other patent-related litigation. There can be no assurance that the Company will
be able to successfully obtain a license to any technology that it may require
or that, if obtainable, such technology can be licensed at a reasonable cost or
on an exclusive basis. Failure by the Company to obtain a license to any
technology that it may require to commercialize its products could have a
material adverse effect on the Company. See "Business -- Patents, Trade Secrets
and Licenses."
The pharmaceutical industry has been characterized by extensive litigation
regarding patents and other intellectual property rights. Litigation, which
could result in substantial cost to the Company, may be necessary to enforce any
patents issued or licensed to the Company and/or to determine the scope and
validity of others' proprietary rights. Competitors of the Company and other
third parties hold issued patents and pending patent applications relating to
aspects of the Company's technology, and it is uncertain whether these patents
and patent applications will require the Company to alter its products or
processes, pay licensing fees or cease activities. In particular, the Company is
aware of one United States patent issued to a pharmaceutical company that may be
alleged to be infringed by the Company's prednisolone sodium phosphate syrup
that is being developed. Although Welsh & Katz, Ltd., patent counsel to the
Company, is of the opinion that the Company's prednisolone sodium phosphate
syrup that is being developed does not infringe such patent, an opinion of
counsel only represents such counsel's view of applicable law and is not binding
on any court or governmental agency. In addition, there can be no assurance that
the holder of such patent or its licensees will not sue the Company to enforce
such patent, and there can be no assurance as to the outcome of any such action.
In the event that the holder of such patent or its licensees, within 45 days
after receipt of the Company's notification of the filing of an ANDA relating to
prednisolone syrup files a patent infringement suit against the Company claiming
that the Company's prednisolone syrup infringes its patent, any FDA approval of
the ANDA can not become effective until the earlier of (i) a determination that
such patent has been found to be invalid, unenforceable or not infringed, (ii)
such litigation has been dismissed or (iii) 30 months after the ANDA filing. The
Company also may have to participate in interference proceedings declared by the
United States Patent and Trademark Office to determine the priority of
inventions, which could result in substantial cost to the Company. Furthermore,
the Company may have to participate at substantial cost in International Trade
Commission proceedings to abate importation of products which would compete
unfairly with products of the Company.
The Company relies on trade secret and proprietary know-how which it seeks
to protect, in part, by confidentiality agreements with its collaborators,
employees, advisors and consultants. There can be no assurance that these
agreements will not be breached, that the Company would have adequate remedies
for any breach or that the Company's trade secrets will not otherwise become
known or be independently
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developed by competitors. Failure to obtain or maintain patent and trade secret
protection, for any reason, could have a material adverse effect on the
Company's business, financial condition and operating results.
UNCERTAINTY OF PHARMACEUTICAL PRICING AND ADEQUATE REIMBURSEMENT; NEED FOR
INCLUSION ON FORMULARIES
The Company's ability to commercialize its products successfully will
depend in part on the extent to which appropriate reimbursement levels for the
cost of such products are obtained from government authorities, private health
insurers and other organizations, such as health maintenance organizations
("HMOs"). Third-party payors are increasingly challenging the prices charged for
medical products and services. Also, the trend towards managed health care in
the United States and the concurrent growth of organizations such as HMOs, which
control or significantly influence the purchase of health care services and
products, as well as legislative proposals to reduce government insurance
programs, may all result in lower prices for the Company's products. The cost
containment measures that health care providers are instituting could affect the
Company's ability to sell its products and may have a material adverse effect on
the Company.
Thus, there can be no assurance that reimbursement in the United States or
foreign countries will be available for any of the Company's products, or if
available, will not be decreased in the future, or that reimbursement amounts
will not reduce the demand for, or the price of, the Company's products. The
unavailability or inadequacy of third-party reimbursement for the Company's
products would have a material adverse effect on the Company's business,
financial condition and operating results.
Managed care providers generally maintain formularies, or lists of
products, that such providers have approved for use and reimbursement. The
Company plans to seek to have its products included on such formularies. There
can be no assurance that the Company's products will be included on the
formularies of managed care providers on a timely basis, or at all. The
Company's success in obtaining inclusion of its products on managed care
formularies will materially affect the Company's business, financial condition
and operating results.
POTENTIAL PRODUCT LIABILITY EXPOSURE AND INSURANCE
The use of the Company's products in human clinical trials and the
commercial sale of such products may expose the Company to potential product
liability risks which are inherent in the testing, manufacturing, marketing and
sale of human therapeutic pharmaceuticals. Product liability claims might be
made directly by consumers, health care providers or by licensees, distributors
or others selling such products. There can be no assurance that product
liability claims, if made, would not result in a recall of the Company's
products or a change in the indications for which they may be used. Ascent has
limited product liability insurance coverage, and such coverage is subject to
various deductibles. Such coverage is expensive, and no assurance can be given
that the Company will be able to maintain or obtain such insurance at reasonable
cost or in sufficient amounts to protect the Company against losses due to
liability claims that could have a material adverse effect on the Company.
ATTRACTION AND RETENTION OF KEY EMPLOYEES
The Company is highly dependent on the principal members of its management
and scientific staff, particularly Dr. Clemente, the Company's Chairman, the
loss of whose services could have a material adverse effect on the Company.
Also, recruiting and retaining qualified scientific personnel to perform product
development work in the future will be critical to the Company's success. There
can be no assurance that the Company will be able to attract and retain such
highly skilled personnel on acceptable terms given the competition among
numerous pharmaceutical and health care companies, universities and non-profit
research institutions for experienced scientists. The Company does not carry
key-man insurance with respect to any of its executive officers other than Dr.
Clemente.
The Company's anticipated growth and expansion into areas and activities
requiring additional expertise, such as marketing and sales, are expected to
require the addition of new management personnel and the development of
additional expertise by existing management personnel. The failure to acquire
such services or
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to develop such expertise could have a material adverse effect on the Company's
business, financial condition and operating results.
RISKS RELATED TO POSSIBLE ACQUISITIONS
The Company may expand its operations or product offerings through the
acquisition of businesses, products or technologies. There can be no assurance
that the Company will be able to identify, acquire or profitably manage
additional businesses or successfully integrate any acquired businesses,
products or technologies into the Company without substantial expense, delays or
other operational or financial problems. Further, acquisitions may involve a
number of special risks, including diversion of management's attention, failure
to retain key acquired personnel, unanticipated events or circumstances and
legal liabilities, some or all of which could have a material adverse effect on
the Company's business, financial condition and operating results. In addition,
there can be no assurance that acquired businesses, products or technologies, if
any, will achieve anticipated revenues and earnings.
The Company is a party to an agreement with Upsher-Smith to purchase
Upsher-Smith's Feverall line of acetaminophen rectal suppositories. Although the
acquisition of this product line and related arrangements are the subject of
executed contracts, there are a number of conditions to closing and there can be
no assurance that these conditions will be satisfied and that Ascent will
acquire this product line or will do so on the terms specified in the existing
contracts. In the event that this acquisition does not close, management will
have broad discretion as to the use of the proceeds of this offering that
currently are expected to be used to finance a portion of the purchase price of
this acquisition. As of the date of this Prospectus, the Company has no other
agreements, understandings or commitments to effect any acquisition.
MANAGEMENT'S DISCRETION AS TO USE OF PROCEEDS
The Company currently intends to use approximately 28.1% ($6,050,000) of
the net proceeds of this offering to fund the portion of the purchase price of
Upsher-Smith's Feverall product line of acetaminophen rectal suppositories due
at the closing of the acquisition. The Company also currently intends to use the
balance of the net proceeds of this offering for other general corporate
purposes, which may include the payment of a portion of the $5,500,000 second
installment of the Feverall product line purchase price that is due in February
1998. There can be no assurance that the Feverall acquisition will close as
scheduled, if at all. In the event that the Feverall acquisition does not close,
management of the Company will have broad discretion as to the use of the
portion of the proceeds of this offering that currently is expected to be used
to finance such acquisition. See "Use of Proceeds," "Business -- Products and
Products Under Development -- Feverall Acetaminophen Suppositories."
DEPENDENCE ON COLLABORATORS
In addition to the manufacturing of product candidates and products, the
Company is dependent upon third parties with respect to significant other
aspects of its operations, including product design and formulation work,
conduct of clinical trials, marketing to managed care organizations and product
distribution. There can be no assurance that the Company will be able to enter
into future collaborative arrangements with respect to these matters or as to
whether any of the Company's existing or future relationships will be
successful. The success of any such arrangement is dependent on, among other
things, the skills, experience and efforts of the third party, the third party's
commitment to the arrangement and the financial condition of the third party,
all of which are beyond the control of the Company.
RELIANCE ON THIRD PARTIES FOR CERTAIN SALES AND MARKETING AND DISTRIBUTION
ACTIVITIES
The Company plans to sell its pediatric products in international markets
through distribution, licensing and similar arrangements and to sell its
products for adult indications in the United States and in international markets
through similar arrangements. To date, the Company has not entered into any
material arrangements of this nature. To the extent the Company enters into such
arrangements with third parties, any revenues the Company receives will depend
upon the efforts of such parties. There can be no assurance that any third party
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will market the Company's products successfully or that any arrangements with
third parties will be on terms favorable to the Company. If a third party does
not market the Company's products successfully, the Company's business,
financial condition and operating results would be adversely affected, possibly
materially. If Ascent's plan to rely on third parties for certain aspects of
marketing and selling the Company's products is unsuccessful for any reason,
Ascent may need to forgo international and adult market opportunities or recruit
and train a larger marketing staff and sales force and establish a larger
distribution capability than it currently anticipates doing, which would entail
the incurrence of significant additional costs.
Ascent initially plans to distribute its products through a third party
distribution warehouse. The Company has no experience with the distribution of
products and will rely on the third party distributor to perform various
functions on behalf of the Company, including order entry, customer service and
collection of accounts receivable. The success of this arrangement will be
dependent on, among other things, the skills, experience and efforts of the
third party distributor, all of which are beyond the control of the Company.
UNCERTAINTY OF HEALTH CARE REFORM MEASURES
Federal, state and local officials and legislators (and certain foreign
government officials and legislators) periodically propose or consider proposing
a variety of reforms to the health care systems in the United States and abroad.
The Company cannot predict what health care reform legislation, if any, will be
enacted in the United States or elsewhere or when such legislation will be
enacted. Significant changes in the health care system in the United States or
elsewhere are likely to have a substantial impact over time on the manner in
which the Company conducts its business and could have a material adverse effect
on the Company. The existence of pending health care reform proposals could have
a material adverse effect on the Company's ability to raise capital. Further, to
the extent that proposals have a material adverse effect on other pharmaceutical
companies that are prospective collaborators with the Company, the Company's
ability to establish collaborative commercial relationships may be adversely
affected.
NO PUBLIC MARKET; POSSIBLE VOLATILITY OF SHARE PRICE; DILUTION
Prior to this offering, there has been no public market for the Common
Stock of the Company, and there can be no assurance that an active trading
market will develop or be sustained after this offering. The initial public
offering price will be determined by negotiations among the Company and the
representatives of the Underwriters based upon several factors and may not be
indicative of future market prices. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
market price of the Company's Common Stock could be subject to wide fluctuations
in response to quarterly variations in the Company's operating results,
announcements of technological innovations, progress in the development of the
Company's product candidates or new products by the Company, its collaborative
partners or its competitors, governmental regulation, developments in patent or
other proprietary rights and public concern regarding the safety, effectiveness
or other implications of the products being developed by the Company. In
addition, the stock market has experienced extreme price and volume
fluctuations. This volatility has significantly affected the market prices of
securities of many pharmaceutical companies for reasons frequently unrelated to
or disproportionate to the operating performance of the specific companies.
These broad market fluctuations may adversely affect the market price of the
Company's Common Stock.
Purchasers of shares of Common Stock in this offering will experience an
immediate and substantial dilution of $9.33 per share in the net tangible book
value of the Common Stock from the initial public offering price (based on an
assumed initial public offering price of $12.00 per share). Additional dilution
is likely to occur upon exercise of outstanding warrants and stock options. See
"Dilution."
CONTROL BY DIRECTORS AND OFFICERS
Upon completion of this offering and based upon the ownership of the
Company's capital stock as of March 31, 1997, the Company's directors and
executive officers and their affiliates will beneficially own approximately
49.6% of the Company's outstanding Common Stock (approximately 47.9% if the
Underwriters exercise their over-allotment option in full). See "Principal
Stockholders." As a result, these stockholders, if
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acting together, will have the ability to control the outcome of most corporate
actions requiring stockholder approval, including actions concerning the
election of directors and the approval of certain mergers and other significant
corporate transactions, including a sale of substantially all of the Company's
assets, irrespective of how other stockholders of the Company may vote. This
concentration of ownership may have the effect of delaying or preventing a
change in control of the Company. See "Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
A substantial number of outstanding shares of Common Stock and shares of
Common Stock issuable upon exercise of outstanding options, warrants and
convertible debt will become eligible for future sale in the public market at
prescribed times. Sales of substantial numbers of shares of Common Stock in the
public market following this offering could adversely affect prevailing market
prices. Holders of 6,843,676 shares of Common Stock (including 1,819,780 shares
of Common Stock that may be acquired upon the exercise of warrants and 583,332
shares of Common Stock that may be acquired upon conversion of the Triumph Notes
(assuming an initial public offering price of $12.00 per share)), are entitled
to certain rights with respect to registration of such shares of Common Stock
for offer or sale to the public. The Company plans to file a Form S-8
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), registering shares issuable pursuant to the Company's
employee stock plans. Any sales by existing stockholders or holders of options,
warrants or Triumph Notes may have an adverse effect on the Company's ability to
raise needed capital and may adversely affect the market price of the Common
Stock. See "Shares Eligible for Future Sale," "Description of Capital Stock" and
"Underwriting."
ANTI-TAKEOVER PROVISIONS
The Company's Second Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation"), as in effect upon the closing of this offering,
will require that any action required or permitted to be taken by stockholders
of the Company must be effected at a duly called annual or special meeting of
stockholders and may not be effected by any consent in writing, and will require
reasonable advance notice by a stockholder of a proposal or director nomination
which such stockholder desires to present at any annual or special meeting of
stockholders. Special meetings of stockholders may be called only by the
President of the Company or by the Board of Directors. The Certificate of
Incorporation provides for a classified Board of Directors, and members of the
Board of Directors may be removed only for cause upon the affirmative vote of
holders of at least two-thirds of the shares of capital stock of the Company
entitled to vote. In addition, the Board of Directors will have the authority,
without further action by the stockholders, to fix the rights and preferences
of, and issue shares of, Preferred Stock. These provisions, other provisions of
the Certificate of Incorporation and the beneficial ownership of a significant
portion of the Company's outstanding Common Stock by the Company's directors and
executive officers and their affiliates, may have the effect of deterring
hostile takeovers or delaying or preventing changes in control or management of
the Company, including transactions in which stockholders might otherwise
receive a premium for their shares over then current market prices. In addition,
these provisions may limit the ability of stockholders to approve transactions
that they may deem to be in their best interests.
NO DIVIDENDS ANTICIPATED IN FUTURE
The Company has not paid any dividends on the Common Stock since its
inception and does not anticipate paying any dividends in the future.
Declaration of dividends on the Common Stock will depend upon, among other
things, future earnings, if any, the operating and financial condition of the
Company, its capital requirements and general business conditions. The Company
is currently prohibited from paying dividends under an agreement relating to the
issuance of the Triumph Notes and the Triumph Warrants (the "Triumph
Agreement"). See "Dividend Policy."
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THE COMPANY
The Company was organized as a Delaware corporation in March 1989. On June
28, 1996, the Company changed its name to Ascent Pediatrics, Inc. from Ascent
Pharmaceuticals, Inc. The Company's principal office is located at 187
Ballardvale Street, Wilmington, Massachusetts 01887, and its telephone number is
(508) 658-2500.
The Company holds United States trademark registrations for "ASCENT,"
"PEDIAMIST" and "PRIMSOL" and has received notices of allowance from the United
States Patent and Trademark Office with respect to trademark registrations for
"PEDIATEMP" and "PEDIAVENT." All other brand names or trademarks appearing in
this Prospectus are the property of their respective owners.
All market data expressed in dollar amounts in this Prospectus reflect
estimates of pharmacy acquisition costs.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered hereby are estimated to be $21,520,000 ($24,868,000 if the
Underwriters' exercise their over-allotment option in full), at an assumed
initial public offering price of $12.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
The Company currently intends to use approximately 28.1% ($6,050,000) of
the net proceeds of this offering to fund the portion of the purchase price of
Upsher-Smith's Feverall line of acetaminophen rectal suppositories (including
estimated inventory cost of $300,000) due at the closing of the acquisition. In
addition, the Company currently intends to use the balance of the net proceeds
of this offering in the following approximate amounts: (i) 23% for product
development activities, including costs of preclinical tests, clinical trials
and regulatory submissions; (ii) 39.5% for sales and marketing expenses,
including costs of assembling its marketing staff and sales force and
introducing the Company's initial three products to the market; and (iii) 9.4%
for general corporate purposes, which may include a portion of the $5,500,000
second installment of the Feverall product line purchase price that is due in
February 1998. The Company may also use a portion of the net proceeds to acquire
businesses, technologies or products complementary to the Company's business,
although the Company does not currently have any commitment or agreement for any
such acquisitions other than the Feverall acquisition. In the event that the
Feverall acquisition does not close, management will have broad discretion as to
the use of the portion of the proceeds of this offering that currently is
expected to be used to finance such acquisition. See "Risk Factors --
Management's Discretion as to Use of Proceeds" and "Business -- Products and
Products Under Development -- Feverall Acetaminophen Suppositories."
The amount and timing of actual expenditures by the Company will depend on
many factors, including the progress of its product development programs, the
magnitude of these programs, the results of preclinical studies and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting, enforcing and defending patent claims,
competing technological and market developments, the ability of the Company to
establish and maintain a sales and marketing capability and product development,
manufacturing and marketing relationships, and the costs and success of
commercialization activities and arrangements.
Based on its current operating plan, the Company anticipates that its
existing capital resources, together with the net proceeds of this offering and
interest earned thereon, the net proceeds from the issuance of an additional
$5,000,000 of Triumph Notes and internally generated funds, will be adequate to
satisfy its capital requirements for at least the next 24 months.
Pending application of the net proceeds of this offering as described
above, the Company intends to invest the net proceeds of this offering in
short-term, investment-grade, interest-bearing instruments. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
16
<PAGE> 18
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, for use in its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Company's Board of Directors after taking into account various
factors, including the Company's financial condition, operating results, capital
requirements, current and anticipated cash needs as well as other factors that
the Board of Directors may deem to be relevant. The Company is currently
prohibited from paying dividends under the Triumph Agreement. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
17
<PAGE> 19
CAPITALIZATION
The following table sets forth as of March 31, 1997: (i) the actual
capitalization of the Company; (ii) the combined pro forma capitalization of the
Company as described in Note (1) below; and (iii) the combined pro forma
capitalization of the Company as adjusted as described in Note (2) below. This
table should be read in conjunction with the Company's Financial Statements and
related Notes and Unaudited Combined Pro Forma Financial Statements included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
-------------------------------------------
COMBINED
COMBINED PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
-------- ------------ -----------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term debt, net of current portion............ $ 2,020 $ 4,514 $ 4,514
Redeemable Convertible Preferred Stock, $.00004
par value; 4,458,564 shares authorized;
4,008,658 shares issued and outstanding; no
shares authorized or outstanding, combined pro
forma and combined pro forma as adjusted........ 25,010 -- --
Stockholders' equity:
Convertible Preferred Stock, $.00004 par value;
1,199,999 shares authorized, issued and
outstanding; no shares issued and
outstanding, combined pro forma and combined
pro forma as adjusted........................ 2,855 -- --
Preferred Stock $.01 par value; 5,000,000
authorized and unissued combined pro forma as
adjusted..................................... -- -- --
Common Stock, $.00004 par value; 20,000,000
shares authorized and 198,155 shares issued
and outstanding; 20,000,000 shares authorized
and 4,638,719 shares issued and outstanding,
combined pro forma; 60,000,000 shares
authorized and 6,638,719 shares issued and
outstanding, combined pro forma as
adjusted(3).................................. -- -- --
Additional paid-in capital........................ -- 30,371 51,891
Deficit accumulated during the development
stage........................................... (22,292) (22,292) (22,292)
------ -------- --------
Total stockholders' equity (deficit).............. (19,437) 8,079 29,599
------ -------- --------
Total capitalization.............................. $ 7,593 $ 12,593 $ 34,113
====== ======== ========
</TABLE>
- ---------------
(1) Presented on a combined pro forma combined basis to give effect to (i) the
probable acquisition of the Feverall product line from Upsher-Smith for
$11,500,000 plus the cost of certain related inventory (assumed for this
purpose to be $235,696) as if such acquisition had occurred on March 31,
1997, (ii) the issuance of $5,000,000 of Triumph Notes no later than the
closing of this offering presented as if this transaction occurred on
January 1, 1996, with such Triumph Notes recorded as a liability (after
allocating $1,668,746 as value attributable to warrants) of $3,331,254,
which will be accreted up to the Triumph Notes' face value of $5,000,000
over the term of the Triumph Notes and such accretion in the amount of
$1,668,746 will be recorded as interest expense in addition to the stated
interest rate, (iii) the Preferred Stock Conversion and (iv) the
reclassification of $2,505,740 of warrant obligations to additional paid in
capital as described in Note L to Notes to Financial Statements. See
"Certain Transactions" and "Combined Pro Forma Financial Statements."
(2) Reflects the sale of the 2,000,000 shares of Common Stock offered by the
Company hereby at an assumed initial public offering price of $12.00 per
share and the application of net proceeds therefrom, after deducting the
underwriting discounts and commissions and estimated offering expenses
payable by the Company. See "Use of Proceeds" and "Certain Transactions."
(3) Does not include 1,899,677 shares of Common Stock reserved for issuance upon
exercise of outstanding options and warrants as of March 31, 1997 at a
weighted average exercise price of $5.54 per share. See Note H of Notes to
Financial Statements. Also excludes (i) an aggregate of 583,332 shares of
Common Stock (assuming an initial public offering price of $12.00 per share)
issuable upon the conversion of the Triumph Notes and (ii) 336,644 shares of
Common Stock at an exercise price of $0.01 per share and 218,195 shares of
Common Stock at an exercise price of
18
<PAGE> 20
$5.29 per share reserved for issuance upon the exercise of the Triumph
Warrants. Of the number of shares of Common Stock issuable pursuant to
warrants outstanding as of March 31, 1997, 651,334 shares are issuable
pursuant to warrants issued in connection with the sale by the Company of
shares of Series F Convertible Preferred Stock (the "Series F Common
Warrants"). Upon the closing of this offering, assuming no prior exercise of
the Series F Common Warrants, the aggregate number of shares of Common Stock
issuable pursuant to the Series F Common Warrants will decrease from 651,334
to 415,031 shares (assuming an initial public offering price of $12.00 per
share) and the per share exercise price will increase from $7.65 to the
initial price per share to the public in this offering. In addition, the
Series F Common Warrants and warrants exercisable for 48,449 shares of
Common Stock issued to certain financial advisors to the Company contain a
cashless exercise feature which, if exercised in full prior to the
consummation of this offering (and assuming an initial public offering price
of $12.00 per share), would result in the issuance of 266,072 shares of
Common Stock with no additional proceeds to the Company. See "Certain
Transactions" and "Description of Capital Stock."
19
<PAGE> 21
DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
dilution in the net tangible book value of their Common Stock from the assumed
initial public offering price. The Company's net tangible book value at March
31, 1997, on a combined pro forma basis to give effect to (i) the probable
acquisition of the Feverall product line from Upsher-Smith for $11,500,000 plus
the cost of certain related inventory (assumed for this purpose to be $235,696)
as if such acquisition had occurred on March 31, 1997, (ii) the issuance of
$5,000,000 of Triumph Notes no later than the closing of this offering presented
as if this transaction had occurred on March 31, 1997, (iii) the Preferred Stock
Conversion and (iv) the reclassification of $2,505,740 of warrant obligations to
additional paid in capital as described in Note L to Notes to Financial
Statements, was $(3,781,407) or approximately $(0.82) per share of Common Stock.
Combined pro forma net tangible book value per share represents the amount of
the Company's combined pro forma total tangible assets, reduced by the amount of
the Company's combined pro forma total liabilities, divided by the combined pro
forma number of shares of Common Stock outstanding. "Dilution per share"
represents the difference between the assumed initial public offering price per
share of the Common Stock and the combined pro forma net tangible book value per
share of the Company after giving effect to the Company's receipt of the net
proceeds from the sale of shares of Common Stock in this offering at an assumed
initial public offering price of $12.00 per share (after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company) and the initial application of the estimated net proceeds
therefrom. On such basis, the combined pro forma net tangible book value of the
Company as of March 31, 1997 would have been $17,738,593 or $2.67 per share.
This represents an immediate increase in the combined net tangible book value of
$3.49 per share to the existing stockholders and an immediate dilution in the
combined pro forma net tangible book value of $9.33 per share to new investors
purchasing Common Stock in this offering. The following table illustrates such
dilution per share to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......... $12.00
Combined pro forma net tangible book value per share
as of March 31, 1997............................... $ (0.82)
Combined pro forma increase per share attributable to
new investors...................................... $ 3.49
-------
Combined pro forma net tangible book value per share
after this offering................................... $ 2.67
-------
Dilution per share to new investors..................... $ 9.33
=======
</TABLE>
The following table summarizes, on the combined pro forma basis described
above, as of March 31, 1997, the number of shares of Common Stock purchased from
the Company, the total consideration paid to the Company, and the average price
paid per share by the existing stockholders and by investors purchasing shares
of Common Stock offered hereby (at an assumed initial public offering price of
$12.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................... 4,638,719 69.9% $27,764,166 53.6% $ 5.99
New investors........................... 2,000,000 30.1 24,000,000 46.4 12.00
--------- ----- ----------- -----
Total......................... 6,638,719 100.0% $51,764,166 100.0%
========= ===== =========== =====
</TABLE>
The above computations assume no exercise of options and warrants since
March 31, 1997. As of March 31, 1997, there were options and warrants
outstanding to purchase 1,899,677 shares of Common Stock at a weighted average
exercise price of $5.54 per share. The above computations also exclude (i) an
aggregate of 583,332 shares of Common Stock (assuming an initial public offering
price of $12.00 per share) issuable upon the conversion of the Triumph Notes and
(ii) 336,644 shares of Common Stock at an exercise price of $0.01 per share and
218,195 shares of Common Stock at an exercise price of $5.29 per share reserved
for issuance upon the exercise of additional Triumph Warrants issuable no later
than the closing of this offering.
20
<PAGE> 22
Of the shares reserved for issuance upon the exercise of warrants outstanding as
of March 31, 1997, warrants for 699,783 shares contain a cashless exercise
feature which, if exercised in full prior to the closing of this offering (and
assuming an initial public offering price of $12.00 per share), would result in
the issuance of 266,072 shares of Common Stock with no additional proceeds to
the Company. See "Certain Transactions" and "Description of Capital Stock." The
exercise of outstanding options and warrants would result in further dilution to
new investors. In addition, effective upon the closing of this offering, there
will be 714,734, 300,000 and 500,000 shares of Common Stock reserved for future
issuance under the Company's Amended and Restated 1992 Equity Incentive Plan,
1997 Director Stock Option Plan and 1997 Employee Stock Purchase Plan,
respectively. See "Capitalization," "Management -- Employee Benefit Plans" and
"Description of Capital Stock."
21
<PAGE> 23
SELECTED FINANCIAL DATA
The selected financial data presented below as of December 31, 1995 and
1996, and for each of the three years in the period ended December 31, 1996, are
derived from the Company's Financial Statements, included elsewhere in this
Prospectus, which have been audited by Coopers & Lybrand L.L.P., independent
accountants. The selected financial data presented below as of December 31,
1992, 1993 and 1994 and for each of the two years in the period ended December
31, 1993 are derived from the Company's Financial Statements, not included in
this Prospectus, which have been audited by Coopers & Lybrand L.L.P.,
independent accountants. The selected financial data presented below as of March
31, 1997 and for the three months ended March 31, 1996 and 1997 are derived from
the Company's Financial Statements, included elsewhere in this Prospectus, which
have not been audited by Coopers & Lybrand L.L.P., independent accountants, have
been prepared on a basis consistent with the audited financial statements and,
in the opinion of management, include all adjustments necessary to present
fairly the financial condition and results of operations for the periods
presented. The Combined Pro Forma selected financial data as of and for the
three month period ended March 31, 1997 and for the year ended December 31, 1996
are derived from the Unaudited Combined Pro Forma Financial Statements contained
elsewhere in this Prospectus. The results for the three months ended March 31,
1997 are not necessarily indicative of the results expected for the full year.
The pro forma financial data are provided for comparative purposes only and may
not be indicative of the results that would have been achieved if the
transactions reflected therein had occurred at the beginning of the period for
which pro forma information is presented or of future results. This data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Financial Statements and the Notes and
the Unaudited Combined Pro Forma Financial Statements and Notes included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
COMBINED MARCH 31, CUMULATIVE FROM
PRO FORMA ---------------------------- INCEPTION
YEAR ENDED DECEMBER 31, YEAR ENDED 1997 (MARCH 16,
------------------------------------------- DECEMBER 31, COMBINED 1989) TO
1992 1993 1994 1995 1996 1996(1) 1996 1997 PRO FORMA(1) MARCH 31, 1997
------- ------- ------- ------- ------- ------------ ----- ------- ------------ ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenues................ $ -- $ -- $ -- $ 304 $ -- $ 3,877 $ -- $ -- $ 795 $ 304
Costs and expenses:
Cost of sales......... -- -- -- -- -- 1,434 -- -- 356 --
Research and
development......... 558 1,221 2,551 2,986 3,761 3,761 475 1,528 1,528 13,538
Selling, general and
administrative...... 706 723 1,141 1,532 2,805 5,142 428 973 1,606 9,176
------- ------- ------- ------- ------- ------- ----- ------- ------- --------
Loss from operations.... (1,264) (1,944) (3,692) (4,214) (6,566) (6,460) (903) (2,501) (2,695) (22,410)
Interest income......... 47 123 147 113 79 79 25 73 73 826
Interest expense........ -- -- -- -- -- (468) -- (20) (147) (20)
Gain on sale of fixed
assets................ -- -- -- -- -- -- -- 9 9 9
------- ------- ------- ------- ------- ------- ----- ------- ------- --------
Net loss................ $(1,217) $(1,821) $(3,545) $(4,101) $(6,487) $ (6,849) $(878) $(2,439) $ (2,760) $ (21,595)
======= ======= ======= ======= ======= ======= ===== ======= ======= ========
Pro forma and combined
pro forma net loss per
share(2).............. $(1.48) $(1.56) $(0.56) $(0.63)
===== ======= ===== =======
Pro forma weighted
average common and
common equivalent
shares(2)............. 4,384,197 4,384,197 4,384,197 4,384,197
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
DECEMBER 31, 1997
------------------------------------------------- COMBINED
1992 1993 1994 1995 1996 1997 PRO FORMA(1)
------- ------- ------- -------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities.... $ 1,838 $ 5,691 $ 2,171 $ 2,538 $ 2,086 $ 8,300 $ 7,154
Working capital..................................... 1,713 5,557 1,966 2,231 525 6,431 35
Total assets........................................ 1,902 5,866 2,466 2,750 2,628 9,672 20,172
Long-term debt, net of current portion.............. -- -- -- -- -- 2,020 4,514
Redeemable preferred stock.......................... -- 8,157 8,157 12,557 17,832 25,010 --
Deficit accumulated during the development stage.... (3,202) (5,306) (8,851) (13,014) (19,633) (22,292) (22,292)
Total stockholders' equity (deficit) (3)............ 1,773 (2,451) (5,995) (10,158) (19,437) (19,437) 8,079
</TABLE>
- ---------------
(1) Presented on a combined pro forma basis to give effect to (i) the probable
acquisition of the Feverall product line from Upsher-Smith for $11,500,000
plus the cost of certain related inventory (assumed for this purpose to be
$235,696) as if such acquisition had occurred on January 1, 1996 with
respect to Statement of Operations Data and on March 31, 1997 with respect
to Balance Sheet Data, (ii) the issuance of $5,000,000 of Triumph Notes no
later than the closing of this offering presented as if this transaction
occurred on January 1, 1996 with respect to Statement of Operations Data and
on March 31, 1997 with respect to Balance Sheet Data, with such Triumph
Notes recorded as a liability (after allocating $1,668,746 as value
attributable to warrants) of $3,331,254, which will be accreted up to the
Triumph Notes' face value of $5,000,000 over the term of the Triumph Notes
and such accretion in the amount of $1,668,746 will be recorded as interest
expense in addition to the stated interest rate, (iii) the Preferred Stock
Conversion and (iv) the reclassification of $2,505,740 of warrant
obligations to additional paid in capital as described in Note L to Notes to
Financial Statements. See "Capitalization," "Certain Transactions" and
"Unaudited Combined Pro Forma Financial Statements."
(2) See Note B to Notes to Financial Statements for information concerning the
computation of pro forma net loss per share and shares used in computing pro
forma net loss per share.
(3) The Company has never declared or paid cash dividends on its capital stock.
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a drug development and marketing company focused exclusively
on the pediatric market. The Company commenced operations in March 1989 and
since that time has been engaged primarily in developing its products and
product candidates and in organizational efforts, including recruiting
scientific and management personnel and raising capital. To date, the Company
has not received any revenue from the sale of products. The Company expects to
introduce its first three products to the market in the second half of 1997. All
revenues received by the Company to date have consisted of payments in
connection with a licensing arrangement and interest on invested funds.
The Company has incurred net losses since its inception and expects to
incur additional operating losses over at least the next two years as it
continues its product development programs, establishes a sales and marketing
organization and introduces products to the market. The Company expects
cumulative losses to increase over this period. The Company has incurred a
deficit accumulated since inception through March 31, 1997 of $22,292,000.
The Company is a party to an agreement with Upsher-Smith to acquire the
Feverall acetaminophen rectal suppository product line. The Company expects to
close this acquisition in July 1997.
RESULTS OF OPERATIONS
Combined Pro Forma Three Months Ended March 31, 1997 Compared with Three
Months Ended March 31, 1997
Revenues and Cost of Sales. The combined pro forma statement for the three
months ended March 31, 1997 reflects solely the product sales of the Feverall
product line that the Company expects to acquire and the related cost of sales.
Net sales of the Feverall product line declined by 35.4% in the three months
ended March 31, 1997 compared to the three months ended March 31, 1996 as a
result of significantly lower unit sales volume.
Selling, General and Administrative Expenses. The increase in selling,
general and administrative expenses in the combined pro forma statement for the
three months ended March 31, 1997 compared to the three months ended March 31,
1997 reflects $626,000 of expenses associated with the Feverall product line,
consisting of $177,000 for advertising and promotion, $183,000 for allocated
selling costs and $122,000 of incremental expenses that Ascent estimates will be
incurred relating to this product line as well as $144,000 of goodwill
amortization related to this acquisition.
Combined Pro Forma Year Ended December 31, 1996 Compared with Year Ended
December 31, 1996
Revenues and Cost of Sales. The combined pro forma 1996 statement reflects
product sales of the Feverall product line that the Company expects to acquire
and the related cost of sales.
Selling, General and Administrative Expenses. The increase in selling,
general and administrative expenses in the combined pro forma 1996 statement
reflects $2,306,000 of expenses associated with the Feverall product line,
consisting of $669,000 for advertising and promotion, $572,000 for allocated
selling costs and $490,000 of incremental expenses that Ascent estimates will be
incurred relating to this product line as well as $575,000 of goodwill
amortization related to this acquisition.
Three Months Ended March 31, 1997 Compared With Three Months Ended March 31,
1996
Research and Development. The Company expended $1,528,000 and $475,000,
for research and development in the three months ended March 31, 1997 and March
31, 1996, respectively. The increase in 1997 over 1996 reflected increased costs
in connection with (i) Pediavent albuterol controlled-release suspension product
development and (ii) Pediatemp acetaminophen controlled-release beads clinical
trials.
23
<PAGE> 25
Selling, General and Administrative Expenses. The Company incurred
selling, general and administrative expenses of $973,000 and $428,000 in the
three months ended March 31, 1997 and March 31, 1996, respectively. The increase
in 1997 over 1996 was primarily attributable to increased personnel and
increased expenses associated with the development of the Company's marketing
program.
Interest. The Company incurred interest expense of $20,000 for the three
months ended March 31, 1997 related to the $2,000,000 of Triumph Notes issued on
January 31, 1997 and no interest expense for the three months ended March 31,
1996. The Company had interest income of $73,000 and $25,000 in the three months
ended March 31, 1997 and March 31, 1996, respectively. The increase in interest
income during the three months ended March 31, 1997 reflected the increase in
funds available for investment during such period.
Years Ended December 31, 1994, 1995 and 1996
Revenues. The Company had licensing revenues of $304,000 in 1995, which
were comprised of a $202,000 one-time technology transfer fee and $102,000 for
non-recurring product development activities pursuant to a license agreement.
Research and Development. The Company expended $2,551,000, $2,986,000 and
$3,761,000, for research and development in 1994, 1995 and 1996, respectively.
The increase in 1995 over 1994 reflected increased costs in connection with the
Phase I clinical trials of Pediatemp acetaminophen controlled-release beads and
Pediavent albuterol controlled-release suspension and costs in connection with
the commencement of preclinical tests of the Company's cromolyn sodium cream
product candidate. The increase in 1996 over 1995 reflected increased costs
associated with the Company's clinical trials of Pediatemp acetaminophen
controlled-release beads, costs of producing prednisolone sodium phosphate syrup
for stability testing and payments to the Company's supplier in connection with
the development of Pediavent albuterol controlled-release suspension.
Selling, General and Administrative Expenses. The Company incurred
selling, general and administrative expenses of $1,141,000, $1,532,000 and
$2,805,000 in 1994, 1995 and 1996, respectively. The increase in 1995 over 1994
was primarily attributable to increased expenditures to recruit and hire
personnel. The increase in 1996 over 1995 was primarily due to the initiation by
the Company of a program to familiarize pediatricians with the Ascent name,
development of a marketing program and increased expenditures to recruit and
hire personnel.
Interest. The Company had interest income of $147,000, $113,000 and
$79,000 in 1994, 1995 and 1996, respectively. The changes in these years were
primarily attributable to changes in the funds available for investment by the
Company.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily from
private sales of preferred stock. As of March 31, 1997, the Company had raised
approximately $27,159,000 (net of stock issuance costs) from the sale of
preferred stock, with net proceeds of $4,338,000 received in 1995, net proceeds
of $5,137,000 received in 1996 and net proceeds of $6,957,000 received in the
three months ended March 31, 1997.
In January 1997, the Company issued $2,000,000 of Triumph Notes, resulting
in net proceeds to the Company of $1,790,000, which was recorded as a liability
of $1,163,000 with $837,000 to be accreted as interest expense over the term of
the Triumph Notes. The Company will issue an additional $5,000,000 of Triumph
Notes, which will result in net proceeds to the Company of approximately
$4,840,000, no later than the closing of this offering, which will be recorded
as a liability of $3,331,000 with $1,669,000 to be accreted as interest expense
over the term of the Triumph Notes. Effective as of the closing of this
offering, the Triumph Notes amortize in eight equal quarterly principal
installments and require quarterly interest payments on the unpaid principal
balance, with the first quarterly payment of principal and interest due six
months after the closing of this offering. The Triumph Notes are collateralized
by a lien on all of the Company's assets, prohibit the payment of dividends by
the Company and, subject to certain exceptions (including for up to $6,000,000
of senior secured bank financing and $5,500,000 of secured purchase money
financing in connection with the planned acquisition of the Feverall product
line), prohibit the incurrence of additional indebtedness.
24
<PAGE> 26
Through March 31, 1997, the Company applied the proceeds from the sale of
preferred stock, Triumph Notes and its revenues to fund losses of $21,595,000
and the investment of $418,000 in property and equipment. As of March 31, 1997,
the Company had cash and cash equivalents of $8,300,000.
The Company currently expects to use approximately $6,050,000 of the net
proceeds of this offering to fund the portion of the purchase price of
Upsher-Smith's Feverall product line (including estimated inventory cost of
$300,000) due at the closing of the acquisition. This acquisition is scheduled
to close in July 1997. The Company previously paid Upsher-Smith $250,000 as a
non-refundable deposit in connection with this proposed acquisition, which will
be retained by Upsher-Smith as part of the purchase price. The Company will be
required to pay Upsher-Smith an additional $5,500,000 as the second installment
of the purchase price no later than 225 days following the closing of this
acquisition. This deferred payment will be evidenced by a note and secured by a
lien on the acquired assets.
The Company expended $94,000, $18,000, $60,000 and $175,000 to purchase
fixed assets, primarily equipment and furniture, in 1994, 1995, 1996 and the
three months ended March 31, 1997, respectively. The Company expects that its
capital expenditures for the year ending December 31, 1997 will be approximately
$225,000, primarily for computer equipment and leasehold improvements. In
addition, the Company has entered into several agreements with unaffiliated
entities for the performance of research and clinical trial studies. These
commitments are ongoing, and the Company expects to spend approximately $460,000
toward these commitments in 1997.
The Company's future capital requirements will depend on many factors,
including continued progress in its product development programs, the magnitude
of these programs, the results of preclinical studies and clinical trials, the
time and costs involved in obtaining regulatory approvals, the costs involved in
filing, prosecuting, enforcing and defending patent claims, competing
technological and market developments, the ability of the Company to establish
and maintain a sales and marketing capability and product development,
manufacturing and marketing relationships, and the costs and success of
commercialization activities and arrangements. The Company's business strategy
requires a significant commitment of funds to conduct clinical testing of
potential products, to pursue regulatory approval of such products and to
establish sales and marketing capabilities and manufacturing relationships
necessary to bring such products to market.
The Company has no committed external sources of capital. Based on its
current operating plan, the Company anticipates that its existing capital
resources, together with the proceeds of this offering and interest earned
thereon, the net proceeds from the issuance of an additional $5,000,000 of
Triumph Notes and internally generated funds, will be adequate to satisfy its
capital requirements for at least the next 24 months. However, there may be
circumstances, particularly a delay in the introduction of products or lower
than anticipated product sales, that might accelerate the Company's use of the
net proceeds of this offering and its other capital resources. The Company may
be required to raise substantial additional funds in the future, including
through collaborative relationships and public or private financings. No
assurance can be given that additional financing will be available, or, if
available, that it will be available on acceptable terms. See "Risk Factors --
Future Capital Needs; Uncertainty of Additional Funding."
RECENT PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("FAS 128"). FAS
128 specifies the computation, presentation and disclosure requirements for
earnings per share. FAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods, and earlier
application is not permitted. FAS 128 requires restatement of all prior-period
earnings-per-share data presented after the effective date. The Company has not
yet determined FAS 128's effect on its financial statements.
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<PAGE> 27
BUSINESS
Ascent Pediatrics, Inc. ("Ascent" or the "Company"), is a drug development
and marketing company focused exclusively on the pediatric market. The Company's
strategy is to address unmet medical needs of children through the development
of differentiated, proprietary products based on approved compounds with well
known clinical profiles. Ascent is developing a range of pharmaceuticals
designed to improve upon currently available products for common pediatric
illnesses through the application of the Company's drug delivery and
reformulation technologies. The Company is developing most of these products for
sale on a prescription basis. By developing products based on currently approved
drugs, rather than new chemical entities, Ascent believes that it can reduce
regulatory and development risks and shorten the product development cycle. In
addition, Ascent believes that market acceptance of its products will be
enhanced by the familiarity of pediatricians with the compounds that serve as
the basis of these products. The Company plans to introduce its first three
products to the market in the second half of 1997 and has seven other principal
products in development. The Company intends to market its products in the
United States through a direct sales force focused exclusively on the pediatric
market.
In January 1997, the Division of Anti-Infective Drugs of the United States
Food and Drug Administration (the "FDA") notified Ascent that it recommended
approval of the Company's New Drug Application ("NDA") for Primsol trimethoprim
solution, a prescription antibiotic for the treatment of ear infections in
patients age six months to twelve years, with a label reflecting that Primsol
solution would not be a product for first line therapy (i.e., the first course
of treatment selected in most instances by a physician) for this indication. The
FDA has not yet approved the Company's NDA for Primsol solution. Trimethoprim
for the treatment of ear infections in children is currently available only in
combination with a sulfa compound that is associated with allergic reactions.
Primsol solution contains trimethoprim only and in clinical trials demonstrated
a more favorable side effect profile than the combination therapy. Because of
this improved side effect profile, the Company believes that pediatricians will
be more likely to prescribe an antibiotic comprised only of trimethoprim for the
treatment of ear infections in children than they historically have been to
prescribe the combination therapy. In March 1997, the Company entered into an
agreement with Upsher-Smith Laboratories, Inc. ("Upsher-Smith"), to acquire the
currently marketed Feverall line of acetaminophen rectal suppository products.
The Company plans to introduce Primsol solution and Feverall suppositories to
the market in the second half of 1997, along with Pediamist, an over-the-counter
nasal saline spray developed by Ascent that uses a metering device to facilitate
pediatric use.
In addition to these three products, the Company has seven other products
in various stages of development. Prednisolone sodium phosphate syrup is a
steroid for the treatment of inflammation, including inflammation resulting from
respiratory conditions, for which the Company expects to file Abbreviated New
Drug Applications ("ANDAs") with the FDA in the second half of 1997. Pediatemp
acetaminophen controlled-release beads are an analgesic and antipyretic for the
treatment of pain and fever for which the Company recently completed Phase III
clinical trials and, subject to the results of these trials being satisfactory,
plans to file an NDA in the second half of 1997. Pediavent albuterol
controlled-release suspension is a bronchodilator for the treatment of asthma
that currently is in Phase I clinical trials. Cromolyn sodium cream is a topical
cream for the treatment of moderate to severe contact dermatitis, which is the
subject of an effective Investigational New Drug ("IND") application and
currently is in Phase I clinical trials. Cromolyn sodium controlled-release
nasal spray is a drug for the treatment of nasal allergies that is undergoing
preclinical testing. The Company also is developing a line of over-the-counter
cough/cold products and an over-the-counter acetaminophen controlled-release
solution.
Ascent believes that an important part of fulfilling its mission of
becoming a leader in the development and marketing of pediatric pharmaceuticals
is the establishment of a corporate identity. Accordingly, even before the
launch of its first products, Ascent has initiated a program to familiarize
pediatricians with the Ascent name. Ascent is establishing a domestic sales
organization to promote the Company's products to high prescribing
pediatricians, influential pediatricians and pediatric nurses. Ascent plans to
supplement these activities with telemarketing, direct mail and advertisements
in speciality pediatric journals. Ascent also intends to promote its products
directly to managed care providers in order to obtain inclusion on these
providers' formularies and has retained a consulting firm to assist it in this
process.
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<PAGE> 28
Ascent seeks competitive protection for its products in a variety of ways,
including the creation of proprietary formulations using technologies, such as
taste masking and controlled-release systems, that are covered by patents or
patent applications owned by or licensed to the Company or its suppliers.
PEDIATRIC PHARMACEUTICAL INDUSTRY
The United States market for prescription pharmaceutical products for
children age 16 years and younger was estimated by Scott-Levin, a healthcare
consulting firm ("Scott-Levin"), to be approximately $3.5 billion in 1996. This
represents approximately a 9% compound annual growth rate over estimated 1992
sales of approximately $2.5 billion. According to Scott-Levin, in 1996,
prescriptions written by pediatricians accounted for approximately 60% of total
sales of pediatric prescription pharmaceuticals in the United States. The drugs
most frequently prescribed by pediatricians were antibiotics, which accounted
for approximately 35% of total 1996 United States prescription drug sales
attributable to pediatricians, and beta agonist bronchodilators, which accounted
for approximately 7% of such sales. Pediatricians also play a central role in
recommending over-the-counter medications for children. Pain/fever medications
are among the over-the-counter drugs most frequently recommended by
pediatricians for children. FIND/SVP, a market research and consulting firm,
estimates that sales of pediatric forms of pain/fever medications in the United
States approximate $300,000,000 per annum.
Despite the size and recent growth in the pediatric pharmaceutical market,
pharmaceutical companies historically have concentrated their drug development
efforts on the adult market or have pursued pediatric applications only as
product line extensions. The Company believes that this lack of emphasis on the
pediatric market has occurred for several reasons. First, because the pediatric
pharmaceutical market historically has comprised only a small percentage of the
total pharmaceutical market (approximately 5% of the total United States market
in 1996), pharmaceutical companies have been reluctant to expend the time and
resources required to develop products specifically targeted for children.
Moreover, as the pharmaceutical industry has consolidated, many pharmaceutical
companies have increasingly focused on the larger adult market. Secondly,
pharmaceutical companies have been concerned that, if clinical trial results for
a drug tested in children were to differ in an adverse manner from results in
adults, the usage of the drug by adults could be adversely affected and the
marketing approval of the drug might be jeopardized. Finally, without access to
specialized trial sites and a network of pediatricians, it is difficult to
recruit children to participate in clinical trials, as parents are reluctant to
permit their children to take experimental medications.
The Company believes that the relatively low number of drugs developed
specifically for pediatric use has resulted in an opportunity for a drug
development company dedicated exclusively to the pediatric market. Drug
administration and patient compliance with dosage regimens are greater issues in
treating pediatric patients than adult patients, particularly with respect to
medications that have not been formulated for children. Specifically, children
frequently dislike the taste and texture of liquids and chewable tablets, have
difficulty swallowing oral tablets and often do not use inhalers correctly. In
addition, children and their caregivers often find it difficult to comply with
dosing regimens that are complex or require frequent administration, which can
interrupt sleep, or special handling of the drug, such as refrigeration. All of
these problems can cause either missed doses or incorrectly administered doses,
which may decrease the therapeutic success of the treatment. The Company
believes that it can address many of these compliance and drug administration
problems through the application of its taste masking, controlled-release and
other drug delivery and formulation technologies to approved compounds in order
to design products specifically for children.
The limited number of pharmaceuticals approved for pediatric use has also
resulted in physicians prescribing certain drugs for children on an off label
basis, with the dosages for children extrapolated from clinical studies
performed in adults. Undesirable side effects and variations in therapeutic
efficacy may result when a drug formulated for an adult is administered to a
child. The Company believes that pediatricians will be more willing to prescribe
products that have been the subject of pediatric clinical trials because of the
availability of specific efficacy and safety information with respect to the
effect of the drug on pediatric patients.
The Company believes that the federal government, and in particular the
FDA, is increasingly focused on encouraging pharmaceutical companies to develop
drugs for the pediatric market and to conduct clinical trials in children. The
federal government enacted the Orphan Drug Act in 1983 to provide incentives to
27
<PAGE> 29
pharmaceutical manufacturers to develop products to treat diseases which affect
limited patient populations, including certain pediatric diseases. Moreover, in
1994, the FDA finalized the pediatric labeling rule, which mandates that, if an
approved drug is used on an off label basis in pediatric populations, then the
company marketing such drug must either apply to the FDA for proper labeling for
the pediatric indication (which could require clinical trials) or advise the FDA
as to why it would not seek such labeling. In 1994, the FDA also modified its
policy on new drug applications to require a company to indicate in its NDA
submission whether the drug has potential application to pediatric populations
and, if the company is not conducting clinical trials on children, its reasons
for not conducting such trials.
Pediatricians are the primary physician specialty treating children.
According to a survey of members of the American Academy of Pediatrics, in 1996
there were approximately 28,000 pediatricians in the United States with direct
patient care as their primary professional activity. The survey indicated that
most of these pediatricians practiced in or near urban or suburban centers and
that more than 80% of respondents were in group practices. The Company believes
that nurses in pediatricians' offices also play an important role in
recommending pharmaceuticals for children. The Company believes that
pediatricians and pediatric nurses are not targeted as frequently for
pharmaceutical detailing as specialists in other areas because the pediatric
pharmaceutical market has not been a primary focus for most major pharmaceutical
companies.
More than 60% of patients in the United States are covered by a managed
care program, such as a health maintenance organization, preferred provider
organization or state Medicaid program. However, the Company believes that
managed care has not played as great a role to date in pediatrics as it has in
other areas of medicine because pediatric medical problems generally do not
entail chronic or expensive treatments. The pharmaceuticals prescribed for
childhood diseases, such as antibiotics, generally are relatively inexpensive
and typically are used for only a short period of time. For manufacturers of
pediatric pharmaceuticals, the key concern with respect to managed care is
obtaining inclusion of their products on formularies, the lists of
pharmaceuticals that managed care providers maintain for products that have been
approved for use and reimbursement. In determining whether to include a product
on their formularies, managed care providers consider such factors as the
therapeutic characteristics, economic benefits and level of usage of the
product. Because Ascent is designing its products to improve patient compliance
or to substitute for products with less favorable side effect profiles, the
Company believes that its products will appeal to managed care providers by
producing fewer treatment failures than competitive products, thereby lowering
healthcare costs.
ASCENT'S STRATEGY
Ascent's objective is to be a leader in the development and marketing of
improved and differentiated pediatric pharmaceuticals. The Company is developing
a broad product line of proprietary products that are based on approved
compounds with well known clinical profiles. Ascent seeks to improve these
compounds by reducing their dosing frequency, increasing their palatability,
improving the method of administration or developing them as substitutes for
products with less favorable side effect profiles, all with the goal of
increasing patient compliance, improving therapeutic results or reducing side
effects. Key elements of Ascent's strategy include:
Focus Exclusively on Pediatric Market. Ascent's business is focused
exclusively on developing pharmaceuticals for children and marketing these
products to pediatricians, pediatric nurses and other pediatric caregivers. The
United States market for prescription pharmaceutical products for children age
16 years and under was estimated to be approximately $3.5 billion in 1996. The
Company believes that this market has been underserved in comparison with the
adult pharmaceutical market in terms of both development of specially designed
products and targeted promotion and represents an attractive market opportunity.
Select Products Based on Market Needs. Ascent actively evaluates the
pediatric pharmaceutical industry on an ongoing basis to assess product usage
and to identify unmet medical needs of children, particularly for prescription
drugs for the most common pediatric illnesses. Ascent's program to identify
pediatric product opportunities includes conducting focus groups with
pediatricians, pediatric nurses and parents, consulting with the Company's
scientific and medical advisors and evaluating drug delivery and other technical
developments for their applicability to the field of pediatric pharmaceuticals.
Ascent uses this
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<PAGE> 30
information to select compounds as product development candidates that it
believes may be improved through the application of its technologies and
reformulation expertise and then successfully commercialized.
Develop Proprietary Formulations of Approved Compounds. Ascent selects as
product candidates approved compounds that have well known clinical profiles and
are not covered by third party patents. By developing products based on approved
compounds rather than new chemical entities, the Company believes that it can
reduce regulatory and development risks and shorten the product development
cycle. In addition, Ascent believes that market acceptance of its products will
be enhanced by the familiarity of pediatricians with the drugs that serve as the
basis of these products.
Establish a Corporate Identity for Ascent in the Pediatric Market. Ascent
believes that an important part of fulfilling its mission of becoming a leader
in the development and marketing of pediatric pharmaceuticals is the
establishment of a corporate identity. Accordingly, even before the launch of
its first products, Ascent has initiated a program to familiarize pediatricians
with the Ascent name. This program began at the fall 1996 annual meeting of the
American Academy of Pediatrics and includes a direct mail campaign and journal
advertising directed at private pediatricians. The Company believes that
establishing a corporate identity will distinguish it from its competitors and
accelerate market awareness and penetration of its products.
Create a Specialty Pediatric Sales Force. Ascent intends to market its
products in the United States through a direct sales force focused exclusively
on the pediatric pharmaceutical market. Ascent is establishing its domestic
sales organization in anticipation of the scheduled introduction in the second
half of 1997 of the Company's initial three products. Because pediatricians and
pediatric nurses are concentrated in group practices in urban and suburban
centers and advertising may be disseminated through a limited number of
specialty pediatric publications, Ascent believes that it can reach much of the
domestic pediatric market with a moderately sized sales force and carefully
controlled marketing expenditures.
Acquire or In-License Additional Pediatric Products. Ascent intends to
acquire or in-license from third parties pediatric pharmaceuticals that permit
it to extend its product lines and leverage its marketing and sales
capabilities. Ascent is particularly seeking prescription pharmaceuticals that
either already have features that increase patient compliance, improve
therapeutic efficacy or reduce side effects or that can be further developed by
Ascent to incorporate such features through the application of the Company's
technologies. Ascent believes that its exclusive focus on the pediatric market
may facilitate its efforts to acquire product rights from third parties. As an
example of this strategy, in March 1997, the Company entered into an agreement
to purchase the Feverall line of acetaminophen rectal suppository products from
Upsher-Smith.
Establish Collaborations for International and Adult Markets. Ascent plans
to enter into licensing and distribution arrangements for the marketing and sale
of its products in international markets to leverage the established
international marketing, sales and distribution capabilities of third party
collaborators. Ascent plans to enter into similar arrangements with respect to
any adult applications of its products.
Obtain Competitive Protections. Ascent seeks to protect many of its
products by applying for use or formulation patents or employing technologies
that are covered by patents or patent applications owned by or licensed to the
Company or its suppliers. In addition, some of Ascent's products will require
NDA approval. Competition for such products may be limited by clinical and
formulation development challenges and, in certain cases, three-year protection
against approval of a potential competitor's ANDA under the Drug Price
Competition and Patent Term Restoration Act of 1984 (the "Waxman-Hatch Act").
Ascent also seeks to keep confidential as a trade secret important know-how
involved in the formulation and production of certain of its products. Finally,
Ascent applies for trademark registrations to protect the brand recognition of
its products and, to date, has been issued six registered United States
trademarks.
ASCENT TECHNOLOGIES
Ascent is developing therapeutic pharmaceutical products that are designed
to be more appropriate for pediatric patients. Ascent has developed internally
or acquired rights through in-licensing or supply arrangements to a range of
technologies that it applies in its product development efforts. These
technologies include:
Taste masking. Ascent has developed technology to mask the objectionable
or unpleasant taste of various common ingredients used in pediatric
pharmaceuticals. The Company believes that a drug's taste is a
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critical factor in pediatric patient compliance, particularly when frequent
dosing is required. The Company is applying its taste masking technology to
liquid dosage forms of product candidates because of the widespread use of
liquids in the pediatric pharmaceutical market. The Company believes that this
technology also may be applicable to solid dosage forms. Ascent's taste masking
technology is based on a complex three-tiered system that entails dissolving the
drug through the addition of a polymer, adding carefully selected debittering
agents to neutralize the taste and then adding pleasant flavors which are
compatible with the physical characteristics of the formulation.
Controlled-release. Ascent has developed its own controlled-release
technology and has in-licensed controlled-release technology from a third party.
In general, these technologies involve coating the active drug with certain
approved substances in a manner that allows the substance to be released in the
patient at specific rates over time. The controlled-release manufacturing
procedures also provide certain taste masking characteristics to the product.
Ascent is applying these technologies to reduce the dosing frequency and, in
some cases, improve the taste of its products, in order to increase patient
compliance.
Transdermal delivery. Ascent has licensed rights to a transdermal enhancer
for certain topically applied drugs. The enhancer is designed to increase the
efficacy and onset of activity of these drugs, which are limited because of
their inability to be absorbed through the skin. The Company believes the active
compound in this enhancer will facilitate the transport of these drugs into the
skin by changing the structure of the lipid layer in the skin to permit
absorption.
Bioadhesion. Ascent is using commercially available bioadhesives to
deliver topical drugs in a manner that is designed to enhance the efficacy of
the active ingredient. Bioadhesives are substances, such as polymers, which are
mixed with drugs in order to anchor the drug to the mucous layer of tissue. When
a drug is so anchored, the body's normal clearance mechanism is slowed, thereby
permitting the drug to have a more rapid and prolonged effect, which may reduce
dosing frequency.
Intranasal delivery device. Ascent has developed a product using a
metering device supplied by a third party that facilitates intranasal use in
pediatric patients by delivering a small volume of fluid under low pressure.
Because the metering device delivers 20% of the amount of solution delivered by
most high volume metered systems, there is less drainage of excess solution from
the nose. The Company believes that this device will increase product acceptance
among children and assure delivery of a consistent volume of spray.
The following table lists the technologies described above, the principal
benefit being sought and the products or product candidates to which Ascent is
applying these technologies.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
TECHNOLOGY ANTICIPATED BENEFIT PRODUCT
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Taste masking Improved taste Primsol trimethoprim solution
Prednisolone sodium phosphate syrup
Cough/cold products
Controlled-release Reduced dosing frequency Pediatemp acetaminophen beads
Pediatemp acetaminophen liquid
Pediavent albuterol suspension
Transdermal delivery Improved efficacy Cromolyn sodium cream
Bioadhesion Improved efficacy Cromolyn sodium nasal spray
Intranasal delivery device Ease of administration Pediamist nasal saline spray
- --------------------------------------------------------------------------------------------------
</TABLE>
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PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
The following table lists the principal products developed or currently
under development by the Company or that the Company has agreed to acquire. This
table is qualified in its entirety by reference to the more detailed
descriptions of these products elsewhere in this Prospectus.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
PRODUCT INDICATION DEVELOPMENT STATUS(1) KEY FEATURES
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Primsol Acute middle ear NDA recommended for Reduced toxicity
trimethoprim infections approval in January profile; pleasant
solution 1997(2) tasting liquid
Feverall Pain and fever Currently marketed Alternate form of
acetaminophen administration
rectal
suppositories(3)
Pediamist nasal Nasal dryness Developed; no FDA Low pressure and
saline spray approval required volume spray; reduced
stinging
Prednisolone sodium Inflammation, ANDA filings expected Significant taste
phosphate syrup including respiratory in second half of improvement
problems 1997(4)
Pediatemp Pain and fever Phase III clinical Reduced dosing
acetaminophen trials completed; NDA frequency; improved
controlled-release filing expected in taste
beads second half of 1997
Pediavent albuterol Asthma Phase I clinical Reduced dosing
controlled-release trials frequency; improved
suspension taste
Cromolyn sodium Moderate to severe Phase I clinical Alternative to
cream contact dermatitis trials steroids
Cromolyn sodium Nasal allergies Preclinical Alternative to
controlled-release steroids; reduced
nasal spray dosing frequency
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Preclinical. A compound is undergoing testing and being evaluated in
relevant assays and/or animal models to assess potential product
characteristics, safety and utility.
Phase I clinical trials. The product is administered to a limited number of
healthy human subjects or patients and tested for pharmacokinetics
(absorption, metabolism, distribution and excretion), pharmacologic action,
dose response, safety and, if possible, early evidence of effectiveness.
Phase II clinical trials. The product is administered to a limited patient
population to (i) evaluate the effectiveness for specific indications and
(ii) identify possible short-term adverse effects and safety risks.
Phase III clinical trials. The product is administered to an expanded
patient population to (i) further test the product for safety, (ii) further
evaluate clinical effectiveness and (iii) provide an adequate basis for
labeling.
ANDA. Abbreviated New Drug Application to the FDA for marketing approval
relating to a new drug that is the same as a drug for which the FDA has
already approved an NDA and whose patent and marketing exclusivity periods
have expired.
NDA. New Drug Application to the FDA for marketing approval for a new drug
for which an ANDA is not permitted.
(2) Ascent has filed a second NDA covering a more concentrated formulation of
Primsol solution. Ascent plans to introduce this more concentrated
formulation as the Primsol solution product that it brings to market. If
approval of the NDA for this more concentrated formulation is significantly
delayed, the Company intends to introduce the original formulation.
(3) This product line is the subject of an executed asset purchase agreement.
The closing is scheduled for July 1997.
(4) In April 1997, the Company submitted two ANDA applications covering
prednisolone syrup to the FDA. These applications will be deemed filed only
when accepted by the FDA.
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The Company has conducted a number of clinical trials of its product
candidates in children. The Company plans to continue to conduct such trials,
both in situations in which the trials are required by the FDA and in which the
Company believes that the clinical trial data will be of assistance in marketing
the product to pediatricians. The need to conduct clinical trials in children
under applicable FDA rules is determined on a product-by-product basis. In some
circumstances, the FDA may accept safety and efficacy data that are extrapolated
from adults in support of regulatory approval applications in children.
Because the Company's products are not based on new chemical entities,
Ascent believes that it can reduce regulatory and development risks and shorten
the product development cycle. As to certain product candidates, the Company
expects to be permitted to file an ANDA instead of an NDA. An ANDA is less
complex than an NDA, and, in some circumstances, only limited clinical trial
data or no clinical trial data are required for the application. For products
that contain active ingredients that have received FDA approval, after
expiration of any applicable patents and period of statutory protection under
the Waxman-Hatch Act, Ascent may use data from the NDA of the "pioneer" drug
concerning the safety and efficacy of the drug substance in support of its NDA
or ANDA. Finally, many nonprescription products do not require FDA pre-marketing
approval if the product is within an applicable FDA Over-the-Counter Drug
Monograph ("OTC Monograph"). See "Government Regulation."
Primsol Trimethoprim Solution
Ascent has developed Primsol trimethoprim solution, containing the
antibiotic trimethoprim, as a prescription drug for the treatment of acute
otitis media ("AOM"), or middle ear infection, in children age six months to
twelve years. Trimethoprim for the treatment of AOM in children is currently
only available in combination with the sulfa compound sulfamethoxazole. The
sulfa component of this combination therapy is associated with allergic
reactions that may be severe, or even fatal. In clinical trials conducted by the
Company, Primsol solution, which does not contain this sulfa component, was
shown to be as effective as the combination therapy for the treatment of AOM in
children, but with a more favorable side effect profile. Because of this
improved side effect profile, the Company believes that pediatricians will be
more likely to prescribe an antibiotic comprised only of trimethoprim for the
treatment of AOM in children than they historically have been to prescribe the
combination therapy. In January 1997, the Division of Anti-Infective Drugs of
the FDA notified Ascent that it recommended approval of the Company's NDA for
Primsol solution for the treatment of AOM in children age six months to twelve
years, with a label reflecting that Primsol solution would not be a product for
first line therapy for this indication. The FDA has not yet approved the
Company's NDA for Primsol solution. The Company may not market Primsol solution
until such NDA is approved. See "Risk Factors -- Uncertainty Related to Approval
of Primsol Trimethoprim Solution." Ascent plans to introduce Primsol solution in
the second half of 1997, along with Feverall acetaminophen rectal suppositories
and Pediamist saline nasal spray.
Acute infections are the most frequent illness treated by pediatricians.
AOM is the most common of these infections. By three years of age, approximately
80% of children in the United States have developed at least one ear infection.
In 1996, there were approximately 26,000,000 pediatric patient visits to doctors
in the United States for the treatment of AOM.
There are a number of currently available antibiotics for the treatment of
AOM in children. Most pediatricians initially prescribe amoxicillin, a form of
penicillin, unless the patient is allergic to the drug or the drug has
previously failed to provide a therapeutic effect in the patient. In such cases,
the pediatrician selects a second line antibiotic from a series of alternative
choices, including the trimethoprim/sulfa compound combination therapy (sold
under brand names such as Bactrim and Septra), cephalosporins (such as Ceclor),
a combination of amoxicillin and clavulanic acid (such as Augmentin) or newer
macrolides (such as Zithromax or Biaxin).
Scott-Levin estimates that the United States market for liquid antibiotics
for the treatment of AOM was approximately $371,000,000 in 1996. Of such amount,
approximately $54,500,000 was from the sale of amoxicillin (reflecting
approximately 11,200,000 prescriptions), approximately $11,900,000 was from the
sale of trimethoprim/sulfa compound combination products (reflecting
approximately 3,100,000 prescriptions) and approximately $304,600,000 was from
the sale of other liquid antibiotics (reflecting approximately
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<PAGE> 34
8,900,000 prescriptions), including cephalosporins and macrolides. The Company
believes that almost all liquid antibiotics are taken by children.
Ascent has developed Primsol solution as an antibiotic containing
trimethoprim only, thereby eliminating the potential for an allergic response to
the sulfa component of the combination product. Ascent has sought to facilitate
administration of this product by formulating it as an oral solution. Because
Primsol solution does not need to be shaken prior to administration, it does not
suffer from problems associated with suspensions, such as dose inconsistency.
The Company plans to market Primsol solution as a second line of therapy to
amoxicillin and as an alternative to trimethoprim combination products such as
Bactrim and Septra. Ascent believes that Primsol solution also may be an
attractive alternative to other antibiotics, such as cephalosporins and newer
macrolides, for pediatricians and managed care providers because the Company
plans to offer Primsol solution at a price that is significantly lower than the
current market prices of these other antibiotics.
In December 1995, Ascent completed multicenter Phase III clinical trials of
Primsol solution for the treatment of AOM and uncomplicated urinary tract
infection ("UTI") in children age six months to twelve years. These clinical
trials, which included over 500 children, compared Primsol solution with a
commercially available trimethoprim/sulfamethoxazole combination therapy.
Primsol solution proved to be as clinically effective as the combination therapy
in alleviating the signs and symptoms commonly associated with AOM or
uncomplicated UTI. No statistically significant differences were noted in
response rates of evaluable pediatric patients receiving either Primsol solution
or the combination therapy, and the bacteriologic cure rates were similar for
both types of therapies. However, there were statistically significantly fewer
treatment related side effects reported with Primsol solution than with the
combination therapy, particularly a lower incidence of skin rash.
Based on the January 1997 notice of recommended approval from the FDA and
subsequent discussions with the FDA, Ascent expects to receive marketing
approval from the FDA for Primsol solution for the treatment of AOM in children
age six months to twelve years in the first half of 1997. The Company is
currently in discussions with the FDA with respect to the appropriate labeling
for Primsol solution for this indication. However, the FDA has not yet granted
such marketing approval, and there can be no assurance that such approval in
fact will be granted or as to the timing thereof.
In October 1996, Ascent filed a second NDA with the FDA covering a more
concentrated formulation of Primsol solution. Ascent expects that the NDA with
respect to this second formulation will receive substantially the same approval
for the treatment of AOM in children age six months to twelve years as the first
formulation and that the FDA will grant such approval at approximately the same
time as it approves the first NDA. Accordingly, Ascent plans to introduce this
more concentrated formulation as the Primsol solution product that it brings to
market. If the Company does not receive approval of its NDA for this more
concentrated formulation on a timely basis, the Company would introduce the
first formulation as the Primsol solution product that it brings to market.
The FDA granted Ascent marketing approval for Primsol solution for the
treatment of uncomplicated UTI in patients twelve years and older in June 1995.
While AOM is the Company's primary target market for Primsol solution due to its
size, Ascent filed a supplemental NDA for the use of Primsol solution to treat
uncomplicated UTI in children age six months to twelve years. The FDA did not
approve Ascent's supplemental NDA for the treatment of this indication in this
pediatric patient population because it believed that the Company's clinical
trials did not involve a sufficient number of uncomplicated UTI subjects. The
Company is engaged in discussions with the FDA as to the approvability of its
Primsol solution supplemental NDA for the treatment of uncomplicated UTI in this
pediatric population.
Ascent has submitted a request to the FDA for three years of protection
under the Waxman-Hatch Act against the approval of a competitor's ANDA for the
treatment of AOM in children age six months to twelve years which is based on
the Company's clinical trial results.
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Feverall Acetaminophen Suppositories
Ascent has entered into an agreement with Upsher-Smith to purchase
Upsher-Smith's Feverall line of over-the-counter acetaminophen rectal
suppositories for the treatment of pain and fever. The closing of this
acquisition is scheduled for July 1997. The Company plans to begin marketing the
Feverall suppositories product line in the second half of 1997, along with
Primsol trimethoprim solution and Pediamist nasal saline spray. Acetaminophen
rectal suppositories are used in patients, primarily children or adolescents,
who cannot take acetaminophen orally as a result of regurgitation caused by
influenza or an inability to tolerate the taste of currently available liquid
forms of acetaminophen. The Feverall suppositories product line is covered by an
effective NDA and currently is being marketed by Upsher-Smith. Ascent will not
require any additional approval from the FDA in order to continue marketing the
Feverall suppositories product line.
IMS America, Ltd., a marketing research firm ("IMS"), estimates that the
1995 United States pediatric market for acetaminophen rectal suppositories was
approximately $5,800,000. Upsher-Smith introduced Feverall suppositories to the
market in 1989 and offers a product line of four strengths, 80 mg, 160 mg, 325
mg and 650 mg. Upsher-Smith's 1996 net sales of this product line were
$3,877,000. See "Financial Statements -- A Product Line of Upsher-Smith
Laboratories, Inc. -- Statement of Net Sales and Identified Costs and Expenses
of the Product Line to be Acquired by Ascent Pediatrics, Inc." Other
acetaminophen rectal suppositories currently on the market in the United States
include "Acephen," which is marketed by G&W Laboratories, and "Neopap," which is
marketed by PolyMedica Industries, Inc., as well as certain generic brands.
