<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 1997
REGISTRATION NO. 333-23319
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
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 April 3, 1997
2,000,000 SHARES
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. Application has been made to have the Common Stock approved for
quotation on the Nasdaq National Market 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>
==================================================================================================
Price to Proceeds to
Public Underwriting Company(2)
Discounts and
Commissions(1)
- --------------------------------------------------------------------------------------------------
<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. 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 pharmaceutical
products, primarily for sale on a prescription basis, which are designed to
improve upon currently available products for the most common pediatric
illnesses through the application of its drug delivery and reformulation
technologies. 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 for this indication.
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.
- --------------------------------------------------------------------------------
3
<PAGE> 5
- --------------------------------------------------------------------------------
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
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 for
which the Company plans to initiate Phase I clinical trials in the first half of
1997. 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 February 28, 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>
COMBINED PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED
----------------------------------------------- DECEMBER 31,
1992 1993 1994 1995 1996 1996(1)
------- ------- ------- ------- ------- ------------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $ -- $ -- $ -- $ 304 $ -- $ 3,877
Costs and expenses:
Cost of sales................... -- -- -- -- -- 1,434
Research and development........ 558 1,221 2,551 2,986 3,761 3,761
Selling, general and
administrative............... 706 723 1,141 1,532 2,805 5,110
-------- ------- ------- ------- ------- --------
-- -- -- -- -- --
Loss from operations.............. (1,264) (1,944) (3,692) (4,214) (6,566) (6,428)
Interest income................... 47 123 147 113 79 79
-------- ------- ------- ------- ------- --------
-- -- -- -- -- --
Net loss.......................... $(1,217) $(1,821) $(3,545) $(4,101) $(6,487) $ (6,349)
======= ======= ======= ======= ======= ========
Pro forma and combined pro forma
net loss per share(2)........... $ (1.48) $ (1.45)
======= ========
Pro forma weighted average common
and common equivalent
shares(2)....................... 4,384,208 4,384,208
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------------
COMBINED PRO FORMA
ACTUAL COMBINED PRO FORMA(1) AS ADJUSTED(1)(3)
-------- --------------------- ------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities.................................. $ 2,086 $ 4,941 $ 31,301
Working capital............................... 525 1,989 28,349
Total assets.................................. 2,628 16,976 43,496
Long-term debt, net of current portion........ -- 1,163 4,742
Redeemable preferred stock.................... 17,832 -- --
Deficit accumulated during the development
stage....................................... (19,633) (19,633) (19,633)
Total stockholders' equity (deficit).......... (16,778) 8,739 31,680
</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
$122,235) as if such acquisition had occurred on January 1, 1996 with
respect to Statement of Operations Data and on December 31, 1996 with
respect to Balance Sheet Data, (ii) the issuance of 1,104,229 shares of
Series F Convertible Preferred Stock in February 1997 and the receipt of
$6,847,988 in net proceeds therefrom, (iii) the issuance of $2,000,000 of
Triumph Notes in January 1997 recorded as a liability (after allocating
value to associated warrants) of $1,163,006 with $836,994 to be accreted as
interest expense over the term of the Triumph Notes and (iv) the Preferred
Stock Conversion. 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 (i) 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, and (ii) the issuance of $5,000,000 of Triumph Notes
no later than the closing of this offering recorded as a liability (after
allocating value to associated warrants) of $3,579,357 with $1,420,643 to be
accreted as interest expense over the term of the Triumph Notes. 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 December 31, 1996, the Company's
cumulative deficit was approximately $19,600,000. 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."
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
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<PAGE> 10
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 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
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<PAGE> 11
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 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
10
<PAGE> 12
necessary to enforce any patents issued or licensed to the Company and/or to
determine the scope and validity of others' proprietary rights. 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 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.
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
11
<PAGE> 13
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
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."
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 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
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<PAGE> 14
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.
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
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.
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<PAGE> 15
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 $8.98 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, the Company's directors and executive
officers and their affiliates will beneficially own approximately 49.0% of the
Company's outstanding Common Stock (approximately 47.3% if the Underwriters
exercise their over-allotment option in full). See "Principal Stockholders." As
a result, these stockholders, if 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. The Securities and Exchange Commission (the "SEC") has adopted an
amendment to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), that, effective April 29, 1997, will reduce by one year the
holding periods required for shares subject to Rule 144 to become eligible for
resale in the public market. 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 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."
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<PAGE> 16
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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<PAGE> 17
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 $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. See
"Business -- Products and Products Under Development -- Feverall Acetaminophen
Suppositories." The Company currently intends to use the balance of the net
proceeds of this offering for product development activities, including costs of
preclinical tests, clinical trials and regulatory submissions, 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
general corporate purposes, which may include 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.
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."
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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."
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CAPITALIZATION
The following table sets forth as of December 31, 1996: (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>
DECEMBER 31, 1996
-------------------------------------------
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............ $ -- $ 1,163 $ 4,742
Redeemable Convertible Preferred Stock, $.00004
par value; 4,458,564 shares authorized;
2,904,429 shares issued and outstanding; no
shares authorized or outstanding, combined pro
forma and combined pro forma as adjusted........ 17,832 -- --
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; 11,000,000
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........................ -- 28,372 51,313
Deficit accumulated during the development
stage........................................... (19,633) (19,633) (19,633)
-------- -------- --------
Total stockholders' equity (deficit).............. (16,778) 8,739 31,680
-------- -------- --------
Total capitalization.............................. $ 1,054 $ 9,902 $ 36,422
======== ======== ========
</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 $122,235) as if such acquisition had occurred on December 31,
1996, (ii) the issuance of 1,104,229 shares of Series F Convertible
Preferred Stock in February 1997 and the receipt of $6,847,988 in net
proceeds therefrom, (iii) the issuance of $2,000,000 of Triumph Notes in
January 1997 recorded as a liability (after allocating value to associated
warrants) of $1,163,006 with $836,994 to be accreted as interest expense
over the term of the Triumph Notes and (iv) the Preferred Stock Conversion.
See "Certain Transactions" and "Combined Pro Forma Financial Statements."
(2) Reflects (i) 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 and (ii) the issuance of $5,000,000 of Triumph Notes
no later than the closing of this offering recorded as a liability (after
allocating value to associated warrants) of $3,579,357 with $1,420,643 to be
accreted as interest expense over the term of the Triumph Notes. See "Use of
Proceeds" and "Certain Transactions."
18
<PAGE> 20
(3) Does not include 1,263,584 shares of Common Stock reserved for issuance upon
exercise of outstanding options and warrants as of December 31, 1996 at a
weighted average exercise price of $5.96 per share. See Note H of Notes to
Financial Statements. Also excludes (i) 362,152 shares of Common Stock
reserved for issuance upon the exercise of warrants issued to purchasers of
shares of Series F Convertible Preferred Stock in February 1997 at an
exercise price of $7.65 per share, (ii) 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, (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 the Triumph Warrants and (iv) an aggregate of 49,512
shares of Common Stock reserved for issuance upon the exercise of options
and warrants issued in February 1997 at a weighted average exercise price of
$4.56 per share. Of the number of shares of Common Stock issuable pursuant
to warrants outstanding as of February 28, 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 December
31, 1996, 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 $122,235)
as if such acquisition had occurred on December 31, 1996, (ii) the issuance of
1,104,229 shares of Series F Convertible Preferred Stock in February 1997 and
the receipt of $6,847,988 in net proceeds therefrom, (iii) the issuance of
$2,000,000 of Triumph Notes in January 1997 (reflected net of issuance costs and
after allocating value to associated warrants) and (iv) the Preferred Stock
Conversion, was $(2,884,714) or approximately $(0.62) 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 (i) 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 and (ii) the issuance of $5,000,000 of Triumph Notes no later than the
closing of this offering (reflected net of issuance costs and after allocating
value to associated warrants). On such basis, the combined pro forma net
tangible book value of the Company as of December 31, 1996 would have been
$20,056,286 or $3.02 per share. This represents an immediate increase in the
combined net tangible book value of $3.64 per share to the existing stockholders
and an immediate dilution in the combined pro forma net tangible book value of
$8.98 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 December 31, 1996............................ $ (0.62)
Combined pro forma increase per share attributable to
new investors...................................... $ 3.64
-------
Combined pro forma net tangible book value per share
after this offering................................... $ 3.02
------
Dilution per share to new investors..................... $ 8.98
======
</TABLE>
The following table summarizes, on the combined pro forma basis described
above, as of December 31, 1996, 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
December 31, 1996. As of December 31, 1996, there were options and warrants
outstanding to purchase 1,263,584 shares of Common Stock at a weighted average
exercise price of $5.96 per share. In addition, since December 31, 1996, the
Company has (i) issued warrants exercisable for 362,152 shares of Common Stock
at an exercise price of $7.65 per share to purchasers of shares of Series F
Convertible Preferred Stock, (ii) issued or agreed to issue no later than the
closing of this offering an aggregate of $7,000,000 in Triumph Notes which are
convertible
20
<PAGE> 22
into up to an aggregate of 583,332 shares of Common Stock (assuming an initial
public offering price of $12.00 per share), (iii) issued or agreed to issue
Triumph Warrants exercisable for 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 and (iv) issued warrants and granted options exercisable for
an aggregate of 49,512 shares of Common Stock at a weighted average exercise
price of $4.56 per share. Of the shares reserved for issuance upon the exercise
of warrants outstanding as of February 28, 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 Combined Pro Forma selected financial data as of
and for the year ended December 31, 1996 are derived from the Unaudited Combined
Pro Forma Financial Statements contained elsewhere in this Prospectus. 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>
YEAR ENDED DECEMBER 31, COMBINED PRO FORMA
------------------------------------------------- YEAR ENDED
1992 1993 1994 1995 1996 DECEMBER 31, 1996(1)
------- ------- ------- -------- -------- --------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ -- $ -- $ -- $ 304 $ -- $ 3,877
Costs and expenses:
Cost of sales............... -- -- -- -- -- 1,434
Research and development.... 558 1,221 2,551 2,986 3,761 3,761
Selling, general and
administrative........... 706 723 1,141 1,532 2,805 5,110
------- ------- ------- ------- -------- --------
Loss from operations.......... (1,264) (1,944) (3,692) (4,214) (6,566) (6,428)
Interest income............... 47 123 147 113 79 79
------- ------- ------- ------- -------- --------
Net loss...................... $(1,217) $(1,821) $(3,545) $(4,101) $ (6,487) $ (6,349)
======= ======= ======= ======= ======== ========
Pro forma and combined pro
forma net loss per
share(2).................... $(1.48) $(1.45)
====== ======
Pro forma weighted average
common and common equivalent
shares(2)................... 4,384,208 4,384,208
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------- COMBINED PRO FORMA
1992 1993 1994 1995 1996 DECEMBER 31, 1996(1)
------- ------- ------- -------- -------- --------------------
(IN THOUSANDS)
<S> <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 $ 4,941
Working capital............... 1,713 5,557 1,966 2,231 525 (1,989)
Total assets.................. 1,902 5,866 2,466 2,750 2,628 16,976
Long-term debt, net of current
portion..................... -- -- -- -- -- 1,163
Redeemable preferred stock.... -- 8,157 8,157 12,557 17,832 --
Deficit accumulated during the
development stage........... (3,202) (5,306) (8,851) (13,014) (19,633) (19,633)
Total stockholders' equity
(deficit) (3)............... 1,773 (2,451) (5,995) (10,158) (16,778) 8,739
</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
$122,235) as if such acquisition had occurred on January 1, 1996 with
respect to Statement of Operations Data and on December 31, 1996 with
respect to Balance Sheet Data, (ii) the issuance of 1,104,229 shares of
Series F Convertible Preferred Stock in February 1997 and the receipt of
$6,847,988 in net proceeds therefrom, (iii) the issuance of $2,000,000 of
Triumph Notes in January 1997 recorded as a liability (after allocating
value to associated warrants) of $1,163,006 with $836,994 to be accreted as
interest expense over the term of the Triumph Notes and (iv) the Preferred
Stock Conversion. 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 December 31, 1996 of $19,633,000.
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 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.
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.
23
<PAGE> 25
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 December 31, 1996, the Company had
raised approximately $20,201,000 (net of stock issuance costs) from the sale of
preferred stock, with net proceeds of $4,338,000 received in 1995 and net
proceeds of $5,137,000 received in 1996.
Through December 31, 1996, the Company applied the proceeds from the sale
of preferred stock and its revenues to fund losses of $19,156,000 and the
investment of $328,000 in property and equipment. As of December 31, 1996, the
Company had cash and cash equivalents of $2,086,000.
In January 1997, the Company issued $2,000,000 of Triumph Notes, resulting
in net proceeds to the Company of $1,880,000, 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 $3,579,000 with $1,420,000 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. In February 1997, the
Company sold additional shares of preferred stock which resulted in
approximately $6,848,000 of proceeds (net of issuance costs) to the Company.
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 and $60,000 to purchase fixed assets,
primarily equipment and furniture, in 1994, 1995 and 1996, 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
24
<PAGE> 26
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.
25
<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 pharmaceutical
products, primarily for sale on a prescription basis, which are designed to
improve upon currently available products for the most common pediatric
illnesses through the application of the Company's drug delivery and
reformulation technologies. 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 for this indication.
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 for
which the Company plans to initiate Phase I clinical trials in the first half of
1997. 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.
26
<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
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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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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
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 expected in steroids
first half of 1997
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.
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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. 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 8,900,000
prescriptions), including cephalosporins and macrolides. The Company believes
that almost all liquid antibiotics are taken by children.
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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 and uncomplicated UTI in children age six months to twelve
years which is based on the Company's clinical trial results.
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
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<PAGE> 35
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 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
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<PAGE> 36
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 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
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
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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.
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 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.
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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. Ascent's IND for this product became effective
in January 1997. The Company expects to commence Phase I clinical trials in the
first half of 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 scheduled to conduct two Phase I clinical trials of this product
beginning in the first half of 1997. Each of these trials will involve 12
healthy adult volunteers and compare Ascent's topical cromolyn sodium cream with
a placebo. These trials will be conducted at a single site and be double
blinded. One study will involve the effect of cromolyn sodium cream as a
prophylactic, and the second will evaluate 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.
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.
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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. 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
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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 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
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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, 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
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 a third party
relating to the manufacture of Pediavent albuterol controlled-release granules
for suspension and "Business -- Products and Products under Develop-
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ment -- 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 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 reformula-
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tions 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 S.A. Chemical and Pharmaceutical Company ("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. 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
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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 may
have pending patent applications in the fields in which the Company is
developing and plans to market products, and it is possible that these patents
and patent applications will require the Company to alter its products or
processes, pay licensing fees or cease certain activities.
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."
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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, 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 -- Early State of 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,
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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 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.
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
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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.
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 February 28, 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 February 28, 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.......................... 41 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................. 38 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)................ 48 Director
Terrance McGuire(2)....................... 40 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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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.
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. From 1981 to 1983 Mr. Schroeder was the Executive Vice President of
Sandoz, Inc., U.S., a pharmaceutical
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<PAGE> 51
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.
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
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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 February 28, 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
entities may also be competitors of Ascent. A brief biography of each of the
Company's medical advisors, as of February 28, 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
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<PAGE> 53
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 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
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<PAGE> 54
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.
53
<PAGE> 55
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 February 28, 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 February 28, 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
54
<PAGE> 56
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 February 28, 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 February 28, 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.
55
<PAGE> 57
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."
56
<PAGE> 58
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 1,892,765 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> 59
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> 60
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of February 28, 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................................ 52,062(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...................................... 15,557(15) * *
Thomas W. Janes.................................. 332,829(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)................................... 3,299,698(20) 59.7 49.0(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 February 28, 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> 61
(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 February 28, 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 February 28, 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 February
28, 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 February 28, 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 February, 28, 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 February 28, 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
February 28, 1997) and 10,200 shares issuable upon the exercise of warrants
held by Banque Paribas within 60 days of February 28, 1997. Banque Paribas
and Paribas Principal, Inc. are affiliates.
(7) Includes 79,277 shares issuable upon the exercise of warrants within 60
days of February 28, 1997.
(8) Includes 140,476 shares of Common Stock issuable upon conversion of the
Triumph Notes outstanding at February 28, 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 February 28, 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 February 28, 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 February 28, 1997.
(12) Consists of 52,062 shares issuable upon the exercise of options within 60
days of February 28, 1997.
(13) Includes 142,800 shares issuable upon the exercise of options within 60
days of February 28, 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 within 60 days
of February 28, 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 February 28, 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
February 28, 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 February 28, 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 February 28, 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 February 28, 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 February 28,
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> 62
DESCRIPTION OF CAPITAL STOCK
Assuming conversion of all of the Company's Convertible Preferred Stock, as
of February 28, 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 February 28, 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 February 28, 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 February 28, 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 244,978 shares were
exercisable.
TRIUMPH NOTES
As of February 28, 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
61
<PAGE> 63
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> 64
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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<PAGE> 65
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, based upon the number of shares
outstanding at February 28, 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 1,285,490 shares
covered by vested options and warrants outstanding at February 28, 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 779,268 shares
issuable upon the exercise of Triumph Warrants issued or issuable no later than
the closing of this offering). Of these outstanding shares (and without taking
into account the lock-up agreements described below), 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
3,757,594 additional shares of Common Stock (including approximately (i) 320,681
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 (assuming effectiveness of
the amendment to Rule 144 described below), 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 shares of Common Stock
outstanding prior to this offering, approximately 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
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 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
of the shares of Common Stock (including approximately
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 two years 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 three years has elapsed
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<PAGE> 66
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. The
Securities and Exchange Commission has adopted an amendment to Rule 144 which
reduces the holding period required for shares subject to Rule 144 to become
eligible for sale in the public market from two years to one year, and from
three years to two years in the case of Rule 144(k). This amendment will be
effective on April 29, 1997.
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 two-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.
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<PAGE> 67
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 shares of Common Stock
outstanding prior to this offering, approximately 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
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
66
<PAGE> 68
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."
67
<PAGE> 69
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 and Licenses," 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 and Licenses" 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.
68
<PAGE> 70
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 unaudited 1996 Pro Forma.......... F-3
Statements of Operations for the years ended December 31, 1994, 1995 and 1996, and
cumulative from inception (March 16, 1989) to December 31, 1996..................... F-4
Statements of Changes in Stockholders' Equity (Deficit) from inception (March 16,
1989) to December 31, 1996.......................................................... F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996, and
cumulative from inception (March 16, 1989) to December 31, 1996..................... F-6
Notes to the Financial Statements..................................................... F-7
A PRODUCT LINE OF UPSHER-SMITH LABORATORIES, INC.:
Independent Auditors' Report.......................................................... F-18
Statement of Assets Related to the Product Line to be Acquired by Ascent Pediatrics,
Inc. as of December 29, 1996........................................................ F-19
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................................................................................ F-20
Notes to the Financial Statements of the Product Line to be Acquired by Ascent
Pediatrics, Inc. December 31, 1995 and December 29, 1996............................ F-21
UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS:
Introduction to Unaudited Combined Pro Forma Financial Statements As of and for the
Year Ended December 31, 1996........................................................ F-23
Unaudited Combined Pro Forma Balance Sheet as of December 31, 1996.................... F-24
Unaudited Combined Pro Forma Statement of Operations for the Year Ended December 31,
1996................................................................................ F-25
Notes to Unaudited Combined Pro Forma Financial Statements As of and for the Year
Ended December 31, 1996............................................................. F-26
</TABLE>
F-1
<PAGE> 71
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
April 3, 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
March , 1997
F-2
<PAGE> 72
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1996
PRO FORMA
(NOTES K AND L)
1995 1996 (UNAUDITED)
------------ ------------ ---------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 2,538,047 $ 2,085,743 $ 10,813,731
Other current assets.................................................. 43,672 12,312 12,312
------------- ------------ ------------
Total current assets............................................ 2,581,719 2,098,055 10,826,043
------------- ------------ ------------
Fixed assets, net (Note C).............................................. 155,030 163,142 163,142
Deposits related to acquisition (Note F)................................ -- 250,000 250,000
Deferred charges and other deposits (Notes F and K)..................... -- 104,553 104,553
Debt issue costs........................................................ -- -- 120,000
Other assets, net (Note D).............................................. 13,125 11,874 11,874
------------- ------------ ------------
Total assets.................................................... $ 2,749,874 $ 2,627,624 $ 11,475,612
============= ============ ============
LIABILITIES
Accounts payable........................................................ $ 112,343 $ 496,655 $ 496,655
Accrued expenses (Note G)............................................... 238,653 1,076,556 1,076,556
------------- ------------ ------------
Total current liabilities....................................... 350,996 1,573,211 1,573,211
Subordinated secured notes (Note K)..................................... -- -- 1,163,006
------------- ------------ ------------
Total liabilities............................................... 350,996 1,573,211 2,736,217
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 none outstanding on a pro forma
basis, respectively (liquidation preference of $6.00 per share)....... 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 none outstanding on a pro forma basis,
respectively (liquidation preference of $6.00 per share).............. 4,400,226 4,400,226 --
Series F redeemable convertible preferred stock, $.00004 par value;
1,892,308 shares authorized; 811,536 shares issued and outstanding at
December 31, 1996 and none outstanding on a pro forma basis,
respectively (liquidation preference $6.50 per share)................. -- 5,274,984 --
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 none outstanding on a pro forma basis,
respectively (liquidation preference of $0.38 per share)............ 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 none outstanding on a pro forma basis,
respectively (liquidation preference of $6.50 per share)............ 2,574,993 2,574,993 --
Common stock, $.00004 par value; 11,000,000 shares authorized; 197,837
and 198,155 shares issued and outstanding at December 31, 1995 and
1996 and 4,638,719 shares outstanding on a pro forma basis,
respectively........................................................ 8 8 185
Additional paid-in capital............................................ -- -- 28,372,250
Deficit accumulated during the development stage...................... (13,013,591) (19,633,040) (19,633,040)
------------- ------------ ------------
Total stockholders' equity (deficit).............................. (10,158,480) (16,777,929) 8,739,395
------------- ------------ ------------
Total liabilities and stockholders' equity (deficit)............ $ 2,749,874 $ 2,627,624 $ 11,475,612
============= ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 73
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND CUMULATIVE FROM INCEPTION (MARCH 16, 1989)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
CUMULATIVE FROM
INCEPTION (MARCH
16, 1989) TO
DECEMBER 31,
1994 1995 1996 1996
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Licensing revenue (Note D)......... $ -- $ 303,949 $ -- $ 303,949
----------- ----------- ----------- ------------
Costs and expenses:
Research and development......... 2,550,931 2,986,044 3,760,948 12,009,821
Selling, general and
administrative................ 1,140,667 1,531,924 2,805,352 8,203,559
----------- ----------- ----------- ------------
Total expenses........... 3,691,598 4,517,968 6,566,300 20,213,380
----------- ----------- ----------- ------------
Loss from operations............... (3,691,598) (4,214,019) (6,566,300) (19,909,431)
Interest income.................... 147,498 113,124 79,084 753,543
----------- ----------- ----------- ------------
Net loss........................... $(3,544,100) $(4,100,895) $(6,487,216) $(19,155,888)
Accretion to redemption value of
preferred stock.................. -- 62,604 137,783 486,002
----------- ----------- ----------- ------------
Net loss to common stockholders.... $(3,544,100) $(4,163,499) $(6,624,999) $(19,641,890)
=========== =========== =========== ============
Net loss per common and common
equivalent share, historical
(Note B)
Pro forma (unaudited):
Net loss per common and common
equivalent share.............. $ (1.48)
Weighted average number of common
and common equivalent shares
outstanding................... 4,384,208
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 74
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION (MARCH 16, 1989)
TO DECEMBER 31, 1996
<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 --
========= ======= ======== ========== =========== == =======
<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)
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 75
ASCENT PEDIATRICS, INC
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996,
AND CUMULATIVE FROM INCEPTION (MARCH 16, 1989)
TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
CUMULATIVE FROM
INCEPTION (MARCH
16, 1989) TO
DECEMBER 31,
1994 1995 1996 1996
----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Cash flows for operating activities:
Net loss........................................... $(3,544,100) $(4,100,895) $(6,487,216) $(19,155,888)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization................... 41,031 45,349 52,833 206,625
Changes in operating assets and liabilities:
Other assets.................................. (67,464) 55,943 31,360 (12,312)
Deferred charges and deposits................. -- -- (104,553) (104,553)
Accounts payable and accrued expenses......... 143,590 47,038 1,222,215 1,573,213
------------ ------------ ------------ ------------
Total adjustments.......................... 117,157 148,330 1,201,855 1,662,973
------------ ------------ ------------ ------------
Net cash used by operating activities................ (3,426,943) (3,952,565) (5,285,361) (17,492,915)
------------ ------------ ------------ ------------
Cash flows for investing activities:
Purchase of fixed assets........................... (94,179) (17,774) (59,694) (381,642)
Payments related to acquisition.................... -- -- (250,000) (250,000)
------------ ------------ ------------ ------------
Net cash used in investing activities................ (94,179) (17,774) (309,694) (631,642)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from sale of common stock................. 500 -- 750 4,058
Proceeds from sale of preferred stock, net of
issuance costs.................................. -- 4,337,622 5,137,201 20,201,442
Proceeds from issuance of debt..................... -- -- -- 150,000
Proceeds from warrant.............................. -- -- 4,800 4,800
Repayment of debt.................................. -- -- -- (150,000)
------------ ------------ ------------ ------------
Net cash provided by financing activities............ 500 4,337,622 5,142,751 20,210,300
------------ ------------ ------------ ------------
Net (decrease) increase in cash...................... (3,520,622) 367,283 (452,304) 2,085,743
Cash and cash equivalents at the beginning of the
period............................................. 5,691,386 2,170,764 2,538,047 --
------------ ------------ ------------ ------------
Cash and cash equivalents at the end of the period... $ 2,170,764 $ 2,538,047 $ 2,085,743 $ 2,085,743
============ ============ ============ ============
Non-cash activity:
Series C preferred stock converted to Series D
preferred stock................................. -- -- -- $ 2,117,147
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 76
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
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.
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> 77
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 DECEMBER 31,
---------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Net loss per common share..................................... $(2.24) $(2.63) $(4.18)
Weighted average number of common and common equivalent shares
outstanding................................................. 1,585,048 1,585,251 1,585,251
</TABLE>
Fully diluted net loss per common share is the same as primary net loss per
common share.
F-8
<PAGE> 78
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 at December 31:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Equipment.............................................. $ 178,430 $ 220,983
Furniture and fixtures................................. 89,730 106,871
--------- ---------
Total equipment........................................ 268,160 327,854
Less:
Accumulated depreciation............................. (113,130) (164,712)
--------- ---------
Total.................................................. $ 155,030 $ 163,142
========= =========
</TABLE>
Depreciation expense amounted to $36,402, $44,101, and $51,582 for the
years ended December 31, 1994, 1995 and 1996, 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 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. 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 in connection with this license.
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
F-9
<PAGE> 79
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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, and $308,878 for the
period from inception (March 16, 1989) to December 31, 1996. 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.
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.
F-10
<PAGE> 80
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 at December 31:
<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Compensation expenses........................................ $ 52,756 $ 109,268
Clinical study expenses...................................... 87,815 156,134
Advertising costs............................................ -- 364,692
Other........................................................ 98,082 446,462
-------- ----------
$238,653 $1,076,556
======== ==========
</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 an 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 5,658,563 shares authorized: 800,000 are designated Series A
convertible preferred stock, 399,999 are designated 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 1,915,765 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.
F-11
<PAGE> 81
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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).
F-12
<PAGE> 82
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-13
<PAGE> 83
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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. The required disclosures under SFAS 123 as if the Company had applied
the new method of accounting are made below.
A summary of the Company's stock option activity for the three years ended
December 31, 1996 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
======= =====
</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 in 1994 and 1995 were 129,800 and 200,791,
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 Black-Scholes model with
the following weighted average assumptions for 1995 and 1996, respectively:
risk-free interest rates of 6.0% and 6.5%; dividend yields of 0% and 0%;
volatility factors of the expected market price of the Company's common stock of
zero for both years and a weighted average expected life of the options of five
years.
F-14
<PAGE> 84
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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) (6,654,204)
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>
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.
F-15
<PAGE> 85
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 $1,880,000 pursuant to the first closing. At
December 31, 1996, $34,865 of 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 issued at the First Closing will be recorded as a discount of $836,994
to the Notes issued at such closing. Consequently, such Notes will be recorded
at $1,163,006. Similarly, the fair market value of the warrants issued at the
Second Closing will be recorded as a discount of $1,420,643 to the Notes issued
at such closing and such Notes will be recorded at $3,579,357. Accordingly,
approximately 2,258,000 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.
F-16
<PAGE> 86
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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)
As a result of financing activities (see Note K) subsequent to year end, an
unaudited pro forma balance sheet is included as part of the accompanying
balance sheet. This presentation discloses the pro forma effects of this
financing as if it had occurred on December 31, 1996. The following pro forma
adjustments to reflect these financings were incorporated in the unaudited pro
forma balance sheet: the issuance of 1,104,229 shares of Series F Redeemable
Convertible Preferred stock at $6.50 per share for net proceeds of $6,847,988;
the issuance of the Notes in the amount of $2,000,000 for net proceeds of
$1,880,000. Additionally, a pro forma adjustment has been made to reflect
conversion of Preferred Stock to common on an 0.85-for-one basis, except Series
B Preferred which convert to an aggregate of 353,227 shares of common stock,
upon consummation of an initial public offering such as the one for which these
financial statements have been prepared.
F-17
<PAGE> 87
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-18
<PAGE> 88
A PRODUCT LINE OF UPSHER-SMITH LABORATORIES, INC.
STATEMENT OF ASSETS RELATED TO THE PRODUCT LINE TO BE ACQUIRED BY
ASCENT PEDIATRICS, INC.
DECEMBER 29, 1996
<TABLE>
<S> <C>
Inventories, net.................................................................. $122,235
--------
Assets of the product line to be acquired......................................... $122,235
========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE> 89
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.
YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 29, 1996
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Net sales......................................................... $3,563,761 $3,877,199
Identified costs and expenses:
Cost of sales................................................... 1,229,848 1,303,336
Advertising and promotion expense............................... 657,655 669,456
Allocated selling expense....................................... 480,700 571,167
---------- ----------
Total identified costs and expenses..................... 2,368,203 2,543,959
---------- ----------
Net sales in excess of identified costs and expenses.... $1,195,558 $1,333,240
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 90
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
(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 as if the Feverall product line had been operated on a stand-alone
basis during the periods presented and primarily reflect an estimate of activity
attributable to selling the Feverall product line relative to the total selling
activity of Upsher-Smith.
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-21
<PAGE> 91
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
At December 29, 1996, the components of inventories were as follows:
<TABLE>
<S> <C>
Work in process.................................................... $ 10,864
Samples and displays............................................... 42,486
Finished goods..................................................... 68,885
--------
$122,235
========
</TABLE>
(4) NET SALES
Net sales for the years ended December 31, 1995 and December 29, 1996
consisted of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Gross sales......................................... $4,677,134 $5,281,399
Less sales returns, discounts and rebates........... 1,113,373 1,404,200
---------- ----------
Net sales...................................... $3,563,761 $3,877,199
========== ==========
</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-22
<PAGE> 92
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INTRODUCTION TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
Subsequent to Ascent Pediatrics, Inc.'s ("Ascent" or the "Company") year
end, two financings have closed. In addition, the Company has 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 918,460 shares of Series F redeemable convertible
preferred stock, ("Series F") on February 3, 1997 80,000 shares of Series
F, on February 19, 1997, and 105,769 shares of Series F on February 28,
1997 at a price of $6.50 per share, with gross proceeds of $7,027,989 and
cash issuance costs of $180,000.
- The issuance of Convertible Subordinated Secured Notes ("the Notes") on
January 31, 1997 in the amount of $2,000,000 maturing on January 31, 2002
with issuance costs of $120,000.
- 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 December 31, 1996, which mandatorily convert upon closing
of an initial public offering.
The Ascent Pro Forma Subtotal December 31, 1996 column represents Ascent's
December 31, 1996 historical financial statements adjusted for the subsequent
events 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 ($122,235 at December 31, 1996) 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 December 31, 1996 and Ascent's
Statement of Operations with the 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 Statement 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 as if the Feverall product line had been
operated on a stand-alone basis and primarily reflect an estimate of activity
attributable to the Feverall 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 Statement 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 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
Statement 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-23
<PAGE> 93
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED COMBINED PRO FORMA BALANCE SHEET
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
ISSUANCE
OF SERIES F ISSUANCE OF ASSUMED
REDEEMABLE CONVERTIBLE CONVERSION
ASCENT CONVERTIBLE SUBORDINATED OF PREFERRED
HISTORICAL PREFERRED NOTE SECURED NOTE STOCK INTO NOTE
DECEMBER 31, 1996 STOCK REF. NOTES REF. COMMON STOCK REF.
----------------- ----------- ---- ------------ ---- ------------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 2,085,743 $6,847,988 A $1,880,000 C $
Other current assets.................. 12,312
Inventories, net...................... --
------------
Total current assets............ 2,098,055
Fixed assets, net..................... 163,142
Deposits related to acquisition....... 250,000
Deferred charges and other deposits... 104,553
Other assets, net..................... 11,874 120,000 D
------------
Total assets.................... $ 2,627,624
============
Liabilities and stockholders' equity:
Accounts payable...................... $ 496,655
Accrued expenses...................... 1,076,556
Note payable -- Feverall
Acquisition......................... --
------------
Total current liabilities....... 1,573,211
Convertible subordinated secured
notes................................. 1,163,006 C
------------
Total liabilities............... 1,573,211
Series D redeemable convertible
preferred stock....................... 8,157,132 (8,157,132) F
Series E redeemable convertible
preferred stock....................... 4,400,226 (4,400,226) F
Series F redeemable convertible
preferred stock....................... 5,274,984 7,027,988 A (12,302,972) F
Stockholders' equity (deficit):
Series A convertible preferred........ 280,110 (280,110) F
Series B convertible preferred........ 2,574,993 (2,574,993) F
Common stock.......................... 8 177 F
Additional paid-in capital............ -- (180,000) B 836,994 E 27,715,256 F
Deficit accumulated during the
development stage................... (19,633,040)
-----------
Total stockholders' equity
(deficit)..................... (16,777,929)
------------
Total liabilities and
stockholders' equity
(deficit)..................... $ 2,627,624
============
<CAPTION>
A PRODUCT LINE
ASCENT OF UPSHER-SMITH PURCHASE
PRO FORMA HISTORICAL NOTE PRICE NOTE OTHER NOTE
DECEMBER 29, 1996 DECEMBER 29, 1996 REF ADJUSTMENTS REF. ADJUSTMENTS REF.
----------------- ----------------- ---- ----------- ---- ----------- ----
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 10,813,731 $ $(5,872,235) H
Other current assets.................. 12,312
Inventories, net...................... -- 122,235 G 7,765 N
------------
Total current assets............ 10,826,043
Fixed assets, net..................... 163,142
Deposits related to acquisition....... 250,000 (250,000) I
Deferred charges and other deposits... 104,553
Other assets, net..................... 131,874 11,492,235 J
------------
Total assets.................... $ 11,475,612 122,235 G
============
Liabilities and stockholders' equity:
Accounts payable...................... $ 496,655
Accrued expenses...................... 1,076,556
Note payable -- Feverall
Acquisition......................... -- 5,500,000 K
------------
Total current liabilities....... 1,573,211
Convertible subordinated secured
notes................................. 1,163,006
------------
Total liabilities............... 2,736,217
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............ 28,372,250
Deficit accumulated during the
development stage................... (19,633,040)
------------
Total stockholders' equity
(deficit)..................... 8,739,395
------------
Total liabilities and
stockholders' equity
(deficit)..................... $ 11,475,612
============
<CAPTION>
COMBINED PRO FORMA
DECEMBER 31, 1996
------------------
<S> <C>
Current assets:
Cash and cash equivalents............. $ 4,941,496
Other current assets.................. 12,312
Inventories, net...................... 130,000
------------
Total current assets............ 5,083,808
Fixed assets, net..................... 163,142
Deposits related to acquisition....... --
Deferred charges and other deposits... 104,553
Other assets, net..................... 11,624,109
------------
Total assets.................... $ 16,975,612
============
Liabilities and stockholders' equity:
Accounts payable...................... $ 496,655
Accrued expenses...................... 1,076,556
Note payable -- Feverall
Acquisition......................... 5,500,000
------------
Total current liabilities....... 7,073,211
Convertible subordinated secured
notes................................. 1,163,006
------------
Total liabilities............... 8,236,217
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............ 28,372,250
Deficit accumulated during the
development stage................... (19,633,040)
------------
Total stockholders' equity
(deficit)..................... 8,739,395
------------
Total liabilities and
stockholders' equity
(deficit)..................... $ 16,975,612
============
</TABLE>
F-24
<PAGE> 94
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
UNAUDITED COMBINED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ISSUANCE
OF SERIES F ISSUANCE OF ASSUMED
REDEEMABLE CONVERTIBLE CONVERSION ASCENT
ASCENT CONVERTIBLE SUBORDINATED OF PREFERRED PRO FORMA
HISTORICAL PREFERRED NOTE SECURED NOTE STOCK INTO NOTE SUBTOTAL
DECEMBER 31, 1996 STOCK REF. NOTES REF. COMMON STOCK REF. DECEMBER 31, 1996
----------------- ----------- ---- ------------ ---- ------------- ---- -----------------
<S> <C> <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 2,805,352
Advertising and promotion... -- --
Allocated selling........... -- --
----------- ------------
Total expenses:......... 6,566,300 6,566,300
Income (loss) from
operations.................. (6,566,300) (6,566,300)
Interest income............... 79,084 79,084
----------- ------------
Net income (loss)............. $(6,487,216) $ (6,487,216)
=========== ============
Net income (loss) per share... $ (1.48) $ (1.48)
=========== ============
Weighted average number of
common and common stock
equivalent shares
outstanding................. 4,384,208 4,384,208
<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 G $ $ $ 3,877,199
---------- -----------
Costs and expenses:
Cost of sales............... 1,303,336 G 130,333 M 1,433,669
Research and development.... -- 3,760,948
Selling, general and
administrative............ -- 574,612 L 490,000 P 5,110,587
1,240,623 O
Advertising and promotion... 669,456 G (669,456) O --
Allocated selling........... 571,167 G (571,167) O --
---------- -----------
Total expenses:......... 2,543,959 G 10,305,204
Income (loss) from
operations.................. (6,428,005)
Interest income............... -- 79,084
---------- -----------
Net income (loss)............. $1,333,240 G $(6,348,921)
========== ===========
Net income (loss) per share... $ (1.45)
===========
Weighted average number of
common and common stock
equivalent shares
outstanding................. 4,384,208
</TABLE>
F-25
<PAGE> 95
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996
The accompanying unaudited combined pro forma financial statements reflect
the impact of the following adjustments:
A. PREFERRED STOCK
Records the issuance on February 3, 1997, February 19, 1997 and February
28, 1997 of 918,460, 80,000 and 105,769 shares, respectively, of Series F
redeemable convertible preferred stock, at a price of $6.50 per share as if the
issuance occurred on December 31, 1996, with proceeds of $6,847,988 net of cash
issuance costs of $180,000.