Ascent has contracted to acquire this product line because this dosage form
of acetaminophen permits administration to children who would otherwise be
unable to take the drug. In recent years, Upsher-Smith has promoted this product
line primarily through the use of advertising and two-month telemarketing
programs during the fall of each year. Ascent believes that it is possible to
increase market penetration for this product line through personal sales calls
to pediatricians and pediatric nurses, although there can be no assurance that
Ascent will be successful in doing so. In addition, under the acquisition
agreement, Ascent will be permitted to use the Feverall trademark in connection
with the other acetaminophen products that it is currently developing. Ascent
believes that the name recognition of this trademark will be useful in marketing
these other acetaminophen products and in enhancing the Company's profile in the
pediatric market generally.
The purchase price for this product line and certain related assets,
including the Feverall trademark, is $11,500,000 plus the cost of certain
related inventory (estimated to be approximately $300,000). The Company is
required to pay $6,000,000 plus the inventory cost at the closing of the
acquisition (of which $250,000 previously was paid as a nonrefundable deposit)
and to pay the balance no later than February 1998. Subject to the occurrence of
the closing, Upsher-Smith has agreed to supply the Company with its requirements
of Feverall acetaminophen rectal suppositories, and the Company has agreed to
purchase from Upsher-Smith all amounts of such product as it may require, for a
period of five years.
Although the acquisition of the Feverall suppositories product line and
related arrangements are the subject of executed contracts, there are a number
of conditions to closing, and there can be no assurance that these conditions
will be satisfied and that Ascent will acquire this product line or that the
terms of the acquisition will not change prior to closing.
Pediamist Nasal Saline Spray
Ascent has completed development of Pediamist nasal saline spray, an
over-the-counter product to relieve nasal dryness associated with low humidity.
This product is administered by a metering device that the Company believes is
particularly appropriate for use by children. The Company plans to introduce
Pediamist to the market in the second half of 1997, along with Primsol
trimethoprim solution and Feverall acetaminophen rectal suppositories. No FDA
pre-marketing approval is required for Ascent to market this product in the
United States.
Pediatricians frequently recommend nasal saline sprays instead of
decongestant sprays because decongestant sprays contain vasoconstrictors that
can cause "rebound," a phenomenon in which nasal congestion
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resulting from the use of the drug is more intense than the original symptoms.
Nasal saline sprays are often an effective alternative therapy for this
indication and are widely recognized as safe. IMS estimates that the 1993 United
States market for nasal saline sprays (both adult and pediatric) was
approximately $11,500,000.
There are a number of nasal saline spray products that are currently
available for nasal dryness associated with low humidity. All of these products
are designed primarily for use by adults and deliver a high volume of spray at
high pressure through a device sized for adult nasal openings. Moreover, certain
of these products are formulated with materials that are known to cause local
stinging.
Pediamist nasal spray is administered by a metering device specifically
designed to deliver saline solution in a low volume fine mist under low
pressure. This device includes a special actuator that determines the volume and
pressure of the saline to be delivered. Because the Pediamist nasal spray device
delivers approximately 20% of the amount of saline solution delivered by most
high volume metered systems, there is less drainage of excess saline from the
nose. The Company believes that this device will increase product acceptability
among children and assure delivery of a consistent volume of spray. Ascent has
formulated Pediamist nasal spray with glycerine to reduce stinging.
Prednisolone Sodium Phosphate Syrup
Ascent is developing a prednisolone sodium phosphate syrup as a
prescription steroid for the treatment of inflammation associated with a variety
of diseases, principally those of the respiratory system, such as asthma and
bronchitis. Currently available liquid steroid products for the treatment of
inflammation have a very unpleasant taste. As a result, compliance problems
frequently result, even though these products are used for the treatment of
serious and, in some cases, life threatening diseases. Ascent has applied its
taste masking technology to develop a prednisolone syrup product with a pleasant
taste. Ascent plans to file ANDAs with the FDA in the second half of 1997 for
two strengths of this product.
Scott-Levin estimates that in 1996 approximately 3,000,000 prescriptions
for liquid steroids were written in the United States, of which approximately
56% were written by pediatricians, and that the 1996 United States pediatric
market for liquid steroids was approximately $20,700,000. The Company believes
that almost all liquid steroids are taken by children.
A number of currently available steroids are widely used in pediatrics
because of the anti-inflammatory properties of these drugs. Physicians generally
prefer prednisolone and prednisone to other products due to the greater margin
of safety of these two drugs and generally prefer prednisolone to prednisone
because prednisolone is more reliable, particularly if the patient suffers from
certain liver disorders.
Certain currently available liquid steroid brands are available only in a
5mg/5ml strength, which Ascent believes limits their application. Ascent is
developing prednisolone syrup in both 5mg/5ml and 15mg/5ml strengths. Ascent has
conducted two pediatric studies for marketing purposes to compare the taste of
its product with that of a currently-marketed prednisolone sodium phosphate
liquid product. In the study testing the 15mg/5ml strength against an existing
product with the same strength, 23 of the 24 participating children preferred
the taste of the Ascent product; in the study testing the 5mg/5ml strength
against an existing product with the same strength, 16 of the 24 children
participating preferred the taste of the Ascent product, although the results of
this second study were not considered to be statistically significant due to the
number of participants. Ascent is not required to perform any clinical trials of
this product prior to filing an ANDA.
Pediatemp Acetaminophen Controlled-Release Beads
Ascent is developing Pediatemp acetaminophen controlled-release beads as an
over-the-counter product for the treatment of pain and fever in children. The
Company has designed this product to permit dosing every eight hours, rather
than the four hours required by currently available products. Ascent recently
completed Phase III clinical trials of this product and, subject to the results
of these clinical trials being satisfactory, plans to file an NDA in the second
half of 1997.
FIND/SVP estimates that sales of pediatric forms of pain/fever medications
in the United States approximate $300,000,000 per annum. There are a number of
currently available acetaminophen products for the treatment of pain and fever
in children. Most of these products are in the form of a liquid or chewable
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tablet. The product with the largest market share in the United States is
Tylenol liquid for children. None of the pediatric products currently on the
market is available in a controlled-release formulation. Accordingly, these
products are absorbed quickly from the gastrointestinal tract into the blood and
quickly cleared from the body, necessitating dosing every four hours. As a
result, if administered at bedtime, the patient needs an additional dose before
morning. If administered during the day, parents often must rely on school
nurses or day care providers to administer the medication. In addition, under
the applicable FDA OTC Monograph, only five doses of acetaminophen may be given
in each 24-hour period. Therefore, if the medication requires four hour dosing,
treatment may only be given for 20 hours in each 24-hour period.
Ascent is developing Pediatemp beads with a proprietary controlled-release
technology that releases the acetaminophen at specific rates over time in order
to provide a therapeutic effect (reduction in fever and pain) for eight hours.
Ascent believes that dosing every eight hours may significantly increase
compliance and permit therapeutic coverage for the full 24-hours of each day. To
facilitate administration, Ascent has formulated this product in the form of
small beads that either can be sprinkled on a food that is appealing to the
child, such as applesauce, or delivered in a liquid, such as water.
Ascent has completed three Phase I definitive pharmacokinetic trials
comparing Pediatemp beads to Tylenol extended relief caplets and immediate
release Tylenol tablets. These trials involved 63 healthy adults. In these
trials, Pediatemp beads exhibited equivalent bioavailability to the Tylenol
product to which they were compared.
In December 1996, Ascent completed a Phase III clinical trial that
evaluated Pediatemp beads for the reduction of dental pain. This study was
conducted in 125 adults and was double blinded, with the control group receiving
an equivalent amount of Tylenol extended relief caplets. A single dose was
administered to each patient over an eight-hour period. The data from this study
are currently being analyzed. A second Phase III clinical trial of this product
for the treatment of fever in children commenced in June 1996 and was completed
in February 1997. This study involved 100 febrile children between the ages of
two and eleven years old. In this second Phase III clinical trial, Pediatemp
beads were compared on a double blinded basis with an immediate release
presentation of acetaminophen for efficacy (reduction in fever) and safety. The
data from this study also are currently being analyzed. If the results of these
clinical trials are satisfactory, the Company plans to file an NDA for Pediatemp
beads in the second half of 1997.
An NDA will need to be approved by the FDA for Ascent to market this
product in the United States. Ascent expects to submit a request to the FDA for
three years of protection under the Waxman-Hatch Act against the approval of a
competitor's ANDA for the treatment of pain and fever in children under 12 years
of age which is based on the Company's clinical trial results.
Pediavent Albuterol Controlled-Release Suspension
Ascent is developing Pediavent albuterol controlled-release suspension as a
prescription product for the treatment of asthma. Ascent is formulating the
product in a controlled-release suspension to permit twice-a-day administration
and to mask the normal bitterness of albuterol. Ascent is conducting Phase I
clinical trials of this product.
Asthma is the leading cause of pediatric hospital admissions. It is a
debilitating disease that causes swollen and inflamed airways that are prone to
constrict suddenly and violently. Asthmatic attacks can be life-threatening and,
in some cases, fatal.
A common treatment for asthma is the administration of a beta agonist
bronchodilator, of which albuterol is the most widely prescribed. Scott-Levin
estimates that the 1996 United States pediatric market for all forms of beta
agonists was approximately $178,800,000, with liquid forms comprising
approximately 15% of this market ($26,500,000). Albuterol is available in
various dosage forms, including tablets and liquids, which are generally used
for chronic administration, and inhalers, which are generally used for acute
incidents. Tablet formulations are typically not used by young children, as they
are difficult to swallow and must be administered every four or eight hours. The
only currently available controlled-release tablet (Volmax) is not
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approved for use in patients under 12 years of age. Liquid albuterol
formulations have an unpleasant taste and must be dosed three to four times per
day.
Ascent is developing its albuterol product as a suspension in the form of
granules which contain the drug in a coating. The coating allows the albuterol
to be released at a specific controlled rate and masks the normal bitterness of
the drug. To enhance patient compliance, the Company is designing this product
for twice-a-day administration.
In 1995, Ascent conducted Phase I open-label, single dose pharmacokinetic
studies of this product in Europe comparing this product's bioavailability
profile with that of Volmax. These studies involved 12 healthy adult subjects at
one site. The results of this study indicated that the pharmacokinetics of two
of the formulations being developed by Ascent were indistinguishable from Volmax
in terms of bioavailability. Ascent initiated a Phase I clinical trial in the
United States involving 12 healthy adults in February 1997 to seek to confirm
the results of the European bioavailability study. If the results of the Phase I
clinical trial are satisfactory, the Company plans in the second half of 1997 to
initiate pivotal pharmacokinetic Phase I clinical trials involving 65 adults and
children as well as a pivotal Phase III clinical trial involving 50 children.
An NDA will need to be approved by the FDA for Ascent to market this
product in the United States. Ascent plans to submit a request to the FDA for
three years of protection under the Waxman-Hatch Act against the approval of a
competitor's ANDA for the treatment of asthma in children under 12 years of age
which is based on the Company's clinical trial results.
Cromolyn Sodium Cream
Ascent is developing cromolyn sodium cream as a prescription drug for
symptoms associated with moderate to severe contact dermatitis caused by
exposure to poison ivy or oak, insect bites and bee stings and other allergic
and non-allergic reactions. Ascent is designing this product as an alternative
to prescription topical steroids. The Company commenced Phase I clinical trials
of this product in February 1997.
Scott-Levin estimates that the 1996 United States market for pediatric
prescription topical steroids was approximately $42,000,000. Steroids are the
primary medication prescribed by physicians for the treatment of contact
dermatitis. Even when applied topically, steroids may be absorbed systemically
and have unfavorable side effects. Ascent believes that pediatricians prescribe
steroids for topical use by children because these drugs are effective and no
viable alternative exists. Such pediatric use is off label, because the
labelling of all of these drugs specifies that they are not for use in children.
Cromolyn sodium has wide use and acceptance for both children and adults in
other dosage forms for the treatment of conditions that have an allergic element
(e.g., asthma, allergic rhinitis, allergic conjunctivitis and intestinal
mastocytosis). Ascent is developing cromolyn sodium as a topical cream because
contact dermatitis has a similar allergic element as these other conditions. To
date, cromolyn sodium has not been used topically because it is not readily
absorbed through the skin. Ascent has formulated this product with a transdermal
enhancer to facilitate the transport of the cromolyn sodium into the skin.
Ascent believes that a medication for moderate to severe contact dermatitis that
does not use a steroid would be attractive to pediatricians.
Ascent is conducting two Phase I clinical trials of this product. Each of
these trials involves 12 healthy adult volunteers and compare Ascent's topical
cromolyn sodium cream with a placebo. These trials are being conducted at a
single site and are double blinded. One study involves the effect of cromolyn
sodium cream as a prophylactic, and the second is evaluating this product as a
treatment in a chemically-induced contact dermatitis.
An NDA will need to be approved by the FDA for Ascent to market this
product in the United States. Ascent plans to submit a request to the FDA for
three years of protection under the Waxman-Hatch Act against the approval of a
competitor's ANDA for the treatment of moderate to severe contact dermatitis in
children under 12 years of age which is based on the Company's clinical trial
results.
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Cromolyn Sodium Controlled-Release Nasal Spray
Ascent is developing a cromolyn sodium controlled-release nasal spray as a
prescription product for the prevention of allergic rhinitis associated with
conditions such as hay fever. Ascent's goal is to develop a product that will
require administration only once or twice per day and achieve a therapeutic
effect in a significantly shorter time than existing cromolyn sodium nasal
sprays. Ascent is conducting preclinical tests of this product.
There are a number of currently available therapies for the treatment of
allergic rhinitis in children, including topical steroids, which can be absorbed
systemically, leading to potentially serious side effects, and oral
antihistamines, which require systemic administration. Scott-Levin estimates
that the 1996 United States pediatric market for nasal steroids was
approximately $54,000,000. In addition, a cromolyn sodium nasal spray is
marketed for this indication under the name Nasalcrom. Nasalcrom requires a
frequent dosing regimen (four to six times per day) along with an extended time
(up to three weeks) to obtain a beneficial effect, which often leads patients to
become non-compliant or prematurely terminate their therapy. Scott-Levin
estimates that the 1996 United States pediatric market for Nasalcrom was
approximately $6,500,000.
Ascent is seeking to develop a cromolyn sodium nasal spray for this
indication because of the safe side effect profile of cromolyn sodium and to
avoid systemic administration. Ascent is formulating its product candidate with
a bioadhesive polymer which it believes will provide a longer nasal residence
time for the cromolyn sodium, thereby optimizing the drug action. An NDA will
need to be approved by the FDA for Ascent to market this product in the Untied
States.
Other Programs
In addition to the products and product development programs described
above, the Company also is engaged in the development of a number of other
pediatric pharmaceutical products. These programs include the following:
Cough/Cold and Other OTC Products. Ascent is developing a line of improved
flavor over-the-counter cough/cold products. Many of the over-the-counter
products for the treatment of coughs and congestion due to colds and influenza
contain the active ingredients guaifenisen, dextromethorphan or the decongestant
pseudoephedrine, which have a bitter taste.
Ascent is applying its taste masking technology to the development of a
line of cough/cold products containing guaifenisen, dextromethorphan and
pseudoephedrine. Ascent already has completed the development of a guaifenisen
cough syrup. In a taste study involving 81 children age three to six years
comparing Ascent's cough syrup containing guaifenisen to Robitussin, a leading
liquid guaifenisen product, the participants showed a statistically significant
preference for Ascent's product.
The Company believes that it is preferable to introduce its cough/cold
products to the market as an integrated product line. Accordingly, Ascent does
not plan to introduce its guaifenisen cough syrup until it has completed
development of additional products, which the Company estimates will occur no
sooner than late 1999. Because these products are being formulated within the
applicable FDA over-the-counter monographs, Ascent expects that they will not
require FDA approval prior to marketing.
In addition to these cough/cold products, Ascent also is developing other
products for the over-the-counter market using the Company's taste masking
technology. The Company does not believe that any of these products will require
FDA approval prior to marketing.
Pediatemp Acetaminophen Controlled-Release Liquid. Ascent is developing a
controlled-release liquid acetaminophen over-the-counter product for the
pediatric market. As with Pediatemp controlled-release beads, this product would
be used for the treatment of pain and fever. Ascent is developing a liquid
product because such a dosage form is preferable for young children. There
currently are no controlled-release acetaminophen liquid products on the market
for use by either children or adults. Ascent is currently undertaking stability
studies of this product candidate to optimize its formulation and taste
characteristics.
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Ascent is applying its taste masking technology in developing this product. An
NDA will need to be approved by the FDA for Ascent to market this product in the
United States.
PRODUCT DEVELOPMENT
Ascent actively evaluates the pediatric pharmaceutical industry on an
ongoing basis to assess product usage and to identify unmet medical needs of
children, particularly for prescription drugs for the most common pediatric
illnesses. Ascent's program to identify pediatric product opportunities includes
conducting focus groups with pediatricians, pediatric nurses and parents,
consulting with the Company's scientific and medical advisors and evaluating
drug delivery and other technical developments for their applicability to the
field of pediatric pharmaceuticals. Ascent uses this information to select
compounds as product development candidates that it believes may be improved
through the application of its technologies and reformulation expertise and then
successfully commercialized. Ascent reviews the anticipated development
difficulty, time frame and cost, required technologies, applicable regulatory
requirements, competitive environment and anticipated marketing and sales
approach in evaluating each development candidate.
Ascent selects as product candidates approved compounds that have well
known clinical profiles and are not covered by third party patents and that it
believes may be improved through the application of the Company's drug delivery
and reformulation technologies. Ascent then seeks to improve these products
through optimized formulations or new delivery technologies with the goal of
differentiating them from competitive products on the market. By developing
products based on approved compounds rather than new chemical entities, the
Company believes that it can reduce regulatory and development risks and shorten
the product development cycle.
Ascent identifies third party manufacturers or academic institutions that
have the required analytical expertise, technology, manufacturing capabilities
and personnel to perform much of the design and formulation work for the
Company's products. To expedite the regulatory process, Ascent seeks to enter
into arrangements with product manufacturers that extend from pilot production
for product stability testing through clinical trials and ultimately to
commercial production. Ascent works closely with these third parties in
connection with product design and formulation and monitors manufacturing
activities, including compliance with Good Manufacturing Practice ("GMP") and
Good Laboratory Practice ("GLP") rules of the FDA.
Ascent contracts with clinical research organizations for the conduct of
the Company's clinical trials. Ascent conducts clinical trials of many of its
products in children not only to comply with FDA requirements but also because
the Company believes that pediatricians will be more willing to prescribe
products for which specific efficacy and safety information is available with
respect to the effect of the drug on pediatric patients. To facilitate enrolling
children in the Company's clinical trials, Ascent has established a network of
relationships with influential pediatricians, industry associations and
pediatric research organizations specializing in conducting clinical trials in
children.
SALES AND MARKETING
Ascent believes that its exclusive focus on the development and marketing
of pediatric pharmaceutical products will meaningfully differentiate the Company
from other pharmaceutical companies in the pediatric medical community.
Accordingly, even before the launch of its first products, Ascent has initiated
a program to familiarize pediatricians with Ascent's corporate identity. This
program began at the fall 1996 annual meeting of the American Academy of
Pediatrics and includes a direct mail campaign and journal advertising directed
at private pediatricians. The Company expects that pediatricians and pediatric
nurses, who are responsible for most prescriptions written for children in the
United States and play a central role in recommending over-the-counter
medications for children, will be the primary focus of the Company's marketing
and sales efforts.
Ascent hired a Vice President of Marketing in 1996 and is recruiting a Vice
President of Sales to lead the Company's marketing and sales efforts. Ascent is
establishing its domestic sales organization in anticipation of the introduction
of its initial three products, Primsol trimethoprim solution, Feverall
acetaminophen rectal
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suppositories and Pediamist nasal saline spray, to the market during the second
half of 1997. Ascent is in the process of preparing marketing literature and
other marketing materials for the introduction of these initial three products.
Ascent's ability to achieve its product introduction schedule will depend on the
timing of final approval of the Primsol solution NDA and of the closing of the
Feverall product line acquisition. Ascent plans to introduce other products as
their development is completed and subject to obtaining requisite regulatory
approvals.
Ascent has chosen to establish its own domestic sales force instead of
using third party sales organizations. The Company believes that marketing and
sales initiatives can be more efficiently and effectively implemented through a
direct sales force that promotes only Ascent products. Because pediatricians and
pediatric nurses are concentrated in group practices in urban and suburban
centers and advertising may be disseminated through a limited number of
specialty pediatric publications, Ascent believes that it can reach much of the
domestic pediatric market with a moderately sized sales force and carefully
controlled marketing expenditures. Ascent expects to employ six regional sales
managers, six full-time sales representatives and approximately 30 flex-time (or
part-time) sales representatives by the end of 1997. Ascent plans to expand this
sales force in the future as it introduces additional products.
The Company plans to use its sales force to promote the Company's products
to high prescribing pediatricians, influential pediatricians and nurses in
pediatricians' offices. Ascent expects to accomplish this goal through personal
sales calls by its sales representatives and attendance by its sales
representatives at industry conferences, seminars and other meetings.
Particularly while building its sales force, Ascent plans to supplement these
activities with a telemarketing program designed to reach pediatricians and
pediatric nurses in geographic areas beyond the coverage of the Company's sales
force and pediatricians and pediatric nurses who are not targeted for one-on-one
visits. Ascent expects to advertise its products through direct mail and
advertisements in speciality pediatric journals.
Because more than 60% of patients are covered by a managed care program,
such as a health maintenance organization, preferred provider organization or
state Medicaid program, Ascent also plans to promote its products directly to
managed care providers with the goal of obtaining inclusion of these products on
the providers' formularies. The Company has retained a consulting firm to assist
it in gaining managed care formulary acceptance, but may perform this function
with its own personnel in the future.
Ascent plans to enter into licensing and distribution arrangements for the
marketing and sale of its products in international markets to leverage the
established international marketing, sales and distribution capabilities of
third party collaborators. Ascent plans to enter into similar arrangements with
respect to any adult applications of its products.
MANUFACTURING AND DISTRIBUTION
The Company plans to rely upon third parties to manufacture the Company's
products for preclinical tests, clinical trials and commercial purposes.
Accordingly, the Company does not have any manufacturing facilities and has not
sought to employ direct manufacturing personnel. The components of the Company's
products generally are available from a variety of commercial suppliers and are
inexpensive. The production of most of these products involves known
manufacturing techniques, although the Company has developed certain proprietary
manufacturing technologies that it seeks to protect as trade secrets.
Ascent believes that there are a number of third party manufacturers, both
in the United States and abroad, with the capability of manufacturing products
for the Company. The Company intends to establish supply agreements with
manufacturers that comply with the FDA's GMP requirements and other regulatory
standards. Certain of the Company's supply arrangements require that Ascent buy
all of the Company's requirements of a particular product exclusively from the
other party to the contract. Moreover, FDA regulations provide that a
manufacturer cannot supply a product to the Company and the Company cannot sell
the product unless the manufacturer is qualified (i.e., demonstrates to the FDA
that it can manufacture the product in accordance with applicable regulatory
standards). For many of its products, Ascent has qualified only one supplier,
even though the contractual arrangement with the supplier may permit Ascent to
qualify an alternative manufacturer. Any interruption in supply from any of its
manufacturers or the inability of these
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manufacturers to manufacture the Company's products in accordance with GMP could
have a material adverse effect on the Company's business, financial condition
and operating results.
To date, the Company has entered into several agreements with third parties
for the manufacture of the Company's products. In particular, the Company is a
party to a supply agreement with Lyne Laboratories, Inc. ("Lyne"), under which
Lyne has agreed to manufacture Primsol trimethoprim solution for the Company,
and the Company has agreed to purchase all amounts of such product as it may
require for sale in the United States from Lyne in accordance with an agreed
upon price schedule. The agreement may be terminated by either party on three
months' notice any time after October 17, 2004. See "Business -- License
Agreements" for a description of the Company's agreement with Recordati S.A.
Chemical and Pharmaceutical Company ("Recordati") relating to the manufacture of
Pediavent albuterol controlled-release granules for suspension and
"Business -- Products and Products under Development -- Feverall Acetaminophen
Suppositories" for a description of the Company's anticipated arrangements with
Upsher-Smith for the manufacture of Feverall acetaminophen rectal suppositories.
In the future, the Company may, if it becomes economically attractive to do
so, establish its own manufacturing facilities. In order for the Company to
establish a manufacturing facility, the Company would require substantial
additional funds and be required to hire and retain significant additional
personnel and comply with the extensive GMP regulations of the FDA.
Ascent initially plans to distribute its products through a third party
distribution warehouse. Under this arrangement, the manufacturers of the
Company's products will ship the products to the distributor. The distributor
will perform various functions on behalf of the Company, including order entry,
customer service and collection of accounts receivable. The Company may seek to
develop the capability to perform some or all of these functions through its own
personnel in the future.
COMPETITION
Competition in the pediatric pharmaceutical market is intense. Although the
Company believes that no competitor focuses its commercial activities and
research and development efforts exclusively on the pediatric pharmaceutical
market, several large pharmaceutical companies with significant research,
development, marketing and manufacturing operations market pediatric products.
These competitors include Glaxo Wellcome Inc., Eli Lilly and Company, the Mead
Johnson Division of Bristol-Myers Squibb, Inc., the Ortho-McNeil Pharmaceutical
Division of Johnson & Johnson Inc., Pfizer Inc., the Ross Laboratories Division
of Abbott Laboratories Inc., Schering-Plough Corporation and the Wyeth-Lederle
Vaccines and Pediatrics Division of American Home Products, Inc.
Key competitive factors affecting the success of the Company include the
efficacy, side effect profile, taste, dosing frequency, method of
administration, patent or other proprietary protection, brand name recognition
and price of its products. The timing of market introduction of the Company's or
competitive products is another important competitive factor. Earlier entrants
in the market often obtain and maintain significant market share relative to
later entrants. Accordingly, the relative speed with which Ascent can develop
products, complete the clinical trials and approval processes and supply
commercial quantities of the products to the market is expected to be an
important competitive factor. The Company's competitive position will also
depend on its ability to attract and retain qualified personnel, to obtain
patent protection or otherwise protect the competitive positions of its products
and to secure sufficient capital resources for its operations.
Many of Ascent's potential competitors have substantially greater name
recognition and greater financial, technical and human resources than Ascent. In
addition, many of these competitors have significantly greater experience than
the Company in undertaking preclinical testing and human clinical trials of
pharmaceutical products and obtaining FDA and other regulatory approvals of
products for use in health care. Accordingly, the Company's competitors may
succeed in obtaining FDA or other regulatory approvals for products more rapidly
than the Company. Furthermore, subject to obtaining required regulatory
clearances, Ascent will compete against these larger companies with respect to
manufacturing efficiency and marketing capabilities, areas in which Ascent has
limited or no experience. Ascent's competitors may introduce competitive pricing
pressures that may adversely affect Ascent's sales levels and margins. Moreover,
many of these competitors
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offer well established, broad product lines and services not offered by the
Company. Many of the products offered by these competitors have well known brand
names that have been promoted over many years.
The Company expects to market many of its product candidates as alternative
treatments for pediatric indications for which products with the same active
ingredient are well-entrenched in the market. For example, the Company intends
to market Primsol trimethoprim solution, a trimethoprim antibiotic, for the
treatment of AOM, for which pediatricians often prescribe the well-known
combination therapies Bactrim and Septra, which also contain trimethoprim.
Similarly, Pediatemp acetaminophen controlled-release beads would compete
against Tylenol liquid for children. The Company's product candidates also will
face competition from other products that do not contain the same active
ingredient but are used for the same indication and are well entrenched within
the pediatric market. For example, Primsol solution will compete against other
antibiotics, including amoxicillin. Moreover, many of the Company's potential
products that are reformulations of existing drugs of other manufacturers may
have significantly narrower patent or other competitive protection. There can be
no assurance that pediatricians, pediatric nurses and third party payors will
prefer the Company's products to existing products.
LICENSE AGREEMENTS
The Company is a party to certain license and other arrangements under
which it has obtained rights to manufacture and market certain of its products
or product candidates. Set forth below is a summary of those arrangements that
the Company believes are material to its business.
The Company is a party to a development and license agreement with
Recordati pursuant to which the Company holds a license under certain Recordati
patents and patent applications to clinically test, register, market, distribute
and sell a controlled-release suspension system formulation of albuterol in the
form of coated granules. The license is exclusive in all countries other than
Italy and Spain. The Company may sublicense its license rights under this
agreement, subject to certain restrictions in certain countries. Ascent and
Recordati have agreed to collaborate on the development, clinical testing and
regulatory approval of this albuterol product in the United States and in any
other country in which the Company elects to pursue the commercial development
of such product by providing Recordati notice of such intent within 24 months of
filing for regulatory approval in the United States. All license rights with
respect to (i) countries in which the Company does not so notify Recordati of
its intention to commercially develop such product and (ii) countries in which a
joint development committee comprised of two members from each of the Company
and Recordati determine that commercial development of the product is not
technically feasible, revert to Recordati. Recordati will own any intellectual
property resulting from the collaboration other than clinical research data,
product applications and regulatory approvals obtained by Ascent, which the
Company will own. This agreement has an initial term expiring 15 years from the
date of FDA approval of the product and may be extended at the Company's
election for an additional five year term. During the term of this agreement,
Recordati has agreed to supply such quantities of the product as the Company may
require. The Company is required to pay Recordati certain up-front license fees
and to purchase the product from Recordati at unit prices based upon net sales
in a given country. During the term of this agreement, the Company has agreed
not to develop, manufacture or sell other oral liquid controlled-release
suspension system formulations of a beta agonist.
The Company is a party to a license agreement with MacroChem Corporation
("MacroChem"), under which the Company holds the exclusive, worldwide license,
with the right to sublicense, in technology described in a certain MacroChem
patent to manufacture, use and sell products utilizing transdermal enhancers in
combination with catecholamine bronchodilators for the treatment of respiratory
disorders and products utilizing certain transdermal enhancers in combination
with cromolyn sodium for the treatment of allergic disorders. The license is
co-extensive with the duration of the licensed patent, which expires in 2006.
Pursuant to this agreement, the Company paid MacroChem certain up-front license
payments and is required to pay royalties based on net sales and sublicense fees
for the duration of the patent.
The licenses and other third party product arrangements to which the
Company is a party impose various commercialization, sublicensing, royalty and
other payment, insurance and other obligations on the Company.
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Failure of the Company to comply with these requirements could result in
termination of the applicable agreement, which could have a material adverse
effect on the Company.
PATENTS, TRADE SECRETS, LICENSES AND TRADEMARKS
The Company's success will depend in part on its ability to develop
patentable products and obtain patent or other proprietary rights protection for
its products, both in the United States and in other countries. The Company's
policy is to file patent applications to protect technology, inventions and
improvements that are considered novel and important to the development of its
business. The Company also relies upon trade secrets, know-how, continuing
technological innovation and licensing opportunities to develop and maintain its
competitive position. Ascent also plans to seek three year protection for
certain products under the Waxman-Hatch Act from the approval of a possible
competitor's ANDA which is based on the Company's clinical trial results as well
as trademark protection for its brand names. There can be no assurance, however,
that any steps taken by the Company to protect its proprietary position will be
effective.
The Company holds four issued United States patents, has filed ten
additional patent applications and has received notices of allowance of claims
in three such patent applications. Three of the issued patents relate to the
Company's cromolyn sodium cream product candidate. The claims in one of the
patent applications as to which the Company has receive a notice of allowance
relate to certain controlled-release technology of the Company. Three of the
other seven patent applications relate to the Company's cromolyn sodium cream
product candidate, three relate to taste-masking technologies and one relates to
the Company's formulation of Primsol trimethoprim solution. One of the issued
patents and two of the patent applications as to which the Company has received
notices of allowance of claims relate to product development candidates which
the Company currently is not planning to pursue. The Company has sought foreign
patent protection in other major industrial countries in respect of its most
commercially important technologies. All of the Company's issued United States
and foreign patents expire from 2012 to 2016, although certain United States
patents may be extended for specified periods, and the Company's United States
and foreign patents could lapse if certain applicable fees are not paid.
The patent positions of pharmaceutical firms, including Ascent, are
generally uncertain and involve complex legal and factual questions.
Consequently, even though Ascent currently is prosecuting its patent
applications with the United States Patent and Trademark Office and certain
foreign patent authorities, the Company does not know whether any of its
remaining applications will result in the issuance of any patents or, if any
patents are issued, whether they will provide significant proprietary protection
or will be circumvented or invalidated. Since the Company's products and product
candidates represent reformulations of off-patent drugs, any patents which cover
such products would be use or formulation patents, and the Company's products
would therefore be afforded a significantly narrower level of protection than a
patent on the active ingredient itself. Since patent applications in the United
States are maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature tend to lag behind actual
discoveries by several months or years, Ascent cannot be certain that it was the
first creator of inventions claimed by pending patent applications or that it
was the first to file patent applications for such inventions. Generally, in the
United States, the first to invent is entitled to the patent, whereas in the
European Economic Community, the first to file is entitled to the patent.
Competitors of the Company and other third parties hold issued patents and
pending patent applications relating to aspects of the Company's technology, and
it is uncertain whether these patents and patent applications will require the
Company to alter its products or processes, pay licensing fees or cease
activities. In particular, the Company is aware of one United States patent
issued to a pharmaceutical company that may be alleged to be infringed by the
Company's prednisolone sodium phosphate syrup that is being developed. Although
Welsh & Katz, Ltd., patent counsel to the Company, is of the opinion that the
Company's prednisolone sodium phosphate syrup that is being developed does not
infringe such patent, an opinion of counsel only represents such counsel's view
of applicable law and is not binding on any court or governmental agency. In
addition, there can be no assurance that the holder of such patent or its
licensees will not sue the Company to enforce such patent, and there can be no
assurance as to the outcome of any such action. See "Government Regulation --
FDA Approval."
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Ascent's practice is to require its employees, consultants, members of its
Scientific Advisory Board, Medical Advisory Board, outside scientific
collaborators and sponsored researchers and other advisors to execute
confidentiality and invention assignment agreements upon the commencement of
employment or consulting relationships with the Company. These agreements
provide that all confidential information developed pursuant to such
relationships or made known to the individual by Ascent during the course of the
individual's relationship with Ascent is to be kept confidential and not
disclosed to third parties, subject to a right to publish certain information in
the scientific literature in certain circumstances and subject to other specific
exceptions. In the case of employees, the agreements provide that all inventions
conceived by the individual relating to the business of the Company shall be the
exclusive property of the Company. There can be no assurance, however, that
these agreements will provide meaningful protection for the Company's trade
secrets or adequate remedies in the event of unauthorized use or disclosure of
such information.
Ascent engages in collaborations and sponsored research agreements and
enters into preclinical and clinical testing agreements with academic and
research institutions to take advantage of their technical expertise and staff
and to gain access to clinical evaluation models, patients, and related
technology. Ascent may be required to negotiate a license to any developments or
results arising out of such collaborations or agreements in order to
commercialize products incorporating them. There can be no assurance that the
Company will be able successfully to obtain any such license at a reasonable
cost or that such developments and results will not be made available to
competitors of the Company on an exclusive or nonexclusive basis. See "Risk
Factors -- Uncertainty Regarding Patents and Proprietary Rights."
Because it believes that promotion of pediatric pharmaceutical products
under a brand name can be an important competitive factor, Ascent plans to seek
trademark protection for its products, both in the United States and, to the
extent the Company deems appropriate, in major foreign countries. To date,
Ascent has obtained six trademark registrations from the United States Patent
and Trademark Office, including for the marks "ASCENT," "PEDIAMIST" and
"PRIMSOL," and has received notices of allowance from the United States Patent
and Trademark Office with respect to trademark registrations for the marks
"PEDIAVENT" and "PEDIATEMP." The "FEVERALL" trademark of Upsher-Smith is
included in the assets that Upsher-Smith has agreed to sell to the Company as
part of the Company's acquisition of Upsher-Smith's Feverall line of
acetaminophen rectal suppositories.
GOVERNMENT REGULATION
The testing, manufacture, labeling, distribution, sale, marketing,
promotion and advertising of the Company's products and its ongoing product
development activities are subject to extensive and rigorous regulation by
governmental authorities in the United States and other countries.
FDA Approval
In the United States, pharmaceutical products intended for therapeutic use
in humans are subject to rigorous and extensive FDA regulation before and after
approval. The process of completing preclinical studies and clinical trials and
obtaining FDA approvals for a new drug can take several years and requires the
expenditure of substantial resources. There can be no assurance that any product
will receive such approval on a timely basis, if at all. See "Risk Factors -- No
Assurance of Regulatory Approval; Extensive Government Regulation."
The steps required before a new drug for human use may be marketed in the
United States include (i) preclinical tests, (ii) submission to the FDA of an
IND, which must become effective before human clinical trials may commence,
(iii) adequate and well-controlled human clinical trials to establish the safety
and effectiveness of the product, (iv) submission of an NDA to the FDA, which
application is not automatically accepted for consideration by the FDA, and (v)
FDA approval of the NDA prior to any commercial sale or shipment of the product.
A new drug in generic form for use in humans may be marketed in the United
States following FDA approval of an ANDA if (i) such drug has the same active
ingredient, dosage form, route of administration, strength and conditions of use
as a "pioneer" drug that was previously approved by the FDA as safe and
effective, and (ii) any applicable patents and statutory period of protection
under the Waxman-Hatch Act have expired. Through a petition process, the FDA may
permit the filing of an ANDA for a generic version of an approved "pioneer" drug
with variations in active ingredient, dosage form,
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route of administration and strength (but not conditions of use), unless (i)
clinical investigations must be conducted to demonstrate the safety and
effectiveness of the drug or (ii) an ANDA would provide inadequate information
to permit the approval of the variation.
Preclinical tests include laboratory evaluation of product chemistry and
animal studies to gain preliminary information of a product's pharmacology and
toxicology and to identify any safety problems that would preclude testing in
humans. Preclinical safety tests must be conducted by laboratories that comply
with FDA regulations regarding GLP. The results of the preclinical tests are
submitted to the FDA as part of an IND application and are reviewed by the FDA
prior to the commencement of human clinical trials. Unless the FDA objects to,
or makes comments or raises questions concerning, an IND and places it on
clinical hold, the IND will become effective 30 days following its receipt by
the FDA and initial clinical studies may begin, although companies often receive
FDA comments before beginning such studies. There can be no assurance that
submission of an IND will result in FDA authorization to commence clinical
trials. See "Risk Factors -- Products in Development; Technological
Uncertainty."
Clinical trials involve the administration of the investigational new drug
to healthy volunteers and to patients under the supervision of a qualified
principal investigator. Clinical trials must be conducted in accordance with the
FDA's Good Clinical Practice requirements under protocols that detail, among
other things, the objectives of the study, the parameters to be used to monitor
safety, and the effectiveness criteria to be evaluated. Each protocol must be
submitted to the FDA as part of the IND. Further, each clinical study must be
conducted under the auspices of an Institutional Review Board ("IRB"). The IRB
will consider, among other things, ethical factors, the safety of human
subjects, the possible liability of the institution and the informed consent
disclosure which must be made to participants in the clinical trial.
Clinical trials are typically conducted in sequential phases, although the
phases may overlap. In Phase I, the investigational new drug usually is
administered to healthy human subjects (10 to 50 persons) and is tested for
safety (adverse effects), dosimetry, tolerance, metabolism, distribution,
excretion and pharmacokinetics (clinical pharmacology). Phase II involves
studies in a limited patient population (approximately 10 to 70 persons) to (i)
evaluate the effectiveness of the investigational new drug for specific
indications, (ii) determine dose response and optimal dosage and (iii) identify
possible adverse effects and safety risks. When an investigational new drug is
found to have an effect at an optimal dose and to have an acceptable safety
profile in Phase II evaluation, Phase III trials are undertaken to further test
for safety, further evaluate clinical effectiveness and to obtain additional
information for labeling within an expanded patient population at geographically
dispersed clinical study sites. There can be no assurance that Phase I, Phase II
or Phase III testing will be completed successfully within any specified time
period, if at all, with respect to any of the Company's products subject to such
testing. Furthermore, the FDA may at any time impose a clinical hold on ongoing
clinical trials, or the IRB or the Company may suspend clinical trials at any
time if it is felt that the participants are being exposed to an unanticipated
or unacceptable health risk. If the FDA imposes a clinical hold, clinical trials
may not recommence without prior FDA authorization and then only under the terms
authorized by the FDA.
The results of the pharmaceutical development, preclinical studies and
clinical studies, the chemistry and manufacturing data, and the proposed
labeling, among other things, are submitted to the FDA in the form of an NDA for
approval of the marketing and commercial shipment of the product. The FDA may
refuse to accept the NDA for filing if administrative and NDA content criteria
are not satisfied, and even after accepting the NDA for review, the FDA may
require additional testing or information before approving the NDA. The FDA must
deny an NDA if applicable regulatory requirements are not ultimately satisfied.
Moreover, if regulatory approval of a product is granted, such approval may
require post-marketing testing and surveillance to monitor the safety of the
product or may entail limitations on the indicated uses for which it may be
marketed. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained, new information raises safety or
effectiveness questions or if problems occur following initial marketing.
The Waxman-Hatch Act permits the use of an abbreviated FDA approval
procedure by authorizing the filing of an ANDA for any drug product that has the
same active ingredient as a drug that was approved by the FDA as safe and
effective, subject to certain exclusions (such as drugs that are still protected
by patent or
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market exclusivity). Approval of a pharmaceutical product through an ANDA does
not require the conduct of preclinical tests on pharmacology or toxicology or
Phase I, II or III clinical trials to prove the safety and effectiveness of such
product, but instead is based upon a showing of bioequivalence with the
"pioneer" drug and adequate manufacturing. Therefore, compared to an NDA, the
filing of an ANDA may result in reduced research and development costs
associated with bringing a product to market.
An ANDA can be filed in cases where there is an existing patent on an
approved "pioneer" drug. The applicant is obligated to notify the patent holder
of the filing of the ANDA, which then starts a 45-day period during which the
patent holder can file a patent infringement suit against the applicant if the
patent holder believes that its patent would be infringed by the applicant's
product. If patent litigation is brought against the applicant, the FDA will
still review the ANDA, however, any FDA approval of the ANDA can not become
effective until the earlier of (i) a determination that the existing patent is
invalid, unenforceable or not infringed, (ii) such litigation has been dismissed
or (iii) 30 months after the ANDA filing. The Company is in the process of
filing an ANDA for its prednisolone sodium phosphate syrup. The Company is aware
of one United States patent issued to a pharmaceutical company that may be
alleged to be infringed by this product candidate and has provided informal
notice to the holder and licensee of such patent that the Company believes that
its prednisolone syrup does not infringe such patent. See "Patents, Trade
Secrets, Licenses and Trademarks."
The Waxman-Hatch Act also provides for a period of statutory protection for
new drugs which receive NDA (but not ANDA) approval from the FDA. If a new drug
receives NDA approval, and the FDA has not previously approved any other new
drug containing the same active ingredient, then the Waxman-Hatch Act does not
permit an ANDA to be submitted by another company for a generic version of such
drug generally for a period of five years from the date of approval of the NDA.
Similarly, if NDA approval is received for a new drug containing an active
ingredient that was previously approved by the FDA, and if such NDA approval was
dependent upon the submission to the FDA of new clinical investigations (other
than bioavailability studies) by the applicant, then the Waxman-Hatch Act
prohibits the FDA from making effective the approval of an ANDA for a generic
version of such drug by another company for a period of three years from the
date of such NDA approval. The statutory protection provided pursuant to the
Waxman-Hatch Act will not prevent the filing or approval of an NDA (as opposed
to an ANDA) for any drug, including, for example, a drug with the same active
ingredient, dosage form, route of administration, strength and conditions of use
as a drug protected under the act. In order to obtain an NDA, a competitor would
be required to conduct its own clinical trials. As the Company's products and
product candidates are based upon approved compounds for which the FDA has
previously granted NDA approval, the Company expects that any of its products
which qualify for statutory protection under the Waxman-Hatch Act will be
afforded only a three year period of protection.
The Company has completed clinical trials and submitted an NDA with respect
to only one of its product candidates. No assurance can be given that the
Company's clinical trials with respect to any of its product candidates will be
completed on a timely basis, if at all, that the clinical trials will
demonstrate safety or effectiveness, that the clinical results will be accepted
for consideration by the FDA, that the FDA will find the data submitted adequate
or that an NDA or ANDA will be ultimately approved. See "Risk Factors --
Unproven Safety and Effectiveness of Potential Products; Uncertainties Related
to Clinical Trials."
As part of the drug approval process, the FDA must inspect and find that
the Company's or its supplier's drug manufacturing facilities comply with GMP
before an NDA or an ANDA can be approved by the FDA for marketing in the United
States. The FDA will review the manufacturing procedures and inspect the
manufacturer's facilities and equipment for compliance with GMP and other
requirements. After an NDA is approved, any material change in the manufacturing
process, equipment or location would necessitate additional data, then FDA
review and approval before marketing.
Certain of the Company's products, such as guaifenisen cough syrup, fall
within the FDA's OTC Monograph system, rather than the IND/NDA system, and may
be marketed without the Company first obtaining FDA approval of an NDA or ANDA,
provided such product complies with the specifications set forth in the OTC
Monograph for the applicable product category. OTC drugs must also be
manufactured in compliance with GMP, but premarket approval is not required.
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Foreign Regulatory Approval
Whether or not FDA approval has been obtained, approval of a pharmaceutical
product by comparable governmental regulatory authorities in foreign countries
must be obtained prior to the commencement of clinical trials and subsequent
marketing of such product in such countries. The approval procedure varies from
country to country, and the time required may be longer or shorter than that
required for FDA approval. Although there are some procedures for unified filing
for certain European countries, in general, each country has its own procedures
and requirements.
Under the recently-enacted FDA Export Reform and Enhancement Act of 1996,
pharmaceutical products generally may be freely exported from the United States
before the FDA has approved the product for marketing in the United States for
investigation in 24 listed countries and for marketing in any country after at
least one of the 24 listed countries has approved the product for marketing.
EMPLOYEES
As of March 31, 1997, Ascent had 24 full-time employees. Twelve of these
employees are engaged in product development and quality control, including
medical and regulatory affairs, three are employed in sales and marketing and
nine are employed in finance, business development and general and
administrative activities. Many of the Company's management and professional
employees have had prior experience with pharmaceutical, biotechnology or
medical products companies. None of the Company's employees is covered by a
collective bargaining agreement, and management considers relations with its
employees to be good.
FACILITIES
Ascent leases approximately 14,300 square feet of office space in
Wilmington, Massachusetts. The lease has an initial term expiring January 31,
2002. The Company has an option to renew the lease for an additional five-year
period.
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MANAGEMENT
EXECUTIVE OFFICERS, SIGNIFICANT EMPLOYEES AND DIRECTORS
The following table provides information concerning the executive officers,
significant employees and directors of the Company as of March 31, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- --------------------------------------------
<S> <C> <C>
Executive Officers
Emmett Clemente, Ph.D..................... 58 Chairman of the Board
Alan R. Fox............................... 52 President, Chief Executive Officer and
Director
John G. Bernardi.......................... 42 Vice President, Finance and Treasurer
Gregory A. Vannatter...................... 44 Vice President, Marketing
Significant Employees
Mumtaz Ahmed, M.D., Ph.D.................. 60 Vice President, Medical Affairs
Aloysius O. Anaebonam, Ph.D............... 41 Vice President, Product Development and
Quality Control
Albert R. Collinson, Ph.D................. 39 Vice President, Business Development
Robert W. Mendes, Ph.D.................... 58 Vice President, Regulatory Affairs
Ronald M. Scroggins....................... 54 Vice President, Sales and Marketing Planning
Diane Worrick............................. 44 Director of Human Resources
Other Members of the Board of Directors
Robert E. Baldini(1)...................... 66 Vice Chairman
Raymond F. Baddour, Ph.D.(1).............. 72 Director
Michael J.F. Du Cros(1)................... 59 Director
Thomas W. Janes(2)........................ 41 Director
Andre L. Lamotte, Sc.D.(2)................ 49 Director
Terrance McGuire(2)....................... 41 Director
Lee J. Schroeder(2)....................... 68 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Each officer serves at the discretion of the Board of Directors. There are
no family relationships among any executive officers, significant employees or
directors of the Company. A brief biography of each executive officer,
significant employee and director follows:
Emmett Clemente, Ph.D., founded the Company in 1989 and has served as a
director since 1989 and as Chairman of the Board since May 1996. From 1989 to
May 1996, Dr. Clemente also served as the Company's Chief Executive Officer. Dr.
Clemente served as the Director of Pharmaceutical Research for Fisons
Corporation, U.S., a pharmaceutical company ("Fisons"), from 1980 to 1989, and
as the Director of New Product Development and Acquisitions of Fisons from 1972
to 1980. From 1970 to 1972, Dr. Clemente served as Chief Scientist in the
Consumer Products Division of Warner-Lambert Company, a pharmaceutical company.
From 1967 to 1970, Dr. Clemente served as Senior Scientist of Richardson-Merrell
Company, a pharmaceutical company. Dr. Clemente received a B.S. in biology, an
M.S. in physiology and a Ph.D. in pharmacology from St. John's University.
Alan R. Fox, joined the Company as President, Chief Executive Officer and a
director in May 1996. Mr. Fox served as President of Mead Johnson Europe, an
infant formula and nutritional company, from 1991 to May 1996. From 1981 to
1991, Mr. Fox was President and General Manager of Mead Johnson Canada, an
infant formula and nutritional company. From 1968 to 1981, Mr. Fox served in
various positions, including as
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a Manager of Marketing and Sales for the Bristol Laboratories Division ("Bristol
Laboratories") of Bristol-Myers Squibb, Inc., ("Bristol-Myers Squibb") a
pharmaceutical company. Mr. Fox received a B.S. in economics and an M.B.A. from
the Wharton School, University of Pennsylvania.
John G. Bernardi, Vice President, Finance, joined the Company in June 1996.
Mr. Bernardi acted as an independent financial consultant from 1995 to June
1996. From 1990 to 1995, Mr. Bernardi served as the Vice President of
Administration and Finance for Vision-Science, Inc., a medical device company.
Mr. Bernardi received a B.S. in accounting from Bentley College and an M.B.A.
from New Hampshire College.
Gregory A. Vannatter, Vice President, Marketing, joined the Company in
October 1996. Mr. Vannatter served in various positions with Mead Johnson
Nutritionals Division of Bristol-Myers Squibb from 1988 to October 1996,
including most recently Director of Pediatric Global Marketing from 1995 to
September 1996 and Director of Infant Formula Marketing from 1991 to 1995. From
1986 to 1988, Mr. Vannatter served as Product Manager for Bristol Laboratories.
From 1975 to 1986, Mr. Vannatter served in various sales and marketing positions
with Pfizer Pharmaceuticals, a pharmaceutical company. Mr. Vannatter received a
B.S. in marketing from Ball State University and an M.B.A. from Indiana
University.
Mumtaz Ahmed, M.D., Ph.D., Vice President, Medical Affairs, joined the
Company in 1993. Dr. Ahmed served as Executive Director/Distinguished Research
and Development Physician at Ciba-Geigy Corporation, a pharmaceutical company
("Ciba-Geigy"), from 1982 to 1993. From 1979 to 1982, Dr. Ahmed served as a
Senior Investigator at Pfizer Inc., a pharmaceutical company. Dr. Ahmed received
a B.S. in biology and chemistry and an M.S. in Microbiology from University of
Karachi, Pakistan, an M.D. from UACJ School of Medicine, Juarez, Mexico, and a
Ph.D. in microbiology from Indiana University School of Medicine.
Aloysius O. Anaebonam, Ph.D., Vice President, Product Development and
Quality Control, joined the Company in 1991. Dr. Anaebonam served as a Section
Head in the Analytical/Stability Group for Fisons from 1986 to 1991. From 1981
to 1986, Dr. Anaebonam served as a Pharmaceutical Development Scientist for
Pfeiffer Pharmaceutical Sciences Laboratories at the Massachusetts College of
Pharmacy, which is engaged in pharmaceutical industry consulting. Dr. Anaebonam
received a B.Pharm. from the University of Nigeria and an M.S. and a Ph.D. in
industrial pharmacy from the Massachusetts College of Pharmacy.
Albert R. Collinson, Ph.D., Vice President, Business Development, joined
the Company in November 1996. Dr. Collinson served as Head of Scientific
Development, Office of Technology, of Berlex Laboratories, a pharmaceutical
company, from 1995 to November 1996. From 1993 to 1995, Dr. Collinson served as
Director of Business Development of Apoptosis Technology, Inc., biotechnology
company. From 1992 to 1995, Dr. Collinson served as Director, Business
Development and from 1988 to 1992 as Group Leader, Biochemistry, at ImmunoGen,
Inc., a biotechnology company. Dr. Collinson received a B.S. in biology and
chemistry from the University of Rhode Island and a Ph.D. in biochemistry from
Brandeis University.
Robert W. Mendes, Ph.D., Vice President, Regulatory Affairs, joined the
Company in 1992. Dr. Mendes served as a Professor of Industrial Pharmacy of the
Massachusetts College of Pharmacy from 1965 to 1992. From 1979 to 1992, Dr.
Mendes also served as Director of the Pfeiffer Pharmaceutical Sciences
Laboratories at the Massachusetts College of Pharmacy, an organization engaged
in pharmaceutical industry consulting. Dr. Mendes received a B.S. in pharmacy
from Northeastern University and an M.S. and a Ph.D. in pharmaceutics and
microbiology from the University of North Carolina.
Ronald M. Scroggins, Vice President, Sales and Marketing Planning, joined
the Company in 1990. Mr. Scroggins served as the Regional Sales Director of
Gynopharma, Inc., a gynecological and obstetrics company, from 1989 to 1990.
From 1986 to 1989, Mr. Scroggins served as Director, Product Management, at
Connaught Laboratories, Inc., a pediatric vaccine company. From 1984 to 1986,
Mr. Scroggins served as Group Product Manager for Key Pharmaceuticals, Inc., a
pharmaceutical company ("Key Pharmaceuticals"). From 1977 to 1984 and from 1965
to 1973, Mr. Scroggins held various sales and marketing positions at Sandoz,
Inc., a pharmaceutical company, and in the interim period from 1973 to 1977, he
served as Product Manager of Dorsey Laboratories, a pharmaceutical company. Mr.
Scroggins received a B.S. in biology from the University of Texas at El Paso.
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<PAGE> 51
Diane Worrick, Director of Human Resources, joined the Company in 1990. Ms.
Worrick served in various human resources positions at Fisons from 1976 to 1989,
last serving as Personnel Manager. Ms. Worrick received a B.B.A. from
Northeastern University.
Robert E. Baldini, Vice Chairman of the Board of Directors of the Company
since April 1996 and a director of the Company since 1993, has served as a
consultant to, and a director of, several private pharmaceutical and medical
device companies. Mr. Baldini served as Senior Vice President of Sales and
Marketing for Key Pharmaceuticals from 1982 to 1986. Following the acquisition
of Key Pharmaceuticals by Schering-Plough Corporation ("Schering-Plough") in
1986, he continued with Key Pharmaceuticals Division of Schering-Plough until
1995, last serving as its President. Mr. Baldini served as Executive Director of
Sales and Promotion of Ciba-Geigy from 1977 to 1982. Mr. Baldini also serves as
Vice Chairman of the Board of Directors of KOS Pharmaceuticals, Inc. Mr. Baldini
received a B.S. in marketing from Seton Hall University and an M.B.A. from New
York University.
Raymond F. Baddour, Ph.D., a director of the Company since 1989, has served
as the Lammot DuPont Professor of Chemical Engineering at the Massachusetts
Institute of Technology since 1973. Dr. Baddour is a co-founder and director of
Amgen Inc., a biotechnology company, Tekmat Corp., a specialty materials
company, Abcor, Inc., an ultra-filtration equipment company, and Amicon, Inc., a
specialty chemicals company. Dr. Baddour received a B.S. in chemical engineering
from the University of Notre Dame and an M.S. in chemical engineering practice
and an Sc.D. in chemical engineering from the Massachusetts Institute of
Technology.
Michael J.F. Du Cros, a director of the Company since 1993, has served as a
Partner of Atlas Venture, a venture capital firm, since 1993. Mr. Du Cros also
serves as a General Partner of Aspen Venture Partners, L.P., a limited
partnership formed to carry on the venture capital activities of 3i Ventures in
the United States, since 1991. From 1984 to 1988, Mr. Du Cros served as the
Chief Executive Officer of Protein Databases, Inc., a life science
instrumentation company. Mr. Du Cros received a B.Sc. in industrial chemistry
from the City University of London.
Thomas W. Janes, a director of the Company since January 1997, has served
as a Managing Director of Triumph Capital Group, Inc., a private equity money
management firm, since 1990 and as a General Partner of the Triumph-Connecticut
Limited Partnership, a private equity money management firm ("Triumph"), since
1993. Mr. Janes also serves as a director of Dairy Mart Convenience Stores, Inc.
and Alarmguard Holdings, Inc. Mr. Janes received a B.A. in history and
government from Harvard College and an M.B.A. from Harvard Business School.
Andre L. Lamotte, Sc.D., a director of the Company since 1989, has served
since 1989 as the Managing General Partner of Medical Science Ventures, L.P.,
the general partner of Medical Science Partners, L.P., the venture capital firm
founded by Harvard University. He served as General Manager of the Merieux
Institute, Inc., the U.S. affiliate of Institute Merieux and Pasteur Vaccines,
from 1983 to 1988. Dr. Lamotte has served as a director of OraVax, Inc., a
biotechnology company, since 1990. Dr. Lamotte received an M.S. in chemical
engineering and an Sc.D. in chemical engineering/chemistry from the
Massachusetts Institute of Technology and an M.B.A. from Harvard Business
School.
Terrance McGuire, a director of the Company since 1993, has served as a
founding General Partner of Polaris Venture Partners since 1996 and, as a
General Partner of Beta Partners Limited Partnership since 1989, both venture
capital firms. Since 1992, Mr. McGuire has also served as a General Partner of
Alta V Management Partners, L.P., which is the General Partner of Alta V Limited
Partnership ("Alta"), a venture capital fund associated with Burr, Egan, Deleage
& Co. He is a director of Integ, Incorporated, a diagnostic company, Cubist
Pharmaceuticals, Inc., a pharmaceutical company, and several private health care
companies. Mr. McGuire received a B.S. in physics and economics from Hobart
College, an M.S. in engineering from Dartmouth College and an M.B.A. from
Harvard Business School.
Lee J. Schroeder, a director of the Company since 1990, has served as the
President of Lee Schroeder and Associates, Inc., a company engaged in
pharmaceutical consulting, since 1985. From 1983 to 1985, Mr. Schroeder served
as the President of the Lincoln Wholesale Drug Company, a wholesale drug
company.
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<PAGE> 52
From 1981 to 1983 Mr. Schroeder was the Executive Vice President of Sandoz,
Inc., U.S., a pharmaceutical company. From 1974 to 1981, Mr. Schroeder served as
Vice President and General Manager of Dorsey Laboratories, a pharmaceutical
company. Mr. Schroeder serves as a director of Interneuron Pharmaceuticals,
Inc., a pharmaceutical company, MGI Pharmaceuticals, Inc., a pharmaceutical
company, and Celgene Corporation, a pharmaceutical company.
Following this offering, the Board of Directors will be divided into three
classes, each of whose members will serve for a staggered three-year term. The
Board will consist of three Class I Directors (Messrs. Baddour, Du Cros and
Schroeder), three Class II Directors (Messrs. Fox, Baldini and Janes) and three
Class III Directors (Messrs. Clemente, Lamotte and McGuire). At each annual
meeting of stockholders, a class of directors will be elected for a three-year
term to succeed the directors of the same class whose terms are then expiring.
The terms of the Class I Directors, Class II Directors and Class III Directors
will expire upon the election and qualification of successor directors at the
annual meeting of stockholders held during the calendar years 1998, 1999 and
2000, respectively.
Each director other than Thomas W. Janes has been nominated and elected to
the Board of Directors pursuant to a voting agreement among certain of the
Company's stockholders. This agreement will terminate upon the consummation of
this offering.
Thomas W. Janes has been nominated and elected to the Board of Directors
pursuant to the terms of a Securities Purchase Agreement dated January 31, 1997
(the "Triumph Agreement") between the Company, Triumph and certain of the
Company's warrantholders. This agreement will continue until the later of (i)
the payment of the convertible subordinated secured notes issued to Triumph and
certain other parties on January 31, 1997 and (ii) two and one-half years
following the date of the closing of this offering. See "Certain Transactions."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees of
and consultants to the Company, establishes and approves salaries and incentive
compensation for executive officers and administers the Company's stock option
and other equity incentive plans (including granting stock options and awards to
executive officers and directors pursuant to such plans and making
recommendations to the full Board of Directors as to such grants and awards to
other employees of the Company), and an Audit Committee, which reviews the
results and scope of the audit and other services provided by the Company's
independent public accountants.
COMPENSATION OF DIRECTORS
Messrs. Baldini and Schroeder are paid $6,000 per annum as compensation for
serving on the Board of Directors. No other directors currently are compensated
for serving on the Board of Directors. All of the directors are reimbursed for
their expenses incurred in connection with their attendance at Board and
committee meetings.
In March 1997, the Company adopted the 1997 Director Stock Option Plan (the
"Director Plan"). Under the terms of the Director Plan, options to purchase
15,000 shares of Common Stock will be granted to non-employee directors upon the
date on which the initial public offering price is determined (the "Pricing
Date") at the initial public offering price. Thereafter, options to purchase
15,000 shares of Common Stock will be granted to each new director upon his or
her initial election to the Board of Directors. Annual options to purchase 5,000
shares of Common Stock will be granted to each non-employee director on May 1 of
each year commencing in 1998. All options will vest on the first anniversary of
the date of grant. However, the exercisability of these options will be
accelerated upon the occurrence of a change in control of the Company (as
defined in the Director Plan). A total of 300,000 shares of Common Stock may be
issued upon the exercise of stock options granted under the Director Plan. With
the exception of the options granted on the Pricing Date, the exercise price of
all options granted under the Director Plan will equal the closing price of the
Common Stock on the date of grant.
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The Company is a party to a consulting agreement with Mr. Robert E.
Baldini, the Company's Vice Chairman, dated April 1, 1996. Pursuant to this
agreement, Mr. Baldini provides certain consulting services as requested by the
Company in return for compensation of $1,500 per day. Upon execution of this
agreement, the Company granted Mr. Baldini an option under the Company's 1992
Equity Incentive Plan exercisable for 85,000 shares of Common Stock vesting in
four equal annual installments. Mr. Baldini was paid $7,500 in consulting fees
in 1996 pursuant to this agreement. This consulting agreement expires on April
1, 2000 unless extended by the parties.
SCIENTIFIC ADVISORS
The Company has a number of scientific advisors with recognized expertise
in medical areas relevant to pediatric patients and drug delivery technologies
who advise the Company on an as-needed basis. These scientific advisors are
employed by employers other than the Company, primarily academic institutions,
and may have commitments to or consulting or advisory agreements with other
entities that may limit their availability to the Company. These entities may
also be competitors of Ascent. The Company's scientific advisors are compensated
for their services pursuant to consulting agreements between the individuals and
the Company. A brief biography of each of the Company's scientific advisors, as
of March 31, 1997, follows:
Elazer Edelman, M.D., has served as a Visiting Scientist with the
Massachusetts Institute of Technology since 1985. In addition, since 1989, Dr.
Edelman has served as Instructor in the Department of Medicine at Brigham and
Women's Hospital, Boston, Massachusetts, and Harvard Medical School. Dr.
Edelman, whose specialty is transdermal delivery, received an M.D. from Harvard
Medical School.
Ho-Leung Fung, Ph.D., has served as Professor of Pharmaceutics with the
State University of New York, Buffalo, New York, since 1970. Dr. Fung, whose
specialty is controlled-release technologies, received a Ph.D. in Analytical
Pharmaceutical Chemistry from the University of Kansas.
Donald Goldmann, M.D., has served as Chief of Janeway Medical Service since
1995 and Medical Director, Quality Improvement since 1989 at the Children's
Hospital, Boston, Massachusetts. Dr. Goldmann, whose specialty is pediatrics,
has served as Professor in Pediatrics at Harvard Medical School since 1978. Dr.
Goldmann received an M.D. from Harvard Medical School.
David Grinder, R.Ph., M.S., has served as the Director of Pharmacy with All
Children's Hospital, St. Petersburg, Florida, since 1985. Mr. Grinder, whose
specialty is hospital pharmacy, received a B.S. in pharmacy from the University
of Montana and an M.S. in Management from the University of South Florida.
Amal Kurban, M.D., has served as Professor of Dermatology with the
Department of Dermatology of the Boston University School of Medicine since
1985. Dr. Kurban, whose specialty is pediatrics, received an M.D. from the
American University in Beirut.
Edward O'Rourke, M.D., has served as Associate in Medicine, Infectious
Disease, with the Children's Hospital, Boston, Massachusetts, since 1984. Dr.
O'Rourke, whose specialty is pediatrics, received an M.D. from Boston University
School of Medicine.
Ricky Richardson, M.D., has served as Executive Vice President with WCH
International, Inc. of the WellCare Group, a telemedicine company, since 1992.
Dr. Richardson, whose specialty is pediatrics, received an M.D. from London
University (Middlesex Hospital Medical School).
MEDICAL ADVISORY BOARD
The Company has a number of medical advisors with recognized expertise in
relevant medical specialities of importance to the Company who advise the
Company on an as-needed basis by suggesting and evaluating clinical study
protocols, marketing plans and sales force training programs. These medical
advisors are employed by employers other than the Company, primarily academic
institutions, and may have commitments to or consulting or advisory agreements
with other entities that may limit their availability to the Company. These
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entities may also be competitors of Ascent. A brief biography of each of the
Company's medical advisors, as of March 31, 1997, follows:
Charles J. Cote, M.D., has served as Vice Chairman, Director of Research,
department of Pediatric Anesthesia at the Children's Memorial Hospital, Chicago,
Illinois, since 1993. Dr. Cote has served as Professor of Clinical Anesthesia at
Northwestern University Medical School since 1993. Dr. Cote, whose specialty is
pediatric anesthesiology, received an M.D. from Albany Medical College.
Heinz F. Eichenwald, M.D., has served as the William Buchanon Professor of
Pediatrics with the University of Texas Southwestern Medical Center at Dallas
since 1982. Dr. Eichenwald, whose specialty is pediatric infectious disease,
received an M.D. from Cornell University Medical Center.
Richard J. Grand, M.D., has served as Professor of Pediatrics with the
Tufts University School of Medicine, Boston, Massachusetts, since 1983. Dr.
Grand, whose specialty is pediatric gastroenterology, received an M.D. from New
York University School of Medicine.
Ronald C. Hansen, M.D., has served as Professor of Internal Medicine and
Pediatrics with the University of Arizona, Tucson, Arizona, since 1991. Dr.
Hansen, whose specialty is pediatric dermatology, received an M.D. from
University of Iowa, Iowa College of Medicine.
Sheldon L. Kaplan, M.D., has served as Attending Pediatrician with the
Texas Children's Hospital, Houston, Texas, since 1987. Dr. Kaplan, whose
specialty is pediatric infectious disease, received an M.D. from the University
of Missouri.
Alan Nauss, M.D., has served as Pediatrician with the Lahey Clinic Medical
Center, Burlington, Massachusetts, since 1983. Dr. Nauss, whose specialty is
pediatrics, received an M.D. from the University of Pennsylvania.
David G. Tinkelman, M.D., has served as Vice President of Healthcare
Initiatives with the National Jewish Center for Immunology and Respiratory
Medicine, Denver, Colorado, since 1995. Dr. Tinkelman, whose specialty is
pediatric allergy, received an M.D. from Hahnemann Medical School.
Lonnie K. Zeltzer, M.D., has served as Professor of Pediatrics with the
UCLA School of Medicine, Los Angeles, CA, since 1988. Dr. Zeltzer, whose
specialty is pediatric pain, received an M.D. from the University of Cincinnati
College of Medicine.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned by the
following individuals for services rendered to the Company in all capacities
during the year ended December 31, 1996: (i) the Chief Executive Officer (the
"CEO") of the Company as of December 31, 1996 and (ii) the former CEO (the CEO
and the former CEO are hereinafter referred to as the "Named Executive
Officers"). No other executive officer of the Company received salary and bonus
in fiscal 1996 in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
---------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION(1) SALARY BONUS COMPENSATION(2) OPTIONS
- --------------------------------------- -------- ------- --------------- ---------------
<S> <C> <C> <C> <C>
Emmett Clemente, Ph.D. ................ $190,500 $41,600 $13,400 --
Chairman of the Board(3)
Alan R. Fox............................ 135,000 -- -- 153,000
President and Chief Executive
Officer(4)
</TABLE>
- ---------------
(1) In accordance with the rules of the SEC, this table, the stock option grant
table and the stock option exercise table which follow present information
concerning the Company's former CEO and its current CEO for the year ended
December 31, 1996. John G. Bernardi, who joined the Company as Vice
President, Finance in June 1996, currently
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<PAGE> 55
receives an annual salary of $125,000. On August 28, 1996, pursuant to the
Company's 1992 Equity Incentive Plan (the "1992 Plan"), Mr. Bernardi was
granted incentive stock options exercisable for 29,750 shares of Common
Stock at an exercise price of $2.35 per share. Gregory A. Vannatter, who
joined the Company as Vice President, Marketing in October 1996, currently
receives an annual salary of $150,000. On October 15, 1996, pursuant to the
1992 Plan, Mr. Vannatter was granted incentive stock options exercisable for
29,750 shares of Common Stock at an exercise price of $2.35 per share. The
stock options granted to Messrs. Bernardi and Vannatter become exercisable
in four equal annual installments commencing on the first anniversary of the
date of commencement of such officer's employment with the Company.
(2) Reflects the dollar value of insurance premiums paid by the Company with
respect to life insurance for the benefit of the Named Executive Officers.
(3) Dr. Clemente served as the Chief Executive Officer of the Company from its
incorporation until May 1996, when he was succeeded by Mr. Fox.
(4) Mr. Fox joined the Company as Chief Executive Officer in May 1996, and the
amounts indicated in this table reflect his actual compensation for the year
ended December 31, 1996. Mr. Fox currently receives an annual salary of
$200,000.
The following table sets forth certain information concerning grants of
stock options made during fiscal 1996 to each of the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL
------------------------------------------------ REALIZABLE
PERCENT VALUE AT
OF TOTAL ASSUMED ANNUAL
OPTIONS RATES OF STOCK
NUMBER OF GRANTED TO PRICE APPRECIATION
SECURITIES EMPLOYEES EXERCISE FOR OPTION TERM(2)
UNDERLYING IN FISCAL PRICE PER EXPIRATION -------------------
NAME OPTIONS YEAR SHARE DATE(1) 5% 10%
- ------------------------------------- ---------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Emmett Clemente, Ph.D................ -- -- -- -- -- --
Alan R. Fox.......................... 153,000(3) 40.1% $2.35 6/26/06 $226,440 $573,748
</TABLE>
- ---------------
(1) These options were granted to Mr. Fox on June 26, 1996. The expiration date
of an option is the tenth anniversary of the date on which the option was
originally granted.
(2) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5% and
10%, compounded annually from the date the respective options were granted
to their expiration date. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses associated
with the exercise. Actual gains, if any, on stock option exercises will
depend on the future performance of the Common Stock, the option holder's
continued employment through the option period, and the date on which the
options are exercised.
(3) These options become exercisable in four equal annual installments
commencing on the first anniversary of the date of commencement of his
employment with the Company and are intended to qualify as incentive stock
options.
The following table sets forth certain information concerning the number
and value of unexercised options held by each of the Named Executive Officers on
December 31, 1996. No options were exercised by these individuals during fiscal
1996.
AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR-END FISCAL YEAR-END(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Emmett Clemente, Ph.D...................... 141,100 3,400 $10,000 --
Alan R. Fox................................ -- 153,000 -- --
</TABLE>
- ---------------
(1) The value of the unexercised, in-the-money options on December 31, 1996 is
based on the difference between the fair market value of the shares as of
such date ($2.35), and the per share option exercise price, multiplied by
the number of shares of Common Stock underlying the options.
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<PAGE> 56
Employment Agreement
The Company is a party to an employment agreement with Dr. Emmett Clemente
for the period commencing March 16, 1994 and ending March 15, 1999, unless
extended by mutual agreement of the Company and Dr. Clemente. Under this
agreement, Dr. Clemente is entitled to receive an annual base salary of
$170,000, as it may be adjusted, and an annual bonus of up to 30% of his annual
base salary based upon the attainment of certain performance criteria set by the
Board of Directors annually (with the potential to exceed 30% of his annual base
salary, at the Board's discretion, in the event that the Company achieves
break-even cash flow). In addition, as part of Dr. Clemente's annual
compensation review, the Board of Directors is required to consider granting Dr.
Clemente a stock option to acquire additional shares of Common Stock. In the
event Dr. Clemente's employment is terminated by the Company without cause, Dr.
Clemente will continue to receive his annual base salary for the one-year period
commencing on the effective date of termination. In addition, if the Company
terminates the employment of Dr. Clemente without cause, the Company is required
to continue to provide Dr. Clemente with benefits for the 18 month period
following the effective date of termination. Any payments or benefits to be
provided by the Company in the event of its termination of Dr. Clemente's
employment without cause will be reduced dollar for dollar by any payments or
benefits received by Dr. Clemente from any other employer during the period in
which the Company is required to provide such payments or benefits. Following
the cessation or termination of his employment by the Company, Dr. Clemente has
agreed that, for a period of two years, he will not compete with the Company
with respect to any products developed, produced, marketed or sold by the
Company during his tenure with the Company.
EMPLOYEE BENEFIT PLANS
1992 Equity Incentive Plan
The Company's 1992 Plan, as amended, was adopted by the Company in
September 1992. The 1992 Plan provides for the grant of stock options and awards
to purchase shares of restricted stock to employees, officers and directors of,
and consultants and advisors to, the Company. Under the 1992 Plan, the Company
may grant incentive stock options and non-statutory stock options. Incentive
stock options may only be granted to employees of the Company. Effective upon
the closing of this offering, a total of 1,350,000 shares of Common Stock may be
issued upon the exercise of options or upon the grant of awards to purchase
restricted stock under the 1992 Plan. As of March 31, 1997, options to purchase
a total of 634,736 shares of Common Stock were outstanding under the 1992 Plan,
and options to purchase a total of 530 shares of Common Stock had been
exercised. As of March 31, 1997, no awards to purchase shares of restricted
stock had been granted under the 1992 Option Plan. In addition, the maximum
number of shares with respect to which options or awards may be granted to any
employee under the plan shall not exceed 500,000 shares of Common Stock in any
year.
The 1992 Plan is administered by the Compensation Committee of the Board of
Directors. Subject to the provisions of the 1992 Plan, the Compensation
Committee has the authority to select the participants to whom options or awards
to purchase shares of restricted stock are granted and determine the terms of
each option or award, including (i) the number of shares of Common Stock subject
to such option or award, (ii) when an option becomes exercisable, (iii) the
option exercise price or award purchase price, which, in the case of incentive
stock options, must be at least 100% (110% in the case of incentive stock
options granted to a stockholder owning in excess of 10% of the Company's Common
Stock) of the fair market value of the Common Stock as of the date of grant,
(iv) the duration of the option (which, in the case of incentive stock options,
may not exceed ten years), and (v) in the case of awards to purchase restricted
stock, the duration of certain restrictions on the transfer of such stock.
Payment of the option exercise price may be made in cash, shares of Common
Stock, a combination of cash or stock or by any other method (including the
delivery of a promissory note payable on terms specified by the Compensation
Committee) approved by the Compensation Committee. Except as may be approved by
the Board of Directors, stock options and awards to purchase shares of
restricted stock are not assignable or
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<PAGE> 57
transferrable except by will and the laws of descent and distribution and, in
the case of non-statutory options, pursuant to a qualified domestic relations
order.
As of March 31, 1997, the Company had 24 full-time employees, all of whom
were eligible to participate in the 1992 Plan. The number of individuals
receiving stock options or awards to purchase shares of restricted stock varies
from year to year depending on various factors, such as the number of promotions
and the Company's hiring needs during the year, and thus the Company cannot now
determine option or award recipients.
The Compensation Committee may, in its sole discretion, include additional
provisions in any option or award granted or made under the 1992 Plan, including
without limitation restrictions on transfer, repurchase rights, commitments to
pay cash bonuses, to make, arrange for or guaranty loans or to transfer other
property to optionees upon exercise of options, or such other provisions as
shall be determined by the Compensation Committee, so long as not inconsistent
with the 1992 Plan or with applicable law. The Compensation Committee may also,
in its sole discretion, accelerate or extend the date or dates on which all or
any particular option or options granted under the 1992 Plan may be exercised.
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company in March 1997 and becomes effective upon the closing of
this offering. The Purchase Plan authorizes the issuance of up to a total of
500,000 shares of Common Stock to participating employees.
All employees of the Company, including directors of the Company who are
employees and all employees of any participating subsidiaries, whose customary
employment is more than 20 hours per week and for more than five months in any
calendar year are eligible to participate in the Purchase Plan. Employees who
would immediately after the grant own 5% or more of the total combined voting
power or value of the stock of the Company or any subsidiary are not eligible to
participate. Following this offering, all of the Company's full-time employees
as of March 31, 1997 would have been eligible to participate in the Purchase
Plan.
On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock as
follows: the employee may authorize an amount (a whole percentage from 1% to 10%
of such employee's regular pay) to be deducted by the Company from such pay
during the Offering Period. On the last day of the Offering Period, the employee
is deemed to have exercised the option, at the option exercise price, to the
extent of accumulated payroll deductions. Under the terms of the Purchase Plan,
the option price is an amount equal to 85% (or such higher percentage as is
determined by the Board of Directors) of the fair market value per share of the
Common Stock on either the first day or the last day of the Offering Period,
whichever is lower. In no event may an employee purchase in any one Offering
Period a number of shares which is more than 15% of the employee's annualized
base pay divided by 85% (or such higher percentage as is determined by the Board
of Directors) of the market value of a share of Common Stock on the commencement
date of the Offering Period. The Compensation Committee may, at its discretion,
choose an Offering Period of 12 months or less for each of the Offerings and
choose a different Offering Period for each Offering.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's rights
under the Purchase Plan terminate upon voluntary withdrawal from the Purchase
Plan at any time, or when such employee ceases employment for any reason, except
that upon termination of employment because of death, the employee's beneficiary
has certain rights to elect to exercise the option to purchase the shares which
the accumulated payroll deductions in the participant's account would purchase
at the date of death.
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<PAGE> 58
401(k) Savings and Retirement Plan
On August 28, 1996 the Company adopted a 401(k) Savings and Retirement Plan
(the "401(k) Plan"), a tax-qualified plan covering all of its employees who are
at least 20.5 years of age and who have completed at least three months of
service to the Company. Each employee may elect to reduce his or her current
compensation by up to 15%, subject to the statutory limit (a maximum of $9,500
in 1997) and have the amount of the reduction contributed to the 401(k) Plan.
The 401(k) Plan provides that the Company may, as determined from time to time
by the Board of Directors, provide a matching cash contribution. In addition,
the Company may contribute an additional amount to the 401(k) Plan, as
determined by the Board of Directors, which will be allocated based on the
proportion of the employee's compensation for the plan year to the aggregate
compensation for the plan year for all eligible employees. Upon termination of
employment, a participant may elect a lump sum distribution or, if his or her
total amount in the 401(k) Plan is greater than $3,500, may elect to receive
benefits as retirement income.
Executive Bonus Plan
Effective January 1, 1997, the Company adopted an Executive Bonus Plan,
which provides for the payment of bonuses to those officers and key employees
reporting directly to the Chief Executive Officer or Chairman of the Company.
Pursuant to the Executive Bonus Plan, each eligible participant is entitled to a
bonus of between 1.5% and 18% of his or her annual salary based upon the
Company's achievement of 95% or greater of its financial target for the year. In
addition, upon achievement of 95% or greater of the financial target for the
year, each eligible participant may receive an additional discretionary
performance bonus of up to 5% of salary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Company's Compensation Committee are Thomas W.
Janes, Andre L. Lamotte, Sc.D., Terrance McGuire and Lee J. Schroeder. Messrs.
Janes (through a profit-sharing plan) and Lamotte and entities affiliated with
Messrs. Janes, Lamotte and McGuire have made various equity and convertible debt
investments in the Company since January 1, 1994. See "Certain Transactions."
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<PAGE> 59
CERTAIN TRANSACTIONS
Since January 1, 1994, the Company has engaged in the following
transactions with the following directors, officers and stockholders who
beneficially own more than 5% of the outstanding Common Stock of the Company
("5% Stockholders"), and affiliates of such directors, officers and 5%
Stockholders (collectively, the "Affiliates").
On June 18, 1995, the Company issued warrants exercisable for an aggregate
of 21,647 shares of Series D Convertible Preferred Stock in replacement of
warrants exercisable for the same number of shares of Series D Convertible
Preferred Stock which expired on such date. These warrants have an exercise
price of $9.00 per share and expire on June 18, 1997. Medical Science Partners,
L.P., was issued warrants exercisable for 9,804 of such shares. Upon the closing
of this offering, these warrants will be exercisable for 8,333 shares of Common
Stock at an exercise price of $10.59 per share.
On July 13, 1995 and August 16, 1995, the Company issued and sold an
aggregate of 733,371 shares of its Series E Convertible Preferred Stock at a
purchase price of $6.00 per share and issued warrants exercisable for an
aggregate of 103,891 shares of Common Stock at an exercise price of $10.59 per
share (the "Series E Common Warrants"). On June 28, 1996, December 18, 1996,
February 3, 1997, February 19, 1997 and February 28, 1997, the Company issued
and sold an aggregate of 1,915,765 shares of its Series F Convertible Preferred
Stock at a purchase price of $6.50 per share and issued warrants exercisable for
an aggregate of 651,334 shares of Common Stock at a purchase price of $7.65 per
share (the "Series F Common Warrants"). In addition, on February 28, 1997, the
Company issued a warrant exercisable for 10,200 shares of Common Stock at an
exercise price of $8.24 per share to Banque Paribas as consideration for
placement agent services in connection with the sale of shares of Series F
Convertible Preferred Stock. The purchasers of the shares of Series E
Convertible Preferred Stock, the Series E Common Warrants, the Series F
Convertible Preferred Stock and the Series F Common Warrants included, among
others, the following directors, officers and Affiliates of the Company:
<TABLE>
<CAPTION>
SERIES E SERIES F
SHARES OF COMMON SHARES OF COMMON TOTAL
NAME SERIES E WARRANTS SERIES F WARRANTS CONSIDERATION
- -------------------------------------- --------- -------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Alta V Limited Partnership............ 164,935 23,365 190,308 64,702 $ 2,226,612
Atlas Venture Fund II, L.P............ 125,000 17,708 76,923 26,153 1,250,000
Customs House Partners................ 1,733 245 2,000 680 23,398
Alan R. Fox........................... -- -- 11,538 3,921 74,997
Bonnie S. Fox......................... -- -- 1,538 522 9,997
Andre L. Lamotte, Sc.D. .............. -- -- 7,692 2,614 49,998
Medical Science Partners, L.P. ....... -- -- 76,923 26,153 500,000
Medical Science Partners II, L.P. .... 83,334 11,805 -- -- 500,004
MSP Heathcare Opportunities Investment
Pool................................ -- -- 153,847 52,305 1,000,006
New York Life Insurance Company....... 125,000 17,708 346,153 117,691 2,999,995
Paribas Principal, Inc................ -- -- 461,538 156,922 2,999,997
Gregory A. Vannatter.................. -- -- 7,692 2,614 49,998
</TABLE>
Upon the closing of this offering, each share of Series E and Series F
Convertible Preferred Stock will automatically convert into 0.85 shares of
Common Stock. The number of shares of Common Stock issuable upon exercise of the
Series F Common Warrants and the exercise price of such warrants will be
adjusted upon the consummation of this offering pursuant to the terms of the
Series F Common Warrants. In addition, the Series F Common Warrants and the
warrant issued to Banque Paribas contain a cashless exercise feature. See
"Description of Capital Stock."
On January 31, 1997, the Company entered into the Triumph Agreement with
Triumph and certain other purchasers identified therein (the "Triumph
Purchasers"), pursuant to which the Company agreed to issue convertible
subordinated secured notes (the "Triumph Notes") in an aggregate amount of
$7,000,000 and warrants exercisable for an aggregate of 561,073 and 218,195
shares of Common Stock at per share exercise prices of $0.01 and $5.29,
respectively, (the "Triumph Warrants"). Upon execution of the Triumph Agreement,
the Company issued Triumph Notes in aggregate principal amount of $2,000,000 and
warrants exercisable for an aggregate of 224,429 shares of Common Stock at a per
share exercise price of $0.01. The Triumph Agreement, as amended, provides that,
upon the earlier of (i) the Company's receipt of final FDA
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<PAGE> 60
NDA approval for Primsol trimethoprim solution and (ii) the closing of this
offering, the Company shall issue additional convertible subordinated secured
notes to the Triumph Purchasers in an aggregate amount of $5,000,000 and
warrants exercisable for an aggregate of 336,644 shares of Common Stock at a per
share exercise price of $0.01 and warrants exercisable for an aggregate of
218,195 shares of Common Stock at a per share exercise price of $5.29.
Through a profit-sharing plan, Thomas W. Janes purchased $21,148 of the
Triumph Notes currently outstanding and Triumph Warrants exercisable for 2,404
shares of Common Stock at an exercise price of $0.01 per share (for total
consideration of $21,148) and will be required to purchase $53,571 of the
additional $5,000,000 of Triumph Notes, and additional Triumph Warrants
exercisable for 3,606 shares of Common Stock at an exercise price of $0.01 per
share and 2,337 shares of Common Stock at an exercise price of $5.29 per share
to be issued by the Company (for total consideration of $53,571).
Except as described below, the Triumph Notes mature on January 31, 2002.
Except as described below the Triumph Notes bear no interest through January 31,
1999 and bear interest at a rate of 7%, 8% and 9% interest for each of the three
years thereafter, respectively. Ascent may redeem the Triumph Notes by paying
100% of the outstanding principal and accrued interest at any time. Upon a
change in control of the Company, as defined in the Triumph Agreement, the
holders of the Triumph Notes may elect to have the Triumph Notes purchased by
the Company at 100% of the outstanding principal plus accrued interest. The
Triumph Notes are secured by a lien on all of the Company's assets, prohibit the
payment of dividends by the Company and, subject to certain exceptions,
(including for up to $6,000,000 of senior secured bank financing and $5,500,000
of secured purchase money financing in connection with the planned acquisition
of the Feverall product line) prohibit the incurrence of additional
indebtedness. Upon completion of this offering, the Company may either redeem
all of the outstanding Triumph Notes for their stated principal amount or all of
such Triumph Notes will amortize in eight equal quarterly principal payments and
require quarterly interest payments on the unpaid principal balance, at a rate
equal to the lesser of ten percent or 3.5% over the prime rate, with the first
quarterly payment of principal and interest due six months after the closing of
this offering. In addition, for a period of two years following the closing of
this offering, the holders of the Triumph Notes will have the right to convert
the Triumph Notes into such number of shares of Common Stock as is equal to the
outstanding principal of such Triumph Notes divided by the per share Price to
Public in this offering (subject to certain requirements as to the minimum
amount to be so converted as provided in the Triumph Agreement). Assuming an
initial public offering price of $12.00 per share, the full $7,000,000 principal
amount of the Triumph Notes would be convertible into an aggregate of 583,332
shares of Common Stock.
The Triumph Agreement also provides that, until the later of (i) the
payment of all amounts outstanding on the Triumph Notes and (ii) two and
one-half years after the date of this offering, the Company shall use its best
efforts to cause the number of members of the Board of Directors to be fixed at
nine and to cause the nominee of the holders of a majority of the shares
issuable upon exercise of the Triumph Warrants to be nominated, elected and
maintained as a director of the Company.
Certain persons and entities, including the purchasers of the Company's
Series E and Series F Convertible Preferred Stock and related warrants and the
holders of the Triumph Warrants and Triumph Notes listed above are entitled to
certain rights with respect to the registration under the Securities Act of
certain shares of the Company's Common Stock, including shares of Common Stock
that may be acquired pursuant to the conversion of the Convertible Preferred
Stock or the Triumph Notes or the exercise of certain options or warrants under
the terms of agreements among the Company and such persons and entities. For a
description of such rights, see "Shares Eligible for Future Sale."
For a description of the employment agreement between the Company and its
Chairman, see "Management -- Executive Compensation." For a description of stock
options granted to certain directors of the Company, see
"Management -- Compensation of Directors." For a description of the relationship
between certain directors of the Company and certain of the Affiliates, see
"Management -- Executive Officers, Significant Employees and Directors," and for
a description of the consulting arrangement between the Company and its Vice
Chairman, see "Management -- Compensation of Directors."
The Company believes that the securities issued in the transactions
described above were sold at their then fair market value and that the terms of
the transactions described above were no less favorable than the Company could
have obtained from unaffiliated third parties.
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<PAGE> 61
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of March 31, 1997 (assuming the
Preferred Stock Conversion), and as adjusted to reflect the sale of the shares
of Common Stock offered hereby and the issuance of an additional $5,000,000 of
Triumph Notes no later than the closing of this offering, by (i) each person or
entity known to the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each of the Company's directors, (iii) each of the Named
Executive Officers and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NUMBER OF SHARES ----------------------------------
BENEFICIALLY BEFORE THE
OWNED(1) OFFERING AFTER THE OFFERING(2)
---------------- ---------- ---------------------
<S> <C> <C> <C>
5% STOCKHOLDERS
Medical Science Partners Group................... 1,110,024(3) 23.4% 16.1%
20 William Street, Suite 250
Wellesley, MA 02181
Funds affiliated with Burr, Egan, Deleage &
Co. ........................................... 724,674(4) 15.2 10.4
One Post Office Square
Boston, MA 02109
New York Life Insurance Company.................. 701,156(5) 14.6 9.7
51 Madison Avenue
New York, NY 10010
Paribas Group.................................... 559,429(6) 11.6 7.4
c/o White & Case
1155 Avenue of the Americas
New York, NY 10036
Atlas Venture Fund II, L.P. ..................... 463,411(7) 9.8 6.8
222 Berkeley Street
Boston, MA 02116
Triumph-Connecticut Limited Partnership.......... 329,639(8) 6.6 14.7(9)
60 State Street
Boston, MA 02109
EXECUTIVE OFFICERS AND DIRECTORS(10)
Raymond F. Baddour, Ph.D. ....................... 261,537(11) 5.6 3.8
Robert E. Baldini................................ 55,250(12) * *
Emmett Clemente, Ph.D............................ 312,800(13) 6.5 4.6
Michael J.F. Du Cros............................. 463,411(14) 9.8 6.8
Alan R. Fox...................................... 53,807(15) 1.1 *
Thomas W. Janes.................................. 333,829(16) 6.7 14.9(17)
Andre L. Lamotte, Sc.D........................... 1,119,176(18) 23.5 16.2
Terrance McGuire................................. 724,674(19) 15.2 10.4
Lee J. Schroeder................................. 8,500 * *
All directors and executive officers as a group
(11 persons)................................... 3,342,136(20) 60.0 49.6(21)
</TABLE>
- ---------------
* Represents less than 1% of the outstanding Common Stock.
(1) Each stockholder has sole voting and investment power with respect to the
shares listed, except as otherwise noted. Shares of Common Stock which an
individual or group has a right to acquire within the 60-day period
following March 31, 1997 pursuant to the exercise of options or warrants
are deemed to be outstanding for the purposes of computing the percentage
ownership of such individual or group, but are not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person
shown in the table.
(2) Assumes no cashless exercise of outstanding warrants and an initial public
offering price of $12.00 per share in this offering. See "Description of
Capital Stock."
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<PAGE> 62
(3) Consists of 844,312 shares held by Medical Science Partners, L.P. ("MSP")
(including 48,652 shares issuable upon the exercise of warrants within 60
days of March 31, 1997), 82,638 shares held by Medical Science Partners II,
L.P. ("MSP II") (including 11,805 shares issuable upon the exercise of
warrants within 60 days of March 31, 1997) and 183,074 shares held by MSP
Healthcare Opportunities Investment Pool ("MSP HOIP") (including 52,305
shares issuable upon the exercise of warrants within 60 days of March 31,
1997). MSP, MSP II and MSP HOIP are affiliates.
(4) Includes 582,341 shares and 134,798 shares issuable upon the exercise of
warrants within 60 days of March 31, 1997, beneficially owned by Alta V
Limited Partnership. Also includes 6,119 shares and 1,416 shares issuable
upon the exercise of warrants within 60 days of March 31, 1997,
beneficially owned by Customs House Partners. The respective general
partners of each of these funds exercise sole voting and investment power
with respect to the shares held by the funds.
(5) Includes 159,010 shares issuable upon the exercise of warrants within 60
days of March 31, 1997.
(6) Consists of 549,229 shares held by Paribas Principal, Inc. (including
156,922 shares issuable upon the exercise of warrants within 60 days of
March 31, 1997) and 10,200 shares issuable upon the exercise of warrants
held by Banque Paribas within 60 days of March 31, 1997. Banque Paribas and
Paribas Principal, Inc. are affiliates.
(7) Includes 79,277 shares issuable upon the exercise of warrants within 60
days of March 31, 1997.
(8) Includes 140,476 shares of Common Stock issuable upon conversion of the
Triumph Notes outstanding at March 31, 1997 (assuming an initial public
offering price of $12.00 per share) held by Triumph and 189,163 shares of
Common Stock issuable upon the exercise of the Triumph Warrants held by
Triumph which are exercisable within 60 days of March 31, 1997.
(9) Includes the shares described in note (8). Also includes an additional
351,190 shares of Common Stock issuable upon conversion of additional
Triumph Notes (assuming an initial public offering price of $12.00 per
share) and an additional 467,653 shares of Common Stock issuable upon the
exercise of additional Triumph Warrants within 60 days of March 31, 1997 to
be held by Triumph upon the Company's issuance of an additional $5,000,000
of Triumph Notes no later than the closing of this offering.
(10) The address for each director and officer of the Company is c/o Ascent
Pediatrics, Inc., 187 Ballardvale Street, Suite B125, Wilmington, MA 01887.
(11) Includes 26,153 shares issuable upon the exercise of warrants within 60
days of March 31, 1997.
(12) Consists of 55,250 shares issuable upon the exercise of options within 60
days of March 31, 1997.
(13) Includes 142,800 shares issuable upon the exercise of options within 60
days of March 31, 1997.
(14) All of such shares are held by Atlas Venture Fund II, L.P. ("Atlas
Venture") (including 79,277 shares issuable upon the exercise of warrants).
Mr. Du Cros is a Partner of Atlas Venture and may be considered the
beneficial owner of the shares owned by Atlas Venture, although Mr. Du Cros
disclaims beneficial ownership, except as to his pecuniary interest
therein.
(15) Includes 3,921 shares issuable upon the exercise of warrants and 38,250
shares issuable upon the exercise of options within 60 days of March 31,
1997. Also includes 1,829 shares held by Mr. Fox's wife (including 522
shares issuable upon the exercise of warrants within 60 days of March 31,
1997).
(16) Includes the shares described in note (8). Also includes 1,786 shares of
Common Stock issuable upon conversion of the Triumph Notes outstanding at
March 31, 1997 (assuming an initial public offering price of $12.00 per
share) held by a profit sharing plan for the benefit of Mr. Janes (the
"Janes Plan") and 2,404 shares of Common Stock issuable upon the exercise
of Triumph Warrants held by the Janes Plan which are exercisable within 60
days of March 31, 1997. Mr. Janes is a General Partner of Triumph and may
be considered the beneficial owners of shares held by Triumph. Mr. Janes
disclaims such beneficial ownership, except as to his pecuniary interest
therein.
(17) Includes the shares described in notes (8), (9) and (16). Also includes
4,464 shares of Common Stock issuable upon conversion of additional Triumph
Notes (assuming an initial public offering price of $12.00 per share) and
an additional 5,943 shares of Common Stock issuable upon the exercise of
additional Triumph Warrants within 60 days of March 31, 1997 to be held by
the Janes Plan upon the Company's issuance of an additional $5,000,000 of
Triumph Notes no later than the closing of this offering. Mr Janes is a
General Partner of Triumph and may be considered the beneficial owner of
shares held by Triumph. Mr. Janes disclaims such beneficial ownership,
except as to his pecuniary interest therein.
(18) Includes 2,614 shares issuable upon the exercise of warrants within 60 days
of March 31, 1997. Also includes the shares described in note (3). Dr.
Lamotte is the Managing General Partner of the general partners of MSP, MSP
II and MSP HOIP and may be considered the beneficial owner of the shares
owned by such entities, although Dr. Lamotte disclaims beneficial
ownership, except as to his pecuniary interest therein.
(19) Includes 717,139 shares held by Alta V Limited Partnership (including the
134,798 warrant shares) and 6,119 shares held by Customs House Partners
(including the 1,416 warrant shares). Mr. McGuire is a general partner of
Alta V Management Partners, L.P. (which is the general partner of Alta V
Limited Partnership). Mr. McGuire disclaims beneficial ownership of the
shares held by Alta V Limited Partnership except to the extent of his
proportionate pecuniary interests therein. Mr. McGuire disclaims all
beneficial ownership to the shares held by Customs House Partners.
(20) See notes (11) through (16) and notes (18) through (19). Includes an
additional 9,152 shares of Common Stock (including 2,614 shares issuable
upon the exercise of options and warrants within 60 days of March 31,
1997).
(21) Consists of the shares referenced in note (20) plus additional shares
related to the issuance of $5,000,000 in Triumph Notes described in notes
(9) and (17).
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<PAGE> 63
DESCRIPTION OF CAPITAL STOCK
Assuming conversion of all of the Company's Convertible Preferred Stock, as
of March 31, 1997, there were 4,638,719 shares of Common Stock outstanding, held
of record by 60 stockholders.
COMMON STOCK
Prior to the closing of this offering, the Company's Second Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation") will
authorize the issuance of up to 60,000,000 shares of Common Stock, $.00004 par
value per share. Holders of Common Stock are entitled to one vote for each share
held on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Accordingly, holders of a majority of the shares of
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out
of funds legally available therefor, subject to any preferential dividend rights
of outstanding Preferred Stock. Upon the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive ratably the
net assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
CONVERTIBLE PREFERRED STOCK AND WARRANTS
As of March 31, 1997, 800,000 shares of Series A Convertible Preferred
Stock, 399,999 shares of Series B Convertible Preferred Stock, 1,359,522 shares
of Series D Convertible Preferred Stock, 733,371 shares of Series E Convertible
Preferred Stock and 1,915,765 shares of Series F Convertible Preferred Stock of
the Company were outstanding. Upon the closing of this offering, all of the
outstanding shares of Convertible Preferred Stock will be converted into
4,440,564 shares of Common Stock.
As of March 31, 1997, a total of 1,264,941 shares of Common Stock (after
giving effect to the conversion of all shares of Convertible Preferred Stock
into Common Stock prior to or upon the closing of this offering) were issuable
upon exercise of outstanding warrants at a weighted average exercise price of
$4.93 per share. Such warrants will remain outstanding after the closing of this
offering. Upon the closing of this offering, assuming no prior exercise of the
Series F Common Warrants, the aggregate number of shares of Common Stock
issuable pursuant to the Series F Common Warrants will decrease from 651,334 to
415,031 shares (assuming an initial public offering price of $12.00 per share)
and the per share exercise price will increase from $7.65 to the initial price
per share to the public in this offering. In addition, the Series F Common
Warrants and warrants exercisable for 48,449 shares of Common Stock issued to
certain financial advisors to the Company contain a cashless exercise feature
which, if exercised in full prior to the consummation of this offering (and
assuming an initial public offering price of $12.00 per share), would result in
the issuance of 266,072 shares of Common Stock with no additional proceeds to
the Company upon the surrender of the warrant certificates. These warrants will
retain this cashless exercise feature following the consummation of this
offering.
As of March 31, 1997, a total of 634,736 shares of Common Stock were
issuable upon the exercise of outstanding options at a weighted average exercise
price of $2.40 per share, of which options with respect to 246,678 shares were
exercisable.
TRIUMPH NOTES
As of March 31, 1997, the Company had issued Triumph Notes in an aggregate
principal amount of $2,000,000. Upon the earlier of (i) the Company's receipt of
final NDA approval for Primsol trimethoprim solution and (ii) the closing of
this offering, the Company will issue additional Triumph Notes in an aggregate
principal amount of $5,000,000. For a period of two years following the closing
of this offering the holders of
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<PAGE> 64
the Triumph Notes will have the right to convert the Triumph Notes into such
number of shares of Common Stock as is equal to the outstanding principal of
such Triumph Notes divided by the per share Price to Public in this offering
(subject to certain requirements as to the minimum amount to be so converted as
provided in the Triumph Agreement). Assuming an initial public offering price of
$12.00 per share, the full $7,000,000 principal amount of the Triumph Notes
would be convertible into an aggregate of 583,332 shares of Common Stock). See
"Certain Transactions."
PREFERRED STOCK
Upon the closing of this offering and following the filing of a Certificate
of Retirement, the Company's Certificate of Incorporation will authorize the
issuance of up to 5,000,000 shares of Preferred Stock, $0.01 par value per
share. Under the terms of the Certificate of Incorporation, the Board of
Directors is authorized, subject to any limitations prescribed by law, without
stockholder approval, to issue such shares of Preferred Stock in one or more
series. Each such series of Preferred Stock shall have such rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be determined by the Board of Directors.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Certificate of Incorporation provides for the division of the Board of
Directors into three classes as nearly equal in size as possible with staggered
three-year terms. See "Management." In addition, the Certificate of
Incorporation provides that directors may be removed only for cause by the
affirmative vote of the holders of two-thirds of the shares of capital stock of
the corporation entitled to vote. Under the Certificate of Incorporation, any
vacancy on the Board of Directors, however occurring, including a vacancy
resulting from an enlargement of the Board, may only be filled by vote of a
majority of the directors then in office. The classification of the Board of
Directors and the limitations on the removal of directors and filling of
vacancies could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of the
Company.
The Certificate of Incorporation also provides that after the closing of
this offering, any action required or permitted to be taken by the stockholders
of the Company at an annual meeting or special meeting of stockholders may only
be taken if it is properly brought before such meeting and may not be taken by
written action in lieu of a meeting. The Certificate of Incorporation further
provides that special meetings of the stockholders may only be called by the
President of the Company or by the Board of Directors. Under the Company's
Amended and Restated By-Laws (the "By-Laws"), in order for any matter to be
considered "properly brought" before a meeting, a stockholder must comply with
certain requirements regarding advance notice to the Company. The foregoing
provisions could have the effect of delaying until the next stockholders meeting
stockholder actions which are favored by the holders of a majority of the
outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for
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<PAGE> 65
the Company's Common Stock, because such person or entity, even if it acquired a
majority of the outstanding voting securities of the Company, would be able to
take action as a stockholder (such as electing new directors or approving a
merger) only at a duly called stockholders meeting, and not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's Certificate of Incorporation or By-Laws,
unless a corporation's Certificate of Incorporation or By-Laws, as the case may
be, requires a greater percentage. The Certificate of Incorporation and the
By-Laws require the affirmative vote of the holders of at least 75% of the
shares of capital stock of the Company issued and outstanding and entitled to
vote to amend or repeal any of the provisions described in the prior two
paragraphs.
The Certificate of Incorporation contains certain provisions permitted
under the General Corporation Law of Delaware relating to the liability of
directors. The provisions eliminate a director's liability for monetary damages
for a breach of fiduciary duty, except in certain circumstances involving
wrongful acts, such as the breach of a director's duty of loyalty or acts or
omissions which involve intentional misconduct or a knowing violation of law.
Further, the Certificate of Incorporation contains provisions to indemnify the
Company's directors and officers to the fullest extent permitted by the General
Corporation Law of Delaware. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston Equiserve
Limited Partnership.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, based upon the number of shares
outstanding at March 31, 1997, there will be 6,638,719 shares of Common Stock of
the Company outstanding (including the 4,440,564 shares of Common Stock to be
issued upon the Preferred Stock Conversion, but exclusive of 1,511,618 shares
covered by vested options and warrants outstanding at March 31, 1997, 583,332
shares of Common Stock issuable upon conversion of the Triumph Notes (assuming
an initial public offering price of $12.00 per share) and 554,839 shares
issuable upon the exercise of Triumph Warrants issuable no later than the
closing of this offering). Of these outstanding shares (and without taking into
account the lock-up agreements described below), approximately 2,663,792 shares,
including the 2,000,000 shares of Common Stock sold in this offering, will be
immediately eligible for resale in the public market without restriction under
the Securities Act, except that any shares purchased in this offering by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act ("Rule 144 Affiliates"), may generally only be resold in
compliance with applicable provisions of Rule 144. Beginning approximately 90
days after the date of this Prospectus (and without taking into account the
lock-up agreements described below), approximately 3,090,520 additional shares
of Common Stock (including approximately (i) 329,010 shares covered by options
and 61,898 shares covered by warrants (assuming a cashless exercise of such
warrants prior to the closing of this offering at an initial public offering
price of $12.00 per share), in each case exercisable within the 90-day period
following the date of this Prospectus) will become eligible for immediate resale
in the public market, subject to compliance as to certain of such shares with
applicable provisions of Rules 144 and 701.
The Company, and its directors, officers and certain of its security
holders, holding in the aggregate approximately 4,392,739 shares of Common Stock
outstanding prior to this offering, approximately 2,096,006 shares of Common
Stock subject to options and warrants exercisable within 180 days of the
effective date of the registration statement to which this Prospectus forms a
part and 583,332 shares of Common Stock issuable upon conversion of the Triumph
Notes, have entered into agreements providing that, for a period of 180 days
after the effective date of the registration statement to which this Prospectus
forms a part, they will not, without the prior written consent of Cowen &
Company, offer, sell, contract to sell or otherwise dispose of or reduce
beneficial ownership in or risk relating to any shares of Common Stock or any
rights to acquire shares of Common Stock (other than, in the case of the
Company, in certain limited circumstances), or grant any option to purchase or
right to acquire or acquire any option to dispose of any shares of Common Stock.
The shares subject to the lock-up agreements include 610,252 of the shares of
Common Stock that would otherwise have become immediately eligible for resale in
the public market upon completion of this offering and approximately 2,942,455
of the shares of Common Stock (including approximately 328,054 shares of Common
Stock covered by options exercisable within the 90-day period following the date
of this Prospectus) that would otherwise have become eligible for resale in the
public market beginning approximately 90 days after the date of this Prospectus,
subject to compliance as to certain of such shares with the applicable
provisions of Rules 144 and 701.
In general, under Rule 144 as currently in effect, beginning approximately
90 days after the effective date of the Registration Statement of which this
Prospectus is a part, a stockholder, including a Rule 144 Affiliate, who has
beneficially owned his or her restricted securities (as that term is defined in
Rule 144) for at least one year from the later of the date such securities were
acquired from the Company or (if applicable) the date they were acquired from a
Rule 144 Affiliate is entitled to sell, within any three-month period, a number
of such shares that does not exceed the greater of 1% of the then outstanding
shares of Common Stock (approximately 66,387 shares immediately after this
offering) or the average weekly trading volume in the Common Stock during the
four calendar weeks preceding the date on which notice of such sale was filed
under Rule 144, provided certain requirements concerning availability of public
information, manner of sale and notice of sale are satisfied. In addition, under
Rule 144(k), if a period of at least two years has elapsed between the later of
the date restricted securities were acquired from the Company or (if applicable)
the date they were acquired from a Rule 144 Affiliate of the Company, a
stockholder who is not a Rule 144 Affiliate of the Company at the time of sale
and has not been a Rule 144 Affiliate of the Company for at least three months
prior to the sale is entitled to sell the shares immediately without compliance
with the foregoing requirements under Rule 144.
65
<PAGE> 67
Securities issued in reliance on Rule 701 (such as shares of Common Stock
that may be acquired pursuant to the exercise of certain options granted under
the 1992 Option Plan) are also restricted securities and, beginning 90 days
after the effective date of the Registration Statement of which this Prospectus
is a part, may be sold by stockholders other than a Rule 144 Affiliate of the
Company subject only to the manner of sale provisions of Rule 144 and by a Rule
144 Affiliate under Rule 144 without compliance with its one-year holding period
requirement.
At the completion of this offering, certain persons and entities (the
"Rightholders"), will be entitled to certain rights with respect to the
registration under the Securities Act of a total of approximately 6,843,676
shares of Common Stock (the "Registrable Shares"), including 1,819,780 shares of
Common Stock that may be acquired pursuant to the exercise of outstanding
warrants (including Triumph Warrants to be outstanding upon the closing of this
offering) and 583,332 shares of Common Stock that may be issued upon conversion
of the Triumph Notes (assuming an initial public offering price of $12.00 per
share), under the terms of agreements among the Company and the Rightholders
(the "Registration Agreements"). The Registration Agreements generally provide
that in the event the Company proposes to register any of its securities under
the Securities Act at any time, with certain exceptions, the Rightholders shall
be entitled to include Registrable Shares in such registration, subject to the
right of the managing underwriter of any underwritten offering to exclude from
such registration for marketing reasons some or all of such Registrable Shares.
The Rightholders have the additional right under certain Registration Agreements
to require the Company to prepare and file registration statements under the
Securities Act with respect to all of the Registrable Shares, including shares
of Common Stock that may be acquired upon the exercise of outstanding warrants,
if such Rightholders holding specified percentages of such Registrable Shares so
request, and the Company is required to use its best efforts to effect such
registration, subject to certain conditions and limitations. Under the
Registration Agreements, the Company is not required to file a registration
statement within six months of the effective date of the Registration Statement
of which this Prospectus is a part. In addition to the registration rights
described above, with respect to the shares of Common Stock issuable upon
conversion of the Triumph Notes, the Company is required to file a "shelf"
registration statement covering all of the Registrable Shares once the Company
has become eligible to file a registration statement on Form S-3, which the
Company expects to occur twelve months following the closing of this offering.
The Company is generally required to bear the expense of all such registrations.
Prior to this offering, there has been no public market for the Common
Stock. No precise prediction can be made as to the effect, if any, that market
sales of shares or the availability of shares for sale will have on the market
price of the Common Stock prevailing from time to time. The Company is unable to
estimate the number of shares that may be sold in the public market pursuant to
Rule 144, since this will depend on the market price of the Common Stock, the
personal circumstances of the sellers and other factors. Nevertheless, sales of
significant amounts of the Common Stock of the Company in the public market
could adversely affect the market price of the Company's Common Stock and could
impair the Company's ability to raise capital through an offering of its equity
securities.
66
<PAGE> 68
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Cowen & Company, Volpe Brown Whelan & Company, LLC and Adams, Harkness & Hill,
Inc., have severally agreed to purchase from the Company the following
respective numbers of shares of Common Stock at the initial public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
- ----------------------------------------------------------------------------- ----------------
<S> <C>
Cowen & Company..............................................................
Volpe Brown Whelan & Company, LLC ...........................................
Adams, Harkness & Hill, Inc. ................................................
---------
Total.............................................................. 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters initially propose to offer the shares of Common Stock to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the initial public offering, the offering price and other selling
terms may be changed by the Representatives of the underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 300,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the table above bears to 2,000,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 2,000,000 shares are being offered.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Company, and its directors, officers and certain of its security
holders, holding in the aggregate approximately 4,392,739 shares of Common Stock
outstanding prior to this offering, approximately 2,096,006 shares of Common
Stock subject to options and warrants exercisable within 180 days of the
effective date of the registration statement to which this Prospectus forms a
part and 583,332 shares of Common Stock issuable upon conversion of the Triumph
Notes, have entered into agreements providing that, for a period of 180 days
after the effective date of the registration statement to which this Prospectus
forms a part, they will not, without the prior written consent of Cowen &
Company, offer, sell, contract to sell or otherwise dispose of or reduce
beneficial ownership in or risk relating to any shares of Common Stock or any
rights to acquire shares of Common Stock (other than, in the case of the
Company, in certain limited circumstances), or grant any
67
<PAGE> 69
option to purchase or right to acquire or acquire any option to dispose of any
shares of Common Stock. See "Shares Eligible for Future Sale."
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined by negotiations between the Company and the
Representatives of the Underwriters. Among the factors to be considered in such
negotiations will be prevailing market conditions, the results of operations of
the Company in recent periods, the market capitalizations and stages of
development of other companies which the Company and the Representatives of the
Underwriters believe to be comparable to the Company, estimates of the business
potential of the Company, the present state of the Company's development and
other factors deemed relevant.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
the Common Stock in the open market. The Underwriters may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing the Common
Stock in the offering, if the Underwriters repurchase previously distributed
Common Stock in transactions to cover their short positions, in stabilization
transactions or otherwise. Finally, the Underwriters may bid for, and purchase,
shares of the Common Stock in market making transactions and impose penalty
bids. These activities may stabilize or maintain the market price of the Common
Stock above market levels that may otherwise prevail. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
Certain Representatives have acquired shares of capital stock in the
Company in private placements on the same terms as other investors who
participated in such private placements. On December 18, 1996, certain
affiliates of Volpe Brown Whelan & Company, LLC acquired from the Company an
aggregate of 26,922 shares of Series F Convertible Preferred Stock and related
warrants exercisable for 9,148 shares of Common Stock at an exercise price of
$7.65 per share for an aggregate purchase price of $174,993. On June 28, 1996,
Adams, Harkness & Hill, Inc., purchased from the Company 153,846 shares of
Series F Convertible Preferred Stock and related warrants exercisable for 52,307
shares of Common Stock at an exercise price of $7.65 per share for an aggregate
purchase price of $1,000,000. The number of shares of Common Stock issuable upon
exercise of these warrants and the exercise price of such warrants will be
adjusted upon the closing of this offering. As with all Series F Common
Warrants, these warrants have a cashless exercise feature. See "Description of
Capital Stock."
68
<PAGE> 70
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Hale and Dorr LLP, Boston, Massachusetts. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston,
Massachusetts.
EXPERTS
The balance sheets of Ascent Pediatrics, Inc., as of December 31, 1995 and
1996, and the statements of operations, changes in stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996, and the cumulative period from inception (March 16, 1989) to
December 31, 1996, included in this Prospectus have been included herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The Statement of Assets related to the Product Line to be Acquired by
Ascent Pediatrics, Inc. as of December 29, 1996 and the Statements of Net Sales
and Identified Costs and Expenses of the Product Line to by Acquired by Ascent
Pediatrics, Inc. for the years ended December 31, 1995 and December 29, 1996 of
the Feverall Product Line of Upsher-Smith Laboratories, Inc. (the "Product
Line") included in this Prospectus have been included herein in reliance upon
the report, which includes an explanatory paragraph, of KPMG Peat Marwick LLP,
independent certified public accountants, given upon the authority of said firm
as experts in auditing and accounting. The explanatory paragraph states that the
financial statements were prepared to present the assets to be sold to Ascent
and the net sales and the identified costs and expenses of the Product Line and
are not intended to be a complete presentation of the Product Line's financial
position, results of operations or cash flows. Accordingly, identified costs and
expenses include only those costs and expenses directly attributable to the
Product Line to be sold. They do not contain any other costs which are not
directly attributable to the Product Line to be sold. As a result, the
statements presented may not be indicative of the results of operations that
would have been achieved had the Product Line operated as a nonaffiliated
entity.
The statements in this Prospectus set forth under the captions "Risk
Factors -- Uncertainty Regarding Patents and Proprietary Rights" and "Business
- -- Patents, Trade Secrets, Licenses and Trademarks," except for statements
pertaining to Primsol trimethoprim solution or the Company's trademarks, have
been reviewed and approved by Welsh & Katz, Ltd., Chicago, Illinois, United
States patent counsel for the Company, as experts on such matters, and are
included herein in reliance upon such review and approval.
The statements in this Prospectus set forth under the captions "Risk
Factors -- Uncertainty Regarding Patents and Proprietary Rights" and "Business
- -- Patents, Trade Secrets, Licenses and Trademarks" pertaining to Primsol
trimethoprim solution and the Company's trademarks have been reviewed and
approved by Hale and Dorr LLP, counsel for the Company, as experts on such
matters, and are included herein in reliance upon such review and approval.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement (which term
shall include all amendments, exhibits and schedules thereto) on Form S-1 under
the Securities Act with respect to the shares of Common Stock offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission, to which Registration Statement reference is hereby made.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement and the
exhibits thereto may be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
Commission maintains a World Wide Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
69
<PAGE> 71
ASCENT PEDIATRICS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ASCENT PEDIATRICS, INC.:
Report of Independent Accountants..................................................... F-2
Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997 (unaudited) and
March 31, 1997 (unaudited) Pro Forma................................................ F-3
Statements of Operations for the years ended December 31, 1994, 1995 and 1996, and for
the three months ended March 31, 1996 (unaudited) and March 31, 1997 (unaudited),
cumulative from inception (March 16, 1989) to December 31, 1996 and cumulative from
inception (March 16, 1989) to March 31, 1997 (unaudited)............................ F-4
Statements of Changes in Stockholders' Equity (Deficit) from inception (March 16,
1989) to December 31, 1996 and for the three months ended March 31, 1997
(unaudited)......................................................................... F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996, and for
the three months ended March 31, 1996 (unaudited) and March 31, 1997 (unaudited),
cumulative from inception (March 16, 1989) to December 31, 1996 and cumulative from
inception (March 16, 1989) to March 31, 1997 (unaudited)............................ F-6
Notes to the Financial Statements..................................................... F-7
A PRODUCT LINE OF UPSHER-SMITH LABORATORIES, INC.:
Independent Auditors' Report.......................................................... F-19
Statement of Assets Related to the Product Line to be Acquired by Ascent Pediatrics,
Inc. as of December 29, 1996 and March 31, 1997 (unaudited)......................... F-20
Statements of Net Sales and Identified Costs and Expenses of the Product Line to be
Acquired by Ascent Pediatrics, Inc. Years ended December 31, 1995 and December 29,
1996 and three months ended March 31, 1996 (unaudited) and March 31, 1997
(unaudited)......................................................................... F-21
Notes to the Financial Statements..................................................... F-22
UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS:
Introduction to Unaudited Combined Pro Forma Financial Statements for the Year Ended
December 31, 1996 and As of and for the Three Months Ended March 31, 1997........... F-24
Unaudited Combined Pro Forma Balance Sheet as of March 31, 1997....................... F-26
Unaudited Combined Pro Forma Statement of Operations for the Year Ended December 31,
1996................................................................................ F-27
Unaudited Combined Pro Forma Statement of Operations for the Three Months Ended March
31, 1997............................................................................ F-28
Notes to Unaudited Combined Pro Forma Financial Statements for the Year Ended December
31, 1996 and As of and for the Three Months Ended March 31, 1997.................... F-29
</TABLE>
F-1
<PAGE> 72
This is the form of the report which will be issued upon the effectiveness
of the reverse common stock split discussed in Note B of Notes to Financial
Statements:
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
May 16, 1997
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Ascent Pediatrics, Inc.:
We have audited the accompanying balance sheets of Ascent Pediatrics, Inc.,
formerly Ascent Pharmaceuticals, Inc. (a Development Stage Enterprise), as of
December 31, 1995 and 1996 and the related statements of operations, changes in
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1996 and cumulative from inception (March 16, 1989) to
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly
in all material respects, the financial position of Ascent Pediatrics, Inc. (a
Development Stage Enterprise), as of December 31, 1995 and 1996 and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1996 and cumulative from inception (March 16, 1989) to
December 31, 1996, in conformity with generally accepted accounting principles.
Boston, Massachusetts
F-2
<PAGE> 73
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1997
DECEMBER 31, ------------------------------
--------------------------- PRO FORMA
1995 1996 ACTUAL (NOTES K AND L)
------------ ------------ ------------ ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 2,538,047 $ 2,085,743 $ 8,299,854 $ 8,299,854
Other current assets..................................... 43,672 12,312 209,954 209,954
------------- ------------ ------------ ------------
Total current assets............................... 2,581,719 2,098,055 8,509,808 8,509,808
------------- ------------ ------------ ------------
Fixed assets, net (Note C)................................. 155,030 163,142 294,316 294,316
Deposits related to acquisition (Note F)................... -- 250,000 250,000 250,000
Deferred charges and other deposits (Notes F and K)........ -- 104,553 403,007 403,007
Debt issue costs, net...................................... -- -- 203,294 203,294
Other assets, net (Note D)................................. 13,125 11,874 11,562 11,562
------------- ------------ ------------ ------------
Total assets....................................... $ 2,749,874 $ 2,627,624 $ 9,671,987 $ 9,671,987
============= ============ ============ ============
LIABILITIES
Accounts payable........................................... $ 112,343 $ 496,655 $ 770,803 $ 770,803
Accrued expenses (Note G).................................. 238,653 1,076,556 1,307,863 1,307,863
------------- ------------ ------------ ------------
Total current liabilities.......................... 350,996 1,573,211 2,078,666 2,078,666
Subordinated secured notes (Note K)........................ -- -- 1,182,922 1,182,922
Warrant obligation (Note K)................................ -- -- 836,994 --
------------- ------------ ------------ ------------
Total liabilities.................................. 350,996 1,573,211 4,098,582 3,261,588
Series D redeemable convertible preferred stock, $.00004
par value; 1,399,589 shares authorized; 1,359,522 shares
issued and outstanding at December 31, 1995 and 1996 and
March 31, 1997 actual and none outstanding on a pro forma
basis, respectively (liquidation preference of $6.00 per
share)................................................... 8,157,132 8,157,132 8,157,132 --
Series E redeemable convertible preferred stock, $.00004
par value; 1,166,667 shares authorized; 733,371 shares
issued and outstanding at December 31, 1995 and 1996 and
March 31, 1997 actual and none outstanding on a pro forma
basis, respectively (liquidation preference of $6.00 per
share)................................................... 4,400,226 4,400,226 4,400,226 --
Series F redeemable convertible preferred stock, $.00004
par value; 2,353,848 shares authorized; 811,536 shares
issued and outstanding at December 31, 1996 and 1,915,765
shares issued and outstanding at March 31, 1997 actual
and none outstanding on a pro forma basis, respectively
(liquidation preference $6.50 per share)................. -- 5,274,984 12,452,471 --
Commitments (Notes D and F)
STOCKHOLDERS' EQUITY (DEFICIT)
Stockholders' equity (deficit)(Notes H, I and J):
Series A convertible preferred stock, $.00004 par value;
800,000 shares authorized, 800,000 issued and
outstanding at December 31, 1995 and 1996 and March 31,
1997 actual and none outstanding on a pro forma basis,
respectively (liquidation preference of $0.38 per
share)................................................. 280,110 280,110 280,110 --
Series B convertible preferred stock, $.00004 par value;
399,999 shares authorized, 399,999 issued and
outstanding at December 31, 1995 and 1996 and March 31,
1997 actual and none outstanding on a pro forma basis,
respectively (liquidation preference of $6.50 per
share)................................................. 2,574,993 2,574,993 2,574,993 --
Common stock, $.00004 par value; 20,000,000 shares
authorized; 197,837 and 198,155 shares issued and
outstanding at December 31, 1995 and 1996 and 4,638,719
shares outstanding on March 31, 1997 actual and on a
pro forma basis, respectively.......................... 8 8 8 185
Additional paid-in capital............................... -- -- -- 28,701,749
Deficit accumulated during the development stage......... (13,013,591) (19,633,040) (22,291,535) (22,291,535)
------------- ------------ ------------ ------------
Total stockholders' equity (deficit)................. (10,158,480) (16,777,929) (19,436,424) 6,410,399
------------- ------------ ------------ ------------
Total liabilities and stockholders' equity
(deficit)........................................ $ 2,749,874 $ 2,627,624 $ 9,671,987 $ 9,671,987
============= ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 74
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE FROM CUMULATIVE FROM
INCEPTION (MARCH THREE MONTHS ENDED INCEPTION (MARCH
YEARS ENDED DECEMBER 31, 16, 1989) TO MARCH 31, 16, 1989) TO
--------------------------------------- DECEMBER 31, ----------------------- MARCH 31,
1994 1995 1996 1996 1996 1997 1997
----------- ----------- ----------- ---------------- --------- ----------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Licensing revenue (Note
D)..................... $ -- $ 303,949 $ -- $ 303,949 $ -- $ -- $ 303,949
---------- ---------- ---------- ------------ --------- ----------- ------------
Costs and expenses:
Research and
development.......... 2,550,931 2,986,044 3,760,948 12,009,821 474,637 1,528,114 13,537,935
Selling, general and
administrative....... 1,140,667 1,531,924 2,805,352 8,203,559 427,954 972,826 9,176,385
---------- ---------- ---------- ------------ --------- ----------- ------------
Total expenses... 3,691,598 4,517,968 6,566,300 20,213,380 902,591 2,500,940 22,714,320
---------- ---------- ---------- ------------ --------- ----------- ------------
Loss from operations..... (3,691,598) (4,214,019) (6,566,300) (19,909,431) (902,591) (2,500,940) (22,410,371)
Interest income........ 147,498 113,124 79,084 753,543 25,025 72,745 826,288
Interest expense....... -- -- -- -- -- (19,916) (19,916)
Gain on sale of fixed
assets............... -- -- -- -- -- 9,242 9,242
---------- ---------- ---------- ------------ --------- ----------- ------------
Net loss................. $(3,544,100) $(4,100,895) $(6,487,216) $(19,155,888) $(877,566) $(2,438,869) $(21,594,757)
Accretion to redemption
value of preferred
stock.................. -- 62,604 137,783 486,002 -- 219,626 705,628
---------- ---------- ---------- ------------ --------- ----------- ------------
Net loss to common
stockholders........... $(3,544,100) $(4,163,499) $(6,624,999) $(19,641,890) $(877,566) $(2,658,495) $(22,300,385)
========== ========== ========== ============ ========= =========== ============
Net loss per common and
common equivalent
share, historical (Note
B)
Pro forma (unaudited):
Net loss per common and
common equivalent
share................ $ (1.48) $ (0.56)
Weighted average number
of common and common
equivalent shares
outstanding.......... 4,384,197 4,384,197
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 75
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION (MARCH 16, 1989)
TO DECEMBER 31, 1996 AND FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------- PAR ADDITIONAL
PREFERRED COMMON PREFERRED PREFERRED PREFERRED VALUE PAID-IN
STOCK STOCK SERIES A SERIES B SERIES C COMMON CAPITAL
--------- ------- --------- ---------- ----------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued to officers $.000047 per
share............................................ 170,000 $ $ $ $7 $ 1
Series A convertible preferred stock, net of
issuance costs of approximately $20,000, issued
at $0.38 per share............................... 800,000 280,110
Loss for the period from inception (March 16,
1989) to December 31, 1989.......................
--------- ------- -------- --- -------
Balance, December 31, 1989........................ 800,000 170,000 280,110 7 1
Series B convertible preferred stock, net of
issuance costs of approximately $25,000, issued
at $6.50 per share............................... 399,999 2,574,993
Common stock issued to consultants and employees
at $0.01 per share............................... 19,125 1 224
Net loss..........................................
--------- ------- -------- ---------- --- -------
Balance, December 31, 1990........................ 1,199,999 189,125 280,110 2,574,993 8 225
Common stock issued to consultants and employees
at $0.01 per share............................... 6,375 -- 75
Net loss..........................................
--------- ------- -------- ---------- --- -------
Balance, December 31, 1991........................ 1,199,999 195,500 280,110 2,574,993 8 300
Series C convertible preferred stock, net of
issuance costs of approximately $40,000, issued
at $12.75 per share.............................. 169,188 2,117,147
Common stock issued to consultants and employees,
issued at $1.18 per share........................ 2,125 2,500
Net loss..........................................
--------- ------- -------- ---------- ----------- --- -------
Balance, December 31, 1992........................ 1,369,187 197,625 280,110 2,574,993 2,117,147 8 2,800
Series C convertible preferred stock converted to
Series D redeemable convertible preferred
stock............................................ (169,188) (2,117,147)
Issuance costs of Series D redeemable convertible
preferred stock.................................. -- (2,800)
Net loss..........................................
--------- ------- -------- ---------- ----------- --- -------
Balance, December 31, 1993........................ 1,199,999 197,625 280,110 2,574,993 -- 8 --
Common stock issued upon option exercise at $2.35
per share........................................ 212 -- 500
Net loss..........................................
--------- ------- -------- ---------- ----------- --- -------
Balance, December 31, 1994........................ 1,199,999 197,837 280,110 2,574,993 -- 8 500
Issuance costs of Series E redeemable convertible
preferred stock.................................. (500)
Net loss.......................................... --
--------- ------- -------- ---------- ----------- --- -------
Balance, December 31, 1995........................ 1,199,999 197,837 280,110 2,574,993 -- 8 --
Common stock issued upon option exercise at $2.35
per share........................................ 318 750
Warrant proceeds.................................. 4,800
Issuance costs of Series F redeemable convertible
preferred stock.................................. (5,550)
Net loss..........................................
--------- ------- -------- ---------- ----------- --- -------
Balance, December 31, 1996........................ 1,199,999 198,155 280,110 2,574,993 -- 8 --
Issuance cost of Series F redeemable convertible
preferred stock (unaudited)......................
Net loss (unaudited)..............................
--------- ------- -------- ---------- ----------- --- -------
Balance, March 31, 1997 (unaudited)............... 1,199,999 198,155 $280,110 $2,574,993 -- $8 --
========= ======= ======== ========== =========== === =======
<CAPTION>
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY (DEFICIT)
------------ ----------------
<S> <<C> <C>
Common stock issued to officers $.000047 per
share............................................ $ $ 8
Series A convertible preferred stock, net of
issuance costs of approximately $20,000, issued
at $0.38 per share............................... 280,110
Loss for the period from inception (March 16,
1989) to December 31, 1989....................... (293,846) (293,846)
------------ ------------
Balance, December 31, 1989........................ (293,846) (13,728)
Series B convertible preferred stock, net of
issuance costs of approximately $25,000, issued
at $6.50 per share............................... 2,574,993
Common stock issued to consultants and employees
at $0.01 per share............................... 225
Net loss.......................................... (479,182) (479,182)
------------ ------------
Balance, December 31, 1990........................ (773,028) 2,082,308
Common stock issued to consultants and employees
at $0.01 per share............................... 75
Net loss.......................................... (1,211,956) (1,211,956)
------------ ------------
Balance, December 31, 1991........................ (1,984,984) 870,427
Series C convertible preferred stock, net of
issuance costs of approximately $40,000, issued
at $12.75 per share.............................. 2,117,147
Common stock issued to consultants and employees,
issued at $1.18 per share........................ 2,500
Net loss.......................................... (1,216,723) (1,216,723)
------------ ------------
Balance, December 31, 1992........................ (3,201,707) 1,773,351
Series C convertible preferred stock converted to
Series D redeemable convertible preferred
stock............................................ (2,117,147)
Issuance costs of Series D redeemable convertible
preferred stock.................................. (282,815) (285,615)
Net loss.......................................... (1,821,970) (1,821,970)
------------ ------------
Balance, December 31, 1993........................ (5,306,492) (2,451,381)
Common stock issued upon option exercise at $2.35
per share........................................ 500
Net loss.......................................... (3,544,100) (3,544,100)
------------ ------------
Balance, December 31, 1994........................ (8,850,592) (5,994,981)
Issuance costs of Series E redeemable convertible
preferred stock.................................. (62,104) (62,604)
Net loss.......................................... (4,100,895) (4,100,895)
------------ ------------
Balance, December 31, 1995........................ (13,013,591) (10,158,480)
Common stock issued upon option exercise at $2.35
per share........................................ 750
Warrant proceeds.................................. 4,800
Issuance costs of Series F redeemable convertible
preferred stock.................................. (132,233) (137,783)
Net loss.......................................... (6,487,216) (6,487,216)
------------ ------------
Balance, December 31, 1996........................ (19,633,040) (16,777,929)
Issuance cost of Series F redeemable convertible
preferred stock (unaudited)...................... (219,626) (219,626)
Net loss (unaudited).............................. (2,438,869) (2,438,869)
------------ ------------
Balance, March 31, 1997 (unaudited)............... $(22,291,535) $(19,436,424)
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 76
ASCENT PEDIATRICS, INC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE FROM CUMULATIVE FROM
INCEPTION (MARCH THREE MONTHS ENDED INCEPTION (MARCH
YEARS ENDED DECEMBER 31, 16, 1989) TO MARCH 31, 16, 1989) TO
--------------------------------------- DECEMBER 31, ------------------------ MARCH 31,
1994 1995 1996 1996 1996 1997 1997
----------- ----------- ----------- ---------------- ---------- ----------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows for
operating activities:
Net loss............. $(3,544,100) $(4,100,895) $(6,487,216) $(19,155,888) $ (877,566) $(2,438,869) $(21,594,757)
Adjustments to
reconcile net loss
to net cash used by
operating
activities:
Depreciation and
amortization... 41,031 45,349 52,833 206,625 11,918 42,014 248,639
Gain on sale of
fixed assets... -- -- -- -- -- (9,242) (9,242)
Changes in
operating assets
and liabilities:
Other assets..... (67,464) 55,943 31,360 (12,312) (4,195) (197,642) (209,954)
Deferred charges
and deposits... -- -- (104,553) (104,553) (25,000) (298,474) (403,027)
Accounts payable
and accrued
expenses....... 143,590 47,038 1,222,215 1,573,213 (85,441) 505,455 2,078,668
------------ ------------ ------------ ------------- ---------- ----------- -------------
Total
adjustments... 117,157 148,330 1,201,855 1,662,973 (102,718) 42,111 1,705,084
------------ ------------ ------------ ------------- ---------- ----------- -------------
Net cash used by
operating
activities........... (3,426,943) (3,952,565) (5,285,361) (17,492,915) (980,284) (2,396,758) (19,889,673)
------------ ------------ ------------ ------------- ---------- ----------- -------------
Cash flows for
investing activities:
Purchase of fixed
assets............. (94,179) (17,774) (59,694) (381,642) (4,288) (174,757) (556,399)
Proceeds from sale of
fixed assets....... -- -- -- -- -- 38,069 38,069
Payments related to
acquisition........ -- -- (250,000) (250,000) -- -- (250,000)
------------ ------------ ------------ ------------- ---------- ----------- -------------
Net cash used in
investing
activities........... (94,179) (17,774) (309,694) (631,642) (4,288) (136,688) (768,330)
------------ ------------ ------------ ------------- ---------- ----------- -------------
Cash flows from
financing activities:
Proceeds from sale of
common stock....... 500 -- 750 4,058 -- -- 4,058
Proceeds from sale of
preferred stock,
net of issuance
costs.............. -- 4,337,622 5,137,201 20,201,442 -- 6,957,861 27,159,303
Proceeds from
issuance of debt
and related
warrants........... -- -- -- 150,000 -- 2,000,000 2,150,000
Debt issue costs..... -- -- -- -- -- (210,304) (210,304)
Proceeds from
warrant............ -- -- 4,800 4,800 4,800 -- 4,800
Repayment of debt.... -- -- -- (150,000) -- -- (150,000)
------------ ------------ ------------ ------------- ---------- ----------- -------------
Net cash provided by
financing
activities........... 500 4,337,622 5,142,751 20,210,300 4,800 8,747,557 28,957,857
------------ ------------ ------------ ------------- ---------- ----------- -------------
Net (decrease) increase
in cash.............. (3,520,622) 367,283 (452,304) 2,085,743 (979,772) 6,214,111 8,299,854
Cash and cash
equivalents at the
beginning of the
period............... 5,691,386 2,170,764 2,538,047 -- 2,538,047 2,085,743 --
------------ ------------ ------------ ------------- ---------- ----------- -------------
Cash and cash
equivalents at the
end of the period.... $ 2,170,764 $ 2,538,047 $ 2,085,743 $ 2,085,743 $1,558,275 $ 8,299,854 $ 8,299,854
============ ============ ============ ============= ========== =========== =============
Non-cash activity:
Series C preferred
stock converted to
Series D preferred
stock.............. -- -- -- $ 2,117,147 -- -- $ 2,117,147
------------ ------------ ------------ ------------- ---------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 77
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
A. NATURE OF BUSINESS
Ascent Pediatrics, Inc. (the "Company"), formerly Ascent Pharmaceuticals,
Inc., incorporated in Delaware on March 16, 1989, is a drug development and
marketing Company focused exclusively on the pediatric market. Since its
formation, the Company has operated as a development stage enterprise, devoting
substantially all of its efforts to establishing a new business and to carrying
on development activities.
The Company has incurred net losses since its inception and expects to
incur additional operating losses in the future as the Company continues its
product development programs, expansion of sales and marketing organization and
introduces its products to the market. The Company is subject to a number of
risks similar to other companies in the industry, including rapid technological
change, uncertainty of market acceptance of products, uncertainty of regulatory
approval, competition from substitute products and larger companies, customers'
reliance on third-party reimbursement, the need to obtain additional financing,
compliance with government regulations, protection of proprietary technology,
dependence on third-party manufacturers, distributors and key suppliers, product
liability, and dependence on key individuals.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Financial Statement Presentation
On or prior to the effectiveness of a registration statement relating to
the initial public offering of the Common Stock of the Company, such as the one
contemplated in the Registration Statement in which the accompanying financial
statements have been included (the "Offering"), the Company will effect a
0.85-for-one reverse stock split of its common stock and increase the number of
authorized shares of common stock to 60,000,000. Accordingly, all share and per
share amounts have been adjusted to reflect the reverse stock split as though it
had occurred at the beginning of the initial period presented.
Cash and Cash Equivalents
The Company considers all short-term investments purchased with an original
maturity of three months or less at the date of acquisition to be cash
equivalents.
Concentration of Credit Risk
Cash and cash equivalents are financial instruments which potentially
subject the Company to concentrations of credit risk. At December 31, 1996,
substantially all of the Company's cash was invested in two money market mutual
funds through two different high quality financial institutions. At March 31,
1997, substantially all of the Company's cash was invested in one money market
mutual fund.
Fixed Assets
Fixed assets are recorded at cost and depreciated on a straight-line basis
over the useful life of the asset, typically five or seven years.
Revenue Recognition
Revenue is recognized under a collaborative license agreement as earned
based upon the performance requirements of such agreement (Note D).
Research and Development Expenses
Research and development costs are expensed as incurred.
F-7
<PAGE> 78
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
Advertising Expenses
Costs for catalogs and other media are expensed as incurred. For the years
ended December 31, 1994, 1995 and 1996, costs were $0, $21,090 and $423,656,
respectively. For the three months ended March 31, 1996 and 1997, costs were $0
and $51,034.
Income Taxes
The Company accounts for income taxes under Financial Accounting Standards
No. 109, "Accounting for Income Taxes," which requires recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain 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 reported
period. Actual results could differ from the estimates and assumptions used by
management.
Pro Forma Net Loss Per Share (Unaudited)
The pro forma net loss per common share is computed based upon the weighted
average number of common shares and common equivalent shares (using the treasury
stock method) outstanding after certain adjustments described below. Common
equivalent shares consist of common stock options and warrants where the effect
of their inclusion would be dilutive. In accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 83, all common and common equivalent
shares issued during the 12 month period prior to the initial filing date of the
initial public offering have been included in the calculation as if they were
outstanding for all periods, using the treasury stock method and the assumed
initial public offering price of $12.00 per share. In addition, all outstanding
shares of convertible preferred stock and redeemable convertible preferred
stock, which mandatorily convert to common stock upon the closing of an initial
public offering, are treated as if converted to common stock for all periods.
Accordingly, in the computation of net loss per common share, accretion of the
redeemable preferred stock to the mandatory redemption amount is not included as
an increase to net loss to common stockholders.
Historical Net Loss Per Common Share
Net loss per common share on a historical basis is computed in the same
manner as pro forma net loss per common share, except that preferred stock is
not assumed to be converted. Accretion of redeemable preferred stock is included
as an increase to net loss attributable to common stockholders. Net loss per
common share on a historical basis is as follows:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net loss per common share................ $(2.24) $(2.63) $(4.18) $(.55) $(1.68)
Weighted average number of common and
common equivalent shares outstanding... 1,584,988 1,585,190 1,585,252 1,585,252 1,585,252
</TABLE>
Fully diluted net loss per common share is the same as primary net loss per
common share.
F-8
<PAGE> 79
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
Recent Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("FAS 128"). FAS
128 specifies the computation, presentation and disclosure requirements for
earnings per share. FAS 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods, and earlier
application is not permitted. FAS 128 requires restatement of all prior-period
earnings per share data presented after the effective date. The Company has not
yet determined FAS 128's effect on its financial statements.
C. FIXED ASSETS
Fixed assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------- ---------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Equipment................................... $ 178,430 $ 220,983 $ 251,504
Furniture and fixtures...................... 89,730 106,871 166,136
--------- --------- ---------
Total equipment............................. 268,160 327,854 417,640
Less:
Accumulated depreciation.................. (113,130) (164,712) (123,324)
--------- --------- ---------
Total....................................... $ 155,030 $ 163,142 $ 294,316
========= ========= =========
</TABLE>
Depreciation expense amounted to $36,402, $44,101, and $51,582 for the
years ended December 31, 1994, 1995 and 1996, respectively, and $11,607 and
$14,775 for the three months ended March 31, 1996 and 1997, respectively.
D. LICENSE AGREEMENTS
During the year ended December 31, 1990, the Company entered into an
agreement with an unaffiliated entity, pursuant to which the Company was granted
a worldwide, exclusive license pursuant to certain patent applications. The
license agreement calls for royalties to be paid based on a percentage of net
sales of licensed product using the technology covered by the patent, and
additional royalties to be paid upon any sublicensing income earned.
During 1995, the Company entered into a licensing agreement with an
unaffiliated entity, pursuant to which the Company granted such party an
exclusive license to make, use and sell the licensed product in Japan. The
Company received approximately $202,000 as a non-refundable technology transfer
fee under the license agreement and recognized it as revenue in 1995. In the
event the licensee commercializes a product utilizing the licensed technology,
the licensee will pay a royalty based on a percentage of net sales as described
in the agreement. The Company has performed all of its material obligations
under this agreement. For the year ended December 31, 1995, the Company recorded
revenue of approximately $102,000 related to research and development activities
performed on behalf of the licensee. The Company did not record any revenue for
1996 or for the three months ended March 31, 1997 in connection with this
license.
F-9
<PAGE> 80
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
E. INCOME TAXES
No income tax provision has been recorded from inception through the year
ended December 31, 1996. As of December 31, 1996, the Company had approximately
$4,800,000 of federal net operating loss carryforwards available to offset
future taxable income, which begin to expire in 2004.
As required by Financial Accounting Statement No. 109, management of the
Company has evaluated the positive and negative evidence bearing upon the
realizability of its deferred tax assets, which are comprised principally of net
operating loss and tax credit carryforwards. Under these accounting standards,
because of the Company's history of losses, management believes that it is more
likely than not that the Company will not generate future taxable income prior
to the expiration of these net operating losses. Accordingly, the deferred tax
assets have been fully reserved. Management re-evaluates the positive and
negative evidence on a quarterly basis.
The components of deferred tax assets are as follows:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Net operating loss carryforwards.................... $ 1,732,000 $ 1,954,000
Research and development credits.................... 159,000 200,000
Capitalized expenses:
Research and development.......................... 1,147,000 1,936,000
Start-up.......................................... 615,000 2,127,000
----------- -----------
Total deferred tax assets........................... 3,653,000 6,217,000
Valuation allowance................................. (3,653,000) (6,217,000)
----------- -----------
Net deferred tax asset.............................. $ -- $ --
=========== ===========
</TABLE>
The Tax Reform Act of 1986 contains provisions which may limit the
utilization of net operating losses and research and development credit
carryforwards in any given year upon the occurrence of certain events, including
a significant change in ownership interests. The difference between the federal
net operating loss carryforwards and the amount of the accumulated deficit
results primarily from certain pre-operating costs and research and development
expenses, which have been capitalized for tax purposes.
F. COMMITMENTS
In June 1991, the Company entered into a lease for laboratory and office
space and equipment, which expired on March 31, 1996. In May 1994, the Company
leased additional space in the same building on a month-to-month basis. This
lease required monthly rental payments of $4,258 and monthly payments of certain
operating expenses and real estate taxes. Rent expense included in the Statement
of Operations was approximately $50,000, $52,000, and $55,878 for the years
ended December 31, 1994, 1995 and 1996, respectively, $308,878 for the period
from inception (March 16, 1989) to December 31, 1996, and $12,800 and $37,700
for the three months ended March 31, 1996 and 1997, respectively. In 1996, the
Company amended this lease to a tenant-at-will lease.
In November 1996, the Company entered into a lease for new office space
commencing from February 1997 for a term of five years. This lease requires
monthly payments of $19,093. During 1996, the Company paid the landlord a
deposit of $57,280 related to the lease, which is reflected in the balance sheet
under Deferred Charges and Other Deposits.
F-10
<PAGE> 81
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
Future minimum lease commitments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-----------------------------------------------------------------
<S> <C>
1997...................................................... $ 232,781
1998...................................................... 246,040
1999...................................................... 246,040
2000...................................................... 246,040
2001...................................................... 241,483
----------
Total..................................................... $1,212,384
=========
</TABLE>
On November 13, 1996, the Company signed a non-binding letter of intent
with Upsher-Smith Laboratories, Inc. ("Upsher-Smith") to purchase the Feverall
acetaminophen suppository product line ("Product Line") for a purchase price
equal to $11,500,000 plus the cost of inventories and paid Upsher-Smith a
$250,000 non-refundable deposit. In March 1997, the Company entered into a
definitive agreement relating to this acquisition. Under the terms of the
agreement, the Company has agreed to purchase the Product Line, including
certain intellectual property, technical information, product formulations and
regulatory approvals and registrations. The Company will not purchase any
accounts receivable and will not assume any liabilities of Upsher-Smith.
Approximately $5,750,000 plus the cost of inventories will be paid in cash at
the closing of the acquisition together with a promissory note in the principal
amount of $5,500,000. This note will be payable 225 days following the closing
of the acquisition. In addition, the Company has also agreed to purchase its
requirements for products in the Product Line from Upsher-Smith for a period of
five years.