B. PREFERRED STOCK ISSUANCE COSTS
Records issuance costs of $180,000 related to the Series F redeemable
convertible preferred stock.
C. CONVERTIBLE SUBORDINATED SECURED NOTES (THE "NOTES")
Records the issuance of $2,000,000 of the Notes net of issuance costs of
$120,000 with proceeds of $1,880,000 on January 31, 1997 as if the issuance
occurred on December 31, 1996. The Notes have been recorded at $1,163,006 net of
$836,994, the fair market value of Series A warrants to purchase 224,430 shares
of Common Stock issued in connection with the Notes. Accordingly the $1,163,006
will be accreted as additional interest expense in addition to the stated
interest rate up to $2,000,000 over the term of the Notes. 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).
D. NOTE ISSUANCE COSTS
Records issuance costs of $120,000 related to the Notes.
E. SERIES A WARRANTS
Records the fair market value of Series A warrants to purchase an aggregate
of 224,430 shares of common stock issued in connection with the Notes of
$836,994.
F. CONVERSION OF PREFERRED STOCK
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.
F-26
<PAGE> 96
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
- The conversion of 733,371 shares of Series F 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.
<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
STOCK STOCK STOCK STOCK STOCK TOTALS
----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
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.................................. (12,302,972) (12,302,972)
Common stock............................. 27 14 46 24 66 177
Additional paid-in capital............... 280,083 2,574,979 8,157,086 4,400,202 12,302,906 27,715,256
--------- ----------- ----------- ----------- ------------ ------------
Totals........................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
========= =========== =========== =========== ============ ============
</TABLE>
G. 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.
H. CASH PAYMENT
Records the cash payment of $5,872,235 for the probable acquisition of the
Feverall product line which includes a $5,750,000 million required payment at
closing and $122,235 of inventory costs.
I. DEPOSIT
Records the application of the deposit of $250,000 related to the probable
acquisition of the Feverall product line to the purchase price.
J. 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 December 31, 1996:
<TABLE>
<S> <C>
Purchase price.................................. $11,622,235
Less inventory acquired at fair value........... 130,000
-----------
Intangible assets............................... $11,492,235
===========
</TABLE>
F-27
<PAGE> 97
ASCENT PEDIATRICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO UNAUDITED COMBINED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
K. 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.................................. $11,622,235
Less deposit.................................... 250,000
-----------
Subtotal........................................ 11,372,235
Less cash payment............................... 5,872,235
-----------
Note payable.................................... $ 5,500,000
===========
</TABLE>
L. AMORTIZATION EXPENSE
Records amortization expense of $574,612 related to the goodwill of
$11,492,235 over the estimated life of 20 years.
M. COST OF GOOD 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.
N. INVENTORY
Records adjustment to increase inventory to be purchased to fair market
value.
O. RECLASSIFICATION
Records reclassification of Upsher-Smith expenses to conform with Ascent's
financial statement presentation.
P. 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. Selling, general and administrative expenses are expected to
increase as the product line revenue increases.
F-28
<PAGE> 98
<TABLE>
<S> <C> <C>
Exclusive Focus on
Pediatric Market
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
[ARROW]
</TABLE>
7 Products in Development
[ARROW]
Objective: Improved Compliance
and Therapeutic Outcomes
<PAGE> 99
================================================================================
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............................. 47
Certain Transactions................... 57
Principal Stockholders................. 59
Description of Capital Stock........... 61
Shares Eligible for Future Sale........ 64
Underwriting........................... 66
Legal Matters.......................... 68
Experts................................ 68
Additional Information................. 68
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
[LOGO]
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
COWEN & COMPANY
VOLPE BROWN WHELAN
& COMPANY
ADAMS, HARKNESS & HILL, INC.
, 1997
================================================================================
<PAGE> 100
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.............................................. $9,060.61
NASD Filing Fee................................................... 3,490.00
Nasdaq National Market Listing Fee................................ *
Blue Sky Fees and Expenses (including legal fees)................. *
Transfer Agent and Registrar Fees and Expenses.................... *
Accounting Fees and Expenses...................................... *
Legal Fees and Expenses........................................... *
Printing, Engraving and Mailing Expenses.......................... *
Miscellaneous..................................................... *
---------
Total........................................................... $ *
=========
</TABLE>
- ---------------
* To be completed by amendment.
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.
II-1
<PAGE> 101
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 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 to three financial
investors 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 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. 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.
II-2
<PAGE> 102
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
1,892,765 shares of Series F Convertible Preferred Stock to 15 individuals
and 14 entities for an aggregate purchase price of $12.3 million. 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. 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 an aggregate of
27,200 shares of Common Stock to one placement agent and four individuals
designated by a second placement agent and paid two 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 Regulation D and Section 4(2) of the Securities Act.
4. On January 31, 1997, the Registrant issued convertible subordinated
secured notes to two entities and two persons for an aggregate of
$2,000,000 and issued warrants exercisable for an aggregate of 224,429
shares of Common Stock to such persons and entities. On February 28, 1997,
the Company also issued warrants exercisable for an aggregate of 21,249
shares of Common Stock to four individuals 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 Regulation D and 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 to one entity 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
February 28, 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 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 February 28, 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.
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
</TABLE>
II-3
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<S> <C>
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 (included in Exhibit 5.1)
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.
** To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
II-4
<PAGE> 104
(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> 105
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 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 3rd day of April, 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. 1 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 April 3, 1997
- ------------------------------------------ Officer and Director
Alan R. Fox (Principal Executive Officer)
* Vice President, Finance April 3, 1997
- ------------------------------------------ and Treasurer (Principal
John G. Bernardi Financial and
Accounting Officer)
* Chairman April 3, 1997
- ------------------------------------------
Emmett Clemente, Ph.D.
* Vice Chairman April 3, 1997
- ------------------------------------------
Robert E. Baldini
* Director April 3, 1997
- ------------------------------------------
Raymond F. Baddour, Ph.D.
* Director April 3, 1997
- ------------------------------------------
Michael J.F. Du Cros
* Director April 3, 1997
- ------------------------------------------
Thomas W. Janes
* Director April 3, 1997
- ------------------------------------------
Andre Lamotte, Sc.D.
* Director April 3, 1997
- ------------------------------------------
Terrance McGuire
* Director April 3, 1997
- ------------------------------------------
Lee J. Schroeder
*By: /s/ ALAN R. FOX
- ------------------------------------------
Alan R. Fox
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 106
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.
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
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EXHIBIT NO. DESCRIPTION PAGE
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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 (included in Exhibit 5.1)
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
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* Previously filed.
** To be filed by amendment.
+ Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
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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");
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(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
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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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<PAGE> 16
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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<PAGE> 24
(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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<PAGE> 25
(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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<PAGE> 26
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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<PAGE> 27
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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<PAGE> 28
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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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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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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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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<PAGE> 44
(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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<PAGE> 49
(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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<PAGE> 51
(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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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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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
with the Securities and Exchange Commission.
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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Confidential material omitted and filed separately
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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Confidential material omitted and filed separately
with the Securities and Exchange Commission.
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 ****** 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 ************** 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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Confidential material omitted and filed separately
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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<PAGE> 80
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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Confidential material omitted and filed separately
with the Securities and Exchange Commission.
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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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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<PAGE> 104
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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<PAGE> 105
(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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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.
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Upsher-Smith Labratories, Inc.
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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.
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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
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Upsher-Smith Labratories, Inc.
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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
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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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(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.
_________________, 1997
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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<PAGE> 125
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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<PAGE> 126
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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<PAGE> 127
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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<PAGE> 130
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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<PAGE> 131
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
Exhibit 5.1
Hale and Dorr LLP
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 FAX 617-526-5000
April 2, 1997
Ascent Pediatrics, Inc.
187 Ballardvale Street
Wilmington, MA 01887
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-1 (File No. 333-23319) (the "Registration Statement") filed
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"), for the registration
of 2,300,000 shares of Common Stock, $.00004 par value per share (the "Shares"),
of Ascent Pediatrics, Inc., a Delaware corporation (the "Company"), including
300,000 Shares issuable upon exercise of an over-allotment option granted by the
Company.
The Shares are to be sold by the Company pursuant to an underwriting
agreement (the "Underwriting Agreement") to be entered into by and among the
Company and Cowen & Company, Volpe Brown Whelan & Company, LLC and Adams,
Harkness & Hill, Inc., as representatives of the several underwriters named in
the Underwriting Agreement, the form of which has been filed as Exhibit 1 to the
Registration Statement.
We are acting as counsel for the Company in connection with the issue and
sale by the Company of the Shares. We have examined signed copies of the
Registration Statement as filed with the Commission. We have also examined and
relied upon the Underwriting Agreement, minutes of meetings of the stockholders
and the Board of Directors of the Company as provided to us by the Company,
stock record books of the Company as provided to us by the Company, the
Certificate of Incorporation and By-Laws of the Company, each as restated and/or
amended to date, and such other documents as we have deemed necessary for
purposes of rendering the opinions hereinafter set forth.
<PAGE> 2
Ascent Pediatrics, Inc.
April 2, 1997
Page 2
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as copies, the authenticity of the originals of such latter documents and the
legal competence of all signatories to such documents.
We assume that the appropriate action will be taken, prior to the offer and
sale of the Shares in accordance with the Underwriting Agreement, to register
and qualify the Shares for sale under all applicable state securities or "blue
sky" laws.
We express no opinion herein as to the laws of any state or jurisdiction
other than the state laws of the Commonwealth of Massachusetts, the Delaware
General Corporation Law statute and the federal laws of the United States of
America.
Based upon and subject to the foregoing, we are of the opinion that the
Shares have been duly authorized for issuance and, when the Shares are issued
and paid for in accordance with the terms and conditions of the Underwriting
Agreement, the Shares will be validly issued, fully paid and nonassessable.
It is understood that this opinion is to be used only in connection with
the offer and sale of the Shares while the Registration Statement is in effect.
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.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the captions "Legal Matters"
and "Experts."
Very truly yours,
HALE AND DORR LLP
<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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<PAGE> 2
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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<PAGE> 3
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
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
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, ***************************
***********************************************
***********************************************
****************
(ii) In Major Countries other than the United States or
Europe, ***************************
***********************************************
***********************************************
****************
(iii) with respect to all of the Major Countries in
Europe,****************************************
***********************************************
***********************************************
***********************************************
****************
(b) In any country (including any Major Country):
(i) if Ascent ***************************
***********************************************
***********************************************
****************
(ii) if Ascent **************************************
***********************************************
***********************************************
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<PAGE> 19
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
****************
(iii) if Ascent *************************************
************************************************
************************************************
************************************************
************************************************
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.
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<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
- 31 -
<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.
- 32 -
<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.
- 33 -
<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
- 34 -
<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
- 35 -
<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
******** ***********
******** ***********
- 36 -
<PAGE> 37
Exhibit B
Major Countries
Australia
Canada
France
Germany
Italy
Japan
The Netherlands
Poland
Spain
United Kingdom
United States of America
- 37 -
<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 *******
- 38 -
<PAGE> 39
EXHIBIT D
Omitted and Filed Separately as Exhibit 10.8
- 39 -
<PAGE> 1
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Exhibit 10.8
MANUFACTURING AND SUPPLY AGREEMENT
THIS MANUFACTURING AND SUPPLY AGREEMENT (the "Agreement") is effective as
of the date of last signature of the parties below (the "Effective Date") by and
between Recordati S.A. Chemical and Pharmaceutical Company, Corso San Gottardo
54, 6830 Chiasso, Switzerland ("Recordati"), and Ascent Pediatrics, Inc., 9
Linnell Circle, Billerica, MA 01821, U.S.A. ("Ascent").
WHEREAS, Recordati and Ascent have entered into a Development and License
Agreement of even date (the "Development and License Agreement") pertaining to
the research and development of a controlled release suspension system
containing Albuterol.
WHEREAS, Ascent intends to purchase such systems in finished, packaged form
("Finished Product") from Recordati and Recordati intends to sell to Ascent, all
upon the terms and conditions set forth below.
In consideration of the foregoing recitals and the mutual promises,
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
I. PRELIMINARY MATTERS
1.1 Defined Terms. Unless otherwise defined in this Agreement, capitalized
terms will have the meanings ascribed to them in the Development and License
Agreement.
1.2 Term. The term of this Agreement will commence on the Effective Date,
and will, unless earlier terminated in accordance with this Agreement, terminate
upon the fifteenth anniversary of the receipt by Ascent of Regulatory Approval
for the Finished Product 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.
<PAGE> 2
1.3 Subcontractors.
(a) Recordati will have the right to wholly or partly subcontract the
activities to be performed by Recordati pursuant to this Agreement, provided
that Recordati (i) informs Ascent in writing of its intention to utilize a
subcontractor; (ii) furnish Ascent with reasonably detailed information
regarding the extent of such subcontractor's services; (iii) consults with
Ascent regarding the proposed subcontractor's selection and its ability to
perform; and (iv) gives due consideration to Ascent's concerns, if any,
regarding such proposed contractor to the extent such concerns are based upon
(a) the inability of the contractor to perform, (b) such contractor being a
competitor of Ascent, or (c) requirements regarding Regulatory Approvals. The
final selection of a subcontractor will be the responsibility of Recordati.
Ascent will not make any direct contact, (whether oral or written) with any of
Recordati's subcontractors without Recordati's prior written approval, which
will not be unreasonably withheld.
(b) If, pursuant to the Development and License Agreement, Recordati
will appoint a third party subcontractor to perform manufacturing scale up and
for the supply of Finished Products pursuant to this Agreement, Ascent will
reimburse Recordati and/or such subcontractor's Costs incurred in manufacturing
scale up. Costs associated with Recordati's identification and training of such
subcontractor shall be borne by Recordati. Such subcontractor will be referred
to in this Agreement as "Recordati's Nominee."
(c) As soon as is reasonably practicable after the receipt by Ascent
of the Regulatory Approvals for the Finished Product in the United States,
Recordati will use commercially reasonable efforts to identify an additional
subcontractor as a second source of Finished Products in the event of a failure
of Recordati or Recordati's Nominee to supply Finished Products pursuant to this
Agreement. Ascent will reimburse such third party subcontractor's Costs incurred
in manufacturing scale up and obtaining Regulatory Approvals. Costs associated
with Recordati's identification and training of such subcontractor shall be
borne by Recordati. Such additional subcontractor will be referred in this
Agreement as the "Second Source."
II. PRODUCT PURCHASES
2.1 Purchases of Product. Recordati will, subject to the terms and
conditions set forth in this Agreement, use its reasonable efforts to sell to
Ascent, and Ascent will purchase exclusively from Recordati, Ascent's and its
Affiliates' and sublicensees' (if any) requirements for Finished Products.
2.2 Finished Product Prices. Ascent will pay to Recordati for the Finished
Product the prices as set forth in Schedule 1.
2.3 Forecasts and Orders.
<PAGE> 3
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
(a) Ascent will (i) promptly notify Recordati of Ascent's submission
of a PLA and its receipt of any Regulatory Approval; (ii) at least ********
prior to the expected launch of a Finished Product, furnish to Recordati
Ascent's estimated purchase requirements and sales volume by Ascent, its
Affiliates, sublicensees and distributors for the product for the 12 months
following the launch of the Finished Product; (iii) at least
*************************** prior to the calendar quarter in which the first
commercial sale of such Finished Product ("First Commercial Sale") is projected
to occur, Ascent's firm order and delivery date for such Finished Product
("Delivery Date") for such calendar quarter (which will be subject to agreement
by Recordati, which agreement will not be unreasonably withheld) and a forecast
of its quantity requirements for such Finished Product for the
*********************************; and (iv) thereafter before the commencement
of each calendar quarter (January 1, April 1, July 1 and October 1), furnish to
Recordati a forecast for the next succeeding ************* and will place firm
orders for each shipment of Finished Product at least ******* prior to the
respective requested Delivery Date.
(b) If a forecast for a quarter is not timely submitted for a Finished
Product, the immediately preceding forecast for that quarter will become the new
forecast; if there is no preceding forecast for a quarter, the forecast for the
immediately preceding quarter will become the forecast.
(c) For each quarterly forecast of Finished Products, the amount of
any Finished Products forecasted for delivery in the
************************************ forecasted will be not less than
********************** of the most recent previous forecast for such quarter. In
addition, no firm order for a particular quarter will cover an amount of any
Finished Products ******************************* than the amount of such
Finished Products ordered for the previous quarter.
(d) The total amount of each Finished Product ordered by Ascent for
delivery in any one calendar quarter may ******************** of Ascent's most
recent forecast of its requirements for such Finished Product for such quarter.
In addition, Recordati will not be obligated to supply ************** of
Ascent's most recent forecast of its requirements for such Finished Product for
such quarter. If an Ascent Finished Product requirement for any quarter ******
*** of Ascent's most recent forecast of its requirements for such Finished
Product for such calendar quarter, Recordati and Ascent will discuss in good
faith the additional amount which Recordati will be able to supply consistent
with its other obligations (including its own internal requirements) and Ascent
will adjust its order accordingly and Recordati will be entitled to reasonable
extensions (*********************) to deliver such excess quantities and will
have ****************************************** which it ****************.
Ascent will indemnify Recordati and reimburse it promptly upon request for all
reasonable out of pocket costs and expenses, including the cost of carrying
increased inventory,
<PAGE> 4
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
to the extent caused by any deviation in order quantities from the limits
imposed by the preceding sentence, and Recordati will act reasonably to mitigate
any such costs and expenses.
(e) Ascent's forecasts and orders will reflect its good faith
expectations of customer demand and Ascent will act in a commercially reasonable
manner to schedule orders to avoid creating production capacity problems for
Recordati (or Recordati's Nominee or the Second Source, if applicable).
(f) Recordati will use diligent efforts to (i) deliver the Finished
Products in the quantities ordered by Ascent within ** days of the receipt of
the first purchase order based on the initial forecast, (ii) supply Ascent's
requirements for the Finished Product at the requested Delivery Dates, and (iii)
provide ** days' notice in the event it is unable to timely supply Ascent's
requirements for the Finished Product as set forth in any Ascent purchase order.
(g) (i) If Recordati or Recordati's Nominee fails to deliver *** of
the amount of any Finished Products ordered by Ascent over any **** calendar
quarters for any reason, excluding Force Majeure, and does not cure such failure
within ** days of the end of the ****** quarter in any such **** quarter period,
then Ascent may upon ** days' prior notice to Recordati elect to purchase its
additional required Finished Products from the Second Source.
(ii) If the Second Source fails to deliver **% of the amount of
any Finished Products ordered by Ascent over any ** calendar quarters for any
reason, excluding Force Majeure, and does not cure such failure within ** days
of the end of the ** quarter in any such ** quarter period, then Ascent may
upon ** days' prior notice to Recordati and to the Second Source terminate
Ascent's obligations to purchase additional Finished Products not yet
delivered, and Recordati's (or Recordati's Nominee's or the Second Source's, if
applicable) obligations to supply such Finished Products pursuant to this
Agreement.
(iii) EXCEPT IN THE CASE WHERE RECORDATI HAS NOT ATTEMPTED IN
GOOD FAITH TO MEET ITS SUPPLY OBLIGATIONS (WHICH LACK OF GOOD FAITH WILL BE A
MATERIAL BREACH OF THIS AGREEMENT), THE PROVISIONS OF THIS SECTION 2.3 WILL BE
ASCENT'S SOLE REMEDY FOR FAILURE OR DELAY OF RECORDATI OR ITS NOMINEE TO SUPPLY
FINISHED PRODUCTS PURSUANT TO THIS AGREEMENT AND SUCH FAILURE OR DELAY WILL NOT
BE DEEMED TO BE A MATERIAL BREACH OF THIS AGREEMENT.
2.4 Manufacture. Recordati (and Recordati's Nominee or the Second Source,
if applicable) will comply in all material respects with the good
<PAGE> 5
manufacturing practices set forth in (U.S.) 21 C.F.R. Part 211 or, to the extent
not conflicting therewith, any other Regulatory Authority in an applicable
country ("GMP") and consents to inspection of its manufacturing facilities and
shall obtain the right for an inspection of any manufacturing facilities of
Recordati's Nominee or the Second Source by representatives of the FDA or by the
Regulatory Authority in any country where the Finished Product(s) are sold. All
Finished Product supplied to Ascent by Recordati (or Recordati's Nominee or the
Second Source, if applicable) hereunder will be manufactured, packaged, tested
and released for Clinical Testing and sale under GMP. Recordati shall supply the
Finished Product in strict accordance with the specifications set forth in
Schedule 2 attached hereto (Schedule 2 "Finished Product Specifications") which
shall be specified by Ascent initially during human clinical/pharmacokinetic
trials and be finalized prior to or upon the grant of Regulatory Approval in
each country of the Territory with Ascent having the right to reasonably request
changes to the Finished Product Specifications from time to time. Recordati
shall manufacture and supply the Finished Product strictly in accordance with
all applicable laws, rules and regulations, including without limitation laws,
rules and regulations that may be applicable as a result of Ascent's Clinical
Testing or sale of the Finished Product for use in humans, such as the current
GMP. Recordati shall ensure and be responsible for the existence and maintenance
of quality control/quality assurance procedures designed to ensure that the
Finished Product is manufactured in accordance with the terms of this Section
2.4. Recordati shall also establish procedures that will permit lot traceability
and shall be responsible for post-approval stability testing for marketed
batches of Finished Product as defined in the applicable PLA submission to the
FDA. Recordati, Recordati's Nominee or the Second Source shall immediately
notify Ascent in the event that Recordati or Recordati's Nominee or the Second
Source, if applicable, becomes aware of any failure of the Finished Product
supplied to Ascent to meet the Finished Product Specifications or other
standards set forth in this Section 2.4 or in the event that Recordati or
Recordati's Nominee or the Second Source becomes aware of any defect in Finished
Product supplied to Ascent. It is understood that Recordati's obligations
hereunder relate to the manufacture and supply of Finished Products in
accordance with the Finished Product Specifications.
2.5 Risk of Loss. All deliveries will be "Free Carrier" (FCA) Recordati's
(or Recordati's Nominee's or the Second Source's, if applicable) manufacturing
facility in accordance with the then currently in effect "Incoterms." Risk of
loss, delay or damage of Finished Product in transit will pass to Ascent and
delivery will be complete upon delivery to the carrier by Recordati (or
Recordati's Nominee or the Second Source, if applicable).
2.6 Importation. Ascent will be responsible for importing Finished Product
to any country within the Territory, including compliance with laws and
regulations and the payment of all duties, fees and charges required for such
importation. Ascent will obtain any necessary import or export licenses required
by any government to import or export Finished Product.
<PAGE> 6
2.7 Payments for Finished Product. Ascent will pay Recordati for all
Finished Product purchased hereunder in U.S. Dollars by wire transfer in
accordance with Section 2 of Schedule 1.
2.8 Sales of Sublicensees. Ascent will purchase from Recordati or
Recordati's Nominee or the Second Source, if applicable, authorized to sell to
Ascent pursuant to Section 2.3, all of any of Ascent's sublicensees' or
Affiliates' requirements of the Finished Product, which Ascent may request to be
delivered to the' sublicensees or Affiliates. Payment will be made by Ascent to
Recordati, unless otherwise agreed, and the purchase price established under
Section 2.2 will apply to such sales.
III. WARRANTIES
3.1 Finished Product Warranty. Recordati warrants that at the time of
shipment each Finished Product manufactured by it or Recordati's Nominee or the
Second Source will conform to the Finished Product Specifications. EXCEPT FOR
THE FOREGOING WARRANTIES AND AS SET OUT IN SECTION 3.2 BELOW, RECORDATI DOES NOT
WARRANT THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE FINISHED
PRODUCT OR ITS PERFORMANCE OR NON-INFRINGEMENT, DOES NOT MAKE ANY WARRANTY,
EXPRESS OR IMPLIED, WITH RESPECT TO FINISHED PRODUCTS, SPECIFICATIONS, SUPPORT,
SERVICE OR ANYTHING ELSE AND DOES NOT MAKE ANY WARRANTY TO ASCENT'S CUSTOMERS OR
AGENTS. RECORDATI HAS NOT AUTHORIZED ANYONE TO MAKE ANY REPRESENTATION OR
WARRANTY OTHER THAN AS PROVIDED ABOVE.
3.2 Additional Representations and Warranties. The representations and
warranties of Recordati and Ascent set forth in Sections 2.1 and 2.2
respectively, of the Development and License Agreement shall apply to this
"Agreement" to the same extent as if they had been fully set forth herein.
3.3 Ascent Indemnity. Ascent shall indemnify, defend and hold harmless
Recordati from any claims, losses, expenses, costs and fees (including the
reasonable fees of attorneys and other professionals of any third party) arising
in connection with or as a result of the performance of this Agreement by
Ascent, including but not limited to storing and marketing of the Finished
Product, unless such liability arises in whole or in part from the gross
negligence or willful misconduct of Recordati.
3.4 Recordati Indemnity. Recordati shall indemnify, defend and hold
harmless Ascent from any claims, losses, expenses, costs and fees (including the
reasonable fees of attorneys and other professionals of any third party) arising
in connection with the breach by Recordati of any representation or warranty
under this Agreement.
3.5 Limitations to Indemnity. The indemnities of Sections 3.3 and 3.4 will
not apply (i) if the indemnified party fails to give the indemnifying party
prompt
<PAGE> 7
notice of any claim it receives and such failure materially prejudices the
indemnifying party, or (ii) if the indemnifying party is not given the
opportunity to approve any settlement, which approval will not be unreasonably
withheld. Furthermore, the indemnifying party will not be liable for attorneys'
fees or expenses of litigation of the indemnified party unless the indemnified
party gives the indemnifying party the opportunity to assume control of the
defense or settlement. In addition, if the indemnifying party assumes such
control, it will only be responsible for the legal fees and litigation expenses
of the attorneys it designates to assume control of the litigation. In no event
will the indemnifying party assume control of the defense of the indemnified
party without the consent of the indemnified party (which consent will be given
or not at its sole discretion). In no event will the indemnified party be
entitled to settle any of the above-mentioned claims without the consent of the
indemnifying party, which consent will not be unreasonably withheld, and
provided that no such consent will be required in the event that the
indemnifying party fails to control the litigation. NOTWITHSTANDING ANYTHING TO
THE CONTRARY CONTAINED IN THIS AGREEMENT, RECORDATI WILL HAVE NO LIABILITY WITH
RESPECT TO ANY FINISHED PRODUCT LIABILITY OR RELATED CLAIMS OR ACTIONS EXCEPT AS
EXPRESSLY SET FORTH IN SECTION 3.4 AND THIS SECTION 3.5.
3.6 Facilities Inspections.
(a) Ascent and its authorized representatives shall have the right to
inspect the manufacturing facilities of Recordati, Recordati's Nominee or the
Second Source, if applicable, and to discuss in detail the manufacturing
processes and quality control/quality assurance procedures used (and records
created) by Recordati, Recordati's Nominee or the Second Source, if applicable,
during Finished Product manufacture with the technical and other employees and
consultants of Recordati, Recordati's Nominee and the Second Source, if
applicable, in order to ensure that the Finished Product is manufactured and
supplied in accordance with the terms of Section 2.4 hereunder; provided,
however that such visits shall be conducted during normal business hours and
shall not unreasonably interrupt the operations of Recordati, Recordati's
Nominee or the Second Source.
(b) Recordati, Recordati's Nominee and the Second Source, if any, of
supply of Finished Products shall cooperate with the United States Food and Drug
Administration (the "FDA") and any other comparable Regulatory Authority in an
applicable country with respect to any inspection that may be required of
Recordati or Recordati's Nominee or the Second Source.
(c) Recordati or Recordati's Nominee or the Second Source shall
promptly notify Ascent of, and permit Ascent to take part in, any inspections by
the FDA or other comparable Regulatory Authority in any country, of the
facilities of Recordati or Recordati's Nominee or the Second Source in
connection with the manufacture and supply of the Finished Product.
<PAGE> 8
(d) Recordati and Ascent shall promptly notify and provide copies to
each other of any communications either Ascent or Recordati or Recordati's
Nominee or the Second Source shall have with the FDA or other comparable
Regulatory Authority regarding the manufacture and/or testing of the Finished
Product or any intermediates produced as a preliminary step in manufacturing the
Finished Product.
3.7 Finished Product Inspections and Documentation.
(a) Finished Product inspection, testing and release for sale shall be
performed by Recordati, Recordati's Nominee or the Second Source either in-house
or through the services of an outside laboratory.
(b) Prior to shipment of Finished Product to Ascent, Recordati shall
provide Ascent with the results of all assays and tests as are required to
document conformance with the specifications, as well as a lot certificate of
analysis, certifying conformance of such test results to the specifications.
(c) In order to reject a shipment of Finished Products delivered by
Recordati (or Recordati's Nominee or Second Source, if applicable) Ascent must
(i) give notice to Recordati of Ascent's intent to reject the shipment within 30
days of receipt together with an indication of the reasons for such possible
rejection, and (ii) as promptly as reasonably possible thereafter, provide
Recordati with notice of final rejection and the full basis therefor. After
notice of intention to reject is given, Ascent will cooperate with Recordati in
determining whether rejection is necessary or justified. If no such notice of
intent to reject is received, Ascent will be deemed to have accepted such
delivery of Finished Product.
(d) In any event, Ascent will pay for the shipment as otherwise
provided in this Agreement and will be entitled to a refund of the purchase
price (together with insurance and freight charges) of rejected Finished
Products at the time they are ultimately rejected, provided that if Recordati
disputes the rejection, refund will be made at the time the dispute is finally
resolved. Recordati will notify Ascent as promptly as reasonably possible
whether it accepts Ascent's basis for any rejection.
(e) Whether or not Recordati accepts Ascent's basis for rejection,
promptly on receipt of a notice of rejection, Recordati will use its reasonable
efforts, at Ascent's request, to provide replacement Finished Product which will
be purchased by Ascent as provided pursuant to this Agreement.
(f) Unless Recordati requests the return to it of a rejected batch
within 60 days of receipt of Ascent's notice of rejection, Ascent will destroy
such batch promptly and provide Recordati with certification of such
destruction. Ascent will, upon receipt of Recordati's request for return,
promptly dispatch said batch to Recordati, at Recordati's cost.
<PAGE> 9
IV. TERMINATION
4.1 Termination By Recordati. Without prejudice to any other rights it may
have pursuant to this Agreement or at law or in equity, Recordati may terminate
this Agreement immediately by written notice to Ascent in the event of any of
the following:
(a) Ascent becomes insolvent, or an order for relief is entered
against Ascent under any bankruptcy or insolvency laws or laws of similar
import; or
(b) Ascent 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 Ascent cannot prove to Recordati's reasonable satisfaction that
Ascent is solvent; or
(c) Upon a material breach of this Agreement or the Development and
License Agreement by Ascent which, if curable and not a payments default, is not
cured by Ascent within 90 days of a written notice thereof by Recordati or
which, if a payment default, is not cured within 30 days of written notice
thereof by Recordati.
4.2 Termination by Ascent. Without prejudice to any other rights it may
have pursuant to this Agreement or at law or in equity, Ascent may terminate
this Agreement immediately by written notice to Recordati in the event of any of
the following:
(a) Recordati becomes insolvent, or an order for relief is entered
against Recordati under any bankruptcy or insolvency laws or laws of similar
import; or
(b) Recordati 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 Recordati cannot prove to Ascent's reasonable satisfaction that
Recordati is solvent:
(c) Upon a material breach of this Agreement or the Development and
License Agreement by Recordati which, if curable and not a payments default, is
not cured by Recordati within 90 days of a written notice thereof by Ascent or
which, if a payment default, is not cured within 30 days of written notice
thereof by Ascent.
4.3 Rights and Duties Upon Termination. Termination of this Agreement, for
whatever reason, will not affect any rights or obligation accrued by either
party prior to the effective date of termination and specifically stated in this
Agreement to survive such termination.
<PAGE> 10
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
V. GENERAL PROVISIONS
5.1. 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.
5.2 Compliance with Law. Each party will comply with, and will not be in
violation of, any 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 Finished
Product) of any country in which Finished Product is either manufactured or
sold.
5.3 Examination of Books. Recordati will have the right, at its own
expense, for any period during which Finished Product is purchased by Ascent
pursuant to this Agreement and for one year thereafter, to have an independent
public accountant examine and copy the relevant financial books and records of
account of Ascent during normal business hours, upon reasonable demand, to
determine or verify any amounts calculated according to Schedule 1. If errors of
*% or more are discovered as a result of such examination, Ascent will reimburse
Recordati for the expense of such examination.
5.4 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.
(b) A party claiming Force Majeure will promptly notify the other
party of its inability to perform and the event which excuses performance.
(c) 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 required to make up any performance that was prevented by
Force Majeure.
(d) Notwithstanding the foregoing, if such Force Majeure continues for
a period in excess of 180 days, then the other party may declare this Agreement
terminated.
5.5 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
<PAGE> 11
effective unless specifically made in writing and signed by a duly authorized
representative of the party granting such waiver.
5.6 Notices. All notices hereunder will be in writing and will be
personally delivered or by telefax or telecopy or dispatched, postage prepaid,
by internationally recognized courier duly addressed:
(i) 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
(ii) if to Ascent, to
Ascent Pediatrics, Inc.
9 Linnell Circle
Billerica, MA 01821 - U.S.A.
Attention: President
Facsimile: 508 667 53 32
or in either case to such other address as the recipient party will previously
have 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.
5.7 Entire Agreements; Amendments. This Agreement and the Development and
License 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. Furthermore, it is the intention of
the parties that this Agreement be controlling over additional or different
terms of any order, confirmation, invoice or similar document, even if accepted
in writing by both parties, and that waivers and amendments will be effective
only if made by non-pre-printed agreements clearly understood by both parties to
be an amendment or waiver.
<PAGE> 12
5.8 Survival. The rights and obligations of the parties contained in
Sections 2.7 and 4.3, and Articles III and V hereof will survive the termination
of this Agreement unless otherwise indicated in this Agreement.
5.9 Assignment. The rights and obligations under this Agreement may be
assigned by either party to any persons who are Affiliates on the date of this
Agreement, provided that the Affiliate guarantees the obligations of the
assigning party under this Agreement. Assignment of this Agreement or any part
thereof by either party to unrelated third parties is subject to the written
consent of the other party, such consent 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 of Recordati. Any assignment of any
rights under such agreement without the written consent of the other party is
and will be null and void.
5.10 Governing Law. This Agreement is to be governed by and construed in
all respects in accordance with the laws of the State of New York.
5.11 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, NY, at the offices of the
American Arbitration Association ("AAA"), pursuant to the AAA International
Commercial Rules. The dispute will be resolved by 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 arbitrators 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 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.
5.12 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.
5.13 Further assurances. Recordati and Ascent agree to execute such further
documents and instruments, and will provide such additional assurances,
requested
<PAGE> 13
by either party as may be necessary or reasonably desirable to consummate the
matters contemplated by this Agreement.
5.14 Limitation of Liability. SUBJECT ONLY TO THE PROVISIONS OF ARTICLE III
ABOVE, IN NO EVENT WILL EITHER PARTY BE LIABLE FOR COSTS OF PROCUREMENT OF
SUBSTITUTE FINISHED PRODUCTS OR SERVICES, OR FOR ANY LOST PROFITS OR OTHER
CONSEQUENTIAL, INCIDENTAL, SPECIAL, OR INDIRECT DAMAGES OF THE OTHER PARTY,
HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT OF THIS AGREEMENT.
RECORDATI WILL NOT BE LIABLE IN ANY EVENT FOR ANY AMOUNTS AGGREGATING IN EXCESS
OF AMOUNTS PAID TO IT PURSUANT TO THIS AGREEMENT.
The parties have executed this Agreement by their duly authorized
representatives on the day and year below written.
ASCENT PEDIATRICS, INC.
By: /s/ Emmett Clemente
--------------------
Name: Emmett Clemente
Title: Chairman
Date: October 1, 1996
RECORDATI S.A. CHEMICAL AND
PHARMACEUTICAL COMPANY
By: /s/ Luciano Boccasso
---------------------
Name: Luciano Boccasso
Title: President
Date: October 8, 1996
<PAGE> 14
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
SCHEDULE 1
Price Terms
1. Certain Definitions. For purposes of this Schedule 1, the following terms
will have the following meanings:
(a) "Sales Territory" means the following areas of the world:
(i) "United States Sales Territory" shall mean the United States.
(ii) "Japan Sales Territory" shall mean Japan.
(iii) "Europe Sales Territory" shall include France, Germany, the
United Kingdom, Spain, Italy, Belgium, Netherlands, Austria,
Switzerland, Hungary, Czech Republic, Denmark, Sweden, Finland,
Slovak Republic, and any other European countries that Ascent
wishes to include in the Europe Sales Territory.
(iv) "Remaining Sales Territory" shall mean those countries in the
Territory which are not included in the United States Sales
Territory, the Japan Sales Territory or the Europe Sales
Territory.
(b) "Formula Price" shall be the price for an individual unit of Finished
Product supplied by Recordati determined as follows:
(i) In the ***********************************************
****************************************************************
************************************; and
(ii) In the
*************************************************************
************************************************************
between the parties ********************************************
after Recordati has delivered the first Ascent purchase order of
Finished Products to an Ascent warehouse in accordance with
Section 2.3 ("First Delivery Date") or receipt of Regulatory
Approval in the Europe Sales Territory or in the Remaining Sales
Territory, unless earlier agreed by the parties.
<PAGE> 15
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
(c) "Floor Prices"
(i) Initial Floor Prices:
(a) in the
************************************************************
************************************************************
for the *********************************, or
**********************
*************************************************.
(b) for the
**********************************************************
************************************************************
between the parties
******************************************** after the First
Delivery Date or receipt of Regulatory Approval in the
Europe Sales Territory or in the Remaining Sales Territory.
(ii) Adjustments to the Floor Prices: the Floor Prices determined in
accordance with paragraph (c)(i) above shall be subject to
adjustment upon notice by Recordati as follows:
(a) Beginning with the ************************* of the
Agreement, Recordati shall be entitled to
********************
************************************************************
************************************************************
for the preceding calendar year, provided however that
******** *************************************************.
(b) Notwithstanding Paragraph (c)(ii)(a) above, Recordati shall
be entitled to
***************************************************
************************************************************
in raw materials costs, direct manufacturing or labor costs,
or costs of other components of the Finished Product
supplied to Ascent. Recordati shall provide to Ascent
adequate, detailed documentation of any such **************
***********************************.
(d) In the event that the parties are unable to finally agree on a Formula
Price and a Floor Price for the Europe Sales Territory and/or the
Remaining Sales Territory within **************** of the First Delivery
Date, then Ascent shall have the option to: (i) terminate the
Development and License Agreement in respect of each country for which
such prices shall not have been agreed or (ii) elect to apply to the
<PAGE> 16
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Europe Sales Territory and/or the Remaining Sales Territory (or any
part thereof) the greater of the Floor Price and the Formula Price
applicable to the United States Sales Territory. Failure by Ascent to
make an election under the foregoing clause (ii) within ***************
of the First Delivery Date shall constitute its irrevocable election
under the foregoing clause (i).