In addition, the Company has entered into several agreements with
unaffiliated entities for the performance of research and clinical trial
studies. These commitments are ongoing, and the Company expects to spend
approximately $460,000 toward these commitments in 1997. The Company has also
entered into a 36-month lease for office equipment. Total payments under this
lease will be $11,935 through July 1997. Deposits related to office equipment
lease is $7,033 and is reflected in the balance sheet under Deferred Charges and
Other Deposits.
G. ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------- ----------
1995 1996 1997
-------- ---------- ----------
<S> <C> <C> <C>
Compensation expenses........................... $ 52,756 $ 109,268 $ 244,136
Clinical study expenses......................... 87,815 156,134 259,000
Advertising costs............................... -- 364,692 --
Other........................................... 98,082 446,462 804,727
-------- ---------- ----------
$238,653 $1,076,556 $1,307,863
======== ========== ==========
</TABLE>
H. STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
On or prior to the time the Registration Statement (see Note L) is declared
effective, the Company will effect a 0.85-for-one reverse stock split of its
outstanding common stock. The authorized number of shares of common stock will
be increased to 60,000,000. Accordingly, all shares and per share data have been
restated to reflect the reverse stock split as though it had occurred at the
beginning of the initial period presented.
The Company has two classes of capital stock: common and preferred. The
preferred stock has 6,120,103 shares authorized: 800,000 are designated Series A
convertible preferred stock, 399,999 are designated
F-11
<PAGE> 82
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
Series B convertible preferred stock, 1,399,589 are designated Series D
redeemable convertible preferred stock, 1,166,667 are designated Series E
redeemable convertible preferred stock and 2,353,848 are designated Series F
redeemable convertible preferred stock (collectively, the "Preferred Stock").
In July 1990, the Company authorized 170,000 shares of common stock to be
used as incentives for employees and consultants. As of December 31, 1993, a
total of 25,500 shares had been issued under this authorization at $0.01 per
share and 2,125 shares, at $1.18 per share, both determined to be the fair value
at the date of issuance by the Company's Board of Directors.
In 1989, 800,000 shares of Series A convertible preferred stock were issued
at $0.38 per share. In 1990, 399,999 shares of Series B convertible preferred
stock were issued at $6.50 per share. In 1992, 169,188 shares of Series C
convertible preferred stock were issued at $12.75 per share. In 1993, the
169,188 shares of Series C convertible preferred stock were canceled and all
outstanding shares were converted to 359,523 shares of Series D redeemable
convertible preferred stock at $6.00 per share. In 1993, 999,999 shares of
Series D redeemable convertible preferred stock were sold for $6.00 per share.
In 1995, 733,371 shares of Series E redeemable convertible preferred stock were
sold for $6.00 per share. In 1996, 811,536 shares of Series F redeemable
convertible preferred stock were sold for $6.50 per share (see Note K).
Shares of each of the series of Preferred Stock are convertible into common
stock at the option of the holder under a conversion formula which, except with
respect to the Series B convertible preferred stock which would convert to an
aggregate 353,230 common shares, would currently result in an 0.85-for-one
exchange, subject to antidilution provisions. Mandatory conversion is required
under certain circumstances, such as an initial public offering in which the
gross proceeds are not less than $10,000,000 and the price per share to the
public is greater than or equal to Series E conversion price.
Except with respect to certain actions enumerated in the Company's
Certificate of Incorporation which require separate class votes, stockholders of
each series of Preferred Stock are entitled to one vote for each share of common
stock into which their shares can be converted and vote together with the common
stockholders.
In the event of a liquidation, dissolution, or winding up of the Company,
the stockholders of each of the Preferred Stock series are entitled to receive a
liquidation preference. The per share liquidation preference equals: $0.38 for
Series A, $6.50 for Series B, $6.00 for Series D, $6.00 for Series E and $6.50
for Series F, with the Series D shares senior to the Series A and B shares,
Series E shares senior to the Series A, B and D shares and Series F shares
senior to the Series A, B, D and E shares.
The holders of the Series D shares, at the option of the holders (if
exercised by holders of an aggregate of 75% or more of Series D shares), have
the right to require the Company to repurchase all of the Series D shares at
$6.00 per share beginning on June 30, 1998 and for a period of one year
thereafter. The Company shall pay for the shares in three equal annual
installments, commencing one year from the date of the closing of such
repurchase by the Company. Any such repurchase shall only be paid out of funds
legally available therefor. The repurchase option shall automatically terminate
upon the consummation of an underwritten public offering in which gross proceeds
to the Company are at least $10,000,000 and the per share price to the public is
at least $7.06.
The holders of the Series E redeemable convertible preferred stock, at the
option of the holders (if exercised by holders of an aggregate of 75% or more of
Series E shares), have the right to require the Company to repurchase all of the
Series E redeemable convertible preferred stock at $6.00 per share beginning on
June 30, 1998 and for a period of one year thereafter. The Company shall pay for
such shares in three equal annual installments, commencing one year from the
date of the first closing of such repurchase by
F-12
<PAGE> 83
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
the Company, and such repurchase shall only be paid out of funds legally
available therefor. The repurchase option shall automatically terminate upon the
consummation of an underwritten public offering in which gross proceeds to the
Company are at least $10,000,000 and the per share price to the public is at
least $7.06.
The holders of the Series F redeemable convertible preferred stock, at the
option of the holders (if exercised by holders of an aggregate of 75% or more of
Series F shares), have the right to require the Company to repurchase all of the
Series F redeemable convertible preferred stock at $6.50 per share beginning on
June 30, 1998 and for a period of one year thereafter. The Company shall pay for
such shares in three equal annual installments, commencing one year from the
date of the first closing of such repurchase by the Company, and such repurchase
shall only be paid out of funds legally available therefore. The repurchase
option shall automatically terminate upon the consummation of an underwritten
public offering in which gross proceeds to the Company are at least $10,000,000
and the per share price to the public is at least $7.06.
In the event any Series holders exercise the repurchase option, the Company
shall provide notice of such event to all Series repurchase option holders. The
rights of the Series D holders to receive repurchase option payments are
subordinated to such rights of Series E holders and Series F holders, and the
rights of Series E holders are subordinated to that of Series F holders. The
Company may assign its obligations to effect any such repurchase to an assignee
designated by the Company, which assignment shall be subject to the approval of
holders of at least 50% in interest of the affected Series of Preferred
Stockholders.
The Company has reserved 3,488,764 shares of its common stock for issuance
upon conversion of the preferred stock and 722,500 shares for the issuance
pursuant to the incentive plan (see Note J). The Company has reserved 202,781
shares, 103,891 shares and 289,182 shares of common stock for issuance pursuant
to warrants held by Series D, E and F convertible preferred stockholders,
respectively (see Note I).
I. STOCK PURCHASE WARRANTS
Pursuant to a Stock Purchase Agreement dated June 18, 1992 and amended
March 4, 1993, the Company granted an unaffiliated entity and an individual
stockholder warrants to purchase 17,420 and 1,000 shares, respectively, of
Series D preferred stock in exchange for services. The warrants were exercisable
at $15.44 per share on or before June 18, 1996 and are exercisable at $19.30 per
share on or before June 18, 1997.
On June 18, 1995, the Company issued warrants exercisable for an aggregate
of 21,647 shares of Series D Convertible Preferred Stock in replacement of
warrants exercisable for the same number of shares of Series D Convertible
Preferred Stock which expired on such date. These warrants have an exercise
price of $9.00 per share and expire on June 18, 1997. In June 1996, the Company
received $4,800 in connection with the issuance of 4,000 of these warrants.
Pursuant to a Stock Purchase Agreement dated March 4, 1993, as amended
September 9, 1993, the Company granted to several holders of Series D redeemable
convertible preferred stock, warrants to purchase an aggregate of 202,781 shares
of common stock. The warrants are exercisable at $10.59 per share for a period
of five years from the date of grant.
Pursuant to the Stock Purchase Agreement dated July 12, 1995, as amended on
August 16, 1995, the Company granted the purchasers of Series E redeemable
convertible preferred stock, warrants to purchase an aggregate of 103,891 shares
of common stock. These warrants are exercisable at $10.59 per share for a period
of five years from the date of the grant.
Pursuant to the Stock Purchase Agreement dated June 28, 1996, as amended on
December 18, 1996, the Company granted the purchasers of Series F redeemable
convertible preferred stock, warrants to purchase an
F-13
<PAGE> 84
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
aggregate of 289,182 shares of common stock. These warrants are exercisable at
$7.65 per share for a period of five years from the date of the grant. The
number of shares issuable upon exercise of these warrants and the exercise price
of such warrants will be adjusted upon the closing of this offering pursuant to
the terms of such warrants. In addition, these warrants contain a cashless
exercise feature (see Note K).
J. INCENTIVE PLANS
1992 Equity Incentive Plan
On September 15, 1992, the Board of Directors adopted the 1992 Equity
Incentive Plan (the "1992 Plan"). On March 4, 1993, the shareholders approved
the 1992 Plan (see Note K). Under the 1992 Plan, a Committee appointed by the
Board of Directors is permitted to award shares of restricted common stock or to
grant stock options for the purchase of common stock to employees, consultants,
advisors and members of the Board of Directors, up to a maximum of 722,500
shares as amended. The 1992 Plan is terminated on the earlier of (i) the day
after the 10th anniversary of its adoption, or (ii) upon issuance of all
available shares.
The 1992 Plan provides for the granting of incentive stock options (ISOs),
nonqualified stock options (NSOs) and awards. In the case of ISOs and NSOs, the
exercise price shall not be less than 100% (110% in certain cases for ISOs) of
the fair market value per share of the common stock, as determined by the Board
of Directors, on the date of grant. In the case of awards, the purchase price
will be determined by the Board of Directors.
Each option granted under the 1992 Plan shall be exercisable either in full
or in installments as set forth in the option agreement. Each option and all
rights shall expire on the date specified by the Committee, but not more than
ten years after the date on which the option is granted in the case of ISOs
(five years in certain cases). Options vest between zero and five years.
In the case of awards of restricted common stock, the committee determines
the duration of certain restrictions on transfer of such stock.
Supplemental Disclosures for Stock-Based Compensation
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for the 1992 Plan. Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), issued in 1995,
defined a fair value method of accounting for stock options and other equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. The Company elected to
continue to apply the accounting provisions of APB Opinion No. 25 for stock
options. Accordingly, options issued to non-employees result in a charge to
earnings. During 1994, 1995 and 1996, amounts expensed due to issuance of
options to non-employees were immaterial. The required disclosures under SFAS
123 as if the Company had applied the new method of accounting are made below.
F-14
<PAGE> 85
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
A summary of the Company's stock option activity for the three years ended
December 31, 1996 and for the three months ended March 31, 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1993.................... 103,275 $ 4.47
Granted, 1994..................................... 184,875 2.79
Exercised, 1994................................... (212) 2.35
------- ------
Outstanding at December 31, 1994.................... 287,938 $ 3.39
Terminated, 1995.................................. (17,000) 7.06
------- ------
Outstanding at December 31, 1995.................... 270,938 $ 3.16
Granted, 1996..................................... 381,648 2.35
Exercised, 1996................................... (318) 2.35
Terminated, 1996.................................. (18,594) 2.35
------- ------
Outstanding at December 31, 1996.................... 633,674 $ 2.40
Granted (unaudited)............................... 1,062 $ 2.35
------- ------
Outstanding at March 31, 1997 (unaudited)........... 634,736 $ 2.40
======= ======
</TABLE>
Summarized information about stock options outstanding at December 31, 1996
is as follows:
<TABLE>
<CAPTION>
EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE AVERAGE
RANGE OF OPTIONS CONTRACTUAL EXERCISE NUMBER OF EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE OPTIONS PRICE
- --------------- ----------- ------------ -------- --------- --------
<S> <C> <C> <C> <C> <C>
$1.18 - 1.76 46,750 6.2 $ 1.14 40,163 $ 1.12
2.35 569,924 9.0 2.35 187,180 2.35
7.05 17,000 7.3 7.05 17,000 7.05
</TABLE>
Options exercisable at December 31, 1994 and 1995 and March 31, 1997 were
129,800, 200,791 and 246,678, respectively.
The weighted average fair value at date of grant for options granted during
1996 was $2.35 per option. No options were granted in 1995. The fair value of
these options at date of grant was estimated using the minimum value method with
the following weighted average assumptions for 1995 and 1996, respectively of
risk-free interest rate of 6.5% and a weighted average expected life of the
options of five years.
Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant date for awards in 1995 and 1996 consistent
with the provisions of SFAS No. 123, the Company's net loss to common
stockholders and net loss per share to common stockholders would have been
reduced to the SFAS No. 123 pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Net loss to common stockholders -- as reported.... $(4,163,499) $(6,624,999)
Net loss to common stockholders -- SFAS No. 123
pro forma....................................... (4,163,499) (6,653,966)
Net loss per share to common stockholders -- as
reported........................................ $ (2.63) $ (4.18)
Net loss per share to common stockholders -- SFAS
No. 123 pro forma............................... (2.63) (4.20)
</TABLE>
F-15
<PAGE> 86
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
The SFAS No. 123 pro forma effect on net loss to common stockholders for
1995 and 1996 is not representative of the SFAS No. 123 pro forma effect on net
income or loss to common stockholders in future years because it does not take
into consideration SFAS No. 123 pro forma compensation expense related to grants
made prior to 1995.
K. SUBSEQUENT EVENTS:
Preferred Stock
On February 3, 1997, February 19, 1997 and February 28, 1997, the Company
completed a third, fourth and fifth closing of its Series F redeemable
convertible preferred stock financing, respectively, resulting in the issuance
of 1,104,229 shares at $6.50 per share and net proceeds of $6,847,988.
Pursuant to the Series F redeemable convertible preferred stock financing,
the Company granted the purchasers of the third, fourth and fifth closing of
Series F redeemable convertible preferred stock financing, warrants to purchase
an aggregate of 362,152 shares of common stock. The warrants are exercisable at
$7.65 per share for a period of five years from the date of the grant. Upon the
closing of this offering, assuming no prior exercise of these warrants, the
aggregate number of shares of common stock issuable pursuant to these warrants
will decrease from 651,334 to 415,031 shares (assuming an initial public
offering price of $12.00 per share) and the per share exercise price will
increase from $7.65 to the initial price per share to the public in this
offering. In addition, these warrants contain a cashless exercise feature which,
if exercised in full prior to the closing of this offering (and assuming an
initial public offering price of $12.00 per share), would result in the issuance
of 236,231 shares of common stock with no additional proceeds to the Company.
These warrants will retain this cashless exercise feature following the closing
of this offering.
On February 28, 1997, the Company issued warrants exercisable for an
aggregate of 48,449 shares of common stock at a weighted average exercise price
of $4.61 per share to certain financial advisors. These warrants contain a
cashless exercise feature which, if exercised in full prior to the closing of
this offering (and assuming an initial public offering price of $12.00 per
share), would result in the issuance of 29,841 shares of common stock with no
additional proceeds to the Company. These warrants will retain this cashless
exercise feature following the closing of this offering.
Upon the closing of the initial public offering (see Note L) and following
the filing of a Certificate of Retirement, the Company will be authorized to
issue up to 5,000,000 shares of Preferred Stock, $0.01 par value per share, in
one or more series. Each such series of Preferred Stock shall have such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences, as
shall be determined by the Board of Directors. The Company has no present plans
to issue any shares of such Preferred Stock.
Subordinated Notes
On January 31, 1997, the Company executed a securities purchase agreement
that provided for the issuance of Subordinated Secured Notes (the "Notes") in
the aggregate amount of $2,000,000 ("First Closing") maturing on January 31,
2002. Upon the earlier of (i) the Company's receipt of final FDA approval for
Primsol and (ii) the closing of this offering, the Company will issue additional
Notes in the aggregate principal amount of $5 million ("Second Closing"). The
Notes bear no interest through January 31, 1999 after which the interest rates
are 7% through January 31, 2000, 8% through January 31, 2001 and 9% through
January 31, 2002, payable every quarter commencing on March 31 1999. The Company
has received net proceeds of approximately $1,790,000 pursuant to the first
closing. At December 31, 1996, $34,865 of
F-16
<PAGE> 87
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
expenses had been incurred and have been included in deferred charges and other
deposits in the balance sheet. The Company may redeem the Notes by paying 100%
of the outstanding principal and accrued interest at any time. Upon a change in
control of the Company, as defined in the Agreement, the holders of the Notes
may elect to have the Notes purchased by the Company at 100% of the outstanding
principal plus accrued interest. The Notes are secured by a lien on all of the
Company's assets, prohibit the payment of dividends by the Company and, subject
to certain exceptions, (including for up to $6,000,000 of senior secured bank
financing and $5,500,000 of secured purchase money financing in connection with
the planned acquisition of the Product Line) prohibit the incurrence of
additional indebtedness. Upon completion of this offering, the Company may
either redeem all of the outstanding Notes for their stated principal amount or
all of such Notes will amortize in eight equal quarterly principal payments and
require quarterly interest payments on the unpaid principal balance, at a rate
equal to the lesser of 10% or 3.5% over the prime rate, with the first quarterly
payment of principal and interest due six months after the closing of this
offering. In addition, for a period of two years following the closing of this
offering, the holders of the Notes will have the right to convert the Notes into
such number of shares of common stock as is equal to the outstanding principal
of such Notes divided by the per share Price to Public in this offering (subject
to certain requirements as to the minimum amount to be so converted as provided
in the Agreement).
Under the terms of the securities purchase agreement for the Notes, based
on a certain formula outlined therein, at the First Closing, the Company has
issued Series A warrants, to purchase an aggregate of 224,429 shares of common
stock and at the Second Closing, will issue Series A warrants to purchase an
aggregate of 336,644 shares of common stock and Series B warrants to purchase an
aggregate of 218,195 shares of common stock, to the Note investors. The Series A
warrants are exercisable at $0.01 per share for a period of seven years from the
grant date and the Series B warrants are exercisable at $5.29 per share over the
same period. In the event the Company shall not have consummated a Qualified
Public Offering or a Qualified Merger (each as defined in the securities
purchase agreement) into a public company within five years of the closing of
this financing, the holders will thereafter have the right, prior to the
expiration date, to put the warrants to the Company and require the Company to
purchase such warrants at an amount equal to the fair market value of the
underlying common stock, net of the exercise price. The fair market value of the
warrants (as of January 31, 1997) issued at the First Closing was recorded as a
discount of $836,994 to the Notes issued at such closing. Consequently, such
Note was recorded at $1,163,006. Similarly, the fair market value of the
warrants (as of January 31, 1997) issued at the Second Closing was recorded as a
discount of $1,668,746 to the Notes issued at such closing and such Notes will
be recorded at $3,331,254. Accordingly, approximately $2,506,000 of accretion
will be charged to interest expense, in addition to the stated interest rates,
over the term of the Notes.
Amendment of 1992 Equity Incentive Plan
The Board of Directors voted to amend the 1992 Plan, effective upon the
closing of the offering, to increase the number of shares of common stock
issuable upon exercise of stock options granted to 1,350,000 and to provide that
the maximum number of shares with respect to which options may be granted to any
employee during any calendar year be 500,000 shares.
1997 Employee Stock Purchase Plan
In March 1997, the Board of Directors adopted the 1997 Employee Stock
Purchase Plan (the "Purchase Plan"), effective upon the closing of the offering,
pursuant to which employees of the Company, including directors of the Company
who are employees, may purchase shares of common stock in regularly designated
offerings pursuant to payroll deductions at a price equal to the lower of 85%
(or such other higher percentage
F-17
<PAGE> 88
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997 IS UNAUDITED)
as the Board of Directors determine to be appropriate) of the fair market value
per share of the common stock on either the first day or the last day of the
designated payroll deduction period, whichever is lower.
1997 Director Stock Option Plan
In March 1997, the Board of Directors adopted the 1997 Director Stock
Option Plan (the "Director Plan"), effective upon the pricing date of the
offering. Under the Director Plan, non-employee directors would be entitled to
receive options to purchase shares of common stock upon the pricing date of the
Offering and on May 1 of each year commencing in 1998. In addition, each
eligible non-employee director would receive an option to purchase a specified
number of shares of common stock upon the initial election to the Board of
Directors. The exercise price of the options, which vest on the first
anniversary of the date of grant, will equal the fair market value on the date
of grant.
Executive Bonus Plan
Effective January 1, 1997, the Company adopted an Executive Bonus Plan,
which provides for the payment of bonuses to those officers and key employees
reporting directly to the Chief Executive Officer or Chairman of the Company.
Pursuant to the Executive Bonus Plan, each eligible participant is entitled to a
bonus of between 1.5% and 18% of the annual salary based upon the Company's
achievement of 95% or greater of its financial target for the year. In addition,
upon achievement of 95% or greater of the financial target for the year, each
eligible participant may receive an additional discretionary performance bonus
of up to 5% of salary.
L. PRO FORMA BALANCE SHEET (UNAUDITED)
Immediately prior to the effective date of the Registration Statement
relating to the public offering of the common stock of the Company, such as the
one contemplated in the Registration Statement in which the accompanying
financial statements have been included, all of the outstanding shares of
Preferred Stock will convert on a 0.85-for-one basis, except Series B
convertible preferred which will convert to an aggregate of 353,227 shares of
common stock. In addition, the warrant obligation would be reclassified to
additional paid in capital since the put feature of those warrants would cease
to exist in the event of a public offering (see Note K). The unaudited pro forma
presentation of the March 31, 1997 balance sheet has been presented assuming
such conversions and transfers.
F-18
<PAGE> 89
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
UPSHER-SMITH LABORATORIES, INC.:
We have audited the accompanying statement of assets related to the product
line to be acquired by Ascent Pediatrics, Inc. as of December 29, 1996 and the
related statements of net sales and identified costs and expenses for each of
the years in the two-year period then ended. These financial statements are the
responsibility of Upsher-Smith Laboratories, Inc.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The product line to be acquired by Ascent Pediatrics, Inc. has been
operated as an integral part of Upsher-Smith Laboratories, Inc. and has no
separate legal existence. The basis of preparation of these financial statements
is described in note 1 to the financial statements.
In our opinion, the aforementioned financial statements present fairly the
assets related to the product line of Upsher-Smith Laboratories, Inc. at
December 29, 1996 to be acquired by Ascent Pediatrics, Inc. and the net sales in
excess of identified costs and expenses for each of the years in the two-year
period then ended on the basis of accounting described in the preceding
paragraph and in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 21, 1997
F-19
<PAGE> 90
A PRODUCT LINE OF UPSHER-SMITH LABORATORIES, INC.
STATEMENT OF ASSETS RELATED TO THE PRODUCT LINE TO BE ACQUIRED BY
ASCENT PEDIATRICS, INC.
<TABLE>
<CAPTION>
MARCH 31,
1997
DECEMBER 29, ------------
1996
------------ (UNAUDITED)
<S> <C> <C>
Inventories, net.................................................... $122,235 $235,696
-------- --------
Assets of the product line to be acquired........................... $122,235 $253,696
======== ========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 91
A PRODUCT LINE OF UPSHER-SMITH LABORATORIES, INC.
STATEMENTS OF NET SALES AND IDENTIFIED COSTS AND EXPENSES OF
THE PRODUCT LINE TO BE ACQUIRED BY ASCENT PEDIATRICS, INC.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------- ---------------------------
1995 1996 1996 1997
---------- ---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................................ $3,563,761 $3,877,199 $1,231,057 $795,222
Identified costs and expenses:
Cost of sales.......................... 1,229,848 1,303,336 350,226 323,665
Advertising and promotion expense...... 657,655 669,456 281,001 176,851
Allocated selling expense.............. 480,700 571,167 188,160 182,734
---------- ---------- ---------- --------
Total identified costs and
expenses..................... 2,368,203 2,543,959 819,387 683,250
---------- ---------- ---------- --------
Net sales in excess of
identified costs and
expenses..................... $1,195,558 $1,333,240 $ 411,670 $111,972
---------- ---------- ---------- --------
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 92
A PRODUCT LINE OF UPSHER-SMITH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS OF THE PRODUCT LINE TO BE ACQUIRED BY
ASCENT PEDIATRICS, INC.
DECEMBER 31, 1995 AND DECEMBER 29, 1996
(UNAUDITED AS TO MARCH 31, 1996 AND 1997 DATA)
(1) BASIS OF PRESENTATION
The accompanying financial statements present the assets related to the
Feverall product line of Upsher Smith Laboratories, Inc. (Upsher-Smith), and the
net sales and the identified costs and expenses of the Feverall product line to
be acquired by Ascent Pediatrics, Inc. (Ascent), as provided in a non-binding
letter of intent dated November 13, 1996. The Feverall product line to be
acquired by Ascent has been operated as an integral part of Upsher-Smith and has
no separate legal existence.
The assets related to the Feverall product line as presented in the
accompanying statement of assets to be acquired include the historical balances
at December 29, 1996, of work-in-process and finished goods inventory together
with related samples of the Feverall product line. This product line has never
been operated as a separate business entity but rather has been an integral part
of the drug manufacturing and distribution business of Upsher-Smith.
The statements of net sales and identified costs and expenses of the
Feverall product line includes the net sales, cost of sales, and advertising and
promotion expense, that substantially relate directly to the product line to be
acquired by Ascent. Selling expense items are allocated based on estimates and
assumptions and primarily reflect an estimate of activity attributable to
selling the Feverall product line relative to the total selling activity of
Upsher-Smith. Management of Upsher-Smith cannot estimate what selling expenses
would have been if the Feverall product line had been operated on a stand alone
basis.
The above allocations are believed by management to be reasonable
allocations under the circumstances. However, there can be no assurance that
such allocations will be indicative of future results of operations. In
addition, the carrying value of inventories, as reflected in the accompanying
statement of assets to be acquired, does not include any adjustments which may
result at the date of acquisition.
General and administrative expenses of Upsher-Smith were not dedicated
specifically to the product line to be acquired for the periods presented and
because Ascent is not acquiring any of the general and administrative cost
structure of Upsher-Smith, general and administrative expenses were excluded
from the accompanying financial statements. Research and development expenses of
Upsher-Smith did not specifically relate to the product line to be acquired for
the periods presented and as a result were excluded from the accompanying
financial statements.
Upsher-Smith is a pharmaceutical manufacturer and distributor that
concentrates on developing cardiovascular products. The company markets its
products to retail, chain, and hospital pharmacies primarily by means of
wholesale and drug chain distribution channels throughout the United States. The
accompanying financial statements are not intended to present all the assets or
operations of Upsher-Smith.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out method. Samples and display inventory are charged to
advertising and promotion expense when used.
Revenue Recognition
Revenue is recognized upon shipment of the product. Allowances for sales
returns, discounts and rebates are provided for based on the volume of sales and
actual experience.
F-22
<PAGE> 93
A PRODUCT LINE OF UPSHER-SMITH LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS OF THE PRODUCT LINE TO BE ACQUIRED BY
ASCENT PEDIATRICS, INC. -- (CONTINUED)
(3) INVENTORIES
The components of inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 29, MARCH 31,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Work in process...................................... $ 10,864 $ --
Samples and displays................................. 42,486 44,613
Finished goods....................................... 68,885 191,083
-------- --------
$122,235 $ 235,696
======== ========
</TABLE>
(4) NET SALES
Net sales consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
--------------------------- -----------------------
DECEMBER 31, DECEMBER 29, MARCH 31, MARCH 31,
1995 1996 1996 1997
------------ ------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Gross sales............................ $4,677,134 $5,281,399 $1,598,375 $1,223,906
Less sales returns, discounts and
rebates.............................. 1,113,373 1,404,200 367,318 428,684
---------- ---------- ---------- ----------
Net sales......................... $3,563,761 $3,877,199 $1,231,057 $ 795,222
========== ========== ========== ==========
</TABLE>
For the year ended December 31, 1995, two customers accounted for 22% of
sales of the Feverall product line. For the year ended December 29, 1996 three
customers accounted for 33% of sales of the Feverall product line.
(5) INCOME TAXES
Upsher-Smith has elected to be treated as a small business corporation (S
corporation) under provisions of the Internal Revenue Code of 1986, whereby
profits and losses are passed directly to the stockholders for inclusion in
their personal tax returns. Accordingly, no liability or provision for federal
and state income taxes is included in the accompanying financial statements.
(6) SUBSEQUENT EVENT (UNAUDITED)
On March 25, 1997, Upsher-Smith entered into a definitive agreement
relating to the sale of the Feverall product line to Ascent. Under the terms of
this agreement, Upsher-Smith has agreed to sell the Feverall product line,
including certain intellectual property, technical information, product
formulations and regulatory approvals and registrations.
F-23
<PAGE> 94
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INTRODUCTION TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997
In March 1997 Ascent Pediatrics, Inc. ("Ascent" or the "Company") signed an
asset purchase agreement to acquire a product line of Upsher-Smith. Accordingly,
these accompanying unaudited combined pro forma financial statements reflect the
following:
- The issuance of $5,000,000 of convertible subordinated secured notes (the
"Notes") no later than the closing of this offering presented as if this
transaction occurred on January 1, 1996 with respect to the Unaudited
Combined Pro Forma Statements of Operations and on March 31, 1997 with
respect to Unaudited Combined Pro Forma Balance Sheet.
- The conversion of Series A and B convertible preferred stock, and Series
D, E and F redeemable convertible preferred stock, as if the conversion
took place at March 31, 1997, which mandatorily convert upon closing of
an initial public offering.
- The warrant obligation pertaining to the warrants issued or issuable in
connection with the Notes would be transferred to additional paid in
capital since the put feature on those warrants would cease to exist in
the event of a public offering.
The Ascent Pro Forma Subtotal March 31, 1997 column represents Ascent's
March 31, 1997 historical financial statements adjusted for the issuance of an
additional $5,000,000 of Notes no later than the closing of this offering, the
Preferred Stock conversions and reclassification of the warrant obligation to
additional paid in capital as described above and prior to adjustments related
to the acquisition described below.
In addition, the accompanying unaudited combined pro forma financial
statements reflect the acquisition of the Feverall acetaminophen suppository
line ("Product Line") from Upsher-Smith for a purchase price equal to $11.5
million plus the cost of inventories. Under the terms of the agreement, Ascent
has agreed to purchase the Product Line, including certain intellectual
property, technical information, product formulations and regulatory approvals
and registrations. Ascent will not purchase any accounts receivable and will not
assume any liabilities of Upsher-Smith. For purposes of the combined pro forma
financial statements, this acquisition has been accounted for using the purchase
method of accounting.
Pursuant to this agreement, the Company paid a non-refundable deposit of
$250,000 in 1996. Upon the closing, the Company is required to make a cash
payment to Upsher-Smith of approximately $5.75 million plus the cost of the
inventory ($235,696 at March 31, 1997) and to sign a promissory note in the
amount of approximately $5.5 million. This note will be payable 225 days
following the closing. Ascent has also agreed to purchase from Upsher-Smith,
Ascent's requirements for products in the Product Line for a period of five
years.
The Unaudited Combined Pro Forma Financial Statements combine Ascent's Pro
forma Balance Sheet with the Statement of Assets Related to the Product Line to
be Acquired as if the transaction occurred on March 31, 1997 and Ascent's
Statements of Operations for the year ended December 31, 1996 and for the three
months ended March 31, 1997 with the related Statement of Net Sales and
Identified Costs and Expenses of the Product Line to be Acquired as if the
transaction had occurred on January 1, 1996. The Statements of Net Sales and
Identified Costs and Expenses includes advertising and promotion expense that
substantially relate directly to the Product Line to be acquired by Ascent.
Selling expense items are allocated based on estimates and assumptions and
primarily reflect an estimate of activity attributable to the Product Line
relative to the total selling activity of Upsher-Smith. General and
administrative and research and development expenses of Upsher-Smith were not
dedicated specifically to the Product Line to be acquired and, because Ascent
would not acquire any of such cost structure of Upsher-Smith, these costs were
excluded from the Statements of Net Sales and Identified Costs and Expenses. Pro
forma adjustments have been made to reflect Ascent's estimate of the incremental
expense that would have been incurred if the acquisition had occurred on January
1, 1996. The unaudited combined pro forma statements do not purport to be
indicative of
F-24
<PAGE> 95
the financial position or the results of operations had the probable acquisition
actually occurred at this time or what results in the future may be.
The Statement of Assets Related to the Product Lines to be Acquired and the
Statements of Net Sales and Identified Costs and Expenses of the Product Lines
to be Acquired have been derived from their respective historical financial
statements. The Unaudited Combined Pro Forma Financial Statements should be read
in conjunction with the accompanying notes thereto and with the historical
financial statements and related notes thereto of Ascent and the historical
financial statements and related notes thereto of the Upsher-Smith Product Line
to be Acquired.
F-25
<PAGE> 96
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED COMBINED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1997
<TABLE>
<CAPTION>
ASSUMED
CONVERSION
ASCENT ISSUANCE OF OF PREFERRED
HISTORICAL ADDITIONAL NOTE STOCK INTO NOTE
MARCH 31, 1997 NOTES REF. COMMON STOCK REF.
----------------- ----------- ---- ------------- ----
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents..................... $ 8,299,854 $ 4,840,000 A $
Other current assets.......................... 209,954
Inventories, net.............................. --
-----------
Total current assets.................... 8,509,808
Fixed assets, net............................. 294,316
Deposits related to acquisition............... 250,000
Deferred charges and other deposits........... 403,007
Debt issue costs, net......................... 203,294 160,000 A
Other assets, net............................. 11,562
-----------
Total assets............................ $ 9,671,987
===========
Liabilities and stockholders' equity:
Accounts payable.............................. $ 770,803
Accrued expenses.............................. 1,307,863
Note payable -- Feverall Acquisition.......... --
-----------
Total current liabilities............... 2,078,666
Convertible subordinated secured notes.......... 1,182,922 3,331,254 A
Warrant obligation.............................. 836,994 1,668,746 A (2,505,740) B
-----------
Total liabilities....................... 4,098,582
Series D redeemable convertible preferred stock. 8,157,132 (8,157,132) B
Series E redeemable convertible preferred
stock......................................... 4,400,226 (4,400,226) B
Series F redeemable convertible preferred
stock......................................... 12,452,471 (12,452,471) B
Stockholders' equity (deficit):
Series A convertible preferred................ 280,110 (280,110) B
Series B convertible preferred................ 2,574,993 (2,574,993) B
Common stock.................................. 8 177 B
Additional paid-in capital.................... -- 30,370,495 B
Deficit accumulated during the development
stage....................................... (22,291,535)
-----------
Total stockholders' equity (deficit).... (19,436,424)
-----------
Total liabilities and stockholders'
equity (deficit)...................... $ 9,671,987
===========
<CAPTION>
A PRODUCT LINE
ASCENT OF UPSHER-SMITH PURCHASE
PRO FORMA HISTORICAL NOTE PRICE NOTE
MARCH 31, 1997 MARCH 31, 1997 REF. ADJUSTMENTS REF.
----------------- ----------------- ---- ----------- ----
<S> <C<C>
Current assets:
Cash and cash equivalents..................... $ 13,139,854 $ $(5,985,696) D
Other current assets.......................... 209,954
Inventories, net.............................. -- 235,696 C 14,304 J
------------
Total current assets.................... 13,349,808
Fixed assets, net............................. 294,316
Deposits related to acquisition............... 250,000 (250,000) E
Deferred charges and other deposits........... 403,007
Debt issue costs, net......................... 363,294
Other assets, net............................. 11,562 11,485,696 F
------------
Total assets............................ $ 14,671,987
============
Liabilities and stockholders' equity:
Accounts payable.............................. $ 770,803
Accrued expenses.............................. 1,307,863
Note payable -- Feverall Acquisition.......... -- 5,500,000 G
------------
Total current liabilities............... 2,078,666
Convertible subordinated secured notes.......... 4,514,176
Warrant obligation.............................. --
------------
Total liabilities....................... 6,592,842
Series D redeemable convertible preferred stock. --
Series E redeemable convertible preferred
stock......................................... --
Series F redeemable convertible preferred
stock......................................... --
Stockholders' equity (deficit):
Series A convertible preferred................ --
Series B convertible preferred................ --
Common stock.................................. 185
Additional paid-in capital.................... 30,370,495
Deficit accumulated during the development
stage....................................... (22,291,535)
------------
Total stockholders' equity (deficit).... 8,079,145
------------
Total liabilities and stockholders'
equity (deficit)...................... $ 14,671,987
============
<CAPTION>
COMBINED PRO FORMA
MARCH 31, 1997
------------------
Current assets:
Cash and cash equivalents..................... $ 7,154,158
Other current assets.......................... 209,954
Inventories, net.............................. 250,000
---------
Total current assets.................... 7,614,112
Fixed assets, net............................. 294,316
Deposits related to acquisition............... --
Deferred charges and other deposits........... 403,007
Debt issue costs, net......................... 363,294
Other assets, net............................. 11,497,258
---------
Total assets............................ $ 20,171,987
=========
Liabilities and stockholders' equity:
Accounts payable.............................. $ 770,803
Accrued expenses.............................. 1,307,863
Note payable -- Feverall Acquisition.......... 5,500,000
---------
Total current liabilities............... 7,578,666
Convertible subordinated secured notes.......... 4,514,176
Warrant obligation.............................. --
---------
Total liabilities....................... 12,092,842
Series D redeemable convertible preferred stock. --
Series E redeemable convertible preferred
stock......................................... --
Series F redeemable convertible preferred
stock......................................... --
Stockholders' equity (deficit):
Series A convertible preferred................ --
Series B convertible preferred................ --
Common stock.................................. 185
Additional paid-in capital.................... 30,370,495
Deficit accumulated during the development
stage....................................... (22,291,535)
---------
Total stockholders' equity (deficit).... 8,079,145
---------
Total liabilities and stockholders'
equity (deficit)...................... $ 20,171,987
=========
</TABLE>
F-26
<PAGE> 97
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSUMED
CONVERSION ASCENT
ASCENT ISSUANCE OF OF PREFERRED PRO FORMA
HISTORICAL ADDITIONAL NOTE STOCK INTO NOTE SUBTOTAL
DECEMBER 31, 1996 NOTES REF. COMMON STOCK REF. DECEMBER 31, 1996
----------------- ----------- ---- ------------- ---- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................................... $ -- $ $ --
----------- ----------
Costs and expenses:
Cost of sales............................. -- --
Research and development.................. 3,760,948 3,760,948
Selling, general and administrative....... 2,805,352 32,000 M 2,837,352
Advertising and promotion................. -- --
Allocated selling......................... -- --
----------- ----------
Total expenses:....................... 6,566,300 6,598,300
Income (loss) from operations............... (6,566,300) (6,598,300)
Interest income............................. 79,084 79,084
Interest expense............................ -- (468,556) N (468,556)
----------- ----------
Net income (loss)........................... $(6,487,216) $ (6,987,572)
=========== ==========
Net income (loss) per share................. $ (1.48) $ (1.59)
=========== ==========
Weighted average number of common and common
stock equivalent shares outstanding....... 4,384,197 4,384,197
<CAPTION>
A PRODUCT
LINE OF
UPSHER-SMITH PURCHASE
HISTORICAL NOTE PRICE NOTE OTHER NOTE COMBINED PRO FORMA
DECEMBER 29, 1996 REF. ADJUSTMENTS REF. ADJUSTMENTS REF. DECEMBER 31, 1996
----------------- ---- ----------- ---- ----------- ---- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................................... $ 3,877,199 C $ $ $ 3,877,199
----------- ------------
Costs and expenses:
Cost of sales............................. 1,303,336 C 130,333 I 1,433,669
Research and development.................. -- 3,760,948
Selling, general and administrative....... -- 574,285 H 490,000 L 5,142,260
1,240,623 K
Advertising and promotion................. 669,456 C (669,456) K --
Allocated selling......................... 571,167 C (571,167) K --
----------- ------------
Total expenses:....................... 2,543,959 C 10,336,877
Income (loss) from operations............... (6,459,678)
Interest income............................. -- 79,084
Interest expense............................ -- (468,556)
----------- ------------
Net income (loss)........................... $ 1,333,240 C $ (6,849,150)
=========== ============
Net income (loss) per share................. $ (1.56)
============
Weighted average number of common and common
stock equivalent shares outstanding....... 4,384,197
</TABLE>
F-27
<PAGE> 98
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
ASSUMED
CONVERSION ASCENT
ASCENT ISSUANCE OF OF PREFERRED PRO FORMA
HISTORICAL ADDITIONAL NOTE STOCK INTO NOTE SUBTOTAL
MARCH 31, 1997 NOTES REF. COMMON STOCK REF. MARCH 31, 1997
----------------- ----------- ---- ------------- ---- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................ $ -- $ $ --
----------- ------------
Costs and expenses:
Cost of sales.................. -- --
Research and development....... 1,528,114 1,528,114
Selling, general and
administrative............... 972,826 8,000 M 980,826
Advertising and promotion...... -- --
Allocated selling.............. -- --
----------- ------------
Total expenses:............ 2,500,940 2,508,940
Income (loss) from operations.... (2,500,940) (2,508,940)
Interest income.................. 72,745 72,745
Interest expense................. (19,916) (127,095) N (147,011)
Gain on sale of fixed assets..... 9,242 9,242
----------- ------------
Net income (loss)................ $(2,438,869) $ (2,573,964)
=========== ============
Net income (loss) per share...... $ (0.56) $ (0.59)
=========== ============
Weighted average number of common
and common stock equivalent
shares outstanding............. 4,384,197 4,384,197
<CAPTION>
A PRODUCT
LINE OF
UPSHER-SMITH PURCHASE
HISTORICAL NOTE PRICE NOTE OTHER NOTE COMBINED PRO FORMA
MARCH 31, 1997 REF. ADJUSTMENTS REF. ADJUSTMENTS REF. MARCH 31, 1997
----------------- ---- ----------- ---- ----------- ---- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........................ $ 795,222 C $ $ $ 795,222
----------- ------------
Costs and expenses:
Cost of sales.................. 323,665 C 32,367 I 356,032
Research and development....... -- 1,528,114
Selling, general and
administrative............... -- 143,571 H 122,500 L 1,606,482
359,585 K
Advertising and promotion...... 176,851 C (176,851) K --
Allocated selling.............. 182,734 C (182,734) K --
----------- ------------
Total expenses:............ 683,250 C 3,490,628
Income (loss) from operations.... (2,695,406)
Interest income.................. -- 72,745
Interest expense................. (147,011)
Gain on sale of fixed assets..... 9,242
----------- ------------
Net income (loss)................ $ 111,972 C $ (2,760,430)
=========== ============
Net income (loss) per share...... $ (0.63)
============
Weighted average number of common
and common stock equivalent
shares outstanding............. 4,384,197
</TABLE>
F-28
<PAGE> 99
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND AS OF AND FOR THE THREE MONTHS ENDED
MARCH 31, 1997
The accompanying unaudited combined pro forma financial statements reflect
the impact of the following adjustments:
A. ISSUANCE OF ADDITIONAL NOTES
Records the issuance of $5,000,000 of the Notes net of estimated issuance
costs of $160,000 with proceeds of $4,840,000 no later than the closing of this
offering presented as if the issuance occurred on March 31, 1997. The Notes have
been recorded at $3,331,254 net of $1,668,746, the fair market value of Series A
and Series B warrants to purchase 336,644 and 218,195 shares, respectively, of
Common Stock issued in connection with the Notes. Accordingly the liability of
$3,331,254 (after allocating $1,668,746 as value attributable to warrants) will
be accreted up to $5,000,000 over the term of the Notes and such accretion in
the amount of $1,668,746 will be recorded as interest expense in addition to the
stated interest rate. The Notes bear no interest through January 31, 1999 after
which the interest rates are 7% through January 31, 2000, 8% through January 31,
2001 and 9% through January 31, 2002, payable every quarter commencing on March
31, 1999. Upon completion of an initial public offering of shares of its Common
Stock, the Company may either redeem all of the outstanding Notes for their
stated principal amount or all of such Notes will amortize in eight equal
quarterly principal payments and require quarterly interest payments on the
unpaid principal balance, at a rate equal to the lesser of 10% or 3.5% over the
prime rate, with the first quarterly payment of principal and interest due six
months after the closing of such an offering. In addition, for a period of two
years following the closing of any such offering, the holders of the Notes will
have the right to convert the Notes into such number of shares of Common Stock
as is equal to the outstanding principal of such Notes divided by the per share
Price to Public in the offering (subject to certain requirements as to the
minimum amount to be so converted as provided in the Agreement).
B. CONVERSION OF PREFERRED STOCK AND WARRANT OBLIGATION
Records the following:
- The conversion of 800,000 shares of Series A convertible preferred stock,
$.00004 par value, into 680,000 shares of common stock, $.00004 par
value.
- The conversion of 399,999 shares of Series B convertible preferred stock,
$.00004 par value, into 353,227 shares of common stock, $.00004 par
value.
- The conversion of 1,359,522 shares of Series D redeemable convertible
preferred stock, $.00004 par value, into 1,155,589 shares of common
stock, $.00004 par value.
- The conversion of 733,371 shares of Series E redeemable convertible
preferred stock, $.00004 par value, into 623,358 shares of common stock,
$.00004 par value.
- The conversion of 1,915,765 shares of Series F redeemable convertible
preferred stock, $.00004 par value, into 1,628,390 shares of common
stock, $.00004 par value.
- The reclassification of warrant obligations of $2,505,740 to additional
paid in capital.
F-29
<PAGE> 100
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
SERIES D SERIES E SERIES F
SERIES A SERIES B REDEEMABLE REDEEMABLE REDEEMABLE
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED WARRANT
STOCK STOCK STOCK STOCK STOCK OBLIGATION TOTALS
----------- ----------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Warrant obligation............ $ $ $ $ $ $(2,505,740) $ (2,505,740)
Series A convertible preferred
stock........................ (280,110) (280,110)
Series B convertible preferred
stock........................ (2,574,993) (2,574,993)
Series D redeemable
convertible preferred
stock........................ (8,157,132) (8,157,132)
Series E redeemable
convertible preferred
stock........................ (4,400,226) (4,400,226)
Series F redeemable
convertible preferred
stock........................ (12,452,471) (12,452,471)
Common stock.................. 27 14 46 24 66 177
Additional paid-in capital.... 280,083 2,574,979 8,157,086 4,400,202 12,452,405 2,505,740 30,370,495
--------- ----------- ----------- ----------- ------------ ----------- ------------
Totals................. $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
========= =========== =========== =========== ============ =========== ============
</TABLE>
C. A PRODUCT LINE OF UPSHER-SMITH
The historical results of A Product Line of Upsher-Smith exclude allocated
general and administrative and research and development expenses which are not
directly attributable to the product lines to be sold.
D. CASH PAYMENT
Records the cash payment of $5,985,696 for the probable acquisition of the
Product Line which includes a $5,750,000 million required payment at closing and
$235,696 of inventory costs.
E. DEPOSIT
Records the application of the deposit of $250,000 related to the probable
acquisition of the Product Line to the purchase price.
F. INTANGIBLE ASSETS
Records intangible assets, net of amortization and deposits, resulting from
the probable acquisition of the Feverall product line as if the probable
acquisition had occurred on March 31, 1997:
<TABLE>
<S> <C>
Purchase price.................................. $11,735,696
Less inventory acquired at fair value........... 250,000
-----------
Intangible assets............................... $11,485,696
===========
</TABLE>
G. NOTE PAYABLE
Records note payable to Upsher-Smith related to the probable acquisition of
the Feverall product line. The note is payable 225 days from closing and does
not bear interest.
<TABLE>
<S> <C>
Purchase price.................................. $11,735,696
Less deposit.................................... 250,000
-----------
Subtotal........................................ 11,485,696
Less cash payment............................... 5,985,696
-----------
Note payable.................................... $ 5,500,000
===========
</TABLE>
F-30
<PAGE> 101
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
H. AMORTIZATION EXPENSE
Records amortization expense of $574,285 ($143,571 a quarter) related to
the intangible assets of $11,485,696 over the estimated life of 20 years. At the
time the acquisition is consummated, the amount of the purchase price that
exceeds the fair value of the tangible assets will be allocated to specific
intangible assets (expected to be primarily intellectual property, know-how,
customer lists, etc.) and any remainder will be classified as goodwill.
Accordingly, the amortization periods for the assets will correspond to their
useful lives. The 20 years is an estimate by management for pro forma purposes
and, in the opinion of management, will not materially differ from actual
results.
I. COST OF GOODS SOLD
Adjusts cost of goods sold for the manufacture of the products to be
acquired in excess of Upsher-Smith's fully allocated costs of manufacturing such
products as per the manufacturing agreement.
J. INVENTORY
Records adjustment to increase inventory to be purchased to fair market
value.
K. RECLASSIFICATION
Records reclassification of Upsher-Smith advertising and promotion expenses
of $669,456 and allocated selling expenses of $571,167 totalling $1,240,623 for
the year ended December 31, 1996 and advertising and promotion expenses of
$176,851 and allocated selling expenses of $182,734 totalling $359,585 for the
three months ended March 31, 1997 to conform with Ascent's financial statement
presentation.
L. INCREMENTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Records an estimate of the incremental selling, general and administrative
expenses, in addition to the Upsher-Smith product line's identified costs and
expenses, expected to be incurred by Ascent primarily for distribution costs
(including billing and collection efforts), advertising, promotion and sales
force of $490,000 for a year or $122,500 for a quarter. Selling, general and
administrative expenses are expected to increase as the product line revenue
increases.
M. AMORTIZATION OF DEBT ISSUE COSTS
Records amortization of issuance costs of $160,000 related to the
additional Notes. Amortization for one year is $32,000 or $8,000 per quarter.
N. INTEREST EXPENSES PERTAINING TO THE ADDITIONAL NOTES
Records accretion of notes to maturity amount and treated as interest
expense. Interest expenses for the year ended December 31, 1996 and for the
three months ended March 31, 1997 are $468,556 and $127,095, respectively.
F-31
<PAGE> 102
Objective: Improved Compliance
and Therapeutic Outcomes
<TABLE>
<S> <C> <C>
9 Products in
Development
Identify [Background art Drug Delivery and
Products Based depicting children] Reformulation
on Market Needs Technologies
[ASCENT LOGO]
Establish Dedicated Experienced
U.S. Sales Force Management Team
</TABLE>
Exclusive Focus on
Pediatric Market
<PAGE> 103
======================================================
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 6
The Company.......................... 16
Use of Proceeds...................... 16
Dividend Policy...................... 17
Capitalization....................... 18
Dilution............................. 20
Selected Financial Data.............. 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 23
Business............................. 26
Management........................... 48
Certain Transactions................. 58
Principal Stockholders............... 60
Description of Capital Stock......... 62
Shares Eligible for Future Sale...... 65
Underwriting......................... 67
Legal Matters........................ 69
Experts.............................. 69
Additional Information............... 69
Index to Financial Statements........ F-1
</TABLE>
------------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
2,000,000 SHARES
[ASCENT PEDIATRICS LOGO]
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
COWEN & COMPANY
VOLPE BROWN WHELAN
& COMPANY
ADAMS, HARKNESS & HILL, INC.
, 1997
======================================================
<PAGE> 104
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates except
for the Securities and Exchange Commission ("SEC") registration fee and the
National Association of Securities Dealers, Inc. ("NASD") filing fee. All these
expenses will be payable by the Registrant.
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
SEC Registration Fee.............................................. $ 9,061
NASD Filing Fee................................................... 3,490
Nasdaq National Market Listing Fee................................ 50,000
Blue Sky Fees and Expenses (including legal fees)................. 3,000
Transfer Agent and Registrar Fees and Expenses.................... 5,000
Accounting Fees and Expenses...................................... 300,000
Legal Fees and Expenses........................................... 275,000
Printing, Engraving and Mailing Expenses.......................... 125,000
Miscellaneous..................................................... 29,449
---------
Total........................................................... $800,000
=========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article EIGHTH of the Registrant's Second Amended and Restated Certificate
of Incorporation (the "Certificate of Incorporation") provides that no director
of the Registrant shall be personally liable for any monetary damages for any
breach of fiduciary duty as a director, except to the extent that the Delaware
General Corporation law prohibits the elimination or limitation of liability of
directors for breach of fiduciary duty.
Article NINTH of the Registrant's Certificate of Incorporation provides
that a director or officer of the Registrant (a) shall be indemnified by the
Registrant against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement incurred in connection with any litigation or
other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a Director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that
II-1
<PAGE> 105
the director or officer did not meet the applicable standard of conduct required
for indemnification, or if the Registrant fails to make an indemnification
payment within 60 days after such payment is claimed by such person, such person
is permitted to petition the court to make an independent determination as to
whether such person is entitled to indemnification. As a condition precedent to
the right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
Article NINTH of the Registrant's Certificate of Incorporation further
provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Registrant
must indemnify those persons to the full extent permitted by such law as so
amended.
Article NINTH also permits the Company to purchase and maintain insurance,
at the Company's expense, to protect any director against any expense, liability
or loss incurred by such director in such capacity or arising out of his status
as such.
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation has the power to indemnify a director, officer, employee or
agent of the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under Section 6 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) ISSUANCES OF CAPITAL STOCK, NOTES AND WARRANTS
Since January 1, 1994, the Registrant has sold the following securities
that were not registered under the Securities Act:
1. On June 18, 1995, the Registrant issued warrants exercisable for
21,647 shares of Series D Convertible Preferred Stock at an exercise price
of $9.00 per share to one individual and two entities, each of whom or
which was an accredited investor, in exchange for the cancellation of
warrants exercisable for an equal number of shares of Series D Convertible
Preferred Stock held by such entities. These issuances were conducted
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act").
2. On July 13, 1995 and August 16, 1995, the Registrant issued and
sold a total of 733,371 shares of Series E Convertible Preferred Stock to
three individuals and ten entities, each of whom or which was an accredited
investor, for an aggregate purchase price of $4,400,000. In connection with
the sale of such shares of Series E Convertible Preferred Stock, the
Registrant issued warrants to the purchasers of such shares exercisable for
an aggregate of 103,891 shares of Common Stock at an exercise price of
$10.59 per share. These issuances were conducted pursuant to Registration D
promulgated under the Securities Act ("Regulation D") and Section 4(2) of
the Securities Act. The Company paid $25,000 in commissions to a placement
agent in connection with the sale of shares of Series E Convertible
Preferred Stock.
3. On June 28, 1996, December 18, 1996, February 3, 1997, February 19,
1997 and February 28, 1997, the Registrant issued and sold a total of
1,915,765 shares of Series F Convertible Preferred Stock to
II-2
<PAGE> 106
15 individuals and 14 entities, each of whom or which was an accredited
investor, for an aggregate purchase price of $12.5 million. These issuances
were conducted pursuant to Regulation D and Section 4(2) of the Securities
Act. In connection with the sale of such shares of Series F Convertible
Preferred Stock, the Registrant issued warrants to the purchasers of such
shares exercisable for an aggregate of 651,334 shares of Common Stock at an
exercise price of $7.65 per share. Upon the closing of this offering,
assuming no prior exercise of these warrants, the number of shares of
Common Stock issuable upon exercise of these warrants will decrease to
415,031 shares of Common Stock (assuming an initial public offering price
of $12.00 per share) and the per share exercise price will increase to the
initial per share price to the public. On February 28, 1997, the Company
also issued warrants exercisable for 10,200 shares of Common Stock at an
exercise price of $8.24 per share to one placement agent and warrants
exercisable for an aggregate of 17,000 shares of Common Stock at an
exercise price of $8.18 per share to four individuals affiliated with and
designated by a second placement agent and paid such placement agents
commissions in the aggregate amount of $201,000 in connection with the sale
of shares of Series F Convertible Preferred Stock. These issuances were
conducted pursuant to Section 4(2) of the Securities Act.
4. On January 31, 1997, the Registrant issued convertible subordinated
secured notes to two entities and two individuals, each of whom or which
was an accredited investor, for an aggregate of $2,000,000 and issued
warrants exercisable for an aggregate of 224,429 shares of Common Stock at
an exercise price of $.01 per share to such individuals and entities. These
issuances were conducted pursuant to Regulation D and Section 4(2) of the
Securities Act. On February 28, 1997, the Company also issued warrants
exercisable for an aggregate of 21,249 shares of Common Stock at an
exercise price of $0.01 per share to four individuals affiliated with and
designated by a placement agent and paid a commission of $120,000 to such
placement agent in connection with the issuance of the convertible
subordinated secured notes. These issuances were conducted pursuant to
Section 4(2) of the Securities Act.
5. On February 12, 1997, the Registrant issued 19,550 shares of Series
F Convertible Preferred Stock and warrants exercisable for an aggregate of
7,820 shares of Common Stock at an exercise price of $7.65 per share to one
accredited investor in connection with the provision of certain consulting
services to the Registrant. This issuance was conducted pursuant to
Regulation D and Section 4(2) of the Securities Act.
(b) GRANTS AND EXERCISES OF STOCK OPTIONS
The Registrant's 1992 Equity Incentive Plan, as amended (the "1992 Plan"),
was adopted by the stockholders of the Registrant in September 1992. As of March
31, 1997, options to purchase 530 shares of Common Stock had been exercised by
an aggregate of two persons for an aggregate consideration of $1,250 and options
to purchase 634,736 shares of Common Stock at a weighted average exercise price
of $2.40 per share were outstanding under such plan. The options and shares of
capital stock issued pursuant to the 1992 Plan were offered and sold in reliance
upon the exemption from registration under Rule 701 promulgated under the
Securities Act.
The Registrant's 1997 Director Option Plan and 1997 Employee Stock Purchase
Plan were adopted by the Company in March 1997. These plans will become
effective upon the closing of this offering, and, as of March 31, 1997, no
shares have been issued under these plans.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
1.1* Form of Underwriting Agreement
2.1+ Asset Purchase Agreement dated as of March 25, 1997 between the Registrant and
Upsher-Smith Laboratories, Inc.
3.1* Amended and Restated Certificate of Incorporation of the Registrant
3.2* Certificate of Correction of Certificate of Amendment of the Registrant
</TABLE>
II-3
<PAGE> 107
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
3.3* Certificate of Amendment of Amended and Restated Certificate of Incorporation of
the Registrant
3.4* Form of Certificate of Amendment to be filed prior to consummation of the public
offering
3.5* Form of Second Amended and Restated Certificate of Incorporation of the Registrant
to be filed upon the closing of the public offering
3.6* Amended and Restated By-Laws of the Registrant
4.1* Specimen Certificate for shares of Common Stock, $.00004 par value, of the
Registrant
4.2* Form of Subordinated Secured Note (included in Exhibit 10.11)
5.1* Opinion of Hale and Dorr LLP with respect to the validity of the securities being
offered
10.1* Amended and Restated 1992 Equity Incentive Plan
10.2* 1997 Director Stock Option Plan
10.3* 1997 Employee Stock Purchase Plan
10.4* Lease dated November 21, 1996 between the Registrant and New Boston Wilmar Limited
Partnership
10.5* Employment Agreement dated as of March 15, 1994 between the Registrant and Emmett
Clemente
10.6* Consulting Agreement dated as of April 1, 1996 between the Registrant and Robert
E. Baldini
10.7+ Development and License Agreement dated as of October 8, 1996 by and between the
Registrant and Recordati S.A. Chemical and Pharmaceutical Company ("Recordati")
10.8*+ Manufacturing and Supply Agreement dated as of October 8, 1996 by and between the
Registrant and Recordati
10.9*+ License Agreement dated September 28, 1990 between MacroChem Corp. and the
Registrant
10.10*+ Supply Agreement dated as of October 12, 1994 by and between the Registrant and
Lyne Laboratories, Inc.
10.11* Securities Purchase Agreement dated as of January 31, 1997 among the Registrant,
Triumph-Connecticut Limited Partnership and the other purchasers identified
therein (the "Triumph Agreement")
10.12* Waiver and Amendment to the Triumph Agreement dated as of March 13, 1997
10.13* Series F Convertible Preferred Stock and Warrant Purchase Agreement dated as of
June 28, 1996 between the Registrant and certain purchasers identified therein as
amended by Amendment No. 1 dated as of June 28, 1996 and Amendment No. 2 dated
February 3, 1997
10.14* Form of Common Stock Purchase Warrant issued to Chestnut Partners, Inc. on
February 28, 1997
10.15* Common Stock Purchase Warrant issued to Banque Paribas on February 28, 1997
10.16* Form of Common Stock Purchase Warrant with an exercise price of $.01 per share
issued to designees of Bentley Securities on February 28, 1997
10.17* Form of Common Stock Purchase Warrant with an exercise price of $5.91 per share
issued to designees of Bentley Securities on February 28, 1997
10.18* Amendment No. 1 dated February 28, 1997 to the Development and License Agreement
dated as of October 8, 1996 by and between the Registrant and Recordati
11.1* Computation of historical and pro forma net loss per common share
23.1 Consent of Hale and Dorr LLP
23.2 Consent of Coopers & Lybrand L.L.P., independent accountants
23.3 Consent of KPMG Peat Marwick LLP, independent auditors
23.4 Consent of Welsh & Katz, Ltd.
24.1* Powers of Attorney
27.1* Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
II-4
<PAGE> 108
(b) FINANCIAL STATEMENT SCHEDULES
All other schedules have been omitted because they are not required or
because the required information is given in the Financial Statements or Notes
thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Certificate of
Incorporation and Amended and Restated By-Laws of the Registrant and the laws of
the State of Delaware, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and this offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 109
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 3 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the Town of Wilmington,
Commonwealth of Massachusetts, on this 16th day of May, 1997.
ASCENT PEDIATRICS, INC.
By: /s/ ALAN R. FOX
------------------------------------
Alan R. Fox
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to Registration Statement has been signed by the following
persons in the capacities indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------- ---------------
<C> <S> <C>
* President, Chief Executive May 16, 1997
- ------------------------------------------ Officer and Director
Alan R. Fox (Principal Executive Officer)
* Vice President, Finance May 16, 1997
- ------------------------------------------ and Treasurer (Principal
John G. Bernardi Financial and
Accounting Officer)
* Chairman May 16, 1997
- ------------------------------------------
Emmett Clemente, Ph.D.
* Vice Chairman May 16, 1997
- ------------------------------------------
Robert E. Baldini
* Director May 16, 1997
- ------------------------------------------
Raymond F. Baddour, Ph.D.
* Director May 16, 1997
- ------------------------------------------
Michael J.F. Du Cros
* Director May 16, 1997
- ------------------------------------------
Thomas W. Janes
* Director May 16, 1997
- ------------------------------------------
Andre Lamotte, Sc.D.
* Director May 16, 1997
- ------------------------------------------
Terrance McGuire
* Director May 16, 1997
- ------------------------------------------
Lee J. Schroeder
*By: /s/ ALAN R. FOX
- ------------------------------------------
Alan R. Fox
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 110
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------- ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement
2.1+ Asset Purchase Agreement dated as of March 25, 1997 between the
Registrant and Upsher-Smith Laboratories, Inc.
3.1* Amended and Restated Certificate of Incorporation of the Registrant.
3.2* Certificate of Correction of Certificate of Amendment of the
Registrant.
3.3* Certificate of Amendment of Amended and Restated Certificate of
Incorporation of the Registrant.
3.4* Form of Certificate of Amendment to be filed prior to consummation of
the public offering.
3.5* Form of Second Amended and Restated Certificate of Incorporation of the
Registrant to be filed upon the closing of the public offering
3.6* Amended and Restated By-Laws of the Registrant
4.1* Specimen Certificate for shares of Common Stock, $.00004 par value, of
the Registrant
4.2* Form of Subordinated Secured Note (included in Exhibit 10.11)
5.1* Opinion of Hale and Dorr LLP with respect to the validity of the
securities being offered
10.1* Amended and Restated 1992 Equity Incentive Plan
10.2* 1997 Director Stock Option Plan
10.3* 1997 Employee Stock Purchase Plan
10.4* Lease dated November 21, 1996 between the Registrant and New Boston
Wilmar Limited Partnership
10.5* Employment Agreement dated as of March 15, 1994 between the Registrant
and Emmett Clemente
10.6* Consulting Agreement dated as of April 1, 1996 between the Registrant
and Robert E. Baldini
10.7+ Development and License Agreement dated as of October 8, 1996 by and
between the Registrant and Recordati S.A. Chemical and Pharmaceutical
Company ("Recordati")
10.8*+ Manufacturing and Supply Agreement dated as of October 8, 1996 by and
between the Registrant and Recordati
10.9*+ License Agreement dated September 28, 1990 between MacroChem Corp. and
the Registrant
10.10*+ Supply Agreement dated as of October 12, 1994 by and between the
Registrant and Lyne Laboratories, Inc.
10.11* Securities Purchase Agreement dated as of January 31, 1997 among the
Registrant, Triumph-Connecticut Limited Partnership and the other
purchasers identified therein (the "Triumph Agreement")
10.12* Waiver and Amendment to the Triumph Agreement dated as of March 13,
1997
10.13* Series F Convertible Preferred Stock and Warrant Purchase Agreement
dated as of June 28, 1996 between the Registrant and certain purchasers
identified therein as amended by Amendment No. 1 dated as of June 28,
1996 and Amendment No. 2 dated February 3, 1997
10.14* Form of Common Stock Purchase Warrant issued to Chestnut Partners, Inc.
on February 28, 1997.
10.15* Common Stock Purchase Warrant issued to Banque Paribas on February 28,
1997.
10.16* Form of Common Stock Purchase Warrant with an exercise price of $.01
per share issued to designees of Bentley Securities on February 28,
1997.
10.17* Form of Common Stock Purchase Warrant with an exercise price of $5.91
per share issued to designees of Bentley Securities on February 28,
1997
</TABLE>
<PAGE> 111
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------------------------------------------------------------------- ------------
<C> <S> <C>
10.18* Amendment No. 1 dated February 28, 1997 to the Development and License
Agreement dated as of October 8, 1996 by and between the Registrant and
Recordati
11.1* Computation of historical and pro forma net loss per common share
23.1 Consent of Hale and Dorr LLP
23.2 Consent of Coopers & Lybrand L.L.P., independent accountants
23.3 Consent of KPMG Peat Marwick LLP, independent auditors
23.4 Consent of Welsh & Katz, Ltd.
24.1* Powers of Attorney
27.1* Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
<PAGE> 1
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
Agreement made as of the 25th day of March, 1997 between Ascent
Pediatrics, Inc., a Delaware corporation with its principal office at 187
Ballardvale Street, Suite B125, Wilmington, Massachusetts 01887 (the "Buyer"),
and Upsher-Smith Laboratories, Inc., a Minnesota corporation with its principal
office at 14905 23rd Avenue North, Minneapolis, Minnesota 55447 (the "Seller").
Preliminary Statement
The Buyer desires to acquire from Seller and the Seller desires to
transfer to Buyer, Seller's Feverall(R) suppository ("FS"), Feverall(R) Sprinkle
Caps(R) powder ("FSC") and Acetaminophen Uniserts(R) suppository ("AUS") product
lines (collectively, the "Product Lines") (for purposes hereof, the business of
manufacturing, marketing and selling FS, FSC and AUS shall be referred to as the
"Business"), each as more particularly described on Schedule 1 hereto, for the
consideration set forth below, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1. Acquisition and Transfer of the Business.
1.1 Purchase of Assets.
(a) Subject to and upon the terms and conditions of this
Agreement, at the closing of the transactions contemplated by this Agreement
(the "Closing"), the Seller shall sell, transfer, convey, assign and deliver to
the Buyer, and the Buyer shall purchase from the Seller, all of Seller's right,
title and interest in and to the following specifically identified properties,
assets and other claims, rights and interests to the extent that and only to the
extent that they relate solely to the Product Lines and the Business, and
specifically excluding, without limitation, the Excluded Assets as defined in
Section 1.3:
(i) the inventories of finished goods, samples, trade
packs and similar items of the Seller which exist on the Closing Date (as
defined in Section 1.8 below) as set forth on Schedule 1.1(a)(i) hereto (the
"Inventory");
<PAGE> 2
(ii) the regulatory approvals, registrations and
related materials set forth on Schedule 1.1(a)(ii) hereto (the "Registrations");
(iii) the rights of the Seller arising after the
Closing Date under the contracts, leases, licenses and other instruments set
forth on Schedule 1.1(a)(iii) hereto, including private label manufacturing
agreements and sales broker contracts (collectively, the "Contracts");
(iv) all rights of the Seller under express or
implied warranties from the suppliers of the Seller to the extent such
warranties relate to Inventory;
(v) the Seller's right, title and interest in and to
the trademarks Feverall(R) and Sprinkle Caps(R), but excluding the Upsher-Smith
name and logo and the Uniserts(R) name (the "Trademarks");
(vi) all of the Seller's right, title and interest in
and to the intangible property rights (including but not limited to inventions,
discoveries, trade secrets, master formulations for the Product Lines ("Master
Formulations"), master processes used by the Seller for manufacturing the
Product Lines from the Master Formulations ("Master Processes"), know-how,
United States and foreign patents, patent applications, copyrights, copyright
registrations) owned and used or, where not owned, used by the Seller, but only
to the extent actually so used, in connection with the manufacture of the
Product Lines and the licenses and other agreements to which the Seller is a
party (as licensor or licensee) or by which the Seller is bound relating to any
of the foregoing kinds of property or rights (collectively, the "Intangible
Property"); notwithstanding the foregoing, Buyer shall be entitled to use the
Intangible Property herein conveyed for the limited purpose of manufacturing
those products presently constituting the Product Lines of Seller, together with
future modifications, variations and additions to those products which may in
the future form a part of the expanded Product Lines as manufactured and sold by
or on behalf of Buyer; and
(vii) all unfilled orders (if any) relating to the
Product Lines or the Business as of the Closing Date, including those set forth
on Schedule 1.1(a)(vii) hereto.
(b) The Inventory, Registrations, Contracts, Trademarks,
Intangible Property and other properties, assets and business of the Seller
described in paragraph (a) above shall be referred to collectively as the
"Assets."
1.2 Product Line Information.
(a) In order to facilitate the Buyer's rights to manufacture,
market and sell the Product Lines and conduct the Business, the Seller shall
make available to the Buyer the following information to the extent and only to
the extent that such
-2-
<PAGE> 3
information relates to the Product Lines and Business and specifically
excluding, without limitation, information relating to the Excluded Assets as
defined in Section 1.3:
(i) reasonable access to related documentation such
as copies of the Seller's batch or lot records which contain the formulations
and process conditions actually used by the Seller in manufacturing the Product
Lines, written technical information, data, specifications, and research and
development information, set forth on Schedule 1.2(a)(i) hereto (the "Technical
Information");
(ii) a copy of or reasonable access to (including
copies, if requested) correspondence and product complaint information, set
forth on Schedule 1.2(a)(ii) hereto (the "Regulatory Information");
(iii) all marketing information and materials,
including copies of customer lists and sales records, set forth on Schedule
1.2(a)(iii) hereto (the "Marketing Materials"); and
(iv) a copy of or reasonable access to (including
copies, if requested) all books, records and accounts, correspondence,
production records, technical, accounting, manufacturing and procedural manuals,
studies, reports or summaries relating to any environmental conditions or
consequences of any operation, present or former, as well as all studies,
reports or summaries relating to any environmental aspect or the general
condition of the Product Lines or the Business and any related confidential
information which has been reduced to writing (the "Records").
(b) The Technical Information, Regulatory Information,
Marketing Materials and Records of the Seller described in paragraph (a) above
shall be referred to collectively as the "Product Line Information."
1.3 Excluded Assets. The rights conveyed to the Buyer by Section
1.1(a)(vi) are limited to those presently existing rights of Seller which are
required for the manufacture, use or sale of the Product Lines, and no other
rights are conveyed and no other use of the conveyed rights by the Buyer, its
successors or assigns, except as expressly stated in Sections 1.1 and 1.2, shall
be permitted or authorized. All other rights and uses are retained by the
Seller. Without limitation, the Assets and Product Line Information shall not
include any property, assets, and other claims, rights, and interests of the
type referred to in Section 1.1(a) or any information of the type referred to in
Section 1.2(a) which relate to other products of Seller and not exclusively the
Product Lines. The Seller retains ownership of and the unrestricted right to use
any and all intangible property rights (e.g. Master Processes, know-how,
patents, etc.) for all purposes other than the manufacture, use or sale of the
Product Lines, noting that certain assets of the Seller have applicability both
to the Product Lines and to other products. The Assets specifically do not
include any know-how or technology owned by third parties including, but not
limited to, any technology used by the supplier of the
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coated acetaminophen. The Assets also do not include cash, securities, accounts
receivable (except accounts receivable associated with unfilled orders) and
other assets derived from or relating to the Business and Assets prior to the
Closing which are not essential to the operation of the Business after the
Closing. The property, assets, information and other claims, rights and
interests excluded by this Section 1.3 are, collectively, the "Excluded Assets".
1.4 Further Assurances. At any time and from time to time after the
Closing, at the Buyer's request and without further consideration, the Seller
promptly shall execute and deliver such instruments of sale, transfer,
conveyance, assignment and confirmation, and take such other action, as the
Buyer may reasonably request to more effectively transfer, convey and assign to
the Buyer, and to confirm the Buyer's title to, all of the Assets, to put the
Buyer in actual possession and operating control thereof, to assist the Buyer in
exercising all rights with respect thereto and to carry out the purposes and
intent of this Agreement. It is the intent of the parties that by this Agreement
the Buyer is purchasing sufficient intangible rights of the Seller needed to
manufacture the Product Lines in the same manner as they have been manufactured
by the Seller. To this end, Seller will cooperate with the Buyer, without
additional cost but at the Buyer's expense, to ensure an orderly and complete
transfer to the Buyer of all information of the Seller which is reasonably
needed by trained and qualified personnel of Buyer to manufacture the Product
Lines.