In the event that Ascent terminates the License under the foregoing
clause (i), then for a period of ********* from the date of
termination, Recordati shall give notice to Ascent of any bona fide
offer it receives and wishes to accept with respect to the licensing of
the Finished Product and Ascent shall have the right to enter into a
license with Recordati on the same terms as those contained in
Recordati's notice, provided that Ascent shall notify Recordati of its
acceptance thereof within *********** of its receipt of Recordati's
notice.
2. Payments.
(a) Ascent will pay to Recordati for sales of Finished Product under this
Agreement an amount per unit of Finished Product equal to ***********
************************************************, as applicable to
sales in each Sales Territory.
(b) Ascent shall keep and require its Affiliates and sublicensees to keep
complete and accurate records of all sales of Finished Product.
Recordati shall have the right, at Recordati's expense, through a
certified public accountant of its selection to examine such records
during regular business hours during the life of this Agreement and for
twelve (12) months after the later of its termination or the last sale
of Finished Product. If the examination reveals that any statement or
payment shall not have been rendered or made substantially in
accordance with the terms of the Agreement, or that any statement
rendered or payment made by Ascent or sublicensees was materially
inaccurate by more than *** percent (*%), then Ascent shall pay the
cost of such examination, without prejudice to any other remedies or
claims of Recordati.
(c) Payments which are due to Recordati under this Schedule 1 shall be
provisionally made, in an amount in U.S. Dollars, within thirty (30)
days of delivery to Ascent of the Finished Product which is the subject
of such payment obligation on a per ml basis. Such provisional payment
amount shall be estimated prior to the First Delivery date in mutual
agreement by the parties for the first twelve (12) months of sales
<PAGE> 17
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
of the Finished Product. As soon as possible after the end of the first
twelve (12) months the actual amount to be paid by Ascent shall be
calculated by the parties and any difference between the provisional
amount and the actual amount to be paid for the Finished Product shall
be settled within three (3) months from the end of the first twelve
(12) months aforesaid. For each subsequent twelve (12) month period the
parties shall agree on a provisional amount based upon the preceding
twelve (12) month period. Should no agreement be reached between the
parties with regard to the provisional amount then the actual amount
determined for the preceding twelve (12) months shall be used as the
provisional amount for the next twelve (12) months.
(d) (i) Within *** (***) days of the end of each quarter, Ascent
shall provide a true accounting of all Finished Product sold by
Ascent and its sublicensees during such quarter. Such accounting
shall show sales on a country-by-country basis.
(ii) Within *** days of the end of each twelve (12) months Ascent
shall provide Recordati with a statement setting out a true
accounting of all Finished Product sold by Ascent and its
sublicensees during such twelve (12) months and all details
necessary to calculate the amount actually due under this
section 2 with respect to Net Sales made in that twelve (12)
month period including, but not limited to, units of Finished
Product sold as divided into size and content, gross invoices of
sales of Finished Product on a country-by-country basis, Net
Sales on a country-by-country basis, all relevant deductions,
details of the Net Sales made by sublicensees on a
country-by-country basis, all relevant exchange rate
conversions, and all Finished Product in Ascent's and its
sublicensees' stock.
(e) Within thirty (30) days of receipt of the statement provided under
Section 2(d)(ii), Recordati and Ascent shall settle any difference
between the provisional amounts paid and the actual amount due under
this Section 2. Either party shall, without prejudice to its other
rights, be ************************************************************
***********************************************************************
***********************************************************************
***********************************************************************
************** such provisional amount paid and the actual amount due
******************.
(f) Any tax paid or required to be withheld by Ascent on account of payment
obligations payable to Recordati under this Agreement shall be deducted
from the amount of payment obligations otherwise due. Ascent shall
secure and send to Recordati proof of any such taxes withheld and paid
by Ascent or its sublicensees for the benefit of
<PAGE> 18
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Recordati. Each party agrees to join in promptly making such
applications as the other party may request to any relevant tax
authority for the application for reduction in the amount of, or
exemption from, any withholding tax or deduction, at the requesting
party's expense.
(g) Monetary conversions from the currency of a foreign country, in which
Finished Product is sold, into U.S. Dollar currency shall be calculated
at the rate of exchange in effect on the last day of the relevant
quarter at the middle market rate specified in the Wall Street Journal.
3. Samples.
Recordati shall supply samples of Finished Product to Ascent at a price
equivalent to Recordati's fully absorbed manufacturing costs (as
determined by Recordati) **********************.
<PAGE> 19
SCHEDULE 2
Finished Product Specifications
(to be specified by Ascent in accordance with Section 2.4)
<PAGE> 1
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Exhibit 10.9
LICENSE AGREEMENT
Agreement made this 28th day of September 1990 between MacroChem Corp.
(hereinafter "MacroChem"), a Massachusetts corporation having its principal
place of business at 9 Linnell Circle, Billerica, Massachusetts 01821 and Ascent
Pharmaceutical, Inc. (hereinafter "Ascent"), a Delaware corporation, having its
principal place of business at 9 Linnell Circle, Billerica, Massachusetts 01821.
WHEREAS, MacroChem possesses proprietary technology for drug-delivery utilizing
transdermal enhancers ("SEPA compounds") in combination with catecholamine
bronchodilators to treat respiratory disorders and in combination with cromolyn
sodium to treat allergic disorders. Such technology is the subject matter of
certain U.S. and foreign patents;
WHEREAS, Ascent desires to obtain an exclusive license to such technology;
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth below, MacroChem and Ascent agree as follows:
1. Definitions.
1.1 "Field" shall mean the diagnosis and treatment of respiratory and
allergic disorders with catecholamine bronchodilators and cromolyn sodium
respectively in conjunction with SEPA compounds.
1.2 "MacroChem Patent Rights" shall mean the patents and patent
applications identified in Exhibit A and any continuations,
continuations-in-part, or divisions thereof, and any reissue or reexamination
patents based thereon and any foreign counterparts thereto.
1.3 "MacroChem Technology" shall mean know-how, technical information,
trade secrets, methods and agents provided by MacroChem to Ascent useful in the
practice of the MacroChem Patent Rights.
1.4 "Licensed Product" shall mean (1) any product in the Field covered
by a pending or issued, unexpired claim contained in the MacroChem Patent Rights
or (2) any product in the field manufactured or used in accordance with a
Licensed Method.
- 1 -
<PAGE> 2
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
1.5 "Licensed Method" shall mean any process or method covered by a
pending or issued, unexpired claim contained in the MacroChem Patent Rights and
used for the manufacture or use of products in the Field.
1.6 "Net Sales" shall mean ***************************************
********************************************************************************
********************************************************************************
********************************************************************************
********************************************************************************
************************************************************************ in
connection with sales of Licensed Products. For purposes of determining Net
Sales, a sale shall be deemed to have occurred when payment is received for the
sale.
2. Grant.
2.1.1 License. MacroChem hereby grants to Ascent an exclusive,
worldwide license under the MacroChem Patent Rights and a non-exclusive
worldwide, perpetual license under the MacroChem Technology related to the
Field, including the rights, with the right to sublicense all such rights, to
make, to have made, to use, to have used, to sell and to have sold Licensed
Products for use in the Field and to practice Licensed Methods in the Field (the
"License").
2.1.2 Improvements.
(a) Improvements. MacroChem agrees to notify Ascent in writing of any
patents it owns or patent applications it owns arising from work at MacroChem
that are improvements of the technology disclosed in the MacroChem Patent Rights
(hereinafter called "Improvements"). The said notice shall be given within
thirty (30) days of the filing of such patent application, and shall describe
the Improvements in sufficient detail for Ascent to reasonably evaluate their
significance. Ascent shall have an option, exercisable only by written notice
delivered to MacroChem within thirty (30) days of the date of MacroChem's said
notice to accept an exclusive license in the Field to such Improvements as
MacroChem Patent Rights hereunder at no additional cost. If Ascent exercises
such option, the Improvements shall become part of the MacroChem Patent Rights
licensed to Ascent hereunder and Exhibit A shall be amended accordingly. If
Ascent does not respond in writing within thirty (30) days of the date of
MacroChem's notice, it is to be assumed that Ascent has declined the right to
exercise the option, and, in such event, MacroChem shall be free to license the
Improvements to third parties, provided that any licensee of such Improvements
- 2 -
<PAGE> 3
shall not have any rights under MacroChem Patent Rights without a license from
Ascent, which license Ascent may in its sole discretion decline to grant.
(b) Notice if MacroChem Elects Not to Seek Patent Protection. In the
case of an Improvement in the Field at MacroChem which may constitute a
patentable invention subject to Subsection 2.1.2(a) above, MacroChem shall use
reasonable efforts prior to any publication by any MacroChem employee of any
information disclosing such invention to inform Ascent in a timely manner if
MacroChem does not intend to file a patent application covering such invention,
in which case Ascent shall have the right to file, at its expense, a patent
application covering such development in the name of MacroChem, and MacroChem
shall provide Ascent, at Ascent's expense (excluding rent, salaries and
utilities and other expenses typically considered overhead), all necessary
assistance to facilitate such filing. Any such filings or payments by Ascent
notwithstanding, Ascent shall have no rights in any such patent applications
(including any resulting patents) except to the extent Ascent acquires rights
therein under Section 2.1.2(a), as the case may be. MacroChem agrees to act in a
prudent and businesslike manner to attempt to ensure than any developments which
are the subject of this Section 2.1.2(b) are brought to the attention of Ascent.
2.1.3 Test Data. Ascent and MacroChem shall grant each other access to
any non-proprietary test data either one develops in connection with the
preparation of regulatory approvals. MacroChem further agrees to use reasonable
efforts to obtain any consents necessary to allow Ascent to use test data
provided in regulatory applications by other entities with which MacroChem has
agreements relating to SEPA compounds.
2.2 Sublicense. Ascent shall have the right to grant sublicenses to
any party with respect to any rights conferred upon Ascent under this Agreement,
provided, however, that (i) any such sublicense (except such sublicenses to use
granted in connection with the sale of Licensed Products) will include
reasonable reporting obligations and termination provisions for breach by the
sublicense, and (ii) the identity of each such sublicensee shall promptly be
disclosed to MacroChem.
2.3 Survival of Sublicenses. In the event of termination of this
Agreement, MacroChem shall recognize the license under MacroChem Patent Rights
granted in such sublicenses, provided that the sublicense(s) abide(s) by the
terms of the sublicense agreement and pay(s) any amount due when payable to
MacroChem.
2.4 License Fees. As consideration for the license granted hereunder,
and continuation thereof, Ascent shall pay MacroChem the license fees set forth
in this Section 2.4. Such fees are consideration for the grant of the license
hereunder, and the continuation thereof and MacroChem shall have no obligation,
unless it materially breaches this Agreement, to return any such amounts
notwithstanding any failure by
- 3 -
<PAGE> 4
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Ascent to develop any Licensed Product(s) or market any Licensed Product(s)
commercially, and notwithstanding the volume of sales of the Licensed
Product(s). Such license fees shall be payable to MacroChem as follows:
****************************************************************************
********************************************************************************
****************************************************.
The licensee fee set forth in this Section 2.4 shall not be creditable
against earned royalties due pursuant to Section 2.5 herein below.
Failure to make timely payments of amounts due pursuant to this Section 2.4
shall be grounds for immediate termination pursuant to written notice by
MacroChem.
2.5.1 Royalty. Ascent shall pay to MacroChem a royalty as follows:
****************** of Net Sales of Licensed Products in the
country of sale.
No royalty shall be due for the use of any MacroChem Technology
in any product which is not covered by a claim of the MacroChem Patent Rights.
Ascent shall pay to MacroChem ********************* of all sublicense
royalties paid to Ascent. Ascent will share equally with MacroChem all other
sublicensing income attributable to the sublicense of MacroChem Patent Rights,
including option fees, license fees, minimum, paid-up licenses and the like.
Ascent shall not be required to share with MacroChem any payment received from
sublicensees for consulting, training or sale of equipment not covered by a
claim of the MacroChem Patent Rights.
2.6 Quarterly Payments. With regard to Net Sales earned by Ascent,
royalties due thereon shall be payable quarterly, within thirty (30) days after
the end of each calendar quarter, based upon the Net Sales during such preceding
calendar quarter, commencing with the calendar quarter in which the first
commercial sale of a product covered by a claim of the MacroChem Patent Rights
is made. With regard to Net Sales earned by a sublicensee pursuant to this
Agreement, royalties due thereon shall be payable to MacroChem by Ascent
quarterly, within sixty (60) days after the end of each calendar quarter, based
upon the sublicensee's Net Sales during
- 4 -
<PAGE> 5
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
such preceding calendar quarter by such sublicensee, commencing with the
calendar quarter in which the first commercial sale of a product covered by a
claim of the MacroChem Patent Rights any Licensed Product is made by the
sublicensee.
2.7 Duration of Royalty Obligations. The royalty obligations of Ascent
shall terminate on a country-by-country, patent-by-patent basis concurrently
with the expiration of the applicable MacroChem Patent Rights.
2.8 Reports. Ascent shall furnish to MacroChem at the same time as
each royalty payment is due by Ascent, a detailed written report of the Net
Sales and the royalty due and payable, on a country-by-country basis, for the
calendar quarter upon which the royalty payment is based.
2.9 Records. Ascent shall keep full, complete and proper records and
accounts for its Net Sales in sufficient detail to enable the royalties payable
on such Net Sales to be determined. MacroChem shall have the right at its own
expense to appoint an independent certified public accounting firm approved by
Ascent, which approval shall not be unreasonably withheld, to audit Ascent's
records which are necessary to verify the royalties payable pursuant to this
Agreement. Such audit shall be at MacroChem's expense; provided, however, that
if the audit discloses that MacroChem was underpaid royalties by at least ***
percent (**%) for any calendar quarter, then Ascent shall reimburse MacroChem
for any such audit costs, together with an amount equal to the additional
royalties to which MacroChem is entitled as disclosed by the audit. MacroChem
may exercise its right of audit no more frequently than once in any calendar
year. The accounting firm shall disclose to MacroChem only information relating
solely to the accuracy of the royalty payments. Ascent shall preserve and
maintain all such records required for audit for a period of three (3) years
after the calendar quarter to which the record applies.
2.10 Foreign Sales. The remittance of royalties payable on sales
outside the United States invoiced in foreign currencies shall be payable to
MacroChem in United States Dollars at the rate of exchange obtained by Ascent.
If the transfer or the conversion into the United States Dollar Equivalents of
any remittance in any such instance is not lawful or possible, the payment of
such royalties thereon as is necessary shall be made by the deposit thereof, in
the currency of the country where the sale was made on which the royalty was
based to the credit and account of or its nominee in any commercial bank or
trust company of MacroChem's choice located in that country, prompt noticed of
which shall be given by MacroChem to Ascent.
3. Patent Matters.
3.1 Patent Maintenance. For each patent and patent application of the
MacroChem Patent Rights, MacroChem shall direct, control, and diligently conduct
the processes as appropriate for issuance, extension, renewal or other
- 5 -
<PAGE> 6
maintenance of each resulting patent, subject to such requirements, limitations
and conditions as are expressly set forth in this Agreement. MacroChem shall not
fail to maintain any of the MacroChem Patent Rights without a *** (**) days'
prior written notice to Ascent.
If MacroChem decides not to maintain any patent or patent application and Ascent
disapproves of such decision, and so notifies MacroChem in writing, then,
provided all amounts then due MacroChem under this agreement are paid in full,
MacroChem shall assign such patent for use in the field subject to any
outstanding licenses to third parties to Ascent at no additional fee. After any
such assignment, no fees or payments of any sort shall be due to MacroChem with
respect to such assigned applications or patents and they shall no longer be
included in the MacroChem Patent Rights or MacroChem Technology.
3.2 Provisions of Information to Ascent. MacroChem shall keep Ascent
informed with regard to the prosecution and maintenance of the MacroChem Patent
Rights. MacroChem shall promptly deliver to Ascent copies of all such patent
applications, amendments, related correspondence, and other related matters.
3.3. Patent Costs. MacroChem shall bear all expenses incurred in
connection with maintaining patents of the MacroChem Patent Rights pursuant to
Section 3.1.
3.4 Infringement Actions.
3.4.1 Claims of Infringement against Third Parties. Ascent shall
have the right but not the obligation to prosecute any and all infringement of
any MacroChem Patent Rights in the Field, in its name or in MacroChem's name, as
appropriate, and may enter into settlements, judgments or other arrangements
respecting the same all at its own expense; provided, however, that MacroChem
shall permit any action to be brought in its name, and further that if a
settlement or other arrangement is negotiated between Ascent and an unlicensed
third party, said settlement or arrangement shall be subject to the approval of
MacroChem with regard to portions affecting MacroChem Patent Rights, such
approval not to be unreasonably withheld. Any settlement or damages or other
recovery from such infringement actions in excess of the expenses and costs
incurred by Ascent and MacroChem in connection with such action (which shall be
paid to MacroChem and Ascent on a first priority basis) shall be shared equally
by Ascent and MacroChem. MacroChem agrees to provide reasonable assistance at
MacroChem's expense of a technical nature which Ascent may require in any
litigation arising in accordance with the provisions of this Section 3.5,
whether or not MacroChem has requested the opportunity to share in any recovery.
In the event that within ninety (90) days after Ascent has actual knowledge of
such an infringement by a third party in the Field Ascent fails to notify
MacroChem that it will challenge any such infringer, thereafter MacroChem shall
- 6 -
<PAGE> 7
have the right to prosecute such infringement on its own behalf at its own
expense. Should MacroChem do so, any damages or other recovery from such
infringement action shall be the sole property of MacroChem.
3.4.2 Claims of Infringement Against Ascent.
(a) If Ascent or a sublicensee is sued by a third party
charging that the SEPA compounds infringe a patent or that the manufacture, use,
or sale of the Licensed Products or practice of the Licensed Methods by Ascent
or a sublicensee (or a customer of Ascent or a sublicensee) infringe a patent
that dominates any claim of the MacroChem Patent Rights, Ascent shall promptly
notify MacroChem. If Ascent should decide to settle any such litigation, it
shall notify MacroChem and MacroChem shall have the opportunity to assume the
prosecution of the litigation including all subsequent expenses with counsel
approved by Ascent, which approval shall not be unreasonably withheld; provided,
however, that MacroChem shall not enter into any settlement without Ascent's
consent. Unless MacroChem notifies Ascent within thirty (30) days of receipt of
Ascent's notice of proposed settlement that MacroChem will assume the defense of
the litigation, Ascent shall be empowered to settle any such third party claim
without the approval of MacroChem's. MacroChem shall cooperate fully with Ascent
at MacroChem's expense in defending against any such claim.
(b) In the event of a judgment in any suit described in
subsection (a) or a settlement of such suit requiring Ascent to pay damages or a
royalty to, grant a sublicense to, or enter into cross-licensing arrangement
with a third party, MacroChem shall indemnify and hold harmless Ascent from and
against any liability, damage, loss, cost or expense (including reasonable
attorneys' fees and expenses of litigation).
4. Obligations Related to Commercialization.
4.1 Commercial Development Obligation.
4.1.1 In order to maintain the license granted hereunder in
force, Ascent shall use reasonable efforts to develop a commercially feasible
product in each of the respiratory and allergic field segments for which a
license under the MacroChem Patent Rights is required. Ascent may, in its sole
discretion, determine the sequence and timing it will use in introducing
Licensed Products into different geographic areas. Ascent shall keep MacroChem
generally informed as to Ascent's progress in such development, including its
efforts if any, to sublicense hereunder. If Ascent has not made any reasonable
efforts to commercially develop a Licensed
- 7 -
<PAGE> 8
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Product in each of the respiratory and allergic field segments in a particular
geographic area in which MacroChem Patent Rights exist within ********** of the
date hereof or abandons a previously introduced Licensed Product in a particular
geographical area in which MacroChem Patent Rights exist, without a good faith
business reason for not doing so, and, after ******** notice by MacroChem to
Ascent, Ascent continues to not make reasonable efforts to commercially develop
a Licensed Product during such one year, then the rights to the MacroChem Patent
Rights in such geographic area shall revert to MacroChem.
4.2 Products to be Supplied by MacroChem. MacroChem will supply Ascent
with SEPA compounds for testing purposes and for use in final products produced
by Ascent at prices to be agreed by the parties; provided, however, that the
price of the SEPA compounds shall be ******************************************
********************************************************************************
***************************** (including quality assurance and quality control
costs) of the total of all final dosage form components including the SEPA
compounds, excluding the labels, inserts, covers, boxes which this finished
dosage form may be placed into for the trade. If MacroChem does not or cannot
manufacture SEPA compounds to the required specifications of Ascent, Ascent may
obtain such compounds from any other source and MacroChem will provide to Ascent
or a mutually acceptable third party any know-how necessary to manufacture the
SEPA compounds required by Ascent.
4.3 Product Development and Government Approvals. Ascent shall be
responsible for engaging in all product development, pre-clinical and clinical
testing and obtaining all necessary government regulatory approvals for the
development, production, distribution and use of any Licensed Product including
any safety studies. Ascent shall have sole responsibility for any warning
labels, packaging, instructions as to use and quality control as to any Licensed
Product.
4.4 Product Liability Indemnity.
4.4.1 Ascent shall indemnify, defend and hold harmless MacroChem
and its directors, officers, employees, agents and their respective successors,
heirs and assigns (the "MacroChem Indemnities"), against any and all liability,
damage, loss, cost or expense (including reasonable attorney's fees and expenses
of litigation) incurred by or imposed upon the MacroChem Indemnities or any one
of them in connection with any claims, suits, actions, demands or judgments
arising out of the production, manufacture or sale by a Ascent or a sublicensee
or
- 8 -
<PAGE> 9
agent of Ascent of any product or process relating to, or developed pursuant to,
this Agreement except as provided in Section 4.4.2 below.
4.4.2 Ascent's indemnification obligation under Section 4.4.1
shall not apply to any liability, damage, loss, cost or expense to the extent
that it is attributable to claims arising out of product manufacturing defects
relating to the SEPA compounds supplied by MacroChem pursuant to Section 4.2 or
the negligent activities of the MacroChem Indemnities.
4.4.3 Ascent agrees, at its own expense, to provide attorneys
reasonably acceptable MacroChem to defend against any actions brought or filed
against any entity or person indemnified under Section 4.4.1 with respect to the
subject of indemnity contained therein, whether or not such actions are
rightfully brought.
4.4.4 MacroChem shall indemnify, defend and hold harmless Ascent
and its directors, officers, employees, agents and their respective successors,
heirs and assigns (the "Ascent Indemnitees") against any and all liability,
damage, loss, cost or expense (including reasonable attorney's fees and expenses
of litigation) incurred by or imposed upon Ascent Indemnitees or any one of them
in connection with any claims, suits, actions, demands or judgments arising out
of the production, manufacture or sale of the SEPA compounds supplied to Ascent
by MacroChem pursuant to Section 4.2.
4.4.5 MacroChem's indemnification obligation under Section 4.4.4
shall not apply to any liability, damage, loss, cost or expense to the extent
that it is attributable to the negligent activities of Ascent Indemnitees.
4.4.6 MacroChem agrees, at its own expense, to provide attorneys
reasonably acceptable to Ascent to defend against any actions brought or filed
against any party indemnified under Section 4.4.4 with respect to the indemnity
contained therein, whether or not such actions are rightfully brought.
4.4.7 This Section 4.4 shall survive expiration or termination of
this Agreement.
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<PAGE> 10
5. Warranties.
5.1 MacroChem represents and warrants that it is the sole owner of the
MacroChem Patent Rights and that it otherwise has the authority to grant the
licenses granted hereunder. MacroChem represents that, as of the effective date
of this Agreement, no federal agency has supported the MacroChem Patent Rights.
MacroChem warrants that as of the effective date of this Agreement, it has not
received actual notice of any patents or patent applications owned by third
parties which would prevent Ascent from making, using or selling Licensed
Products in the Field or practicing or otherwise using the Licensed Methods in
the Field nor does it know or have any reason to know that any patents owned by
third parties would prevent Ascent from making, using or selling Licensed
Products in the Field or practicing or otherwise using the Licensed Methods in
the Field.
5.2 MacroChem warrants that the applications and patents set forth on
the attached Exhibit A constitute all patent applications and patents to which
MacroChem has power to grant an exclusive license that claim or describe
products or methods in the Field.
6. Term and Termination of Agreement.
6.1 Term. Unless terminated sooner in accordance with the terms
herein, this Agreement shall terminate upon the last to expire of the MacroChem
Patent Rights, provided however the license to MacroChem Technology shall
survive such termination.
6.2 Termination Upon Default. In the event of default by a party
("Defaulting party"), the other party ("Non-Defaulting party") may give the
Defaulting party written notice of the default and elect to terminate this
Agreement sixty (60) days after receipt of the notice if the default is
susceptible of cure within 60 days or if not susceptible of cure within sixty
(60) days within such longer period as such breach could have reasonably been
cured, but in no event to exceed an additional thirty (30) days and if, within
said time period, the Defaulting party fails to resolve the default by (i)
curing the default, (ii) providing a written explanation satisfactory to the
Non-Defaulting party that a default has not occurred, or (iii) entering into a
written agreement with the Non-Defaulting party for the cure or other resolution
of the default. Upon failure of the Defaulting party to resolve the default as
required, the Non-Defaulting party may terminate this Agreement by giving
written notice to the defaulting party, said termination to be effective upon
the date specified in the notice.
Such termination rights shall be in addition to and not in substitution for
any other remedies that may be available to the party serving such notice
against the
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<PAGE> 11
party in default. Termination pursuant to this Section 6.2 shall not relieve the
party in default from liability and damages to the other party for breach of
this Agreement. Waiver by either party of a single default or a succession of
defaults shall not deprive such party of any right to terminate this Agreement
arising by reason of any subsequent default.
6.3 Termination Upon Insolvency. This Agreement may be terminated by
either party giving written notice of termination to the other party if the
other party is adjudicated insolvent or upon the appointment of a receiver of
substantially all of the other party's assets or the making by the other party
of any assignment of substantially all of its assets for the benefit of
creditors. Termination shall be effective upon the date specified in such
notice. Upon the occurrence of any such events of insolvency with respect to
either party, the Trustee or such party as the Debtor in Possession shall not
interfere with the other party's rights pursuant to this Agreement.
6.4 Rights Upon Expiration of MacroChem Patent Rights. Neither party
shall have any further rights or obligations upon the expiration of the last to
expire of the MacroChem Patent Rights with respect to the Agreement, other than
the obligation of Ascent to make any and all final reports and payments for the
final quarter period, provided that upon such expiration, the parties shall
continue to abide by their obligations to indemnify pursuant to Section 4.4 and
to maintain product liability insurance pursuant to Section 5.5, and the right
of Ascent to continue in its enjoyment of the License of the MacroChem
Technology.
6.5 Rights Upon Termination. Upon any termination of this Agreement,
the License granted hereunder shall terminate. Except as otherwise provided in
this Agreement with respect to work-in-progress, upon such termination, Ascent
shall have no further right to develop, manufacture or market a Licensed
Product, or to otherwise use any of the MacroChem Technology which is covered by
this Agreement. Any such termination shall not relieve either party from any
obligations accrued to the date of such termination. Notwithstanding the
foregoing, sublicenses in effect as of the date of termination shall survive
pursuant to the provisions of Sections 2.2 and 2.3.
6.6 Work-in-Progress. Upon any such early termination of the license
granted hereunder in accordance with this Agreement, provided royalties due to
date have been paid, Ascent shall be entitled to finish any work-in-progress and
place it into inventory, and to sell any completed inventory of a Licensed
Product covered by such license which remain on hand as of the date of the
termination, so long as Ascent pays to MacroChem the royalties applicable to
said subsequent sales in accordance with the terms and conditions as set forth
in this Agreement.
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<PAGE> 12
7. Assignment; Successors.
7.1 Assignment. This Agreement shall not be assignable by either of
the parties without the prior written consent of the other party, except to a
successor in interest of all or substantially all of the assets or business of a
party hereto.
7.2 Binding Upon Successors and Assigns. Subject to the limitations on
assignment herein, this Agreement shall be binding upon and inure to the benefit
of said successors in interest and assigns of MacroChem and Ascent. Any such
successor or assignee of a party's interest shall expressly assume in writing
the performance of all the terms and conditions of this Agreement to be
performed by said party.
8. General Provisions.
8.1 Independent Contractors. The relationship between MacroChem and
Ascent is that of independent contractors. MacroChem and Ascent are not joint
venturers, partners, principal and agent, master and servant, employer or
employee, and have no other relationship other than independent contracting
parties. MacroChem shall have no power to bind or obligate Ascent in any manner,
other than as is expressly set forth in this Agreement. Likewise Ascent shall
have no power to bind or obligate MacroChem in any manner other than as is
expressly set forth in this Agreement.
8.2 Entire Agreement; Modification. This Agreement sets forth the
entire agreement and understanding between the parties as to the subject matter
set forth in this Agreement. There shall be no amendments or modifications to
this Agreement, except by a written document which is signed by both parties.
8.3 Massachusetts Law. This Agreement shall be construed and enforced
in accordance with the laws of the Commonwealth of Massachusetts.
8.4 Heading. The headings for each article and section in this
Agreement have been inserted for convenience of reference only and are not
intended to limit or expand on the meaning of the language contained in the
particular article or section.
8.5 Severability. If any provision of this Agreement is ultimately
held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
8.6 No Waiver. Any delay in enforcing a party's rights under this
Agreement or any waiver as to a particular default or other matter shall not
constitute a waiver of such party's rights to the future enforcement of its
rights under
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<PAGE> 13
this Agreement, excepting only as to an express written and signed waiver as to
a particular matter for particular period of time.
8.7 Attorneys' Fees. In the event of a dispute between the parties
hereto or in the event of any default hereunder, the parties shall bear their
own attorneys' fees and other costs incurred in connection with resolving said
dispute or default.
8.8 Notices. Any notices given pursuant to this Agreement shall be in
writing and shall be deemed delivered upon the earlier of (i) when received at
the address set forth below, or (ii) three (3) business days after being mailed
by certified mail, postage prepaid and properly addressed, with return receipt
requested. Notices and payments due shall be delivered to the respective parties
as indicated:
FOR MacroChem: MacroChem Corporation
9 Linnell Circle
Billerica, MA 01821
Attention: President
FOR Ascent: Ascent Pharmaceuticals, Inc.
9 Linnell Circle
Billerica, MA 01821
Attention: Emmett Clemente
8.9 Compliance with U.S. Laws. Nothing contained in this Agreement
shall require or permit MacroChem or Ascent to do any act inconsistent with the
requirements of any United States law, regulation or executive order as the same
may be is effect from time to time.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
MACROCHEM ASCENT PHARMACEUTICALS, INC.
By: /s/ Alvin J. Karlof By: /s/ Emmett Clemente
-------------------------------- ---------------------------
Title: President Title: President
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<PAGE> 14
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
APPENDIX A
MacroChem Patents & Patent Applications
Title: Percutaneous Absorption Enhancers
Compositions Containing Same and
Method of Use
1. U.S. Patent # 4,861,764 - Issued August 29, 1989.
2. ************************************************
**********************
3. ************************************************
**********************
Designated States: Austria, Belgium, France,
Federal Republic of Germany, Great Britain,
Greece, Italy, Luxembourg, The Netherlands,
Spain, Sweden and Switzerland (including Liechtenstein).
4. ************************************************
***********************
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<PAGE> 1
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
Exhibit 10.10
SUPPLY AGREEMENT
This AGREEMENT dated as of October 17, 1994 is made by and between ASCENT
PHARMACEUTICALS, INC., a Delaware Corporation having its principal place of
business at 9 Linnell Circle, Billerica, Massachusetts 01821 (hereinafter
referred to as "Ascent"), and LYNE LABORATORIES, INC., a Massachusetts
Corporation having a place of business at 260 Tosca Drive, Stoughton,
Massachusetts 02072 (hereinafter referred to as "Lyne").
INTRODUCTION
1. Lyne has the capability and manufacturing facilities to manufacture
trimethoprim oral solution.
2. Ascent is in the business of the design, development, manufacturing and
sale of pediatric pharmaceuticals.
3. Ascent desires that Lyne supply it with trimethoprim oral solution.
4. Lyne is willing, for the consideration and on the terms set forth herein,
to supply Ascent with trimethoprim oral solution.
In consideration of the mutual covenants and promises contained in this
Agreement and other good and valuable consideration, Ascent and Lyne agree as
follows:
Article I. SUPPLY
1.1 General.
Lyne agrees to manufacture for, and sell and supply to Ascent alone, in
accordance with the terms and conditions of this Article I, all trimethoprim
oral solution that Ascent may order from time to time. During the term of this
Agreement and so long as Lyne is not in default of any obligations hereunder,
Ascent agrees to order all trimethoprim oral solution required by it from Lyne
and from no other. In the anticipation of preventing the interruption of
supply of trimethoprim oral solution to Ascent, in the event that Lyne should
fail to be able to supply product to Ascent, in accordance with the terms of
this Agreement, Lyne shall be prepared to cooperate fully with Ascent (by
providing manufacturing know-how and data) in qualifying a second source of
supply as selected by Ascent. As used herein, "qualify" or "qualifying" shall
<PAGE> 2
refer to being qualified by the U.S. Food and Drug Administration for the
production of trimethoprim oral solution. It is further understood that Ascent
intends to proceed forthwith to qualify a second source of supply at its own
expense. If Lyne should breach this Agreement permanently or temporarily within
fifteen (15) months from Ascent's ANDA approval, Lyne will be liable for all of
Ascent's costs associated with: (a) the loss of profits associated with the
interruption of supply of trimethoprim oral solution, and (b) costs incurred by
Ascent in qualifying the second source of supply, but Lyne shall only be liable
for these costs incurred by Ascent beginning with the first day of breach by
Lyne unless Lyne is in permanent breach of this Agreement during said fifteen
(15) month period in which case Lyne shall pay all of Ascent's costs in
qualifying a second source of supply. It is further agreed that should Ascent,
or any company licensed to do so by Ascent, desire to distribute trimethoprim
oral solution in a country other than the U.S., and if such country's
regulations require, or should Ascent's licensee desire for whatever reason,
that the manufacturing of the product be conducted within the confines of that
foreign country, Lyne agrees to relinquish its exclusive manufacturing rights to
trimethoprim oral solution for distribution by Ascent or its licensee in such
foreign country and Lyne shall allow Ascent or its licensee to proceed as
necessary to conduct business in such country.
1.2 Quality.
Lyne shall manufacture and supply the trimethoprim strictly in accordance
with the specifications set forth on Schedule A attached hereto (the "Product
Specifications"), with such changes therein as Ascent may reasonably request
from time to time, and in accordance with the highest level of product
consistency. Lyne shall manufacture and supply the trimethoprim oral solution
strictly in accordance and compliance with all applicable laws, rules and
regulations, including without limitation laws, rules and regulations that may
be applicable as a result of Ascent's sale of products using or incorporating
the trimethoprim oral solution for use in humans, such as the Food and Drug
Administration ("FDA") Good Manufacturing Practices. Lyne shall maintain a
quality control/quality assurance system designed to ensure that the
trimethoprim oral solution is manufactured and supplied in accordance with the
terms of this Section 1.2 and to permit lot traceability. Lyne shall immediately
notify Ascent in the event that Lyne becomes aware of any failure of the
trimethoprim oral solution supplied to Ascent to meet the Product Specifications
including those tests being considered by third parties (e.g. Scientific
Associates, Inc.) or the other standards set forth in this Section 1.2 or in the
event Lyne becomes aware of any defect in a trimethoprim oral solution supplied
to Ascent. It is understood that Lyne's obligations hereunder relate to the
production of the trimethoprim oral solution in accordance with the Product
Specifications. Lyne does not represent or warrant the indications, actions and
uses of the trimethoprim oral solution.
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<PAGE> 3
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
1.3 Inspections.
Ascent and its authorized representatives shall have the right to inspect
the manufacturing facilities of Lyne, and to discuss and review in detail the
manufacturing processes and QA/QC procedures used (and the records created) by
Lyne during trimethoprim oral solution production with the technical and other
employees and consultants of Lyne, in order to ensure that the trimethoprim oral
solution is being manufactured and supplied in accordance with the terms of
Section 1.2 of this Agreement; provided, however, that such visits shall be
during normal business hours and shall not unreasonably interrupt the operations
of Lyne. Lyne shall cooperate with the FDA with respect to any inspection it may
require of Lyne's facilities and procedures as a result of its manufacture and
supply of trimethoprim oral solution. Lyne shall promptly notify Ascent of, and
permit Ascent to take part in, any inspections by the FDA of Lyne's facilities
in connection with the manufacture and supply of trimethoprim oral solution.
Lyne and Ascent shall promptly notify and provide copies to the other company of
any communications either company shall have with the FDA regarding the
manufacture and/or production of trimethoprim oral solution.
1.4 Forecasts.
Commencing with the first calendar year following FDA approval, and for
each calendar year thereafter, Ascent shall notify Lyne, no later than
************ preceding the *****************************************, of
Ascent's sales forecast by calendar quarter of anticipated orders of
trimethoprim oral solution in units of trade packs and samples for each calendar
year (the "Annual Forecast"). For the purpose of controlling the delivery time
of finished product to Ascent, Lyne shall coordinate with Ascent the purchasing
of the annual requirements of drug raw materials and non-drug components. Ascent
shall update such Annual Forecast in units of trade packs and samples for each
calendar quarter other than the first calendar quarter in such calendar year
(the "Quarterly Update") no later than ************** days prior to the
commencement of such calendar quarter. Ascent shall not be under any obligation
to place orders for the quantities specified in either the Annual Forecast or
the Quarterly Update.
1.5 Placing Orders.
Ascent shall place all orders (each, an "Order") for trimethoprim oral
solution in writing. Lyne agrees to complete all phases of manufacturing and
packaging
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<PAGE> 4
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
within **************************** after receipt and approval of all required
Raw Materials (the "Finished Goods in Quarantine Date").
1.6 Filling Orders and Delivery.
Lyne shall supply to Ascent, no longer than **********************
following receipt of the Certificate of Analysis from the designated finished
goods test site for each applicable Order, the amount of trimethoprim oral
solution shown on such Order. Such trimethoprim oral solution shall be shipped
to the address(s) of Ascent's warehouse facilities as shown on such Order.
Ascent shall pay for all shipping costs, including pallets, not specified in
Schedule B.
1.7 Price.
The price payable by Ascent for the trimethoprim oral solution ordered
shall be determined in accordance with the pricing schedule attached hereto as
Schedule B.
1.8 Invoices and Payment.
Lyne shall invoice for trimethoprim oral solution ordered by Ascent at the
time of shipment by Lyne. Ascent shall pay all amounts properly shown on such
invoices no later than thirty (30) days after the date of invoicing.
1.9 Records.
Lyne shall keep true and accurate records to substantiate all amounts
invoiced to Ascent. Upon request from Ascent, Lyne shall permit Ascent or its
authorized representatives to inspect and audit such records in confidence in
order to verify the amounts invoiced hereunder.
1.10 Failure to Supply.
In the event that Lyne fails to supply the designated finished goods
testing site with the quantity of trimethoprim oral solution required to test
and provide a Certificate of Analysis for the amount of trimethoprim oral
solution shown on an Order within *************** after the Finished Goods In
Quarantine Date or notifies Ascent that Lyne will be unwilling or unable to
supply Ascent with the amount of trimethoprim oral solution shown on an Order,
Annual Forecast, or Quarterly Update, or in the event that any amount of
trimethoprim oral solution is not manufactured and supplied in accordance with
the standards set forth in Section 1.2
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<PAGE> 5
Confidential material omitted and filed separately
with the Securities and Exchange Commission.
Asterisks denote such omissions.
of this Agreement and Lyne is unable or unwilling to replace such trimethoprim
oral solution within ************** after notice to Ascent of such failure and
to adjust its practices as may be necessary so as to avoid such failures in the
future (each of the foregoing events being referred to as an "Event of
Default"), then Lyne shall, upon the written request of Ascent, transfer to
Ascent a copy of all technical and other information necessary or useful for the
manufacture, use or sale of trimethoprim oral solution or products using or
incorporating trimethoprim oral solution which came into the possession of Lyne
as a result of this Agreement. Additionally, Lyne will presently assist and
provide to Ascent all information in its possession including the manufacturing
know-how and data to assist in the qualification of a second source of product
as specified in Section 1.1 of this Agreement. At the request of Ascent, Lyne
will assist Ascent as specified in Section 1.1 of this Agreement, to qualify an
alternative source of supply in an effort to mitigate the interruption of trade
and sample product. All costs to be borne by Lyne associated with any breach or
temporary breach of this Agreement during the ******************** after
Ascent's ANDA approval are set forth in Section 1.1
Article II. CONFIDENTIAL INFORMATION
2.1 Treatment of Confidential Information.
Each Party hereto shall maintain all information, in writing or reduced to
writing and marked "confidential", of a private, secret or confidential nature
concerning the other Party's business, business relationships or financial
affairs (collectively, the "Confidential Information") in confidence, and shall
not disclose, divulge or otherwise communicate such Confidential Information to
others, or use it for any purpose, except pursuant to, and in order to carry
out, the terms and objectives of this Agreement, and hereby agrees to exercise
every reasonable precaution to prevent and restrain the unauthorized disclosure
of such Confidential Information by any of its directors, officers, employees,
consultants, subcontractors, sublicensees or agents.
2.2 Release from Restrictions.
The provisions of Section 2.1 shall not apply to any Confidential
Information disclosed hereunder which:
(a) was known or used by the receiving Party prior to its date of
disclosure to the receiving Party, as evidence by the prior written
records of the receiving Party; or
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<PAGE> 6
(b) is independently developed by the receiving Party without reference to
or reliance on such Confidential Information, as evidenced by the
written records of the receiving Party; or
(c) either before or after the date of the disclosure to the receiving
Party is lawfully disclosed without restriction to the receiving Party
by an independent, unaffiliated third party rightfully in possession of
the Confidential Information (but only to the extent of the rights
received from such third party); or
(d) either before or after the date of the disclosure to the receiving
Party becomes published or generally known to the public through no
fault or omission on the part of the receiving Party; or
(e) is required to be disclosed by the receiving Party to comply with
applicable laws, to defend or prosecute litigation or to comply with
governmental regulations, provided that the receiving Party provides
prior written notice of such disclosure to the other Party and takes
reasonable and lawful actions to avoid and/or minimize the degree of
such disclosure.
Article III. PRODUCT LIABILITY
3.1 Indemnification by Ascent.
Except to the extent that Lyne is obligated to indemnify, defend and hold
Ascent harmless from and against actions, suits, claims, demands, judgments,
liabilities and expenses in accordance with Section 3.2 below, Ascent shall
indemnify, defend and hold Lyne, and each of its officers, directors, employees,
agents and affiliates, harmless from and against all actions, suits, claims,
demands, judgments, liabilities and expenses, including legal expenses and
reasonable attorneys' fees, based upon or arising out of the use or sale by
Ascent of the trimethoprim oral solution, or products which use or incorporate
trimethoprim oral solution, including without limitation any claim arising out
of the death of or injury to any person or persons or out of any damage to
property or as the result of the breach of any patent or trademark. A person or
entity seeking indemnification hereunder shall promptly notify Ascent in writing
of any such action, suit, claim or demand. Ascent shall manage and control, at
its sole expense, the defense of any such action, suit, claim or demand. Lyne,
and each of its officers, directors, employees, agents and affiliates, shall
cooperate with Ascent in such defense and shall not agree to any settlement of
any such action, suit, claim or demand without Ascent's prior written consent,
which shall not be unreasonably withheld. Ascent shall not be liable for any
amounts paid in any settlement without such prior written consent or for any
litigation costs or
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<PAGE> 7
expenses incurred by Lyne, or any of its officers, directors, employees, agents
or affiliates, without Ascent's prior written consent. Ascent shall name Lyne as
an additional insured under Ascent's product liability insurance and shall
provide Lyne with a certificate of such insurance within ten (10) days of the
execution of this Agreement, which certificate shall contain a provision
requiring the insurance carrier to give written notice to Lyne at least fifteen
(15) days prior to any cancellation or expiration of such insurance.
3.2 Indemnification by Lyne.
Lyne shall indemnify, defend and hold Ascent, and each of its officers,
directors, employees, agents and affiliates, harmless from and against all
actions, suits, claims, demands, judgments, liabilities and expenses, including
legal expenses and reasonable attorneys' fees, based upon or arising out of (i)
the negligence or willful misconduct of Lyne, or its officers, directors,
employees, agents or affiliates, (ii) the breach by Lyne of the terms of this
Agreement, (iii) the failure by Lyne to manufacture trimethoprim oral solution
in strict accordance with the Product Specifications and the terms of Section
1.2, or (iv) any manufacturing defect in any trimethoprim oral solution supplied
to Ascent by Lyne, provided that such defect is not the result of a defect in
any raw material or ingredient supplied to Lyne or of Lyne's having manufactured
the trimethoprim oral solution in strict accordance with the Product
Specifications, including without limitation any claim arising out of the death
of or injury to any person or persons or out of any damage to property. A person
or entity seeking indemnification hereunder shall promptly notify Lyne in
writing of any such action, suit, claim or demand. Lyne shall manage and
control, at its sole expense, the defense of any such action, suit, claim or
demand. Ascent, and each of its officers, directors, employees, agents and
affiliates, shall cooperate with Lyne in such defense and shall not agree to any
settlement of any such action, suite, claim or demand without Lyne's prior
written consent, which shall not be unreasonably withheld. Lyne shall not be
liable for any amounts paid in any settlement without such prior written consent
or for any litigation costs or expenses incurred by Ascent, or any of its
officers, directors, employees, agents or affiliates, without Lyne's prior
written consent. Lyne shall name Ascent as an additional insured under Lyne's
product liability insurance and shall provide Ascent with a certificate of such
insurance within ten (10) days of the execution of this Agreement, which
certificate shall contain a provision requiring the insurance carrier to give
written notice to Ascent at least fifteen (15) days prior to any cancellation or
expiration of such insurance.
Article IV. TERMINATION
4.1 Term.
This Agreement shall remain in effect until terminated in accordance with
the provisions of this Article IV.
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<PAGE> 8
4.2 Termination for Breach.
Each Party shall be entitled to terminate this Agreement by written notice
to the other Party in the event that the other Party shall be in default of any
of its obligations hereunder, and shall fail to remedy any such default within
thirty (30) days after 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. Upon termination of this Agreement pursuant to this Section
4.2, neither Party shall be relieved of any obligations incurred prior to such
termination.
4.3 Termination for Other than Breach.
Either party may elect to terminate this Agreement for any reason or no
reason at any time after ten (10) years from the date hereof by giving the other
at least three (3) months advance written notice of its intention to terminate
this Agreement.
4.4 Survival of Obligations; Return of Confidential Information.
Notwithstanding any termination of this Agreement, the obligations of the
Parties under Articles II and III of this Agreement, as well as under any other
provisions which by their nature are intended to survive any such termination,
shall survive and continue to be enforceable. Upon any termination of this
Agreement, each Party shall promptly return to the other Party all written
Confidential Information, and all copies thereof, of the other Party.
Article V. MISCELLANEOUS
5.1 Assignment.
Neither this Agreement nor any of the rights and obligations hereunder may
by assigned by Lyne to any third party (including any party which acquires all
or substantially all of the business of Lyne by merger, sale of assets or
otherwise) without the prior written consent of Ascent, which consent shall not
be unreasonably withheld or delayed, provided, however, that no consent of
Ascent is required in the event that this Agreement is assigned by Lyne to a
wholly owned subsidiary or an affiliated company of Lyne in which a majority of
its stockholders are the same as a majority of the stockholders of Lyne. Any
Assignee of Lyne must agree to be bound by the obligations and duties of Lyne
set forth in this Agreement. Any assignment by Lyne which results in a change in
manufacturing site can only be made if said new manufacturing site has been
formally and fully approved by the FDA (at Lyne's expense) to manufacture the
trimethoprim oral solution product covered by this
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<PAGE> 9
Agreement. Ascent may assign this Agreement and any of its rights and
obligations hereunder without Lyne's consent being necessary.
5.2 Governing Law.
This Agreement shall be governed by and interpreted in accordance with the
laws of the Commonwealth of Massachusetts, without giving effect to conflict of
laws provisions.
5.3 Force Majeure.
In the event that either Party is prevented from performing or is unable to
perform any of its obligations under this Agreement due to any act of God; fire;
casualty; flood; war; strike; lockout; failure of public utilities; injunction
or any act, exercise, assertion or requirement of governmental authority;
epidemic; destruction of research or production facilities; riots; insurrection;
inability to procure or use materials, labor, equipment, transportation or
energy; or any other cause beyond the reasonable control of the Party invoking
this Section 5.3 if such Party shall have used its best efforts to avoid such
occurrence, such Party shall give notice to the other Party in writing promptly,
and thereupon the affected Party's performance shall be excused and the time for
performance shall be extended for the period of delay or inability to perform
due to such occurrence.
5.4 Waiver.
The waiver by either Party of a breach or a default of any provision of
this Agreement by the other Party shall not be construed as a waiver of any
succeeding breach of the same or any other provision, 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.
5.5 Notices.
All notices required or permitted under this Agreement shall be in writing
and shall be deemed effective upon personal delivery or three days after deposit
in the United States Post Office, by registered or certified mail, postage
prepaid, return receipt requested, addressed to the other party at the address
listed below or such other address as the addressee shall have specified in a
notice given in accordance with this Section 5.5:
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<PAGE> 10
If to Lyne:
Lyne Laboratories, Inc.
260 Tosca Drive
Stoughton, Massachusetts 02072
Attention: President
with a copy to:
Gerard Fong, Esq.
Norris, Kozodov & Fong
18 Tremont St.
Boston, MA 02108
If to Ascent:
Ascent Pharmaceuticals, Inc.
9 Linnell Circle
Billerica, Massachusetts 01821
Attention: President
with a copy to:
David E. Redlick, Esq.
Hale and Dorr
60 State Street
Boston, MA 02109
5.6 No Agency.
Nothing herein shall be deemed to constitute either Party as the agent or
representative of the other Party, or both Parties as joint venturers or
partners for any purpose. Lyne shall be an independent contractor, not an
employee or partner of Ascent, and the manner in which Lyne renders its services
under this Agreement shall be within Lyne's sole discretion. Neither Party shall
be responsible for the acts or omissions of the other Party, and neither Party
will have authority to speak for, represent or obligate the other Party in any
way without prior written authority from the other Party.
5.7 Warranty; No Conflict.
Each party warrants to the other that as of the date of execution of this
Agreement, it has not received actual notice of, nor does it have any reason to
believe there exist, any patents or patent applications owned by third parties
which would
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<PAGE> 11
prevent any party from making, using or selling trimethoprim oral solution, or
products using or incorporating trimethoprim oral solution. Each party
represents and warrants that the execution and delivery of this Agreement and
the performance by it of its obligations hereunder does not and will not
conflict with, or cause a default under, any agreement to which it is a party or
other obligation to which it is subject. Each party covenants with the other
that it will not enter into any agreement with or grant any rights to a third
party that would cause the immediately preceding representation to become untrue
or which would otherwise impair or impede its ability to fulfill its obligations
hereunder.
5.8 Entire Agreement.
This Agreement and the Schedules hereto (which Schedules are deemed to be a
part of this Agreement for all purposes) contain the frill 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 officers thereunto duly
authorized.
5.9 Headings.
The headings contained in this Agreement are for convenience of reference
only and shall not be considered in construing this Agreement.
5.10 Severability.
In the event that any provision of this Agreement is held by a court of
competent jurisdiction to be unenforceable because it is invalid or in conflict
with any law of any relevant jurisdiction, the validity of the remaining
provisions shall not be affected, and the rights and obligations of the Parties
shall be construed and enforced as if the Agreement did not contain the
particular provisions held to be unenforceable.
5.11 Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
Parties hereto and their successors and permitted assigns.
5.12 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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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as a sealed instrument in their names by their properly and duly authorized
officers or representatives as of the date first above written.
LYNE LABORATORIES, INC.
By: /s/ Robert C. Girafoli
-----------------------
Title: President
ASCENT PHARMACEUTICALS, INC.
By: /s/ Emmett Clemente
---------------------
Title: President
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<PAGE> 13
SCHEDULE A
MANUFACTURING SPECIFICATIONS: PART I
PRIMSTAT(TM) ORAL SOLUTION, 16 oz TRADE PACK
(Trimethoprim, 25 mg/5 mL)
KEY TEST METHOD SPECIFICATION
--- ---- ------ -------------
Page 1 of Schedule A contains confidential materials
which have been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 14
SCHEDULE A
MANUFACTURING SPECIFICATIONS; PART II
PACKAGING COMPONENTS
Page 1 of Schedule A contains confidential materials
which have been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 15
SCHEDULE B
PRICING
Pages 1 and 2 of Schedule B contains confidential materials
which have been omitted and filed separately with the
Securities and Exchange Commission.
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<PAGE> 1
Exhibit 10.13
SERIES F CONVERTIBLE PREFERRED STOCK
AND WARRANT PURCHASE AGREEMENT
------------------------------------
This Agreement (the "Agreement"), dated as of June 28, 1996, is entered
into by and among ASCENT PHARMACEUTICALS, INC., a Delaware corporation (the
"Company"), holders of the existing capital stock of the Company and the First
Purchasers listed on EXHIBIT A hereto (the "First Purchasers"). The First
Purchasers and any subsequent purchasers of Series F Preferred (as defined in
Section 1.1) who are made parties to this Agreement pursuant to Section 1.3
hereof (each a "Subsequent Purchaser") are collectively referred to herein as
the "Purchasers." The First Purchasers, together with any Subsequent Purchasers,
the holders of Series A Preferred (as defined in Section 3.2), Series B
Preferred (as defined in Section 3.2), Series D Preferred (as defined in Section
3.2), Series E Preferred (as defined in Section 3.2), Warrants (as defined in
Section 3.2) and any person or entity to whom rights are transferred under this
Agreement pursuant to Section 9 hereof, are sometimes collectively referred to
herein as the "Stockholders."
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. Authorization and Sale of Shares and Warrants.
---------------------------------------------
1.1 AUTHORIZATION. The Company has, or on or before the First
Closing (as defined in Section 2.2) will have, duly authorized the sale and
issuance of up to 1,892,308 shares of its Series F Convertible Preferred Stock,
$.00004 par value per share (the "Series F Preferred"), having the rights,
restrictions, privileges and preferences set forth in the Amended and Restated
Certificate of Incorporation of the Company attached hereto as EXHIBIT B (the
"Amended and Restated Certificate"), and warrants to purchase up to an aggregate
of 756,924 shares of common stock, $.00004 par value per share (the "Common
Stock"), at an exercise price of $6.50 per share, subject to adjustment as
provided therein, substantially in the form attached hereto as EXHIBIT C (the
"Series F Common Warrants"). The Company has, or on or before the First Closing
will have, adopted and filed the Amended and Restated Certificate with the
Secretary of State of the State of Delaware.
1.2 SALE OF AND COMMITMENT TO PURCHASE SHARES AND SERIES F
COMMON WARRANTS BY FIRST PURCHASERS. On and subject to the terms and conditions
of this Agreement, each First Purchaser
<PAGE> 2
agrees and commits to invest in Series F Preferred the total dollar amount set
forth opposite such First Purchaser's name on EXHIBIT A under the heading "Total
Commitment Amount" (the sum of the Total Commitment Amounts of all First
Purchasers being referred to herein as the "First Purchaser Total Commitment
Amount"); provided, however that in no event shall the First Purchaser Total
Commitment Amount exceed $12,000,001. At the First Closing each First Purchaser
shall purchase from the Company, for a cash purchase price equal to the portion
of such First Purchaser's Total Commitment Amount as is set forth opposite such
First Purchaser's name on EXHIBIT A under the heading "Funded Amount at First
Closing" (the "First Closing Funded Amount") (it being understood that the
percentage that a First Purchaser's First Closing Funded Amount bears to such
First Purchaser's Total Commitment Amount may not be the same for all First
Purchasers), and the Company shall sell and issue to each of the First
Purchasers:
(a) the number of shares of Series F Preferred as is set
forth opposite such First Purchaser's name on
EXHIBIT A under the heading "Number of First Shares
Purchased at First Closing" (it being understood
that such amount is equal to a fraction, the
numerator of which shall be such First Purchaser's
First Closing Funded Amount and the denominator of
which shall be $6.50) (the "First Shares");
(b) a Series F Common Warrant to purchase the number of
shares of Common Stock as is set forth opposite such
First Purchaser's name on EXHIBIT A under the
heading "Number of First Purchaser Total Commitment
Warrants Issued at First Closing" (it being
understood that such amount is equal to a fraction,
the numerator of which shall be equal to the product
of such First Purchaser's First Purchaser Total
Commitment Amount and 0.1, and the denominator of
which shall be $6.50) (the "First Purchaser Total
Commitment Warrants"); and
(c) a Series F Common Warrant to purchase the number of
shares of Common Stock as is set forth opposite such
First Purchaser's name on EXHIBIT A under the
heading "Number of First Purchaser Funded Amount
Warrants Issued at First Closing" (it being
understood that such
2
<PAGE> 3
amount is equal to a fraction, the numerator of
which shall be equal to the product of such First
Purchaser's First Closing Funded Amount and 0.3, and
the denominator of which shall be $6.50) (the "First
Purchaser Funded Amount Warrants").
1.3 SALE OF AND COMMITMENT TO PURCHASE SHARES AND SERIES F
COMMON WARRANTS BY SUBSEQUENT PURCHASER(S).
On and subject to the terms and conditions of this Agreement,
during the 30 day period commencing on the date of the First Closing (which
period may be extended by the Company for up to an additional 60 days) (the
"Subsequent Purchaser Acceptance Period"), the Company may (on one or more
occasions), but shall not be obligated to, obtain additional commitments to
invest in Series F Preferred ("Additional Total Commitment Amounts") from
additional investors; PROVIDED, HOWEVER, that in no event may the sum of (x) the
First Purchaser Total Commitment Amount and (y) the total of all Additional
Total Commitment Amounts exceed $12,000,001. Each party who desires to make such
a commitment shall execute and deliver an appropriate counterpart signature page
to this Agreement substantially in the form of EXHIBIT D (a "Subsequent
Purchaser Signature Page") which shall set forth the Additional Total Commitment
Amount of such party. From and after the execution and delivery by such party of
a Subsequent Purchaser Signature Page, each such party shall be deemed a
Subsequent Purchaser hereunder, shall be deemed a party to this Agreement and
shall be deemed to have committed to invest in Series F Preferred and Series F
Common Warrants an amount equal to such Subsequent Purchaser's Additional Total
Commitment Amount. Each Purchaser hereby authorizes the Company to make
appropriate amendments to EXHIBIT A and Schedule 1.5 following each Subsequent
Purchaser First Closing (as defined below) to reflect the Subsequent Purchasers,
their status as Priority Purchasers (as defined in Section 1.5), their
Additional Total Commitment Amounts and the number of Shares and Warrants
purchased at their Subsequent Purchaser First Closings, which amendments to
EXHIBIT A and Schedule 1.5 shall be binding upon all Purchasers absent manifest
error. At each first closing for any Subsequent Purchaser(s) (each, a
"Subsequent Purchaser First Closing"), each Subsequent Purchaser shall purchase
from the Company, for a cash purchase price agreed by the Company and such
Subsequent Purchaser and set forth on the Subsequent Purchaser Signature Page
executed by such Subsequent Purchaser (which amount shall be such Subsequent
Purchaser's "Subsequent Purchaser First Closing Funded Amount"),
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<PAGE> 4
and the Company shall sell and issue to each Subsequent Purchaser funding for
the first time at such Subsequent Purchaser First Closing:
(a) the number of shares of Series F Preferred as is equal to
such Subsequent Purchaser's Subsequent Purchaser First Closing Funded
Amount divided by $6.50 (the "Subsequent Purchaser First Shares");
(b) a Series F Common Warrant to purchase the number of shares
of Common Stock as is equal to a fraction, the numerator of which shall
be equal to the product of such Subsequent Purchaser's Additional Total
Commitment Amount and 0.1, and the denominator of which shall be $6.50
(the "Subsequent Purchaser Total Commitment Warrants"); and
(c) a Series F Common Warrant to purchase the number of shares
of Common Stock as is equal to a fraction, the numerator of which shall
be equal to the product of such Subsequent Purchaser's Subsequent
Purchaser First Closing Funded Amount and 0.3, and the denominator of
which shall be $6.50 (the "Subsequent Purchaser Funded Amount Warrants").
1.4 FOLLOW-ON FUNDING CLOSING(S) BY PURCHASERS. On and subject
to the terms and conditions of this Agreement, following the expiration of the
Subsequent Purchaser Acceptance Period and on or prior to June 30, 1997, the
Company may, at its option, at one or more additional fundings as specified in
Section 2.4 (each a "Follow-On Funding Closing"), require the Purchasers to
provide additional funding to the Company (the aggregate amount to be funded at
a Follow-On Funding Closing being referred to as the "Call Amount"); provided,
however, that the Call Amount may not exceed the excess of (x) $12,000,001 over
(y) the total amount previously invested by the Purchasers at all prior closings
pursuant to this Agreement. At each Follow-On Funding Closing, the Company shall
sell and issue to each Purchaser, and each Purchaser shall purchase from the
Company for cash:
(a) the number of shares of Series F Preferred as is
equal to the product of the Call Amount for such Follow-On Funding Closing and
such Purchaser's Follow-On Funding Commitment Percentage (as defined below)
divided by $6.50 (the "Follow-On Funding Shares"); and
(b) a Series F Common Warrant to purchase the number of
shares of Common Stock as is equal to a fraction, the numerator of which shall
be equal to the product of the
4
<PAGE> 5
amount funded by such Purchaser at such Follow-On Funding Closing (the
"Follow-On Funded Amount") and 0.3, and the denominator of which shall be $6.50
(the "Follow-On Funded Amount Warrants").
The purchase price to be paid by a Purchaser at each Follow-On Funding Closing
shall be equal to the Call Amount times such Purchaser's Follow-On Funding
Commitment Percentage (as defined below). For purposes of this Agreement, a
Purchaser's Follow-On Funding Commitment Percentage (which shall be computed
separately for each Follow-On Funding Closing) shall mean a fraction, the
numerator of which shall be such Purchaser's Total Commitment Amount or
Additional Total Commitment Amount less the amount that the Purchaser previously
has invested in the Company pursuant to this Agreement and the denominator of
which shall be the total amount of all Purchasers' Total Commitment Amounts and
Additional Total Commitment Amounts less the sum of the amount that all
Purchasers previously have invested in the Company pursuant to this Agreement.
Follow-On Funding Commitment Percentages shall be subject to adjustment as
provided in Section 1.5. In no event shall a Purchaser be required to fund
pursuant to all closings under this Agreement an amount in excess of such
Purchaser's Total Commitment Amount or Additional Total Commitment Amount.
1.5 Priority Right of Certain Purchasers.
------------------------------------
Notwithstanding anything to the contrary in Section 1.4, at each
Follow- On Funding Closing, each First Purchaser listed on Schedule 1.5 to this
Agreement and each Subsequent Purchaser listed on Schedule 1.5 ("Priority
Purchasers"), may, at its option, elect to invest an amount in excess of such
Priority Purchaser's Follow-On Funding Commitment Percentage by notice (a
"Priority Election Notice") given to the Company no later than 10 days after the
date of the Follow-On Funding Notice (as defined in Section 2.4) with respect to
the particular Follow-On Funding Closing. If a Priority Purchaser gives a
Priority Election Notice, it shall indicate the amount that it desires to invest
at such Follow-On Funding Closing (which amount may not exceed such Priority
Purchaser's Total Commitment Amount or Additional Total Commitment Amount less
all amounts previously invested by such Priority Purchaser at prior closings
pursuant to this Agreement). At such Follow-On Funding Closing, the respective
amounts to be invested by the Purchasers other than Priority Purchasers
("Non-Priority Purchasers")) shall be reduced from the amounts specified in
Section 1.4 such that, to the extent possible, the Priority Purchasers shall be
permitted to fund the full amounts requested by them; provided that if the
excess of the amounts requested to
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<PAGE> 6
be funded by Priority Purchasers at a Follow-On Funding Closing over the amounts
that the Priority Purchasers would be required to fund pursuant to Section 1.4
exceed the amounts to be funded by Non-Priority Purchasers, the total amount
available to be funded shall be allocated solely among the Priority Purchasers
pro rata based on the respective amounts by which each Priority Purchaser's
Total Commitment Amount or Additional Total Commitment Amount exceeds the total
amount invested by such Priority Purchaser at all prior closings under this
Agreement. Any reduction in the amounts to be funded by the Non-Priority
Purchasers shall be allocated among them pro rata based on the respective
amounts by which each Non-Priority Purchaser's Total Commitment Amount or
Additional Total Commitment Amount exceeds the total amount invested by such
Non-Priority Purchaser at all prior closings under this Agreement (a
"Non-Priority Investor Unfunded Amount"). The Purchasers acknowledge and agree
that the effect of this Section 1.5 will be to provide the Priority Purchasers
with the right, at their option, to fund their investments in the Company
pursuant to this Agreement prior to the funding of investments of the
Non-Priority Purchasers, but that if the full Total Commitment Amounts and
Additional Total Commitment Amounts of all Purchasers are called upon, the
Purchasers' respective Investment Percentages (as defined below) will equal
their respective Commitment Percentages (as defined below). For purposes of this
Agreement, a Purchaser's Investment Percentage shall mean a fraction numerator
of which shall be the total amount invested in the Company by a Purchaser
pursuant to this Agreement and the denominator of which is such Purchaser's
Total Commitment Amount or Additional Total Commitment Amount and a Purchaser's
Commitment Percentage shall mean a fraction, the numerator of which shall be
such Purchaser's Total Commitment Amount or Additional Total Commitment Amount
and the denominator of which shall be the total amount of all Purchasers' Total
Commitment Amounts and Additional Total Commitment Amounts.
1.6 USE OF PROCEEDS. The Company will use the proceeds from the
sale of the First Shares, Subsequent Purchaser First Shares and Follow-On
Funding Shares (collectively, the "Shares") and the Series F Common Warrants for
(i) the continued development of the Company's products, (ii) the development of
the Company's sales and marketing efforts and additional administrative
functions, (iii) inventories and accounts receivables related to the Company's
internally developed products and (iv) other working capital and valid corporate
purposes.
1.7 SEPARATE AGREEMENTS. The Company's agreement with each of
the Purchasers is a separate agreement, and the sale of
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<PAGE> 7
Shares and Series F Common Warrants to each of the Purchasers is a separate
sale.
1.8 COMMITMENT ONLY PURCHASERS. Notwithstanding the foregoing,
any Purchaser who commits to invest, but does not purchase any Series F
Preferred, at such Purchaser's First Closing or Subsequent Purchaser First
Closing shall at such Closing pay to the Company in cash an amount equal to the
number of shares of Common Stock covered by such Purchaser's First Purchaser
Total Commitment Warrants or Subsequent Purchaser Total Commitment Warrants
times $0.01.
2. The Closings.
------------
2.1 IN GENERAL. Each closing ("Closing") of the sale and
purchase of Shares and Series F Common Warrants under this Agreement shall take
place at the offices of Hale and Dorr, 60 State Street, Boston, Massachusetts,
or at such other place as is mutually agreeable to the Company and the
Purchasers at such Closing. At each Closing, the Company will deliver to each of
the Purchasers at such Closing a certificate for the number of Shares being
purchased by such Purchaser, registered in the name of such Purchaser, and a
Series F Common Warrant to purchase the appropriate number of shares of Common
Stock, against payment to the Company of the purchase price therefor, by wire
transfer, check, or other method acceptable to the Company. The date of each
Closing is hereinafter referred to as a "Closing Date." If at any Closing any of
the applicable conditions specified in Section 5 shall not have been fulfilled,
each of the Purchasers at such Closing shall, at his or its election, be
relieved of all of his or its obligations under this Agreement without thereby
waiving any other rights he or it may have by reason of such failure or such
non-fulfillment.
2.2 THE FIRST CLOSING. The closing of the sale and purchase of
the First Shares, First Purchaser Total Commitment Warrants and First Purchaser
Funded Amount Warrants (the "First Closing") shall be held at 10:00 a.m. on June
28, 1996, or at such other time and date as are mutually agreeable to the
Company and the First Purchasers.
2.3 SUBSEQUENT PURCHASER FIRST CLOSINGS. The closing of the
sale and purchase of Subsequent Purchaser First Shares, Subsequent Purchaser
Total Commitment Warrants and Subsequent Purchaser Funded Amount Warrants shall
be held at such time and date as are mutually agreeable to the Company and the
Subsequent Purchasers who are then first investing.
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<PAGE> 8
2.4 Notice of Follow-On Funding Closing(s).
--------------------------------------
Follow-On Funding Closings shall occur at such time and
place as shall be specified by the Company. A Follow-On Funding Closing shall
occur not more than once during each three-month period following the First
Closing. The Company shall provide each Purchaser not less than 30 calendar days
written notice of each Follow-On Funding Closing (each a "Follow-On Funding
Notice") substantially in the form of EXHIBIT E. The first Follow-On Funding
Notice may be given at any time after the 30th day following the date of the
First Closing (subject to appropriate adjustment in the event that the Company
extends the Subsequent Purchaser Acceptance Period pursuant to Section 1.3).
3. REPRESENTATIONS OF THE COMPANY. Subject to and except as disclosed
by the Company in Exhibit F hereto, as of the date of the First Closing, the
Company hereby represents and warrants to each of the Purchasers as follows:
3.1 ORGANIZATION AND STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority to conduct its
business as presently conducted and as proposed to be conducted by it and to
enter into and perform this Agreement and to carry out the transactions
contemplated by this Agreement. The Company is duly qualified to do business as
a foreign corporation and is in good standing in the Commonwealth of
Massachusetts and in every other jurisdiction in which the failure to so qualify
would have a material adverse effect on the operations or financial condition of
the Company.
3.2 CAPITALIZATION. The authorized capital stock of the Company
(immediately prior to the First Closing) will consist of 11,000,000 shares of
Common Stock, of which 233,125 shares will be issued and outstanding, and
5,658,563 shares of Preferred Stock, $.00004 par value per share (the "Preferred
Stock"), of which:
(i) 800,000 shares will have been designated Series A
Convertible Preferred Stock, $.00004 par value per share ("Series A Preferred"),
all of which shares will be issued and outstanding and convertible on an
aggregate basis into 800,000 shares of Common Stock;
(ii) 399,999 shares will have been designated Series B
Convertible Preferred Stock, $.00004 par value per share ("Series B Preferred"),
all of which shares will be issued and
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outstanding and convertible on an aggregate basis into 415,365 shares of Common
Stock; and
(iii) 1,399,589 shares will have been designated Series D
Preferred Stock, $.00004 par value per share ("Series D Preferred"), 1,359,522
of which shares will be issued and outstanding and convertible on an aggregate
basis into 1,359,522 shares of Common Stock;
(iv) 1,166,667 shares will have been designated Series E
Preferred Stock, $.00004 par value per share ("Series E Preferred"), 733,371 of
which will be issued and outstanding and convertible on an aggregate basis into
733,371 shares of Common Stock; and
(v) 1,892,308 shares have been designated Series F
Preferred, none of which will be issued and outstanding.
EXHIBIT F sets forth the number of shares of Common Stock reserved for issuance
pursuant to the exercise of stock options, warrants and other securities. All of
such issued and outstanding shares of Common Stock, Series A Preferred, Series B
Preferred, Series D Preferred, and Series E Preferred have been duly authorized
and validly issued and are fully paid and nonassessable. The relative rights,
preferences, restrictions and other provisions relating to the capital stock of
the Company are as set forth on EXHIBIT B hereto and all designations, powers,
preferences, rights, qualifications, limitations and restrictions are valid,
binding and enforceable in accordance with applicable law and have been adopted
in accordance with applicable law. Except with respect to warrants to purchase
an aggregate of 40,067 shares of Series D Preferred (the "Series D Warrants")
and an aggregate of 360,802 shares of Common Stock (together with the Series D
Warrants and Series F Common Warrants, collectively, the "Warrants") and except
as set forth in EXHIBIT F hereto or provided in this Agreement and in the terms
of the Warrants, (i) no subscription, warrant, option, convertible security or
other right (contingent or otherwise) to purchase or acquire any shares of
capital stock of the Company is authorized or outstanding, (ii) there is not any
commitment of the Company to issue any subscription, warrant, option,
convertible security or other such right or to issue or distribute to holders of
any shares of its capital stock any evidences of indebtedness or assets of the
Company, and (iii) the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. Except as provided in this
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Agreement or as set forth on EXHIBIT F hereto, no person or entity is entitled
to (i) any preemptive or similar right with respect to the issuance of any
capital stock of the Company, or (ii) any rights with respect to the
registration of any capital stock of the Company under the Securities Act (as
defined in Section 8.1). All of the issued and outstanding shares of Common
Stock, Series A Preferred, Series B Preferred, Series D Preferred, Series E
Preferred and the Warrants have been offered, issued and sold by the Company in
compliance with applicable Federal and state securities laws. Except as set
forth on EXHIBIT F hereto or by the terms of this Agreement, to the best of the
Company's knowledge there are no restrictions on transfer relating to any
capital stock of the Company other than those arising from Federal and state
securities laws and there are no voting trusts, shareholders agreements, pledge
agreements or buy/sell agreements between a stockholder and any other person or
entity relating to any capital stock of the Company.
3.3 SUBSIDIARIES. The Company has no subsidiaries and does not
(a) own of record or beneficially, directly or indirectly, any shares of capital
stock of any other corporation which is controlled by the Company or any
interest in any partnership, joint venture or other association or business
entity which is controlled by the Company or (b) otherwise control, directly or
indirectly, any other business entity.
3.4 STOCKHOLDER LIST AND AGREEMENTS. Attached as EXHIBIT G is a
true and complete list of the stockholders of the Company, showing the number of
shares of Common Stock, Series A Preferred, Series B Preferred, Series D
Preferred, Series E Preferred and the Warrants or other securities of the
Company held by each stockholder as of the date of this Agreement and
immediately prior to the filing of the Amended and Restated Certificate and the
First Closing, and the consideration paid to the Company, if any, for such
shares and other securities. Except as set forth in EXHIBIT F and/or EXHIBIT H
as contemplated by this Agreement, there are no agreements, written or oral,
between the Company and any holder of its capital stock relating to the
acquisition, disposition or voting of the capital stock of the Company.
3.5 ISSUANCE OF SHARES AND SERIES F COMMON WARRANTS. The
issuance, sale and delivery of the Shares and Series F Common Warrants in
accordance with this Agreement, and the issuance and delivery of the shares of
Common Stock issuable upon conversion of the Shares or exercise of the Series F
Common Warrants, have been, or will be on or prior to the Closing with respect
to such Shares
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and Series F Common Warrants, duly authorized and reserved for
issuance, as the case may be, by all necessary corporate action on the part of
the Company, and the Shares when so issued, sold and delivered against payment
therefor in accordance with the provisions of this Agreement, and the shares of
Common Stock issuable upon conversion of the Shares, when issued upon such
conversion and the shares of Common Stock issuable upon exercise of the Series F
Common Warrants, when issued against payment therefor in accordance with the
terms of the Series F Common Warrants upon such exercise, will be duly and
validly issued, fully paid and nonassessable with no personal liability
attaching to the ownership thereof and will be free and clear of all liens,
charges, restrictions, claims and encumbrances imposed by or through the
Company.
3.6 AUTHORIZATION AND NON-CONTRAVENTION. This Agreement and all
documents and instruments executed pursuant hereto (including without limitation
the Series F Common Warrants and the Second Amended and Restated Voting Rights
Agreement) (as defined in Section 5.8) have been duly executed and delivered by
the Company and are valid and binding obligations of the Company, enforceable in
accordance with their terms. The execution, delivery and performance of this
Agreement and all documents and instruments contemplated hereby, including the
issuance, sale and delivery of the Shares and the Series F Common Warrants, and
the reservation, issuance and delivery of the shares of Common Stock upon the
conversion of the Shares or the exercise of the Series F Common Warrants, have
been duly authorized by all necessary corporate or other action of the Company.
Except as set forth on EXHIBIT F hereto, the execution and delivery of this
Agreement, the issuance and delivery of the Shares and the Series F Common
Warrants, the reservation of the shares of Common Stock and, upon conversion of
the Shares or the exercise of the Series F Common Warrants, issuance and
delivery of the shares of Common Stock, and the performance or consummation of
any other transaction, or the execution and delivery of any other document or
instrument, contemplated thereby will not: (i) violate, conflict with, result in
a default or acceleration of any obligation under, give rise to a right of
consent to or give rise to a right of termination of any contract, instrument,
agreement, indenture, obligation, authorization or commitment to which the
Company is a party or by which it or its assets are bound or affected, or any
provision of the Amended and Restated Certificate of Incorporation or By-laws of
the Company, or the creation of any lien, charge, claim, restriction or
encumbrance of any nature upon any of the properties or assets of the Company,
except pursuant to this Agreement and the agreements contemplated hereby or (ii)
violate
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or result in a violation of, or constitute a default under, any
provision of any statute, ordinance, regulation or rule, or any decree, judgment
or order of, or any restriction imposed by, any court or other federal, state or
local governmental body or agency, which is binding on the Company or its
assets.