1.5 Purchase Price; Sprinkle Caps(R) Performance Payments.
(a) The total purchase price of the Assets shall be Eleven
Million Five Hundred Thousand Dollars ($11,500,000) plus Seller's fully
allocated costs of manufacturing the Inventory (the "Inventory Cost" and,
together with the $11,500,000, the "Total Purchase Price"). The Total Purchase
Price shall be payable in the manner described in paragraph (b) of this
Subsection 1.5.
(b) Upon execution of that certain letter of intent dated
November 13, 1996 between the Buyer and the Seller, Buyer paid Seller a
non-refundable cash payment in the amount of $250,000, which amount shall be
applied against the Total Purchase Price. At the Closing, the Buyer shall
deliver to the Seller (i) the sum of Five Million Seven Hundred Fifty Thousand
Dollars ($5,750,000) plus the Inventory Cost in cash (the "Closing Payment"), by
wire transfer of immediately available funds to an account designated by the
Seller, and (ii) a promissory note of the Buyer for the remaining Five Million
Five Hundred Thousand Dollars ($5,500,000) of the purchase price (the
"Promissory Note") substantially in the form attached hereto as Exhibit A. The
Promissory Note shall be secured by a security agreement executed by the Buyer
in favor of the Seller (the "Security Agreement"), substantially in the form
attached hereto as Exhibit B. Within 225 days after the Closing, Buyer shall
deliver to Seller the sum of Five Million Five Hundred Thousand Dollars
($5,500,000) in cash, in accordance with the
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provisions of the Promissory Note, by wire transfer of immediately available
funds to an account designated by the Seller, in satisfaction of the Promissory
Note.
(c) (i) Buyer also shall pay to the Seller performance based
payments, at the times specified in subclause (c)(ii) below, equal to five
percent (5%) of Net Sales (as defined below) attributable to Feverall(R)
Sprinkle Caps(R) non-time release capsules (the "Performance Payments") for a
period of seven (7) years (the "Performance Period") commencing on the date on
which Buyer shall have made its first substantial commercial sale of the
Feverall(R) Sprinkle Caps(R) product following the relaunch by Buyer of the
Feverall(R) Sprinkle Caps(R) product to the market by active promotional and
marketing efforts (the "Performance Commencement Date"). The Buyer agrees to
commence within 90 days of the Closing Date and to pursue vigorously the market
research for the Feverall(R) Sprinkle Caps(R) product, and, if in Buyer's sole
judgment commercialization of the Feverall(R) Sprinkle Caps(R) product is
feasible, to re-launch the product as soon as possible after completing the
research and to market the product diligently during the Performance Period. In
the event that the United States Food and Drug Administration ("FDA"), by order
or otherwise, requires or causes sales of Feverall(R) Sprinkle Caps(R) non-time
release capsules to be suspended or materially curtailed, whether the cause of
such suspension or curtailment is related to the formulation, delivery system,
packaging or suggested method of use or ingestion, at any time or from time to
time during the Performance Period, Seller may, by notice to Buyer, temporarily
suspend the Performance Period and thereafter, by similar notice to Buyer, may
declare the Performance Period to recommence for the unexpired balance of the
Performance Period. For purposes of this Section 1.5(c), "Net Sales" shall mean
gross receipts from sales of Feverall(R) Sprinkle Caps(R) products by the Buyer
less: (A) customary trade, quantity or cash discounts actually allowed, (B)
amounts repaid or credited for rejections or returns, (C) customs duties or
charges, (D) shipping, insurance and packing, to the extent that such amounts
are separately billed, and (E) sales or other excise taxes or other governmental
charges levied on or measured by sales, but not franchise, value-added, gross
receipts or income taxes of any kind whatsoever. In the event that Buyer decides
not to market the Feverall(R) Sprinkle Caps(R) product, ceases to market such
product for reasons other than FDA action or chooses not to take action to
remedy any FDA impediments to marketing such product, Buyer shall give Seller a
right of first refusal for a period of 180 days following notice by Buyer to
Seller of any offer Buyer may receive to acquire all or any part of the
Feverall(R) Sprinkle Caps(R) Product Line, including any and all assets and
product line information then relating to the Feverall(R) Sprinkle Caps(R)
Product Line (specifically including the related trademarks) and any and all
modifications, improvements and enhancements thereof to the date of sale to
Seller.
(ii) Within 45 days after the end of each quarterly
fiscal period of the Buyer in the Performance Period, commencing with the
quarterly period that ends immediately after the Performance Commencement Date,
Buyer (a) shall submit to Seller a report ("Performance Report") setting forth
(I) the Net Sales for such period and (II)
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the Performance Payment due thereon and (b) shall remit the required Performance
Payment with the corresponding Performance Report.
(iii) Buyer shall keep or shall cause to be kept
accurate and correct records of gross and Net Sales. Such records shall be
retained for three (3) years following the delivery of a given Performance
Report. Upon five (5) business days written notice by Seller, such records shall
be available for inspection during normal business hours, at the expense of
Seller (except as otherwise provided below) by a certified public accountant
selected by Seller and approved by Buyer, such approval not to be unreasonably
withheld, for the sole purpose of verifying Performance Reports and Performance
Payments hereunder. In the event that such inspection discloses a shortfall in
the Performance Payment due to Seller as to any quarterly period in an amount
equal to or greater than 3% of the Performance Payment made for such quarterly
period, the cost of inspection shall be borne by Buyer. Such accountant shall
not disclose to Seller any information other than information relating to the
accuracy of Performance Reports and Performance Payments. Buyer agrees that
Seller may, at Seller's cost and election, request the outside auditors for
Buyer to verify the Performance Reports and Performance Payments as provided in
this Section 1.5(c) as part of their normal audit of Buyer's financial
statements.
1.6 Assumption of Liabilities.
(a) At the Closing, the Seller and the Buyer shall execute and
deliver an Assignment and Assumption Agreement (the "Assignment and
Assumption"), substantially in the form attached hereto as Exhibit C, pursuant
to which the Buyer shall assume and agree to perform, pay and discharge all
obligations of the Seller continuing after the Closing under the contracts set
forth on Schedule 1.6 hereto which are to be performed or become due and payable
after the Closing Date (the "Assumed Liabilities").
(b) Except as provided in Section 9.3, with respect to
indemnification for operations of the Buyer or other liabilities of the Buyer,
the Buyer shall not at the Closing assume or agree to perform, pay or discharge,
and the Seller shall remain unconditionally liable and shall indemnify Buyer
for, all obligations, liabilities and commitments, fixed or contingent, of the
Seller other than the Assumed Liabilities.
1.7 Allocation of Total Purchase Price and Assumed Liabilities. The
aggregate amount of the Total Purchase Price and the Assumed Liabilities shall
be allocated among the Assets and Product Line Information as follows: (i) an
aggregate of $10,500,000 allocated to the Assets and Product Line Information
other than the Inventory and Trademarks; (ii) $500,000 allocated to the
Trademarks; (iii) $500,000 allocated to the non-competition agreement contained
in Section 10.2 hereof; and (iv) the amount of the Inventory Cost to the
Inventory.
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1.8 The Closing. The Closing shall take place at the offices of
Doherty, Rumble & Butler Professional Association, 150 South Fifth Street, 3500
Fifth Street Towers, Minneapolis, Minnesota at 9:00 a.m., Minneapolis time, on
July 10, 1997 or at such other place, time or date as may be mutually agreed
upon in writing by the parties hereto. The transfer of the Assets by the Seller
to the Buyer shall be deemed to occur at 9:00 a.m., Minneapolis time, on the
date of the Closing (the "Closing Date").
2. Representations of the Seller.
The Seller represents and warrants to the Buyer as follows:
2.1 Organization. The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and has all requisite corporate power and authority to own its properties, to
carry on its business as now being conducted, to execute and deliver this
Agreement and the agreements contemplated herein, and to consummate the
transactions contemplated hereby. The Seller is duly qualified to do business
and in good standing in all jurisdictions in which its ownership of property or
the character of its business requires such qualification and such a failure to
qualify has or will have a material adverse effect upon the Assets or the
ability of the Seller to perform its obligations under this Agreement.
2.2 Authorization and Noncontravention. The execution and delivery of
this Agreement by the Seller, and the agreements provided for herein, and the
consummation by the Seller of all transactions contemplated hereby, have been
duly authorized by all requisite corporate and shareholder action. This
Agreement and all such other agreements and written obligations entered into and
undertaken in connection with the transactions contemplated hereby to which the
Seller is a party constitute the valid and legally binding obligations of the
Seller, enforceable against the Seller in accordance with their respective
terms, except as limited by applicable bankruptcy, reorganization, arrangement,
insolvency, moratorium or similar laws affecting the enforcement of creditors'
rights generally and subject to general principles of equity. The execution,
delivery and performance by the Seller of this Agreement and the agreements
provided for herein, and the consummation by the Seller of the transactions
contemplated hereby and thereby, will not, with or without the giving of notice
or the passage of time or both, (a) violate the provisions of any law, rule or
regulation applicable to the Seller; (b) violate the provisions of the Articles
of Incorporation or Bylaws of the Seller; (c) violate any judgment, decree,
order or award of any court, governmental body or arbitrator; or (d) conflict
with or result in the breach or termination of any term or provision of, or
constitute a default under, or cause any acceleration under, or cause the
creation of any lien, charge or encumbrance upon the properties or assets of the
Seller pursuant to, any indenture, mortgage, deed of trust or other instrument
or agreement to which the Seller is a party or by which the Seller or any of the
Assets is or may be bound, which violation or conflict will have a material
adverse effect on the ability of the Seller to perform its obligations under
this Agreement in accordance with the terms hereof.
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Schedule 2.2 hereto sets forth a true, correct and complete list of all consents
and approvals of third parties that are required in connection with the
consummation by the Seller of the transactions contemplated by this Agreement.
2.3 Ownership of the Assets. Schedule 2.3(i) hereto sets forth a true,
correct and complete list of all claims, liabilities, liens, pledges, charges,
encumbrances and equities of any kind affecting the Assets (collectively, the
"Encumbrances"). The Seller is, and at the Closing will be, the true and lawful
owner of the Assets, and will have the right to sell and transfer to the Buyer
good title to the Assets, free and clear of all Encumbrances of any kind, except
as set forth on Schedule 2.3(ii) hereto (the "Permitted Encumbrances"). The
delivery to the Buyer of the instruments of transfer of ownership contemplated
by this Agreement will vest good title to the Assets in the Buyer, free and
clear of all liens, mortgages, pledges, security interests, restrictions, prior
assignments, encumbrances and claims of any kind or nature whatsoever, except
for the Permitted Encumbrances and subject to the lien established by the
Security Agreement.
2.4 Product Profitability Analyses. The Seller has previously delivered
to the Buyer product profitability analyses for each product in the Product
Lines for each of the years in the six-year period ended December 31, 1996 (the
"Product Profitability Analyses"), copies of which are attached as Schedule 2.4
hereto. The Product Profitability Analyses have been derived from the books and
records of the Seller, which books and records were kept in the ordinary course
of Seller's business. All Interim Product Profitability Analyses furnished
pursuant to Section 5.3 will be prepared on a basis similar to the Product
Profitability Analyses prepared in accordance with this Section 2.4.
2.5 Absence of Undisclosed Liabilities. Except as and to the extent set
forth on Schedule 2.5 hereto, the Seller does not have any material liability or
obligation, secured or unsecured, whether accrued, absolute, contingent,
unasserted or otherwise, affecting the Assets or the business of the Seller
relating to the Product Lines or the Business. For purposes of this Subsection
2.5, "material" means any amount in excess of $50,000 in the aggregate.
2.6 Litigation. Except as set forth on Schedule 2.6 hereto, the Seller
is not a party to, or to the Seller's best knowledge threatened with, and none
of the Assets is subject to, any material litigation, suit, action,
investigation, proceeding or controversy before any court, administrative agency
or other governmental authority relating to or affecting the Assets or the
Business. The Seller is not in violation of or in default with respect to any
judgment, order, writ, injunction, decree or rule of any court, administrative
agency or governmental authority or any regulation of any administrative agency
or governmental authority relating to or affecting the Assets or the Business,
which violation or default has a material adverse effect on the Assets or the
Business or which would prevent the Seller from transferring the Assets or the
Business to the Buyer according to the terms hereof.
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2.7 Insurance. Schedule 2.7 hereto sets forth a true, correct and
complete list of all insurance policies insuring the Assets or the Business,
specifying the type of coverage, the amount of the coverage, the premium, the
insurer and the expiration date of each such policy (collectively, the "Seller's
Insurance Policies") and all claims made with respect to the Assets and the
Business under the Seller's Insurance Policies since January 1, 1992. True,
correct and complete copies of all of the Seller's Insurance Policies have been
previously delivered by the Seller to the Buyer. The Seller's Insurance Policies
are in full force and effect. All premiums due on the Seller's Insurance
Policies or renewals thereof have been paid and, to the best of Seller's
knowledge, the Seller is not in default under any of the Seller's Insurance
Policies. Except as set forth on Schedule 2.7 hereto, the Seller has not
received any notice or other communication from any issuer of the Seller's
Insurance Policies since January 1, 1992 canceling or materially amending any of
the Seller's Insurance Policies, materially increasing any deductibles or
retained amounts thereunder, or materially increasing the annual or other
premiums payable thereunder, and, to the best knowledge of the Seller, no such
cancellation, amendment or increase of deductibles, retainages or premiums is
threatened.
2.8 Inventory and Returns, Rebates and Contract Pricing. Schedule
1.1(a)(i) hereto sets forth a true, correct and complete list of the Inventory
as of the date hereof, including a description and the book value thereof. To
the best of Seller's knowledge, such Inventory consists of items of a quality
and quantity which are usable or saleable without discount in the ordinary
course of the business conducted by the Seller. The value of all items of
obsolete materials and of materials of below standard quality has been written
down to zero and the values at which such Inventory is carried reflect the
normal inventory valuation policy of the Seller of stating the Inventory at the
lower of cost or market value. Schedule 2.8 hereto sets forth a true, correct
and complete summary of the historic levels of returns, rebates and contract
pricing relating to Product Line products, in each case, measured as a
percentage of total product sales of Product Line products sold during each of
the two fiscal years ended December 31, 1996.
2.9 Change in Financial Condition and Assets, Except as set forth on
Schedule 2.9 hereto, since December 31, 1996, there has been no change which
materially and adversely affects the Assets or the condition (financial or
otherwise) or prospects of the Business.
2.10 Books and Records. The general ledgers and books of account of the
Seller, with respect to the Assets and the Business, and all other books and
records of the Seller, are in all material respects complete and correct and
have generally been maintained in all material respects in accordance with good
business practice and in accordance with all applicable procedures required by
laws and regulations.
2.11 Contracts and Commitments.
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(a) Schedule 1.1(a)(iii) hereto contains a true, complete and
correct list and description of the Contracts which are to be assumed by the
Buyer at the Closing.
(b) Except as set forth on Schedule 2.11 hereto:
(i) each Contract is a valid and binding agreement of
the Seller, and the Seller does not have any knowledge that any Contract is not
a valid and binding agreement of the other parties thereto;
(ii) the Seller has fulfilled all material
obligations required pursuant to the Contracts to have been performed by the
Seller on its part on or prior to the date hereof.
(iii) the Seller is not in material breach or default
of any material obligation of the Seller under, or a material term applicable to
the Seller under, any Contract, and no event has occurred which with the passage
of time or giving of notice or both would constitute such a material default,
result in a loss of any material rights of the Seller or result in the creation
of any material lien, charge or encumbrance, thereunder or pursuant thereto;
(iv) to the best of Seller's knowledge, there is no
existing material breach or default by any other party to any Contract, and, to
the best of Seller's knowledge, no event has occurred which with the passage of
time or giving of notice or both would constitute a material default by such
other party, result in a loss of any material rights or result in the creation
of any material lien, charge or encumbrance thereunder or pursuant thereto; and
(v) the Seller is not restricted by any Contract from
carrying on the Business anywhere in the world.
For purposes of this paragraph 2.11(b), the term "material" means the sum of
$10,000.00 or more per contract or series of related contracts.
(c) Except as set forth on Schedule 2.11 hereto, the
continuation, validity and effectiveness of each Contract will not be affected
by the transfer thereof by Buyer under this Agreement and all such Contracts are
assignable to Buyer without a consent.
(d) True, correct and complete copies of all Contracts have
previously been delivered or made available by the Seller to the Buyer.
2.12 Compliance with Agreements and Laws. Except as set forth in
Schedule 2.12 hereto, the Seller has all requisite licenses, permits, approvals
and certificates, including any required by the FDA, and all environmental,
health and safety permits, from foreign, federal, state and local authorities
necessary to conduct the Business and
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own and operate the Assets, the absence of any one of which, or any combination
of which, would have a material adverse effect on the condition (financial or
otherwise) of the Business or the ownership or operation of the Assets
(collectively, the "Seller's Permits"). Schedule 2.12 hereto sets forth a true,
correct and complete list of all such Seller's Permits, copies of which have
previously been delivered by the Seller to the Buyer. The Seller is not in
violation of any foreign, federal, state or local law, regulation or ordinance
relating to the Assets or the Business, the violation of any one of which, or
any combination of which, would have a material adverse effect on the condition
(financial or otherwise) of the Business or the ownership or operation of the
Assets. Except as set forth on Schedule 2.12 hereto, to the best of Seller's
knowledge, Seller has conducted and is currently conducting the manufacture and
sale of the products in the Product Lines in substantial compliance with all
applicable foreign, federal, state and local laws, rules, regulations and
judicial or administrative orders and processes, the violation of any one of
which, or any combination of which, would have a material adverse effect on the
condition (financial or otherwise) of the Business or the ownership or operation
of the Assets. To the best of Seller's knowledge, the manufacture of such
products by Seller and its contract manufacturers conforms in all material
respects to the current "good manufacturing practices" regulations of the FDA.
Except as set forth on Schedule 2.12 hereto, the Seller has not since January 1,
1992 received any notice or communication from any foreign, federal, state or
local governmental or regulatory authority or otherwise of any such violation or
noncompliance. To the best of Seller's knowledge, the regulatory approvals and
registrations and related materials set forth on Schedule 1.1(a)(ii) hereto
constitute all such approvals and registrations necessary to conduct the
Business, the lack of any one of which, or any combination of which, would have
a material adverse effect on the condition (financial or otherwise) of the
Business or the ownership or operation of the Assets.
2.13 Absence of Certain Changes or Events. Except as set forth on
Schedule 2.13 hereto, since December 31, 1996, the Seller has not entered into
any transaction relating to the Business which is not in the usual and ordinary
course of business, and, without limiting the generality of the foregoing, the
Seller has not:
(a) Made any material amendment to or terminated any material
Contract or done any act or omitted to do any act which would cause the breach
of any material term or obligation applicable to the Seller under any material
Contract;
(b) Authorized or issued recall notices for any products in
the Product Lines or initiated any investigations relating to any material
safety or technical problems with respect to any of the Product Lines; or
(c) Received notice of any material litigation, warranty claim
or products liability claim relating to the Assets or the Business.
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2.14 Customers. Schedule 2.14 hereto sets forth a true, correct and
complete list of the names and addresses of all customers of the Seller each of
which accounted for 2.5% or more of the Seller's total sales relating to the
Product Lines in the fiscal year ended December 31, 1996. None of such customers
has notified the Seller that it intends to discontinue its relationship with the
Seller. All unfilled orders (if any) relating to the Product Lines and the
Business as of the Closing Date will be described in Schedule 1.1(a)(vii)
hereto.
2.15 Suppliers. Schedule 2.15 hereto sets forth a true, correct and
complete list of the names and addresses of all approved suppliers (by the FDA
or any foreign regulatory authority) relating to the Product Lines for each of
the last five fiscal years ended December 31, 1996. None of the suppliers for
the fiscal year ended December 31, 1996 has notified the Seller that it intends
to discontinue its relationship with the Seller.
2.16 Trade Names and Other Intangible Property.
(a) (i) Schedule 1.1(a)(v) hereto sets forth a true, correct,
and complete list of all the trademarks and trade names (other than the
Upsher-Smith name and logo and the Uniserts(R) name) used in connection with the
Product Lines. True, correct and complete copies of all licenses and other
agreements relating to the trademarks and trade names listed on Schedule
1.1(a)(v) hereto have been previously delivered by the Seller to the Buyer.
(ii) True, correct and complete copies of all
licenses and other agreements relating to the Intangible Property have been
previously delivered by the Seller to the Buyer.
(b) Schedule 2.16(b) hereto sets forth a true, correct and
complete copy of the current formulations and product methodologies relating to
each product in the Product Lines. Such formulations and methodologies are
sufficient to enable Buyer to manufacture all of such products.
(c) Except as otherwise disclosed in Schedule 2.16(c) hereto,
to the best of Seller's knowledge, the Seller is the sole and exclusive owner of
all Intangible Property and the Trademarks and all designs, permits, labels, and
packages used on or in connection therewith. To the best of Seller's knowledge,
the Intangible Property and the Trademarks owned by the Seller are sufficient to
conduct the Business as presently conducted and, when transferred to the Buyer
pursuant to this Agreement, will be sufficient to permit the Buyer to conduct
the Business as presently conducted by the Seller. Except as otherwise disclosed
in Schedule 2.16(c) hereto, the Seller has received no notice of, and has no
knowledge of any reasonable basis for, a claim against it that the Business or
any of the Assets infringes any patent, trademark, trade name, copyright or
other property right of a third party, or that it is illegally or otherwise
using the trade secrets, formulae or any property rights of others. To the best
of Seller's knowledge, the
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Seller has no disputes with or claims against any third party for infringement
by such third party of any rights relating to the Trademarks or other Intangible
Property. To the best of Seller's knowledge, the Seller has taken all steps
deemed by Seller to be reasonably necessary to protect its right, title and
interest in and to the Intangible Property.
2.17 Regulatory Approvals. To the best of Seller's knowledge, all
consents, approvals, authorizations and other requirements prescribed by any
law, rule or regulation, including all applicable foreign, federal, state, and
local laws and regulations (including those of the FDA), which must be obtained
or satisfied by the Seller and which are necessary for the execution and
delivery by the Seller of this Agreement and the documents to be executed and
delivered by the Seller in connection herewith are set forth on Schedule 2.17
hereto and have been, or will be on or prior to the Closing Date, obtained and
satisfied. All regulatory approvals and registrations relating to the Product
Lines or the Business are described in Schedule 1.1(a)(ii) hereto.
3. Representations of the Buyer.
The Buyer represents and warrants to the Seller as follows:
3.1 Organization and Authority. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware, and has all requisite corporate power and authority to own its
properties and to carry on its business as now being conducted. The Buyer has
full power to execute and deliver this Agreement, the Promissory Note, the
Security Agreement, the License Agreements, the Manufacturing Agreement and the
Assignment and Assumption and to consummate the transactions contemplated hereby
and thereby. The Buyer is duly qualified to do business and in good standing in
all jurisdictions in which its ownership of property or the character of its
business requires such qualification and such a failure to qualify has or will
have a material adverse effect on the ability of the Buyer to perform its
obligations under this Agreement, the Promissory Note, the Security Agreement,
the License Agreements, the Manufacturing Agreement, the Assignment and
Assumption and all other agreements and instruments entered into by Buyer in
connection with the transactions contemplated by this Agreement.
3.2 Authorization. The execution and delivery of this Agreement by the
Buyer, and the agreements provided for herein, and the consummation by the Buyer
of all transactions contemplated hereby, have been duly authorized by all
requisite corporate action. This Agreement and all such other agreements and
written obligations entered into and undertaken in connection with the
transactions contemplated hereby constitute the valid and legally binding
obligations of the Buyer, enforceable against the Buyer in accordance with their
respective terms, except as limited by applicable bankruptcy, reorganization,
arrangement, insolvency, moratorium or similar laws affecting the enforcement of
creditors' rights generally and subject to general principles of equity. The
execution, delivery and performance of this Agreement and the agreements
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provided for herein, and the consummation by the Buyer of the transactions
contemplated hereby and thereby, will not, with or without the giving of notice
or the passage of time or both, (a) violate the provisions of the any law, rule
or regulation applicable to the Buyer; (b) violate the provisions of the Buyer's
Certificate of Incorporation or Bylaws; (c) violate any judgment, decree, order
or award of any court, governmental body or arbitrator; or (d) conflict with or
result in the breach or termination of any term or provision of, or constitute a
default under, or cause any acceleration under, or cause the creation of any
lien, charge or encumbrance upon the properties or assets of the Buyer pursuant
to, any indenture, mortgage, deed of trust or other agreement or instrument to
which it or its properties is a party or by which the Buyer is or may be bound,
which conflict, breach, termination, default, acceleration or encumbrance will
materially affect the ability of the Buyer to perform its obligations under this
Agreement in accordance with the terms hereof. Schedule 3.2 hereto sets forth a
true, correct and complete list of all consents and approvals of third parties
that are required in connection with the consummation by the Buyer of the
transactions contemplated by this Agreement.
3.3 Financial Statements. The Buyer has previously delivered to the
Seller copies of the Buyer's audited financial statements as of December 31,
1995 and 1996 and for each of the years in the three-year period ended December
31, 1996 (the "Financial Statements"), copies of which are attached as Schedule
3.3 hereto. The Financial Statements fairly present the information set forth
therein in accordance with generally accepted accounting principles. The
Financial Statements, including the notes thereto, disclose any and all security
arrangements for indebtedness of the Buyer in existence at the date thereof.
3.4 Litigation. Except as set forth on Schedule 3.4 hereto, the Buyer
is not a party to, or to the Buyer's best knowledge threatened with, any
material litigation, suit, action, investigation, proceeding or controversy
before any court, administrative agency or other governmental authority. The
Buyer is not in violation of or in default with respect to any judgment, order,
writ, injunction, decree or rule of any court, administrative agency or
governmental authority or any regulation of any administrative agency or
governmental authority, which violation or default has a material adverse effect
on the business of the Buyer or which would prevent the Buyer from operating the
Business after the Closing.
3.5 Insurance. Schedule 3.5 hereto sets forth a true, correct and
complete list of all insurance policies which will insure the Assets or the
Business after the Closing, specifying the type of coverage, the amount of the
coverage, the premium, the insurer and the expiration date of each such policy
(collectively, the "Buyer's Insurance Policies") and all claims made with
respect to the Assets and the Business under the Buyer's Insurance Policies
since January 1, 1996. True, correct and complete copies of all of the Buyer's
Insurance Policies have been previously delivered by the Buyer to the Seller.
The Buyer's Insurance Policies are in full force and effect. All premiums due on
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the Buyer's Insurance Policies or renewals thereof have been paid and, to the
best of Buyer's knowledge, the Buyer is not in default under any of the Buyer's
Insurance Policies. Except as set forth on Schedule 3.5 hereto, the Buyer has
not received any notice or other communication from any issuer of the Buyer's
Insurance Policies since January 1, 1996 canceling or materially amending any of
the Buyer's Insurance Policies, materially increasing any deductibles or
retained amounts thereunder, or materially increasing the annual or other
premiums payable thereunder, and, to the best knowledge of the Buyer, no such
cancellation, amendment or increase of deductibles, retainages or premiums is
threatened.
3.6 Change in Financial Condition and Business. Except as set forth on
Schedule 3.6 hereto, since December 31, 1996, there has been no change which
materially and adversely affects the business or the condition (financial or
otherwise) or prospects of the Buyer. Since December 31, 1996, there has been no
change in the security arrangements for indebtedness of the Buyer which is not
disclosed in the Financial Statements.
3.7 Compliance with Agreements and Laws. Except as set forth in
Schedule 3.7 hereto, the Buyer has all requisite licenses, permits, approvals
and certificates, including any required by the FDA, and all environmental,
health and safety permits, from foreign, federal, state and local authorities
necessary to conduct the business of the Buyer, including the Business, and to
own and operate the Assets, the absence of any one of which, or any combination
of which, would have a material adverse effect on the condition (financial or
otherwise) of the business of the Buyer (collectively, the "Buyer's Permits").
The Buyer is not in violation of any foreign, federal, state or local law,
regulation or ordinance relating to its business, the violation of any one of
which, or any combination of which, would have a material adverse effect on the
condition (financial or otherwise) of the business of the Buyer. Except as set
forth on Schedule 3.7 hereto, to the best of Buyer's knowledge, Buyer has
conducted and is currently conducting the manufacture and sale of its products
in substantial compliance with all applicable foreign, federal, state and local
laws, rules, regulations and judicial or administrative orders and processes,
the violation of any one of which, or any combination of which, would have a
material adverse effect on the condition (financial or otherwise) of the
business of the Buyer. To the best of Buyer's knowledge, the manufacture of such
products by Buyer and its contract manufacturers conforms in all material
respects to the current "good manufacturing practices" regulations of the FDA.
Except as set forth on Schedule 3.7 hereto, the Buyer has not since January 1,
1992 received any notice or communication from any foreign, federal, state or
local governmental or regulatory authority or otherwise of any such violation or
noncompliance. To the best of Buyer's knowledge, the Buyer has all regulatory
approvals and registrations necessary to conduct the business of the Buyer, the
lack of any one of which, or any combination of which, would have a material
adverse effect on the condition (financial or otherwise) of the business of the
Buyer.
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3.8 Absence of Certain Changes or Events. Except as set forth on
Schedule 3.8 hereto, since December 31, 1996, the Buyer has not entered into any
transaction relating to the business of the Buyer which is not in the usual and
ordinary course of business, and, without limiting the generality of the
foregoing, the Buyer has not:
(a) Made any material amendment to or terminated any material
contract or done any act or omitted to do any act which would cause the breach
of any material term or obligation applicable to the Buyer under any material
contract;
(b) Authorized or issued recall notices for any of its
products or initiated any investigations relating to any material safety or
technical problems with respect to any of its products;
(c) Received notice of any material litigation, warranty claim
or products liability claim relating to any of its products;
(d) Received notice from any substantial customer or group of
customers that it or they intend to discontinue its or their relationship with
the Buyer, which discontinuance would have a material adverse effect on the
business or the condition (financial or otherwise) of the Buyer; or
(e) Received notice from any substantial supplier or group of
suppliers that it or they intend to discontinue its or their relationship with
the Buyer, which discontinuance would have a material adverse effect on the
business or the condition (financial or otherwise) of the Buyer.
3.9 Intangible Property.
(a) To the best of Buyer's knowledge, the patents, trademarks,
trade names and other intangible property owned or used by the Buyer are
sufficient to conduct the business of the Buyer as presently conducted. Except
as otherwise disclosed in Schedule 3.9 hereto, the Buyer has received no notice
of, and has no knowledge of any reasonable basis for, a claim against it that
the business of the Buyer infringes any patent, trademark, trade name, copyright
or other property right of a third party, or that it is illegally or otherwise
using the trade secrets, formulae or any property rights of others, the
consequences of which would have a material adverse effect on the business or
the condition (financial or otherwise) of the Buyer. To the best of Buyer's
knowledge, the Buyer has no disputes with or claims against any third party for
infringement by such third party of any rights relating to patents, trademarks,
trade names or other intangible property owned or used by the Buyer. To the best
of Buyer's knowledge, the Buyer has taken all steps deemed by the Buyer to be
reasonably necessary to protect its right, title and interest in and to all of
such intangible property.
4. Access to Information; Public Announcements.
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4.1 Access to Management, Properties and Records.
(a) Subject to the terms of the Nondisclosure and
Confidentiality Agreement between the parties dated November 9, 1993, from the
date of this Agreement until the Closing Date, the Seller shall afford the
officers, attorneys, accountants and other authorized representatives of the
Buyer free and full access upon reasonable notice and during normal business
hours to all management personnel, offices, properties, books and records of the
Seller relating to the Assets or the Business, so that the Buyer may have full
opportunity to make such investigation as it shall desire to make of the
management, business, properties and affairs of the Seller relating to the
Assets or the Business, and the Buyer shall be permitted to make abstracts from,
or copies of, all such books and records. The Seller shall furnish to the Buyer
such financial and operating data and other information as to the Assets and the
Business of the Seller as the Buyer shall reasonably request.
(b) The Seller shall authorize the release to the Buyer of all
files pertaining to the Assets or the Business held by any foreign, federal,
state or local authorities, agencies or instrumentalities.
4.2 Public Announcements. The parties agree that prior to the Closing
Date, except as otherwise required by law, any and all public announcements or
other public communications concerning this Agreement and the purchase of the
Assets by the Buyer (other than as Buyer or Seller deems necessary in connection
with the offering of their respective securities or other financing, or in
communications with holders of securities issued prior to the date of this
Agreement), shall be subject to the approval of both parties, which approval
shall not be unreasonably withheld.
5. Pre-Closing Covenants of the Seller.
From and after the date hereof and until the Closing Date:
5.1 Conduct of Business. The Seller shall carry on the Business
diligently and substantially in the same manner as heretofore and shall not make
or institute any unusual or new methods of manufacture, purchase, sale, shipment
or delivery, lease, management, accounting or operation, and shall not ship or
deliver any quantity of products in excess of normal shipment or delivery
levels, except as agreed to in writing by the Buyer. All of the property of the
Seller relating to the Business shall be used, operated, repaired and maintained
in a normal business manner consistent with past practice. Buyer and Seller will
mutually agree on the levels of Inventory to be maintained by Seller during the
period from the date of this Agreement until the Closing Date, and in the
absence of such mutual agreement the level of Inventory shall not exceed
$250,000 in value over the level necessary to satisfy unfilled orders set forth
on Schedule 1.1(a)(vii) hereto. The Seller shall not increase its prices with
respect to any of
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the products in the Product Lines in a manner that is inconsistent, as to timing
or magnitude, with increases imposed by Seller since January 1, 1993.
5.2 Absence of Material Changes. Without the prior written consent of
the Buyer, the Seller shall not with respect to the Business or the Assets:
(a) Incur any obligation or liability (absolute or
contingent), except current liabilities incurred and obligations under contracts
entered into in the ordinary course of business;
(b) Mortgage, pledge, or subject to any lien, charge or any
other encumbrance any of the Assets;
(c) Sell, assign, or transfer any of the Assets, except for
inventory sold in the ordinary course of business;
(d) Merge or consolidate with or into any corporation or other
entity;
(e) Take or permit any act or omission constituting a breach
or default under any contract, indenture or agreement by which it or its
properties are bound;
(f) Fail to (i) preserve the possession and control of its
assets and business, (ii) keep in faithful service its present officers and key
employees, (iii) preserve the goodwill of its customers, suppliers, agents,
brokers and others having business relations with it, and (iv) keep and preserve
its business existing on the date hereof until after the Closing Date;
(g) Fail to operate its business and maintain its books,
accounts and records in the customary manner and in the ordinary or regular
course of business and maintain in good repair its business premises, fixtures,
machinery, furniture and equipment; or
(h) Commit or agree to do any of the foregoing in the future.
5.3 Delivery of Interim Product Profitability Analyses and Other
Information. As promptly as possible following the last day of each month after
the date hereof, and in any event within 30 days after the end of each such
month, the Seller shall deliver to the Buyer updated Product Profitability
Analyses (collectively, the "Interim Product Profitability Analyses"). In
addition, prior to Closing, the Seller shall provide to the Buyer an update of
the information specified in Sections 2.14 and 2.15 hereof.
5.4 Communications with Customers, Suppliers, Distributors and
Wholesalers.
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(a) The Seller will accept customer orders in the ordinary
course of business and consistent with past practice as the Buyer's agent for
all products in the Product Lines offered by the Seller but expected to be
shipped by the Buyer after the Closing Date.
(b) The Seller and the Buyer will cooperate in communication
with customers, suppliers, distributors and wholesalers, to accomplish the
transfer of the Assets to the Buyer on the Closing Date. The Seller and the
Buyer further agree that prior to the Closing Date, except as otherwise required
by law, neither party shall disclose the existence of this Agreement or this
transaction to any third party (other than their respective professional
advisors, and other than any disclosure Buyer or Seller deems necessary in
connection with the offering of their respective securities or other financing,
or in communications with holders of securities issued prior to the date of this
Agreement) without the prior written consent of the other party.
5.5 Compliance with Laws. The Seller will comply with all laws and
regulations which are applicable to it, its ownership of the Assets or to the
conduct of the Business and will perform and comply with all contracts,
commitments and obligations by which it is bound relating to the Business and
the Assets.
5.6 Continuing Obligation to Inform. From time to time prior to the
Closing, the Seller will deliver or cause to be delivered to the Buyer
supplemental information concerning events subsequent to the date hereof which
would render any statement, representation or warranty in this Agreement or any
information contained in any Schedule inaccurate or incomplete in any material
respect at any time after the date hereof until the Closing Date.
5.7 Exclusive Dealing. From the date hereof to the Closing Date, the
Seller will not, directly or indirectly, through any officer, director, agent or
otherwise, (a) solicit, initiate or encourage submission of proposals or offers
from any person relating to any acquisition or purchase of all or a material
portion of the Assets or the Business, or (b) participate in any discussions or
negotiations regarding, or furnish to any other person, any nonpublic
information with respect to, or otherwise cooperate in any way with, or assist
or participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing. The Seller shall promptly notify the
Buyer if any such proposal or offer, or any inquiry or contact with any person
with respect thereto, is made.
6. Best Efforts to Obtain Satisfaction of Conditions.
Each of the Seller and the Buyer covenant and agree to use their
respective reasonable best efforts to obtain the satisfaction of the conditions
specified in this Agreement.
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7. Conditions to Obligations of the Buyer.
The obligations of the Buyer under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each of
which may be waived in writing in the sole discretion of the Buyer:
7.1 Continued Truth of Representations and Warranties of the Seller;
Compliance with Covenants and Obligations. The representations and warranties of
the Seller shall be true on and as of the Closing Date as though such
representations and warranties were made on and as of such date, except for any
changes permitted by the terms hereof or consented to in writing by the Buyer.
The Seller shall have performed and complied with all terms, conditions,
covenants, obligations, agreements and restrictions required by this Agreement
to be performed or complied with by it prior to or at the Closing Date.
7.2 Corporate Proceedings. All corporate and other proceedings required
to be taken on the part of the Seller to authorize or carry out this Agreement
and to convey, assign, transfer and deliver the Assets shall have been taken.
7.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Seller of the transactions contemplated by this
Agreement and the operation of the Business by the Buyer shall have consented
to, authorized, permitted or approved such transactions.
7.4 Consents of Lenders, Lessors and Other Third Parties. The Seller
and the Buyer shall have received all requisite consents and approvals of all
lenders, lessors and other third parties whose consent or approval is required
in order for the Seller and the Buyer to consummate the transactions
contemplated by this Agreement, including without limitation, those set forth on
Schedule 2.2 and Schedule 3.2 hereto.
7.5 Adverse Proceedings. No action or proceeding by or before any court
or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of the Seller to transfer the Assets or of the Buyer to own or use the
Assets or operate the Business after the Closing.
7.6 Opinion of Counsel. The Buyer shall have received an opinion of
Doherty, Rumble & Butler Professional Association, counsel to the Seller, dated
as of the Closing Date, in substantially the form attached hereto as Exhibit D,
and as to such other matters as may be reasonably requested by the Buyer or its
counsel.
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7.7 The Assets. Except for the Permitted Encumbrances and the lien
established by the Security Agreement, at the Closing the Buyer shall receive
good title to the Assets, free and clear of all liens, liabilities, security
interests and encumbrances of any nature whatsoever.
7.8 Tax Lien Waivers. On or prior to the Closing Date, the Seller shall
have obtained and delivered to the Buyer tax lien waivers from all jurisdictions
in which Assets are located and which provide such tax lien waivers.
7.9 Sales Broker Agreements. On or prior to the Closing Date, Buyer
shall have entered into sales broker agreements with members of the sales
representatives group currently marketing the Product Lines, on terms acceptable
to Buyer and such sales representatives.
7.10 Due Diligence. On or prior to the Closing Date, Buyer shall have
completed to its satisfaction its due diligence investigation relating to the
Assets and the Business.
7.11 Agreements. Buyer and Seller shall have executed and delivered (a)
a manufacturing agreement relating to the Product Lines in substantially the
form attached hereto as Exhibit E (the "Manufacturing Agreement"), (b) the
trademark license agreement relating to the Uniserts(R) trademark in
substantially the form attached hereto as Exhibit F (the "Uniserts(R) License"),
and (c) the trademark license agreement relating to the Sprinkle Caps(R)
trademark in substantially the form attached hereto as Exhibit G (the "Sprinkle
Caps(R) License", which, together with the Uniserts(R) License, are collectively
referred to as the "License Agreements").
7.12 Closing Deliveries. The Buyer shall have received at or prior to
the Closing each of the following documents:
(a) a certificate of the Secretary of State of the State of
Minnesota as to the legal existence and good standing (including tax) of the
Seller in Minnesota;
(b) certificates of the Secretary of the Seller attesting to
the incumbency of the Seller's officers, and the authenticity of the resolutions
authorizing the transactions contemplated by the Agreement;
(c) such certificates of the Seller's officers and such other
documents evidencing satisfaction of the conditions specified in Section 7 as
the Buyer shall reasonably request;
(d) a bill of sale substantially in the form attached hereto
as Exhibit H;
(e) The Assignment and Assumption, executed by the Seller;
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(f) such instruments of conveyance, assignment and transfer,
in form and substance, reasonably satisfactory to the Buyer, as shall be
appropriate to convey, transfer and assign to, and to vest in, the Buyer good
title to the Assets;
(g) cross receipt executed by the Seller; and,
(h) such other documents, instruments or certificates as the
Buyer may reasonably request.
8. Conditions to Obligations of the Seller.
The obligations of the Seller under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each of
which may be waived in writing at the sole discretion of the Seller:
8.1 Continued Truth of Representations and Warranties of the Buyer;
Compliance with Covenants and Obligations. The representations and warranties of
the Buyer in this Agreement shall be true on and as of the Closing Date as
though such representations and warranties were made on and as of such date,
except for any changes consented to in writing by the Seller. The Buyer shall
have performed and complied with all terms, conditions, obligations, agreements
and restrictions required by this Agreement to be performed or complied with by
it prior to or at the Closing Date.
8.2 Corporate Proceedings. All corporate and other proceedings required
to be taken on the part of the Buyer to authorize or carry out this Agreement
shall have been taken.
8.3 Governmental Approvals. All governmental agencies, departments,
bureaus, commissions and similar bodies, the consent, authorization or approval
of which is necessary under any applicable law, rule, order or regulation for
the consummation by the Buyer of the transactions contemplated by this Agreement
shall have consented to, authorized, permitted or approved such transactions.
8.4 Consents of Lenders, Lessors and Other Third Parties. The Buyer and
the Seller shall have received all requisite consents and approvals of all
lenders, lessors and other third parties whose consent or approval is required
in order for the Buyer and the Seller to consummate the transactions
contemplated by this Agreement, including, without limitation, those set forth
on Schedule 2.2 and Schedule 3.2 hereto.
8.5 Adverse Proceedings. No action or proceeding by or before any court
or other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of the Seller
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to transfer the Assets or of the Buyer to own or use the Assets or operate the
Business after the Closing.
8.6 Opinion of Counsel. The Seller shall have received an opinion of
Hale and Dorr LLP, counsel to the Buyer, dated as of the Closing Date, in
substantially the form attached hereto as Exhibit I, and as to such other
matters as may be reasonably requested by the Seller or its counsel.
8.7 Seller Financing. The Buyer shall have executed and delivered to
the Seller the Promissory Note, the Security Agreement, financing statements on
Form UCC-1 in a form reasonably required by the Seller and such other related
instruments reasonably necessary to secure the Promissory Note and confirm the
lien of the Security Agreement, and the Seller shall have executed and delivered
the Intercreditor Agreement.
8.8 Agreements. The Buyer and the Seller shall have executed and
delivered (a) the Manufacturing Agreement, (b) the Uniserts(R) License and (c)
the Sprinkle Caps(R) License.
8.9 Closing Deliveries. The Seller shall have received at or prior to
the Closing each of the following documents:
(a) a certificate of the Secretary of State of the State of
Delaware as to the legal existence and good standing (including tax) of the
Buyer in Delaware;
(b) a certificate of the Secretary of the Buyer attesting to
the incumbency of the Buyer's officers, and the authenticity of the resolutions
authorizing the transactions contemplated by this Agreement;
(c) such certificates of the Buyer's officers and such other
documents evidencing satisfaction of the conditions specified in this Section 8
as the Seller shall reasonably request;
(d) the Assignment and Assumption executed by the Buyer;
(e) duly executed termination statements releasing any
encumbrances on the Assets;
(f) payment of the Closing Payment payable pursuant to Section
1.5(b);
(g) executed Promissory Note;
(h) duly executed Security Agreement substantially in the form
of Exhibit B hereto with such modifications as the Seller may reasonably
require;
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(i) duly executed financing statements substantially in the
form of Exhibit J hereto;
(j) duly executed Intercreditor Agreement in the form of
Exhibit K hereto;
(k) cross receipt executed by the Buyer; and
(l) such other documents, instruments or certificates as the
Seller may reasonably request.
9. Indemnification.
9.1 By the Buyer and the Seller. Subject to and limited by the
provisions of Section 15 hereof, the Buyer and the Seller each hereby
indemnifies and holds harmless the other party against all claims, damages,
losses, liabilities, costs and expenses (including, without limitation,
settlement costs and any legal, accounting or other expenses for investigating
or defending any actions or threatened actions) (collectively, "Losses")
reasonably incurred by the Buyer or the Seller in connection with each and all
of the following:
(a) Any material breach by the indemnifying party of any
representation or warranty in this Agreement (other than those representations
and warranties which are already qualified as to materiality, as to which any
breach (not just a material breach) shall be applicable to this paragraph (a))
or in any certificate or schedule furnished by the indemnifying party pursuant
to this Agreement; and
(b) Any material breach of any covenant, agreement or
obligation of the indemnifying party contained in this Agreement or any other
agreement, instrument or document contemplated by this Agreement;
but, with respect to clause (a) above, only to the extent that the aggregate
amount of Losses resulting from a material breach or breaches of such
representations and warranties exceeds $200,000, and provided, however, that
$5,000,000 shall be the maximum amount which the Seller shall be required to
indemnify the Buyer for Losses resulting from any and all material breach or
breaches of the Seller's representations and warranties contained in clause (a)
irrespective of the actual amount of such Losses.
9.2 By the Seller. Subject to and limited by the provisions of Section
15 hereof, the Seller further agrees to indemnify and hold harmless the Buyer
from any and all Losses reasonably incurred by the Buyer, in connection with
each and all of the following:
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(a) Any claims against, or liabilities or obligations of, the
Seller which do not arise out of the use or possession of the Assets or the
operation of the Business;
(b) The failure of the Buyer to obtain the protections
afforded by compliance with the notification and other requirements of the bulk
sales laws in force in the jurisdictions in which such laws may be applicable to
either the Seller or the transactions contemplated by this Agreement;
(c) Any violation by the Seller of, or any failure by the
Seller to comply with, any law, ruling, order, decree, regulation or zoning,
environmental or permit requirement applicable to the Seller, the Assets or the
Business prior to Closing, whether or not any such violation or failure to
comply has been disclosed to the Buyer;
(d) Any warranty claim or product liability claim relating to
(i) products manufactured or sold by the Seller prior to the Closing Date or
(ii) the Seller's business or operations prior to the Closing Date; and
(e) Any tax liabilities or obligations of the Seller other
than the liability, if any, of the Buyer for sales taxes arising out of the
transactions contemplated hereby.
9.3 By the Buyer. The Buyer further agrees to indemnify and hold
harmless the Seller from any and all Losses reasonably incurred by the Seller,
in connection with each and all of the following:
(a) Any claims against, or liabilities or obligations which
arise out of the use, possession or ownership of the Assets by, the Buyer after
the Closing, any act or failure to act by the Buyer with respect to the Assets
or the operation of the Business after the Closing, and the Assumed Liabilities
after the Closing;
(b) Any violation by the Buyer of, or any failure by the Buyer
to comply with, any law, ruling, order, decree, regulation or zoning,
environmental or permit requirement applicable to the Buyer in connection with
the transfer of the Assets and the Business;
(c) Any violation by the Buyer after the Closing of, or any
failure by the Buyer to comply with, any law, ruling, order, decree, regulation
or zoning, environmental or permit requirement applicable to the Buyer, the
Assets or the Business; and
(d) Any warranty claim or product liability claim relating to
(i) the Buyer's business and its operations; (ii) the Assets or the Business
(other than those warranty claims arising out of the acts of the Seller pursuant
to the Manufacturing Agreement); or (iii) any Inventory sold by Buyer after the
Closing (other than those warranty claims pertaining to Product Lines
manufactured by Seller and arising out of
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the acts of the Seller or the failure of Seller to act as required pursuant to
the Manufacturing Agreement).
9.4 Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder, the party seeking indemnification (the "Indemnified
Party") shall promptly notify the party from whom indemnification is sought (the
"Indemnifying Party") of the claim and, when known, the facts constituting the
basis for such claim. In the event of any claim for indemnification hereunder
resulting from or in connection with any claim or legal proceedings by a third
party, the notice to the Indemnifying Party shall specify, if known, the amount
or an estimate of the amount of the liability arising therefrom. The Indemnified
Party shall not settle or compromise any claim by a third party for which it may
claim indemnification hereunder without the prior written consent of the
Indemnifying Party except as provided in Section 9.5 of this Agreement.
9.5 Defense by Indemnifying Party. In connection with any claim by an
Indemnified Party resulting from or arising out of any claim or legal proceeding
by a person who is not a party to this Agreement, the Indemnifying Party at its
sole cost and expense may, upon written notice to the Indemnified Party, assume
the defense of any such claim or legal proceeding if it acknowledges to the
Indemnified Party in writing its obligation to indemnify the Indemnified Party
with respect to all elements of such claim. The Indemnified Party shall be
entitled to participate in (but not control) the defense of any such action,
with its counsel and at its own expense. If the Indemnifying Party does not
assume the defense of any such claim or litigation resulting therefrom within 30
days after the date such claim is made, (a) the Indemnified Party may defend
against such claim or litigation, in such manner as it may deem appropriate,
including, but not limited to, settling such claim or litigation, after giving
notice of the same to the Indemnifying Party, on such terms as the Indemnified
Party may deem appropriate, and (b) the Indemnifying Party shall be entitled to
participate in (but not control) the defense of such action, with its counsel
and at its own expense.
9.6 Payment of Indemnification Obligation. The Buyer hereby agrees that
no claim for indemnification by the Buyer under this Section 9 or under any
other provision of this Agreement shall be set off against the Buyer's
obligation to make payments under the Promissory Note. All indemnification by
the Buyer or the Seller hereunder shall be effected by payment of cash or
delivery of a cashier's or certified check in the amount of the indemnification
liability.
9.7 Survival of Representations. The representations and warranties of
each of the parties hereto shall survive until the date that is eighteen (18)
months after the Closing Date; provided, however, that the representations of
the Seller contained in Section 2.3 hereof as to title to the Assets shall
survive until the date that is two (2) years after the Closing Date.
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9.8 Limit on Claims. No claim under this Agreement, including but not
limited to any claim for damages or indemnification, shall be enforceable unless
the party against whom the claim is made receives written notice of such claim
in the manner set forth in Sections 9.4 and 14 hereof not later than (i) in the
case of claims made by either party under Section 9.1, the date that is eighteen
(18) months from the Closing Date; provided, however, that if such claim arises
as a consequence of a breach of any representation of the Seller as to title to
the Assets contained in Section 2.3 hereof, such date shall be two (2) years
from the Closing Date; (ii) in the case of claims made by Buyer pursuant to
Sections 9.2(a), (b) or (c), the earlier of the date which is one (1) year from
the date payment is made to a creditor or the date which is two (2) years after
the Closing Date; (iii) for claims made by Buyer pursuant to Sections 9.2(d) or
(e) or claims made by the Seller pursuant to Section 9.3 the earlier of (A) the
expiration of the applicable underlying statute of limitations plus six months
or (B) the date which is four (4) years after the Closing Date.
9.9 Limit on Damages. The aggregate amount payable by Seller to Buyer
under this Section 9 shall not exceed the Total Purchase Price.
10. Post-Closing Agreements.
10.1 Proprietary Information.
(a) The Seller agrees that from and after the Closing Date the
Seller shall hold in confidence, and use its best efforts to have all of its
officers, directors and personnel hold in confidence, all knowledge and
information of a secret or confidential nature with respect to the Business and
the Assets and shall not disclose, publish or make use of the same without the
consent of the Buyer, except to the extent that such information shall have
become public knowledge other than by breach of this Agreement by the Seller.
Nothing contained herein shall prevent Seller from disclosing, publishing or
using such knowledge or information in connection with its other products or
future products or providing or disclosing such information as may be required
by law.
(b) The Buyer agrees that from and after the Closing Date the
Buyer shall hold in confidence, and use its best efforts to have all of its
officers, directors and personnel hold in confidence, all knowledge and
information of a secret or confidential nature with respect to (i) the business
of Seller other than specifically with respect to the Business and the Assets,
and (ii) the Business and Assets to the extent the Seller will continue to have
the right under this Agreement and agreements and instruments entered into
hereunder to use such knowledge or information in connection with its other
products or future products; and the Buyer shall not disclose, publish or make
use of the same without the consent of the Seller, except to the extent that
such information shall have become public knowledge other than by breach of this
Agreement by the Buyer. Nothing contained herein shall prevent the Buyer from
providing or disclosing such information as may be required by law.
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10.2 Non-Competition Agreement.
(a) For a period of five (5) years after the Closing Date,
neither the Seller nor any Affiliate thereof shall (i) manufacture, market or
sell any acetaminophen suppository or non-steroid suppository product, (ii)
manufacture, market or sell any particle-coated acetaminophen product
principally for pediatric use, or (iii) manufacture, market or sell any
controlled-release particle-coated acetaminophen product. For purposes of this
Section , "Affiliate" shall have the meaning ascribed to such term under Rule
12b-2 promulgated under the Securities Exchange Act of 1934, as amended.
(b) In the event that any court determines that the duration
or the geographic scope, or both, are unreasonable and that such provision is to
that extent unenforceable, the parties hereto agree that the provision shall
remain in full force and effect for the greatest time period and in the greatest
area that would not render it unenforceable. The parties intend that this
non-competition provision shall be deemed to be a series of separate covenants,
one for each and every county of each and every state of the United States of
America and each and every political subdivision of each and every country
outside the United States of America where this provision is intended to be
effective.
10.3 Sharing of Data.
(a) The Seller shall have the right for a period of seven
years (or such longer period as any applicable law requires Seller to maintain
such records) following the Closing Date, to have reasonable access to such
books, records and accounts, including financial and tax information,
correspondence, production records, employment records and other similar
information, as are transferred to the Buyer pursuant to the terms of this
Agreement for the limited purposes of concluding its involvement in the Business
prior to the Closing Date and for complying with its obligations under
applicable securities, tax, environmental, employment or other laws and
regulations, and Buyer agrees to maintain such books, records and accounts for
such period. The Buyer shall have the right, for a period of seven years (or
such longer period as any applicable law requires Seller to maintain such
records) following the Closing Date, to have reasonable access to those books,
records and accounts, including financial and tax information, correspondence,
production records, employment records and similar records, which are retained
by the Seller pursuant to the terms of this Agreement to the extent that any of
the foregoing relates to the Business and is needed by the Buyer in order to
comply with its obligations under applicable securities, tax, environmental,
employment or other laws and regulations, and Seller agrees to maintain such
books, records and accounts for such period. The provisions of this Section 10.3
shall not limit the obligation of Buyer to maintain records for the purposes set
forth in Section 1.5(c)(iii).
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<PAGE> 29
(b) The Seller and Buyer agree that from and after the Closing
Date they shall cooperate fully with each other to facilitate the transfer of
the Assets from the Seller to the Buyer and the operation thereof and of the
Business by the Buyer and in other respects to carry out and facilitate the
transactions contemplated by this Agreement.
10.4 Cooperation in Litigation. Each party hereto will fully cooperate
with the other in the defense or prosecution of any litigation or proceeding
already instituted or which may be instituted hereafter against or by such party
relating to or arising out of the conduct of the Business (other than litigation
arising out of the transactions contemplated by this Agreement). The party
requesting such cooperation shall pay the out-of-pocket expenses (including
legal fees and disbursements) of the party providing such cooperation and of its
officers, directors, employees and agents reasonably incurred in connection with
providing such cooperation, but shall not be responsible to reimburse the party
providing such cooperation for such party's time spent in such cooperation or
the salaries or costs of fringe benefits or similar expense paid by the party
providing such cooperation to its officers, directors, employees and agents
while assisting in the defense or prosecution of any such litigation or
proceeding.
10.5 Product Claims and Returns. In the event that returns, rebates or
other contract pricing relating to sales of Product Line products made by the
Seller prior to the Closing Date exceed the levels set forth on Schedule 2.8
hereto, the Buyer shall indemnify the Seller from such liabilities unless such
returns, rebates or other contract pricing are the result of (i) one or more
recalls affecting Product Line products or (ii) the failure of any Product Line
products to conform with applicable specifications.
11. Termination of Agreement.
11.1 Termination by Lapse of Time. This Agreement shall terminate at
5:00 p.m., Minneapolis, Minnesota time, on July 17, 1997, if the transactions
contemplated hereby have not been consummated, unless such date is extended by
the written consent of all of the parties hereto.
11.2 Termination by Agreement of the Parties. This Agreement may be
terminated by the mutual written agreement of the parties hereto. In the event
of such termination by agreement, the Buyer shall have no further obligation or
liability to the Seller under this Agreement, and the Seller shall have no
further obligation or liability to the Buyer under this Agreement.
11.3 Termination by Reason of Breach. This Agreement may be terminated
by the Seller, if at any time prior to the Closing there shall occur a breach of
any of the representations, warranties or covenants of the Buyer or the failure
by the Buyer to perform any condition or obligation hereunder, and may be
terminated by the Buyer, if at any time prior to the Closing there shall occur a
breach of any of the representations, warranties or covenants of the Seller or
the failure of the Seller to
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<PAGE> 30
perform any condition or obligation hereunder.
11.4 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 11.1 or by the Seller pursuant to Section 11.3,
then the non-refundable cash payments of (a) $250,000 (paid by the Buyer
pursuant to Section 1.5(b)) and (b) $100,000 (payable by the Buyer pursuant to
Section 17(b)) shall be liquidated damages, in full and complete satisfaction of
any claims or causes of action that the Seller may have for a breach of any
provision of this Agreement or the failure of the Buyer to consummate the
transactions contemplated hereby, and shall be the Seller's sole and exclusive
remedy in connection with, or arising out of, any such breach or failure, and
the Buyer shall have no further obligation or liability to the Seller under this
Agreement except as provided in Section 11.5.
11.5 Survival in Event of Termination. Notwithstanding the other
provisions of this Section 11, the obligations of the parties contained in
Section 10.1 and Section 17(a) hereof shall survive the termination of this
Agreement, in the case of Section 10.1 notwithstanding the fact that the Closing
has not occurred.
12. Transfer and Sales Tax.
Notwithstanding any provisions of law imposing the burden of such taxes
on the Seller or the Buyer, as the case may be, the Buyer shall be responsible
for and shall pay (a) all sales, use and transfer taxes, and (b) all
governmental charges, if any, upon the sale or transfer of any of the Assets
hereunder. If the Buyer shall fail to pay such amounts on a timely basis, the
Seller may pay such amounts to the appropriate governmental authority or
authorities, and the Buyer shall promptly reimburse the Seller for any amounts
so paid by the Seller.
13. Brokers.
13.1 For the Seller. The Seller agrees to pay all fees, expenses and
compensation owed to any person, firm or corporation who has acted in the
capacity of broker or finder on the Seller's behalf in connection with the
transactions contemplated by this Agreement. The Seller agrees to indemnify and
hold harmless the Buyer against any claims or liabilities asserted against it by
any person acting or claiming to act as a broker or finder on behalf of the
Seller.
13.2 For the Buyer. The Buyer agrees to pay all fees, expenses and
compensation owed to any person, firm or corporation who has acted in the
capacity of broker or finder on the Buyer's behalf in connection with the
transactions contemplated by this Agreement. The Buyer agrees to indemnify and
hold harmless the Seller against any claims or liabilities asserted against it
by any person acting or claiming to act as a broker or finder on behalf of the
Buyer.
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<PAGE> 31
14. Notices.
Any notices or other communications required or permitted hereunder
shall be sufficiently given if delivered personally, by telefacsimile or sent by
regular overnight mail or courier service, registered or certified mail, postage
prepaid, addressed as follows or to such other address of which the receiving
party may have given notice:
To the Seller: Upsher-Smith Laboratories, Inc.
14905 23rd Avenue North
Minneapolis, MN 55447
Attention: Vice President, CFO
Telefacsimile: (612) 476-4026
With a copy to: Doherty, Rumble & Butler
Professional Association
3500 Fifth Street Towers
150 South Fifth Street
Minneapolis, MN 55402
Attention: Dean R. Edstrom, Esq.
Telefacsimile: (612) 340-5584
To the Buyer: Ascent Pediatrics, Inc.
187 Ballardvale Street, Suite B125
Wilmington, MA 01887
Attention: President
Telefacsimile: (508) 658-3939
With copy to: Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: David E. Redlick, Esq.
Telefacsimile: (617) 526-5000
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date delivered, if delivered personally; (b) on the
next business day, if delivered by regular overnight mail, courier, or
telefacsimile; or (c) three business days after being sent, if sent by
registered or certified mail.
15. Binding Effect; Successors and Assigns; Benefit; Disclaimer of
Liability; Securities Indemnification.
(a) This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that the Buyer and the Seller may not assign their respective obligations
hereunder without the prior written
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<PAGE> 32
consent of the other party; provided, however, that the Buyer may assign this
Agreement, and its rights and obligations hereunder, to a wholly-owned
subsidiary of Buyer, but no assignment shall release the Buyer from any
obligation or liability under this Agreement. Any assignment in contravention of
this provision shall be void.
(b) This Agreement is made solely and specifically between and
for the benefit of the parties hereto and their respective successors and
permitted assigns, and nothing in this Agreement, expressed or implied, is
intended to confer or shall confer on any person other than the parties hereto
and their respective successors and permitted assigns, any rights, interests,
benefits, claims, remedies, obligations or liabilities under or by reason of
this Agreement or any provisions or representations contained in this Agreement,
whether such other person claims as a third party beneficiary or otherwise.
(c) The Buyer and the Seller agree that each is acting as an
independent party in the negotiation and execution of this Agreement and with
respect to the transactions contemplated hereby, that the Seller is not a
founder, promoter, controlling person, partner, joint venturer or affiliate of
Buyer, and that the Buyer is solely responsible for any and all disclosures made
by the Buyer to any third party with respect to this Agreement, the transactions
contemplated hereby, the Business, the Assets and any representations made by
the Seller to the Buyer in this Agreement or in connection with the transactions
contemplated hereby, the Business or the Assets (such representations being made
for the exclusive benefit of the Buyer and not to be relied on by any other
person or investor in the Buyer). Accordingly, the Buyer hereby disclaims any
right to rely on any such representations made by the Seller in connection with
any securities offering, financing or other transaction conducted by the Buyer
with any other person, and agrees to indemnify and hold harmless the Seller from
and against any and all Losses incurred by the Seller in connection with any
claim against the Seller, directly or indirectly, by any other person. The Buyer
further agrees that it shall not seek, and shall have no right to claim or
receive, any damages from the Seller which are derived from, occasioned by or
measured by any Losses incurred by the Buyer as a consequence of or related to
the issuance by the Buyer of its securities or any other financing transaction
by Buyer.
(d) The Buyer will indemnify and hold harmless the Seller, its
directors and officers and each person, if any, who controls the Seller within
meaning of the Securities Act of 1933 (the "1933 Act") or the Securities
Exchange Act of 1934 (the "1934 Act"), against any Losses to which they may
become subject under the 1933 Act or the 1934 Act, or any other statute or at
common law, insofar as such Losses (or actions in respect thereof) arise out of
or are based upon: (i) any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, offering
memorandum or other document prepared or used in connection with the offer or
sale of securities by the Buyer, including any amendments or supplements
thereto, (ii) the omission or alleged omission to state therein a material fact
required to be stated
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<PAGE> 33
therein, or necessary to make the statements therein not misleading, or (iii)
any violation or alleged violation by the Buyer of the 1933 Act, the 1934 Act,
any rule or regulation promulgated under the 1933 Act or the 1934 Act, or any
other statute or at common law.
16. Entire Agreement; Attachments; Amendments; Waiver.
(a) This Agreement, all Schedules and Exhibits hereto, and all
agreements and instruments to be delivered by the parties pursuant hereto,
including the Confidentiality and Non-Disclosure Agreement between the Buyer and
the Seller dated November 9, 1993, represent the entire understanding and
agreement between the parties hereto with respect to the subject matter hereof
and supersede all prior oral and written and all contemporaneous oral
negotiations, commitments and understandings between such parties.
(b) The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
If the provisions of any agreement or instrument attached as an Exhibit to this
Agreement are inconsistent with the provisions of this Agreement after execution
thereof, the provisions of such other agreement or instrument shall prevail.
(c) The Buyer and the Seller may amend or modify this
Agreement, in such manner as may be agreed upon, only by a written instrument
executed by the Buyer and the Seller.
(d) Any failure of a party to comply with any obligation,
covenant, agreement or condition herein may be waived by the other party;
provided, however, that any such waiver may be made only by a written instrument
signed by the party granting such waiver. Any waiver or failure to insist upon
strict compliance with any obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
16(d) with appropriate notice in accordance with Section 14 of this Agreement.
17. Expenses.
(a) Except as otherwise expressly provided herein, whether or
not the transactions contemplated by this Agreement shall be consummated, the
Buyer and the Seller shall each pay their own expenses in connection with this
Agreement and the transactions contemplated hereby.
(b) In the event that the Closing hereunder does not occur on
or prior to July 17, 1997 for reasons other than the Buyer's conditions to
Closing set forth in
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Section 7 hereof, the Buyer shall promptly pay to the Seller $100,000 in cash to
cover a portion of the Seller's costs and expenses incurred in connection with
this Agreement.
18. Governing Law; Remedies.
(a) The validity, interpretation and effect of this Agreement
shall be governed by and construed under the laws of the State of Minnesota
without regard to its conflicts of laws principles.
(b) The parties agree to attempt to settle any disputes that
arise in connection with this Agreement through good faith mediation efforts.
The parties agree that any dispute that arises in connection with this Agreement
which is not settled through good faith mediation efforts shall be settled by
arbitration which shall be in accordance with the Commercial Arbitration Rules
of the American Arbitration Association. Such arbitration shall be held in
Chicago, Illinois. There shall be three (3) arbitrators, one (1) to be chosen by
Buyer one (1) to be chosen by Seller and a third to be selected by the two
arbitrators so chosen. The decision of the arbitrators shall be final and
binding upon all parties and their respective successors and assigns. The costs
of arbitration, including reasonable attorney's fees, shall be borne by the
losing party.
19. Section Headings.
The section headings are for the convenience of the parties
and in no way alter, modify, amend, limit, or restrict the contractual
obligations of the parties.
20. Severability.
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
21. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which shall be one
and the same document.
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<PAGE> 35
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of and on the date first above written.
UPSHER-SMITH LABORATORIES, INC.
By: /s/Kenneth L. Evenstad
-----------------------------------
Title: Chairman and CEO
--------------------------
ASCENT PEDIATRICS, INC.
By: /s/ Emmett Clemente
-----------------------------------
Title: Chairman
--------------------------
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<PAGE> 36
LIST OF EXHIBITS
TO
ASSET PURCHASE AGREEMENT
BETWEEN
ASCENT PEDIATRICS, INC.
AND
UPSHER-SMITH LABORATORIES, INC.
A. PROMISSORY NOTE
B. SECURITY AGREEMENT
C. ASSIGNMENT AND ASSUMPTION AGREEMENT
D. DOHERTY, RUMBLE & BUTLER OPINION
E. MANUFACTURING AGREEMENT
F. UNISERTS(R) LICENSE
G. SPRINKLE CAPS(R) LICENSE
H. BILL OF SALE
I. HALE AND DORR OPINION
J. FINANCING STATEMENTS
K. INTERCREDITOR AGREEMENT
<PAGE> 37
LIST OF SCHEDULES
TO
ASSET PURCHASE AGREEMENT
BETWEEN
ASCENT PEDIATRICS, INC.
AND
UPSHER-SMITH LABORATORIES, INC.
<TABLE>
<CAPTION>
<S> <C>
1 Description of Business
1.1(a)(i) Inventory
1.1(a)(ii) Registrations
1.1(a)(iii) Contracts
1.1(a)(v) Trademarks
1.1(a)(vii) Unfilled Orders
1.2(a)(i) Technical Information
1.2(a)(ii) Regulatory Information
1.2(a)(iii) Marketing Materials
1.6 Assumed Liabilities
2.2 Consents and Approvals of Third Parties (Seller)
2.3(i) Encumbrances
2.3(ii) Permitted Encumbrances
2.4 Product Profitability Analyses
2.5 Undisclosed Liabilities
2.6 Seller's Litigation
2.7 Seller's Insurance Policies
2.8 Returns, Rebates and Contract Pricing
2.9 Change in Financial Condition and Assets (Seller)
2.11 Contract Exceptions
2.12 Seller's Permits and Permit Exceptions
2.13 Transactions Out of Ordinary Course (Seller)
2.14 Customers
2.15 Suppliers
2.16(b) Current Formulations and Product Methodologies
2.16(c) Intangible Property and Trademark Exceptions (Seller)
2.17 Regulatory Approvals
3.2 Consents and Approvals of Third Parties (Buyer)
3.3 Financial Statements
3.4 Buyer's Litigation
3.5 Buyer's Insurance Policies
3.6 Change in Financial Condition and Business (Buyer)
3.7 Buyer's Permit Exceptions
3.8 Transactions Out of Ordinary Course (Buyer)
3.9 Intangible Property Exceptions (Buyer)
</TABLE>
<PAGE> 38
EXHIBIT A
PROMISSORY NOTE
$5,500,000.00 July_____________, 1997
1. FOR VALUE RECEIVED, ASCENT PEDIATRICS, INC., a Delaware corporation (the
"Borrower") hereby promises to pay to the order of UPSHER-SMITH LABORATORIES,
INC., a Minnesota corporation ("Holder"), at its principal office located 14905
23rd Avenue North, Minneapolis, MN, the principal sum of Five Million Five
Hundred Thousand and 00/100 Dollars ($5,500,000.00), in lawful money of the
United States and immediately available funds, on ____________________, 1998,
without set-off, deduction on counterclaim, unless sooner prepaid or accelerated
in accordance with the terms of this Note.
2. This Note shall not bear interest, provided, however, that if this Note is
not fully paid on or prior to ___________________, 1998, then interest shall
be payable at the rate of 18% per annum (or such lower rate as is equal to the
maximum rate permitted by law from time to time) on the principal amount
outstanding, calculated and charged on the basis of the actual days that
principal remains unpaid from and after ________, 1998 until the principal and
interest thereon shall have been paid in full.
3. The outstanding principal balance of this Note may be prepaid at any time at
the option of the Borrower, in whole or in part, without premium or penalty.
4. All payments and prepayments shall, at the option of the Holder, be applied
first to any costs of collection, second to any accrued interest on this Note
and lastly to principal.
5. This Note has been issued pursuant to that certain Asset Purchase Agreement
dated March ___, 1997, by and between the Borrower and the Holder in connection
with the Borrower's purchase of certain product lines of the Holder (the
"Purchase Agreement"), and is secured by, among other things, that certain
Security Agreement of even date herewith executed by Borrower, as debtor, in
favor of the Holder, as secured party (the "Security Agreement"), and is
entitled to all of the benefits provided for in said Security Agreement.
6. Upon the occurrence of an Event of Default or at any time thereafter, the
principal balance hereof and any accrued interest and all other amounts due
hereon shall, at the option of the Holder, become immediately due and payable,
without notice or demand, and the Holder shall be entitled to enforce and
exercise its rights by action at law, suit in equity and any other appropriate
means.
<PAGE> 39
7. The Borrower promises to pay all reasonable costs of collection of this Note
which are incurred after the occurrence of an Event of Default, including but
not limited to reasonable attorneys' fees, paid or incurred by the Holder on
account of such collection, whether or not suit is filed with respect thereto
and whether such cost or expense is paid or incurred, or to be paid or incurred,
prior to or after the entry of judgment.