3.7 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution, delivery and performance of this Agreement,
the offer, issuance, sale and delivery of the Shares and the Series F Common
Warrants, or the other transactions to be consummated at the Closing, as
contemplated by this Agreement, or upon conversion of the Shares or exercise of
the Series F Common Warrants, the issuance and delivery of shares of Common
Stock, except such filings as shall have been made prior to and shall be
effective on and as of the Closing. Based on the representations made by each of
the Purchasers in Section 4 of this Agreement, the offer, sale and issuance of
the Shares and the Series F Common Warrants to each of the Purchasers and the
issuance of the shares of Common Stock upon proper conversion of the Shares or
proper exercise of the Series F Common Warrants will be in compliance with all
applicable Federal and state securities laws.
3.8 FINANCIAL STATEMENTS. The Company has furnished to the
Purchasers (i) the audited balance sheet and related statements of operations,
stockholders' equity (deficit) and cash flows for the Company as at and for the
year ended December 31, 1995 (the "Audited Financial Statements"), and (ii) the
unaudited balance sheet and related statements of operations, stockholders'
equity (deficit) and cash flows for the Company for the period ending March 31,
1996 (the "Unaudited Financial Statements") (the Audited Financial Statements
and the Unaudited Financial Statements, collectively, the "Financial
Statements"). The Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied, except that the
Unaudited Financial Statements do not contain footnotes and are subject to
year-end adjustment. The Financial Statements fairly present in all material
respects the financial position and results of operations of the Company as at
the dates thereof and for the periods covered thereby. Since March 31, 1996,
after giving effect to the consideration that the Company is a development stage
company which has incurred substantial operating losses and expects to incur
further operating losses, and that developments concerning the Company must be
assessed in that context, (i) there has been no change in the assets,
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liabilities or financial condition of the Company except for changes in the
ordinary course of business which, individually and in the aggregate, have not
been materially adverse and (ii) the business, prospects, financial condition,
operations, property or affairs of the Company or its subsidiaries have not been
materially adversely affected by any occurrence or development, individually or
in the aggregate, other than occurrences and developments generally affecting
the economy and the industry in which the Company operates.
3.9 EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE SHEET. Except
as set forth on EXHIBIT F, since March 31, 1996, the Company has not (i) issued
any stock, bond or other corporate security, (ii) borrowed any amount or
incurred or become subject, to any liability (absolute, accrued or contingent),
except current liabilities incurred and liabilities under contracts entered into
in the ordinary course of business, (iii) incurred or paid any obligation or
liability (absolute, accrued or contingent) other than current liabilities shown
on the Financial Statements and current liabilities incurred since the date of
the Financial Statements in the ordinary course of business, (iv) declared or
made any payment or distribution to stockholders or purchased or redeemed any
share of its capital stock or other security, (v) mortgaged, pledged or
subjected to lien any of its assets, tangible or intangible, other than liens of
current taxes not yet due and payable, (vi) sold, assigned or transferred any of
its tangible assets except in the ordinary course of business, or cancelled any
debt or claim, (vii) sold, assigned, transferred or granted any exclusive
license with respect to any patent, trademark, trade name, service mark,
copyright, trade secret or other intangible asset, (viii) suffered any loss of
property or waived any right of substantial value other than in the ordinary
course of business, (ix) made any material change in the manner of business or
operations of the Company or its subsidiaries, (x) entered into any transaction
except in the ordinary course of business or as otherwise contemplated hereby or
(xi) entered into any commitment (contingent or otherwise) to do any of the
foregoing, if any of the foregoing would have a material adverse effect on the
Company as a whole within the context described in Section 3.8 herein.
3.10 LITIGATION. There is no action, suit, proceeding,
governmental inquiry or investigation pending, or, to the best of the Company's
knowledge, any basis therefor or threat thereof, against or directly affecting
the Company or to the best of its knowledge, against any officer, director or
key employee of the Company which questions the validity or might hinder the
validity
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or enforceability of this Agreement or the right of the Company to enter into
it, or which might result, either individually or in the aggregate, in any
material adverse change in the assets, condition (financial or otherwise),
business or prospects of the Company, nor is there any litigation pending, or,
to the best of the Company's knowledge, any basis therefor or threat thereof,
against the Company by reason of the proposed activities of the Company or
negotiations by the Company with possible investors in the Company. No action or
suit by the Company is pending or threatened against others. The Company is not
in default with respect to any order, writ, injunction or decree known to or
served upon the Company of any court or of any Federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
3.11 TAXES. The Company has filed or has obtained presently
effective extensions with respect to all Federal, state, county, local and
foreign tax returns which are required to be filed by it, such returns are true
and correct and all taxes shown thereon to be due have been timely paid with
exceptions not material to the Company. The Company has paid all other taxes,
assessments and governmental charges which have become due or payable,
including, without limitation, all taxes which the Company is obligated to
withhold from amounts owing to employees, creditors and third parties. Federal
income tax returns of the Company have not been audited by the Internal Revenue
Service, and no controversy with respect to taxes of any type is pending or, to
the knowledge of the Company, threatened. All such taxes with respect to which
the Company and its subsidiaries have become obligated pursuant to elections
made by the Company or its subsidiaries in accordance with generally accepted
practice have been paid and adequate reserves have been established for all
taxes accrued but not yet payable. There are no tax liens, whether imposed by
any Federal, state, county or local taxing authority, outstanding against the
assets, properties or businesses of the Company or its subsidiaries. Neither the
Company, its subsidiaries nor any of its stockholders have ever filed (a) an
election pursuant to Section 1362 of the Internal Revenue Code of 1986, as
amended (the "Code"), that the Company or its subsidiaries be taxed as an S
corporation or (b) consent pursuant to Section 341(f) of the Code as to the
Company or its subsidiaries, relating to collapsible corporations.
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3.12 PROPERTY AND ASSETS. Except as set forth on EXHIBIT F, the
Company has good title to all of its material properties and assets, and none of
such properties or assets is subject to any mortgage, pledge, lien, security
interest, lease, charge or encumbrance.
3.13 PATENTS AND TRADEMARKS. Set forth on EXHIBIT F hereto is a
list and identification of all patents, patent applications, trademarks,
trademark registrations, trademark applications, service marks, service mark
applications, trade names and copyrights that have been registered in the name
of the Company, or of which the Company is a licensor or licensee or in which
the Company has any right. The Company owns or possesses adequate licenses or
other rights to use all patents, patent applications, trademarks, trademark
registrations and applications, service marks, service mark registrations and
applications, trade names, copyrights, manufacturing processes, formulae, trade
secrets and know how (collectively, "Intellectual Property") that are material
to the conduct of its business as conducted and as proposed to be conducted. To
the best of the Company's knowledge, no claim is pending or threatened to the
effect that the operations of the Company infringe upon or conflict with the
asserted rights of any other person under any Intellectual Property, and there
is no basis for any such claim (whether pending or threatened) known to the
Company. No claim is known by the Company to be pending or threatened to the
effect that any such Intellectual Property owned or licensed by the Company, or
which the Company otherwise has the right to use, is invalid or unenforceable by
the Company. To the best of the Company's knowledge, all proprietary trade
secrets developed by or belonging to the Company which have not been patented
have been kept confidential and each current and prior employee (other than
clerical staff and other employees without access to proprietary trade secrets),
consultant and Scientist (as defined below), except as disclosed on EXHIBIT F,
has executed an agreement regarding confidentiality, proprietary information and
assignment of inventions to the Company and to the best of the Company's
knowledge, no such person is in breach of any agreements or arrangements with
employers or others relating to proprietary information or assignments of
inventions. To the best of the Company's knowledge, the business conducted or
proposed to be conducted by the Company will not cause the Company to infringe
or violate any of the patents, trademarks, service marks, trade names,
copyrights, licenses, trade secrets or other proprietary rights of any other
person or entity, which infringement or violation would have a material adverse
effect on the Company. Except as set forth on EXHIBIT F, the Company is not
aware that
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any employee of the Company or any of the scientists who are
performing consulting services for the Company (such scientists, being the
individuals designated as "Scientists" on EXHIBIT F, are collectively referred
to herein as the "Scientists") is obligated under any contract (including any
license, covenant or commitment of any nature), or subject to any judgment,
decree or order of any court or administrative agency, that would interfere or
conflict with the performance of such employee's or Scientist's duties as an
officer, employee, consultant or director of the Company, the use of such
employee's or Scientist's best efforts to promote the interests of the Company
or the Company's business as proposed to be conducted. Except as set forth on
EXHIBIT F, to the best of the Company's knowledge, no other person or entity,
including any prior or current employer of any such employee or Scientist, has
any right to or interest in any inventions, improvements, discoveries or other
information assigned to the Company by such employee or Scientist.
3.14 INSURANCE. The Company holds valid insurance policies as to
its properties and business with financially sound and reputable insurers,
insuring against such casualties and contingencies of such types and in such
amounts as is customary for companies similarly situated. There are no claims
pending against the Company under any insurance policies currently in effect and
covering the property, business or employees of the Company, and all premiums
with respect to the policies maintained by the Company which are currently due
and payable have been paid.
3.15 MATERIAL CONTRACTS AND OBLIGATIONS. EXHIBIT F sets forth a
list of all material agreements of any nature to which the Company is a party or
by which it is bound, including without limitation (a) each agreement which
requires future expenditures by the Company in excess of $50,000, (b) all
employment and consulting agreements, employee benefit, bonus, pension,
profit-sharing, stock option, stock purchase and similar plans and arrangements,
and distributor and sales representative agreements, (c) any agreement to which
any stockholder, officer or director of the Company, or any "affiliate" or
"associate" of such persons (as such terms are defined in the rules and
regulations promulgated under the Securities Act of 1933, as amended), is
presently a party, including without limitation any agreement or other
arrangement providing for the furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to, any such person or
entity and (d) any agreement relating to the Intellectual Property. The Company
has delivered to the Purchasers copies of such of the foregoing as requested.
The Company and, to the best of the Company's knowledge, each other
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party thereto have in all material respects performed all the obligations
required to be performed by them to date, have received no notice of default and
are not in default (with due notice or lapse of time or both) under any lease,
agreement or contract described in subsections (a), (b), (c) or (d) above or
that might result in payments to the Company in excess of $50,000, now in effect
to which the Company or any subsidiary is a party or by which it or its property
may be bound. Neither the Company nor any subsidiary has any present expectation
or intention of not fully performing all its obligations under each such lease,
contract or other agreement, and the Company has no knowledge of any breach or
anticipated breach by the other party to any contract or commitment to which the
Company or any subsidiary is a party. The Company is in compliance with all of
the terms and provisions of its Amended and Restated Certificate of
Incorporation and By-laws, each as amended. All of such agreements and contracts
are valid, binding and in full force and effect with respect to the Company.
3.16 COMPLIANCE. The Company has, in all material respects,
complied with all laws, regulations and orders applicable to its present and
proposed business, its operations, properties, assets, products and services and
has all material permits, licenses and other authorizations required thereby.
Except as set forth on EXHIBIT F, there is no existing law, rule, regulation or
order, and the Company is not aware of any proposed law, rule, regulation or
order, whether Federal or state, which would prohibit or materially restrict the
Company from, or otherwise materially adversely affect the Company in,
conducting its business in any jurisdiction in which it is now conducting
business or in which it currently proposes to conduct business. To the best of
the Company's knowledge, no Scientist is in violation of any term of any
employment contract, patent or other proprietary information disclosure
agreement or any other contract or agreement relating to the performance by such
Scientist of consulting services for the Company.
3.17 EMPLOYEES, CONSULTANTS AND SCIENTISTS. Subject to the
limitations set forth on EXHIBIT F, each employee of the Company, each
consultant of the Company and each of the Scientists has signed an agreement
with the Company pursuant to which each employee, consultant and Scientist
acknowledges the Company's ownership of all information designated as
proprietary and confidential by the Company and limiting the Scientist's right
to use or disclose such information and all such agreements are in full force
and effect.
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3.18 ERISA. The Company does not have or otherwise contribute to
or participate in any employee retirement plan subject to the Employee
Retirement Income Security Act of 1974.
3.19 ENVIRONMENTAL MATTERS. Except in compliance with applicable
law or as previously remediated in accordance with applicable law, the Company
has not knowingly caused or allowed, nor has the Company contracted with any
party for, the generation, use, transportation, treatment, storage or disposal
of any Hazardous Substances (as defined below) in connection with the operations
of its business or otherwise. To the best of its knowledge, the Company, the
operations of its business, and any real property that the Company owns, leases,
or otherwise occupies or uses (the "Premises") are in compliance in all material
respects with all applicable Environmental Laws (as defined below) and orders or
directives of any governmental authorities having jurisdiction under such
Environmental Laws including, without limitation, any Environmental Laws or
orders or directives with respect to cleanup or remediation of any release or
threat of release of Hazardous Substances. The Company has not received any
written citation, directive, letter or other communication, written or oral, or
any notice of any proceedings, claims or lawsuits, from any person, entity or
governmental authority relating to Environmental laws arising out of the
ownership or occupation of the Premises, or the conduct of its operations, nor
is it aware of any basis therefor. To the best of its knowledge, the Company has
obtained and is maintaining in full force and effect all necessary permits,
licenses and approvals required by any Environmental Laws applicable to the
Premises and the business operations conducted therein (including operations
conducted by tenants on the Premises) and is in compliance in all material
respects with all such permits, licenses and approvals. Except as previously
remediated in accordance with applicable law, the Company has not caused, or
allowed a material release, or a threat of a material release, of any Hazardous
Substance unto, at or near the Premises, nor to the best of the Company's
knowledge has the Premises or any property at or near the Premises ever been
subject to a material release, or a threat of a material release, of any
Hazardous Substance. The term, "Environmental Laws" shall mean any Federal,
state or local law, ordinance or regulation pertaining to the protection of
human health or the environment including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601,
et seq., Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections
11001, et seq., and the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901, et seq. The term "Hazardous Substance" includes oil and petroleum
products,
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asbestos, polychlorinated biphenyls and urea formaldehyde, and any
other materials classified as hazardous or toxic under any Environmental Laws.
3.20 BOOKS AND RECORDS. The minute books of the Company contain
complete and accurate records of all meetings and other corporate actions of its
stockholders and its Board of Directors and committees thereof and accurately
reflect all transactions referred to therein. The stock ledger of the Company is
complete and reflects all issuances, transfers, repurchases and cancellations of
shares of capital stock of the Company.
3.21 RIGHTS OF FIRST REFUSAL. All rights of first refusal under
the Series E Purchase Agreement have been irrevocably waived in writing by the
holders of capital stock granted such rights thereunder with respect to the
offer and issuance of the Shares and Series F Common Warrants hereunder.
3.22 BROKERS. Except as set forth on EXHIBIT F hereto, the
Company has no contract, arrangement or understanding with any broker, finder or
similar agent with respect to the transactions contemplated by this Agreement.
4. REPRESENTATIONS OF THE PURCHASERS. Each of the Purchasers
severally represents and warrants to the Company as follows:
4.1 INVESTMENT. Such Purchaser is acquiring the Shares and
Series F Common Warrants to be purchased by such Purchaser, and the shares of
Common Stock into which such Shares may be converted and the shares of Common
Stock issuable upon the exercise of such Series F Common Warrants, for his or
its own account for investment and not with a view to, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling the same; and, except as contemplated by this Agreement and the
Exhibits hereto, such Purchaser has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the disposition thereof, but subject nevertheless to any requirements of law
that the disposition of and responsibility for such property shall remain at all
times within the control of the Purchaser. By execution hereof, the Purchasers
acknowledge their receipt and review of the Business Plan of the Company, as
revised on June 24, 1996.
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4.2 AUTHORITY. Such Purchaser has full power and authority to
enter into and to perform this Agreement in accordance with its terms. Any
Purchaser which is a corporation, partnership or trust represents that it has
not been organized, reorganized or recapitalized specifically for the purpose of
investing in the Company.
4.3 EXPERIENCE. Such Purchaser has received the Agreement
together with its Exhibits and has considered the representations concerning the
Company contained in this Agreement and has made detailed inquiry concerning the
Company, its business and its personnel; the officers of the Company have made
available to such Purchaser the opportunity to ask questions and receive answers
concerning the terms and conditions of the offering of Shares and Series F
Common Warrants made hereby and to obtain any additional information that the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to verify the accuracy of information provided by the Company to such
Purchaser; and such Purchaser has adequate net worth and means of providing for
his or its current needs and personal contingencies to sustain a complete loss
of his or its investment in the Company; such Purchaser's overall commitment to
investments which are not readily marketable is not disproportionate to his or
its net worth and such Purchaser's investment in the Shares, the Series F Common
Warrants and the shares of Common Stock issuable upon exercise of the Series F
Common Warrants will not cause such overall commitment to become excessive.
4.4 ACCREDITED INVESTOR. Such Purchaser is an Accredited
Investor within the definition set forth in Securities Act Rule 501(a).
4.5 OVERSEAS PURCHASERS. If such Purchaser's principal address
as set forth on EXHIBIT A is a location outside of the United States of America
and its territories, such Purchaser (an "Overseas Purchaser"):
(a) is not a U.S. person (as defined in Securities Act
Rule 902(o)) and is not acquiring the Shares and Series F Common Warrants
purchased hereunder or the shares of Common Stock issuable upon
conversion of such Shares or exercise of such Series F Common Warrants
for the account or benefit of any U.S. person;
(b) will transfer the Shares or the Series F Common
Warrants purchased hereunder or the shares of Common Stock issued upon
conversion of such Shares or exercise of
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such Series F Common Warrants only (i) in accordance with the provisions
of Regulation S promulgated under the Securities Act ("Regulation S"),
(ii) pursuant to an effective registration statement under the Securities
Act, or (iii) pursuant to an available exemption from registration under
the Securities Act, and only in compliance with the terms and provisions
of this Agreement, including without limitation those set forth in
Section 8.2; and
(c) will not offer or sell the Shares or the Series F
Common Warrants purchased hereunder or the shares of Common Stock issued
upon
conversion of such shares or exercise of such warrants to a U.S. person
or to or for the account or benefit of a U.S. person prior to the
expiration of the one-year period after the date of the Closing at which
such Purchaser purchased such Shares, or one year after the exercise of
the Series F Common Warrants, with respect to shares of Common Stock
issued upon exercise of such Series F Common Warrants.
5. CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS. The obligation of
each of the Purchasers to purchase Shares and the Series F Common Warrants at
each Closing is subject to the fulfillment, or the waiver by such Purchaser, of
the following conditions on or before the applicable Closing:
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. In the case of
the First Closing, each representation and warranty contained in Section 3 shall
be true on and as of the date of the First Closing with the same effect as
though such representation and warranty had been made on and as of that date. In
the case of each Subsequent Purchaser First Closing and Follow-On Funding
Closing, the representations and warranties contained in Sections 3.1, 3.5, 3.6
and 3.7 shall be true and correct on and as of the date of such Follow-On
Funding Closing.
5.2 PERFORMANCE. The Company shall have performed and complied
with all agreements and conditions contained in this Agreement required to be
performed or complied with by the Company prior to or at such Closing.
5.3 Opinion of Counsel.
------------------
(a) At each First Closing and each Subsequent Purchaser
First Closing, each Purchaser purchasing Shares and Series F Common Warrants at
such Closing shall have received an opinion from Hale and Dorr, counsel for the
Company, dated the
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date of the First Closing, addressed to such Purchasers at each such Closing,
satisfactory in form and substance to each Purchaser, to the effect that:
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its
business as presently conducted, to enter into and perform this Agreement
and to carry out the transactions contemplated by this Agreement. The
Company is duly qualified to do business and in good standing in the
Commonwealth of Massachusetts.
(ii) After the filing of the Amended and Restated
Certificate with the Secretary of State of the State of Delaware, the
authorized and (based solely on such counsel's review of the Company's
stock record books)
outstanding capital stock of the Company will be as described in
subsection 3.2 of this Agreement.
(iii) The issuance, sale and delivery of the Shares
and Series F Common Warrants to be sold at such Closing by the Company in
accordance with this Agreement, and the issuance and delivery of the
shares of Common Stock issuable upon conversion of such Shares or
exercise of such Series F Common Warrants, have been duly authorized and
reserved for issuance, as the case may be, by all necessary corporate
action on the part of the Company, and such Shares and Series F Common
Warrants when so issued, sold and delivered against payment therefor in
accordance with the provisions of this Agreement, and the shares of
Common Stock issuable upon conversion of such Shares or exercise of such
Series F Common Warrants, when issued upon such conversion or upon such
proper exercise, will be duly and validly issued, fully paid and
nonassessable. Neither the issuance, sale or delivery of the Shares and
Series F Common Warrants is, nor will the issuance or delivery of the
shares of Common Stock upon proper conversion or exercise thereof be,
subject to any preemptive right of stockholders of the Company arising
under the General Corporation Laws of the State of Delaware or the
Company's Certificate of Incorporation or By-laws, or, to the best of
such counsel's knowledge, under any contractual right of first refusal or
other right in favor of any person that has not been waived or complied
with.
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<PAGE> 23
(iv) The execution, delivery and performance by
the Company of this Agreement, the Series F Common Warrants and the
Second Amended and Restated Voting Rights Agreement and the execution and
filing of the Amended and Restated Certificate have been duly authorized
by all necessary corporate action, and this Agreement has been duly
executed and delivered by the Company. This Agreement (other than
subsections 8.7 and 8.8 hereof, as to which no opinion need be expressed)
constitutes the valid and binding obligation of the Company, enforceable
in accordance with its terms, subject as to enforcement of remedies to
applicable bankruptcy, insolvency, reorganization or similar laws
affecting generally the enforcement of creditors' rights and subject to a
court's discretionary authority with respect to the granting of a decree
ordering specific performance or other equitable remedies. The execution,
delivery and performance of this Agreement and the offer, issue and sale
of the Shares and the Series F Common Warrants to be sold at such Closing
hereunder and the issue of shares of Common Stock upon proper conversion
or exercise, will not conflict with, or result in any breach of any of
the terms, conditions, or provisions of, or constitute a default under,
the Amended and Restated Certificate of Incorporation, as amended, or
By-laws of the Company, or any indenture, lease, agreement, or other
instrument known to such counsel to which the Company is a party or by
which it or any of its properties are bound and which is set forth on
EXHIBIT F hereto, or any decree, judgment or order specifically naming
the Company and known to such counsel.
(v) Except as obtained and in effect at such
Closing, no consent, approval, order or authorization of, or
registration, qualification, designation, declaration, or filing with,
any governmental authority other than filings required to be made under
applicable Federal and state securities laws, is required on the part of
the Company in connection with the execution, delivery and performance of
this Agreement, the Series F Common Warrants and the Second Amended and
Restated Voting Rights Agreement, or (assuming no change in applicable
facts or circumstances) the offer, issue, sale and delivery of the Shares
and the Series F Common Warrants to be sold at such Closing and the
shares of Common Stock to be issued and delivered upon conversion or
exercise thereof, or the other transactions to be consummated at the
Closing pursuant to this Agreement.
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<PAGE> 24
(vi) Based on the representations of each of the
Purchasers in Section 4, the offer, issuance and sale of the Shares and
the Series F Common Warrants to be sold at such Closing pursuant to this
Agreement and the issuance of the shares of Common Stock to be issued
upon conversion or exercise thereof, are exempt from registration under
the Securities Act of 1933, as amended.
(vii) To the best of such counsel's knowledge,
except as set forth in EXHIBIT F to this Agreement, there is no action,
suit or proceeding, or governmental inquiry or investigation, pending or
threatened against the Company.
(viii) Based on representations of the Company,
neither the issuance and sale of the Shares and Series F Common Warrants
to be sold at the Closing pursuant to this Agreement nor the intended use
of the proceeds thereof will violate Regulations G, T, U or X of the
Board of Governors of the Federal Reserve System, and it is not necessary
for a Purchaser to obtain a statement in conformity with the requirements
of Federal Reserve Form FR G-3.
(b) At each Follow-On Funding Closing, each Purchaser
purchasing Shares and Series F Common Warrants at such Closing shall have
received an opinion from Hale and Dorr, dated the date of such Follow-On
Funding Closing, addressed to such Purchasers covering the matters
described in clauses (i), (ii), (iii), (iv), (v), (vi) and (viii) of
Section 5.3(a), except that the opinion described in clause (ii) as to
outstanding capital stock shall relate to the Company's capital stock as
of the date of the First Closing.
5.4 BLUE SKY APPROVALS. The Company shall have received the
requisite approvals of the securities commissioners of all states in which prior
approvals are required and such approvals shall be in full force and effect on
such Closing Date.
5.5 CERTIFICATES AND DOCUMENTS. At each First Closing and
Subsequent Purchaser First Closing, the Company shall have delivered to the
Purchasers:
(i) The Certificate of Incorporation of the
Company, as amended and as in effect prior to the filing of the
Amended and Restated Certificate, certified by the Secretary of
State of the State of Delaware and a copy of the Amended and
Restated Certificate of the
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<PAGE> 25
Company filed with the Secretary of the State of Delaware and
confirmation of such filing by the Secretary of State of Delaware;
(ii) Certificates, as of the most recent
practicable dates, as to the corporate good standing of the
Company issued by the Secretary of State of the State of Delaware
and the Secretary of State of the Commonwealth of Massachusetts,
confirming such good standing;
(iii) A certificate of the Secretary or Assistant
Secretary of the Company dated the Closing Date and certifying:
(A) that attached thereto is a true and complete copy of the
By-laws of the Company as in effect on the date of such
certification; (B) that attached thereto is a true and complete
copy of all resolutions adopted by the Board of Directors or the
stockholders of the Company authorizing the Amended and Restated
Certificate establishing the Series F Preferred, the execution,
delivery and performance of this Agreement, the issuance, sale and
delivery of the Shares and the Series F Common Warrants and the
reservation, issuance and delivery of the shares of Common Stock
upon conversion or exercise of the Shares, and that all such
resolutions are in full force and effect and are all the
resolutions adopted in connection with the transactions
contemplated by this Agreement; (C) that the Certificate of
Incorporation of the Company has not been amended since the date
of the last amendment referred to in the certificate delivered
pursuant to clause (i) above; and (D) to the incumbency and
specimen signature of each officer of the Company executing this
Agreement, the stock certificates representing the Shares, the
Series F Common Warrants and any certificate or instrument
furnished pursuant hereto, and a certification by another officer
of the Company as to the incumbency and signature of the officer
signing the certificate of the Secretary or Assistant Secretary
referred to in this clause (iii); and
(iv) Such additional supporting documents and
other information with respect to the operations and affairs of
the Company as the Purchasers or their counsel reasonably may
reasonably request.
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<PAGE> 26
5.6 STOCKHOLDER APPROVAL. The stockholders of the Company shall
have duly approved the adoption of the Amended and Restated Certificate and the
resolutions contained therein and shall have waived any rights they may have
under the Company's Certificate of Incorporation, as amended (as in effect prior
to the filing of the Amended and Restated Certificate and the First Closing) in
connection with the issuance of the Shares and the Series F Common Warrants.
5.7 RIGHTS OF FIRST REFUSAL. All rights of first refusal under
the Series E Purchase Agreement (defined below) shall have been irrevocably
waived in writing by the holders of Series A Preferred, Series B Preferred,
Series D Preferred, Series E Preferred and, to the extent applicable, the
Warrants with respect to the offer and issuance of the Shares and the Series F
Common Warrants hereunder.
5.8 SECOND AMENDED AND RESTATED VOTING RIGHTS AGREEMENT. The
Second Amended and Restated Voting Rights Agreement in the form of Exhibit H
(the "Second Amended and Restated Voting Rights Agreement") hereto shall have
been executed by the Company and the Stockholders named therein.
5.9 EFFECTIVENESS OF THE AMENDED AND RESTATED CERTIFICATE. The
Amended and Restated Certificate shall have been made effective by filing such
document with the Secretary of State of the State of Delaware.
5.10 COMPLIANCE CERTIFICATE. The Company shall have delivered to
such Purchasers a certificate, executed by the Chairman or the President of the
Company, dated such Closing Date, certifying to the fulfillment of the
conditions specified in this Section 5 relating to such Closing.
5.11 OTHER MATTERS. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to such Purchasers and such Purchasers shall
have received all such counterpart originals or certified or other copies of
such documents as they may reasonably request.
5.12 AMENDMENT OF SERIES E PURCHASE AGREEMENT. The Company shall
have received all necessary consents to provide, effective upon the First
Closing, that (i) the provisions of Sections 7, 8 and 10 of the Series E
Purchase Agreement (defined below) shall terminate and be of no further force or
effect,
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except with respect to any claims under the Series E Convertible Preferred Stock
and Warrant Purchase Agreement, dated July 12, 1995, as amended (the "Series E
Purchase Agreement") arising prior to the First Closing and except as the
definitions of terms contained therein may be necessary for the interpretation
of the other surviving provisions of the Series E Purchase Agreement, and (ii)
the provisions of Sections 7, 8 and 10 of this Agreement (and the provisions of
Sections 9, 14, 15, 16, 18, 20 and 21 of this Agreement to the extent applicable
to Sections 7, 8 and/or 10) shall be binding upon those parties defined as
"Stockholders" under the Series E Purchase Agreement.
5.13 MINIMUM INVESTMENT. At the First Closing, the First
Purchasers shall have agreed to Total Commitment Amounts aggregations of not
less than $3,500,000.
6. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations of
the Company to sell Shares and Series F Common Warrants to the Purchasers at
each Closing are subject to fulfillment, on or before such Closing, of each of
the following conditions:
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Purchasers contained in Section 4 shall be
true on and as of such Closing Date with the same effect as though such
representations and warranties had been made on and as of that date.
6.2 BLUE SKY APPROVALS. The Company shall have received the
requisite approvals of the securities commissioners of all states in which prior
approvals are required and such approvals shall be in full force and effect on
such Closing Date.
6.3 STOCKHOLDER APPROVAL. The stockholders of the Company shall
have duly approved the adoption of the Amended and Amended and Restated
Certificate and the resolutions contained therein and shall have waived any
rights they may have under the Company's Amended and Amended and Restated
Certificate of Incorporation, as amended, (as in effect prior to the filing of
the Amended and Restated Certificate and the First Closing) in connection with
the issuance of the Shares and the Series F Common Warrants.
6.4 RIGHTS OF FIRST REFUSAL. All rights of first refusal under
the Series E Purchase Agreement shall have been irrevocably waived in writing by
the holders of Series A Preferred, Series B Preferred, Series D Preferred,
Series E
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<PAGE> 28
Preferred and, to the extent applicable, the Warrants with respect to
the offer and issuance of the Shares and Series F Common Warrants hereunder.
6.5 MINIMUM INVESTMENT. At the First Closing, the First
Purchasers shall have agreed to Total Commitment Amounts aggregating not less
than $3,500,000, or compliance with the terms of this Section 6.5 shall have
been waived by the Company at or prior to the First Closing.
6.6 SECOND AMENDED AND RESTATED VOTING RIGHTS AGREEMENT. The
Second Amended and Restated Voting Rights Agreement in the form of EXHIBIT H
hereto shall have been executed by the Company and the Stockholders named
therein.
6.7 EFFECTIVENESS OF THE AMENDED AND RESTATED CERTIFICATE. The
Amended and Restated Certificate shall have been made effective by filing such
document with the Secretary of State of the State of Delaware.
6.8 AMENDMENT OF SERIES E PURCHASE AGREEMENT. The Company shall
have received all necessary consents to provide, effective upon the Closing,
that (i) the provisions of Sections 7, 8 and 10 of the Series E Purchase
Agreement shall terminate and be of no further force or effect, except with
respect to any claims under the Series E Purchase Agreement arising prior to the
Closing and except as the definitions of terms contained therein may be
necessary for the interpretation of the other surviving provisions of the Series
E Purchase Agreement, and (ii) the provisions of Sections 7, 8 and 10 of this
Agreement (and the provisions of Sections 9, 14, 15, 16, 18, 20 and 22 of this
Agreement to the extent applicable to Sections 7, 8 and/or 10) shall be binding
upon those parties defined as "Stockholders" under the Series E Purchase
Agreement.
7. Covenants of the Company.
------------------------
7.1 INSPECTION. The Company shall permit each Stockholder, or
any authorized representative thereof, to visit and inspect the properties of
the Company, including its corporate and financial records, and to discuss its
business and finances with officers of the Company, during normal business hours
following reasonable notice and as often as may be reasonably requested.
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7.2 Financial Statements and Other Information.
------------------------------------------
(a) The Company will deliver to each Stockholder:
(i) within 120 days after the end of each fiscal
year of the Company, an audited balance sheet of the Company as at
the end of such year and audited statements of income and of cash
flow of the Company for such year, certified by certified public
accountants of established national reputation selected by the
Company, and prepared in accordance with generally accepted
accounting principles; and
(ii) within 60 days after the end of each fiscal
quarter of the Company, an unaudited balance sheet of the Company
as at the end of such quarter, and unaudited statements of income
and of cash flow of the Company for such fiscal quarter and for
the current fiscal year to the end of such fiscal quarter.
(b) The Company will deliver to each Major Stockholder
(as defined in paragraph (d) below):
(i) as soon as available, but in any event within
30 days after commencement of each new fiscal year, a business
plan and projected financial statements for such fiscal year; and
(ii) with reasonable promptness, such other
notices, information and data with respect to the Company as the
Company delivers to the holders of its Common Stock, and such
other information and data as such Major Stockholder may from time
to time reasonably request.
(c) The foregoing financial statements shall be prepared
on a consolidated basis if the Company then has any subsidiaries.
(d) For purposes of this Agreement, the term "Major
Stockholder" shall mean a Stockholder holding not less than forty
thousand (40,000) shares of Series A Preferred, Series B Preferred,
Series D Preferred, Series E Preferred and/or Series F Preferred so long
as such Stockholder continues to own not less than forty thousand
(40,000) shares of Series A Preferred, Series B Preferred, Series D
Preferred and/or Series F Preferred (KS Nordic Health Care Partners,
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<PAGE> 30
Hoegh Invest AS and Foundation Thomas Fearnley each being treated as a
Major Stockholder so long as they collectively own not less than forty
thousand (40,000) shares of Series A Preferred, Series B Preferred,
Series D Preferred, Series E Preferred and/or Series F Preferred). For
purposes of determining the number of shares held by a Stockholder: (i)
the foregoing numbers shall be adjusted for any stock splits, stock
dividends, recapitalizations or similar events; (ii) shares of Series A
Preferred, Series B Preferred, Series D Preferred, Series E Preferred
and/or Series F Preferred shall include shares which have been converted
into Common Stock so long as such Common Stock is held by such
Stockholder; and (iii) with respect to Stockholders that are corporations
or partnerships, shares of Series A Preferred, Series B Preferred, Series
D Preferred, Series E Preferred and/or Series F Preferred shall include
shares distributed to and held by their respective shareholders and
partners.
7.3 Right of First Refusal.
----------------------
(a) The Company hereby grants to each Stockholder a
right of first refusal to purchase all or part of its or his pro rata
share of any New Securities (as defined in Section 7.3(b)) which the
Company may, from time to time, on or after the date hereof, propose to
sell and issue, subject to the terms and conditions set forth below. A
Stockholder's pro rata share, for purposes of this Section 7.3, shall
equal a fraction, the numerator of which is the number of shares of
Common Stock then held by such Stockholder or issuable upon conversion or
exercise of any Series A Preferred, Series B Preferred, Series D
Preferred, Series E Preferred, Series F Preferred or other convertible
securities, options, rights or warrants then held by such Stockholder,
and the denominator of which is the total number of shares of Common
Stock then outstanding plus the number of shares of Common Stock issuable
upon conversion or exercise of then outstanding Series A Preferred,
Series B Preferred, Series D Preferred, Series E Preferred, Series F
Preferred or other convertible securities, options, rights or warrants.
(b) "New Securities" shall mean any capital stock of the
Company whether now authorized or not, and rights, options or warrants to
purchase capital stock, and securities of any type whatsoever which are,
or may become, convertible into capital stock; PROVIDED, HOWEVER, that
the term "New Securities" does not include (i) the shares of Series F
Preferred or the Series F Common Warrants issued or issuable
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<PAGE> 31
pursuant to the terms of this Agreement, including shares of Series F
Preferred or the Series F Common Warrants issued or issuable at any
Subsequent Closing and Follow-On Funding Closing, the shares of Common
Stock issued or issuable upon conversion of such Shares or the exercise
of such Series F Common Warrants or the shares of Common Stock issued or
issuable upon the conversion of the Series A Preferred, the Series B
Preferred, Series D Preferred or Series E Preferred or the exercise of
the Warrants; (ii) securities offered to the public pursuant to a
Registration Statement (as defined in Section 8.1); (iii) securities
issued for the acquisition of another corporation by the Company by
merger, purchase of substantially all the assets of such corporation or
other reorganization resulting in the ownership by the Company of not
less than a majority of the voting power of such corporation; (iv) not
more than 850,000 shares of Common Stock or rights, options or warrants
to acquire Common Stock (such number being subject to adjustment for any
stock dividend, stock split, subdivision, combination or other
recapitalization of the Common Stock of the Company) issued to directors,
employees or consultants of the Company pursuant to a stock option plan,
employee stock purchase plan, restricted stock plan or other similar
stock plan or agreement or otherwise (and, in the case of rights, options
or warrants, the shares of Common Stock issuable upon exercise thereof);
(v) not more than 17,420 shares of Series D Preferred (and the shares of
Common Stock issuable upon conversion of such Series D Preferred)
issuable to Ash Properties Limited or its affiliates ("Ash") upon
exercise of its warrants to purchase Series D Preferred; (vi) not more
than 22,647 shares of Series D Preferred (and the shares of Common Stock
issuable upon conversion of such Series D Preferred) issuable to Medical
Science Partners, L.P., Mhd. Nabil Al-Midani and Hanan S. Ghraoui and
SEIF Foundation - Leichtenstein upon exercise of their warrants to
purchase Series D Preferred; or (vii) securities issued as a result of
any stock split, stock dividend or reclassification of Common Stock,
distributable on a pro rata basis to all holders of Common Stock.
(c) In the event the Company intends to issue New
Securities, it shall give each Stockholder written notice of such
intention, describing the type of New Securities to be issued, the price
thereof and the general terms upon which the Company proposes to effect
such issuance. Each Stockholder shall have 20 days from the date of any
such notice to agree to purchase (i) all or part of its or his pro
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<PAGE> 32
rata share of such New Securities and (ii) all or part of its or his pro
rata share of any other Stockholder's portion of such New Securities to
the extent that such other Stockholder does not elect to purchase its or
his full pro rata share of such New Securities, for the price and upon
the general terms and conditions specified in the Company's notice by
giving written notice to the Company stating the quantity of New
Securities to be so purchased.
(d) In the event any Stockholder or Stockholders fail to
exercise the foregoing right of first refusal with respect to any New
Securities within such 20-day period, the Company may within 120 days
thereafter sell any or all of such New Securities not agreed to be
purchased by the Stockholders, at a price and upon general terms no more
favorable to the purchasers thereof than specified in the notice given to
each Stockholder pursuant to paragraph (c) above. In the event the
Company has not sold such New Securities within such 120-day period, the
Company shall not thereafter issue or sell any New Securities without
first offering such New Securities to the Stockholders in the manner
provided above.