8. As used herein, the term "Event of Default" shall mean and include each or
all of the following events:
(a) the Borrower shall fail to pay, when due, any amounts required to
be paid by it under this Note or the Security Agreement (collectively, the
"Transaction Documents"), or the Borrower shall fail to pay within thirty (30)
days of its due date the principal balance of any indebtedness which is
outstanding in excess of $500,000 to any third party or parties which is not
being contested in good faith, whether any such indebtedness is now existing or
hereafter arises and whether direct or indirect, due or to become due, absolute
or contingent, primary or secondary or joint or joint and several;
(b) the Borrower shall fail to observe or perform any of its covenants,
conditions or agreements to be observed or performed by it under any of the
Transaction Documents (other than defaults which are otherwise covered by the
terms of this Paragraph 8 or which can be cured by a money payment) for a period
of thirty (30) days after the Holder has forwarded to the Borrower written
notice thereof, specifying such default and requesting that it be remedied;
(c) the Borrower shall file a petition in bankruptcy or for
reorganization or for an arrangement pursuant to any present or future state or
federal bankruptcy act or under any similar federal or state law, or shall be
adjudicated a bankrupt or insolvent, or shall make a general assignment for the
benefit of its creditors, or shall admit in writing its inability to pay its
debts generally as they become due; or if a petition or answer proposing the
adjudication of the Borrower as a bankrupt or its reorganization under any
present or future state or federal bankruptcy act or any similar federal or
state law shall be filed in any court and such petition or answer shall not be
discharged or denied within sixty (60) days after the filing thereof; or if a
receiver, trustee or liquidator of the Borrower or of all or substantially all
of its assets shall be appointed in any proceeding brought against the Borrower
and shall not be discharged within sixty (60) days of such appointment; or if
the Borrower shall consent to or acquiesce in such appointment; or if any
property of the Borrower shall be levied upon or attached in any proceeding in
an amount in excess of $500,000 and which is not released or discharged within
thirty (30) days of the date of the levy or attachment, as applicable;
(d) final judgment(s) for the payment of money in excess of $250,000,
individually or in the aggregate, shall be rendered against the Borrower and
shall remain undischarged for a period of thirty (30) days during which
execution shall not be effectively stayed;
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<PAGE> 40
(e) the Borrower shall be or become insolvent (whether in the equity or
bankruptcy sense);
(f) any representation or warranty made by the Borrower in the
Transaction Documents shall prove to be untrue or misleading in any material
respect, or any statement, certificate or report furnished hereunder or under
any of the foregoing documents by or on behalf of the Borrower shall prove to be
untrue or misleading in any material respect on the date when the facts set
forth and recited therein are stated or certified;
(g) the Borrower shall liquidate, dissolve, terminate or materially
suspend its business operations, or sell all or substantially all of its assets,
or shall sell any of its assets in violation of the terms of the Security
Agreement, without the prior written consent of the Holder; or
(h) the Borrower shall fail to pay, withhold, collect or omit any tax
or tax deficiency when assessed or due (other than any tax or tax deficiency
which is being contested in good faith and by proper proceedings and for which
it shall have set aside on its books adequate reserves therefor) the failure to
pay which is likely to have a material adverse effect on the financial condition
of the Borrower or a notice of any state or federal tax liens shall be filed or
issued which is not stayed or discharged within thirty days thereof.
9. Demand, presentment, protest and notice of nonpayment and dishonor of this
Note are hereby waived.
10. No failure or delay on the part of the Holder in exercising any right, power
or remedy hereunder or under the Security Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy. The remedies provided for herein and in the
Security Agreement are cumulative and are not exclusive of any remedies that may
be available to the Holder at law or in equity or otherwise. This Note may not
be amended and the provisions hereof may not be waived without the written
consent of the Holder.
11. If more than one person or individual has executed this Note, their
liability for the obligations arising hereunder shall be joint and several; and
each agrees that it is not merely an accommodation party with respect to this
Note and hereby waives any and all defenses based upon accommodation or
suretyship status.
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<PAGE> 41
12. This Note shall be governed by and construed in accordance with the laws of
the Commonwealth of Massachusetts without regard to its conflicts of laws
principles.
BORROWER:
ASCENT PEDIATRICS, INC.
By:________________________________
Its:______________________
By:________________________________
Its:______________________
COMMONWEALTH OF MASSACHUSETTS )
)ss.
SUFFOLK COUNTY )
The foregoing instrument was acknowledged before me this _______ day of
July, 1997, by ____________________ and ____________________,
the _______________________ and _____________________ of Ascent Pediatrics,
Inc., a Delaware corporation, for and on behalf of said corporation.
_____________________________
Notary Public
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<PAGE> 42
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement is made and entered into this day of July,
1997, between ASCENT PEDIATRICS, INC., a Delaware corporation ("Debtor") and
UPSHER-SMITH LABORATORIES, INC., a Minnesota corporation ("Secured Party").
RECITALS
WHEREAS, Debtor has executed and delivered to Secured Party that
certain Promissory Note of even date herewith made payable by Debtor to the
order of the Secured Party in the original principal amount of Five Million Five
Hundred Thousand and 00/100 Dollars ($5,500,000.00) (the "Note"), which Note was
issued pursuant to that certain Asset Purchase Agreement dated March , 1997, by
and between Debtor and Secured Party (the "Purchase Agreement");
WHEREAS, as a material inducement to Secured Party to enter into the
Purchase Agreement, Debtor has agreed to execute this Security Agreement in
favor of Secured Party and to pledge all its right, title and interest in the
property described herein to Secured Party.
NOW, THEREFORE, in consideration of the premises contained herein, the
mutual covenants hereinafter set forth and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Creation of Security Interest. Debtor hereby assigns, pledges and
grants to Secured Party a security interest in Debtor's right, title and
interest in and to the collateral described in Section 2 hereof (the
"Collateral"), in each case whether now owned or hereafter acquired by Debtor,
in order to secure the payment and performance of the obligations of Debtor to
Secured Party described in Section 3 hereof.
2. Collateral. Collateral means Debtor's now owned or hereafter
acquired right, title and interest in and to the following categories of the
Debtor's properties, assets and other claims, rights and interests which are
used by the Debtor in the development, sale or manufacture of Feverall(R)
suppository ("FS"), Feverall(R) Sprinkle Caps(R) powder ("FSC") and
Acetaminophen Uniserts(R) suppository ("AUS") product lines (collectively, the
"Product Lines") (for purposes hereof, the business of manufacturing, marketing
and selling FS, FSC and AUS shall be referred to as the "Business"):
(i) all inventories of finished goods, samples, trade packs,
raw materials, supplies and similar items (the "Inventory");
<PAGE> 43
(ii) all regulatory approvals, registrations and related
materials (the "Registrations");
(iii) all rights of the Debtor under contracts, leases,
licenses and other instruments, including private label manufacturing agreements
and sales broker contracts (collectively, the "Contracts");
(iv) all rights of the Debtor under express or implied
warranties from the suppliers of the Debtor;
(v) all of Debtor's right, title and interest in and to all
trademarks, whether owned by Debtor or used under license, registered, pending
or unregistered, and applications for registration, trade dress, logos, drawings
and trade names and related goodwill and business, and including, without
limitation, Feverall(R), Sprinkle Caps(R) and Uniserts(R) (the "Trademarks");
(vi) all of the Debtor's right, title and interest in and to
intangible property rights (including but not limited to inventions,
discoveries, trade secrets, processes, formulas, know-how, United States and
foreign patents, patent applications, copyrights, copyright registrations) owned
and used or, where not owned, used by the Debtor, in connection with the
manufacture of the Product Lines and the licenses and other agreements to which
the Debtor is a party (as licensor or licensee) or by which the Debtor is bound
relating to any of the foregoing kinds of property or rights (collectively, the
"Intangible Property");
(vii) all unfilled orders (if any) relating to the Product
Lines or the Business;
(viii) all product formulations, process conditions and
related documentation, written technical information, data, specifications, and
research and development information (the "Technical Information");
(ix) all correspondence and product complaint information (the
"Regulatory Information");
(x) all marketing information and materials, including copies
of customer lists and sales records (the "Marketing Materials");
(xi) all books, records and accounts, correspondence,
production records, technical, accounting, manufacturing and procedural manuals,
studies, reports or summaries relating to any environmental conditions or
consequences of any operation, present or former, as well as all studies,
reports or summaries relating to any environmental aspect or the general
condition of the Product Lines or the Business and any related confidential
information which has been reduced to writing (the "Records");
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(xii) all patents and copyrights, including, without
limitation, those registered, pending or unregistered and applications therefor
(the "Patents and "Copyrights", respectively);
(xiii) all of the inventory, registrations,
contracts, trademarks, technical information, regulatory information, marketing
materials, records and other personal property acquired by Debtor from the
Secured Party under the Purchase Agreement;
(xiv) all items described in this Section 2, whether
now owned or hereafter at any time acquired by Debtor and wherever located, and
all modifications, improvements and enhancements to the Collateral and proceeds
arising from sales of Collateral not in the ordinary course of business,
relating thereto or therefrom; and
(xv) proceeds arising from sales of Collateral not in
the ordinary course of business hereunder include (i) whatever is now or
hereafter receivable or received by Debtor upon the sale, exchange, collection
or other disposition of any item of Collateral not in the ordinary course of
business, whether voluntary or involuntary, and (ii) any insurance or payments
under any indemnity, warranty or guaranty now or hereafter payable by reason of
loss or damage or otherwise with respect to any item of Collateral.
Notwithstanding anything contained herein to the contrary, Collateral shall not
include any property of the Debtor which is not used in the development, sale or
manufacture of the Product Lines.
3. Secured Obligations of Debtor. The Collateral secures and shall
hereafter secure (i) the payment by Debtor to Secured Party of all indebtedness
now or hereafter owed to Secured Party by Debtor under the Note or this Security
Agreement (collectively, the "Transaction Documents"), whether at stated
maturity, by acceleration or otherwise, together with any interest thereon, (ii)
the performance by Debtor of all other obligations under the Security Agreement,
(iii) any and all sums advanced by Secured Party in order to preserve the
Collateral or preserve Secured Party's security interest in the Collateral (or
the priority thereof) and (iv) the expenses of retaking, holding, preparing for
sale or lease, selling or otherwise disposing of or realizing on the Collateral,
of any proceeding for the collection or enforcement of any indebtedness,
obligations or liabilities of Secured Party referred to above, or of any
exercise by Secured Party of its rights hereunder, together with reasonable
attorneys fees and disbursements and court costs (collectively, the "Secured
Obligations"). All payments and performance by Debtor with respect to any
Secured Obligations shall be in accordance with the terms under which said
indebtedness, obligations and liabilities were or are hereafter incurred or
created.
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<PAGE> 45
4. Debtor Representations and Warranties. Debtor represents and
warrants that:
(a) Debtor is (or, to the extent that the Collateral
is acquired after the date hereof, will be) the sole legal and beneficial owner
of the Collateral and has exclusive possession and control thereof; there are no
security interests in, liens, charges or encumbrances on, or adverse claims of
title to, or any other interest whatsoever in, such Collateral or any portion
thereof except such liens as are specifically described on Annex 1 attached
hereto, or such other liens or encumbrances which the Secured Party has
heretofore or may hereafter consent to in writing (collectively, the "Permitted
Liens"); and that no financing statement, notice of lien, mortgage, deed of
trust or instrument similar in effect covering the Collateral or any portion
thereof or any proceeds thereof ("Lien Notice") exists or is on file in any
public office, except as relates to Permitted Liens and except as may have been
filed in favor of Secured Party relating to this Security Agreement;
(b) Debtor has full right, power and authority to
execute, deliver and perform this Security Agreement. This Security Agreement
constitutes a legally valid and binding obligation of Debtor, enforceable
against Debtor in accordance with its terms. Subject to the Permitted Liens, the
completion of the items identified in Section 4(c) below, and the execution of
an Intercreditor Agreement between Secured Party and Triumph-Connecticut Limited
Partnership, the provisions of this Security Agreement are effective to create
in favor of Secured Party a valid and enforceable first, prior and perfected
security interest in the Collateral;
(c) except for the filing or recording of the
financing statements, fixture filings or other notices that are to be filed in
connection with this Security Agreement, and the execution of an Intercreditor
Agreement between Secured Party and Triumph-Connecticut Limited Partnership, no
authorization, approval or other action by, no notice to or registration or
filing with, any person or entity, including without limitation, any stockholder
or creditor of Debtor or any governmental authority or regulatory body is
required (x) for the grant by Debtor of the security interest in the Collateral
pursuant to this Security Agreement or for the execution, delivery or
performance of this Security Agreement by Debtor, (y) for the perfection or
maintenance of such security interest created hereby, including the first
priority nature of such security interest, or the exercise by Secured Party of
the rights and remedies provided for in this Security Agreement (other than any
required governmental consent or filing with respect to any patents, trademarks,
copyrights, governmental claims, tax refunds, licenses or permits), or (z) for
the enforceability of such security interest against third parties, including,
without limitation, judgment lien creditors;
(d) Debtor does not do business, and for the previous
ten (10) years has not done business, under any fictitious business names or
trade names;
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<PAGE> 46
(e) Debtor's chief executive office is located at 187
Ballardvale Street, Wilmington, Massachusetts 01887. Debtor has no place of
business other than such address and the Collateral is now and will at all times
hereafter be located at such place of business of Debtor or at the principal
place of business of Secured Party, namely 14905 23rd Avenue North, Minneapolis,
Minnesota 55447, or at such other location as to which Debtor may notify Secured
Party in writing. Debtor's Federal Tax Identification Number is 04-3047405; and
(f) none of the execution, delivery and performance
of this Security Agreement by Debtor, the consummation of the transactions
herein contemplated, the fulfillment of the terms hereof or the exercise by
Secured Party of any rights or remedies hereunder will constitute or result in a
breach of any of the terms or provisions of, or constitute a default under, or
constitute an event which with notice or lapse of time or both will result in a
breach of or constitute a default under, any agreement, indenture, mortgage,
deed of trust, equipment lease, instrument or other document to which) Debtor is
a party, conflict with or require approval, authorization, notice or consent
under any law, order, rule, regulation, license or permit of any court or any
federal or state government, regulatory body or administrative agency, or any
other governmental body having jurisdiction over Debtor or its properties or
require notice, consent, approval or authorization by or registration or filing
with any person or entity (including, without limitation, any stockholder or
creditor of Debtor) other than any notices to Debtor from Secured Party required
hereunder. Except for the Permitted Liens, none of the Collateral is subject to
any agreement, indenture, mortgage, deed of trust, equipment lease, instrument
or other document to which Debtor is a party which may restrict or inhibit
Secured Party's rights or ability to sell or dispose of the Collateral or any
part thereof after the occurrence of an Event of Default (as defined herein).
5. Covenants of Debtor. The Debtor covenants and agrees that:
(a) Debtor will not move or permit to be moved the
Collateral or any portion thereof to any location other than that set forth in
Section 4(f) hereof or locations established in compliance with Section 5(b)
hereof without the prior written consent of the Secured Party and the prior
filing of a financing statement(s) with the proper office(s) and in the proper
form to perfect or continue the perfection (without loss of priority) of the
security interests created herein, which filing(s) shall be satisfactory in
form, substance and location to Secured Party prior to such filing;
(b) Debtor will not voluntarily or involuntarily
change its name, identity, corporate structure, or location of its chief
executive office or any of its other places of business, unless in any such case
(i) Debtor shall have first received the prior written consent of Secured Party,
(ii) Debtor shall have executed and caused to be filed financing statements with
the proper offices and in the proper form to perfect or continue the perfection
(without loss of priority) of the security interests created herein, which
filing shall be satisfactory in form, substance and location to Secured Party
prior
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<PAGE> 47
to such filing, and (iii) Debtor shall have delivered to Secured Party any other
documents required by Secured Party in a form and substance satisfactory to
Secured Party;
(c) Debtor will maintain all material licenses,
permits, approvals, authorizations and certificates prescribed by all applicable
foreign, federal, state and local laws and regulations, including any required
by the FDA, which are necessary for the conduct of the Business by the Debtor
where the failure to maintain such licenses, permits, approvals, authorizations
and certificates will have a material adverse effect on the Business of Debtor,
will conduct the Business in substantial compliance with all material applicable
foreign, federal, state and local laws, rules, regulations and judicial or
administrative orders and processes, will take all steps deemed by the Debtor to
be reasonably necessary to protect its right, title and interest in and to all
of its Trademarks, Patents and Copyrights, and will perform and comply with all
contracts, commitments and obligations by which it is bound relating to the
Business.
(d) Debtor will promptly, and in no event later than
10 days after a request by Secured Party, procure or execute and deliver all
further instruments and documents (including, without limitation, notices and
financing statements) necessary or appropriate to and take any other actions
which are necessary or, in the judgment of Secured Party, desirable or
appropriate to perfect or to continue the perfection, priority and
enforceability of Secured Party's security interests in the Collateral, to
enable Secured Party to exercise and enforce its rights and remedies hereunder
with respect to any Collateral, to protect the Collateral against the rights,
claims or interests of third persons, or to effect or to assure further the
purposes and provisions of this Security Agreement, and will pay all reasonable
costs incurred in connection therewith.
(e) without the prior written consent of Secured
Party, Debtor will not in any way encumber, or hypothecate, or create or permit
to exist, any lien, security interest, charge or encumbrance or adverse claim
upon or other interest in the Collateral, except for Permitted Liens, and the
liens created by this Security Agreement, and Debtor will defend the Collateral
against all claims and demands of all persons at any time claiming the same or
any interest therein, except as expressly provided herein. Debtor will not
permit any Lien Notices to exist or be on file in any public office with respect
to all or any portion of the Collateral except, in each case, for Lien Notices
of holders of Permitted Liens or except as may have been filed by or for the
benefit of Secured Party relating to this Security Agreement or related
agreements. Debtor shall promptly notify Secured Party of any attachment or
other legal process levied against any of the Collateral and any information
received by Debtor relative to the Collateral, which may in any material way
affect the value of the Collateral or the rights and remedies of Secured Party
in respect thereto;
(f) without the prior written consent of Secured
Party, Debtor will not sell, transfer, assign (by operation of law or
otherwise), exchange, allow to go
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<PAGE> 48
abandoned, or otherwise dispose of all or any portion of the Collateral or any
interest therein, except that Debtor may sell worn-out or obsolete Equipment and
may sell Inventory in the ordinary course of its business. If the proceeds of
any such prohibited sale are notes, instruments, documents of title, letters of
credit or chattel paper, such proceeds shall be promptly delivered to Secured
Party to be held as Collateral hereunder (with all necessary or appropriate
endorsements). If the Collateral, or any part thereof or interest therein, is
sold, transferred, assigned, exchanged, or otherwise disposed of in violation of
these provisions, the security interest of Secured Party shall continue in such
Collateral or part thereof notwithstanding such sale, transfer, assignment,
exchange or other disposition, and Debtor will hold the proceeds thereof in a
separate account for Secured Party's benefit. Debtor will, at Secured Party's
request, transfer such proceeds to Secured Party in kind;
(g) Secured Party is hereby authorized to file one or
more financing statements or fixture filings, and continuations thereof and
amendments thereto, relative to all or any part of the Collateral, without the
signature of Debtor where permitted by law;
(h) Debtor will not enter into, modify or amend any
existing or future contracts or agreements relating to the sale or disposition
of the Collateral or any part thereof outside the ordinary course of business
without the prior written consent of Secured Party. Upon request of Secured
Party, Debtor will provide Secured Party with copies of all existing and
hereafter created contracts and agreements pertaining to any such sale or
disposition and of all amendments and modifications thereto;
(i) Debtor will pay and discharge all taxes,
maintenance fees, renewal fees, assessments and governmental charges or levies
against the Collateral prior to the delinquency thereof and will keep the
Collateral free of all unpaid claims and charges (including claims for labor,
materials and supplies) whatsoever, except for the payment of taxes contested by
it in good faith, by appropriate proceedings, and for which Debtor has made
appropriate reserve therefor and so long as no levy or lien has been imposed
upon any of the Collateral;
(j) Debtor will provide Secured Party with current
financial information concerning Debtor's business on a monthly, quarterly and
audited fiscal year-end basis, with detail satisfactory to Secured Party and
which shall be prepared in accordance with generally accepted accounting
principles consistently applied.
(k) Secured Party shall have at reasonable times on
prior notice, the right to enter into and upon any premises where any of the
Collateral or records with respect thereto are located for the purpose of
inspecting the same, performing any audit, making copies of records, observing
the use of any part of the Collateral, or otherwise protecting its security
interest in the Collateral;
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(l) Secured Party shall have the right at any time,
but shall not be obligated, to make any payments and do any other acts Secured
Party may deem necessary or desirable to protect its security interest in the
Collateral, including, without limitation, the right to pay, purchase, contest
or compromise any encumbrance, charge or lien (excluding any Permitted Liens)
applicable to any Collateral hereunder, and appear in and defend any action or
proceeding purporting to affect its security interest in and/or the value of any
Collateral, and in exercising any such powers or authority, the right to pay all
expenses incurred in connection therewith, including attorneys fees. Debtor
hereby agrees that it shall be bound by any such payment made or incurred or act
taken by Secured Party hereunder and shall reimburse Secured Party for all
reasonable payments made and expenses incurred under the Security Agreement,
which amounts shall be secured under this Security Agreement. Secured Party
shall have no obligation to make any of the foregoing payments or perform any of
the foregoing acts;
(m) Secured Party may take any actions permitted
hereunder or in connection with the Collateral by or through agents or employees
and shall be entitled to retain counsel and to act in reliance upon the advice
of counsel concerning all such matters;
(n) Debtor hereby agrees not to assign, license,
abandon or divest itself of any right under any Trademark (other than as
provided in Section 1.5(c)(i) of the Purchase Agreement with respect to the
Feverall(R) Sprinkle Caps(R) Trademark) absent prior written approval of the
Secured Party;
(o) Debtor agrees, promptly upon learning thereof, to
notify the Secured Party in writing of the name and address of, and to furnish
such pertinent information that may be available with respect to, any party who
Debtor believes is infringing or otherwise violating any of such Debtor's rights
in and to any Trademark, or with respect to any party claiming that Debtor's use
of any Trademark violates in any material respect any property right of that
party. Debtor further agrees, unless otherwise agreed by the Secured Party,
diligently to prosecute any person or entity infringing any material Trademark;
(p) Subject to the provisions of Section 1.5(c)(i) of
the Purchase Agreement relating to the Feverall(R) Sprinkle Caps(R) Trademark,
Debtor agrees to use the Trademarks in interstate commerce during the time in
which this Security Agreement is in effect, sufficiently to preserve such
Trademarks as trademarks or service marks registered under the laws of the
United States or any other country, as applicable;
(q) Debtor shall, at its own expense, diligently
process all documents required by the Trademark Act of 1946, 15 U.S.C.
Sections 1051 et seq. and any applicable foreign laws to maintain
trademark registrations, including but not limited to affidavits of use and
applications for renewals of registration in the United States Patent and
Trademark Office for all of its registered Trademarks pursuant to 15 U.S.C.
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<PAGE> 50
Sections 1058(a), 1059, 1065 and otherwise, and shall pay all fees and
disbursements in connection therewith and shall not abandon any such filing of
affidavit of use or any such application of renewal prior to the exhaustion of
all administrative and judicial remedies without the prior written consent of
the Secured Party. Debtor agrees to notify the Secured Party three (3) months
prior to the date on which the affidavits of use or the applications for renewal
registration are due with respect to any registered Trademark that the
affidavits of use or the renewal is being processed;
(r) if any registration for any Trademark for a
product constituting part of the Product Line issues hereafter to Debtor as a
result of any application now or hereafter pending before the United States
Patent and Trademark Office or any similar such foreign governmental office or
agency, within thirty (30) days of receipt of such certificate Debtor shall
deliver a copy of such certificate, and a grant of security in such Trademark
and registration, to the Secured Party;
(s) Debtor agrees, promptly upon learning thereof, to
furnish the Secured Party in writing with all pertinent information available to
Debtor with respect to any infringement or other violation of Debtor's rights in
any Patent or Copyright, or with respect to any claims that Debtor's activities
violate any property right of a third party. Debtor further agrees, absent
direction of the Secured Party to the contrary, diligently to prosecute any
person infringing any of Debtor's Patents or Copyrights;
(t) at its own expense, Debtor shall make timely
payment of all postissuance fees required by the U.S. Patent Office or under any
applicable federal or foreign laws to maintain in force rights under each
Patent;
(u) at its own expense, Debtor shall diligently
prosecute all applications for Patents and shall not abandon any such
application prior to exhaustion of all administrative and judicial remedies,
absent written consent of the Secured Party;
(v) within 30 days of acquisition of a Patent or
Copyright for a product constituting part of the Product Line, or of filing of
an application for a Patent or Copyright for a product constituting part of the
Product Line, Debtor shall deliver to the Secured Party a copy of said Patent or
Copyright or such applications, as the case may be, with a grant of a security
interest in the Patent or Copyright for a product constituting part of the
Product Line, as the case may be, and a grant of a security interest in the
invention or work embodied in the Patent or Copyright; and
(w) Debtor hereby agrees not to abandon or divest
itself of any right under any Patent or Copyright absent prior written approval
of the Secured Party.
6. Defaults and Remedies.
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(a) The occurrence of any "Event of Default" as defined in the
Note shall constitute an Event of Default under this Security Agreement.
(b) Upon the occurrence and continuation of an Event of
Default hereunder, Debtor expressly covenants and agrees that Secured Party may,
at its option, in addition to other rights and remedies provided herein or
otherwise available to it, without notice to or demand upon Debtor (except as
otherwise required herein), exercise any one or more of the rights as set forth
as follows:
(i) declare all amounts outstanding, including
principal, interest and all other amounts owed by Secured Party to Debtor under
the Note and all Secured Obligations to be immediately due and payable,
whereupon all unpaid principal, interest and other amounts and Secured
Obligations shall become and be immediately due and payable;
(ii) immediately take possession of any of the
Collateral wherever it may be found or require Debtor to assemble the Collateral
or any part thereof and make it available at one or more places as Secured Party
may designate, and to deliver possession of the Collateral or any part thereof
to Secured Party, who shall have full right to enter upon any or all of such
Debtors' places of business, premises and property to exercise Secured Party's
rights hereunder;
(iii) exercise any or all of the rights and remedies
provided for by the Massachusetts Uniform Commercial Code or any other
applicable law, specifically including, without limitation, the right to recover
the reasonable attorneys fees and other expenses incurred by Secured Party in
the enforcement of this Security Agreement or in connection with Debtor
redemption of the Collateral. Secured Party may exercise its rights under this
Security Agreement independently of any other collateral or guaranty that Debtor
may have granted or provided to Secured Party in order to secure payment and
performance of the Secured Obligations, and Secured Party shall be under no
obligation or duty to foreclose or levy upon any other collateral given by
Debtor to secure any Secured Obligation or to proceed against any guarantor
before enforcing its rights under this Security Agreement;
(iv) without notice (except as specified below), sell
the Collateral or any part thereof in one or more parcels at one or more public
or private sales, at any of Secured Party's offices or elsewhere, at such time
or times, for cash, on credit or for future delivery, and at such price or
prices and upon such other terms as shall be commercially reasonable. Debtor
acknowledges and agrees that, to the extent notice of sale shall be required by
law, at least ten (10) days written notice to Debtor of the time and place of
any public sale or of the date on or after which any private sale is to be made
shall constitute reasonable notification;
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<PAGE> 52
(v) proceed by an action or actions at law or in
equity to recover the indebtedness secured hereunder or to foreclose this
Security Agreement and sell the Collateral or any portion thereof, pursuant to a
judgment or decree of a court or courts of competent jurisdiction in any manner
permitted by law, or provided for herein;
(vi) enforce one or more remedies hereunder,
successively or concurrently, and such action shall not operate to estop or
prevent Secured Party from pursuing any other or further remedy which it may
have hereunder or by law, and any repossession or retaking or sale of the
Collateral pursuant to the terms hereof shall not operate to release Debtor
until full and final payment of any deficiency has been made in cash. Debtor
shall reimburse Secured Party upon demand for, or Secured Party may apply any
proceeds of Collateral to, the reasonable costs and expenses (including
reasonable attorneys fees, transfer taxes and any other charges) incurred by
Secured Party in connection with any sale, disposition, repair, replacement,
alteration, addition, improvement or retention of any Collateral hereunder;
(vii) upon the occurrence of a default hereunder, any
cash held by Secured Party as Collateral and all cash proceeds received by
Secured Party in respect of any sale of, collection from, or other realization
upon all or any part of the Collateral may, in the discretion of Secured Party,
be held by Secured Party as collateral for and/or then or at any time thereafter
applied (including application to the payment of any reasonable costs, expenses,
indemnification and other amounts payable to Secured Party hereunder, which
amounts may be paid in whole or in part prior to the other obligations secured
hereby) in whole or in part by Secured Party against all or any part of the
obligations secured hereby in such order as Secured Party shall elect. Any
surplus of such cash or cash proceeds held by Secured Party and remaining after
payment in full of all the obligations secured hereby shall be paid over to
Debtor or to whomever may be lawfully entitled to receive such surplus or as a
court of competent jurisdiction may direct provided, however, that in the event
that all of the conditions to termination of this Security Agreement under
Section 7(k) shall not have been fulfilled, such balance shall be held as
additional Collateral hereunder and applied from time to time to Secured Party's
costs and expenses and as otherwise provided hereunder until all such conditions
shall have been fulfilled; and/or
(viii) effect an absolute assignment of all of such
Debtor's right, title and interest in and to each Trademark (and the goodwill of
the business of Debtor associated therewith), Patent and Copyright.
(c) The Debtor agrees, following the occurrence of an Event of
Default, to execute and file with the United States Patent and Trademark Office,
the United States Copyright Office and with such other governmental bodies as
the Secured Party may reasonably request such applications, requests for
transfer of Trademarks, Patents and Copyrights or other documents or instruments
and take such other actions
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<PAGE> 53
as may be necessary or desirable to permit the Secured Party to consummate the
sale of the Collateral. In addition to any other remedies available to the
Secured Party upon the occurrence of an Event of Default, Debtor agrees that the
Secured Party shall be entitled to orders in equity directing the specific
performance by Debtor of its obligations under this paragraph, and expressly
waives the defense that any remedy in damages for such breach of its obligations
hereunder will be adequate.
7. Miscellaneous Provisions.
(a) Notices. All notices, requests, approvals,
consents and other communications required or permitted to be made hereunder
shall, except as otherwise provided, be in writing and may be delivered
personally or sent by telegram, telecopy, facsimile, telex, first class mail or
overnight courier, postage prepaid, to the parties addressed as follows:
To Debtor: Ascent Pediatrics, Inc.
187 Ballardvale Street, Suite B125
Wilmington, MA 01887
Attention: President
Telefacsimile: (508) 658-3939
With copy to: Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: David E. Redlick, Esq.
Telefacsimile: (617) 526-5000
To Secured Party: Upsher-Smith Laboratories, Inc.
14905 23rd Avenue North
Minneapolis, MN 55447
Attention: Vice President, CFO
Telefacsimile: (612) 476-4026
With copy to: Doherty, Rumble & Butler
Professional Association
3500 Fifth Street Towers
150 South Fifth Street
Minneapolis, MN 55402
Attention: Dean R. Edstrom, Esq.
Telefacsimile: (612) 340-5584
Such notices, requests and other communications sent as provided hereinabove
shall be effective when received by the addressee thereof, unless sent by
registered or certified mail, postage prepaid, in which case they shall be
effective exactly three (3) business
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<PAGE> 54
days after being deposited in the United States mail. The parties hereto may
change their addresses by giving notice thereof to the other parties hereto in
conformity with this section.
(b) Headings. The various headings in this Security
Agreement are inserted for convenience only and shall not affect the meaning or
interpretation of this Security Agreement or any provision hereof
(c) Amendments. This Security Agreement or any
provision hereof may be changed, waived, or terminated only by a statement in
writing signed by the party against which such change, waiver or termination is
sought to be enforced, and then any such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
(d) No Waiver. No failure on the part of Secured
Party to exercise, and no delay in exercising, and no course of dealing with
respect to, any power, privilege or right under this Security Agreement or any
related agreement shall operate as a waiver thereof nor shall any single or
partial exercise by Secured Party of any power, privilege or right under this
Security Agreement or any related agreement preclude any other or further
exercise thereof or the exercise of any other power, privilege or right. The
powers, privileges and rights in this Security Agreement are cumulative and are
not exclusive of any other remedies provided by law. No waiver by Secured Party
of any default hereunder shall be effective unless in writing, nor shall any
waiver operate as a waiver of any other default or of the same default on a
future occasion.
(e) Binding Agreement. All rights of Secured Party
hereunder shall inure to the benefit of its successors and assigns. Debtor shall
not assign any of its interest under this Security Agreement without the prior
written consent of Secured Party. Any purported assignment inconsistent with
this provision shall, at the option of Secured Party, be null and void.
(f) Entire Agreement. This Security Agreement,
together with any other agreement executed in connection herewith, is intended
by the parties as a final expression of their agreement and is intended as a
complete and exclusive statement of the terms and conditions thereof. Acceptance
of or acquiescence in a course of performance rendered under this Security
Agreement shall not be relevant to determine the meaning of this Security
Agreement even though the accepting or acquiescing party had knowledge of the
nature of the performance and opportunity for objection.
(g) Severability. If any provision or obligation of
this Security Agreement should be found to be invalid, illegal or unenforceable
in any jurisdiction, the validity, legality and enforceability of the remaining
provisions and obligations or
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<PAGE> 55
any other agreement executed in connection herewith, or of such provision or
obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby and shall nonetheless remain in full force and effect to the
maximum extent permitted by law.
(h) Survival of Provisions. All representations,
warranties and covenants of Debtor contained herein shall survive the execution
and delivery of this Security Agreement, and shall terminate only upon the
termination of this Security Agreement pursuant to Section 7(k) hereof.
(i) Power of Attorney. Debtor hereby irrevocably
appoints Secured Party its attorney-in-fact, which appointment is coupled with
an interest, with full authority in the place and stead of Debtor and in the
name of Debtor, Secured Party or otherwise, from time to time in Secured Party's
discretion (a) to execute and file financing and continuation statements (and
amendments thereto and modifications thereof) on behalf and in the name of
Debtor with respect to the security interests granted or purported to be granted
hereby, (b) to take any action and to execute any instrument which Secured Party
may deem necessary or advisable to exercise its rights under Section 5(l) or
otherwise hereunder, and (c) upon the occurrence and during the continuance of
an Event of Default, to take any action and to execute any instrument which
Secured Party may deem necessary or advisable to accomplish the purposes of this
Security Agreement, including, without limitation:
(i) to obtain and adjust insurance required
to be paid to Secured Party pursuant hereto;
(ii) to ask, demand, collect, sue for,
recover, compound, receive and give acquittance and receipts for moneys due and
to become due under or in respect of any of the Collateral;
(iii) to receive, endorse and collect any
drafts or other instruments, documents and chattel paper, in connection with
clauses (i) and (ii) above;
(iv) to sell, convey, or otherwise transfer
any item of Collateral to any purchaser thereof;
(v) to take any action regarding the
prosecution, maintenance, sale, assignment or licensing of any Trademark, Patent
or Copyright; and
(vi) to file any claims or take any action
or institute any proceedings which Secured Party may deem necessary or desirable
for the collection of any of the Collateral or otherwise to enforce the rights
of Secured Party with respect to any of the Collateral.
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<PAGE> 56
(j) Counterparts. This Security Agreement and any
amendments, waivers, consents or supplements may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all of which shall together constitute one and the same agreement.
(k) Termination of Agreement. This Security Agreement
and the security interest hereunder shall terminate upon payment in full of all
indebtedness and obligations secured hereunder. At such time, Secured Party
shall reassign and redeliver to Debtor all of the Collateral hereunder which has
not been sold, disposed of, retained or applied by Secured Party in accordance
with the terms hereof, and execute and deliver to Debtor such documents as
Debtor may reasonably request to evidence such termination. Such reassignment
and redelivery shall be without warranty by or recourse to Secured Party, and
shall be at the expense of Debtor; provided, however, that this Security
Agreement (including all representations, warranties and covenants contained
herein) shall continue to be effective or be reinstated, as the case maybe, if
at any time any amount received by Secured Party in respect of the indebtedness
and obligations secured hereunder is rescinded or must otherwise be restored or
returned by Secured Party upon or in connection with the insolvency, bankruptcy,
dissolution, liquidation or reorganization of Debtor or any other person or upon
or in connection with the appointment of any intervenor or conservator of, or
trustee or similar official for, Debtor or any other person or any substantial
part of its assets, or otherwise, all as though such payments had not been made.
(l) Successors and Assigns. This Security Agreement
shall inure to the benefit of Secured Party, its successors and assigns,
including the assignees of any Secured Obligation or of the benefit of any
Secured Obligation and shall bind the heirs, executors, administrators,
successors and assigns of qDebtor. This Security Agreement is assignable by
Secured Party with respect to all or any portion of the Secured Obligations, and
when so assigned, Debtor shall be liable to the assignees under this Security
Agreement without in any manner affecting the liability of Debtor hereunder with
respect to any of the Secured Obligations retained by Secured Party. Each
reference herein to powers or rights of Secured Party shall also be deemed a
reference to the same power or right of such assignees, to the extent of the
interest assigned to them.
(m) Governing Law. This Security Agreement shall be
governed by and construed in accordance with the procedural and substantive laws
of the Commonwealth of Massachusetts without regard to its conflicts of laws
principles.
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<PAGE> 57
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be duly executed and delivered by their respective undersigned duly
authorized officers as of the date first above written.
DEBTOR:
ASCENT PEDIATRICS, INC.,
a Delaware corporation
By:__________________________________
Name:________________________________
Title:_______________________________
SECURED PARTY:
UPSHER-SMITH LABORATORIES, INC.
a Minnesota corporation
By:__________________________________
Name:________________________________
Title:_______________________________
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<PAGE> 58
ANNEX 1
PERMITTED LIENS
Liens created by the Security Agreement dated January 31, 1997 entered into by
Debtor in connection with the issuance of an aggregate of $7,000,000 in
Subordinated Secured Notes, due January 31, 2002, issued pursuant to the terms
of the Securities Purchase Agreement, dated as of January 31, 1997, among
Debtor, Triumph-Connecticut Limited Partnership and certain other purchasers
named therein, which liens are, pursuant to an Intercreditor Agreement dated as
of July ___, 1997 between the Secured Party and such purchasers, subordinate to
the lien of the Security Agreement to which this Annex 1 relates.
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<PAGE> 59
EXHIBIT C
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement, dated July __, 1997, is made
by and between Ascent Pediatrics, Inc., a Delaware corporation (the "Buyer") and
Upsher-Smith Laboratories, Inc., a Minnesota corporation (the "Seller"). All
capitalized words and terms used in this Agreement and not otherwise defined
shall have the respective meanings ascribed to them in the Asset Purchase
Agreement as of March ___, 1997 between the Buyer and the Seller (the "Purchase
Agreement").
WHEREAS, pursuant to the Purchase Agreement, the Seller has agreed to
sell, transfer, convey, assign and deliver to the Buyer certain of the assets of
the Seller referred to in the Purchase Agreement; and
WHEREAS, in partial consideration therefor, the Purchase Agreement
requires the Buyer to assume certain of the liabilities of the Seller;
NOW, THEREFORE, in consideration of the mutual promises set forth in
the Purchase Agreement and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereby agree as follows:
1. The Seller hereby assigns and transfers to the Buyer the Assumed
Liabilities and all of Seller's rights and obligations thereunder.
2. The Buyer hereby assumes and agrees to perform, pay and discharge
the obligations of the Seller arising from and after the date hereof under the
Assumed Liabilities.
3. Notwithstanding the foregoing, except as specifically provided in
the Purchase Agreement, the Buyer does not assume or agree to perform, pay or
discharge, and the Seller shall remain unconditionally liable for, all
obligations, liabilities and commitments, fixed or contingent, of the Seller
other than the Assumed Liabilities.
4. Nothing contained herein shall require the Buyer to perform, pay or
discharge any liability, obligation or commitment expressly assumed by the Buyer
herein so long as the Buyer in good faith contests or causes to be contested the
amount or validity thereof, subject, however, to the provisions of Paragraph 7
below.
5. Nothing herein shall be deemed to deprive the Buyer of any defenses,
set-offs or counterclaims which the Seller may have had or which the Buyer shall
have with respect to any of the obligations, liabilities and commitments hereby
assumed (the "Defenses and Claims"). The Seller hereby transfers, conveys and
assigns to the Buyer all Defenses and Claims and agrees to cooperate with the
Buyer to maintain, secure, perfect and enforce such Defenses and Claims,
including the signing of any documents,
<PAGE> 60
the giving of any testimony or the taking of any such other action as is
reasonably requested by the Buyer in connection with such Defenses and Claims.
6. It is expressly understood and agreed that all liabilities,
obligations and commitments not assumed hereunder by the Buyer pursuant to
Paragraph 2 above shall remain the sole obligation of the Seller and its
respective successors and assigns.
7. The Buyer agrees to indemnify and hold harmless the Seller from and
against all claims, damages, losses, liabilities, costs and expenses, including
without limitation reasonable attorneys' fees, with respect to the failure of
the Buyer to perform, pay or discharge the liabilities, obligations and
commitments hereby assumed by the Buyer.
8. The Buyer, by its execution of this Agreement, and the Seller, by
its acceptance of this Agreement, each hereby acknowledges and agrees that
neither the representations and warranties nor the rights, obligations or
remedies of either party under the Purchase Agreement shall be deemed to be
modified or altered in any way by such execution and acceptance of this
Agreement.
IN WITNESS WHEREOF, the Buyer and the Seller have caused this Agreement
to be duly executed as of and on the date first above written.
ASCENT PEDIATRICS, INC.
By:_____________________________________
Alan R. Fox
Title: President and Chief Executive
Officer
UPSHER-SMITH LABORATORIES, INC.
By:_____________________________________
Title:__________________________________
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<PAGE> 61
Exhibit D
Draft Subject to Opinions Committee Review
[Letterhead of Doherty, Rumble & Butler Professional Association]
July ___, 1997
Ascent Pediatrics, Inc.
187 Ballardvale Street, Suite B125
Wilmington, MA 01887
Re: Asset Purchase Agreement dated March , 1997, between
Upsher-Smith Laboratories, Inc. and Ascent Pediatrics, Inc.
Ladies and Gentlemen:
We have acted as counsel to Upsher-Smith Laboratories, Inc., a
Minnesota corporation ("Upsher-Smith"), in connection with the Asset Purchase
Agreement dated March , 1997 (the "Asset Purchase Agreement") between
Upsher-Smith and Ascent Pediatrics, Inc., a Delaware corporation ("Ascent"), and
the Bill of Sale, the Assignment and Assumption Agreement, the Manufacturing
Agreement, the Uniserts(R) License, the Sprinkle Caps(R) License, the Promissory
Note, the Security Agreement and the Intercreditor Agreement delivered pursuant
to the Asset Purchase Agreement (collectively, the "Documents"). This opinion is
delivered to you pursuant to Section 7.6 of the Asset Purchase Agreement. Terms
defined in the Asset Purchase Agreement and not otherwise defined herein are
used herein with the meanings set forth in the Asset Purchase Agreement.
We are familiar with the proceedings taken by the Upsher-Smith in
connection with the foregoing. We have examined and relied upon the following:
1. The Asset Purchase Agreement (including the Exhibits and
Schedules thereto);
2. Bill of Sale;
3. The Assignment and Assumption Agreement;
4. The Manufacturing Agreement;
5. The Uniserts(R) License;
6. The Sprinkle Caps(R) License;
7. The Promissory Note;
<PAGE> 62
Ascent Pediatrics, Inc.
____________________, 1997
Page 2
8. The Security Agreement;
9. The Intercreditor Agreement;
10. The UCC-1 financing statements (the "Financing Statements") to
be filed pursuant to the Security Agreement in the offices
listed on Schedule 1 hereto;
11. The UCC-3 amendments (the "Financing Statement Amendments") to
be filed pursuant to the Intercreditor Agreement in the
offices listed on Schedule 1 hereto;
12. Resolutions adopted by the sole Director of the Upsher-Smith
dated March ___, 1997;
13. The Articles of Incorporation of Upsher-Smith, as amended, as
certified by the Secretary of State of the State of Minnesota
on July ___, 1997 (the "Articles");
14. A Certificate of Good Standing relating to Upsher-Smith,
issued by the Secretary of State of the State of Minnesota,
dated July ___, 1997 (the "Certificate");
15. A Certificate of Upsher-Smith, executed on behalf of
Upsher-Smith by an officer of Upsher-Smith, dated July ___,
1997, certifying as to the correctness of representations and
warranties and as to the fulfillment of the agreements and
conditions of Upsher-Smith specified in the Asset Purchase
Agreement;
16. A Certificate of the Assistant Secretary of Upsher-Smith,
dated July ___, 1997;
17. A Certificate of the Vice President, Treasurer and Chief
Financial Officer of Upsher-Smith dated July ___, 1997,
certifying as to payment of state and federal income taxes;
18. Upsher-Smith's By-laws and corporate minute and stock record
books; and
<PAGE> 63
Ascent Pediatrics, Inc.
____________________, 1997
Page 3
19. Such other documents, corporate records, certificates and
materials as we have deemed necessary for the purposes of the
opinions rendered herein.
In our examination, we have assumed the completeness of the corporate
minute books and stock record books of Upsher-Smith as provided to us by
Upsher-Smith, the authenticity of original documents, the accuracy of all copies
(whether certified or not), the genuineness of all signatures and the legal
capacity of all persons executing all documents examined by us.
In rendering this opinion, we have relied, as to all questions of fact
material to this opinion, upon certificates of public officials and officers of
Upsher-Smith and upon the representations and warranties made by you and
Upsher-Smith in the Documents. Except for our examination of the documents
listed above, we have not attempted to verify independently such facts, although
we know of no facts which lead us to question the accuracy of such information.
In particular, for purposes of the opinions expressed in Paragraph 1 below as to
the valid existence and good standing of Upsher-Smith, we have relied solely
upon the Certificate, and such opinion is limited accordingly and rendered as of
the date of the Certificate. For purposes of the opinions expressed in clause
(iv) of Paragraph 4 and Paragraph 5 below, we have relied solely on
representations of officers of Upsher-Smith. For purposes of this opinion, we
have not conducted a search of any computerized or electronic databases or the
dockets of any court, administrative or other regulatory body, agency or other
filing office in any jurisdiction. Any reference to "our knowledge" or
"knowledge" or any variation thereof shall mean the conscious awareness of the
attorneys in this firm who have rendered substantive attention to this
transaction of the existence of absence of any facts which would contradict our
opinions set forth below. We have not undertaken any independent investigation
to determine the existence or absence of such facts, and no inference as to our
knowledge of the existence or absence of such facts should be drawn from the
fact of our representation of Upsher-Smith.
We have not made an independent review of the laws of any state or
jurisdiction other than the state laws of the State of Minnesota. Accordingly,
we express no opinion herein with respect to the laws of any country, state or
jurisdiction other than the state laws of the State of Minnesota govern any
agreement to which Upsher-Smith is a party, we have assumed that the laws of
such jurisdiction are identical to the laws of the state of Minnesota. For the
purposes of this opinion, we have assumed that the facts and law governing the
performance by the respective parties of their respective obligations under the
Agreement will be identical to the facts and law governing such performance as
of the date of this opinion.
<PAGE> 64
Ascent Pediatrics, Inc.
____________________, 1997
Page 4
We have assumed that each of the Documents has been duly authorized,
executed and delivered by Ascent and that Ascent has all requisite power and
authority to effect the transactions contemplated by the Documents. We have also
assumed that each of the Documents is the valid and binding obligation of
Ascent, enforceable against Ascent in accordance with its terms. We do not
render any opinion as to the application of any foreign, federal or state law or
regulation to the power, authority or competence of Ascent.
We are expressing no opinion as to (i) the registration, validity,
status, rights, claims, infringement or lack thereof, priorities or any other
matter relating to the existence, ownership or other rights under the patent,
trademark or copyright laws or other laws, including the common law, relating to
intellectual property of the United States, any state or other jurisdiction;
(ii) the implications under the rules and regulations of the United States Food
and Drug Administration with respect to any of the transactions contemplated by
the Documents; (iii) the existence or lack of existence, filing, priority,
perfection, termination or waiver of any security interest affecting the right,
title or interest of any person in, to or under, any property; (iv) the
implications under United States tax law, including all federal, state and local
tax laws, or the tax laws of any foreign jurisdiction with respect to any of the
transactions contemplated by the Documents; (v) the implications under any
applicable antitrust laws of any of the transactions contemplated by the
Documents; (vi) the implications under any applicable usury laws of any of the
transactions contemplated by the Documents; or (vii) the implications under any
federal, state or foreign securities laws or regulations of any of the
transactions contemplated by the Documents.
The opinions hereinafter expressed are qualified to the extent that they
may be subject to or affected by (i) applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other laws relating to or
affecting the rights of creditors generally, (ii) statutory or decisional law
concerning recourse by creditors to security in the absence of notice or
hearing, and (iii) duties and standards imposed on creditors and parties to
contracts, including, without limitations requirements of good faith,
reasonableness and fair dealing. Furthermore, we express no opinion as to the
availability of any equitable or specific remedy upon any breach of any of the
covenants, warranties or other provisions contained in any of such agreements,
instruments or documents, or upon the successful assertion of any equitable
defense. Moreover, we express no opinion as to the enforceability of any
indemnity provision that indemnities any person against damages arising from its
own negligence or misconduct. We express no opinion as to the rights of any
person to set-off against the accounts of any other person.
<PAGE> 65
Ascent Pediatrics, Inc.
____________________, 1997
Page 5
Based upon and subject to the foregoing, we are of the opinion that:
1. Upsher-Smith is a corporation duly organized, validly existing and in
corporate good standing under the laws of the State of Minnesota. Upsher-Smith
has all requisite corporate power and authority to execute and deliver the
Documents and to consummate the transactions contemplated thereby.
2. The execution and delivery of the Documents and the consummation of
the transactions contemplated thereby have been duly and validly authorized by
all necessary corporate action on the part of Upsher-Smith.
3. The Documents have been duly and validly executed and delivered by
Upsher-Smith and constitute valid and binding obligations of Upsher-Smith,
enforceable against Upsher-Smith in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws relating to or effecting the rights and remedies of creditors
generally and to general principles of equity.
4. Neither the execution and delivery of the Documents nor the
consummation of the transactions contemplated thereby, (i) conflicts with or
violate any provision of the Articles of Incorporation or By-laws of
Upsher-Smith; (ii) requires on the part of Upsher-Smith any filing with, or
permit, authorization, consent or approval of, any governmental entity, other
than any filing, permit, authorization, consent or approval which (a) has been
obtained or (b) if not obtained or made would not have a material adverse effect
on the assets, business, financial condition or results of operations of
Upsher-Smith (a "Material Adverse Effect"); (iii) conflicts with, results in a
breach of, constitutes (with or without due notice or lapse of time or both) a
default under, results in the acceleration of, creates in any party the right to
accelerate, terminates or cancels any contract, lease, sublease, license,
sublicense, franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, security interest or other written agreement
set forth on Exhibit A hereto, other than any conflict, breach, default,
acceleration, termination or cancellation which individually or in the aggregate
would not have a Material Adverse Effect; or (iv) to our knowledge, violates any
order, writ, injunction or decree specifically naming Upsher-Smith or any of its
property or assets, or any statute, rule or regulation applicable to
Upsher-Smith or any of its property or assets, other than any such violation
which individually or in the aggregate would not have a Material Adverse Effect.
5. To our knowledge, there is no action, proceeding, suit or
investigation pending or threatened in writing wherein an unfavorable judgment,
ruling, order or
<PAGE> 66
Ascent Pediatrics, Inc.
____________________, 1997
Page 6
decision would (i) prevent the consummation of the sale of the Assets under the
Agreement or (ii) cause the sale of the Assets to be rescinded following the
Closing.
This opinion is provided to Ascent as a legal opinion only and not as a
guaranty or warranty of the matters discussed herein.
This opinion is based upon currently existing statutes, rules,
regulations and judicial decisions, and we disclaim any obligation to advise you
of any changes in any of these sources of law or subsequent developments which
might affect any matters or opinions set forth herein. Please note that we are
opining only as to the matters expressly set forth herein, and no opinion should
be inferred as to any other matters.
This opinion is furnished to you by us as counsel to Upsher-Smith in
connection with the transactions contemplated by the Agreement, and may not be
relied upon by any other person or entity or for any other purpose without our
prior written consent.
Very truly yours,
DOHERTY RUMBLE & BUTLER
PROFESSIONAL ASSOCIATION
By:
<PAGE> 67
EXHIBIT E
MANUFACTURING AGREEMENT
This Manufacturing Agreement (the "Agreement") is made as of this day of
July, 1997 by and between Ascent Pediatrics, Inc. a Delaware corporation, with a
place of business at 187 Ballardvale Street, Suite B125, Wilmington,
Massachusetts 01887 (hereinafter referred to as "Ascent") and Upsher-Smith
Laboratories, Inc. a Minnesota corporation with its principal place of business
at 14905 23rd Avenue North, Minneapolis, Minnesota 55447 (hereinafter referred
to as ("Upsher-Smith").
INTRODUCTION
Ascent has acquired the Feverall(R) suppository, Feverall(R) Sprinkle
Caps(R) powder and Acetaminophen Uniserts(R) suppository product lines formerly
owned by Upsher-Smith, each as more fully described on Schedule A hereto (the
"Product Lines"), pursuant to an Asset Purchase Agreement, dated March , 1997,
between Ascent and Upsher-Smith (the "Asset Purchase Agreement"). In connection
with the purchase and sale of the Product Lines, Ascent and Upsher-Smith desire
to provide for the manufacture and supply of the Products (as defined below) in
the Product Lines pursuant to the terms and conditions hereof.
I - DEFINITIONS
1.1 "Act" means the Federal Food, Drug and Cosmetic Act, as amended,
and regulations promulgated thereunder.
1.2 "Extended Forecasted Needs" means Ascent's estimate of Products to
be ordered during the twelve (12) months following the last month of the
corresponding Forecasted Needs.
1.3 "FDA" means the United States Food and Drug Administration or any
successor entity thereto.
1.4 "Forecasted Needs" means Ascent's estimate of Products to be
ordered from Upsher-Smith for each of the twelve (12) months following the month
in which such estimate is provided.
1.5 "Label", "Labeled" or "Labeling" means all labels and other
written, printed or graphic matter upon (i) Product or any container or wrapper
utilized with Product or (ii) any written material accompanying Product.
1.6 "Market Year" means a period of not more than twelve (12)
consecutive months commencing on the first day of the month following the
initial marketing
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<PAGE> 68
and/or sale of Product manufactured by Upsher-Smith and beginning on January 1st
of each consecutive year thereafter.
1.7 "NDA" means the new drug application Numbered 18-337 associated
with the Products and filed with the FDA.
1.8 "Packaging" means all primary containers, cartons, shipping cases,
inserts or any other like material used in packaging, or accompanying, Product.
1.9 "Product(s)" means product(s) (as listed in Schedule A)
manufactured, packaged, labeled and/or finished by Upsher-Smith to meet the
Specifications (as hereinafter defined).
1.10 "Specifications" means the specifications for raw materials and
manufacturing procedures of the Products as either submitted by Upsher-Smith and
approved in writing by Ascent or covered under Upsher-Smith Standard Operating
Procedures attached hereto as Schedule B ("SOP's"). The Specifications shall
include, without limitation: (i) raw material specifications (including approved
suppliers, art proofs, chemical, microbiological and packaging specifications);
(ii) sampling requirements (i.e., lab, chemical and microbiological); (iii)
compounding module, including compounding process and major equipment; (iv)
intermediate specifications; (v) packaging module (including packaging
procedures, sealing and fill weights); (vi) finished Product specifications
release criteria including Upsher-Smith Acceptable Quality Limits ("AQL's");
(vii) Product stability specifications; and (viii) test methods. Specifications
shall be established and/or amended from time to time upon the written agreement
of both Upsher-Smith and Ascent via a Product Change Request ("PCR") in
accordance with Section IX below.
II - PRODUCT MANUFACTURE AND SUPPLY
2.1 Manufacture and Purchase; Qualification of Third-Party Source.
(a) Subject to the terms and conditions of this Agreement,
Upsher-Smith agrees that it will exclusively manufacture for and provide to
Ascent, and Ascent agrees that it will purchase from Upsher-Smith, one hundred
percent (100%) of Ascent's annual requirements of the Products identified in
Schedule A attached hereto. Ascent shall pay Upsher-Smith for Products as set
forth in paragraph 2.7 below. Upsher-Smith shall manufacture Products in
accordance with the Specifications or pursuant to exceptions approved by Ascent
and in sufficient quantity to meet Ascent's Forecasted Needs for the term of
this Agreement.
(b) Commencing within sixty (60) days of the date of this
Agreement, Upsher-Smith will cooperate with Ascent in qualifying third parties
for manufacturing and testing all Products, including providing such information
and
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<PAGE> 69
personnel as Ascent may reasonably request in order to qualify such third
parties. Such third parties shall enter into confidentiality agreements
substantially similar in form and substance to Section 10.1 hereof to protect
the confidential information of Upsher-Smith and Ascent. Notwithstanding
anything contained herein to the contrary, Upsher-Smith shall not be required to
select, or negotiate with, such third-party manufacturer.
2.2 Supply of Materials.
(a) If Ascent chooses to supply any material for the
manufacture of Products as set forth under this Section II, Ascent shall notify
Upsher-Smith in writing, specifying which materials it intends to supply. Ascent
shall provide Upsher-Smith with said material at Ascent's expense along with
Certificates of Analysis relating to such materials, at a minimum of thirty (30)
days prior to scheduled production of Product requiring such material and in
sufficient amounts for Upsher-Smith's manufacture of Product, but not to exceed
quantities necessary to support three (3) months of the most recently supplied
Forecasted Needs or the lot size quantity, whichever is greater. Ascent-supplied
material in excess of these amounts shall be either subject to storage fees or
returned to Ascent. Upsher-Smith is hereby authorized by Ascent, after
reasonable advance notice to Ascent, to return any portion of Ascent-supplied
material for which no future production is planned. Ascent shall be responsible
for the supply and quality of said materials. Ascent shall be responsible for
the payment of all personal property and other taxes incident to the storage of
Ascent-owned material at Upsher-Smith, after receipt of documentation thereof
reasonably acceptable to Ascent. For each lot of materials supplied by Ascent,
Upsher-Smith shall perform the quality control and inspection tests as agreed to
in the Specifications unless Ascent has made arrangements in writing for
Pre-Approved material. Upsher-Smith shall have the right to reject any
Pre-Approved material which is tested pursuant to Section 2.3 below and does not
meet the Specifications. Upsher-Smith warrants that it will maintain, for the
benefit of Ascent, complete and accurate records of the inventory of all such
Ascent-supplied raw materials. Upsher-Smith will use reasonable efforts to avoid
the commingling of Ascent-supplied raw materials with any other raw materials
and to avoid use of Ascent raw materials obtained pursuant to this Agreement for
any purpose not directly related to the completion of this Agreement. If
requested by Ascent, Upsher-Smith will provide to Ascent a monthly report
limited to ending monthly inventory balance of each Ascent-supplied/owned
material stored at Upsher-Smith. This reporting will be supplied exclusively on
Upsher-Smith forms.
(b) Upsher-Smith shall be responsible for supply of all other
components necessary for the manufacture of Products.
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Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
(c) Ascent shall provide Upsher-Smith with Specifications
(including art proofs) for Packaging and Labeling, and Upsher-Smith shall
purchase, at the expense of Ascent, Packaging and Labeling in accordance with
the Specifications.
(d) In the event that Ascent chooses to supply any materials
under this Section 2.2, Ascent shall provide Upsher-Smith with copies of
invoices from Ascent's supplier of such materials, or otherwise provide
Upsher-Smith with reasonable documentation as to the cost of such materials, and
the cost of such materials shall be used in the price calculation detailed in
Section 2.7 below for purposes of calculating the **% premium-over-cost
component, but not the cost component itself, of the purchase price.
2.3 Materials Testing. All raw materials, Labeling and packaging supplies
shall, when received by Upsher-Smith, be submitted to analysis and evaluation in
accordance with Upsher-Smith's SOP's to determine whether or not such materials
meet the Specifications. The cost of all such analyses and evaluations shall be
borne by Upsher-Smith. Upsher-Smith agrees to maintain and make available to
Ascent records of all such analyses and evaluations.
2.4 Commencement of Manufacturing for New Products. No later than three
(3) months prior to the beginning of the initial Market Year of a new Product,
Ascent shall: (a) notify Upsher-Smith of its delivery requirements, including
firm orders for such new Product, for the first three (3) months of such initial
Market Year, and (b) provide its Forecasted Needs and Extended Forecasted Needs
for the first Market Year and second Market Year, respectively, in order to
ensure timely delivery of Product for initial sale and marketing.
2.5 Purchase Orders.
(a) Ascent agrees to purchase from Upsher-Smith all Products
manufactured for Ascent by Upsher-Smith in accordance with Ascent's purchase
orders, substantially in the form attached as Schedule C hereto, to the extent
such Products meet the Specifications or exceptions previously approved in
writing by Ascent.
(b) Products shall be ordered by Ascent by the issuance of
pre-numbered purchase orders in increments of single or multiple lots.
Upsher-Smith will supply Ascent with the estimated lot yield of each Product.
From time to time, Upsher-Smith may update these estimates based upon actual
manufacturing experience.
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Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
(c) (i) Ascent will deliver to Upsher-Smith, on the first day
of July for each calendar year, a written statement of Ascent's Forecasted
Needs. Such Forecasted Needs shall be updated quarterly on a rolling basis.
Upsher-Smith will use the forecast for planning purposes only. The purchase
order shall specify the requested delivery dates and be submitted at least
ninety (90) days prior to the shipment date specified. Upsher-Smith may, at its
sole discretion, produce product up to thirty (30) days prior to the requested
delivery date in order to accommodate fluctuations in production demands.
Although Upsher-Smith shall attempt to minimize the raw material inventory
purchased on behalf of Ascent, certain raw materials may have long lead time
and/or require a minimum order quantity. Should Ascent subsequently reduce its
Forecasted Needs, Ascent will be financially responsible for any material
purchased by Upsher-Smith on Ascent's behalf in accordance with this paragraph
(c). Any excess in inventory resulting from a reduction in Forecasted Needs over
the inventory level required to support up to six (6) months of Ascent's
Forecasted Needs may be subject to storage and inventory carrying costs based
upon ******************************************* (currently $***** per pallet
per month) plus a $**** per pallet in/out fee.
(ii) The parties agree that Ascent, in conjunction
with providing Upsher-Smith with the Forecasted Needs of the Product, shall also
provide Upsher-Smith with the Extended Forecasted Needs of the Product. The
Extended Forecasted Needs are provided solely to assist Upsher-Smith in its
capital planning requirements associated with this Agreement and do not
represent binding forecasts.
(d) Ascent's purchase orders shall designate the desired
quantities of Products, delivery dates and destinations. Upsher-Smith shall fill
and ship all orders of Products in accordance with Ascent's instructions. If
Ascent's purchase order is not received in accordance with paragraph 2.5(c)
above, then Upsher-Smith will make every attempt to meet Ascent's requested
delivery dates. However, Upsher-Smith will only be required to meet the delivery
dates confirmed to Ascent by Upsher-Smith in writing, so long as such dates do
not exceed one hundred twenty (120) days from receipt of Ascent's purchase
order. This Agreement allows for up to three (3) shipping destinations per lot
of Product. Additional destinations can be accommodated for a shipping
preparation fee to be negotiated by Upsher-Smith and Ascent.
2.6 Released/Rejected Products.
(a) Upon completion of all testing of each lot by
Upsher-Smith, all documents detailed in Appendix X will be forwarded promptly to
Ascent's Quality
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Confidential material omitted and filed separately
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Asterisks denote such omissions.
Control Manager for review. Within 20 days of receipt of such documentation,
Ascent will either authorize Upsher-Smith to release such lot or reject such
lot. Acceptance shall not relieve Upsher-Smith of its obligations under Section
6.1 herein and shall not affect Ascent's rights if any certification under
Section 5.1 is false or materially inaccurate. In the event of rejection, such
notice to Upsher-Smith shall specify in reasonable detail how the Product lot
failed to perform to Specifications. Upsher-Smith shall have an opportunity to
investigate and re-evaluate such Product lot. All Products shall be submitted to
inspection and evaluation in accordance with Upsher-Smith's SOP's to determine
whether or not such Products meet the Specifications. As to any such Product lot
(including phases of or complete lots of bulk product) which is determined to
fail the Specifications and rejected by Ascent or Upsher-Smith ("Rejected
Product"), Upsher-Smith shall replace such Rejected Product promptly after all
raw materials are available to Upsher-Smith for the manufacture not to exceed
120 days. If requested, Upsher-Smith shall make arrangements with Ascent for the
return or disposal of Rejected Product.
(b) In the event of a conflict between the test results of
Upsher-Smith and the test results of Ascent with respect to any shipment of
Product lot, sample of such Product lot shall be submitted by Upsher-Smith to an
independent laboratory acceptable to both parties for testing against the
Specifications under procedures employed in the Specifications. The fees and
expenses of such laboratory testing shall be borne entirely by the party against
whom such laboratory's findings are made.
(c) In the event the Product does not meet final
Specifications, but such failure is not due to either Ascent-supplied
information or Upsher-Smith's failure to follow written procedures, Ascent and
Upsher-Smith shall bear all costs of material, manufacture and destruction of
the Rejected Product equally. Destruction of Rejected Product shall be in
accordance with all applicable laws and regulations and the party conducting the
destruction shall indemnify the other party hereto for any liability, costs or
expenses, including reasonable attorney's fees and court costs, relating to a
failure to dispose of such Product in accordance with such laws and regulations.
The party conducting the destruction shall also provide to the other party
hereto all manifests and other applicable evidence of proper destruction as may
be required by applicable law or reasonably requested by the other party.
2.7 Product Price.
(a) The purchase price as to each Product supplied hereunder
shall be equal to (i) Upsher-Smith's **************** cost as set forth on
Schedule D attached
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Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
hereto ("*************** Cost") related to the manufacture of the Product
("Product Pricing") plus (ii) **% of such *************** Cost. The parties
agree that Schedule D shall include, inter alia, costs associated with
*********************************** *****************************************
******************************************************************. The parties
further agree that the Product Pricing set forth on Schedule D shall remain
fixed for the one-year period commencing on the date of this Agreement.
Thereafter, increases or decreases in *************** Cost of the Products
manufactured hereunder may be made by mutual agreement of the parties on an
annual basis (applicable to the ensuing 12- month period) on each successive
anniversary date of the Agreement Date during the term of this Agreement;
provided, however, that any increase will not exceed the difference between (a)
the United States Producer Price Index ("PPI") measured at the beginning of such
12-month period and (b) the PPI measured at the end of such 12- month period. In
addition, in the event that at any time a component of Upsher-Smith's cost of
raw material increases or decreases greater than ***** percent (**%) due to
events outside of Upsher-Smith's control, Upsher-Smith will notify Ascent in
writing of such increase or decrease and the *************** Cost for each
affected product will be renegotiated to reflect such increase or decrease.
(b) Upsher-Smith shall keep or cause to be kept accurate
records of Fully-Allocated Cost of Products manufactured hereunder. Such records
shall be retained for seven years following their creation. Upon five (5)
business days written notice to Upsher-Smith, such records shall be available
for inspection during normal business hours, at the expense of Ascent, by Ascent
or its designated agent.
(c) Upsher-Smith shall invoice Ascent, for Products ordered by
Ascent, at the time of shipment by Upsher-Smith, and such invoices shall
reference the applicable purchase order(s). Ascent shall pay all amounts
properly shown on such invoices no later than thirty (30) days after the date of
receipt of such invoice (extended terms shall be negotiated for any material
shipped over and above the amounts designated per the applicable purchase order
reflected in such invoice); provided, however, that no payment is due for
Products that are properly rejected for non-conformance pursuant to Section 2.6.
A late fee equal to an annual percentage rate of ******** percent (**%) of the
total invoice can be added each month for late payments. Upsher-Smith, at its
sole discretion, has the right to discontinue Ascent's credit on future orders
and to put a hold on any production or shipment of Products if Ascent's account
is not paid in accordance with this paragraph 2.7(c). Upon Ascent's payment of
all accounts past due, any such hold shall be removed. Such hold on production
or shipment shall not be considered a breach of this Agreement by Upsher-Smith.
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Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
III - SHIPMENT AND RISK OF LOSS
3.1 Shipment. Shipment of Product shall be in accordance with whatever
means Ascent instructs, provided that shipment is made in accordance with all
relevant statutory requirements. Product will be shipped to Ascent or its
designee immediately upon release, freight collect. At Ascent's request,
Upsher-Smith may, at its sole discretion, hold Product in Upsher-Smith's
warehouse for a storage fee based upon ******************* (currently $***** per
pallet per month) plus a $**** per pallet in/out fee. Product held at
Upsher-Smith will be subject to payment in accordance with paragraph 2.7(c)
above. If Ascent requests Upsher-Smith to make any miscellaneous small shipments
of Product, raw material or other items on Ascent's behalf, Ascent agrees to
reimburse Upsher-Smith for any shipping charges incurred.
3.2 Delivery Terms. The purchase price of Products listed on Schedule A
hereof shall be F.O.B., Upsher-Smith plant of manufacture, Upsher-Smith freight
collect. Ascent will bear all risk of loss, delay or damage in transit, as well
as cost of freight and insurance.
3.3 Claims. The weights, tares and tests affixed by Upsher-Smith invoice
shall govern unless established to be incorrect. Claims relating to quantity,
weight and loss or damage to any Product sold under this Agreement shall be
waived by Ascent unless made within sixty (60) days of receipt of Product by
Ascent.
IV - TERM AND TERMINATION
4.1 Term. This Agreement shall be effective as of the date of this
Agreement set forth in the first page hereof. Unless earlier terminated upon the
mutual agreement of the parties or in accordance with the provisions of this
Section IV, this Agreement shall continue in force for five (5) years from the
date of this Agreement. At the option of Ascent, this Agreement may be extended
for up to two additional terms of five (5) years each by providing written
notice thereof to Upsher-Smith not later than one (1) year prior to the
expiration of the then current term hereof; provided, however, that within
fifteen (15) days after receipt of said notice, Upsher-Smith may, by notice to
Ascent, state its desire to renegotiate the provisions of Section 2.7(a)
relating to the purchase price (a "Section 2.7(a) Renegotiation") for Products
to be effective for the additional term, and, in such case, if the parties have
not reached agreement on such provisions within sixty (60) days following the
original extension notice by Ascent, such notice by Ascent shall be deemed to be
withdrawn. Notwithstanding any provision of this Section 4.1 to the contrary,
Upsher-Smith and Ascent agree that no Section 2.7(a) Renegotiation shall result
in an
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with the Securities and Exchange Commission.
Asterisks denote such omissions.
increase to the purchase price of Products supplied hereunder in excess of the
then current *************** Cost plus **% of such *************** Cost.
4.2 Termination. Each party hereto (the "Non-Breaching Party") shall be
entitled to terminate this Agreement by written notice to the other party (the
"Breaching Party") in the event that the Breaching Party is in default of any of
its material obligations hereunder and, in the case of a default which is
remediable, fails to remedy such default within thirty (30) days after written
notice thereof by the Non-Breaching Party. Any such notice shall specifically
state that the Non-Breaching Party intends to terminate this Agreement in the
event that the Breaching Party shall fail to remedy the default. This Agreement
may also be terminated at any time by either party upon the filing of a petition
under Chapter 7 of the United States Bankruptcy Code by the other party or by
Upsher-Smith upon the withdrawal by Ascent of all of the Products from the
market. Upon termination of this Agreement pursuant to this Paragraph 4.2,
neither Party shall be relieved of any obligations incurred prior to such
termination.
4.3 Payment on Termination. In the event of the termination or
cancellation of this Agreement for any reason other than Upsher-Smith's breach
of its material obligations hereunder, and without prejudice to any other rights
and remedies available to Upsher-Smith hereunder, Ascent agrees to reimburse
Upsher-Smith at standard cost (based on prevailing market rates) for any raw
materials directly ordered for the manufacture of Products based on Ascent's
Forecasted Needs and for which Upsher-Smith has no other use, as well as for
work-in-process commenced by, and finished goods of, Upsher-Smith in connection
with the performance of this Agreement; provided, however, that Upsher-Smith
shall make commercially reasonable efforts to mitigate such reimbursable costs.
With respect to any raw materials and components ordered for manufacture of
Products for which Upsher-Smith can reasonably find alternate use, Upsher-Smith
shall only charge Ascent its inventory carrying costs for storage of such raw
materials and components until use (not to exceed twelve (12) months). Within
sixty (60) days of termination and at Ascent's written request, Upsher-Smith
shall furnish Ascent with a statement of all materials in inventory, and shall
ship such materials and the applicable invoice therefor to Ascent at Ascent's
cost and per Ascent's instructions. Ascent shall pay for materials within thirty
days of receipt of such invoice.
4.4 Survival. Termination of this Agreement under Paragraph 4.2 or due
to expiration or cancellation shall not relieve either party of obligations or
liability for breaches of this Agreement incurred prior to or in connection with
termination,
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Asterisks denote such omissions.
expiration or cancellation. Sections I, IV, VI, VII, IX, X, XI, XII and XIII
hereof shall survive the termination or cancellation of this Agreement for any
reason.
V - CERTIFICATES OF ANALYSIS AND MANUFACTURING COMPLIANCE
5.1 Certificates of Analysis. Upsher-Smith shall test each lot of Product
purchased pursuant to this Agreement before delivery to Ascent, and shall
provide to Ascent, promptly following such tests, all documents identified in
Appendix X with respect to the first **** lots of each Product and all
applicable documents identified in Appendix X with respect to the first *** lots
of each raw material at a cost to Ascent of $****** per lot for documents
relating to each Product lot and $****** per lot for documents relating to each
raw material lot. Thereafter, Upsher-Smith shall provide to Ascent, promptly
following such tests, all documents identified in Appendix Y with respect to
subsequent lots of each Product and raw material, at a ********Ascent of $******
per lot; provided that in the event that the FDA requires more extensive
documentation to be included as identified in Appendix X, Upsher-Smith shall
provide Ascent all such documentation at the cost specified immediately above in
this Section 5.1. Each Certificate of Analysis shall set forth the items tested,
specifications and test results for each lot delivered. Required extraordinary
reporting or documentation, outside the scope of this Agreement, may be subject
to an additional charge by Upsher-Smith.
5.2 Stability Testing. Upsher-Smith shall perform its standard stability
test program as committed to in the NDA and as defined in Upsher-Smith's SOP's
or as separately agreed to in accordance with a PCR for each of the Products
contained herein. Upsher-Smith shall receive a copy of the portions relating to
CMC of Ascent's Annual Report for each Product as long as Upsher-Smith is
continuing to produce such Product for Ascent. If Ascent elects to perform its
own stability testing on Product, Ascent agrees to provide Upsher-Smith with a
copy of the results from such testing on an annual basis.
5.3 Validation Work or Additional Testing. It is understood by the
parties hereto that the responsibility for any validation work requested by
Ascent shall be the sole responsibility of Ascent. Upsher-Smith shall be under
no obligation to perform any validation work or additional testing, other than
to complete those activities set forth in Schedule E hereto initiated by
Upsher-Smith prior to the date hereof, in connection with the Product unless
Upsher-Smith and Ascent have entered into a specific written Project Protocol
establishing methodology and pricing for such services. It is understood between
the parties hereto that if Ascent or Upsher-Smith is required by regulatory
authority to perform validation studies or additional testing
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in order to legitimately continue to engage in the manufacture of the Product
for Ascent, Upsher-Smith and Ascent shall be obligated to negotiate in good
faith a Project Protocol for such validation studies or additional testing.
5.4 FDA Inspection. Upsher-Smith shall advise Ascent reasonably in
advance, to the extent possible, if an authorized agent of the FDA or other
governmental agency visits Upsher-Smith's manufacturing facility to perform an
inspection and requests or requires information or changes which directly
pertain to the Products. Upsher-Smith shall allow Ascent to be present and
assist as appropriate in the preparation for and participation in any FDA audits
related to Ascent's Products. Upsher-Smith shall furnish to Ascent copies of all
FDA forms 482 and 483 related to Ascent's Products given to Upsher-Smith by the
FDA promptly upon receipt.
5.5 NDA's and ANDA's. Ascent agrees to provide Upsher-Smith with copies
of any sections of NDA's, ANDA's and supplements applicable to the Products
manufactured and/or tested by Upsher-Smith and copies of any changes in or
updates of same as they, from time to time, hereafter occur.
VI. - WARRANTIES
6.1 Conformity with Specifications. Upsher-Smith warrants that all
Products sold and delivered pursuant to this Agreement will have been
manufactured in accordance with the Specifications or pursuant to exceptions
approved in advance in writing by Ascent at the time of manufacture and
shipment. Upsher-Smith shall be responsible for conducting full quality
assurance investigations per Upsher-Smith SOP's for any Products found to be out
of Ascent's specifications. Upsher-Smith shall immediately communicate any
quality issues or failures of FDA audits and furnish Ascent with copies of all
investigation reports relating to products delivered to Ascent. The quality,
method of manufacture, and raw material used will not be changed by Upsher-Smith
without prior notification of and concurrence by Ascent per Upsher-Smith SOP's.
6.2 Compliance with the Act. Ascent shall bear sole responsibility for
the validity of all test methods and appropriateness of all Specifications. In
addition, Ascent shall bear sole responsibility for all regulatory approvals,
filings and registrations and adequacy of all validation and stability studies.
Ascent further warrants that it will maintain any and all necessary approvals
from all applicable regulatory agencies necessary to manufacture and distribute
all Products under this Agreement.
6.3 Conformity with FDA regulations and cGMP's. Subject to Ascent's
representations set forth in Sections 6.2 and 6.4 hereof, Upsher-Smith warrants
that all Products manufactured, held for sale, sold and shipped pursuant to this
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Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Agreement shall have been manufactured and shipped by Upsher-Smith in
substantial compliance with applicable FDA regulations and current Good
Manufacturing Practices as that term is defined under the Act and that the
manufactured Products conform with the approved NDA for each Product.
6.4 Compliance of Packaging and Labeling with Laws and Regulations.
Ascent warrants that all Labeling copy and artwork approved, designed or
supplied by Ascent shall be in substantial compliance with all applicable laws
and governmental regulations. Compliance with all federal, state, and local laws
and regulations concerning Packaging and Labeling shall be the sole
responsibilities of Ascent, provided that Upsher-Smith purchases such Packaging
and Labeling as provided in Section 2.2(c) hereof. Ascent hereby represents and
warrants to Upsher-Smith that all Ascent designated formulas, components and
artwork related to the Product do not violate or infringe any copyright or
trademark laws, and agrees to indemnify Upsher-Smith, its employees, officers,
directors and representatives for any claim, loss or damage including reasonable
attorney's fees paid or incurred by any of them in connection therewith.
6.5 GMP Audits. Ascent shall have access to Upsher-Smith's facilities at
a mutually agreeable time for the sole purpose of auditing Upsher-Smith's
compliance with current Good Manufacturing Practices and the Act. Such access
shall in no way give Ascent the right to any of Upsher-Smith's confidential or
proprietary information. Further, absent unusual circumstances, such audits
shall be limited to ***** (**) times during the first ****** (**) months of this
Agreement and ******** thereafter and a reasonable number of employees of Ascent
who are subject to the same requirements of confidentiality as Ascent.
6.6 Disclaimer. UPSHER-SMITH AND ASCENT MAKE NO OTHER WARRANTIES, EXPRESS
OR IMPLIED, WITH RESPECT TO PRODUCT, LABELING OR PACKAGING. ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY
DISCLAIMED. UPSHER-SMITH AND ASCENT AGREE THAT IN NO EVENT SHALL EITHER PARTY BE
LIABLE TO THE OTHER FOR INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES RESULTING
FROM BREACH OF THIS AGREEMENT .
VII - PRODUCT RECALLS
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with the Securities and Exchange Commission.
Asterisks denote such omissions.
In the event (i) any government authority issues a request, directive or
order that Product be recalled, or (ii) a court of competent jurisdiction orders
such a recall, or (iii) Upsher-Smith reasonably determines after consultation
with Ascent that the Product should be recalled because the Product does not
conform to Specifications following distribution by Ascent or (iv) Ascent
reasonably determines that the Product should be recalled for any reason, the
parties shall take all appropriate corrective actions reasonably requested by
the other party hereto or by any government agency. In the event that such
recall results from the breach of Upsher-Smith's warranties under this
Agreement, Upsher-Smith shall be responsible for the expenses of the recall. In
the event the recall results from the breach of Ascent's warranties under this
Agreement, Ascent shall be responsible for the expenses of the recall. In the
event that neither Upsher-Smith nor Ascent are responsible for the recall, the
parties shall share the expenses of the recall equally. For the purposes of this
Agreement, the expenses of the recall shall be the expenses of notification and
destruction or return of the recalled Product, as well as any reasonable
out-of-pocket costs, costs of recalled product destroyed after recall, and
damages directly resulting from such recall incurred by Upsher-Smith and Ascent
in connection with any corrective action taken by Upsher-Smith and Ascent.
Ascent shall conduct and direct the recall process.
VIII - FORCE MAJEURE; FAILURE TO SUPPLY
8.1 Force Majeure Events. Failure of either party to perform its
obligations under this Agreement shall not subject such party to any liability
to the other if such failure is caused by acts such as, but not limited to, acts
of God, fires, explosion, flood, drought, war, riot, sabotage, embargo, strikes,
compliance with any court order or regulation of any government entity acting
with color of right or by any other cause beyond the reasonable control of the
parties, whether or not foreseeable.
8.2 Failure to Supply. If Upsher-Smith fails to supply all or part of any
shipment of Products ordered by Ascent within ****** (***) days after the
delivery date specified on the applicable purchase order for such shipment,
which shall be in accordance with paragraph 2.5 hereof, Ascent, at its sole
discretion, may require Upsher-Smith to supply the undelivered Products at a
future date agreed upon by Ascent and Upsher-Smith. If Upsher-Smith is unable,
or it becomes reasonably apparent to Ascent that Upsher-Smith will be unable, to
supply the Product in accordance with Forecasted Needs, Ascent shall have the
right to obtain the Product from third parties in an amount equal to the greater
of (i) the amount which Upsher-Smith is unable to supply or (ii) the minimum
amount which a third party is willing to supply on terms substantially
comparable to the terms contained in this
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Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Agreement. Thereafter Ascent shall no longer be obligated to purchase
exclusively from Upsher-Smith pursuant to this Agreement and either party shall
have the right to terminate this Agreement by providing the other with at least
***** (***) year's written notice thereof.
IX - IMPROVEMENTS
9.1 Changes by Ascent. If Ascent at any time requests a change to a
Product and Upsher-Smith agrees such change is reasonable with regard to Product
manufacture, (i) such change, following any review by the FDA as necessary,
shall be incorporated within the Master Batch Record and/or Specifications via a
written PCR reviewed and agreed upon by both Upsher-Smith and Ascent; (ii)
Upsher-Smith shall adjust, upon consent of Ascent (which consent shall not be
unreasonably withheld), the price of the Product, if necessary, and Schedule A
shall be amended accordingly; and (iii) Ascent shall pay Upsher-Smith for the
costs associated with such change, including, but not limited to, any additional
development work required, charged at Upsher-Smith's then-prevailing research
and development rates (currently $***** per hour) in accordance with Section XI
contained herein.
9.2 Changes by Upsher-Smith. Upsher-Smith agrees that any changes
developed by Upsher-Smith which may be, following any review by the FDA as
necessary, incorporated into the Product shall require the written approval of
Ascent via a PCR prior to such incorporation. At the time of such incorporation,
such changes shall become part of the Specifications. It is also agreed that any
regulatory filings incident to any such change shall be the sole responsibility
of Ascent.
9.3 Changes by Regulatory Authorities. Upsher-Smith agrees that any
changes required by any regulatory authority shall be incorporated into the
Product as evidenced by the written approval of Ascent via a PCR prior to such
incorporation. At the time of such incorporation, such changes shall become part
of the Specifications. If Upsher-Smith is required by any regulatory authority
to perform validation studies for purposes of validating a new manufacturing
process or cleaning procedures or new raw material and finished Product assay
procedures with respect to Product in order to continue to engage in the
manufacture of such Product for Ascent, such studies shall be conducted in
accordance with Section 5.3 herein. In the event of such changes, Upsher-Smith
shall adjust the price of Product, if necessary, and Schedule D shall be amended
accordingly.
9.4 Obsolete Inventory. The cost of any Ascent-specific inventory,
including, but not limited to, raw materials, work-in-process, and finished
goods
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Asterisks denote such omissions.
rendered obsolete as a result of formula, artwork or packaging changes requested
by Ascent or by changes required by regulatory authority, shall be reimbursed to
Upsher-Smith by Ascent at Upsher-Smith's Standard Cost. At such time and unless
otherwise agreed by Upsher-Smith, Upsher-Smith will ship the obsolete inventory
to Ascent for destruction by Ascent. Ascent shall bear ********** percent (**%)
of all destruction costs related to said obsolete inventory. The destruction
shall be in accordance with all applicable laws and regulations and Ascent shall
indemnify Upsher-Smith for any liability, costs or expenses, including
reasonable attorney's fees and court costs, relating to Ascent's failure to
dispose of such inventory in accordance with such laws and regulations. Ascent
shall also provide Upsher-Smith with all manifests and other applicable evidence
of proper destruction as may be requested by Upsher-Smith or required by
applicable law. If Upsher-Smith does not receive disposition instructions from
Ascent within ninety (90) days from date of obsolescence, obsolete inventory
remaining at Upsher-Smith facilities may be subject to storage fees.
9.5 Disposal Costs. Upsher-Smith reserves the right to invoice Ascent for
all disposal costs related to Upsher-Smith's manufacture of Products ordered by
Ascent, unless the disposal relates to nonconforming lots due to the failure of
Upsher-Smith to follow established written procedures.
X - CONFIDENTIAL INFORMATION; INTELLECTUAL
PROPERTY RIGHTS AND SALES INFORMATION
10.1 Confidential Information. All confidential information furnished by
Ascent to Upsher-Smith, or by Upsher-Smith to Ascent, during the term of this
Agreement, relating to the subject matter hereof, shall be kept confidential by
the party receiving said confidential information, except for purposes
authorized by this Agreement, and shall not be disclosed by such party to any
person or firm, unless previously authorized in writing to do so, for a period
of not less than five (5) years following the date of disclosure. The party
receiving said confidential information may, however, disclose the same to its
responsible officers and employees who require said information for the purposes
contemplated by this Agreement, provided that said officers and employees shall
have assumed like obligations of confidentiality. It is understood that all
confidential information provided by either party shall be identified or marked
as such. Any oral communications which are to be considered confidential shall
be reduced to writing and identified as confidential within thirty (30) days
after disclosure.
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<PAGE> 82
Any other provisions hereof to the contrary notwithstanding, it is
expressly understood and agreed by the parties hereto that the obligations of
confidence and nonuse herein assumed shall not apply to any information which:
(1) is at the time of disclosure or thereafter so becomes a part of the
public domain; or
(2) was otherwise in the receiving party's lawful possession prior to
disclosure as shown by its written record; or
(3) is hereafter disclosed to the receiving party by a third party
purporting not to be in violation of an obligation of confidentiality to
the disclosing party relative to said information; or
(4) is by mutual agreement of the parties hereto released from a
confidential status; or
(5) is required to be disclosed pursuant to regulatory or legal
requirements.
10.2 Trademarks and Trade Names.
(a) Each party hereby acknowledges that it does not have, and
shall not acquire, any interest in any of the other party's trademarks or trade
names unless otherwise expressly agreed.
(b) Each party agrees not to use any trade names or trademarks
of the other party, except as specifically authorized by the other party in
writing both as to the names or marks which may be used and as to the manner and
prominence of use.
10.3 Sales Information. Commencing on the date of this Agreement and
until the Promissory Note of Ascent to Upsher-Smith of even date herewith is
paid in full in accordance with its terms, Ascent shall provide Upsher-Smith
with a monthly report of Ascent's sales of Products manufactured hereunder
categorized by each of SKU and class of trade.
XI - RESEARCH & DEVELOPMENT SERVICES
11.1 R&D Services.
(a) From time to time, Ascent may request, in writing, that
Upsher-Smith evaluate, develop, manufacture, test and/or provide price
quotations for certain new items which may become Products (hereinafter referred
to as "Research Products") on behalf of Ascent. Upon receipt of such a request,
Upsher-Smith shall
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<PAGE> 83
determine, at its sole discretion, whether it desires to perform such services
for Ascent. If Upsher-Smith elects to perform such services, Upsher-Smith shall
so notify Ascent within thirty (30) days of its receipt of Ascent's request. To
the extent that Upsher-Smith agrees to perform any services hereunder for
Ascent, Upsher-Smith shall only be obligated to act in good faith and to use
reasonable efforts to accomplish the desired results as outlined in a mutually
agreed upon project protocol (a "Project Protocol"). Nothing herein shall
obligate Upsher-Smith to achieve any specific results and Upsher-Smith makes no
warranties or representations that it will be able to achieve the desired
results.
(b) Should Upsher-Smith agree to perform any services
hereunder, Upsher-Smith shall submit a written development proposal in the form
of a Project Protocol to Ascent identifying Upsher-Smith's best estimate of the
development costs. This estimate shall include, but not be limited to, labor
hours for development, testing, scale up, stability, report writing, etc., as
well as all reasonably foreseeable associated tasks and expenses. If this
estimate is acceptable to Ascent and Ascent so notifies Upsher-Smith by
approving the Project Protocol in writing, Upsher-Smith shall begin work as
outlined in the Project Protocol. It is understood between both parties that,
during any development project, unforeseen tasks may evolve, including, but not
limited to, termination of any further activity due to unacceptable results,
significant reevaluation due to marginal results, etc. Upsher-Smith will
promptly notify Ascent of any such unforeseen tasks before proceeding at which
time either Ascent or Upsher-Smith may terminate the project or mutually agree
to amend or completely revise the Project Protocol. In the case where the
project is terminated or revised, Ascent will be obligated to pay for all of the
work performed by Upsher-Smith up to that point.
(c) Raw material costs involved will be billed to Ascent at
Upsher-Smith's cost. The foregoing development costs shall be paid to
Upsher-Smith in accordance with Upsher-Smith's standard invoicing procedures
regardless of whether Upsher-Smith is able to accomplish the results which
Ascent requested. All invoices shall be paid by Ascent in accordance with
Section 2.7 above. On or before sixty (60) days of the development of a finished
product prototype (which shall include final primary container selection filled
with Research Product), Upsher-Smith will provide an estimate of the fees
associated with manufacturing such product. Upsher-Smith may also provide an
estimate of costs for raw materials should specifications be known for these
items at such time. The estimated manufacturing fees shall automatically be
adjusted annually based upon PPI adjustments pending commencement of Production.
(d) In consideration of its expertise in the design and
manufacture of the Research Products, and its familiarity with the component
materials best suited to the manufacture of the Research Products, Upsher-Smith
shall be responsible for the acquisition of selected components of the Research
Products. All raw materials
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<PAGE> 84
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
delivered to Upsher-Smith and invoiced to Ascent in accordance with Section
11.1(c) of this Agreement are the sole and exclusive property of Ascent.
(e) Any Ascent-specific inventory including, but not limited
to, raw materials, bulk Research Product, waste by-products, testing supplies,
stability samples, work-in-process, and finished goods rendered obsolete at the
conclusion, revision or termination of the development project shall be either
shipped to Ascent or destroyed, whichever Ascent so directs. Ascent shall bear
********** percent (**%) of all destruction costs related to said obsolete
inventory. In the event Ascent elects to destroy obsolete inventory, the
destruction shall be in accordance with all applicable laws and regulations and
Ascent shall indemnify Upsher-Smith for any liability, costs or expenses,
including attorney's fees and court costs, relating to Ascent's failure to
dispose of such inventory in accordance with such laws and regulations. Ascent
shall also provide Upsher-Smith with all manifests and other applicable evidence
of proper destruction as may be requested by Upsher-Smith or required by
applicable law. If Upsher-Smith does not receive disposition instructions from
Ascent within ninety (90) days from date of obsolescence, obsolete inventory
remaining at Upsher-Smith facilities may be subject to storage fees.
(f) Results of all research activity will be considered the
property of Ascent. Upsher-Smith shall assign to Ascent all of its right, title
and interest in and to any inventions, including without limitation any patents
or patent applications thereon resulting from those activities outlined in the
Project Protocol.
11.2 New Product Development. In addition to the foregoing, if from time
to time, at Ascent's request, Upsher-Smith develops a new Research Product for
Ascent and Ascent elects to market, sale, license or transfer such Product, the
parties shall negotiate the addition of said Research Product to this Agreement.
XII - INDEMNIFICATION
12.1 Indemnification by Upsher-Smith. Upsher-Smith will indemnify and
hold Ascent harmless against any and all liability, damage, loss, cost or
expense (including reasonable attorney's fees) resulting from any third-party
claims made or suits brought against Ascent which arise from Upsher-Smith's
breach of its warranties set forth in this Agreement.
12.2 Indemnification by Ascent. Ascent will indemnify and hold
Upsher-Smith harmless against any and all liability, damage, loss, cost or
expense (including reasonable attorney's fees) resulting from any third-party
claims made or suits
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<PAGE> 85
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
brought against Upsher-Smith which are related to the breach of any of Ascent's
warranties provided for in this Agreement or which arise out of the promotion,
distribution, use or sales of Products by Ascent, including, without limitation,
any claims, express, implied or statutory, made as to the efficacy, safety, or
use to be made of Products, and claims made by reason of any Product Labeling or
any Packaging containing Product (provided such packaging and Labeling was
purchased by Upsher-Smith as provided in Section 2.2(c) hereof), unless such
liability, damage, loss or expense is caused by a breach of a warranty in this
Agreement by Upsher-Smith.
12.3 Patent and Other Intellectual Property Rights.
(a) Ascent shall indemnify, defend and hold harmless Upsher-Smith from
any damage, judgment, loss, cost or other reasonable expense (including
reasonable attorney's fees) arising from claims that any change or modification
of the Products by Ascent or at Ascent's direction, whether related to the
formulation, delivery system, packaging, suggested method of use or ingestion or
otherwise, causes the use or sales of the Products to infringe any patent or
other proprietary rights or that the use by Ascent of any trademarks, trade
names or trade dress in connection with the Products, other than the trademarks
Feverall(R), Sprinkle Caps(R) and Uniserts(R), infringes patent or other
proprietary rights of a third party.
(b) Upsher-Smith shall indemnify and hold Ascent harmless from all costs,
damages and expense (including reasonable attorney's fees) arising out of any
suit or action brought against Ascent based upon a claim that any process or
technical data furnished or utilized by Upsher-Smith infringes any patent or
other proprietary rights.
12.4 Conditions of Indemnification. If either party seeks indemnification
from the other under Sections 12.1, 12.2 or 12.3 hereof, it shall promptly give
notice to the other party of any such claim or suit threatened, made or filed
against it which forms the basis for such claim of indemnification and shall
cooperate fully with the other party in the defense of all such claims or suits.
No settlement or compromise shall be binding on a party hereto without its prior
written consent.
12.5 Evidence of Liability Insurance. It is further agreed that each
party hereto shall furnish to the other evidence of products and contractual
liability insurance coverage affording not less than ********** dollars
($**********) each occurrence combined single limit, bodily injury, property
damage and ********** dollars ($**********) aggregate liability limits. Each
insurer shall name the other as an
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<PAGE> 86
additional insured. Such evidence of insurance coverage can be in the form of
the original policy or Certificate of Insurance which shall provide that the
insurer has assumed the liability as provided for herein. In addition, such
insurers shall warrant that such insurance will not be changed or canceled
without at least thirty (30) days prior written notice to the respective
indemnitees.
XIII - GENERAL PROVISIONS
13.1 Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if (i) delivered personally, (ii) sent by
facsimile, (iii) sent by overnight delivery by a nationally recognized courier
service, or sent by registered or certified mail, postage prepaid, return
receipt, addressed as follows or to such other address of which the parties may
have given notice:
To Upsher-Smith: Upsher-Smith Laboratories, Inc.
14905 23rd Avenue North
Minneapolis, MN 55447
Attention: Vice President, CFO
Telecopy: (612) 476-4026
To Ascent: Ascent Pediatrics, Inc.
187 Ballardvale Street
Suite B125
Wilmington, MA 01887
Attention: President
Telecopy: (508) 658-3939
If any notice hereunder relates to a breach or termination of the Agreement, a
copy of such notice shall also be sent to the respective counsel for each party:
For Upsher-Smith: Dean R. Edstrom, Esq.
Doherty, Rumble & Butler
Professional Association
3500 5th St. Towers
150 S. 5th St.
Minneapolis, MN 55402
Telecopy: (612) 340-5584
For Ascent: David E. Redlick, Esq.
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Telecopy: (617) 526-5000
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<PAGE> 87
Unless otherwise specified herein, such notices or other communications shall be
deemed received (a) on the date delivered, if delivered personally or by
facsimile (provided such delivery is actually received by 5:00 p.m. local time
on a business day at the place of receipt); (b) on the next business day, if
delivered by overnight courier; or (c) five business days after being sent, if
sent by registered or certified mail.
13.2 Entire Agreement; Amendment. The parties hereto acknowledge that
this document sets forth the entire agreement and understanding of the parties
and supersedes all prior written or oral agreements or understandings with
respect to the subject matter hereof, and shall supersede any conflicting
portions of Upsher-Smith's quotation, acknowledgment and invoice forms and
Ascent's Purchase Order and other written forms. No modification of any of the
terms of this Agreement, or any amendments thereto, shall be deemed to be valid
unless in writing and signed by the party against whom enforcement is sought. No
course of dealing or usage of trade shall be used to modify the terms and
conditions herein.
13.3 Waiver. No waiver by either party of any default shall be effective
unless in writing, nor shall any such waiver operate as a waiver of any other
default or of the same default on a future occasion.
13.4 Obligations to Third Parties. Each party warrants and represents
that proceeding herein is not inconsistent with any contractual obligations,
express or implied, undertaken with any third party.
13.5 Assignment. Ascent may assign any or all of its rights and/or duties
under this Agreement without the prior consent of Upsher-Smith. Upsher-Smith
shall not assign its rights or duties under this Agreement without the prior
written consent of Ascent, except to a party which acquires all or substantially
all of the business of Upsher-Smith through merger, sale of assets or otherwise.
This Agreement shall be binding upon and inure to the benefit of the Parties
hereto and their successors and permitted assigns.
13.6 Governing Law; Arbitration.
(a) The validity, interpretation and effect of this Agreement
shall be governed by and construed under the laws of the State of Minnesota
without regard to its conflicts of law principles.
(b) The parties agree to attempt to settle any disputes that
arise in connection with this Agreement through good faith mediation efforts.
The parties agree that any dispute that arises in connection with this Agreement
which is not settled through good faith mediation efforts shall be settled by
arbitration which shall be in accordance with the Commercial Arbitration Rules
of the American Arbitration
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<PAGE> 88
Association. Such arbitration shall be held in Chicago, Illinois. There shall be
three (3) arbitrators, one (1) to be chosen by Ascent, one (1) to be chosen by
Upsher-Smith and a third to be selected by the two arbitrators so chosen. The
decision of the arbitrators shall be final and binding upon all parties and
their respective successors and assigns. The costs of arbitration, including
reasonable attorney's fees, shall be borne by the losing party.
13.7 Severability. In the event that any term or provision of this
Agreement shall violate any applicable statute, ordinance, or rule of law in any
jurisdiction in which it is used, or otherwise be unenforceable, such provision
shall be ineffective to the extent of such violation without invalidating any
other provision hereof.
13.8 Headings, Interpretation. The headings used in this Agreement are
for convenience only and are not a part of this Agreement.
13.9 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same original.
13.10 Independent Contractor. In performing its services hereunder,
Upsher-Smith shall act as an independent contractor.
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to
be executed by their duly authorized officers as of the date first above
written.
ASCENT PEDIATRICS, INC. UPSHER-SMITH LABORATORIES, INC.
By:_____________________________ By:_____________________________
Its:____________________________ Its:____________________________
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<PAGE> 89
SCHEDULES AND APPENDICES
Schedule A - Products
Schedule B - Upsher-Smith Standard Operating Procedures
Schedule C - Form of Purchase Order
Schedule D - Fully-Allocated Cost
Schedule E - Validation Work or Additional Testing
Appendix X - Documentation Required for First Five Lots of Product
and First Two Lots of Raw Materials
Appendix Y - Documentation Required for Subsequent Lots of Each
Product
<PAGE> 90
SCHEDULE A - MANUFACTURING AGREEMENT
LIST OF FEVERALL PRODUCT LINE BY SKU AND NDC NUMBER
<TABLE>
<CAPTION>
SKU NDC PRODUCT NAME/STRENGTH DESCRIPTION
- --- --- --------------------- -----------
NUMBER
------
<C> <C> <C> <C>
12112 0245-0121-12 APAP 120mg-12's Acetaminophen Uniserts(R)Suppositories
12312 0245-0123-12 APAP 325mg-12's Acetaminophen Uniserts(R)Suppositories
12212 0245-0122-12 APAP 650mg-12's Acetaminophen Uniserts(R)Suppositories
11306 0245-0113-06 Feverall 80mg-6's Feverall(R)Suppositories (Infants)
11606 0245-0116-06 Feverall 120mg-6's Feverall(R)Suppositories (Children)
11706 0245-0117-06 Feverall 325mg-6's Feverall(R)Suppositories (Junior)
17520 0245-0175-20 Sprinkle 80mg Feverall(R)Sprinkle Caps(R)Powder
17620 0245-0176-20 Sprinkle 160mg Feverall(R)Sprinkle Caps(R)Powder
11612 0245-116-12 Feverall 120mg 12's Feverall(R)Suppositories (Children)
11650 0245-116-50 Feverall 120mg 50's Feverall(R)Suppositories (Children)
11712 0245-117-12 Feverall 325mg 12's Feverall(R)Suppositories (Junior)
11750 0245-117-50 Feverall 325mg 50's Feverall(R)Suppositories (Junior)
11512 0245-115-12 Feverall 650mg 12's Feverall(R)Suppositories (Adult)
11550 0245-115-50 Feverall 650mg 50's Feverall(R)Suppositories (Adult)
11505 0245-115-05 Feverall 650mg 500's Feverall(R)Suppositories (Adult)
12412 0182-1662-11 Goldline 120mg 12's Private Label Feverall(R)Suppositories
12612 0182-7001-11 Goldline 325mg 12's Private Label Feverall(R)Suppositories
12512 0182-1095-11 Goldline 650mg 12's Private Label Feverall(R)Suppositories
12712 0603-8042-11 Qualitest 120mg 12's Private Label Feverall(R)Suppositories
12812 0603-8045-11 Qualitest 650mg 12's Private Label Feverall(R)Suppositories
</TABLE>
<PAGE> 91
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
SCHEDULE B - MANUFACTURING AGREEMENT
(The contents of Pages 1 - 5 of Schedule B consist of Confidential Information
which has been omitted and filed separately with the Securities and Exchange
Commission.)
<PAGE> 92
Schedule C
Ascent Pediatrics, Inc. Work Order [ ]
187 Ballardvale Street, Suite B125 Purchase Order [ ]
Wilmington, MA 91887
508-658-2500
VENDOR SHIP TO
EXPECTED FOB PROJECT
ITEM DESCRIPTION QTY RATE AMOUNT
TOTAL
<PAGE> 93
[REVERSE SIDE OF
PURCHASE ORDER]
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 94
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
SCHEDULE D - MANUFACTURING AGREEMENT
<TABLE>
<CAPTION>
***************
PRODUCT ---------------
NDC NUMBER NAME/STRENGTH/PKG SIZE Cost + **%
- ---------- ----------------------
<S> <C> <C>
0245-0121-12 APAP 120MG-12'S $*****
0245-0123-12 APAP 325MG - 12'S $*****
0245-0122-12 ADAP 650MG-12'S $*****
0245-0113-06 FEVERALL 80MG-6'S $*****
0245-0116-06 FEVERALL 120MG-6'S $*****
0245-0117-06 FEVERALL 325MG-6'S $*****
0245-0175-20 SPRINKLE 80MG $*****
0245-0176-20 SPRINKLE 160MG $*****
0245-116-12 FEVERALL 120MG 12'S $*****
0245-116-50 FEVERALL 120MG 50'S $*****
0245-117-12 FEVERALL 325MG 12'S $*****
0245-117-50 FEVERALL 325MG 50'S $*****
0245-115-12 FEVERALL 650MG 12'S $*****
0245-115-50 FEVERALL 650MG 50'S $*****
0245-115-05 FEVERALL 650MG 500'S $*****
0182-1662-11 GOLDLINE 120MG 12'S $*****
0182-7001-11 GOLDLINE 325MG 12'S $*****
0182-1095-11 GOLDLINE 650MG 12'S $*****
</TABLE>
<PAGE> 95
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
<TABLE>
<S> <C> <C>
0603-8042-11 QUALITEST 120MG 12'S $*****
0603-8045-11 QUALITEST 650MG 12'S $*****
</TABLE>
<PAGE> 96
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
SCHEDULE E
VALIDATION WORK OR ADDITIONAL TESTING
All activities as may be required to gain FDA approval of ***********
****************************************************************************
******************************************************************************
***************** as requested by the FDA.
Notwithstanding the above required activities, should the FDA require
************** on an ongoing basis, both parties agree that the ***************
Cost and Product Pricing will be adjusted to reflect the additional cost
required to perform the above-mentioned testing.
<PAGE> 97
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
APPENDIX "X"
DOCUMENTATION REQUIRED FOR EACH LOT OF FINISHED PRODUCT
1. ******************** OF ******** FOR THE ***************** AND *******
** ******.
2. ******************** OF ******** OR *********** OF *********** FOR ***
**********.
3. ******************************* OF ************************************
AND ************* FOR ******************** BY ************ OR
************** TO A ******************* ********** FOR THE
***************** AND ***************** AND **********.
4. COPIES OF ***********************.
5. *********** OF ******** FOR ******************************************
OF ************ AND ************* FOR ******************** BY
************ OR ************** TO A ******************************.
6. A COPY OF THE *******************************************.
<PAGE> 98
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
APPENDIX "Y"
1. ******************** of ******** and *********************************
for ***************** ******* and *********.
2. ******************** of ******** or *********** of *********** for
************* ******************************* and *************** and
*********************************.
3. A copy of the ********************** and ******************************
**********************.
4. *********** of ******** for ***********************************.
<PAGE> 99
EXHIBIT F
UNISERTS TRADEMARK LICENSE AGREEMENT
Agreement executed as of the ___ day of ________, 1997, by and between
Ascent Pediatrics, Inc. with an address at 187 Ballardvale Street, Suite B125,
Wilmington, MA 01887 ("Ascent"), and Upsher-Smith Laboratories, Inc. having an
address at 14905 23rd Avenue North, Minneapolis, MN ("Upsher-Smith").
INTRODUCTION
Upsher-Smith is the owner of rights in, and the goodwill associated with,
the trademark "UNISERTS" for rectal suppositories (the "Trademark"). Ascent
desires to obtain a license to manufacture, distribute and sell certain products
under the Trademark and Upsher-Smith is willing to grant to Ascent a license to
use the Trademark under the terms and conditions of this Agreement.
Accordingly, in consideration of the mutual covenants contained in this
Agreement, the parties agree as follows:
1. Grant of License. Subject to the terms and conditions specified in
this Agreement, Upsher-Smith hereby grants to Ascent a worldwide, perpetual,
royalty-free right and license to use the Trademark solely in connection with
the manufacture, distribution and sale of acetaminophen rectal suppository
products (such products bearing the Trademark being referred to herein as the
"Licensed Products"). Upsher-Smith shall not use or grant any third party the
right to use the Trademark on Licensed Products, and Upsher-Smith retains all
rights to use the Trademark on products other than Licensed Products.
<PAGE> 100
2. Quality Control. Upsher-Smith shall have the ability to control the
quality of the Licensed Products during the period that Upsher-Smith is
manufacturing the Licensed Products. Upsher-Smith shall also have the right to
monitor Ascent's use of the Trademark. Ascent will send to Upsher-Smith
representative samples illustrating use of the Trademark on packaging,
advertisements and promotional materials after use of the Trademark has
commenced or upon receipt of the written request from Upsher-Smith. In the event
the Licensed Products are manufactured by either Ascent or a third party for
Ascent, Upsher-Smith shall have the right to monitor and observe the
manufacture, processing, packaging and sale of all Licensed Products for the
purpose of protecting and maintaining at least the minimum standards of quality
established by Upsher-Smith for products sold under the Trademark, which
standards of quality shall be the same minimum standards to which Upsher-Smith
adhered when Upsher-Smith manufactured the Licensed Products. Ascent shall also
meet or exceed any other standards imposed by law or which are needed for the
Licensed Products to be available for their intended purpose. Ascent shall
permit Upsher-Smith's authorized personnel to enter the manufacturer's premises
at all reasonable times, with reasonable advance notice, to inspect the relevant
manufacturing, processing and packaging facilities and operations, and to
inspect and test all Licensed Products produced for sale under the Trademark. If
Upsher-Smith at any time finds that any of such products are not being
manufactured, processed, packaged or sold in accordance with such standards of
quality to which Upsher-Smith adhered when Upsher-Smith manufactured the
Licensed Products or have been packaged in a misleading or deceptive manner,
Upsher-Smith
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<PAGE> 101
may notify Ascent in writing of such deficiencies, and if Ascent fails to
correct such deficiencies within sixty (60) days after receipt of such notice,
Upsher-Smith may, at its election, terminate this Agreement effective
immediately.
3. Advertising and Packaging. Ascent shall cause to appear on all
materials on or in connection with which the Trademark is used such legends,
markings and notices as Upsher-Smith may reasonably request. Ascent shall use
the "(R)" marking with all uses of the "UNISERTS" trademark, including on
advertisements, promotional materials, packaging, labels, etc.
4. Trademark Matters.
(a) Ownership of Trademark. Upsher-Smith expressly reserves
the sole and exclusive ownership of the Trademark and all rights relating
thereto. Ascent hereby acknowledges that Upsher-Smith is the sole and exclusive
owner of the Trademark and agrees not to challenge at any time, directly or
indirectly, the rights of Upsher-Smith thereto or the validity or
distinctiveness thereof. Use of the Trademark by Ascent under this Agreement
shall inure to the benefit of Upsher-Smith.
(b) Maintenance of Trademark. Upsher-Smith owns U.S.
Registration No. 1,270,544 dated March 20, 1984 for the mark UNISERTS.
Upsher-Smith shall have the duty to maintain each registration for the
Trademark. If Upsher-Smith wishes to stop using the Trademark and abandon any
registration therefor, it shall first offer to assign the registration to Ascent
on terms to be negotiated by the parties. Ascent has the right to file, in
Upsher-Smith's name, but at the expense of Ascent, additional trademark
applications for registration of the Trademark with respect to the Licensed
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<PAGE> 102
Products sold by Ascent under the Trademark. Ascent will sign any documents or
take any action reasonably necessary and as requested by Upsher-Smith to
maintain the validity of this registration. Ascent shall use its best efforts
not to do or permit to be done any act calculated or likely to prejudice,
affect, impair or destroy the title and interest of Upsher-Smith in and to the
Trademark. If Ascent knows that any person, firm or corporation is infringing
the Trademark, Ascent will promptly notify Upsher-Smith and cooperate fully with
Upsher-Smith in the defense and protection of the Trademark, provided that
Ascent will not be required to make any payments to Upsher-Smith for costs
incurred by Upsher-Smith in the defense and protection of the Trademark.
Upsher-Smith reserves the right to prosecute or defend, at its own expense, all
suits involving the Trademark and the protection thereof. In the event that a
third party is infringing the Trademark and Upsher-Smith decides not to
prosecute such infringer, then Ascent shall have a right to prosecute, at its
own expense, any suit involving the Trademark against such infringer.
(c) Defense of Litigation. Upsher-Smith agrees to indemnify,
defend and hold Ascent harmless from and against any and all liability resulting
from any claim of infringement of trademarks arising out of or related to the
use of the Trademark by Ascent in a manner authorized by this Agreement. The
obligation of Upsher-Smith to Ascent for such infringement or claims of
infringement, shall be conditioned on Ascent giving Upsher-Smith reasonably
prompt notice of any such claim or claims for infringement, and giving
Upsher-Smith the authority to conduct and control the defense of any such action
for infringement (including settlement) with the understanding,
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<PAGE> 103
however, that Ascent may retain additional counsel at its expense and
participate in any such litigation.
5. Indemnification. In the event Ascent manufactures the Licensed
Products, Ascent shall indemnify and hold Upsher-Smith harmless from any and all
claims, damages, costs and expenses that may be claimed or asserted against
Upsher-Smith, by any person, firm, corporation or government arising out of the
manufacture, sale, distribution, possession, use or consumption of Licensed
Products. The obligation of Ascent to indemnify Upsher-Smith pursuant to this
Section shall be conditioned on Upsher-Smith giving reasonably prompt notice of
any such claim for indemnification, and giving Ascent authority to conduct and
control the defense of any action with the understanding, however, that
Upsher-Smith may retain additional counsel at its expense and participate in any
such litigation.
6. Insurance. Ascent shall obtain at its own expense, and keep in force
during the license term and for not less than five years thereafter,
comprehensive public liability insurance, including products liability coverage
(with Broad Form Vendor's Endorsement naming Upsher-Smith as an additional
insured) with bodily injury limits of $2 million for each person, $2 million for
occurrence, and property damage limits of $2 million for each occurrence, in
addition to $5 million umbrella coverage. Ascent shall submit certificates of
each insurance and each renewal thereof to Upsher-Smith promptly upon receipt
thereof.
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7. Termination. This Agreement may be terminated:
(a) by either party at any time if the other party breaches
any of the terms of this Agreement and does not cure such breach to the
reasonable satisfaction of the terminating party within 30 days after receiving
notice thereof; and
(b) by Upsher-Smith, pursuant to the provisions of Section 2.
Termination of this Agreement pursuant to this Section 7 shall be without
prejudice to any right to sue for damages for any antecedent breach of this
Agreement. After the effective date of the termination of this Agreement,
Ascent shall have a reasonable period of time (not to exceed six months) to use
up any inventory then on hand of Licensed Products and packaging or advertising
materials bearing the Trademark, provided such use is otherwise in strict
accordance with the terms and conditions of this Agreement. After such
six-month period, Ascent shall discontinue entirely all use of the Trademark.
8. Miscellaneous.
(a) Waiver. The waiver by either party of a breach of or a
default under any provision of this Agreement by the other party shall not be
construed as a waiver of any subsequent breach of the same or any other
provision of this Agreement, nor shall any delay or omission on the part of
either party to exercise or avail itself of any right, power or privilege that
it has or may have hereunder operate as a waiver of any right, power or
privilege by such party.
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(b) Relationship of Parties. Nothing herein shall create or be
deemed to create any relationship of agency, joint venture or partnership
between Upsher-Smith and Ascent.
(c) Notices. Any notice or other communication in connection
with this Agreement shall be furnished in writing and shall be sufficiently
given if personally delivered (effective as of the date of personal delivery) or
sent by registered or certified mail, postage prepaid (effective three business
days after being so mailed), to the addressee at the address listed below or
such other address as the addressee shall have specified in a notice actually
reserved by the addressor.
If to Ascent:
Ascent Pediatrics, Inc.
187 Ballardvale Street, Suite B125
Wilmington, MA 01887
Attn: President
Facsimile: (508) 658-3939
with a copy to:
David E. Redlick, Esq.
Hale and Dorr
60 State Street
Boston, MA 02109
Facsimile: (617) 526-5000
If to Upsher-Smith:
Upsher-Smith Laboratories, Inc.
14905 23rd Avenue North
Minneapolis, MN
Attn: Vice President and
Chief Financial Officer
Facsimile: (612) 476-4026
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<PAGE> 106
with a copy to:
Merchant Gould Smith
Edell Wilter & Schmidt
Norwest Center, Suite 3100
90 South Seventh Street
Minneapolis, MN 55402
Attn: Cecil C. Schmidt, Esq.
Facsimile: (612) 332-9081
(d) Assignment. Neither this Agreement nor any rights granted
hereunder may be sold, assigned, transferred, pledged, mortgaged, leased or
otherwise encumbered or disposed of in whole or in part by Ascent without the
express prior written consent (which consent shall not be unreasonably withheld)
of Upsher-Smith, except that the consent of Upsher-Smith shall not be required
to assign this Agreement in connection with the reorganization or merger of
Ascent or a sale of all or substantially all of the assets of its business
related to the Licensed Products.
(e) Integration. This Agreement contains the full
understanding of the parties with respect to the subject matter hereof and
supersede all prior understandings and writings relating thereto. No waiver,
alteration or modification of any of the provisions hereof shall be binding
unless made in writing and signed by the parties by their respective authorized
officers.
(f) Governing Law; Arbitration.
(i) This Agreement shall be subject to and
interpreted in accordance with the law of the State of Minnesota.
(ii) The parties agree to attempt to settle any
disputes that arise in connection with this Agreement through good faith
mediation efforts. The parties agree
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<PAGE> 107
that any dispute that arises in connection with this Agreement which is not
settled through good faith mediation efforts shall be settled by arbitration
which shall be in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. Such arbitration shall be held in Chicago,
Illinois. There shall be three (3) arbitrators, one (1) to be chosen by Ascent,
one (1) to be chosen by Upsher-Smith and a third to be selected by the two
arbitrators so chosen. The decision of the arbitrators shall be final and
binding upon all parties and their respective successors and assigns. The costs
of arbitration, including reasonable attorney's fees, shall be borne by the
losing party.
(g) No Election of Remedies. The remedies accorded herein to
Upsher-Smith and Ascent are cumulative and in addition to those provided by law,
and may be exercised separately, concurrently or successively.
(h) Binding Effect. Subject to the express limitations set
forth herein, this Agreement shall be binding upon and inure to the benefit of
Upsher-Smith and Ascent and their respective successors and permitted assigns.
(i) Headings. The headings contained in this Agreement are for
convenience and ease of reference only and shall not be considered in construing
this Agreement.
(j) Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
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<PAGE> 108
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal in their names by their properly and duly authorized
officers or representatives as of the date set forth above.
Ascent Pediatrics, Inc. Upsher-Smith Laboratories, Inc.
By:____________________________ By:_____________________________
Name:__________________________ Name:___________________________
Title:_________________________ Title:__________________________
Date:__________________________ Date:___________________________
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<PAGE> 109
EXHIBIT H
BILL OF SALE
This Bill of Sale, dated July __, 1997, is executed and delivered by
Upsher-Smith Laboratories, Inc., a Minnesota corporation (the "Seller"), to
Ascent Pediatrics, Inc., a Delaware corporation (the "Buyer"). All capitalized
words and terms used in this Bill of Sale and not otherwise defined shall have
the respective meanings ascribed to them in the Asset Purchase Agreement as of
March ___, 1997 between the Buyer and the Seller (the "Purchase Agreement").
WHEREAS, pursuant to the Purchase Agreement, the Buyer desires to
purchase and the Seller desires to sell certain of the Seller's assets referred
to in the Purchase Agreement for the consideration set forth in the Purchase
Agreement, subject to the terms and conditions of the Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual promises set forth in the
Purchase Agreement and other good and valuable consideration, the receipt of
which is hereby acknowledged, the Seller hereby agrees as follows:
1. The Seller hereby sells, transfers, conveys, assigns and delivers to
the Buyer, its successors and assigns, to have and to hold forever, all of the
Assets.
2. The Seller hereby covenants and agrees that it will, at the request of
the Buyer and without further consideration, execute and deliver, and will cause
its employees to execute and deliver, such other instruments of sale, transfer,
conveyance and assignment, and take such other action, as may reasonably be
necessary to more effectively sell, transfer, convey, assign and deliver to, and
vest in, the Buyer, its successors and assigns, title to the Assets, to put the
Buyer in actual possession and operating control thereof, to assist the Buyer in
exercising all rights with respect thereto and to carry out the purpose and
intent of the Purchase Agreement.
3. The Seller and the Buyer, by their execution of this Bill of Sale,
each hereby acknowledges and agrees that neither the representations and
warranties nor the rights and remedies of any party under the Purchase Agreement
shall be deemed to be modified or altered in any way by this instrument.
<PAGE> 110
IN WITNESS WHEREOF, the Seller and the Buyer have caused this instrument
to be duly executed as of and on the date first above written.
UPSHER-SMITH LABORATORIES, INC.
By:_________________________________________
Title:______________________________________
ASCENT PEDIATRICS, INC.
By:_________________________________________
Alan R. Fox
Title: President and Chief Executive Officer
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<PAGE> 111
Exhibit I
[Letterhead of Hale and Dorr LLP]
__________, 1997
Upsher-Smith Laboratories, Inc.
14905 23rd Avenue North
Minneapolis, Minnesota 55447
Re: Asset Purchase Agreement dated
March , 1997, between Ascent Pediatrics, Inc.
and Upsher-Smith Laboratories, Inc.
Ladies and Gentlemen:
We are counsel to Ascent Pediatrics, Inc., a Delaware corporation (the
"Buyer"). In that capacity we have acted as counsel in connection with the
preparation of the Asset Purchase Agreement, dated March ___, 1997, between
Upsher-Smith Laboratories, Inc., a Minnesota corporation (the "Seller"), and the
Buyer (the "Agreement"), the Bill of Sale, the Assignment and Assumption
Agreement, the Manufacturing Agreement, the Uniserts(R) License, the Sprinkle
Caps(R) License, the Promissory Note, the Security Agreement, and the
Intercreditor Agreement delivered pursuant to the Agreement (collectively, the
"Documents"). This opinion is delivered to you pursuant to Section 8.6 of the
Agreement. Terms defined in the Agreement and not otherwise defined herein are
used herein with the meanings set forth in the Agreement.
We are familiar with the proceedings taken by the Buyer in connection
with the foregoing. We have examined and relied upon the following:
1. The Agreement (including the Schedules and Exhibits thereto);
2. The Bill of Sale;
3. The Assignment and Assumption Agreement;
4. The Manufacturing Agreement;
5. The Uniserts(R) License;
6. The Sprinkle Caps(R) License;
7. The Security Agreement;
<PAGE> 112
Upsher-Smith Labratories, Inc.
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Page 2
8. The Promissory Note;
9. The Intercreditor Agreement;
10. The UCC-1 financing statements (the "Financing Statements") in
the form annexed to the Agreement as Exhibit , for filing in
the offices listed on Schedule I hereto;
11. Resolutions adopted by the Board of Directors of the Buyer at
a Meeting of the Board of Directors on March 7, 1997;
12. The Company's Restated Certificate of Incorporation, as filed
with the Secretary of State of the State of Delaware on
______________, 1997 (the "Amended and Restated Certificate");
13. A Certificate of Good Standing and Legal Existence relating to
the Buyer, issued by the Office of the Secretary of State of
the State of Delaware, dated _____________, 1997 (the
"Delaware Certificate");
14. A Certificate of Qualification to do Business relating to the
Buyer, issued by the Office of the Secretary of State of the
Commonwealth of Massachusetts, dated _____________, 1997 (the
"Massachusetts Certificate");
15. A Certificate of the Buyer, executed on behalf of the Buyer by
an officer of the Buyer, dated _______________, 1997,
certifying as to the correctness of representations and
warranties and as to the fulfillment of the agreements and
conditions of the Buyer specified in the Agreement;
16. A Certificate of the Assistant Secretary of the Buyer, dated
_____________, 1997;
17. A Certificate of the Vice President of Finance of the Buyer,
dated ______________, 1997, certifying as to payment of state
and federal income taxes;
18. The Company's By-laws and corporate minute and stock record
books; and
19. Such other documents, corporate records, certificates and
materials as we have deemed necessary for the purposes of the
opinions rendered herein.
<PAGE> 113
Upsher-Smith Labratories, Inc.
_________________, 1997
Page 3
In our examination, we have assumed the completeness of the corporate
minute books and stock record books of the Buyer as provided to us by the Buyer,
the authenticity of original documents, the accuracy of all copies (whether
certified or not), the genuineness of all signatures and the legal capacity of
all persons executing all documents examined by us.
In rendering this opinion, we have relied, as to all questions of fact
material to this opinion, upon certificates of public officials and officers of
the Buyer and upon the representations and warranties made by you and the Buyer
in the Documents. Except for our examination of the documents listed above, we
have not attempted to verify independently such facts, although we know of no
facts which lead us to question the accuracy of such information. In particular,
for purposes of the opinions expressed in clause (iv) of Paragraph 4 and
Paragraph 5 below, we have relied solely on representations of officers of the
Buyer, and we have not conducted a search of any computerized or electronic
databases or the dockets of any court, administrative or other regulatory body,
agency or other filing office in any jurisdiction. Any reference to "our
knowledge" or "knowledge" or any variation thereof shall mean the conscious
awareness of the attorneys in this firm who have rendered substantive attention
to this transaction of the existence or absence of any facts which would
contradict our opinions set forth below. We have not undertaken any independent
investigation to determine the existence or absence of such facts, and no
inference as to our knowledge of the existence or absence of such facts should
be drawn from the fact of our representation of the Buyer.
We have not made an independent review of the laws of any state or
jurisdiction other than the state laws of the Commonwealth of Massachusetts and
the General Corporation Law statute of the State of Delaware. Accordingly, we
express no opinion herein with respect to the laws of any country, state or
jurisdiction other than the state laws of the Commonwealth of Massachusetts and
the General Corporation Law statute of the State of Delaware. To the extent that
the laws of any jurisdiction other than the state laws of the Commonwealth of
Massachusetts or the General Corporation Law statute of the State of Delaware
govern any agreement to which the Buyer is a party, we have assumed that the
laws of such jurisdiction are identical to the laws of the Commonwealth of
Massachusetts. For the purposes of this opinion, we have assumed that the facts
and law governing the performance by the respective parties of their respective
obligations under the Agreement will be identical to the facts and law governing
such performance as of the date of this opinion.
We are expressing no opinion as to the implications under United States
tax law, including all federal, state and local tax laws, or the tax laws of any
foreign jurisdiction with respect to any of the transactions contemplated by the
Documents.
<PAGE> 114
Upsher-Smith Labratories, Inc.
_________________, 1997
Page 4
We are expressing no opinion as to the implications under the rules and
regulations of the United States Food and Drug Administration with respect to
any of the transactions contemplated by the Documents.
We are expressing no opinion as to the implications under any applicable
antitrust or usury laws.
We are expressing no opinion as to state or federal securities antifraud
laws.
We are expressing no opinion as to the validity of the security interest
granted to you in the Buyer's trademarks.
The opinions hereinafter expressed are qualified to the extent that they
may be subject to or affected by (i) applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other laws relating to or
affecting the rights of creditors generally, (ii) statutory or decisional law
concerning recourse by creditors to security in the absence of notice or
hearing, and (iii) duties and standards imposed on creditors and parties to
contracts, including, without limitation, requirements of good faith,
reasonableness and fair dealing. Furthermore, we express no opinion as to the
availability of any equitable or specific remedy upon any breach of any of the
covenants, warranties or other provisions contained in any of such agreements,
instruments or documents, or upon the successful assertion of any equitable
defense. Moreover, we express no opinion as to the enforceability of any
indemnity provision that indemnifies any person against damages arising from its
own negligence or misconduct.
The opinions hereinafter expressed are also subject to the qualification
that we render no opinion as to the validity or enforceability of any provisions
of the Documents regarding the rights of the Seller to set-off against the
accounts of the Buyer, to the extent that (i) the funds on deposit in accounts
of the Buyer are subjected to trustee process or any other valid claim or right
of a third party, (ii) the accounts of the Buyer are special accounts created
solely for the benefit of another party, such as payroll or tax escrow accounts,
and (iii) the funds on deposit in accounts of the Buyer are contained in a
separate account containing the proceeds of collateral securing the obligation
of the Buyer to a secured party other than the Seller under Article 9 of the
Uniform Commercial Code as enacted in the Commonwealth of Massachusetts (the
"Code").
We have assumed that each of the Documents has been duly authorized,
executed and delivered by the Seller and that Seller has all requisite power and
authority to effect the transactions contemplated by the Documents. We have also
assumed that each of the Documents is the valid and binding obligation of each
of the Seller, enforceable against the Seller in accordance with its terms. We
do not render any opinion as to the
<PAGE> 115
Upsher-Smith Labratories, Inc.
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Page 5
application of any foreign, federal or state law or regulation to the power,
authority or competence of the Seller.
For purposes of the opinions expressed in Paragraph 1 below as to the
valid existence and good standing of the Buyer in Delaware, and the
qualification and good standing of the Buyer in Massachusetts, we have relied
solely upon the Delaware Certificate and the Massachusetts Certificate,
respectively, and such opinions are limited accordingly and rendered as of the
respective dates thereof.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Buyer is a corporation duly organized, validly existing and in
corporate good standing under the laws of the State of Delaware. The Buyer is
duly qualified to conduct business and is in corporate good standing under the
laws of the Commonwealth of Massachusetts. The Buyer has all requisite corporate
power and authority to execute and deliver the Documents and to consummate the
transactions contemplated thereby.
2. The execution and delivery of the Documents and the consummation of
the transactions contemplated thereby have been duly and validly authorized by
all necessary corporate action on the part of the Buyer.
3. The Documents have been duly and validly executed and delivered by the
Buyer and constitute valid and binding obligations of the Buyer, enforceable
against the Buyer in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or effecting the rights and remedies of creditors generally and to
general principles of equity.
4. Neither the execution and delivery of the Documents nor the
consummation of the transactions contemplated thereby, (i) conflicts with or
violates any provision of the charter or By-laws of the Buyer; (ii) requires on
the part of the Buyer any filing with, or permit, authorization, consent or
approval of, any governmental entity, other than any filing, permit,
authorization, consent or approval which (a) has been obtained or (b) if not
obtained or made would not have a material adverse effect on the assets,
business, financial condition or results of operations of the Buyer and its
subsidiaries taken as a whole (a "Material Adverse Effect"); (iii) conflicts
with, results in a breach of, constitutes (with or without due notice or lapse
of time or both) a default under, results in the acceleration of, creates in any
party the right to accelerate, terminates or cancels any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, security interest or
other written agreement set forth on Exhibit A hereto, other than any
<PAGE> 116
Upsher-Smith Labratories, Inc.
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Page 6
conflict, breach, default, acceleration, termination or cancellation which
individually or in the aggregate would not have a Material Adverse Effect; or
(iv) to our knowledge, violates any order, writ, injunction or decree
specifically naming the Buyer or any of its property or assets, or any statute,
rule or regulation applicable to the Buyer or any of its property or assets,
other than any such violation which individually or in the aggregate would not
have a Material Adverse Effect.
5. To our knowledge, there is no action, proceeding, suit or
investigation pending or threatened in writing wherein an unfavorable judgment,
ruling, order or decision would (i) prevent the consummation of the sale of the
Assets under the Agreement or (ii) cause the sale of the Assets to be rescinded
following the Closing.
The foregoing opinions are subject to the following additional comments
and qualifications:
(A) We express no opinion as to the existence of, or the
right, title or interest of the Buyer in, to or under, any property in which the
Buyer has granted a security interest to you.
(B) We express no opinion as to the creation of security
interests in property in which a security interest cannot be created under the
Code or the perfection of security interests in fixtures or in property in which
a security interest cannot be perfected by the filing of UCC-1 financing
statements pursuant to Article 9 of the Code except with respect to the
perfection of a security interest in trademarks and patents to the extent
aforesaid.
(C) Under certain circumstances, described in Section 9-306 of
the Code, the right of a secured party to enforce a perfected security interest
in the proceeds of collateral may be limited.
(D) The grant of, or any realization on, security interests in
governmental licenses, permits, authorizations and other rights, in contracts
with government or governmental instrumentalities, commissions, boards or
agencies and in the proceeds thereof are or may be subject to restrictions or
limitations set forth therein or in applicable statutes, laws, rules or
regulations, and we express no opinion as to the creation or perfection of
security interests in such rights, contracts or proceeds.
(E) We express no opinion as to the priority of any security
interests granted by the Buyer to the Seller.
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Upsher-Smith Labratories, Inc.
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(F) The perfection of the security interests may be terminated
as to any Collateral (as defined in the Security Agreement) acquired more than
four months after the Buyer changes its name, identity or corporate structure so
as to make the Financing Statements seriously misleading (within in the meaning
of Section 9-402(7) of the Code) unless new, appropriate financing statements
indicating the new name, identity or corporate structure of the Buyer are
properly filed before the expiration of such four-month period and all fees in
connection therewith are paid. The perfection of security interests in accounts,
including receivables, general intangibles and certain other Collateral, may be
terminated if the Buyer changes the location of its chief executive offices
outside of the Commonwealth of Massachusetts.
(G) Pursuant to the Code, continuation statements are required
from time to time to be filed in order to preserve valid, perfected security
interests.
(H) We have assumed that the Collateral in Massachusetts is
located at the location described on Schedule II hereto and that the chief
executive office of the Borrower is located in Wilmington, Massachusetts.
(I) We express no opinion as to the adequacy of the
description of the Collateral insofar as such description includes terms which
are not defined under Article 9 of the Code.
This opinion is provided to the Seller as a legal opinion only and not as
a guaranty or warranty of the matters discussed herein.
This opinion is based upon currently existing statutes, rules,
regulations and judicial decisions, and we disclaim any obligation to advise you
of any changes in any of these sources of law or subsequent developments which
might affect any matters or opinions set forth herein. Please note that we are
opining only as to the matters expressly set forth herein, and no opinion should
be inferred as to any other matters.
<PAGE> 118
Upsher-Smith Labratories, Inc.
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Page 8
This opinion is furnished to you by us as counsel to the Buyer in
connection with the transactions contemplated by the Agreement, and may not be
relied upon by any other person or entity or for any other purpose without our
prior written consent. David E. Redlick of this firm is Secretary of the Buyer.
Very truly yours,
HALE AND DORR LLP
<PAGE> 119
EXHIBIT J
STATE OF MINNESOTA
UCC-1 FINANCING STATEMENT
For
Filing
Officer
This statement is presented for filing pursuant to Minnesota Uniform Commercial
Code Minnesota Status Chapter 336.9-402
(Type in Black Ink)
1. Individual Debtor - Last Name First Name Middle I.
Social Security # Mailing Address
City State Zip Code
2. Individual Debtor - Last Name First Name Middle I.
Social Security # Mailing Address
City State Zip Code
3. Business Debtor - Name ASCENT PEDIATRICS, INC.
Fed. ID# 04-3047405 Mailing Address 187 BALLARDVALE STREET,
SUITE B125
City WILMINGTON State MA Zip Code 01887
4. Secured Party Name UPSHER-SMITH 5. Assignee of Secured Party
LABORATORIES, INC.
Mailing Address 14905 23RD AVE NORTH Mailing Address
City MINNEAPOLIS State MN Zip Code 55447 City State Zip Code
6. This financing statement covers the following types of items of property. (If
crops are covered describe the real estate and list the name of record owner.)
SEE EXHIBIT A ATTACHED.
_____Debtor is a transmitting utility
as defined by Minnesota Statues Chapter
336.9-105
RETURN ACKNOWLEDGEMENT COPY TO:
(name and address)
__________________________________________
Debtor's Signature (Required in Most Cases
see instructions)
__________________________________________
Debtor's Signature
__________________________________________
Secured Party's Signature
<PAGE> 120
Uniform Commercial Code - FINANCING STATEMENT - Form UCC-1
IMPORTANT - Read Instructions on back before filing out form
This FINANCING STATEMENT is presented to a filing officer for filing pursuant to
the Uniform Commercial Code.
<TABLE>
<S> <C> <C>
4 ( ) Filed for record to 5 ( ) Debtor is a Transmitting 6 No. of Additional Sheet
estate records Utility Presented 2
1. Owner(s)(Last Name First) and 2. Secured Party(ies) and 3. For Filing Officer (Date, Time,
address(es) address(es) Number, and Filing Officer)
ASCENT PEDIATRICS, INC. UPSHER-SMITH LABORATORIES, INC.
187 BALLARDVALE ST., STE B125 14905 23RD AVENUE NORTH
WILMINGTON, MA 01887 MINNEAPOLIS, MN 55447
</TABLE>
7. This financing statement covers the following types (or items) of property:
SEE EXHIBIT A ATTACHED.
( ) Products of Collateral are also
covered.
Whichever is
Applicable (See
Instruction Number 9)
ASCENT PEDIATRICS, INC.
- ------------------------------------ ---------------------------------------
- ------------------------------------ ---------------------------------------
Signature(s) of Debtor (Or Assignor) Signature of Secured Party (Or Assignee)
<PAGE> 121
EXHIBIT A
TO
UCC-1 FINANCING STATEMENT
DEBTOR: Ascent Pediatrics, Inc.
SECURED PARTY: Upsher-Smith Laboratories, Inc.
The Collateral described on the financing statement, to which this Exhibit A is
attached, means Debtor's now owned or hereafter acquired right, title and
interest in and to the following categories of the Debtor's properties, assets
and other claims, rights and interests which are used by the Debtor in the
development, sale or manufacture of Feverall(R) suppository ("FS"), Feverall(R)
Sprinkle Caps(R) powder ("FSC") and Acetaminophen Uniserts(R) suppository
("AUS") product lines (collectively, the "Product Lines") (for purposes hereof,
the business of manufacturing, marketing and selling FS, FSC and AUS shall be
referred to as the "Business"):
i. all inventories of finished goods, samples, trade packs, raw
materials, supplies and similar items (the "Inventory");
ii. all regulatory approvals, registrations and related materials (the
"Registrations");
iii. all rights of the Debtor under contracts, leases, licenses and
other instruments, including private label manufacturing agreements and sales
broker contracts (collectively, the "Contracts");
iv. all rights of the Debtor under express or implied warranties from
the suppliers of the Debtor;
v. all of Debtor's right, title and interest in and to all trademarks,
whether owned by Debtor or used under license, registered, pending or
unregistered, and applications for registration, trade dress, logos, drawings
and trade names and related goodwill and business, and including, without
limitation, Feverall(R), Sprinkle Caps(R) and Uniserts(R) (the "Trademarks");
vi. all of the Debtor's right, title and interest in and to intangible
property rights (including but not limited to inventions, discoveries, trade
secrets, processes, formulas, know-how, United States and foreign patents,
patent applications, copyrights, copyright registrations) owned and used or,
where not owned, used by the Debtor, in connection with the manufacture of the
Product Lines and the licenses and other agreements to which the Debtor is a
party (as licensor or licensee) or by which the Debtor is bound relating to any
of the foregoing kinds of property or rights (collectively, the "Intangible
Property");
<PAGE> 122
vii. all unfilled orders (if any) relating to the Product Lines or the
Business;
viii. all of the product formulations and related documentation,
written technical information, data, specifications, and research and
development information (the "Technical Information");
ix. all correspondence and product complaint information (the
"Regulatory Information");
x. all marketing information and materials, including copies of
customer lists and sales records (the "Marketing Materials");
xi. all books, records and accounts, correspondence, production
records, technical, accounting, manufacturing and procedural manuals, studies,
reports or summaries relating to any environmental conditions or consequences of
any operation, present or former, as well as all studies, reports or summaries
relating to any environmental aspect or the general condition of the Product
Lines or the Business and any related confidential information which has been
reduced to writing (the "Records");
xii. all patents and copyrights, including, without limitation, those
registered, pending or unregistered and applications therefor (the "Patents" and
"Copyrights", respectively);
xiii. all of the inventory, registrations, contracts, trademarks,
technical information, regulatory information, marketing materials records and
other personal property acquired by Debtor from the Secured Party under the
Asset Purchase Agreement dated March ___, 1997 between Debtor and Secured Party;
xiv. all items described in this Exhibit A, whether now owned or
hereafter at any time acquired by Debtor and wherever located, and all
modifications, improvements and enhancements to the Collateral and proceeds
arising from sales of Collateral not in the ordinary course of business,
relating thereto or therefrom; and
xv. proceeds arising from sales of Collateral not in the ordinary
course of business hereunder include (i) whatever is now or hereafter receivable
or received by Debtor upon the sale, exchange, collection or other disposition
of any item of Collateral not in the ordinary course of business, whether
voluntary or involuntary, and (ii) any insurance or payments under any
indemnity, warranty or guaranty now or hereafter payable by reason of loss or
damage or otherwise with respect to any item of Collateral.
Notwithstanding anything contained herein to the contrary, Collateral shall not
include any property of the Debtor which is not used in the development, sale or
manufacture of the Product Lines.
<PAGE> 123
EXHIBIT K
INTERCREDITOR AGREEMENT
This Intercreditor Agreement ("Agreement") dated as of July ____, 1997,
between Upsher-Smith Laboratories, Inc. ("USL"), a Minnesota corporation, with
its principal office at 14905 23rd Avenue North, Minneapolis, Minnesota 55447,
and Triumph-Connecticut Limited Partnership, a Connecticut limited partnership,
with its principal office at 60 State Street, Boston, Massachusetts 02109, for
itself and as agent for John D. Howard and Lauren R. Howard, Frederick S. Mosley
IV and E. Mark Noonan, as Trustees of the Triumph Capital Group, Inc. 401(k)
Plan and Trust for the account of Thomas W. Janes, and Duane E. Thurman
(collectively, the "Triumph Investors").
WITNESSETH
WHEREAS, simultaneously with the execution of this Agreement, USL will
enter into an Asset Purchase Agreement (the "Asset Purchase Agreement") with
Ascent Pediatrics, Inc., a Delaware corporation ("Ascent') pursuant to which USL
will sell to Ascent certain of USL's assets relating to the Feverall and
Acetaminophen Uniserts Suppository Product Lines and Acetaminophen Sprinkle Caps
(the "Product Lines"), and Ascent will issue to USL its promissory note in the
principal amount of $5,500,000 (the "USL Note"); and
WHEREAS, Ascent has previously issued to the Triumph Investors
$7,000,000, in aggregate, of its Subordinated Secured Notes Due January 31, 2002
(the "Triumph Notes"); and
WHEREAS, Ascent's indebtedness to USL under the USL Note will be
secured by a security interest in certain assets of Ascent defined as the
Collateral ("Collateral") in and granted by Ascent to USL under a security
agreement of even date herewith ("USL Security Agreement"); and Ascent's
indebtedness to the Triumph Investors under the Triumph Notes is secured by a
security interest in the Collateral and other assets of Ascent as provided in a
<PAGE> 124
Security Agreement dated January 31, 1997 (the "Triumph Security Agreement")
(the USL Security Agreement and the Triumph Security Agreement are hereinafter
called the "Security Documents");
WHEREAS, USL and the Triumph Investors have agreed upon their relative
rights and priorities with respect to the indebtedness evidenced by the USL Note
and the Triumph Notes and with respect to the Collateral; and
WHEREAS, USL and the Triumph Investors have agreed that the USL Note is
not Senior Indebtedness (as defined in the Triumph Notes).
NOW, THEREFORE, in consideration of the premises, USL and the Triumph
Investors agree as follows:
1. Priority of Indebtedness.
The indebtedness and payment obligations of Ascent to USL shall be
governed by the provisions of the USL Note and the USL Security Agreement, and
the indebtedness and payment obligations of Ascent to the Triumph Investors
shall be governed by the Triumph Notes and Triumph Security Agreement. Neither
USL nor the Triumph Investors shall have priority over the other with respect to
such indebtedness and payment obligations.
Priority to Collateral.
2. Priority to Collateral.
The security interests granted to USL under the USL Security Agreement
shall be senior in priority and right to the security interests granted to the
Triumph Investors under the Triumph Security Agreement or hereafter arising with
respect to the Collateral, irrespective of the time or order of attachment or
perfection of the respective security interests or the time or order of filing
financing statements or any statement in any other agreement to the contrary or
any provision of the Uniform Commercial Code ("UCC") or any other applicable law
to the contrary; and each
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of USL and the Triumph Investors agree not to contest the perfection, priority,
validity or enforceability of the liens and security interests granted by Ascent
to the other. USL does not claim a security interest in any assets of Ascent
other than in the Collateral. In the event of (a) a foreclosure of, or exercise
of any other remedy respecting the Collateral by USL or the Triumph Investors,
or (b) the distribution of the proceeds of the liquidation of the Collateral in
connection with the bankruptcy of Ascent or otherwise, the proceeds of any such
foreclosure, enforcement action or liquidation, after payment of the reasonable
costs and expenses of the party or parties conducting such foreclosure,
enforcement action or liquidation, shall be first paid to USL until all
indebtedness owing to USL under the USL Note and USL Security Agreement have
been paid in full and then to the Triumph Investors.
3. Notice of Default.
USL and the Triumph Investors shall each provide notice to the other in
the event either of them declares Ascent to be in default under the USL Note or
the Triumph Notes, as the case may be. Notwithstanding the preceding sentence,
but subject to the requirements of Section 6, the failure of a party to provide
notice of default shall not negate or in any way adversely affect or impair the
validity of the declaration of default or the priority to Collateral provided in
Section 2 hereof.
4. No Third Party Beneficiaries.
This Agreement and the terms and provisions hereof are solely for the
benefit of USL and the Triumph Investors and shall not confer any benefit in any
way upon Ascent or any person not a party to this Agreement. Nothing herein is
intended to affect, limit, or in any way diminish the security interests that
USL and the Triumph Investors claim in the Collateral or other assets of Ascent
insofar as the rights of Ascent and third parties are concerned.
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5. Validity and Perfection of Security Interests.
The priority of the parties in the Collateral provided in Section 2
hereof is expressly conditioned upon nonavoidability and perfection of the
security interests of each of the parties in the Collateral. If the security
interest of USL or the Triumph Investors is not perfected or is avoidable for
any reason, then the priority arrangements provided in Section 2 hereof as to
the particular part of the Collateral that is the subject of the unperfected or
avoidable security interest shall be ineffective.