(e) For purposes of this Section 7.3, "Stockholder"
shall include the general partners, officers or other affiliates of a
Stockholder, and a Stockholder may apportion its pro rata share among,
itself and such general partners, officers and other affiliates in such
proportions as it deems appropriate.
7.4 Put Option Back to the Company.
------------------------------
(a) Subject to the provisions of Subsections (b), (c)
and (e) below, the holders of Series D Preferred (the "Series D
Purchasers") may, by written notice to the Company (the "Series D Put
Notice"), elect to sell to the Company (the "Series D Put Option"), and
the Company hereby agrees to purchase from the Series D Purchasers out of
funds legally available therefor, all of such shares of Series D
Preferred at a purchase price of $6.00 per share (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination
or other similar recapitalization affecting such shares), plus an amount
equal to any declared but unpaid dividends thereon (the total sum payable
per share of Series D Preferred being referred to herein as the "Series D
Put Price"); PROVIDED, HOWEVER, that such Series D Put Option shall be
exercisable only by a Series D Put Notice
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<PAGE> 33
given to the Company by the holders of at least 75% of the shares of
Series D Preferred (on an as-converted basis); and further PROVIDED,
HOWEVER, that such Series D Put Option shall be exercisable only
beginning June 30, 1998 and for a period of one (1) year thereafter. The
date upon which the Company shall have received the Series D Put Notice
shall be referred to herein as the "Effective Series D Put Date." In the
event the Company receives a Series D Put Notice, the Company shall
provide notice of such event to all Series D Purchasers, Series E
Purchasers and Series F Purchasers (collectively, "Series Put Holders").
(b) Subject to the provisions of Subsections (c) and (e)
below, the holders of Series E Preferred (the "Series E Purchasers") may,
by written notice to the Company (the "Series E Put Notice"), elect to
sell to the Company (the "Series E Put Option"), and the Company hereby
agrees to purchase from the Series E Purchasers out of funds legally
available therefor, all of the shares of Series E Preferred held by the
Series E Purchasers at a purchase price of $6.00 per share (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares of
Series E Preferred), plus an amount equal to any declared but unpaid
dividends thereon (the total sum payable per share of Series E Preferred
being referred to herein as the "Series E Put Price"); PROVIDED, HOWEVER,
that such Series E Put Option shall be exercisable only by a Series E Put
Notice given to the Company by the holders of at least 75% of the shares
of Series E Preferred (on an as-converted basis); and FURTHER PROVIDED,
HOWEVER, that: (i) such Series E Put Option shall be exercisable only
beginning June 30, 1998 and for a period of one (1) year thereafter; and
(ii) in the event that the Series D Purchasers validly ex ercise the
Series D Put Option and the Series E Purchasers subsequently validly
exercise the Series E Put Option, the Effective Series E Put Date
(defined below) shall automatically be deemed to be the same as the
Effective Series D Put Date. The date upon which the Company shall have
received the Series E Put Notice shall be referred to herein as the
"Effective Series E Put Date." In the event the Company receives a Series
E Put Notice, the Company shall provide notice of such event to all
Series Put Holders.
(c) Subject to the provisions of Subsection (e) below,
the Purchasers may, by written notice to the Company (the "Series F Put
Notice") elect to sell to the Company (the "Series F Put Option") and the
Company hereby agrees to
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<PAGE> 34
purchase from the Purchasers out of funds legally available therefor, all
of the shares of Series F Preferred at the purchase price of $6.50 per
share (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization
affecting such shares), plus an amount equal to any accrued but unpaid
dividends thereon (the total sum payable per share of Series F Preferred
being referred to herein as the "Series F Put Price"); PROVIDED, HOWEVER,
that such Series F Put Option shall be exercisable only by a Series F Put
Notice given to the Company by the holders of at least 75% of the shares
of Series F Preferred (on an as-converted basis); and FURTHER PROVIDED,
HOWEVER, that: (i) such Series F Put Option shall be exercisable only
beginning June 30, 1998 and for a period of one (1) year thereafter; and
(ii) in the event that the Series D Purchasers and/or Series E Purchasers
exercise the Series D Put Option and/or Series E Put Option and the
Purchasers subsequently validly exercise the Series F Put Option, the
Effective Series F Put Date (defined below) shall automatically be deemed
to be the earlier of the Effective Series D Put Date or Effective Series
E Put Date. The date upon which the Company shall have received the
Series F Put Notice shall be referred to herein as the "Effective Series
F Put Date." In the event the Company receives a Series F Put Notice, the
Company shall provide notice of such event to all Series Put Holders.
(d) The Company shall pay to: (i) each Series D
Purchaser by check or wire transfer the Series D Put Price for each share
of Series D Preferred being purchased hereunder in three (3) equal
installments payable on the first, second and third anniversary of the
Effective Series D Put Date (each such installment, a "Series D Put
Installment"); (ii) each Series E Purchaser by check or wire transfer the
Series E Put Price for each share of Series E Preferred being purchased
hereunder from such Series E Purchaser in three (3) equal installments
payable on the first, second and third anniversary of the Effective
Series E Put Date (each such installment, a "Series E Put Installment")
and (iii) each Purchaser by check or wire transfer the Series F Put Price
for each share of Series F Preferred being purchased hereunder from such
Purchaser in three (3) equal installments payable on the first, second
and third anniversary of the Effective Series F Put Date (each such
installment, a "Series F Put Installment").
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(e) Notwithstanding Sections 7.4(a), (b), (c) and (d)
above, the rights of the Series D Purchasers to receive a Series D Put
Installment shall be subordinated to the rights of (i) the Purchasers,
upon exercise of the Series F Put Option, to receive any applicable
Series F Put Installment, and (ii) the Series E Purchasers, upon exercise
of the Series E Put Option, to receive any applicable Series E Put
Installment such that the Company shall make no payments in respect of a
Series D Put Option unless and until the Company has first paid in full
all Series F Put Installments and Series E Put Installments then due and
payable (it being understood that, so long as all Series F Put
Installments and Series E Put Installments then due and payable have been
paid, the Company can pay Series D Put Installments notwithstanding the
existence of Series F Put Installments or Series E Put Installments not
yet due and payable). Notwithstanding Sections 7.4(a), (b), (c) and (d)
above, the rights of the Series E Purchasers to receive a Series E Put
Installment shall be subordinated to the rights of the Purchasers, upon
exercise of a Series F Put Option, to receive any applicable Series F Put
Installment, such that the Company shall make no payments in respect of a
Series E Put Option unless and until the Company has first paid in full
all Series F Put Installments then due and payable (it being understood
that, so long as all Series F Put Installments then due and payable have
been paid, the Company can pay Series E Put installments notwithstanding
the existence of Series F Put Installments not yet due and payable). Upon
payment in full of all Series F Put Installments then due and payable,
the Company may pay any Series E Put Installments then due and payable
out of funds legally available therefor. Upon payment in full of all
Series F Put Installments and Series E Put Installments then due and
payable, the Company may pay any Series D Put Installment then due and
payable out of funds legally available therefor.
(f) Except pursuant to Section 7.4(h) below, on and
after: (i) the Effective Series D Put Date, all rights of any Series D
Purchaser with respect to the shares of Series D Preferred being
repurchased from such Series D Purchaser hereunder, except the right to
receive the Series D Put Price for each share of Series D Preferred being
repurchased hereunder, shall cease and terminate and such Series D
Purchaser shall have no further rights as a stockholder with respect to
such shares of Series D Preferred; (ii) the Effective Series E Put Date,
all rights of any Series E Purchaser with
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respect to the shares of Series E Preferred being repurchased from such
Series E Purchaser hereunder, except the right to receive the Series E
Put Price for each share of Series E Preferred being repurchased
hereunder, shall cease and terminate and such Purchaser shall have no
further rights as a stockholder with respect to such shares of Series E
Preferred and (iii) the Effective Series F Put Date, all rights of any
Purchaser with respect to the shares of Series F Preferred being
repurchased from such Purchaser hereunder, except the right to receive
the Series F Put Price for each share of Series F Preferred being
repurchased hereunder, shall cease and terminate and such Purchaser shall
have no further rights as a stockholder with respect to such shares of
Series F Preferred.
(g) The shares of Series D Preferred, Series E Preferred
and Series F Preferred are not subject to or entitled to the benefit of
any sinking fund.
(h) Any shares of Series D Preferred, Series E Preferred
and/or Series F Preferred repurchased by the Company pursuant to this
Section 7.4 will be cancelled and will not under any circumstances be
reissued, sold or transferred and the Company may from time to time take
such appropriate action as may be necessary to reduce the authorized
Series D Preferred, Series E Preferred and/or Series F Preferred
accordingly. Any shares of Series D Preferred, Series E Preferred and/or
Series F Preferred repurchased by a third party pursuant to Section
7.4(j) below shall continue to be outstanding and, in the hands of such
third party purchaser, shall have all rights, powers, preferences and
privileges of Series D Preferred, Series E Preferred or Series F
Preferred, as the case may be, provided by law or the Company's Amended
and Restated Certificate of Incorporation.
(i) Notwithstanding the other provisions of this
Agreement, the Company shall not be obligated to repurchase any of the
shares of the Series D Preferred, Series E Preferred or the Series F
Preferred to the extent funds of the Company are not legally available
for such repurchase under applicable law. In the event a repurchase is
delayed on account of the preceding sentence, such repurchase shall
thereafter be made, subject to the other limitations provided in this
Section 7.4, the first time funds of the Company are legally available
under applicable law. If on account of the first sentence of this Section
7.4(i) the Company may
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purchase fewer than all of the: (i) Series D Preferred, such repurchase
shall be made pro rata among the Series D Purchasers in proportion to the
number of shares of Series D Preferred which each such Series D Purchaser
holds as of the Effective Series D Put Date; (ii) Series E Preferred,
such repurchase shall be made pro rata among the Series E Purchasers, in
proportion to the number of shares of Series E Preferred which each such
Series E Purchaser holds as of the Effective Series E Put Date; and/or
(iii) Series F Preferred, such repurchase shall be made pro rata among
the Purchasers in proportion to the number of shares of Series F
Preferred which each such Purchaser holds as of the Effective Series F
Put Date. Nothing contained in this paragraph (i) shall be deemed to
affect the payment priorities established in paragraph (e) above.
(j) The Company may delegate and assign to a third party
any or all of its obligations under this Section 7.4: (i) relating to the
Series D Put Option, with the prior written consent of the Series D
Purchasers holding at least 50% of the Series D Preferred (on an
as-converted basis); (ii) relating to the Series E Put Option, with the
prior written consent of Series E Purchasers holding at least 50% of the
Series E Preferred (on an as-converted basis); and (iii) relating to the
Series F Put Option, with the prior written consent of Purchasers holding
at least 50% of the shares of Series F Preferred (on an as-converted
basis). Upon receipt of such written consent from the holders of Series D
Preferred, the Series E Preferred or the Purchasers, the Company will
have no further obligations under this Section 7.4, with respect to the
Series D Put Option, Series E Put Option or Series F Put Option,
respectively.
(k) Each of the Series D Put Option granted to the
Series D Purchasers, the Series E Put Option granted to the Series E
Purchasers and the Series F Put Option granted to the Purchasers
hereunder shall be subordinate, in right of payment, to any repurchase
option granted to any holder of Preferred Stock issued after the Closing
of any issuance and sale of Series F Preferred, provided that such holder
of Preferred Stock shall be entitled to and requests similar rights as
provided for in this Section 7.4 and (i) the Series D Put Option will
continue to be subordinate to the Series F Put Option and the Series E
Put Option, and (ii) the Series E Put Option will continue to be
subordinate to the Series F Put Option, each as set forth herein.
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7.5 RESERVE FOR SHARES OF COMMON STOCK. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, for the purpose of effecting the conversion of the Series A
Preferred, Series B Preferred, Series D Preferred, Series E Preferred and Series
F Preferred and the exercise of the Warrants and otherwise complying with the
terms of this Agreement, such number of its duly authorized shares of Common
Stock as shall be sufficient to effect the conversion of the Series A Preferred,
Series B Preferred, Series D Preferred, Series E Preferred and the Series F
Preferred from time to time outstanding or issuable upon exercise of the
Warrants or otherwise to comply with the terms of this Agreement. If at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of the Series A Preferred, Series B
Preferred, Series D Preferred, Series E Preferred, the Series F Preferred and
the exercise of the Warrants or otherwise to comply with the terms of this
Agreement, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes. The Company will
obtain any authorization, consent, approval or other action by or make any
filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon conversion of the Series A Preferred, Series B Preferred,
Series D Preferred, Series E Preferred and the Series F Preferred or exercise of
the Warrants.
7.6 CORPORATE EXISTENCE. The Company shall maintain its
corporate existence, rights and franchises in full force and effect.
7.7 BY-LAWS. The Company shall at all times maintain provisions
in its By-laws or Amended and Restated Certificate of Incorporation indemnifying
all directors against liability to the maximum extent permitted under the laws
of the State of Delaware.
7.8 ADDITIONAL COVENANT. So long as any shares of Series A
Preferred, Series B Preferred, Series D Preferred, Series E Preferred or Series
F Preferred, are outstanding, the Company agrees that it will keep true records
and books of account in which full, true and correct entries will be made of all
dealings or transactions in relation to its business and affairs in accordance,
to the extent applicable, with generally accepted accounting principles applied
on a consistent basis.
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7.9 DIRECTORS EXPENSES. The Company shall promptly reimburse
any director of the Company for his reasonable out-of-pocket expenses incurred
in attending each meeting of the Board of Directors of the Company.
7.10 KEY MAN INSURANCE. The Company shall use its best efforts
to maintain a life insurance policy with a financially sound and reputable
insurance company on the life of Emmett Clemente in the face value of
$1,000,000, naming the Company as owner and beneficiary thereof. The Company
shall use its best efforts to maintain such policy, will not cause or permit any
assignment of the proceeds of such policy and will not borrow against such
policy.
7.11 TERMINATION OF CERTAIN COVENANTS. All rights granted to
Stockholders under this Section 7, except the rights granted under Section 7.5,
shall terminate upon the consummation of an underwritten public offering of
Common Stock of the Company pursuant to a registration statement filed with the
Commission, (as defined in Section 8.1) under the Securities Act covering the
offer and sale of Common Stock to the public in which (A) gross proceeds from
such sale to the Company (before deduction of underwriting discounts and
expenses of sale) are not less than $10,000,000 and (B) the sale price to the
public per share is at least equal to 100% of the Series E Conversion Price (as
defined in the Amended and Restated Certificate of the Company).
8. Registration Rights.
-------------------
8.1 CERTAIN DEFINITIONS. As used in this Section 8 and
elsewhere in this Agreement, the following terms shall have the following
respective meanings:
"COMMISSION" means the Securities and Exchange Commission,
or any other Federal agency at the time administering the Securities Act.
"EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended, or any similar Federal statute, and the rules and regulations
of the Commission issued under such Act, as they each may, from time to
time, be in effect.
"REGISTRATION STATEMENT" means a registration statement
filed by the Company with the Commission for a public offering and sale
of securities of the Company (other than a registration statement on Form
S-8 or Form S-4, or their successors, or any other form for a limited
purpose,
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or any registration statement covering only securities proposed to be
issued in exchange for securities or assets of another corporation).
"REGISTRATION EXPENSES" means the expenses described in
Section 8.6.
"REGISTRABLE SHARES" means (i) the shares of Common Stock
issued or issuable upon conversion of the Series A Preferred held by a
Stockholder, (ii) the shares of Common Stock issued or issuable upon the
conversion of the Series B Preferred held by a Stockholder, (iii) the
shares of Common Stock issued or issuable upon conversion of the Series D
Preferred held by a Stockholder, (iv) the shares of Common Stock issued
or issuable upon conversion of the Series E Preferred held by a
stockholder, (v) the shares of Common Stock issued or issuable upon
conversion of the Series F Preferred, (vi) the shares of Common Stock
issued or issuable upon the purchase of shares of Common Stock pursuant
to Section 7.3 or the conversion or exercise of any securities purchased
by a Stockholder pursuant to Section 7.3, (vii) the shares of Common
Stock issued or issuable upon the exercise of the Warrants held by a
Stockholder, and (viii) any other shares of Common Stock of the Company
issued in respect of such shares (because of stock splits, stock
dividends, reclassifications, recapitalizations, or similar events);
PROVIDED, HOWEVER, that shares of Common Stock which are Registrable
Shares shall cease to be Registrable Shares upon any sale pursuant to a
Registration Statement, Section 4(1) of the Securities Act or Rule 144
under the Securities Act, or any sale in any manner to a person or entity
which, by virtue of Section 9 of this Agreement is not entitled to the
rights provided by this Section 8. Wherever reference is made in this
Agreement to a request or consent of holders of a certain percentage of
Registrable Shares or certain Registrable Shares, or a certain number of
Registrable Shares or certain Registrable Shares, the determination of
such percentage or number shall include shares of Common Stock issuable
upon conversion of the Series A Preferred, Series B Preferred, Series D
Preferred, Series E Preferred and/or Series F Preferred, as the case may
be.
"SECURITIES ACT" means the Securities Act of 1933, as
amended, or any similar Federal statute, and the rules and regulations of
the Commission issued under such Act, as they each may, from time to
time, be in effect.
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8.2 Sale or Transfer of Shares and Registrable Shares; Legend.
---------------------------------------------------------
(a) The Shares, the shares of Series A Preferred held by
a Stockholder (the "Series A Shares"), the shares of Series B Preferred
held by a Stockholder (the "Series B Shares"), the shares of Series D
Preferred held by a Stockholder (the "Series D Shares"), the shares of
Series E Preferred held by a Stockholder (the Series E Shares"), the
Registrable Shares and shares issued in respect of the Shares, the Series
A Shares, the Series B Shares, the Series D Shares, the Series E Shares
and the Registrable Shares shall not be sold or transferred unless either
(i) they first shall have been registered under the Securities Act, or
(ii) the Company first shall have been furnished with an opinion of legal
counsel, reasonably satisfactory to the Company (which opinion may be
rendered by (x) staff counsel to the holder of the Shares or (y) a law
firm designated by the holder as its special counsel), to the effect that
such sale or transfer is exempt from the registration requirements of the
Securities Act.
(b) Notwithstanding the foregoing, no registration or
opinion of counsel shall be required for (i) a transfer by a Stockholder
which is a partnership to a partner of such partnership or a retired
partner of such partnership who retires after the date hereof, or to the
estate of any such partner or retired partner, or a transfer by a
Stockholder which is a corporation to a shareholder of the corporation or
a transfer by an entity to an affiliated entity, in each case, if the
transferee agrees in writing to be subject to the terms of this Section
8.2 to the same extent as if he or it were a party hereto and makes a
representation in writing that the transfer is exempt from registration
under the Securities Act, or (ii) a transfer made in accordance with Rule
144 under the Securities Act.
(c) Each certificate representing the Shares, the Series
A Shares, the Series B Shares, the Series D Shares, the Series E Shares,
the Registrable Shares and shares issued in respect of the Shares, the
Series A Shares, the Series B Shares, the Series D Shares, the Series E
Shares and the Registrable Shares shall bear a legend substantially in
the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as
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<PAGE> 42
amended, and may not be offered, sold or otherwise transferred,
pledged or hypothecated unless and until such shares are
registered under such Act or an opinion of counsel satisfactory to
the Company (which opinion may be rendered by (x) staff counsel to
the holder of the Shares or (y) a law firm designated by the
holder as its special counsel) is obtained to the effect that such
registration is not required."
The foregoing legend shall be removed from the certificates representing
any of such shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144(k) under the
Securities Act or registered under the Securities Act.
(d) The Company agrees, upon the request of any
Purchaser, to make available to such Purchaser and to any prospective
transferee of any Shares or Registrable Shares of such Purchaser the
information concerning the Company described in Rule 144A(d)(4) under the
Securities Act.
8.3 Required Registrations.
----------------------
(a) At any time after the earlier of December 31, 1998
or the closing of the Company's first underwritten public offering of
shares of Common Stock pursuant to a Registration Statement, a
Stockholder or Stockholders holding in the aggregate at least 35% of the
Registrable Shares may request, in writing, that the Company effect the
registration on Form S-1 or Form S-2 (or any successor form) of
Registrable Shares owned by such Stockholder or Stockholders having an
aggregate offering price of at least $2,000,000 (based on the then
current market price or fair value), provided that, to the extent the
Company is eligible to effect a registration or qualification on Form S-3
(or any successor Form), the Company shall be entitled to use such Form
S-3 in lieu of Form S-1 or S-2. If the holders initiating the
registration intend to distribute the Registrable Shares by means of an
underwriting, they shall so advise the Company in their request. In the
event such registration is underwritten, the holders of a majority of the
Registrable Shares to be sold in such offering may designate the managing
underwriter of such offering, such managing underwriter to be reasonably
acceptable to the Company. In the event such registration is
underwritten, the right of other Stockholders to participate shall be
conditioned on such Stockholders' participation in such
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underwriting. Upon receipt of any such request, the Company shall
promptly give written notice of such proposed registration to all
Stockholders. Such Stockholders shall have the right, by giving written
notice to the Company within 30 days after the Company provides its
notice, to elect to have included in such registration such of their
Registrable Shares as such Stockholders may request in such notice of
election, subject to the approval of the underwriter managing the
offering as provided below. Thereupon, the Company shall, as
expeditiously as possible, use its best efforts to effect the
registration on Form S-1 or Form S-2 (or any successor form), or Form S-3
(or any successor form) to the extent the Company is eligible to effect a
registration or qualification on such Form S-3 and so elects, of all
Registrable Shares which the Company has been requested to so register.
(b) At any time after the Company becomes eligible to
file a Registration Statement on Form S-3 (or any successor form relating
to secondary offerings), a Stockholder or Stockholders holding in the
aggregate at least 35% of the Registrable Shares may request the Company,
in writing, to effect the registration on Form S-3 (or such successor
form), of Registrable Shares having an aggregate offering price of at
least $500,000 (based on the current public market price). Upon receipt
of any such request, the Company shall promptly give written notice of
such proposed registration to all Stockholders. Such Stockholders shall
have the right, by giving written notice to the Company within 30 days
after the Company provides its notice, to elect to have included in such
registration such of their Registrable Shares as such Stockholders may
request in such notice of election. Thereupon, the Company shall, as
expeditiously as possible, use its best efforts to effect the
registration on Form S- 3, or such successor form, of all Registrable
Shares which the Company has been requested to register.
(c) The Company shall not be required to effect more
than two registrations pursuant to paragraph (a) above or more than four
registrations pursuant to paragraph (b) above, PROVIDED, HOWEVER, that
the Company's obligations shall be deemed satisfied only when a
Registration Statement covering all shares of Registrable Shares
specified in notices received as aforesaid (or such lower number of
shares as the managing underwriter shall require under paragraph (e)),
for sale in accordance with the method of disposition
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specified by the requesting holders, shall have become effective and, if
such method of disposition is a firm commitment underwritten public
offering, all such shares shall have been sold pursuant thereto (other
than shares provided for in over-allotment option(s)). In addition, the
Company shall not be required to effect any registration (other than as
to a public offering that is not underwritten on Form S-3 or any
successor Form) within six months after the effective date of any other
Registration Statement of the Company.
(d) If at the time of any request to register
Registrable Shares pursuant to this Section 8.3, the Company is engaged
or has fixed plans to engage within 30 days of the time of the request in
a registered public offering as to which the Stockholders may include
Registrable Shares pursuant to Section 8.4, subject to the limitations
set forth therein, or is engaged in any other activity which, in the good
faith determination of the Company's Board of Directors, would be
adversely affected by the requested registration to the material
detriment of the Company, then the Company may at its option direct that
such request be delayed for a period not in excess of six months from the
effective date of such offering or the date of commencement of such other
material activity, as the case may be, such right to delay a request to
be exercised by the Company not more than once in any two-year period.
(e) Notwithstanding any other provision of this Section
8.3, if the managing underwriter advises the holders of Registrable
Shares initiating the registration in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
holders of Registrable Shares initiating the registration shall so advise
all holders of Registrable Shares which would otherwise be included in
the underwriting and the number of Registrable Shares that may be
included in the underwriting shall be allocated among all such holders of
Registrable Shares, including the holders of Registrable Shares
initiating the registration, in proportion (as nearly as practicable) to
the amount of Registrable Shares of the Company owned by each such
holder. If the managing underwriter does not limit the number of
Registrable Shares to be underwritten, the Company or other holders of
securities of the Company who have registration rights similar to those
set forth in Section 8.3 hereof may include Common Stock for their
respective accounts in such registration if the managing underwriter
states that
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<PAGE> 45
such inclusion would not adversely affect the offering of Registrable
Shares and if the number of Registrable Shares which would otherwise have
been included in such registration and underwriting will not thereby be
limited or reduced.
Except as set forth in Section 8.3(d) above and except for Registration
Statements on Form S-4 or Form S-8 or any successor thereto, the Company
will not file with the Commission any other Registration Statement with
respect to its Common Stock, whether for its own account or that of other
stockholders, from the date of receipt of a notice from requesting
holders pursuant to this Section 8.3 until the completion of the period
of distribution of the registration contemplated thereby; PROVIDED,
HOWEVER, that this limitation shall apply only to the two registrations
pursuant to Section 8.3(a) above.
8.4 Incidental Registration.
-----------------------
(a) Whenever the Company proposes to file a Registration
Statement (other than pursuant to Section 8.3) at any time and from time
to time, it will, prior to such filing, give written notice to all
Stockholders of its intention to do so and, upon the written request of a
Stockholder or Stockholders given within 20 days after the Company
provides such notice (which request shall state the intended method of
disposition of such Registrable Shares), the Company shall use its best
efforts to cause all Registrable Shares which the Company has been
requested by such Stockholder or Stockholders to register to be
registered under the Securities Act to the extent necessary to permit
their sale or other disposition in accordance with the intended methods
of distribution specified in the request of such Stockholder or
Stockholders; provided that the Company shall have the right to postpone
or withdraw any registration effected pursuant to this Section 8.4
without obligation to any Stockholder.
(b) In connection with any offering under this Section
8.4 involving an underwriting, the Company shall not be required to
include any Registrable Shares in such underwriting unless the holders
thereof accept the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it, and then only in such
quantity as will not, in the opinion of the underwriters, jeopardize the
success of the offering by the Company. If in the opinion of the managing
underwriter the registration of all,
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or part of, the Registrable Shares which the holders have requested to be
included would materially and adversely affect such public offering, then
the Company shall be required to include in the underwriting only that
number of Registrable Shares, if any, which the managing underwriter
believes may be sold without causing such adverse effect. If the number
of Registrable Shares to be included in the underwriting in accordance
with the foregoing is less than the total number of shares which the
holders of Registrable Shares have requested to be included, then the
holders of Registrable Shares who have requested registration and other
holders of shares of Common Stock entitled to include shares of Common
Stock in such registration shall participate in the underwriting pro rata
based upon their total ownership of shares of Common Stock of the Company
on an as if-converted basis. If any holder would thus be entitled to
include more shares than such holder requested to be registered, the
excess shall be allocated among other requesting holders pro rata based
upon their total ownership of Registrable Shares.
8.5 REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions of this Agreement to use its best efforts to effect
the registration of any of the Registrable Shares under the Securities Act, the
Company shall:
(a) file with the Commission a Registration Statement
with respect to such Registrable Shares and use its best efforts to cause
that Registration Statement to become and remain effective for 120 days;
(b) as expeditiously as possible prepare and file with
the Commission any amendments and supplements to the Registration
Statement and the prospectus included in the Registration Statement as
may be necessary to keep the Registration Statement effective for a
period of not less than 120 days from the effective date and comply with
the provisions of the Securities Act applicable to the Company with
respect to the disposition of all Registrable Shares covered by such
Registration Statement in accordance with the sellers' intended method of
disposition set forth in such Registration Statement for such period;
(c) as expeditiously as possible furnish to each selling
Stockholder such reasonable numbers of copies of the Registration
Statement and the prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other
documents as the
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selling Stockholder may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Shares owned by the
selling Stockholder; and
(d) as expeditiously as possible use its best efforts to
register or qualify the Registrable Shares covered by the Registration
Statement under the securities or Blue Sky laws of such states as the
selling Stockholders shall reasonably request, and do any and all other
acts and things that may be necessary or desirable to enable the selling
Stockholders to consummate the public sale or other disposition in such
states of the Registrable Shares owned by the selling Stockholder;
PROVIDED, HOWEVER, that the Company shall not be required in connection
with this paragraph (d) to qualify as a foreign corporation or execute a
general consent to service of process in any jurisdiction.
(e) immediately notify each seller of Registrable Shares
and each underwriter under such Registration Statement, at any time when
a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event of which the Company has
knowledge as a result of which the prospectus contained in such
Registration Statement as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;
(f) if the offering is underwritten and at the request
of any seller of Registrable Shares, use its best efforts to furnish on
the date that Registrable Shares are delivered to the underwriters for
sale pursuant to such registration: (i) an opinion dated such date of
counsel representing the Company for the purposes of such registration,
addressed to the underwriters and to such seller, stating that such
Registration Statement has become effective under the Securities Act and
that (A) to the best knowledge of such counsel, no stop order suspending
the effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the
Securities Act, (B) the Registration Statement, the related prospectus
and each amendment or supplement thereof comply as to form in all
material respects with the requirements of the Securities Act (except
that such counsel need not express any opinion as to financial statements
or schedules or other financial or statistical
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data contained therein) and (C) to such other effects as reasonably may
be requested by counsel for the underwriters or by such seller or its
counsel and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters and to
such seller, stating that they are independent public accountants within
the meaning of the Securities Act and that, in the opinion of such
accountants, the financial statements of the Company included in the
Registration Statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as
to the period ending no more than five business days prior to the date of
such letter) with respect to such registration as such underwriters
reasonably may request; and
(g) make available for inspection by each seller of
Registrable Shares, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably
requested by any such seller, in connection with such Registration
Statement.
If the Company has delivered preliminary or final prospectuses to the
selling Stockholders and after having done so the prospectus is amended
to comply with the requirements of the Securities Act, the Company shall
immediately notify the selling Stockholders and, if requested, the
selling Stockholders shall immediately cease making offers of Registrable
Shares and return all prospectuses to the Company. The Company shall
promptly provide the selling Stockholders with revised prospectuses and,
following receipt of the revised prospectuses, the selling Stockholders
shall be free to resume making offers of the Registrable Shares. The
Company shall be obligated to keep the Registration Statement effective
for a period of additional days equal to the number of days during which
the Stockholders were required to cease making offers pursuant to this
paragraph.
8.6 ALLOCATION OF EXPENSES. The Company will pay all
Registration Expenses of all registrations under this Agreement; PROVIDED,
HOWEVER, that if a registration is withdrawn at the request of the Stockholders
requesting such registration (other than as a result of information concerning
the business or financial condition of the Company which is made known to the
Stockholders after the date on which such registration was
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requested) and if the requesting Stockholders elect not to have such
registration counted as a registration requested under Section 8.3, the
requesting Stockholders shall pay the Registration Expenses of such registration
pro rata in accordance with the number of their Registrable Shares included in
such registration. For purposes of this Section, the term "Registration
Expenses" shall mean all expenses incurred by the Company in complying with
Sections 8.3, 8.4 and 8.5 of this Agreement including, without limitation, all
registration and filing fees, exchange listing fees, printing expenses, fees and
disbursements of counsel for the Company and the fees and expenses of one
counsel selected by the selling Stockholders to represent the selling
Stockholders, state Blue Sky fees and expenses, and the expense of any special
audits incident to or required by any such registration, but excluding
underwriting discounts, selling commissions and the fees and expenses of selling
Stockholders' own counsel (other than the counsel selected to represent all
selling Stockholders).
8.7 INDEMNIFICATION. In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company will indemnify and hold harmless the seller of such Registrable Shares,
each underwriter of such Registrable Shares, each officer and director of such
seller and underwriter, and each other person, if any, who controls such seller
or underwriter within the meaning of the Securities Act or the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to which
such seller, underwriter, officer or director or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or arise out of or are based upon any
violation or alleged violation by the Company of the Securities Act or Exchange
Act or any state securities laws or any regulation promulgated under any of
them; and the Company will reimburse such seller, underwriter, each officer and
director and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter, officer, director or
controlling person
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in connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such seller,
underwriter or controlling person specifically for use in the preparation
thereof.
In the event of any registration of any of the Registrable Shares under
the Securities Act pursuant to this Agreement, each seller of Registrable
Shares, severally and not jointly, will indemnify and hold harmless the Company,
each of its directors and officers and each underwriter (if any), each other
seller of Registrable Shares and each person, if any, who controls the Company
or any such underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages or liabilities, joint or several, to
which the Company, such directors and officers, underwriter, other seller of
Registrable Shares or controlling person may become subject under the Securities
Act, Exchange Act, state securities or Blue Sky laws or otherwise, to the extent
that such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement under which such
Registrable Shares were registered under the Securities Act, any preliminary
prospectus or final prospectus contained in the Registration Statement, or any
amendment or supplement to the Registration Statement, or arise out of or are
based upon any omission or alleged omission to state a material fact required to
be stated therein or necessary to make the statements therein not misleading, if
the statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of such seller,
specifically for use in connection with the preparation of such Registration
Statement, prospectus, amendment or supplement; PROVIDED, HOWEVER, that the
obligations of such Stockholder hereunder shall be limited to an amount equal to
the proceeds received by such seller from the sale of Registrable Shares covered
by such Registration Statement and sold as contemplated therein; and further
PROVIDED, HOWEVER, that in the event of an underwritten offering of capital
stock of the Company initiated by the Company in which Stockholders sell
Registrable Shares pursuant to Section 8.4, the foregoing indemnity agreement is
subject to the condition that, insofar that it relates to any such untrue
statement (or alleged untrue
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statement) or omission (or alleged omission) made in the preliminary prospectus
but remedied in the amended prospectus on file with the Commission at the time
the Registration Statement becomes effective or in the final prospectus, such
indemnity agreement shall not inure to the benefit of (i) the Company and (ii)
any seller of Registrable Shares, if there is no underwriter, if copy of the
final prospectus was not furnished to the person or entity asserting the loss,
claim, damage or liability at or prior to the time such furnishing is required
by the Securities Act.
Each party entitled to indemnification under this Section 8.7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld) and PROVIDED FURTHER that an omission so to notify the Indemnifying
Party shall not relieve it from any liability which it may have to such
Indemnified Party other than under this Section 8.7 and shall only relieve it
from any liability which it may have to such Indemnified Party under Section 8.7
if and to the extent the Indemnifying Party is prejudiced by such omission. The
Indemnified Party may participate in such defense at such party's expense;
PROVIDED, HOWEVER, that the Indemnifying Party shall pay such expense if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party, in the defense of any such
claim or litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect of such
claim or litigation, and no Indemnified Party shall consent to entry of any
judgment or settle such claim or litigation without the prior written consent of
the Indemnifying Party.
In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Shares exercising rights under this Agreement, or any officer or
director of any holder or any controlling person of any such holder, makes a
claim for
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indemnification pursuant to this Section 8.7 but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 8.7 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such
selling holder or any such controlling person in circumstances for which
indemnification is provided under this Section 8.7; then, and in each such case,
the Company and such holder will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion so that such holder is responsible for the portion
represented by the percentage that the public offering price of its Registrable
Shares offered by the Registration Statement bears to the public offering price
of all securities offered by such Registration Statement, and the Company is
responsible for the remaining portion; PROVIDED, HOWEVER, that, in any such
case, (A) no such holder will be required to contribute any amount in excess of
the proceeds to it of all Registrable Shares sold by it pursuant to such
Registration Statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
8.8 INDEMNIFICATION WITH RESPECT TO UNDERWRITTEN OFFERING. In
the event that Registrable Shares are sold pursuant to a Registration Statement
in an underwritten offering pursuant to Section 8.3(a), the Company agrees to
enter into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of an issuer of the
securities being registered and customary covenants and agreements to be
performed by such issuer, including without limitation customary provisions with
respect to indemnification by the Company of the underwriters of such offering.
8.9 INFORMATION BY HOLDER. Each holder of Registrable Shares
included in any registration shall furnish to the Company such information
regarding such holder and the distribution proposed by such holder as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this
Section 8.
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8.10 "STAND-OFF" AGREEMENT. Each Stockholder, if requested by
the Company and an underwriter of Common Stock or other securities of the
Company, shall agree not to sell or otherwise transfer or dispose of any
Registrable Shares or other securities of the Company held by such Stockholder
for a specified period of time (not to exceed 90 days) following the effective
date of a Registration Statement; PROVIDED, that such agreement shall only apply
to the first such Registration Statement covering Common Stock of the Company to
be sold on its behalf to the public in an underwritten offering. Such agreement
shall be in writing in a form satisfactory to the Company and such underwriter.
The Company may impose stop-transfer instructions with respect to the
Registrable Shares or other securities subject to the foregoing restriction
until the end of the stand-off period.
8.11 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. The Company
shall not, without the prior written consent of Stockholders holding at least a
majority of the Registrable Shares, enter into any agreement (other than this
Agreement) with any holder or prospective holder of any securities of the
Company which would allow such holder or prospective holder (a) to include
securities of the Company in any registration filed under Sections 8.3 or 8.4,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only on terms no more favorable
than the terms on which holders of Registrable Shares may include shares in such
registration, or (b) to make a demand registration which could result in such
registration statement being declared effective prior to December 31, 1998;
PROVIDED, HOWEVER, that the Company shall not enter into any agreement with such
holder or prospective holder that would give such holder or prospective holder
registration rights with respect to securities of the Company other than
shares of Common Stock issued by the Company or issued or issuable upon
conversion of convertible securities or exercise of warrants to purchase capital
stock of the Company.
8.12 RULE 144 REQUIREMENTS. After the earliest of (i) the
closing of the sale of securities of the Company pursuant to a Registration
Statement, (ii) the registration by the Company of a class of securities under
Section 12 of the Exchange Act, or (iii) the issuance by the Company of an
offering circular pursuant to Regulation A under the Securities Act, the Company
agrees to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act:
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(b) use its best efforts to file with the Commission in
a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act (at any time after it has become subject
to such reporting requirements); and
(c) furnish to any holder of Registrable Shares upon
request a written statement by the Company as to its compliance with the
reporting requirements of said Rule 144 (at any time after 90 days following the
closing of the first sale of securities by the Company pursuant to a
Registration Statement), and of the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), a copy of the
most recent annual or quarterly report of the Company, and such other reports
and documents of the Company as such holder may reasonably request to avail
itself of any similar rule or regulation of the Commission allowing it to sell
any such securities without registration.
9. Transfers of Certain Rights.
---------------------------
(a) The rights granted to each Stockholder pursuant to
Sections 7.2, 7.3, 7.4 and 8 of this Agreement may be transferred by such
Stockholder to another Stockholder, to any affiliate of such Stockholder or to
any person or entity acquiring (i) in the case of the rights granted pursuant to
Section 7.4 hereof, at least an aggregate of ten thousand (10,000) shares of
Series D Preferred and/or Series E Preferred or (ii) in the case of the rights
granted pursuant to Sections 7.2, 7.3 and 8 hereof, at least ten thousand
(10,000) Registrable Shares, in each case, such number being subject to
adjustment for any stock dividend, stock split, subdivision, combination or
other recapitalization of the Common Stock of the Company; PROVIDED, HOWEVER,
that a person or entity (other than an affiliate of such stockholder) acquiring
shares from a Major Stockholder shall not be entitled to the rights hereunder
reserved for Major Stockholders hereunder unless such person or entity is a
"Major Stockholder" as defined in Section 7.2(d); and provided that the Company
is given written notice by
the transferee at the time of such transfer stating the name and address of the
transferee and identifying the securities with respect to which such rights are
being assigned.
(b) TRANSFEREES. Any transferee (other than a
Stockholder) to whom rights hereunder are transferred shall, as a condition to
such transfer, deliver to the Company a written instrument by which such
transferee agrees to be bound by the
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obligations imposed upon Stockholders under this Agreement to the same extent as
if such transferee were a party hereto.
(c) SUBSEQUENT TRANSFEREES. A transferee to whom rights
are transferred pursuant to this Section 9 may not again transfer such rights to
any other person or entity, other than as provided in (a) or (b) above.
(d) PARTNERS AND STOCKHOLDERS. Notwithstanding anything
to the contrary herein, any Stockholder which is a partnership or corporation
may transfer rights granted to such Stockholder hereunder to any partner or
stockholder thereof to whom Registrable Shares are transferred pursuant to
Section 8.2 hereof and who delivers to the Company a written instrument in
accordance with subparagraph (b) above and containing the representation that
the transfer is exempt from registration under the Securities Act. In the event
of such transfer, such partner or stockholder shall be deemed a Stockholder for
purposes of this Section 9 and may again transfer such rights to any other
person or entity which acquires Registrable Shares from such partner or
stockholder, in accordance with, and subject to, the provisions of this
Section 9.
10. CONFIDENTIALITY. Each Stockholder agrees that, except as required
by law, he or it will keep confidential and will not disclose or divulge any
confidential, proprietary or secret information which such Stockholder may
obtain from the Company pursuant to financial statements, reports and other
materials submitted by the Company to such Stockholder pursuant to this
Agreement, or pursuant to visitation or inspection rights granted hereunder,
unless such information is known, or until such information becomes known, to
the public, PROVIDED, HOWEVER, that a Stockholder may disclose such information
(i) to its attorneys, (ii) to any prospective purchaser of any shares of Series
A Preferred, Series B Preferred, Series D Preferred, Series E Preferred or
Series F Preferred from such Stockholder as long as such prospective purchaser
agrees in writing to be bound by the provisions of this Section, (iii) to its
accountants, consultants and other professionals to the extent necessary to
obtain their services in connection with its investment in the Company, (iv) to
any affiliate of such Stockholder or to a partner, shareholder or subsidiary of
such Stockholder having a legitimate need to know the same, so long as such
party or parties agree in writing to be bound by the provisions of this Section
10, or (v) except as required by law or the rules and regulations of the
National Association of Insurance Commissioners or other similar regulatory
agencies or bodies.
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11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All agreements,
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the closing of the transactions contemplated
hereby.
12. NOTICES. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be (i) delivered by hand,
(ii) mailed by first class certified or registered mail, return receipt
requested, postage prepaid or (iii) transmitted by telecopy with a hard copy
mailed by first class certified or registered mail as aforesaid:
If to the Company, at 9 Linnell Circle, Billerica, Massachusetts 01821,
telecopy number (508) 667-5322, Attention: President, or at such other address
or addresses as may have been last furnished in writing by the Company to the
Purchasers, with a copy to David E. Redlick, Esq., Hale and Dorr, 60 State
Street, Boston, Massachusetts 02109, telecopy number (617) 526-5000; or
If to a Purchaser, at his or its address set forth on EXHIBIT A, or at
such other address or addresses as may have been last furnished to the Company
in writing by such Purchaser.
If to a Stockholder other than a Purchaser, at his or its address as it
appears on the stock record books of the Company, or at such other address or
addresses as may have been furnished to the Company in writing by such
Stockholder.
Notices provided in accordance with this Section 12 shall be deemed
delivered upon personal delivery or (i) in the case of notices provided within
the continental United States, 48 hours after deposit in the mail, (ii) in the
case of notices provided between the United States and Europe or the Middle
East, ten (10) days after deposit in the mail and (iii) in the case of notices
provided by telecopy, upon completion of transmission to the addressee's
telecopier.
13. BROKERS. The Company and each Purchaser represents and warrants to
the other parties hereto that he or it has retained no finder or broker in
connection with the transactions contemplated by this Agreement (except that the
Company has retained Chestnut Partners for which the Company shall pay all fees
associated with such engagement).
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14. NO ASSIGNMENT. Except as provided in Section 9 hereof, the
provisions of this Agreement shall be binding upon, and inure to the benefit of,
the respective successors, assigns, heirs, executors and administrators of the
parties hereto.
15. Effect of Agreement.
-------------------
15.1 ENTIRE AGREEMENT. This Agreement, including the Exhibits
hereto, embodies the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings relating to such subject matter.
15.2 Effect on Prior Agreements.
--------------------------
(a) By their execution and delivery of this Agreement,
(i) the holders of Series A Preferred, Series B Preferred, Series D Preferred,
Series E Preferred and the Warrants (excluding the Series F Common Warrants)
waive with respect to the offer, issuance and sale of the Shares, the shares of
Common Stock issuable upon conversion of Series F Preferred, the Series F Common
Warrants and the shares of Common Stock issuable upon exercise of the Series F
Common Warrants, any rights of first refusal that they may possess pursuant to
Section 7.3 of the Series E Purchase Agreement, and (ii) the Company, the
holders of Series A Preferred, Series B Preferred, Series D Preferred, Series E
Preferred and Warrants who have rights pursuant to Sections 7, 8 and 10 of the
Series E Purchase Agreement agree that, effective on the date of the Closing,
the provisions of Sections 7, 8 and 10 of the Series E Purchase Agreement shall
terminate and be of no further force and effect, except with respect to any
claims under the Series E Purchase Agreement arising prior to the Closing and
except as the definitions of terms contained therein may be necessary for the
interpretation of the other surviving provisions of the Series E Purchase
Agreement.
(b) By their execution and delivery of this Agreement,
the holders of Series A Preferred, Series B Preferred Series D Preferred, Series
E Preferred and/or Warrants (excluding the Series E Common Warrants), the
Purchasers and the Company agree that, effective on the date of the Closing, the
holders of Series A Preferred, Series B Preferred, Series D Preferred, Series E
Preferred and Warrants are Stockholders (as defined in this Agreement) and are
entitled to the benefits of Stockholders under Sections 7 (except for Section
7.4 with respect to the holders of Series
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A Preferred, Series B Preferred and/or the Warrants), 8, and 10 (and the
provisions of Sections 9, 14, 15, 16, 18, 20 and 22 of this Agreement to the
extent applicable to Sections 7, 8, and/or 10) and the shares of Series A
Preferred, Series B Preferred, Series D Preferred, Series E Preferred and the
Warrants are Registrable Shares (as defined in Section 8.1).
16. AMENDMENTS AND WAIVERS. Except as otherwise expressly set forth in
this Agreement, any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
the Company and the holders of at least a majority of the Shares; PROVIDED,
however, that:
(a) Subsequent Purchasers may be added as parties to
this Agreement pursuant to Section 1.3 hereof by execution and delivery by such
Subsequent Purchasers and the Company of appropriately completed signature pages
in the form of EXHIBIT D hereto;
(b) except as provided in clause (c) below, any
provision of Sections 7, 8, 9 and 10 hereof may only be amended (i) with the
written consent of the Company and the holders of at least a majority of the
shares of Preferred Stock then held by all Stockholders (voting together as a
single class), and (B) in a manner which affects all shares of Preferred Stock
in the same fashion, unless waived by the affected Stockholder; and
(c) Section 7.4 may be amended only with the written
consent of the Company and (A) in the case of an amendment affecting the rights
or obligations under Section 7.4 of the Series D Preferred, the holders of at
least a majority of the Series D Preferred, (B) in the case of an amendment
affecting the rights or obligations under Section 7.4 of the Series E Preferred,
the holders of at least a majority of the Series E Preferred and (C) in the case
of an amendment affecting the rights or obligations under Section 7.4 of the
Series F Preferred, the holders of at least a majority of the Series F
Preferred.
Any amendment or waiver effected in accordance with this Section 16 shall be
binding upon each holder of any shares of Series F Preferred and Series F Common
Warrants (including shares of Common Stock into which such shares have been
converted or issued upon exercise of such warrants), each future holder of all
such securities and the Company, and, in the case of such an
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amendment or waiver of Section 7, 8, 9 or 10, shall also be binding on each
current and future holder of Series A Preferred, Series B Preferred, Series D
Preferred, Series E Preferred and Warrants (including shares of Common Stock
into which such shares have been converted or issued upon exercise of such
warrants). No waivers of or exceptions to any term, condition or provision of
this Agreement, in any one or more instances shall be deemed to be, or construed
as, a further or continuing waiver of any such term, condition or provision.
17. EXPENSES. The Company shall reimburse the Purchasers for their
reasonable out-of-pocket expenses and for the reasonable fees and expenses of
one law firm acting as special counsel to all of the Purchasers in connection
with the preparation of this Agreement and the closing of the transactions
contemplated hereby (including fees and expenses).
18. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
19. HEADINGS. The headings of the sections, subsections, and
paragraphs of this Agreement have been added for convenience only and shall not
be deemed to be a part of this Agreement.
20. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision.
21. REGULATED FINANCIAL INSTITUTIONS COMPLIANCE OBLIGATIONS. Nothing
contained in this Agreement shall diminish the continuing obligations of any
financial institution to comply with applicable requirements of law that such
financial institution maintain responsibility for the disposition of, and
control over, its admitted assets, investments and property, including (without
limiting the generality of the foregoing) the provisions of Section 1411(b) of
the New York Insurance Law, as amended, and as hereinafter from time to time in
effect.
22. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts without regard
to its conflicts of laws principles.
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23. DEFINITIONS. The definitions of the capitalized terms used in this
Agreement are set forth in the following respective sections of this Agreement.
Defined Term Location in Agreement
- ------------ ---------------------
Additional Total Commitment Amounts 1.3
Agreement Introduction
Amended and Restated Certificate 1.1
Audited Financial Statements 3.8
Call Amount 1.4
Closing 2.1
Closing Date 2.1
Code 3.11
Commission 8.1
Common Stock 1.1
Company Introduction
Effective Series D Put Date 7.4(a)
Effective Series E Put Date 7.4(b)
Effective Series F Put Date 7.4(c)
Environmental Laws 3.19
Exchange Act 8.1
Financial Statements 3.8
First Closing 2.2
First Closing Funded Amount 1.2
First Purchaser Funded Amount Warrants 1.2(c)
First Purchaser Total Commitment Amount 1.2
First Purchaser Total Commitment Warrants 1.2(b)
First Purchasers Introduction
First Shares 1.2(a)
Follow-On Funded Amount 1.4(b)
Follow-On Funded Amount Warrants 1.4(b)
Follow-on Funding Closing 1.4
Follow-On Funding Commitment Percentage 1.4
Follow-On Funding Notice 2.4(a)
Follow-On Funding Shares 1.4(a)
Hazardous Substance 3.19
Indemnified Party 8.7
Indemnifying Party 8.7
Intellectual Property 3.13
Investment Percentage 1.5
New Securities 7.3(b)
Non-Priority Purchasers 1.5
Overseas Purchaser 4.5
Preferred Stock 3.2
Premises 3.19
Priority Election Notice 1.5
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Priority Purchasers 1.5
Purchasers Introduction
Registration Expenses 8.1
Registrable Shares 8.1
Registration Statement 8.1
Scientists 3.13
Second Amended and Restated Voting
Rights Agreement 5.8
Securities Act 8.1
Series A Preferred 3.2(i)
Series A Shares 8.2
Series B Preferred 3.2(ii)
Series B Shares 8.2
Series D Preferred 3.2(iii)
Series D Purchasers 7.4(a)
Series D Put Installment 7.4(d)
Series D Put Notice 7.4(a)
Series D Put Option 7.4(a)
Series D Put Price 7.4(a)
Series D Shares 8.2
Series D Warrants 3.2
Series E Preferred 3.2(iv)
Series E Purchase Agreement 5.12
Series E Purchasers 7.4(b)
Series E Put Installment 7.4(d)
Series E Put Notice 7.4(b)
Series E Put Option 7.4(b)
Series E Put Price 7.4(b)
Series E Shares 8.2
Series F Common Warrants 1.1
Series F Preferred 1.1
Series F Put Installment 7.4(d)
Series F Put Notice 7.4(c)
Series F Put Option 7.4(c)
Series F Put Price 7.4(c)
Series Put Holders 7.4(a)
Shares 1.6
StockholdersIntroduction
Subsequent Purchaser Acceptance Period 1.3
Subsequent Purchaser First Closing 1.3
Subsequent Purchaser First
Closing Funded Amount 1.3
Subsequent Purchaser First Shares 1.3(a)
Subsequent Purchaser Funded Amount Warrant 1.3(c)
Subsequent Purchaser Signature Page 1.3
Subsequent Purchaser Total Commitment Warr 1.3(b)
Subsequent Purchasers Introduction
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Unaudited Financial Statements 3.8
Warrants 3.2
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IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of
the day and year first above written.
ASCENT PHARMACEUTICALS, INC.
By: /s/ Emmett Clemente
----------------------------
Name: Emmett Clemente
Title: Chairman of the Board
[corporate seal]
Attest:
/s/ David E. Redlick
- -------------------------
FIRST PURCHASERS
ADAMS, HARKNESS & HILL, INC.
By: /s/ Harry E. Wells
----------------------------
Name: Harry E. Wells, III
Title: Managing Director
ATLAS VENTURE FUND II, L.P.
By: Atlas Venture Associates II, L.P.
By: /s/ Alan R. Ferguson
----------------------------
Name: Alan R. Ferguson
Title: General Partner
/s/ Raymond Baddour
--------------------------------
Raymond Baddour
MEDICAL SCIENCE PARTNERS, L.P.
By: /s/ Andre Lamotte
-----------------------------
Title:
--------------------------
63
<PAGE> 64
BENEFIT CAPITAL MANAGEMENT
CORPORATION, as investment manager
for The Prudential Insurance
Company of America (Separate
Account Number VCA-GA-5298)
By: /s/ Sue DeCarlo
----------------------------
Name: Sue DeCarlo
Title: Chief Financial Officer
ALTA V LIMITED PARTNERSHIP
By: Alta V Management Partners, L.P.
By: /s/ Terrance McGuire
---------------------------------
General Partner
CUSTOMS HOUSE PARTNERS
By: /s/ Eileen McCarthy
-------------------------------
General Partner
NEW YORK LIFE INSURANCE COMPANY
By: /s/ Richard Drake
----------------------------
Name: Richard Drake
Title: Vice President
EXISTING STOCKHOLDERS
AL-MIDANI INVESTMENT COMPANY
By:
----------------------------
Name:
Title:
64
<PAGE> 65
ALTA V LIMITED PARTNERSHIP
By: Alta V Management Partners L.P.
By: /s/ Terrance McGuire
----------------------------
Name: Terrance McGuire
Title: General Partner
ATLAS VENTURE FUND II, L.P.
By: Atlas Venture Associates II, L.P.
By: /s/ Alan R. Ferguson
-----------------------------
Name: Alan R. Ferguson
Title: General Partner
/s/ Raymond Baddour
---------------------------------
Raymond Baddour
BENEFIT CAPITAL MANAGEMENT
CORPORATION, as investment manager
for The Prudential Insurance
Company of America (Separate
Account Number VCA-GA-5298)
By: /s/ Sue DeCarlo
------------------------------
Name: Sue DeCarlo
Title: Chief Financial Officer
CUSTOMS HOUSE PARTNERS
By: /s/ Eileen McCarthy
------------------------------
General Partner
65
<PAGE> 66
BIOCELL B.V.
By:
----------------------------
Name:
Title:
----------------------------
Richard J. Bradley
CHILD HEALTH INVESTMENT CORP.
By:
----------------------------
Name:
Title:
CUSTOM HOUSE PARTNERS
By:
----------------------------
Name:
Title:
EUROPAR
By: /s/ Jeanne Francois Court
----------------------------
Name: J. F. Court
Title: Chairman
FOUNDATION THOMAS FEARNLEY
By:
----------------------------
Name:
Title:
66
<PAGE> 67
FUJIGIAN CAPITAL COMPANY
By:
----------------------------
Name:
Title:
HOEGH INVEST A/S
By:
----------------------------
Name:
Title:
JAHLEEL CORPORATION
By:
----------------------------
Name:
Title:
K/S NORDIC HEALTH CARE PARTNERS
By: /s/ Fredrik C. Schreuder
----------------------------
Name: Fredrik C. Schreuder
Title: Managing Partner
--------------------------------
Roderick McCleod
MEDICAL SCIENCE PARTNERS, L.P.
By: /s/ Andre Lamotte
----------------------------
Name:
Title:
67
<PAGE> 68
MEDICAL SCIENCE PARTNERS II, L.P.
By: /s/ Andre Lamotte
----------------------------
Name:
Title:
--------------------------------
Georges Muller
--------------------------------
Riyad Ali Murtada
NEW YORK LIFE INSURANCE COMPANY
By: /s/ Richard Drake
----------------------------
Name: Richard Drake
Title: Vice President
--------------------------------
Mohamad Khaled Omari
--------------------------------
Martin Pestalozzi
SA PILLAR INVESTMENT N.V.
By:
-----------------------------
Name:
Title:
--------------------------------
Salah Salhab
68
<PAGE> 69
SAWARY LIMITED
By:
----------------------------
Name:
Title:
SEIF FOUNDATION-LEICHTENSTEIN
By:
----------------------------
Name:
Title:
SOLTER CORPORATION
By:
----------------------------
Name:
Title:
VENTURES MEDICAL II, L.P.
By: Ventures Medical Associates
By:
----------------------------
Name:
Title:
69
<PAGE> 70
Exhibit B
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ASCENT PHARMACEUTICALS, INC.
ASCENT PHARMACEUTICALS, INC. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"), does hereby certify as follows:
By resolution of the Board of Directors of the Corporation duly adopted
at a meeting of the Board of Directors of the Corporation, a resolution was duly
adopted, pursuant to Section 245 of the DGCL, setting forth an Amended and
Restated Certificate of Incorporation of the Corporation and declaring said
Amended and Restated Certificate of Incorporation advisable. The stockholders of
the Corporation duly approved said proposed Amended and Restated Certificate of
Incorporation by written consent in accordance with Sections 228 and 245 of the
General Corporation Law of the State of Delaware. The resolution setting forth
the Amended and Restated Certificate of Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation,
which was originally filed with the Secretary of State of
Delaware on March 16, 1989, as supplemented by the
Certificate of Designations filed on August 23, 1989, and
as restated by an Amended and Restated Certificate of
Incorporation filed on January 31, 1990, as amended by
Certificates of Amendment filed on: June 11, 1992, March 4,
1993, September 9, 1993, April 20, 1994, and July 12, 1995,
be and hereby is amended and restated in its entirety so
that the same shall read as follows:
FIRST. The name of the Corporation is:
Ascent Pediatrics, Inc.
SECOND. The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
1
<PAGE> 71
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of all classes of stock which
the Corporation shall have authority to issue is Sixteen Million Six Hundred
Fifty-Eight Thousand Five Hundred Sixty-Three (16,658,563) shares, consisting
of:
(i) Eleven Million (11,000,000) shares of Common Stock, $.00004 par value
per share ("Common Stock"); and
(ii) Five Million Six Hundred Fifty-Eight Thousand Five Hundred
Sixty-Three (5,658,563) shares of Preferred Stock, $.00004 par value per share
("Preferred Stock"), of which
(A) Eight Hundred Thousand (800,000) shares shall be designated
"Series A Convertible Preferred Stock" (the "Series A Preferred Stock"),
(B) Three Hundred Ninety-Nine Thousand Nine Hundred Ninety-Nine
(399,999) shares shall be designated "Series B Convertible Preferred Stock" (the
"Series B Preferred Stock"),
(C) One Million Three Hundred Ninety-Nine Thousand Five Hundred
Eighty-Nine (1,399,589) shares shall be designated "Series D Convertible
Preferred Stock" (the "Series D Preferred Stock"),
(D) One Million One Hundred Sixty-Six Thousand Six Hundred
Sixty-Seven (1,166,667) shares shall be designated Series E Convertible
Preferred Stock (the "Series E Preferred Stock"), and
(E) One Million Eight Hundred Ninety-Two Thousand Three Hundred
Eight (1,892,308) shares shall be designated "Series F Convertible Preferred
Stock" (the "Series F Preferred Stock"), and the balance of which may be issued
from time to time in one or more series as set forth in Part B of this Article
FOURTH.
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
2
<PAGE> 72
A. COMMON STOCK.
------------
1. GENERAL. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the Board
of Directors upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote
for each share held at all meetings of stockholders (and written actions in lieu
of meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. DIVIDENDS. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. PREFERRED STOCK.
---------------
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
3
<PAGE> 73
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including, without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware and the terms of
this Certificate of Incorporation. Without limiting the generality of the
foregoing, the resolutions providing for issuance of any series of Preferred
Stock may provide that such series shall be superior or rank equally or be
junior to the Preferred Stock of any other series to the extent permitted by law
and the terms of this Certificate of Incorporation. Except as otherwise
specifically provided in this Certificate of Incorporation, no vote of the
holders of the Preferred Stock or Common Stock shall be a prerequisite to the
issuance of any shares of any series of the Preferred Stock authorized by and
complying with the conditions of the Certificate of Incorporation, the right to
have such vote being expressly waived by all present and future holders of the
capital stock of the Corporation.
C. SERIES A, B, D, E AND F CONVERTIBLE PREFERRED STOCK
---------------------------------------------------
The Series A Preferred Stock and the Series B Preferred Stock are
sometimes referred to collectively herein as the "Series A and B Preferred
Stock." The Series A Preferred Stock, the Series B Preferred Stock, the Series D
Preferred Stock, the Series E Preferred Stock and the Series F Preferred Stock
are sometimes referred to collectively herein as the "Series Preferred Stock."
There is no Series C Preferred Stock designated as of the effective date of this
Certificate of Incorporation. The rights, preferences, powers, privileges and
restrictions, qualifications and limitations granted to or imposed upon the
shares of Series Preferred Stock shall be as set forth in this Part C of this
Article FOURTH.
1. Dividends.
---------
(a) SERIES A, B, D, E AND F PREFERRED STOCK. In each fiscal
year of the Corporation, the holders of shares of Series Preferred Stock shall
be entitled to receive, before any cash dividends shall be declared and paid
upon or set aside for the Common Stock in such fiscal year, when and as declared
by the Board of Directors of the Corporation out of the funds legally available
for that purpose, dividends payable in cash in an amount per share for such
fiscal year at least equal to the product of (i) the per share amount, if any,
of the cash dividend declared, paid or set aside for the Common Stock during
such fiscal year, multiplied by (ii) the number of whole shares of Common Stock
into
4
<PAGE> 74
which each such share of Series Preferred Stock is then convertible. Any
cash dividends payable to holders of shares of Series A Preferred Stock, Series
B Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series
F Preferred Stock shall be payable on a parity with each other (and no such
dividends shall be paid unless paid on all series of Series Preferred Stock) and
in preference and priority to any payment of any cash dividend on the Common
Stock. In the event any such Series Preferred Stock shall not receive the full
amount of any such dividends to which they would otherwise be entitled, the
holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series
D Preferred Stock, Series E Preferred Stock and Series F Preferred shall receive
such dividends in proportion to the respective amounts which would otherwise
be payable in respect of the shares held by them upon payment of such dividends
if all amounts payable on or with respect to such shares were paid in full.
2. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) Series A and B Preferred Stock.
------------------------------
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
and B Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Corporation available for distribution to its stockholders, after
and subject to the payment in full of all amounts required to be distributed to
the holders of Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and any other class or series of stock of the Corporation
ranking on liquidation prior and in preference to the Series A and B Preferred
Stock (such Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock and other stock being collectively referred to as "Senior to A
and B Preferred Stock"), but before any payment shall be made to the holders of
Common Stock or any other class or series of stock ranking on liquidation junior
to the Series A and B Preferred Stock (such Common Stock and other stock being
collectively referred to as "Junior to A and B Stock") by reason of their
ownership thereof, an amount equal to $.375 for each share of Series A Preferred
Stock then held by them and an amount equal to $6.50 for each share of Series B
Preferred Stock then held by them (in each case subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares). If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series A and B Preferred Stock the full amount
to which they shall be entitled, the holders of shares of Series A and
5
<PAGE> 75
Series B Preferred Stock and any class or series of stock ranking on liquidation
on a parity with the Series A Preferred Stock and Series B Preferred Stock shall
share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full; and,
subject to any preference or priority of Senior to A and B Preferred Stock, no
amounts shall be paid or set apart for payment on the Series A and B Preferred
Stock of any series unless at the same time amounts in like proportion to the
respective preferential amounts to which the Series A and B Preferred Stock of
the other series are entitled shall be paid or set apart for the payment of the
other series.
(ii) After the payment of all preferential amounts required to be paid
to the holders of Senior to A and B Preferred Stock, Series A and B Preferred
Stock and any other class or series of stock of the Corporation ranking on
liquidation on a parity with the Series A and B Preferred Stock, upon the
dissolution, liquidation or winding up of the Corporation, the holders of
shares of Junior to A and B Stock then outstanding shall be entitled to
receive the remaining assets and funds of the Corporation available for
distribution to its stockholders.
(iii) The merger or consolidation of the Corporation into or with
another corporation (except for (A) a merger or consolidation of any subsidiary
of the Corporation with or into the Corporation so long as the Corporation shall
be the surviving or continuing corporation and (B) a merger or consolidation to
effect a reincorporation of the Corporation in a different jurisdiction), or the
sale of all or substantially all the assets of the Corporation, shall be deemed
to be a liquidation, dissolution or winding up of the Corporation for purposes
of this Subsection 2(a) unless the holders of at least a majority of the then
outstanding shares of Series A and B Preferred Stock and of any class or series
of stock ranking on liquidation on a parity with the Series A and B Preferred
Stock, acting together as a single class, elect not to have such merger,
consolidation or sale be deemed such a liquidation, dissolution or winding up
and give written notice to such effect to the Corporation at least three days
before the effective date of such event. If such notice is given, the provisions
of Subsection 4(i) below shall apply. The amount deemed distributed to the
holders of Series A and B Preferred Stock upon any such merger or consolidation
shall be the cash or the value of the property, rights or securities distributed
to such holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determined in good faith by the
Board of Directors of the Corporation.
6
<PAGE> 76
(b) Series D Preferred Stock.
------------------------
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series D
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to payment in full of all amounts required to be distributed to the
holders of Series E Preferred Stock, Series F Preferred Stock and any other
class or series of stock of the Corporation ranking on liquidation prior and in
preference to the Series A, B and D Preferred Stock (such Series E Preferred
Stock, Series F Preferred and other stock being collectively referred to as
"Senior to D Preferred Stock") but before any payment shall be made to the
holders of Series A and B Preferred Stock, Common Stock or any other class or
series of stock ranking on liquidation junior to the Series D Preferred Stock
(such Series A and Series B Preferred Stock, Common Stock and other stock being
collectively referred to as "Junior to D Stock") by reason of their ownership
thereof, an amount equal to the greater of (A) $6.00 for each share of Series D
Preferred Stock then held by them (subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) or (B) that amount which they would have
received had they converted each share of Series D Preferred Stock held by them
on the date of such liquidation, dissolution, or winding up into Common Stock on
such date. If upon any such liquidation, dissolution or winding up of the
Corporation the remaining assets of the Corporation available for distribution
to its stockholders shall be insufficient to pay the holders of shares of Series
D Preferred Stock the full amount to which they shall be entitled, the holders
of shares of Series D Preferred Stock and any class or series of stock ranking
on liquidation on a parity with the Series D Preferred Stock shall share ratably
in any distribution of the remaining assets and funds of the Corporation in
proportion to the respective amounts which would otherwise be payable in respect
of the shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
(ii) After the payment of all preferential amounts required to be paid
to the holders of Senior to D Preferred Stock, Series D Preferred Stock and any
other class or series of stock of the Corporation ranking on liquidation on a
parity with the Series D Preferred Stock, upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Junior to D Stock then
outstanding shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.
7
<PAGE> 77
(iii) The merger or consolidation of the Corporation into or with
another corporation (except for (A) a merger or consolidation of any subsidiary
of the Corporation with or into the Corporation so long as the Corporation shall
be the surviving or continuing corporation and (B) a merger or consolidation to
effect a reincorporation of the Corporation in a different jurisdiction), or the
sale of all or substantially all the assets of the Corporation, shall be deemed
to be a liquidation, dissolution or winding up of the Corporation for purposes
of this Subsection 2(b) unless the holders of at least a majority of the then
outstanding shares of Series D Preferred Stock and of any class or series of
stock ranking on liquidation on a parity with the Series D Preferred Stock,
acting together as a single class, elect not to have such merger, consolidation
or sale to be deemed such a liquidation, dissolution or winding up and give
written notice to such effect to the Corporation at least three days before the
effective date of such event. If such notice is given, the provisions of
Subsection 4(i) below shall apply. The amount deemed distributed to the holders
of Series D Preferred Stock upon any such merger or consolidation shall be the
cash or the value of the property, rights or securities distributed to such
holders by the acquiring person, firm or other entity. The value of such
property, rights or other securities shall be determining good faith by the
Board of Directors of the Corporation.
(c) Series E Preferred Stock.
------------------------
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series E
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of Series F Preferred Stock and any other class or series of stock of
the Corporation ranking on liquidation prior and in preference to the Series E
Preferred Stock (collectively referred to as "Senior to E Preferred Stock"), but
before any payment shall be made to the holders of Series D Preferred Stock,
Series A and B Preferred Stock, Common Stock or any other class or series of
stock ranking on liquidation junior to the Series E Preferred Stock (such Series
D Preferred Stock, Series A and B Preferred Stock, Common Stock and other stock
being collectively referred to as "Junior to E Stock") by reason of their
ownership thereof, an amount equal to the greater of (A) $6.00 for each share of
Series E Preferred Stock then held by them (subject to appropriate adjustment in
the event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares) or (B) that amount which they would have
received if they had converted each share of Series E Preferred Stock held by
them on the date of such liquidation, dissolution, or winding up
8
<PAGE> 78
into Common Stock on such date. If upon any such liquidation,
dissolution or winding up of the Corporation the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series E Preferred Stock the full amount to
which they shall be entitled, the holders of shares of Series E Preferred Stock
and any class or series of stock ranking on liquidation on a parity with the
Series E Preferred Stock shall share ratably in any distribution of the
remaining assets and funds of the Corporation in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such shares
were paid in full.
(ii) After the payment of all preferential amounts required to be paid
to the holders of Senior to E Preferred Stock, Series E Preferred Stock and any
other class or series of stock of the Corporation ranking on liquidation on a
parity with the Series E Preferred Stock upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Junior to E Stock then
outstanding shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.
(iii) The merger or consolidation of the Corporation into or with
another corporation (except for (A) a merger or consolidation of any subsidiary
of the Corporation with or into the Corporation so long as the Corporation shall
be the surviving or continuing corporation and (B) a merger or consolidation to
effect a reincorporation of the Corporation in a different jurisdiction), or the
sale of all or substantially all the assets of the Corporation, shall be deemed
to be a liquidation, dissolution or winding up of the Corporation for purposes
of this Subsection 2(c) unless the holders of at least a majority of the then
outstanding shares of Series E Preferred Stock and any class or series of stock
ranking on liquidation on a parity with the Series E Preferred Stock, acting
together as a single class, elect not to have such merger, consolidation or sale
be deemed such a liquidation, dissolution or winding up and give written notice
thereof to the Corporation at least three days before the effective date of such
event. If such notice is given, the provisions of Subsection 4(i) below shall
apply. The amount deemed distributed to the holders of Series E Preferred Stock
upon any such merger or consolidation shall be the cash or the value of the
property, rights or securities distributed to such holders by the acquiring
person, firm or other entity. The value of such property, rights or other
securities shall be determined in good faith by the Board of Directors of the
Corporation.
9
<PAGE> 79
(d) Series F Preferred Stock.
------------------------
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series F
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series F Preferred Stock
(collectively referred to as "Senior to F Preferred Stock"), but before any
payment shall be made to the holders of Series E Preferred Stock, Series D
Preferred Stock, Series A and B Preferred Stock, Common Stock or any other class
or series of stock ranking on liquidation junior to the Series F Preferred Stock
(such Series E Preferred Stock, Series D Preferred Stock, Series A and B
Preferred Stock, Common Stock and any other stock being collectively referred to
as "Junior to F Stock") by reason of their ownership thereof, an amount equal to
the greater of (A) $6.50 for each share of Series F Preferred Stock then held by
them (subject to appropriate adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization affecting such
shares) or (B) that amount which they would have received if they had converted
each share of Series F Preferred Stock held by them on the date of such
liquidation, dissolution or winding up into Common Stock on such date. If upon
any such liquidation, dissolution or winding up of the Corporation the remaining
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of shares of Series F Preferred Stock, the
full amount to which they shall be entitled, the holders of shares of Series F
Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the Series F Preferred Stock shall share ratably in any distribution
of the remaining assets and funds of the Corporation in proportion to the
respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect to
such shares were paid in full.
(ii) After the payment of all preferential amounts required to be paid
to the holders of Senior to F Preferred Stock, Series F Preferred Stock and any
other class or series of stock of the Corporation ranking on liquidation on a
parity with the Series F Preferred Stock upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Junior to F Stock then
outstanding shall be entitled to receive the remaining assets and funds of the
Corporation available for distribution to its stockholders.
10
<PAGE> 80
(iii) The merger or consolidation of the Corporation into or with
another corporation (except for (A) a merger or consolidation of any subsidiary
of the Corporation with or into the Corporation so long as the Corporation shall
be the surviving or continuing corporation and (B) a merger or consolidation to
effect a reincorporation of the Corporation in a different jurisdiction, or the
sale of all or substantially all the assets of the Corporation shall be deemed
to be a liquidation, dissolution or winding up of the Corporation for purposes
of this Subsection 2(d) unless the holders of at least a majority of the then
outstanding shares of Series F Preferred Stock and any class or series of stock
ranking on liquidation on a parity with the Series F Preferred Stock, acting
together as a single class, elect not to have such merger, consolidation or sale
be deemed such a liquidation, dissolution or winding up and give written notice
thereof to the Corporation at least three days before the effective date of such
event. If such notice is given, the provisions of Subsection 4(i) below shall
apply. The amount deemed distributed to the holders of Series F Preferred Stock
upon any such merger or consolidation shall be the cash or the value of the
property, rights or securities distributed to such holders by the acquiring
person, firm or other entity. The value of such property, rights or other
securities shall be determined in good faith by the Board of Directors of the
Corporation.
3. Voting.
------
(a) Each holder of outstanding shares of Series Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares of Series Preferred Stock held by such holder
are convertible (as adjusted from time to time pursuant to Section 4 hereof), at
each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration. Except
as provided by law, by the provisions of Subsection 2(a)(iii), 2(b)(iii),
2(c)(iii), 2(d)(iii), 3(b), 3(c), 3(d), 3(e) or 3(f) below or by the provisions
establishing any other series of Preferred Stock, holders of Series Preferred
Stock and of any other outstanding series of Preferred Stock shall vote together
with the holders of Common Stock as a single class.
(b) In addition to any other rights provided by law or by this
Section 3, so long as there shall be issued and outstanding a number of shares
of Series Preferred Stock equal to at least 50% of the total number of shares of
Series Preferred Stock ever issued (excluding shares of Series C Preferred
Stock) by the Corporation (subject to appropriate adjustment in the event of any
stock dividend, stock split, combination or other similar
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recapitalization affecting such shares), the Corporation shall not, without
first obtaining the affirmative vote or written consent of the holders of not
less than a majority of the then outstanding shares of Series Preferred Stock
consenting or voting (as the case may be) together as a single class:
(i) Merge or consolidate into or with any other corporation or sell
all or substantially all of the Corporation's assets; or
(ii) Voluntarily or involuntarily liquidate, dissolve or wind up the
Corporation or its business.
(c) In addition to any other rights provided by law or by this
Section 3, so long as there shall be issued and outstanding a number of shares
of Series A and B Preferred Stock equal to at least 50% of the total number of
shares of Series A and B Preferred Stock ever issued by the Corporation (subject
to appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), the
Corporation shall not without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of the then outstanding
shares of Series A and B Preferred Stock consenting or voting (as the case may
be) separately as a single class:
(i) Amend or repeal any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or By-laws, if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series A Preferred Stock or Series
B Preferred Stock or increase or decrease the number of authorized shares of the
Series A Preferred Stock or Series B Preferred Stock;
(ii) Authorize or issue any new or existing class or classes or series
of capital stock having any preference or priority as to amounts distributable
upon dissolution, liquidation or winding up of the Corporation superior to or on
a parity with any such preference or priority of the Series A Preferred Stock or
Series B Preferred Stock, or authorize or issue shares of stock of any class or
any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having option rights to purchase, any shares of stock of
the Corporation having any preference or priority as to amounts distributable
upon dissolution, liquidation or winding up of the Corporation superior to or on
a parity with any such preference or priority of the Series A Preferred Stock or
Series B Preferred Stock;
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(iii) Reclassify any Common Stock into shares having any preference or
priority as to amounts distributable upon dissolution, liquidation or winding up
of the Corporation superior to or on a parity with any such preference or
priority of the Series A Preferred Stock or Series B Preferred Stock; or
(iv) Pay or declare any dividend or distribution on any shares of its
capital stock, or apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of its capital stock (other than (A) pursuant to the
repurchase rights of certain holders of Series D Preferred Stock, Series E
Preferred Stock and Series F Preferred Stock set forth in the Series F
Convertible Preferred Stock and Warrant Purchase Agreement, dated as of June
___, 1996 (the "Series F Purchase Agreement"), by and between the Corporation,
the purchasers listed on Exhibit A thereto (the "Purchasers") and certain other
parties named therein (the "Series F Purchase Agreement Repurchase Rights"), (B)
shares of Common Stock purchased pursuant to restricted stock agreements entered
into prior to the date of this Certificate of Incorporation or purchased from
persons who are, or were, employees of, or consultants or advisors to, the
Corporation under employee plans, restricted stock awards or agreements approved
by a majority of the Board of Directors who are not employees of the
Corporation, (C) pursuant to the terms of the warrants to purchase up to an
aggregate of 278,639 shares of Common Stock issued to the purchasers of Series D
Preferred Stock and to former holders of shares of Series C Preferred Stock who
converted their shares for shares of Series D Preferred Stock (the "Series D
Common Warrants"), (D) pursuant to the terms of the warrants to purchase up to
an aggregate of 194,445 shares of Common Stock issued to the purchasers of
Series E Preferred Stock (the "Series E Common Warrants"), and (E) pursuant to
the terms of the Warrants to purchase up to an aggregate of 738,462 shares of
Common Stock issued to the Purchasers (the "Series F Common Warrants").