6. Remedies.
Each of USL and the Triumph Investors agree not to commence a
foreclosure or similar action with respect to the Collateral until 60 days after
the notice required by Section 3 has been given unless each party hereto waives
the 60-day waiting period. In the event of the commencement of foreclosure or
similar action by either of the parties hereto with respect to the Collateral,
the parties shall cooperate with each other in the exercise of their respective
remedies, including, without limitation, rights of entry to premises upon which
personal property is located. If either party hereto shall be in possession of
any part of the Collateral after having its claims against Ascent satisfied in
full, it shall deliver (unless otherwise restricted by law and subject in all
events to the receipt of an indemnification of all liabilities arising from such
delivery) or surrender possession of such part of the Collateral to the other
party to the extent such other party may be entitled thereto in accordance with
the priorities established in this Agreement, all without recourse or warranty.
7. Recovered Payments.
To the extent either party receives any proceeds from the Collateral or
payments from Ascent which are subsequently recovered, set aside, deemed a
preference or fraudulent conveyance, or otherwise required to be repaid (a
"Recovered Payment") under any law or
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principle of equity, then that part of the indebtedness of Ascent to such party
previously satisfied with such proceeds shall be deemed revived and unsatisfied,
and any payments made to the Triumph Investors out of proceeds from the
Collateral obtained from the exercise of remedies under paragraph 6 up to the
amount of the Recovered Payment shall be paid to USL.
8. Waiver of Marshalling.
Each of the parties hereby waives any right to require the other party
to marshall any security or collateral or otherwise to compel the other party to
seek recourse against or satisfaction of the indebtedness owed to it from one
source before seeking recourse or satisfaction from another source.
9. Release of Collateral.
The Triumph Investors agree that any collection, sale or other
disposition of any or all of the Collateral by USL pursuant to the UCC shall be
free and clear of any and all security interests, liens, claims and/or rights of
the Triumph Investors in such Collateral, and in connection with any such
disposition of the Collateral the Triumph Investors shall promptly release any
and all security interests, liens, claims and/or rights which they may have on
or in the applicable Collateral to facilitate the collection, sale or other
disposition of such Collateral by USL so long as the proceeds thereof are
applied first to the payment of the indebtedness owed to USL and any excess is
then applied to the payment of the indebtedness owed to the Triumph Investors.
10. Insurance Proceeds.
In the event of the occurrence of any casualty with respect to any of
the Collateral valued at an amount of $100,000 or more, the Triumph Investors
and USL agree that USL shall have the sole and exclusive right, upon ten (10)
days notice to the Triumph Investors, to adjust, compromise or settle any such
loss with the insurer thereof, and to collect and receive the
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proceeds from such insurer up to the amount of USL's claim. Any insurer shall be
fully protected if it acts in reliance on the provisions of this paragraph.
11. Effect of Bankruptcy of Ascent.
This Agreement shall remain in full force and effect notwithstanding
the filing of a petition for relief by or against Ascent under the United States
Bankruptcy Code and shall apply with full force and effect with respect to all
of the Collateral acquired by Ascent and to all indebtedness owed to USL
incurred by Ascent subsequent to the date of said petition.
12. Assignment of Indebtedness owed to the Triumph Investors.
The Triumph Investors represent and warrant to USL that they have not
previously assigned any interest in any of the indebtedness owed to the Triumph
Investors, that no other party owns an interest in any of the indebtedness owed
to the Triumph Investors other than the Triumph Investors and that the entire
indebtedness is owed only to the Triumph Investors. The Triumph Investors
covenant and agree with USL that the entire indebtedness shall continue to be
owing only to the Triumph Investors, unless such indebtedness is assigned
expressly subject to the terms, provisions and conditions of this Agreement, the
assignee of such indebtedness agrees in writing to be bound by the terms,
provisions and conditions of this Agreement and the Triumph Investors shall have
delivered such executed assignment and assumption agreements to USL.
13. Amendment of Indebtedness Owed to the Triumph Investors.
The Triumph Investors agree that during the term of this Agreement it
will not enter into any agreement with Ascent (i) increasing the principal
amount of any indebtedness of Ascent to the Triumph Investors payable on or
prior to the date of payment of the USL Note; or (ii) increasing the interest
rate of any indebtedness of Ascent to the Triumph Investors effective prior to
the scheduled maturity date for payment of the USL Note.
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<PAGE> 129
14. UCC Notices.
If any party is required by the UCC or any other applicable law to give
notice to another party of any action taken or to be taken by such party against
or with respect to any or all of the Collateral, such notice shall be given in
accordance with Section 16 hereof and ten (10) days' notice shall be
conclusively deemed to be commercially reasonable.
15. Relation of Parties.
This Agreement is entered into solely for the purposes set forth in the
recitals above, and, except as is expressly provided otherwise herein, neither
party hereto assumes any responsibility to the other party to advise such other
party concerning information regarding the financial condition of Ascent, the
Collateral, or any other circumstances bearing upon the right of nonpayment of
the obligations of Ascent to the parties hereto. Each party shall be responsible
for managing its relation with Ascent and neither party shall be deemed the
agent of the other party for any purpose. Each of the parties here may alter,
amend, supplement, release, discharge or otherwise modify any terms of the
documents evidencing or embodying their loans to Ascent without consent of the
other, except that no such alteration, amendment, supplement, release, discharge
or modification shall (i) permit the creation of any lien with respect to any of
the Collateral that is prior to the lien of the other party, or (ii) amend,
waive or modify any of the terms of the Security Documents, so as to affect the
relative priorities established herein.
16. Notices.
All notices hereunder shall be effective upon receipt and shall be in
writing and sent by either certified mail, return receipt requested, by
overnight courier, by hand delivery or by telecopier as follows:
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If to USL: Upsher-Smith Laboratories, Inc.
14905 23rd Avenue North
Minneapolis, Minnesota 55447
Attention: Vice President and Chief
Financial Officer
Telecopier: (612) 476-4026
With a copy to: Doherty, Rumble & Butler
Professional Association
3500 Fifth Street Towers
150 South Fifth Street
Minneapolis, MN 55402
Telecopier: (612) 340-5584
If to the Triumph Investors: c/o Triumph-Connecticut Limited
Partnership
Mr. Thomas W. Janes
Managing Director
Triumph Capital Group, Inc.
Sixty State Street, 21st Floor
Boston, Massachusetts 02109
Telecopier: (617) 557-6020
With a copy to: David Ruediger, Esq.
Goodwin, Procter & Hoar LLP
53 State Street
Boston, Massachusetts 02109
Telecopier: (617) 523-1231
And, in either case,
with a copy to: Ascent Pediatrics, Inc.
187 Ballardvale Street, Suite B125
Wilmington, MA 01887
Attention: President
Telecopier: (508) 658-3939
With a copy to: Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: David E. Redlick, Esq.
Telecopier: (617) 526-5000
or such other address or person as either of the parties hereto or Ascent may
designate in writing to the others. Notice shall be deemed received (i) three
(3) business days after the same is deposited in a United States Post Office
Box, postage prepaid, (ii) one (1) business day after the
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same is deposited with a recognized courier service for overnight mail delivery;
or (iii) on the same day as telecopied or hand delivered.
17. Copies of the Loan Documents.
Ascent has provided to USL and the Triumph Investors copies of the
Asset Purchase Agreement, the USL Security Agreement, the USL Note, the Triumph
Notes and Triumph Security Agreement. Each of the parties shall promptly provide
the other party a copy of any amendments to such documents.
18. Further Assurances.
The Triumph Investors and USL hereby covenant and agree to take any and
all additional actions and execute, deliver, file and/or record any and all
additional agreements, documents and instruments as may be necessary or as the
Triumph Investors or USL may from time to time reasonably request to effect the
subordination and other provisions of this Agreement.
19. Waivers: Failure or Delay.
No failure or delay on the part of either party in the exercise of any
power, right, remedy or privilege under this Agreement shall impair such power,
right, remedy or privilege or shall operate as a waiver thereof; nor shall any
single or partial exercise of any such power, right, remedy or privilege
preclude any other or further exercise of any other power, right, remedy or
privilege. The waiver of any such right, power, remedy or privilege with respect
to particular facts and circumstances shall not be deemed to be a waiver with
respect to other facts and circumstances.
20. Binding Agreement; Amendment.
This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns and the respective assignees
of the USL Note and the Triumph Notes. This agreement may not be amended except
in writing, signed by the parties hereto.
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<PAGE> 132
21. Term of Agreement.
This Agreement shall continue in full force and effect and shall be
irrevocable by either party hereto until the earlier to occur of the following:
(a) the agreement in writing of the parties to terminate this
Agreement; or
(b) the full payment and satisfaction by Ascent of all of its
obligations under the USL
Note.
22. Section Titles.
The section titles contained in this Agreement are for convenience only
and are without substantive meaning or content and shall not be considered part
of this Agreement.
23. Severability.
Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provisions
or the remaining provisions of this Agreement.
24. Equitable Remedies.
Each party to this Agreement acknowledges that the breach by it of any
of the provisions of this Agreement is likely to cause irreparable damage to the
other party. Therefore, the relief to which any party shall be entitled in the
event of any such breach or threatened breach shall include, but not be limited
to, a mandatory injunction for specific performance, injunctive or other
judicial relief to prevent a violation of any of the provisions of this
Agreement, damages and any other relief to which it may be entitled at law or in
equity.
25. Attorneys' Fees and Expenses.
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<PAGE> 133
In the event of any dispute concerning the meaning or interpretation of
this Agreement which results in litigation, or in the event of any litigation by
a party hereto to enforce the provisions hereof, the prevailing party shall be
entitled to recover from the non-prevailing party, fees in addition to its other
damages, its reasonable attorneys' fees and expenses and any actual court costs
incurred.
26. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
27. Counterparts.
This Agreement may be executed in several counterparts, each of which
will constitute an original and all of which together will constitute one and
the same instrument.
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<PAGE> 134
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
UPSHER-SMITH LABORATORIES, INC. TRIUMPH-CONNECTICUT
LIMITED PARTNERSHIP
JOHN D. HOWARD AND
By: ______________________________ LAUREN R. HOWARD
Its President
FREDERICK S. MOSLEY IV AND E.
MARK NOONAN, AS TRUSTEES OF
THE TRIUMPH CAPITAL GROUP, INC.
401(K) PLAN AND TRUST FOR THE
ACCOUNT OF THOMAS W. JANES
DUANE E. THURMAN
By: TRIUMPH-CONNECTICUT
LIMITED PARTNERSHIP, as agent
By: ________________________________
Thomas W. Janes
Title: Managing Director
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<PAGE> 135
ACKNOWLEDGMENT AND CONSENT
Ascent Pediatrics, Inc. hereby acknowledges and consents to the terms
and provisions of the foregoing Agreement.
ASCENT PEDIATRICS, INC.
By: _____________________________
Its: ____________________
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<PAGE> 1
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Exhibit 10.7
DEVELOPMENT AND LICENSE AGREEMENT
THIS DEVELOPMENT AND LICENSE AGREEMENT (the "Agreement") is made and entered
into as of the date of last signature of the parties below (the "Effective
Date"), by and between RECORDATI S.A. CHEMICAL AND PHARMACEUTICAL COMPANY, a
Swiss corporation, with its principal offices located at Corso San Gottardo 54,
6830 Chiasso, Switzerland ("Recordati"), and ASCENT PEDIATRICS, INC., a Delaware
corporation, with its principal offices located at 9 Linnell Circle, Billerica,
MA 01821, U.S.A. ("Ascent").
RECITALS
A) Recordati has developed and owns the Recordati Technology (as defined
herein);
B) Ascent is interested in developing a CRSS-formulation for the delivery
of the non-proprietary drug Albuterol ("Drug");
C) Recordati and Ascent on May 24, 1994 entered into an agreement
("Feasibility Agreement") under which Recordati, with input from Ascent, has
prepared prototype CRSS formulations containing the Drug and
D) Recordati and Ascent desire to set forth the terms and conditions under
which Recordati will develop the Product (as defined herein), scale-up the
production from laboratory scale to industrial scale and grant to Ascent a
license to clinically test, register, distribute, market, use and sell the
Finished Product (as defined herein); and Ascent will clinically test, obtain
Regulatory Approval (as defined herein), register, distribute, market, use and
sell the Finished Product.
In consideration of the foregoing recitals and the mutual promises,
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
I. CERTAIN DEFINITIONS
As used in this Agreement, the capitalized terms below have the following
meaning:
1.1 "Affiliate/s" means any person or entity controlling, controlled by,
or under common control with, Recordati or Ascent. For the purpose of
this Agreement, the term "control" means the direct or indirect
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Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
ownership of fifty percent (50%) or more of any entity's voting stock,
equity or income interest or such other relationship as in fact
constitutes actual control, but in each case only for so long as such
ownership or control shall continue.
1.2 "Clinical Testing" means all biological, toxicological,
pharmacokinetic, pre-clinical and clinical studies or tests, and all
other studies or tests, necessary or useful for Regulatory Approval.
1.3 "Costs" means Recordati's actual ***************** costs and expenses
(including, without limitation, payments made to ********************
*************)related to the fulfillment of its obligations under the
Development Program.
1.4 "CRSS" means the proprietary technology, including, without
limitation, the Patents, owned by Recordati for a controlled release
suspension system for drug delivery.
1.5 "Development Committee" means the committee, to be composed of an
equal number of two or more representatives of each party, with
responsibility for all coordination, monitoring, modifications and
reporting related to the Development Program.
1.6 "Development Program" means the program, Estimated Costs,
specifications and respective responsibilities of the parties hereto,
for the ************************************************************
********************************************************************
********************************************************************
****, which is described in Exhibit A hereto, together with such
further modifications as shall be agreed upon by the Development
Committee.
1.7 "Estimated Costs" means the part of the Development Program describing
the estimated Costs expected to be incurred by Recordati and
reimbursed by Ascent in connection with the fulfillment of Recordati's
obligations under the Development Program. The Estimated Costs will be
determined on the basis of, and be part of the Development Program and
the parties shall agree to the Estimated Costs prior to initiating
each stage of the Development Program. The Estimated Costs are set
forth in Exhibit A. Recordati shall bear the cost of transferring the
CRSS technology to its Nominee or the Second Source. Ascent shall bear
the cost of the manufacturing scale-up of the Finished Product.
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Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
1.8 "Finished Product" means the Product together with all excipients (the
"Vehicle Granulate") reflecting the specifications set forth in the
Regulatory Approval in its finished package form ready for sale to
consumers, including packaging materials as approved for marketing by
Regulatory Authorities in the Territory.
1.9 "FDA" means the United States Food and Drug Administration, or any
successor governmental agency performing similar functions.
1.10 "IND" means an Investigational New Drug Application filed with the FDA
or the equivalent application filed with a foreign Regulatory
Authority.
1.11 "Know-How" means scientific and technical data or information,
including, without limitation, the Product, its formulations,
improvements, manufacturing data, process descriptions, skills,
methods of formulation, pharmacokinetics, preclinical and clinical
data plus tests with respect to the Product or Finished Product that
either party now possesses, develops or becomes contractually entitled
to receive from a third party during the term of this Agreement.
1.12 "Major Countries" means those countries with major markets for
pharmaceutical products as set forth in Exhibit B, including any
subsequent amendments.
1.13 "Net Sales" means the ************************ of Finished Product in
the Territory by Ascent, its Affiliates and its sublicensees, as the
case may be, (or by Recordati and its Affiliates, if Recordati is
obligated to pay royalties to Ascent under this Agreement) to
unaffiliated third parties
**********************************************************************
**********************************************************************
**********************************************************************
provided that*********************************************************
*******of Ascent's, its Affiliates and its sublicensees' published
list price; ************ ***************** provided that the
******************************************* shall be
****************************of such gross invoices in any Major
Country and to ********** of such gross invoices in all other
countries of the Territory during each calendar year. Sales between
Ascent and its Affiliates or sublicensees shall be excluded from the
computation of Net Sales, except where such Affiliates or sublicensees
are end-users, but
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<PAGE> 4
Net Sales shall include the subsequent final sales to third parties by
such Affiliates or sublicensees.
1.14 "Patents" means the patents and patent applications set forth in
Exhibit C, together with any continuation, continuation in part,
extension, division, substitution, or addition thereto, as well as
patents issuing thereon and reissues, re-examinations, revalidation,
and registrations based thereon.
1.15 "PLA" or "Product License Application" means any application seeking
Regulatory Approval of the Finished Product filed with a Regulatory
Authority by Ascent, Recordati, their Affiliates or their
subcontractors or sublicensees anywhere in the Territory. For the
purposes of this Agreement a PLA includes an NDA or New Drug
Application.
1.16 "Product" means any specific CRSS formulation for Albuterol in the
form of CRSS coated granulates to be developed by Recordati pursuant
to the Development Program attached hereto as Exhibit A, and selected
by Ascent for use with the Vehicle Granulate in the manufacture of the
Finished Product for clinical testing and sale.
1.17 "Finished Product Data" means all documents, reports information and
expertise, except for Recordati Technology, developed, acquired or
possessed by Ascent, its affiliates, or its sublicensees, relating to
the Finished Product or any improvements, including, without
limitation, all Know-How, Clinical Testing data, formulations and
packaging, useful or required for the acquisition of Regulatory
Approval, registration and/or commercialization of the Finished
Product.
1.18 "Recordati Technology" means the proprietary or confidential
information relating to CRSS, the Product, the Finished Product and/or
improvements (except combination products, i.e., CRSS products using
one or more active ingredients in addition to Albuterol) thereto,
owned or otherwise licensable by Recordati or its Affiliates prior to
the Effective Date or developed or acquired by Recordati or its
Affiliates or jointly by Recordati and Ascent during the term of this
Agreement, which is necessary or useful for the manufacture, Clinical
Testing, registration, marketing, distribution, use and sale of the
Product or Finished Product. Proprietary information includes, but is
not limited to, information, data and designs of any kind and any
embodiment thereof, Know-How, intellectual property rights, trade
secrets, patents and patent applications anywhere in the world,
including, without limitation the Patents. Recordati Technology shall
not include any
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<PAGE> 5
trademarks, tradedress, logos and designs owned or used by Recordati,
except for the trademark(s) pertaining to CRSS.
1.19 "Recordati Territory" means Italy and Spain.
1.20 "Regulatory Approval" means all the authorizations required by the
Regulatory Authorities in any country of the Territory necessary for
the manufacturing, importation, use, marketing and/or sale of the
Finished Product in such country.
1.21 "Regulatory Authority" means the FDA or other governmental authority
whose authorization is necessary for the lawful manufacture,
importation, use, marketing and/or sale of the Product or Finished
Product in the Territory.
1.22 "Supply Agreement" means the Manufacturing and Supply Agreement for
the Finished Product attached hereto as Exhibit D.
1.23 "Territory" means all of the countries of the world (including the
Recordati Territory, unless otherwise agreed upon in writing by the
parties.
II. REPRESENTATIONS AND WARRANTIES
2.1 Recordati Representations - Recordati hereby represents and
warrants to Ascent as follows:
2.1.1 Power and Authority - Recordati has the corporate power
and authority to execute and deliver this Agreement and
perform its obligations hereunder, and the execution,
delivery and performance of this Agreement has been duly
and validly authorized by Recordati, and upon mutual
execution and delivery, this Agreement, will constitute a
valid and binding agreement of Recordati. Execution,
delivery and performance of this Agreement will not result
in the breach of, or give rise to, the termination of any
agreement to which Recordati is a party.
2.1.2 Ownership, Validity and Enforceability of Patents -
Recordati is the owner of the Patents, and, except for
such Patents, there are no other patents issued in any
country in the Territory and no other patent applications
filed in any country therein, in each case owned or filed
by or specifically licensed to Recordati or any of its
Affiliates relating to the Product or Finished Product.
Recordati has no knowledge of any fact which casts
substantial
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<PAGE> 6
doubt on the validity or enforceability of any of the
Patents which have been issued as of this date that is not
referred to in the file wrappers thereof or that has not
been otherwise disclosed to Ascent in writing.
2.1.3 Non-Infringement - To the best of Recordati's knowledge,
information and belief, the manufacture and the permitted
testing, registration, use, marketing and sale of the
Product and Finished Product will not infringe the rights
of any third party.
2.1.4 Material Information Concerning Product - Recordati has no
knowledge as of the date of this Agreement of any material
information, not heretofore disclosed to Ascent, relating
to the potential safety or efficacy of the Product or
Finished Product.
2.1.5 Good Practices - Recordati represents and warrants that
the activities conducted by or for it during the
Development Program have been and will be conducted under
conditions that meet or exceed, in all material respects,
the standards for good laboratory practices, current good
manufacturing practices and good clinical practices as set
by the applicable authorities and in compliance of all
other laws and regulations governing the conduct of such
activities.
2.1.6 No Other Representations or Warranties - Recordati is not
making any other representation or warranty, express or
implied.
2.2 Ascent Representations - Ascent hereby represents and warrants to
Recordati as follows:
2.2.1 Power and Authority - Ascent has the corporate power and
authority to execute and deliver this Agreement and
perform its obligations hereunder, and the execution,
delivery and performance of this Agreement has been duly
and validly authorized by Ascent, and upon mutual
execution and delivery, this Agreement, will constitute a
valid and binding agreement of Ascent.
2.2.2 Material Information Concerning Product - Ascent has no
knowledge as of the date of this Agreement of any material
information, not heretofore disclosed to Recordati,
relating to the potential safety or efficacy of the
Product or Finished Product.
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<PAGE> 7
2.2.3 No Third Party Approvals. Neither the execution and
delivery of this Agreement, the Supply Agreement or the
License Agreement, nor consummation of the transactions
contemplated hereunder or thereunder, requires Ascent to
obtain any permits, authorizations or consents from any
governmental body (except for Regulatory Approvals as
contemplated herein) or from any other person, firm or
corporation, and such execution, delivery and performance
will not result in the breach of or give rise to any
termination of any agreement or contract to which Ascent
may be a party.
2.2.4 Good Practices - Ascent represents and warrants that the
activities conducted by or for it during the Development
Program have been and will be conducted under conditions
that meet or exceed, in all material respects, the
standards for good laboratory practices, current good
manufacturing practices and good clinical practices as set
by the applicable authorities and in compliance of all
other laws and regulations governing the conduct of such
activities.
2.2.5 No Other Representations or Warranties - Ascent is not
making any other representation or warranty, express or
implied.
2.3 Disclaimer - The parties acknowledge that the Development Program
is a research program, that the results of such a program are
unpredictable and that neither party guarantees any particular
results of the research.
III. DEVELOPMENT PROGRAM
3.1 General - The Development Program will be conducted on a
country-by-country basis. The Development Program in a specific
country will be commenced upon timely election by Ascent pursuant
to Section 3.2 and will be completed upon receipt of Regulatory
Approval for the Finished Product in that country. The Development
Program will be continued until its lapses or is completed or
terminated in all countries in the Territory or until terminated in
accordance with this Agreement. Upon execution of this Agreement,
Ascent will be deemed to have elected to commence the Development
Program in the United
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<PAGE> 8
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
States as of the Effective Date; provided, however, that Ascent
acknowledges and understands that Recordati has been performing
obligations under the Development Program since October 1, 1995, an
that simultaneously herewith Ascent shall pay Recordari the sum of
US ********** in reimbursement of the Costs incurred by Recordati
through to May 31, 1996.
3.1.1 Worklist - The parties have agreed on a work list,
milestones and estimated timetables for the activities to
be carried out by each party under the Development Program
in the United States, each of which are set forth in
Exhibit A.
3.1.2 Estimated Costs - The parties have agreed on the Estimated
Costs for the work to be carried out by Recordati under
the Development Program in the United States set forth in
Exhibit A.
3.1.3 Special Equipment - The cost of special equipment is not
included in the Estimated Costs. In the event that
procurement of special equipment becomes necessary
specifically and exclusively as a result of the
performance of this Agreement, the sharing of the costs of
such equipment will be the subject of good faith
deliberation of the Development Committee.
3.2 Election to Commence Development Program in Specific Countries
Ascent may elect, at any time during the Commencement Period (as
hereinafter defined), to commence the Development Program in any
country in the Territory.
3.2.1 Commencement Period - The Commencement Period means the
period beginning on the Effective Date and ending
twenty-four (24) months from filing for Regulatory
Approval in the United States. The Development Program in
respect of any country will lapse if Ascent does not elect
to commence the Development Program for such country
during the Commencement Period.
3.2.2 Notice of Election - In respect of each country, Ascent
shall exercise its right by giving Recordati written
notice of its election to commence the Development Program
in such country.
3.2.3 Negotiation of Terms - Upon receipt of Ascent's election,
the parties will negotiate in good faith the worklist,
specifications, timing and Estimated Costs for further
activities, if any, required to complete the Development
Program in each country of the Territory where Ascent
timely elects to commence the
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<PAGE> 9
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Development Program, including, without limitation,
reformulation and/or compliance with regulatory countries
of the Territory, provided that such terms and
requirements in other conditions are substantially similar
to the terms and conditions contained herein in the event
that the costs of the Development Program in any such
country are likely to exceed the costs incurred for the
Development Program in the United States the parties shall
promptly meet and in good faith discuss the Development
Program and the costs thereof.
3.2.4 Commencement - The Development Program in a specific
country of the Territory shall commence upon the final
negotiation of and agreement to the terms described in
Section 3.2.3 above.
3.3 Pre-clinical Development - The parties will use commercially
reasonable efforts to perform their respective obligations for the
pre-clinical development of the Product.
3.3.1 Billing and Payment - Recordati will invoice Ascent
quarterly for its Costs incurred through the end of the
preceding quarter. Ascent will pay such invoices within
thirty (30) days of invoice date in U.S. dollars by wire
transfer or other payment method acceptable to Recordati;
provided, however, that, unless agreed upon by the
Development Committee in accordance with Section 3.6,
Ascent will not be obligated to reimburse Recordati for
Costs which exceed Estimated Costs by more than
**********.
3.3.2 Completion - The Pre-clinical development of the Product
will be complete upon the formulation of a Product meeting
the specifications set forth in the Development Program.
3.4 Manufacturing Scale-Up - The parties will use commercially
reasonable efforts to perform their respective obligations for the
clinical and industrial manufacturing scale-up of the Product as
set forth in theDevelopment Program. Ascent will supply to
Recordati or its Nominee ************** required for the
manufacturing scale-up.
3.4.1 Billing and Payment - Recordati will invoice Ascent
quarterly for its Costs incurred through the end of the
quarter. Ascent will pay such invoices within thirty (30)
days of invoice date in U.S. dollars
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<PAGE> 10
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
by wire transfer or other payment method acceptable to
Recordati; provided, however, that, unless agreed upon by
the Development Committee in accordance with Section 3.6,
Ascent will not be obligated to reimburse Recordati for
Costs which exceed Estimated Costs by more than *********.
3.4.2 Completion of Clinical Manufacturing Scale-Up - The
clinical manufacturing scale-up of the Product will be
complete upon the delivery for Clinical Testing of the
first lot of the Product meeting the specifications set
forth in the Development Program.
3.4.3 Completion of Industrial Manufacturing Scale-Up - The
industrial manufacturing scale-up of the Product will be
complete upon the validation of the process by manufacture
of an industrial scale lot meeting the specifications set
forth in the Development Program and provision to Ascent
of the documentation related to the manufacturing of the
Product necessary for Regulatory Approval.
3.5 Clinical Testing - The parties will use commercially reasonable
efforts to perform their respective obligations set forth in the
Development Program for the Clinical Testing of the Product and
obtaining of Regulatory Approval for the Finished Product.
3.5.1 Right to Gain Regulatory Approval - With the exception of
the Recordati Territory, Ascent or its sublicensee(s) will
have the right, at its sole option, to first obtain
Regulatory Approval(s) for the Finished Product(s) in the
country of the Territory where Ascent has timely elected
to make the Development Program effective and the
Development Program has not been terminated. In such case,
the IND and PLA filed with respect to the Finished Product
will be filed by, and in the name of, Ascent, or its
sublicensee, and Ascent, or its sublicensee, will be
designated as the party with whom the Regulatory Authority
shall communicate regarding such submissions.
3.5.2 Responsibilities for Clinical Testing - Recordati will be
responsible for conducting the clinical studies and other
tests required for Regulatory Approval in the Recordati
Territory. In all other countries of the Territory, Ascent
will conduct at its own expense the Clinical Testing
required for the Regulatory Approvals for the Finished
Product. If Ascent acquires a Regulatory Approval which is
effective in the Recordati Territory an Recordati elects
to acquire such Regulatory Approval in the Recordati
Territory in lieu of obtaining its own Regulatory Approval
under this section, then
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<PAGE> 11
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Recordati and Ascent shall negotiate in good faith and
agree upon the proportion of the cost of the PLA in
respect of such Regulatory Approval to be borne by
Recordati and upon agreement and payment of the agreed
upon price, Ascent shall assign to Recordati the
Regulatory Approval for the Finished Product in the
Recordati Territory.
3.5.3 Supply of Clinical Samples - Recordati will supply
**************** to Ascent the quantities of Product
required by Ascent for Clinical Testing in accordance with
the Development Program and Ascent shall supply all
quantities of Albuterol required therefor **************
to Recordati. To the extent that Recordati is unable to
supply sufficient quantities of the Product for Clinical
Testing of the Product by both Ascent and Recordati,
Recordati will first allocate clinical supplies of the
Product to Ascent, and then to Recordati until such time
as the Development Program has lapsed or been completed in
each Major Country or has been terminated. 3.5.4
Completion of Clinical Testing - The clinical testing of
the Product will be completed upon the receipt by Ascent
or its sublicensee (or Recordati in the Recordati
Territory, of Regulatory Approval for the Finished
Product.
3.6 Development Committee - The Development Committee will consist of
two (2) representatives from each of Ascent and Recordati. Either
party is free to change its representatives by written notice to
the other party.
3.6.1 Coordination - The Development Program will be coordinated
by the Development Committee. The Development Committee
will confer by telephone from time to time as necessary
but in no event, unless agreed by both parties, less than
once per week. Unless otherwise decided, the Development
Committee will meet in person not less than once per
quarter. Decisions of the Development Committee will be
made by majority vote of its members.
3.6.2 Revisions and Modifications - The parties recognize that
the Development Program, including the Estimated Costs,
may require revisions from time to time. The Development
Committee will be responsible for all revisions or
modifications to
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<PAGE> 12
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
the Development Program. If either party should reasonably
request revision or modification to the Development
Program, the Development Committee will consider the
request at its next scheduled meeting. Requests for
significant revision or modification will be subject to a
formal vote at the meeting at which such requests are
considered. If the requested revision to the Development
Program does not receive a majority in favor or in
opposition, the Development Committee will use its best
efforts to arrive at a compromise proposal for revision or
modification of the Development Program taking into
account the reasons for the requested revision or
modification, the other party's reasons for objection
thereto, the best interests of the long-term relationship
between the parties and the purposes and objectives of the
Development Program. If, despite its best efforts, the
Development Committee is unable to approve a requested
revision or modification or arrive at an acceptable
compromise proposal, then such revision or modification
will be addressed by one executive from each party, each
having a title or rank higher than the highest title or
rank of any of the members of the Development Committee.
The executives will meet, either face to face or by
telephone, and will use their best efforts to arrive at a
negotiated resolution. If the executives are unable to
resolve the issues related to the requested revision or
modification in a mutually agreeable manner, then the
requested revision or modification, will be considered
rejected. If the executives are able to arrive at a
mutually agreeable proposal, then that proposal will be
reduced to by writing signed by the executives and will be
deemed approved by the Development Committee.
3.7 Reporting - All reports will be provided to the members of the
Development Committee.
3.7.1 Progress Reports - Within thirty (30) days after the end
of each calendar quarter, Recordati and Ascent will
provide progress reports on the work performed and actions
taken in such quarter with respect to the Development
Program, including, without imitation, updates on
*********************************************************
******************************. Recordati and Ascent will
also provide, as soon as is reasonably practical after the
end of each month (except March, June, September and
December), an outline of the work performed and actions
taken with respect to the Development Program.
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<PAGE> 13
3.7.2 Material Events - Recordati and Ascent will closely
cooperate and promptly inform the Development Committee as
soon as either becomes aware of any event which is likely
to cause a variation in the specifications or to
materially impair the continuation of the Development
Program. Ascent will promptly advise the Development
Committee of any event which comes to its attention in the
course of its human and animal studies, so that Recordati
may make revisions as needed. All material events will
also be included in the quarterly reports exchanged
between the parties in accordance with Section 3.7.1.
3.7.3 Adverse Effects - Ascent will advise Recordati regarding
any adverse effect, relating to the Finished Product
during the clinical trials of the Finished Product,
including the incidence or severity thereof, associated
with clinical uses, studies, investigations or tests,
whether or not determined to be attributable to a Finished
Product. Such reports will be made in accordance with the
Adverse Event Procedures to be established under Section
5.5. All adverse effects or events will also be included
in the quarterly reports exchanged between the parties in
accordance with Section 3.7.1.
3.7.4 Obligations After Completion of Development Program -
During the term of this Agreement, each party will
continue to report to the Development Committee the
information set forth in Section 3.7.3 relevant to each
country in which the Development Program is complete.
3.8 Access - Recordati will provide Ascent with reasonable access to
Recordati personnel as required under the Development Plan.
3.9 Term and Termination of the Development Program
3.9.1 Term - Unless earlier terminated in accordance with this
Agreement, the Development Program will continue until
completed in each country in respect of which Ascent has
made timely election pursuant to Section 3.2.
3.9.2 Termination with respect to Specific Countries in the
Territory The Development Program shall be terminated with
respect to one or more countries in the Territory in the
event that the Development Committee determines that the
commercial development of the Product in such countries is
not technically feasible. The Development Program in a
specific country shall
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<PAGE> 14
also terminate upon termination of the licenses granted
pursuant to Sections 5.1 and 5.2 in that country. In
either case, the Development Program will continue until
completed or terminated in other countries of the
Territory, without regard to the termination of the
Development Program in a specific country.
3.9.3 Termination of the Entire Development Program - The
Development Program will terminate upon termination of
this Agreement. Termination of this Agreement terminates
the Development Program with respect to each and every
country in the Territory. In the event of termination of
this Agreement, Ascent will promptly pay all substantiated
reasonable Costs incurred by Recordati or which prior to
the effective date of termination Recordati has obligated
itself to pay and which cannot be canceled, with respect
to each country in the Territory in which the Development
Program has commenced but has not been completed;
provided, however, that in the event this Agreement is
terminated due to a breach by Recordati, Ascent shall not
be obligated to reimburse any Costs incurred by Recordati.
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<PAGE> 15
IV. INTELLECTUAL PROPERTY
4.1 Recordati Technology - Recordati is and shall be the exclusive
owner of the Recordati Technology. Recordati will retain all
rights, title and interest in the Recordati Technology developed
during the term of this Agreement even if the same is included in
the Development Program information exchanged between the parties,
or any submission to the Regulatory Authorities.
4.2 Finished Product Data - Ascent and/or its sublicensee(s) are and
shall be the exclusive owner(s) of all the Finished Product Data
developed by Ascent and/or its sublicensee(s), or acquired by
Ascent from third parties other than Recordati and its affiliates,
and the Regulatory Approvals applied for and obtained by Ascent
and/or its sublicensee(s). Recordati is and shall be the owner of
the Finished Product Data developed or obtained by Recordati and
the Regulatory Approvals applied for or obtained by Recordati.
4.3 Patent Protection - Recordati will use diligent efforts at its
expense to file those patents claiming inventions specific to the
Product or Finished Product in the United States, Japan and all
other PCT countries, as well as any other country in which Ascent
applies for Regulatory Approval. In the event that Recordati files
a patent application, Recordati will give Ascent reasonable
opportunity to review and comment on the patent application during
its preparation and during the prosecution process.
4.4 Infringement Actions - In the event that Ascent becomes aware of
actual infringement by a third party in the Territory of a patent
included within the Recordati Technology, Ascent will notify
Recordati within fifteen days in writing. Recordati will take such
reasonable action as it deems appropriate to abate such
infringement, including patent litigation, prosecution and all
other remedies at law and equity. Ascent will render to Recordati
all reasonable assistance.
4.4.1 Joint Litigation - Upon written notice to Recordati given
not later than five days after Recordati's notice to
Ascent of litigation brought by Recordati to halt
infringing activity, Ascent may elect to join in any
litigation commenced against the alleged infringer ("Joint
Litigation"). Recordati will have control over the Joint
Litigation; provided that it will make no settlement of
the Joint Litigation without Ascent's consent, not to be
unreasonably withheld. The parties will each bear 50% all
out of pocket expenses of Joint Litigation (including all
costs and fees), and will
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<PAGE> 16
each be entitled to 50% of the net proceeds from any
settlement or award.
4.4.2 Individual Litigation - Notwithstanding the foregoing,
either party will have thirty days from receipt of notice
of the alleged infringing activity to withdraw, in
writing, its consent to participate in the Joint
Litigation. In that event, the party which has not
withdrawn its consent may institute litigation in its own
name and on its own behalf; the party which has withdrawn
its consent will provide all reasonable assistance to the
party litigating individually; and the party litigating
individually will control the litigation and settlement of
the action, bear all expenses of litigation and will be
entitled to retain the proceeds from any settlement or
award, provided that the party litigating individually
first recover its own expense and then reimburse any
documented, out-of-pocket expenses of the other party
incurred in assisting with the litigation.
V. GRANT OF LICENSE
5.1 Grant of Rights to the Product and Finished Product
5.1.1 License - Recordati grants to Ascent an exclusive license
under the Recordati Technology for the Clinical Testing,
registration, marketing, distribution and sale of the
Finished Product in all countries of the Territory, except
the Recordati Territory. In the Recordati Territory,
Recordati grants to Ascent a nonexclusive license under
the Recordati Technology for the Clinical Testing,
registration, marketing, distribution, and sale of the
Finished Product. Recordati otherwise retains all rights
to the Recordati Technology to itself. Such licenses are
granted for the term of this Agreement unless earlier
terminated in accordance with this Article.
5.1.2 Sublicenses - (a) Ascent may grant one or more sublicenses
of its rights under Section 5.1.1, in the Territory,
provided that Ascent furnishes to Recordati, in form and
substance acceptable to Recordati, a written assurance
from each sublicensee that it agrees to be bound by and
comply with the terms and conditions of this Agreement.
Ascent shall not grant a sublicense to a Competitor of
Recordati for any Major Country without Recordati's
approval of the sublicensee. A "Competitor" is any person
who makes, uses, or sells any oral liquid controlled
release technology or with whom Recordati is in litigation
or
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<PAGE> 17
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
preparing for litigation in connection with CRSS or the
Patents. In the Recordati Territory, Ascent may directly
market or grant one non-divisible and non-assignable
sublicense, provided that Ascent shall not grant a
sublicense in the Recordati Territory without Recordati's
prior written approval.
(b)Recordati shall not grant any sublicenses to the
Recordati Technology for the Product or the Finished
Product in the Recordati Territory, except to an
Affiliate of Recordati.
5.1.3 No License to Manufacture - Nothing in this Agreement will
be construed as a license to Ascent, its Affiliates, or
its sublicensees to manufacture the Product or Finished
Product, directly or through third parties. Subject to the
provisions of Section 8.3.3, all rights to manufacture the
Product and Finished Product are owned and retained solely
and exclusively by Recordati.
5.1.4 Improvements - Recordati grants Ascent a right of first
refusal to take a license under Section 5.1.1 for any line
extension or new formulation of the Finished Product.
Ascent shall have sixty (60) days from receipt of written
notice from Recordati identifying such line extension, or
new formulation of the Finished Product to exercise its
right of first refusal and takes such license aforesaid.
If Ascent exercises such right to take a license then the
parties shall promptly meet and negotiate the terms and
conditions of such license on the basis of the terms of
this Agreement.
5.2 Grant of Rights to Recordati by Ascent - Ascent hereby grants to
Recordati a non-exclusive license to use the Finished Product Data
owned by Ascent or its sublicensee(s), provided that Ascent has rights
to its sublicensee's data and has used its diligent efforts to obtain
such rights, in any country in the Recordati Territory as useful or
necessary to manufacture, have manufactured, register, obtain
Regulatory Approval, market, distribute, use and sell the Finished
Product in the Recordati Territory. If Recordati elects to use the
Finished Product Data owned by Ascent or its sublicensees, Recordati
will pay Ascent a royalty of ******************************* of Net
Sales in the country of the Recordati Territory in respect of which
such Finished Product Data was so used.
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<PAGE> 18
5.3 Commercialization Obligations - Ascent has the following
commercialization obligations:
5.3.1 Diligent Efforts - Upon completion of the Development
Program in a specific country of the Territory, consistent
with Ascent's legal obligations in connection with the
sale of its other products, Ascent will use diligent
efforts to sell the Finished Product in such country of
the Territory provided that Recordati supplies Ascent's
requirements for the Product. Ascent will be deemed to
have failed to use its diligent efforts if:
(a) In a Major Country:
(i) In the United States, if Ascent or its sublicensee
fails to commercially launch the Finished Product
within six (6) months of obtaining the Regulatory
Approval; or
(ii) In Major Countries other than the United States or
Europe, if Ascent fails to apply for Regulatory
Approval for the Finished Product in such country
within 24 months of receipt of Regulatory Approval in
the United States; or
(iii) with respect to all of the Major Countries in
Europe, if Ascent fails to file for Regulatory
Approval in at least one country in the European
Union within 12 months of filing for Regulatory
Approval in the United States.
(b) In any country (including any Major Country):
(i) if Ascent does not begin making continuous and
regular commercial shipments of the Finished Product,
or otherwise fails to begin marketing the Finished
Product, within six (6) months of receiving
Regulatory Approval for the Finished Product in that
country; or
(ii) if Ascent ceases marketing, or does not make a
commercial shipment of the Finished Product, in such
country for any three-month period during the two
year period following the first three months after
the launch of the Finished Product; or
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<PAGE> 19
(iii) if Ascent fails either (x) to begin Clinical Testing
within six months after receiving clinical supplies
from Recordati or (y) apply for Regulatory Approval
within six months after receiving the Finished
Product Data for such country and satisfactory
reports which are required for such application.
5.3.2 No Commercialization of Competing Products - Ascent agrees
not to develop, market, distribute, use or sell any
Competing Products for the Term of this Agreement. A
"Competing Product" for purposes of this Section means any
oral liquid controlled release formulation of Albuterol.
Ascent agrees not to develop, market, distribute, use or
sell another oral liquid controlled release formulation of
a Beta-2 agonist unless Ascent shall have given Recordati
a right of first refusal in connection therewith.
Recordati shall have three (3) months from the date of
such notification to notify Ascent if it is interested in
entering into an agreement in this regard.
5.3.3 Marketing, Packaging and Promotion - Ascent will supply
Recordati with written instructions for the packaging and
labeling of the Finished Product during manufacturing
scale-up phase of the Development Program. Ascent agrees
that it will be Ascent's sole responsibility to insure,
and that it will insure, that the packaging and labeling
of the Finished Product, as described in its written
instructions, complies with all laws and regulations of
the country of the Territory in which the Finished Product
is marketed. In addition, Ascent will cause the CRSS
trademark to appear on all labels, packaging material,
instruction sheets and promotional material. Ascent will
also include on all labels and packaging for the Finished
Product the statement "Sold under License from Recordati
S.A." and shall include the relevant Patent number of the
patent licensed by Recordati to Ascent, the claims of
which cover the Finished Product. The Finished Product
will otherwise not include any Recordati markings or
labels thereon, except to the extent required by the laws
of the
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<PAGE> 20
country in which the Finished Products are distributed
or as the parties may agree upon and which is legally
permissible.
5.4 Documentation - Recordati agrees to provide Ascent promptly with such
documentation and other materials reasonably requested by Ascent in
order to enable Ascent to use the Recordati Technology in accordance
with the licenses granted in this Article V. The parties agree that
such documentation and materials are deemed "Confidential" and are
subject to the confidentiality provisions of Article VI. To the extent
Recordati is granted rights to the Finished Product Data pursuant to
Section 5.2, Ascent agrees to provide Recordati promptly with such
documentation and other materials reasonably requested by Recordati in
order to enable Recordati to use the Finished Product Data for the
purpose of gaining Regulatory Approvals in the Recordati Territory.
The parties agree that such documentation and materials are deemed
"Confidential" and are subject to the confidentiality provisions of
Article VI.
5.5 Adverse Event Reporting - Each party will communicate the name of the
appropriate person within the organization for the coordination of a
system of Adverse Event Reporting to satisfy compliance with
international requirements, and relevant correspondence. Adverse Event
Reporting to the Regulatory Authorities will be the sole
responsibility of the party which has obtained Regulatory Approval.
Ascent and Recordati will maintain databases of information concerning
Adverse Events. Each party will have reasonable access to the database
of the other. The parties will exchange information as necessary or
useful to allow the other to comply with national and international
reporting guidelines, rules and laws.
5.6 Termination of License(s) -
(a) The License granted pursuant to this Article may be terminated by
Recordati with respect to any country in the Territory in which
Ascent fails to fulfill its commercialization obligations or in
which the Development Program has lapsed or been terminated.
(b) In the event that Recordati terminates a license pursuant to this
section with respect to a particular country, Ascent will have no
further rights to the Product or Finished
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<PAGE> 21
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Product in the country of the Territory in respect of which the
license is terminated. Ascent, its Affiliates, and their
sublicensees will immediately grant an exclusive license to
Recordati for all Finished Product Data, PLAs and Regulatory
Approvals necessary or useful for Recordati to register, test,
manufacture, market, distribute, use and sell the Finished
Product in the Territory. For a period of **** ********** from
the date of such exclusive license, Recordati will pay Ascent
**** ************* of Net Sales from the Finished Product in the
specific county where termination is effected, if at the time of
termination Ascent had received Regulatory Approval in such
country.
(c) If, at the time of termination of a license pursuant to this
section, Ascent had not received Regulatory Approval in the
relevant country and Recordati elects to utilize the Ascent
Finished Product Data and PLAs in respect of such country, then
Recordati will pay Ascent **************** ******* of Net sales
from such country for a period of ***** **** years from the date
of termination.
(d) In the event that Ascent breaches its commercialization
obligations in a specific country prior to completion of the
Development Program in that country, Recordati may, in addition
to terminating the license in that country, also terminate the
Development Program in that country. In that event, Ascent will
promptly pay all substantiated reasonable Costs incurred by
Recordati or which prior to the date of termination Recordati has
obligated itself to pay and which cannot be canceled, with
respect to the Development Program in that Country.
(e) All licenses granted under this Article shall terminate upon
termination of this Agreement.
5.7 Failure to Commercialize due to Breach by Recordati - In no event will
Ascent be deemed to have breached its commercialization obligations
under Section 5.3, if such failure is the result of Recordati failing
to fulfill its obligations to supply Ascent with the Finished Product
under the Supply Agreement.
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<PAGE> 22
VI. CONFIDENTIALITY
6.1 Confidential Information. During the term of this Agreement, all
information, in whatever form, disclosed to one party by the other
under this Agreement, the Supply Agreement and the Feasibility
Agreement, including, without limitation, information relating to
inventions, technology, disclosures, processes, systems, methods,
formulae, Recordati Technology, Finished Product Data, Clinical
Testing, PLAs, Regulatory Approval, Know-How, patent applications,
machinery, materials, research activities and plans, costs of
production, contract forms, prices, volume of sales, promotional
methods, and lists of names or classes of customers and the terms of
this Agreement are deemed "Confidential Information" provided, however
that such information will not be considered Confidential Information
if the receiving party can demonstrate by clear and convincing
evidence that the information:
(i) was known by the receiving party prior to its disclosure
by the disclosing party; or
(ii) is or becomes public knowledge other than through any act
or default of the receiving party; or
(iii) is obtained or derived by the receiving party from a third
party which, to the best knowledge of the receiving party
after appropriate inquiry, is lawfully in possession of
such information and has the right to disclose the
information to the receiving party on a non-confidential
basis; or
(iv) is developed or derived by the receiving party, prior or
subsequent to its disclosure by the disclosing party,
independently and without reference to the information
which was disclosed by the disclosing party, and the
receiving party can demonstrate such independent
development with contemporaneous documentation; or
(v) has, at the time of disclosure, no material competitive
value to the disclosing party.
6.2 Obligation of Confidentiality. Neither party will, either during the
Term of this Agreement or within ten (10) years of termination of this
Agreement, divulge, disclose or communicate to any other person, or
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<PAGE> 23
authorize anyone to use, any Confidential Information disclosed to it
by the other party during the Term of this Agreement, and will keep
the same confidential, except as provided by Section 6.3. Nor will
either party use such Confidential Information except as permitted in
Section 6.4. Recordati and Ascent will use their best efforts to
prevent the unauthorized use or disclosure of Confidential Information
by any persons to whom they disclose Confidential Information, and
will be responsible therefor.
6.3 Permitted disclosures.
Confidential Information may be disclosed to:
(i) An subcontractor or sublicensee, authorized under this Agreement,
and entrusted by the receiving party with the evaluation,
development, registration, manufacture, use or sale of the
Product or Finished Product;
(ii) Any directors or employees of the party in question; and
(iii) The Regulatory Authorities;
to such extent only as is necessary for the purposes contemplated
or permitted by this Agreement or as required by law, and subject
in the cases of clauses (i) and (ii) above to the party in
question first obtaining a written undertaking from the person to
whom the disclosure is made, as nearly as practicable to the
terms of this Section, to keep it confidential and to use it only
for the purposes for which the disclosure is made. The receiving
party will be responsible for any breaches of the obligations of
this Agreement by such sub-contractors, sublicensees, directors
or employees.
6.3.1 Confidential Information may also be disclosed to the
extent required to be disclosed by the receiving party
pursuant to applicable law, or under a government or court
order; provided, however, that (a) in the event that the
receiving arty is requested in any judicial or
administrative proceeding to disclose any of the
information of the disclosing party, then the receiving
party will promptly notify the disclosing party of such
request so that the disclosing party may resist such
disclosure or seek an appropriate protective order or
other remedy; (b) the obligations will continue to the
fullest extent not in conflict with such law or order; and
(c) if and when a party is required to disclose such
information pursuant to any such law or order, such party
will use its best
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<PAGE> 24
efforts to take such actions as will prevent or limit,
to the fullest extent possible, public access to, or
disclosure of, such information.
6.3.2 Under no other circumstances can Confidential Information
be disclosed.
6.4 Use of Confidential Information - Each party agrees that the use of
the Confidential Information received from the other party is
restricted to purposes consistent with the implementation of this
Agreement.
6.5 Ownership of Confidential Information - Both parties acknowledge
that they have no ownership rights in the Confidential Information
of the other, that the right to use such information is strictly
limited to that which is expressly permitted by this Agreement, and
that unless otherwise expressly provided herein, the right to use
such information will terminate upon termination of this Agreement.
6.6 Publications - The following restrictions shall apply to the
disclosure in scientific journals or publications by either party
relating to the Development Program, whether or not such
disclosures involve the disclosure of the Confidential Information
of the other party:
6.6.1 A party seeking to publish (the "Publishing Party") shall
provide the other party with an advance copy of any
proposed publication of information relating to the
Development Program, and the other party shall have a
reasonable opportunity to recommend any changes it
reasonably believes are necessary to preserve intellectual
property rights or Confidential Information and the
incorporation of such changes shall not be unreasonably
refused by the Publishing Party; and
6.6.2 if such other party informs the Publishing Party within 30
days of receipt of an advance copy of a proposed
publication, that such publication, in its reasonable
judgment is expected to have a material adverse effect on
intellectual property rights or Confidential Information,
the publishing Party shall use its best efforts to delay
or prevent such publication. Such delay shall be
sufficiently long to permit the timely preparation and
filing of patent applications if the reason given by the
other party for requesting delay is that the proposed
publication would disclose patentable inventions.
VII. LIABILITY AND INDEMNIFICATION
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<PAGE> 25
7.1 Indemnification by Recordati - Subject to Sections 7.3 and 7.4,
Recordati agrees to indemnify, defend and hold Ascent harmless
against any claims, losses, expenses, costs and fees (including the
reasonable fees of attorneys and other professionals) of any third
party arising in connection with:
(i) negligent, reckless or intentional wrongful acts or omissions
of Recordati;
(ii) the breach by Recordati of its obligations under this
Agreement, unless such breach arises out of the negligent,
reckless or intentional wrongful acts or omissions of
Ascent, or a prior breach of the Agreement by Ascent;
(iii) the breach by Recordati of any representation or warranty
under this Agreement; and
(iv) the infringement of any patent, the infringement of a
trademark by the required use of the CRSS trademark, or
the misappropriation of any trade secret by Recordati
or its agents, resulting from the permitted marketing,
Clinical Testing, use or sale of the Finished Product.
7.2 Indemnification by Ascent - Subject to Sections 7.3 and 7.4, Ascent
agrees to indemnify, defend and hold Recordati harmless against any
claims, losses, expenses, costs and fees (including the reasonable
fees of attorneys and other professionals) of any third party
arising in connection with:
(i) negligent, reckless or intentional wrongful acts or
omissions of Ascent;
(ii) the breach by Ascent of its obligations under this
Agreement, unless such breach arises out of the negligent,
reckless or intentional wrongful acts or omissions
of Recordati, or a prior breach of the Agreement
by Recordati;
(iii) the breach by Ascent of any representation or warranty
under this Agreement;
(iv) the clinical testing of the Finished Product;
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<PAGE> 26
(v) the marketing, distribution, sale, possession, or use
of the Finished Product following Ascent's acceptance
of the Product hereunder; and
(vi) the packaging or labeling of the Finished Product other
than packaging or labeling required by Recordati
(including, by way of example, the infringement of any
trademark other than by the required use of the CRSS
trademark), or the misappropriation of any trade secret
by Ascent or its agents.
7.3 Indemnification Procedure - In the event any third party asserts
any claim with respect to any matter as to which the indemnities in
this Agreement relate, the party against whom the claim is asserted
(the "Indemnified Party") will promptly notify the other party (the
"Indemnifying Party"). The Indemnifying Part will have the right to
assume sole control over the defense and settlement of the third
party claim, at its own expense, by giving prompt notice to the
Indemnified Party. If the Indemnifying Party does not give such
notice and does not proceed diligently so to defend the third party
claim within 30 days after receipt of the notice of the third party
claim, the Indemnifying Party will be bound by any defense or
settlement that the Indemnified Party may make as to those claims
and will reimburse the Indemnified Party for its losses and
expenses related to the defense or settlement of the third party
claim. The parties will cooperate in defending against any asserted
third party claims. The party defending the claim will keep the
other party continuously informed of its activities with respect to
the defense of any such claim. The Indemnified Party will render
the Indemnifying Party all reasonable assistance in the defense of
any such claim at no cost to the Indemnifying Party other than the
out of pocket expense of such Indemnified Party. The right to
indemnification is conditioned upon provision by the Indemnified
Party of prompt notice to, and an opportunity to control over the
defense of the action by, the Indemnifying Party.
7.4 Limitation on Liability - Except as provided in Sections 7.1 and
7.2 neither party will be liable to indemnify the other party for
indirect, incidental, consequential, special or exemplary damages,
other than to the extent necessary to reimburse such other party
for damages actually paid to a third party.
VIII. TERM, TERMINATION AND SUSPENSION
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<PAGE> 27
8.1 Term - The term of this Agreement commences upon execution thereof.
Unless terminated in accordance with this Article, this Agreement
will continue in full force and effect for a term of fifteen (15)
years following receipt of Regulatory Approval in the United
States. Thereafter, Ascent shall have the right to renew this
Agreement for an additional five (5) years by giving Recordati
written notice of its intent to renew at least one-hundred and
twenty (120) days prior to the expiration of such fifteen year
term.
8.2 Termination - This Agreement may be terminated:
8.2.1 By Ascent - Ascent may terminate this Agreement on 120
days written notice to Recordati. In such case, Ascent
will promptly pay all substantiated reasonable Costs
incurred by Recordati or which prior to the effective date
of termination Recordati has obligated itself to pay and
which cannot be canceled, in all countries in the
Territory in which the Development Program has been
commenced.
8.2.2 By Either Party - Either party may terminate this
Agreement immediately by written notice to the other party
in the event that:
(i) The other party becomes insolvent, or an order for
relief is entered against the other party under any
bankruptcy or insolvency laws or laws of similar
import; or
(ii) The other party makes an assignment for the benefit of
its creditors, or a receiver or custodian is appointed
for it, or its business is placed under attachment,
garnishment or other process involving a significant
portion of its business, and the other party cannot
prove to the reasonable satisfaction of the party to
which it has given notice that it is solvent; or
(iii) The other party's material breach of this Agreement
which is not cured or excused within ninety (90) days
of written notice of such breach, except for the
breach of an obligation to pay money, which must be
cured within thirty (30) days of written notice. A
material breach of this Agreement will be excused
for so long it has occurred and is continuing by
virtue of Force as Majeure or technical hindrances
which cannot be surmounted with diligent efforts: or
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<PAGE> 28
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
(iv) The termination of the Supply Agreement due to the
other party's material breach thereof.
8.3 Rights and Obligations Following Termination -
8.3.1 Termination by Expiration - Upon expiration of the term of
this Agreement, the licenses granted to Ascent and to
Recordati shall become non-exclusive fully paid-up
licenses.
8.3.2 Termination by Recordati - In the event that this
Agreement is terminated by Recordati pursuant to Sections
8.2.2 or 9.3(c), Ascent will have no further rights to the
Product or Finished Product. Ascent and/or its
sublicensee(s) will immediately assign to Recordati all
Finished Product Data, PLAs and Regulatory Approvals
necessary or useful for Recordati to register, test,
manufacture, market, distribute, use and sell the Finished
Product in the Territory.
8.3.3 Termination by Ascent - In the event of termination of
this Agreement by Ascent:
(a) Pursuant to Sections 8.2.1 or 9.3(c) - Ascent will
have no further rights to the Product or Finished
Product. Ascent and/or its sublicensee(s) will
immediately Recordati all Finished Product Data, PLAs
and Regulatory assign to Approvals necessary or
useful for Recordati to register, test, manufacture,
market, distribute, use and sell the Finished Product
in the Territory.
(b) Pursuant to Section 8.2.2 - Ascent will have the
right to elect from among the following remedies:
(i) Ascent, its Affiliates, and their sublicensees
may immediately assign to Recordati all Finished
Product Data, PLAs and Regulatory Approvals
necessary or useful for Recordati to register,
test, manufacture, market, distribute, use and
sell the Finished Product in the Territory, and
upon such assignment they shall cease to have
any further rights to the Product or Finished
Products. As liquidated damages, Recordati for a
period of ******* from the date of
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<PAGE> 29
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
termination, Recordati will pay Ascent
*************** of Net Receipts of the Finished
Product in countries of the Territory where
Ascent had received Regulatory Approval and
**************** of Net Receipts in countries of
the Territory in which Regulatory Approval had
not, at the time of termination, been obtained
by Ascent; or
(ii) To maintain its rights set forth in Sections 5.1
and 5.2 and continue to purchase its
requirements under the Supply Agreement for a
term of years equal to the number of years
remaining in the Term at the time of
termination; provided, however, that if this
Agreement is terminated pursuant to Section
8.2.2 (iv), then at Ascent's request, Recordati
will also grant to Ascent a license for a term
of years equal to the number of years remaining
in the Term at the time of termination, to use
the Recordati Technology, with right of
sublicense, to the extent necessary for Ascent
to qualify two sources of supply for the
Finished Product, and for such sources to
manufacture the Finished Product. Recordati
shall have the right to approve such Ascent
manufacturing sublicensees, such approval not to
be unreasonably withheld. For the purposes of
this section, it shall be reasonable for
Recordati to withhold approval to any person who
is a Competitor. Recordati shall also have the
right to impose reasonable conditions upon
access to its technology, including, by way of
example, satisfactory confidentiality
provisions.
8.3.4 In exchange for the licenses granted above in Section
8.3.3(b)(ii), Ascent will pay to Recordati a royalty of
***** on Net Receipts. Ascent will provide to Recordati
within thirty (30) days of the end of each quarter, a
report (the "Sales Report") reflecting the sales, in units
and in value, of the Finished Product by Ascent and its
sublicensee(s) or other distributors or agents in the
Territory.
8.3.5 Ascent agrees to keep complete and accurate records in
connection with sales of the Finished Product by Ascent,
its Affiliates, and their sublicensees, and of payments
provided for under this Agreement. Recordati will have the
right, not more
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<PAGE> 30
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
than once per calendar year, to appoint an independent
public accountant to inspect and copy Ascent's books and
related to the sales and revenues for the Finished
records Product. The cost of such audit will be borne by
Recordati unless an error of magnitude greater than *% is
discovered in the course of the audit, in which case the
cost will be borne by Ascent.
8.4 Non-Disclosure of Termination - In the event either party
terminates this Agreement, Ascent and Recordati agree to not
disclose the circumstances of such termination, except as may
otherwise be required by law, reasonable ethical standards or to
enforce rights arising out of this Agreement.
8.5 Suspension of Obligations - Recordati may suspend its obligations
under this Agreement on thirty days' notice if in its reasonable
judgment based upon the advice of its counsel it determines that
the Recordati Technology or the Finished Product infringes upon the
patent rights of any third party as such relate to patent
applications filed or patents issued after the Effective Date. In
the event of such suspension, Ascent shall have the right to
manufacture the Finished Products or have a second source
manufacture the Finished Products as provided for in Section
8.3.3(b)(ii) provided that Recordati may lift such suspension by
giving to Ascent not less than ***** (**) months' written notice
thereof.
IX. GENERAL PROVISIONS
9.1 Independent Parties - The parties agree that they are independent
contractors and that nothing in this Agreement creates a joint
venture, partnership, principal-agent, or other fiduciary
relationship. Neither party has the authority to act as agent for,
or partner of, the other party or to make any commitments or create
any obligations of the other party without the prior written
agreement of the other party. Nothing in this Agreement will be
construed to prevent, prohibit, restrict, limit or hinder in any
way Recordati's right to use, license or transfer the CRSS
technology or Recordati Technology alone or in combination with
active ingredients other than Albuterol.
9.2 Compliance with Law - Each party will comply with, and will not be
in violation of, any valid applicable international, national,
state or local statutes, laws, ordinances, rules, regulations, or
other governmental orders (which affect the research, purchase
sale, shipment, distribution or storage of the Product) of any
country in which the Product is either manufactured or sold.
- 30 -
<PAGE> 31
9.3 Force Majeure
(a) Neither Recordati nor Ascent will be liable or will be
considered as having failed in meeting its respective
obligations under this Agreement because of a failure to
perform all or any part of them in the event such default
is due to an occurrence of "Force Majeure." As used
herein, the term Force Majeure includes, but is not
limited to, the following events to the extent the same
cannot be overcome with due diligence and reasonable
expense by the party claiming Force Majeure: War,
invasion, rebellion, mutiny, revolution, insurrection,
riots, civil disturbances or civil war; Acts of government
in its sovereign capacity; Earthquakes, fires, hurricanes,
floods, sinking, drought, tidal waves, lightning or any
operation of the forces of nature: Strikes, lock-outs or
other industrial disturbances; Impossibility to obtain
equipment, supplies, fuel, or other required materials;
and Other events beyond the reasonable control of the
party claiming Force Majeure, such that reasonable
foresight and ability on the part of the affected party
could not reasonably provide against.
(b) A party claiming Force Majeure will promptly notify the
other part of its inability to perform and the event which
excuses performance. If said notice is given, the
performance of the party giving notification will be
excused for so long as performance may be prevented by
such event of Force Majeure. Except for payment of funds
that are due and payable, neither party will be require to
make up any performance that was prevented by Force
Majeure.
(c) Notwithstanding the foregoing, if such Force Majeure
continues for a period in excess of one hundred and eighty
(180) days, then the other party may declare this
Agreement terminated.
9.4 Assignment - The rights and obligations under this Agreement may be
assigned by either party hereto to any Affiliate, provided that no
such assignment shall relieve the assignor of its obligations.
Assignment of this Agreement or any part thereof other than to
Affiliates is subject to the written consent of the other party,
such consent not to be unreasonably withheld. For
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<PAGE> 32
the purposes of this section, it shall be reasonable for
Recordati to withhold approval to a Competitor. Any assignment of
any rights under such agreement without the written consent of
the other party will be null and void.
9.4.1 Sublicensing - The parties have the right to sublicense
rights under this Agreement only as specifically set forth
in the Agreement. Any sublicense of rights under this
Agreement, other than specifically permitted herein is and
will be null and void.
9.4.2 Subcontracting - The parties have the right to wholly or
partly subcontract the activities to be performed by them
under this Agreement, provided however that the
subcontracting party will (i) inform the other party in
writing of its intention to utilize a subcontractor which
subcontractor shall be FDA approved; (ii) furnish the
other party with reasonably detailed information regarding
the extent of such subcontractor's services; (iii) consult
with the other party regarding the proposed
subcontractor's selection and its ability to perform; and
(iv) give due consideration to the other's party concerns,
if any, regarding such proposed contractor to the extent
such concerns are based upon requirements regarding
Regulatory Approvals. The final selection of a
subcontractor will be the responsibility of the party for
which the subcontractor shall perform its services. Ascent
will in no event have direct contact, written or oral,
with any Recordati subcontractor hereunder without prior
written approval by Recordati, such approval not to be
unreasonably withheld. All expenses associated with a
subcontractor will be the liability of the party engaging
such contractor; provided, however, that once paid the
expenses of engaging such contractor will become Costs,
payable in accordance with this Agreement.
9.5 Waiver - A party's failure to insist upon the strict performance of
any provision of this Agreement will not be deemed to be a waiver
by it of any rights or remedies it may have for breaches of a like
or different nature. No waiver will be effective unless
specifically made in writing and signed by a duly authorized
representative of the party granting such waiver.
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<PAGE> 33
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
9.6 Notices - All notices hereunder will be in writing and will be
personally delivered or by telefax or telecopy or, dispatched,
postage pre-paid, by internationally recognized courier duly
addressed:
if to Recordati, to:
Recordati S.A. Chemical and Pharmaceutical Company
Corso San Gottardo 54
6830 Chiasso
Switzerland
Attention: President
Facsimile: 0041 41 9144 6009
Copy to:
Recordati Industria Chimica e Farmaceutica S.p.A.
Via Civitali, 1
20148 Milano Italy
Attention: V.P. and Director Corporate Development
Facsimile: 0039 2 48705223
if to Ascent, to:
Ascent Pediatrics, Inc.
9 Linnell Circle
Billerica, MA 01821 - U.S.A.
Attention: President
Facsimile: 001 508 667 5322
or in either case to such other address as the recipient party
has previously designated for such purpose by written
communication to and actually received by the giving party.
Notices will be effective upon receipt, or, if delivery is not
accomplished through fault of the addressee, upon tender.
9.7 Liability Insurance - Each party will obtain and maintain at all
times and at its own expense Product Liability insurance covering
losses related to its activities with respect to the Product and
Finished Product for risks to humans. The limit of liability on
such coverage shall be no less than *********** in total in respect
of Recordati and ********** per occurrence and ********** in the
aggregate in respect of Ascent.
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<PAGE> 34
9.8 Survival - Upon termination of this Agreement, the rights and
obligation of the parties hereunder will terminate, except that the
rights and obligations under Articles VI, VII, VIII and X and
Sections 3.9, 4.1, 4.2 and 5.6 will survive any such termination.
9.9 Entire Agreements; Amendments - This Agreement and the
Manufacturing and Supply Agreement embody all of the understandings
and obligations between the parties and supersede all other prior
agreements or understandings, whether written or oral, including
the Feasibility Agreement. Any amendments and supplements to this
Agreement will not be valid unless executed in writing by duly
authorized officers of both parties.
9.10 Interpretation - References to any gender include the other gender
and to the singular number the plural number and vice versa. All
headings throughout this Agreement have been inserted for the
purpose of ease of reference only and do not define, limit or
affect the meaning or interpretation of this Agreement or of any
instrument created pursuant hereto or in accordance herewith. All
Exhibits to this Agreement are an integral part of this Agreement
and will be construed and have the same force and effect as if set
out in the body of this Agreement.
9.11 Further assurances - Recordati and Ascent agree to execute such
further documents and instruments, and will provide such additional
assurances, requested by either party as may be necessary or
reasonably desirable to consummate the matters contemplated by this
Agreement.
X. GOVERNING LAW AND DISPUTE RESOLUTION
10.1 Governing law - This Agreement is to be governed by and construed
in all respects in accordance with the internal laws of the state
of New York.
10.2 Resolution of disputes - Any dispute arising out of or relating to
this Agreement not resolved within ninety (90) days of such dispute
having arisen will be resolved by mandatory, binding arbitration on
the application of either party. The arbitration will take place in
New York, New York, at the offices of the American Arbitration
Association ("AAA"), pursuant to the AAA International Commercial
Rules. The dispute will be resolved by
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<PAGE> 35
the majority decision of three arbitrators of whom one will be
nominated by Recordati and one by Ascent, and a third nominated
by the two party-appointed arbitrators, unless Recordati and
Ascent agree in any given dispute to have it settled by a single
arbitrator acceptable to both Recordati and Ascent. If a party
fails to nominate its arbitrator to a three-arbitrator panel
within 30 days after the other party has appointed its arbitrator
and served written notice of such appointment on the other party,
or if within 30 days after both party-appointed arbitrators are
appointed, the party-appointed arbitrators have not agreed upon
the appointment of a third arbitrator, then the missing
arbitrator will be appointed by the appointing authority in
accordance with the AAA's governing rules.
The arbitration shall be conducted in English. The decision of the
arbitrators, or of the single arbitrator, as the case may be, will be final
and binding on the parties and enforceable in accordance with the New York
Convention on the Enforcement of Arbitral Awards.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives on the date first stated below.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
RECORDATI S.A. CHEMICAL AND ASCENT PEDIATRICS, INC.
PHARMACEUTICAL COMPANY
By: /s/ Luciano Bocasso By: /s/ Emmett Clemente
------------------- ---------------------
Name: Luciano Bocasso Name: Emmett Clemente
Title: President Title: Chairman
Date: October 8, 1996 Date: October 1, 1996
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<PAGE> 36
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Exhibit A
Development Program
1) Pre-clinical Development
Work List Milestones Estimated Timetable
******** **********
******** ***** **********
******** **********
******** **********
2) Manufacturing Scale-up
Work List Milestones Estimated Timetable
******** ***** **********
******** **********
******** **********
******** **********
******** **********
******** **********
3) Clinical Testing
Work List Milestones Estimated Timetable
******** ***********
******** ***********
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<PAGE> 37
Exhibit B
Major Countries
Australia
Canada
France
Germany
Italy
Japan
The Netherlands
Poland
Spain
United Kingdom
United States of America
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<PAGE> 38
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
EXHIBIT C
Patents
Country Application No. Patent No.
- ------- --------------- ----------
Australia *******
Canada *******
China *******
Denmark *******
Europe *******
(AT, BE, CH, DE, ES,
FR, GB, GR, IT, LI,
LU, NL and SE)
Finland *******
Israel *******
Japan *******
Singapore *******
S. Korea *******
Mexico *******
Norway *******
Taiwan *******
USA *******
USA *******
USA *******
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<PAGE> 39
EXHIBIT D
Omitted and Filed Separately as Exhibit 10.8
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<PAGE> 1
Exhibit 23.1
Hale and Dorr LLP
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 Fax 617-526-5000
May 16, 1997
Ascent Pediatrics, Inc.
187 Ballardvale Street, Suite B125
Wilmington, MA 01887
Re: Ascent Pediatrics, Inc.
Registration Statement on Form S-1
Dear Sirs:
We hereby consent to the reference to our firm under the caption
"Experts" in the Registration Statement on Form S-1 (333-23319) of Ascent
Pediatrics, Inc.
Best Regards,
/s/ Hale and Dorr LLP
Hale and Dorr LLP
<PAGE> 1
EXHIBIT 23.2
This is the form of the consent which will be issued upon the effectiveness
of the reverse common stock split discussed in Note B of Notes to Financial
Statements:
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
May 16, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion, in this Amendment No. 3 to the registration
statement on Form S-1 (File No. 333-23319) to issue shares of Common Stock, of
our report dated March , 1997, on our audits of the financial statements of
Ascent Pediatrics, Inc. We also consent to the references to our firm under the
captions "Selected Financial Data" and "Experts."
Boston, Massachusetts
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Upsher-Smith Laboratories, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the Prospectus of Ascent Pediatrics,
Inc.
Our report dated February 21, 1997, contains an explanatory paragraph that
states that the financial statements were prepared to present the assets related
to the product line to be sold by Upsher-Smith Laboratories, Inc. (Upsher-Smith)
and the net sales and the identified costs and expenses and that they are not
intended to be a complete presentation of the product line's financial position,
results of operations or cash flows.
KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
May 16, 1997
<PAGE> 1
Exhibit 23.4
Welsh & Katz, Ltd.
Attorneys at Law
120 South Riverside Plaza-22nd Floor
Chicago, Illinois 60606
TELEPHONE (312) 655-1500
FACSIMILE (312) 655-1501
May 16, 1997
Ascent Pediatrics, Inc.
187 Ballardvale Street, Suite B-125
Wilmington, MA 01887
Re: Ascent Pediatrics, Inc.
Registration Statement on Form S-1
Dear Sirs:
We hereby consent to the reference to our firm under the caption "Experts"
in Ascent Pediatrics, Inc.'s Registration Statement on Form S-1.
Best regards,
WELSH & KATZ, LTD.
By:/s/ Edward P. Gamson
-----------------------
Edward P. Gamson