(d) In addition to any other rights provided by law or by this
Section 3, so long as there shall be issued and outstanding a number of shares
of Series D Preferred Stock equal to at least 50% of the total number of shares
of Series D Preferred Stock ever issued by the Corporation (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of the then outstanding
shares of Series D Preferred Stock consenting or voting (as the case may be)
separately as a class:
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(i) Amend or repeal any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or By-laws, if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series D Preferred Stock or
increase or decrease the number of authorized shares of the Series D Preferred
Stock;
(ii) Authorize or issue any new or existing class or classes or series
of capital stock having any preference or priority as to amounts distributable
upon dissolution, liquidation or winding up of the Corporation superior to or on
a parity with any such preference or priority of the Series D Preferred Stock,
or authorize or issue shares of stock of any class or any bonds, debentures,
notes or other obligations convertible into or exchangeable for, or having
option rights to purchase, any shares of stock of the Corporation having any
preference or priority as to amounts distributable upon dissolution, liquidation
or winding up of the Corporation superior to or on a parity with any such
preference or priority of the Series D Preferred Stock;
(iii) Reclassify any Common Stock into shares having any preference or
priority as to amounts distributable upon dissolution, liquidation or winding up
of the Corporation superior to or on a parity with any such preference or
priority of the Series D Preferred Stock;
(iv) Merge or consolidate into or with any other corporation, or sell
all or substantially all of the Corporation's assets, if such merger,
consolidation or sale will result in gross proceeds to be received for each
share of Series D Preferred Stock equal to less than twice the original purchase
price (which shall be deemed to be $6.00) for each share of Series D Preferred
Stock (subject to appropriate adjustment for any stock dividend, stock split,
combination or other similar recapitalization affecting such shares of Series D
Preferred Stock); or
(v) Pay or declare any dividend or distribution on any shares of its
capital stock, or apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of its capital stock (other than (A) pursuant to the
Series F Purchase Agreement Repurchase Rights, (B) shares of Common Stock
purchased pursuant to restricted stock agreements entered into prior to the date
of this Certificate of Incorporation or purchased from persons who are, or were,
employees of, or consultants or advisors to, the Corporation under employee
plans, restricted stock awards or agreements approved by a majority of
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the Board of Directors who are not employees of the Corporation, and (C)
pursuant to the terms of the Series D Common Warrants, the Series E Common
Warrants and the Series F Common Warrants).
(e) In addition to any other rights provided by law or by this
Section 3, so long as there shall be issued and outstanding a number of shares
of Series E Preferred Stock equal to at least 50% of the total number of shares
of Series E Preferred Stock ever issued by the Corporation (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of the then outstanding
shares of Series E Preferred Stock consenting or voting (as the case may be)
separately as a class:
(i) Amend or repeal any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or By-laws, if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series E Preferred Stock or
increase or decrease the number of authorized shares of the Series E Preferred
Stock;
(ii) Authorize or issue any new or existing class or classes or series
of capital stock having any preference or priority as to amounts distributable
upon dissolution, liquidation or winding up of the Corporation superior to or on
a parity with any such preference or priority of the Series E Preferred Stock,
or authorize or issue shares of stock of any class or any bonds, debentures,
notes or other obligations convertible into or exchangeable for, or having
option rights to purchase, any shares of stock of the Corporation having any
preference or priority as to amounts distributable upon dissolution, liquidation
or winding up of the Corporation superior to or on a parity with any such
preference or priority of the Series E Preferred Stock;
(iii) Reclassify any Common Stock into shares having any preference or
priority as to amounts distributable upon dissolution, liquidation or winding up
of the Corporation superior to or on a parity with any such preference or
priority of the Series E Preferred Stock;
(iv) Merge or consolidate into or with any other corporation, or sell
all or substantially all of the Corporation's assets, if such merger,
consolidation or sale will result in gross proceeds to be received for each
share of Series E Preferred Stock equal to less than twice the original purchase
price (which shall be deemed to be $6.00) for each share of Series E Preferred
Stock
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<PAGE> 85
(subject to appropriate adjustment for any stock dividend, stock split,
combination or other similar recapitalization affecting such shares of Series E
Preferred Stock); or
(v) Pay or declare any dividend or distribution on any shares of its\
capital stock, or apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of its capital stock (other than (A) pursuant to the
Series F Purchase Agreement Repurchase Rights, (B) shares of Common Stock
purchased pursuant to restricted stock agreements entered into prior to the date
of this Certificate of Incorporation or purchased from persons who are, or were,
employees of, or consultants or advisors to, the Corporation under employee
plans, restricted stock awards or agreements approved by a majority of the Board
of Directors who are not employees of the Corporation and (C) pursuant to the
terms of the Series D Common Warrants, the Series E Common Warrants and the
Series F Common Warrants).
(f) In addition to any other rights provided by law or by this
Section 3, so long as there shall be issued and outstanding a number of shares
of the Series F Preferred Stock equal to at least 50% of the total number of
shares of Series F Preferred Stock ever issued by the Corporation (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of the then outstanding
shares of Series F Preferred Stock, consenting or voting (as the case may be),
separately as a class:
(i) Amend or repeal any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or By-laws, if such action would
alter or change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series F Preferred Stock or
increase or decrease the number of authorized shares of the Series F Preferred
Stock;
(ii) Authorize or issue any new or existing class or classes or series
of capital stock having any preference or priority as to amounts distributable
upon dissolution, liquidation or winding up of the Corporation superior to or on
a parity with any such preference or priority of the Series F Preferred Stock or
authorize or issue shares of stock of any class or any bonds, debentures, notes
or other obligations convertible into or exchangeable for, or having option
rights to purchase, any shares of stock of the Corporation having any preference
or priority as to amounts distributable upon dissolution, liquidation or winding
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<PAGE> 86
up of the Corporation superior to or on a parity with any such preference or
priority of the Series F Preferred Stock;
(iii) Reclassify any Common Stock into shares having any preference or
priority as to amounts distributable upon dissolution, liquidation or winding up
of the Corporation superior to or on a parity with any such preference or
priority of the Series F Preferred Stock;
(iv) Merge or consolidate into or with any other corporation, or sell
all or substantially all of the Corporation's assets, if such merger,
consolidation or sale will result in gross proceeds to be received for each
share of Series F Preferred Stock equal to less than twice the original purchase
price (which shall be deemed to be $6.50) for each share of Series F Preferred
Stock (subject to appropriate adjustment for any stock dividend, stock split,
combination or other similar recapitalization affecting such shares of Series F
Preferred Stock); or
(v) Pay or declare any dividend or distribution on any shares of its
capital stock, or apply any of its assets to the redemption, retirement,
purchase or acquisition, directly or indirectly, through subsidiaries or
otherwise, of any shares of its capital stock (other than (A) pursuant to the
Series F Purchase Agreement Repurchase Rights, (B) shares of Common Stock
purchased pursuant to restricted stock agreements entered into prior to the date
of this Certificate of Incorporation or purchased from persons who are, or were
employees of, or consultants or advisors to, the Corporation under employee
plans, restricted stock awards or agreements approved by a majority of the Board
of Directors who are not employees of the Corporation and (C) pursuant to the
terms of the Series D Common Warrants, the Series E Common Warrants and the
Series F Common Warrants).
4. OPTIONAL CONVERSION. The holders of the Series Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share of Series Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, into such number of fully paid and nonassessable shares of Common
Stock as is determined (A) in the case of the Series A Preferred Stock, by
dividing $.375 by the Series A Conversion Price (as defined below) in effect at
the time of conversion, (B) in the case of the Series B Preferred Stock, by
dividing $6.50 by the Series B Conversion Price (as defined below) in effect at
the time of conversion, (C) in the case of the Series D Preferred Stock, by
dividing $6.00 by the Series D Conversion Price (as defined below) in effect at
the time of conversion, (D) in the case of the Series E Preferred Stock, by
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<PAGE> 87
dividing $6.00 by the Series E Conversion Price (as defined below) in effect at
the time of conversion, and (E) in the case of Series F Preferred Stock, by
dividing $6.50 by the Series F Conversion Price (as defined below) in effect at
the time of conversion. The conversion price at which shares of Common Stock
shall be deliverable upon conversion of Series A Preferred Stock without the
payment of additional consideration by the holder thereof (the "Series A
Conversion Price") shall initially be $.375 per share. The conversion price at
which shares of Common Stock shall be deliverable upon conversion of Series B
Preferred Stock without the payment of additional consideration by the holder
thereof (the "Series B Conversion Price") shall initially be $6.50 per share.
The conversion price at which shares of Common Stock shall be deliverable upon
conversion of Series D Preferred Stock without the payment of additional
consideration by the holder thereof (the "Series D Conversion Price") shall
initially be $6.00. The Conversion Price at which shares of Common Stock shall
be deliverable upon conversion of Series E Preferred Stock without payment of
additional consideration by the holder thereof (the "Series E Conversion Price")
shall initially be $6.00. The Conversion Price at which shares of Series F
Preferred Stock shall be deliverable upon conversion of Series F Preferred Stock
without payment of additional consideration by the holder thereof (the "Series F
Conversion Price") shall initially be $6.50. The Series A Conversion Price, the
Series B Conversion Price, the Series D Conversion Price, the Series E
Conversion Price and the Series F Conversion Price are sometimes referred to
collectively hereinafter as the "Conversion Prices" and individually as a
"Conversion Price." Such initial Conversion Prices, and the respective rates at
which shares of Series Preferred Stock may be converted into shares of Common
Stock, shall be subject to adjustment as provided below. In the event of a
liquidation of the Corporation, the Conversion Rights shall terminate at the
close of business on the first full day preceding the date fixed for the payment
of any amounts distributable on liquidation to the holders of Series Preferred
Stock.
(b) FRACTIONAL SHARES. No fractional shares of Common Stock
shall be issued upon conversion of the Series Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective applicable Conversion Price.
(c) Mechanics of Conversion.
-----------------------
(i) In order for a holder of Series Preferred Stock to convert shares
of Series Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Series Preferred
Stock, at the
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office of the transfer agent for the Series Preferred Stock (or at the principal
office of the Corporation if the Corporation serves as its own transfer agent),
together with written notice that such holder elects to convert all or any
number of the shares of the Series Preferred Stock represented by such
certificate or certificates. Such notice shall state such holder's name or the
names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series Preferred Stock
shall be outstanding, reserve and keep available out of its authorized but
unissued stock, for the purpose of effecting the conversion of the Series
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series Preferred Stock. Before taking any action which would cause
an adjustment reducing the Conversion Price below the then par value of the
shares of Common Stock issuable upon conversion of such series, the Corporation
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully paid
and nonassessable shares of Common Stock at such adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the Conversion Price
shall be made for any accrued and unpaid dividends on the Series Preferred Stock
surrendered for conversion or on the Common Stock delivered upon conversion.
(iv) All shares of Series Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any declared and
unpaid dividends thereon. Any shares of Series
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Preferred Stock so converted shall be retired and cancelled and shall not be
reissued, and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized Series Preferred Stock
accordingly.
(d) Adjustments to Conversion Price for Diluting Issues:
---------------------------------------------------
(i) SPECIAL DEFINITIONS. For purposes of this Subsection 4(d), the
following definitions shall apply:
(A) "OPTION" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding, with respect to any series of Series Preferred Stock,
options granted to directors, employees or consultants of the Corporation on or
after February 24, 1993 pursuant to an option plan adopted by the Board of
Directors, to acquire up to a number of shares of Common Stock which, when
combined with the number of shares of Common Stock issued pursuant to clause
(VI) of Subsection 4(d)(i)(D), does not exceed 850,000 (subject to appropriate
adjustment for any stock dividend, stock split, combination or other similar
recapitalization affecting such shares).
(B) "ORIGINAL ISSUE DATE" with respect to a series of
Series Preferred Stock shall mean the date on which a share of such series of
Series Preferred Stock was first issued.
(C) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(D) "ADDITIONAL SHARES OF COMMON STOCK" with respect to
a series of Series Preferred Stock shall mean all shares of Common Stock issued
(or, pursuant to Subsection 4(d)(iii) below, deemed to be issued) by the
Corporation after the Original Issue Date with respect to such series of Series
Preferred Stock, other than shares of Common Stock issued or issuable:
(I) upon conversion of shares of Series Preferred Stock;
(II) as a dividend or distribution pro rata (calculated on an
as-converted basis) on all shares of Series Preferred Stock;
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(III) with respect to a series of Series Preferred Stock, as a dividend
or distribution on such series of Series Preferred Stock;
(IV) as a result of any stock split, combination, dividend,
distribution, reclassification, exchange, or substitution for
which an adjustment is provided in Subsections (e), (f), (g) or
(h) below;
(V) upon the exercise of options excluded from the definition of
"Option" in Subsection 4(d)(i)(A);
(VI) in other issuances on or after February 24, 1993 to directors,
employees or consultants, with the approval of the Board of
Directors, up to a number of shares which, when combined with
the number of shares of Common Stock issued or issuable upon
the exercise of options excluded from the definition of
"Option" pursuant to Subsection 4(d)(i)(A), does not exceed
850,000 shares (subject to appropriate adjustment for any stock
dividend, stock split, combination or recapitalization affecting
such shares);
(VII) upon exercise of warrants to purchase up to 40,067 shares (subject
to appropriate adjustment for any stock dividend, stock split,
combination or other similar recapitalization affecting such
shares) of Series D Preferred Stock granted by the corporation to
Ash Properties Limited or its affiliates, Medical Science
Partners, L.P., Mhd. Nabil Al-Midani and SEIF
Foundation-Liechtenstein (collectively, the "Series D Preferred
Warrants") in exchange for certain outstanding warrants to
purchase shares of Series C Preferred Stock; or
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(VIII) upon grant or exercise of the Series D Common Warrants, Series E
Common Warrants and/or Series F Common Warrants (subject in each
case to appropriate adjustment for any stock dividend, stock
split, combination or other similar recapitalization affecting
such shares).
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in the number of
shares of Common Stock into which a series of the Series Preferred Stock is
convertible shall be made pursuant to this Subsection 4(d), by adjustment in the
applicable Conversion Price thereof: (a) unless the consideration per share
(determined pursuant to Subsection 4(d)(v)) for an Additional Share of Common
Stock with respect to such series issued or deemed to be issued by the
Corporation is less than the applicable Conversion Price for such series in
effect on the date of, and immediately prior to, the issue of such Additional
Share of Common Stock, or (b) if prior to such issuance, the Corporation
receives written notice from the holders of at least a majority of the then
outstanding shares of such series agreeing that no such adjustment shall be made
as the result of the issuance of Additional Shares of Common Stock with respect
to such series.
(iii) ISSUE OF SECURITIES DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON
STOCK. If the Corporation, at any time or from time to time after the Original
Issue Date with respect to a series of Series Preferred Stock, shall issue any
Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the close
of business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued as to a series of Series Preferred Stock
unless the consideration per share (determined pursuant to Subsection 4(d)(v)
hereof) of such Additional Shares of Common Stock would be less than the
applicable Conversion Price for such series in effect on the date of and
immediately prior to such issuance, or such record date, as the case may be, and
provided further that in any such
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case in which such Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Price for
such series of Series Preferred Stock shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price for such series of Series Preferred Stock computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities;
(C) No readjustment pursuant to clause (B) above shall
have the effect of increasing the Conversion Price for such series of Series
Preferred Stock to an amount which exceeds the lower of (i) the Conversion Price
for such series of Series Preferred Stock on the original adjustment date, or
(ii) the Conversion Price for such series of Series Preferred Stock that would
have resulted from any issuance of Additional Shares of Common Stock with
respect to such series between the original adjustment date and such
readjustment date;
(D) Upon the expiration or termination of any
unexercised Option, the Conversion Price for such series of Series Preferred
Stock shall not be readjusted, but the Additional Shares of Common Stock deemed
issued as the result of the original issue of such Option shall not be deemed
issued for the purposes of any subsequent adjustment of such Conversion Price;
and
(E) In the event of any change in the number of shares
of Common Stock issuable upon the exercise, conversion or exchange of any Option
or Convertible Security, including, but not limited to, a change resulting from
the antidilution provisions thereof, the Conversion Price then in effect with
respect to such series of Series Preferred Stock shall forthwith be readjusted
to such Conversion Price as would have obtained had the adjustment which was
made upon the issuance of such option or Convertible Security not exercised or
converted prior to such change been made upon the basis of such change, but no
further adjustment shall be made for the actual issuance of Common Stock
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upon the exercise or conversion of any such Option or Convertible Security.
(iv) Adjustment of Conversion Price Upon Issuance of Additional Shares
-----------------------------------------------------------------
of Common Stock.
- ---------------
(A) Except as to an issuance of Additional Shares of
Common Stock that is subject to the provisions of Subsection 4(d)(iv)(B) below,
in the event the Corporation shall, at any time after the Original Issue Date
with respect to a series of Series Preferred Stock, issue Additional Shares of
Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Subsection 4(d)(iii), but excluding shares issued as a dividend or
distribution as provided in Subsection 4(f) or upon a stock split or combination
as provided in Subsection 4(e)), without consideration or for a consideration
per share less than the applicable Conversion Price for such series of Series
Preferred Stock in effect on the date of and immediately prior to such issue,
then and in such event, such Conversion Price shall be reduced, concurrently
with such issue, to a price (calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction, (X) the numerator of which
shall be (1) the number of shares of Common Stock outstanding immediately prior
to such issue plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Conversion Price; and
(Y) the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued; PROVIDED THAT, for the purpose of this
Subsection 4(d)(iv)(A), (i) all shares of Common Stock issuable upon exercise or
conversion of Options or Convertible Securities outstanding immediately prior to
such issue shall be deemed to be outstanding, and (ii) the number of shares of
Common Stock deemed issuable upon exercise or conversion of such outstanding
Options and Convertible Securities shall not give effect to any adjustments to
the conversion price or conversion rate of such Options or Convertible
Securities resulting from the issuance of Additional Shares of Common Stock that
is the subject of this calculation.
(B) In the event the Corporation shall, at any time
within 12 months following the Original Issue Date with respect to the Series E
Preferred Stock, issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Subsection 4(d)(iii), but
excluding shares issued as a dividend or distribution as provided in Subsection
4(f) or as a stock split or combination as provided in Subsection 4(e)), without
consideration or for a consideration per share less than the Series E Conversion
Price in effect on the
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date of and immediately prior to such issue, then and in
such event, the Series E Conversion Price shall be reduced, concurrently with
such issuance, to the consideration per share received by the Corporation for
the issuance of the Additional Shares of Common Stock (determined pursuant to
Section 4(d)(v)).
(C) Notwithstanding the foregoing, the applicable
Conversion Price shall not be so reduced at such time if the amount of such
reduction would be an amount less than $.01, but any such amount shall be
carried forward and reduction with respect thereto made at the time of and
together with any subsequent reduction which, together with such amount and any
other amount or amounts so carried forward, shall aggregate $.01 or more.
(D) Notwithstanding the other provisions of this
Subsection 4(d)(iv), in the event the Corporation makes a Series D Dilutive
Issuance (as defined below), the adjustment to the Conversion Price of shares of
Series D Preferred Stock provided for in this Subsection 4(d)(iv) as a result of
such Series D Dilutive Issuance shall not be made with respect to shares of
Series D Preferred Stock held by a person or entity who was given the
opportunity to purchase its Pro Rata Portion (as defined below) of such Series D
Dilutive Issuance (whether pursuant to a right of first refusal or otherwise),
and who failed to purchase its Pro Rata Portion of such Series D Dilutive
Issuance. Each such holder shall be deemed to have waived (i) the reduction in
the Conversion Price of such holder's shares of Series D Preferred Stock that
would have otherwise resulted pursuant to Subsection 4(d)(iv)(A) from such
Series D Dilutive Issuance, (ii) any reduction in the Conversion Price of such
holder's shares of Series D Preferred Stock that would have otherwise resulted
pursuant to Subsection 4(d)(iv)(A) from any future Series D Dilutive Issuances,
and (iii) the right to receive, upon conversion of its Series D Preferred Stock
pursuant to this Section 4, any additional shares of Common Stock that would
have been issuable as a result of such reductions in the applicable Conversion
Price; and such waiver shall be binding upon any transferee of the shares of
Series D Preferred Stock held by such holder.
(E) A "Series D Dilutive Issuance" shall mean any
issuance of Additional Shares of Common Stock that results (or would result,
except for this Subsection 4(d)(iv)(E) in a reduction in the Conversion Price of
the Series D Preferred Stock pursuant to Subsection 4(d)(iv)(A), but shall not
include any purchases by "Subsequent Purchasers" (as defined in the Series D
Convertible Preferred Stock and Warrant Purchase Agreement and Plan of
Recapitalization, dated March 4, 1993, as amended September 9, 1993 (the "Series
D Purchase Agreement"), pursuant to
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<PAGE> 95
the terms of the Series D Purchase Agreement. A holder's "Pro Rata Portion" of a
Series D Dilutive Issuance shall mean the number of Additional Shares of Common
Stock issued in such Series D Dilutive Issuance, multiplied by a fraction, the
numerator of which is the number of shares of Common Stock then held by such
holder as a result of the conversion of shares of Series D Preferred Stock or
issuable upon conversion of shares of Series D Preferred Stock then held by such
holder, and the denominator of which is the aggregate number of shares of Common
Stock then outstanding plus the number of shares of Common Stock issuable upon
conversion or exercise of then outstanding shares of Series Preferred Stock or
other convertible securities, options, rights or warrants. For purposes of this
paragraph, the portion of a Series D Dilutive Issuance purchased by a holder of
Series D Preferred Stock shall be deemed to include any portion of such Series D
Dilutive Issuance purchased by an "affiliate" (as defined in Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act")) of such holder.
(F) All certificates representing shares of Series D
Preferred Stock shall have affixed thereto a legend substantially in the
following form:
The shares represented by this certificate are convertible into shares of
common stock at a rate which may vary among different stockholders of the
Corporation. Information concerning the conversion rate applicable to the
shares represented by this certificate may be obtained from the Secretary
of the Corporation.
(v) DETERMINATION OF CONSIDERATION. For purposes of this
Subsection 4(d), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock with respect to a series
of Series Preferred Stock shall be computed as follows:
(A) CASH AND PROPERTY: Such consideration shall:
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding amounts paid or
payable for accrued interest or accrued dividends;
(II) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
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<PAGE> 96
(III) in the event Additional Shares of Common Stock are issued
together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of
such consideration so received, computed as provided in clauses (I) and
(II) above, as determined in good faith by the Board of Directors.
(B) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares
of Common Stock deemed to have been issued with respect to a series of
Series Preferred Stock pursuant to Subsection 4(d)(iii), relating to
Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Corporation shall at any time or from time to time after the Original Issue Date
for a series of the Series Preferred Stock effect a subdivision of the
outstanding Common Stock, the Conversion Price for such series then in effect
immediately before that subdivision shall be proportionately decreased. If the
Corporation shall at any time or from time to time after the Original Issue Date
for a series of the Series Preferred Stock combine the outstanding shares of
Common Stock, the Conversion Price for such series then in effect immediately
before the combination shall be proportionately increased. Any adjustment under
this paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
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<PAGE> 97
(f) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time, or from time to time after the Original Issue
Date for a series of Series Preferred Stock, shall make or issue, or fix a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, then and in each such event the Conversion Price for such series of
Series Preferred Stock then in effect shall be decreased as of the time of such
issuance or, in the event such a record date shall have been fixed, as of the
close of business on such record date, by multiplying the Conversion Price for
such series of Series Preferred Stock then in effect by a fraction:
(A) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record
date, and
(B) the denominator of which shall be the total number
of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such
record date plus the number of shares of Common Stock issuable
in payment of such dividend or distribution:
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully paid on the date fixed
therefor, the Conversion Price for such series of Series Preferred Stock shall
be recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for such series of Series Preferred Stock shall
be adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time or from time to time after the Original Issue
Date for a series of Series Preferred Stock shall make or issue, or fix a record
date for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of the Corporation other
than shares of Common Stock, then and in each such event provision shall be made
so that the holders of such series of Series Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Corporation that they
would have received had their Series Preferred Stock been converted into Common
Stock on the date of such event and had thereafter, during the period from the
date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period giving application
to all
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<PAGE> 98
adjustments called for during such period, under this paragraph with
respect to the rights of the holders of the Series Preferred Stock.
(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION.
If the Common Stock issuable upon the conversion of the Series Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Series Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Series Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
(i) Adjustment for Merger or Reorganization, etc.
--------------------------------------------
(i) In case of any consolidation or merger of the Corporation with or
into another corporation or the sale of all or substantially all of the assets
of the Corporation to another corporation (other than a consolidation, merger or
sale which is treated as a liquidation pursuant to Subsection 2(a)(iii)), each
share of Series A and B Preferred Stock shall thereafter be convertible into the
kind and amount of shares of stock or other securities or property to which a
holder of the number of shares of Common Stock of the Corporation deliverable
upon conversion of such Series A and B Preferred Stock would have been entitled
upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Series A and B
Preferred Stock, to the end that the provisions set forth in this Section 4
(including provisions with respect to changes in and other adjustments of the
Conversion Prices) shall thereafter be applicable, as nearly as reasonably may
be, in relation to any shares of stock or other property thereafter deliverable
upon the conversion of the Series A and B Preferred Stock.
(ii) In case of any consolidation or merger of the Corporation with or
into another corporation or the sale of all or substantially all of the assets
of the Corporation to another corporation (other than a consolidation, merger or
sale which is
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<PAGE> 99
treated as a liquidation pursuant to Subsection 2(b)(iii)), each share of Series
D Preferred Stock shall thereafter be convertible into the kind and amount of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Corporation deliverable upon conversion of such
Series D Preferred Stock would have been entitled upon such consolidation,
merger or sale; and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application of the
provisions in this Section 4 set forth with respect to the rights and interest
thereafter of the holders of the Series D Preferred Stock, to the end that the
provisions set forth in this Section 4 (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Series D
Preferred Stock.
(iii) In case of any consolidation or merger of the Corporation with or
into another corporation or the sale of all or substantially all of the assets
of the Corporation to another corporation (other than a consolidation, merger or
sale which is treated as a liquidation pursuant to Subsection 2(c)(iii)), each
share of Series E Preferred Stock shall thereafter be convertible into the kind
and amount of shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the Corporation deliverable upon
conversion of such Series E Preferred Stock would have been entitled upon such
consolidation, merger or sale; and, in such case, appropriate adjustment (as
determined in good faith by the Board of Directors) shall be made in the
application of the provisions in this Section 4 set forth with respect to the
rights and interest thereafter of the holders of the Series E Preferred Stock,
to the end that the provisions set forth in this Section 4 (including provisions
with respect to changes in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion
of the Series E Preferred Stock.
(iv) In case of any consolidation or merger of the Corporation with or
into another corporation or the sale of all or substantially all of the assets
of the Corporation to another corporation (other than a consolidation, merger or
sale which is treated as a liquidation pursuant to Subsection 2(d)(iii)), each
share of Series F Preferred Stock shall thereafter be convertible into the kind
and amount or shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the Corporation deliverable upon
conversion of such Series F Preferred Stock would have been entitled upon such
consolidation, merger or sale; and in such case, appropriate adjustment (as
determined in good faith by the Board of Directors) shall be made
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<PAGE> 100
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Series F Preferred
Stock, to the end that the provisions set forth in this Section 4 (including
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series F Preferred Stock.
(j) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series Preferred Stock against impairment.
(k) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price for a series of Series
Preferred Stock pursuant to this Section 4, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each holder of Series Preferred Stock of such series a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Series Preferred
Stock, furnish or cause to be furnished to such holder a similar certificate
setting forth (i) such adjustments and readjustments, (ii) the Conversion Price
for the series of Series Preferred Stock held by such holder then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of such Series
Preferred Stock.
(l) Notice of Record Date. In the event:
---------------------
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
(ii) that the Corporation subdivides or combines its outstanding shares
of Common Stock;
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<PAGE> 101
(iii) of any reclassification of the Common Stock of the Corporation
(other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution
thereon), or of any consolidation or merger of the Corporation
into or with another corporation, or of the sale of all or
substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series Preferred Stock, and shall cause to
be mailed to the holders of the Series Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the record date specified in (A) below or twenty days before the
date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not
to be taken, the date as of which the holders of
Common Stock of record to be entitled to such
dividend, distribution, subdivision or combination
are to be determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution,
liquidation or winding up is expected to become
effective, and the date as of which it is expected
that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock
for securities or other property deliverable upon
such reclassification, consolidation, merger, sale,
dissolution or winding up.
5. Conversion Upon Certain Events.
------------------------------
(a) The Corporation may, at its option, require all (but not
less than all) the shares of Series A Preferred Stock then outstanding to be
converted automatically into shares of Common Stock, at the then current
conversion rate, if there shall be outstanding a number of shares of Series A
Preferred Stock equal to less than 50% of the total number of shares of Series
A Preferred Stock ever issued by the Corporation (subject to
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<PAGE> 102
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares).
(b) The Corporation may, at its option, require all (but not
less than all) the shares of Series B Preferred Stock then outstanding to be
converted automatically into shares of Common Stock, at the then current
conversion rate, if there shall be outstanding a number of shares of Series B
Preferred Stock equal to less than 50% of the total number of shares of Series B
Preferred Stock ever issued by the Corporation (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares).
(c) The Corporation may, at its option, require all (but not
less than all) the shares of Series D Preferred Stock then outstanding to be
converted automatically into shares of Common Stock, at the then current
conversion rate, if there shall be outstanding a number of shares of Series D
Preferred Stock equal to less than 50% of the total number of shares of Series D
Preferred Stock ever issued by the Corporation (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares).
(d) The Corporation may, at its option, require all (but not
less than all) the shares of Series E Preferred Stock then outstanding to be
converted automatically into shares of Common Stock, at the then current
conversion rate, if there shall be outstanding a number of shares of Series E
Preferred Stock equal to less than 50% of the total number of shares of Series E
Preferred Stock ever issued by the Corporation (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares).
(e) The Corporation may, at its option, require all (but not
less than all) the shares of Series F Preferred Stock then outstanding to be
converted automatically into shares of Common Stock, at the then current
conversion rate, if there shall be outstanding a number of shares of Series F
Preferred Stock equal to less than 50 percent of the total number of shares of
Series F Preferred Stock ever issued by the Corporation (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization affecting such shares).
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<PAGE> 103
(f) All outstanding shares of each series of Series Preferred
Stock shall automatically be converted into shares of Common Stock at the then
applicable Conversion Price for such series simultaneously with the consummation
(the "Mandatory Conversion Date") of an underwritten public offering of Common
Stock of the Corporation pursuant to a registration statement filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock to the public in which (A) gross
proceeds to the Corporation from such sale (before deduction of underwriting
discounts and expenses of sale) are not less than $10,000,000 and (B) the per
share sale price to the public is at least equal to 100% the Series E
Conversion Price.
(g) All holders of record of shares of such series of Series
Preferred Stock will be given written notice of the date fixed and the place
designated for mandatory conversion of all of such shares of Series A Preferred
Stock, Series B Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock or Series F Preferred Stock, as the case may be, pursuant to this Section
5. Such notice need not be given in advance of any date fixed for automatic
conversion pursuant to Subsections (a), (b), (c), (d) or (e) above or of any
Mandatory Conversion Date (collectively, a "Conversion Date"). Such notice will
be sent by first class or registered mail, postage prepaid, to each record
holder of Series Preferred Stock at such holder's address last shown on the
records of the transfer agent for the Series Preferred Stock (or the records of
the Corporation if it serves as its own transfer agent). Upon receipt of such
notice, each holder of shares of the Series Preferred Stock to be converted
shall surrender his or its certificate or certificates for all such shares to
the Corporation at the place designated in such notice, and shall thereafter
receive certificates for the number of shares of Common Stock to which such
holder is entitled pursuant to this Section 5. On the Conversion Date, all
rights with respect to the Series Preferred Stock so converted, including the
rights, if any, to receive notices and vote, will terminate, except only the
rights of the holders thereof, upon surrender of their certificate or
certificates therefor, to receive certificates for the number of shares of
Common Stock into which such Series Preferred Stock has been converted and
payment of any declared but unpaid dividends thereon. Certificates surrendered
for conversion shall be endorsed or accompanied by written instrument or
instruments of transfer, in a form satisfactory to the Corporation, duly
executed by the registered holder or by his or its attorney duly authorized in
writing. As soon as practicable after any Conversion Date, and the surrender of
the certificate or certificates for Series Preferred Stock to be converted, the
Corporation shall cause to be issued and delivered to such holder, or on his or
its written order, a certificate or certificates for the number of full shares
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<PAGE> 104
of Common Stock issuable on such conversion in accordance with the provisions
hereof and cash as provided in Subsection 4(b) in respect of any fraction of a
share of Common Stock otherwise issuable upon such conversion.
(h) All certificates evidencing shares of Series Preferred
Stock which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after a Conversion Date with respect to such
shares, be deemed to have been retired and cancelled and the shares of Series
Preferred Stock represented thereby converted into Common Stock for all
purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date. The Corporation may
thereafter take such appropriate action (without the need for stockholder
action) as may be necessary to reduce the authorized Series Preferred Stock
accordingly.
FIFTH. In furtherance of and not in limitation of powers
conferred by statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt,
amend or repeal the By-Laws of the Corporation.
SIXTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the Sate of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this corporation under the provisions of
section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
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has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
SEVENTH. Except to the extent that the General Corporation Law of the
State of Delaware prohibits the elimination or limitation of liability of
directors for breaches of fiduciary duty, no director of the Corporation shall
be personally liable to the Corporation or its stockholders for monetary damages
for any breach of fiduciary duty as a director, notwithstanding any provision of
law imposing such liability. No amendment to or repeal of this provision shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
EIGHTH. The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the Corporation,
or is or was serving, or has agreed to serve, at the request of the
Corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any action alleged to have been taken or omitted
in such capacity, against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
or on his behalf in connection with such action, suit or proceeding and any
appeal therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article.
The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the Corporation.
The indemnification rights provided in this Article (i) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any law, agreement or vote of
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<PAGE> 106
stockholders or disinterested directors or otherwise, and (ii) shall inure to
the benefit of the heirs, executors and administrators of such persons. The
Corporation may, to the extent authorized from time to time by its Board of
Directors, grant indemnification rights to other employees or agents of the
Corporation or other persons serving the Corporation and such rights may be
equivalent to, or greater or less than, those set forth in this Article.
NINTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and the Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
This Amended and Restated Certificate of Incorporation has been duly
adopted by the stockholders in compliance with the provisions of Section 228 and
245 of the General Corporation Law of Delaware.
IN WITNESS WHEREOF, Ascent Pharmaceuticals, Inc. has caused the
certificate to be signed, under penalties of perjury, by Emmett Clemente, its
President, and attested by David E. Redlick, its Secretary, this 28th day of
June, 1996.
ASCENT PHARMACEUTICALS, INC.
By:
--------------------------------
President
Attest:
- --------------------------
Secretary
[Seal]
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<PAGE> 107
EXHIBIT C
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH WARRANT IS REGISTERED
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. THIS
WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON PURCHASE OF THIS
WARRANT ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN
SECTIONS 4 AND 11 OF THIS WARRANT
Warrant No. __ Number of Shares: ______
(subject to adjustment)
Date of Issuance: June __, 1996
ASCENT PEDIATRICS, INC.
Common Stock Purchase Warrant
(Void after June_____, 2001)
Ascent Pharmaceuticals, Inc., a Delaware corporation (the "Company"),
for value received, hereby certifies that ________________________________, or
its registered assigns (the "Registered Holder"), is entitled, subject to the
terms set forth below, upon exercise of this Warrant to purchase from the
Company, at any time or from time to time on or after the first to occur of (x)
January 1, 1997 and (y) the occurrence of a Change in Control of the Company (as
defined below) and on or before June_____, 2001 at not later than 5:00 p.m.
(Boston, Massachusetts time), ___________________________________ (____) shares
of the Company's common stock, $.00004 par value per share (the "Common Stock"),
at a purchase price of $6.50 per share. The shares purchasable upon exercise of
this Warrant, and the purchase price per share, each as adjusted from time to
time pursuant to the provisions of this Warrant, are hereinafter referred to as
the "Warrant Shares" and the "Purchase Price," respectively.
This Warrant is one of a series of warrants comprising the Company's
Series F Common Warrants (as defined in a certain Series F Convertible Preferred
Stock and Warrant Purchase Agreement, dated June __, 1996, among the Company and
the Purchasers named therein (the "Purchase Agreement")).
<PAGE> 108
For purposes of this Warrant, the following events shall be deemed to
be a Change in Control of the Company:
(a) the date on which any "person," as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of
the Company, any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as
their ownership of stock of the Company, or the Registered Holder or
any of its affiliates), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing more than 50% of the combined
voting power of the Company's then outstanding securities;
(b) the closing of a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; and
(c) a complete liquidation of the Company or the sale or
disposition by the Company of all or substantially all of the Company's
assets.
1. Purchase.
(a) This Warrant may be exercised by the Registered Holder, in
whole or in part, by surrendering this Warrant, with the purchase form
appended hereto as Exhibit I duly executed by such Registered Holder or
by such Registered Holder's duly authorized attorney, at the principal
office of the Company, or at such other office or agency as the Company
may designate, accompanied by payment in full, in lawful currency of
the United States, of the Purchase Price payable in respect of the
number of shares of Warrant Shares purchased upon such exercise.
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(b) The Registered Holder may, at its option, elect to pay some or all
of the Purchase Price payable upon an exercise of this Warrant by cancelling a
portion of this Warrant exercisable for such number of Warrant Shares as is
determined by dividing (i) the total Purchase Price payable in respect of the
number of Warrant Shares being purchased upon such exercise by (ii) the excess
of the Fair Market Value per share of Common Stock as of the effective date of
exercise, as determined pursuant to Subsection 1(c) below (the "Exercise Date")
over the Purchase Price per share. The Fair Market Value per share of Common
Stock shall be determined as follows:
(i) If the Common Stock is listed on a national securities
exchange, the Nasdaq National Market, the Nasdaq system, or another nationally
recognized exchange or trading system as of the Exercise Date, the Fair Market
Value per share of Common Stock shall be deemed to be the last reported sale
price per share of Common Stock thereon on the Exercise Date; or, if no such
price is reported on such date, such price on the next preceding business day
(provided that if no such price is reported on the next preceding business day,
the Fair Market Value per share of Common Stock shall be determined pursuant to
clause (ii)).
(ii) If the Common Stock is not listed on a national
securities exchange, the Nasdaq National Market, the Nasdaq system or another
nationally recognized exchange or trading system as of the Exercise Date, the
Fair Market Value per share of Common Stock shall be deemed to be the amount
most recently determined by the Board of Directors to represent the fair market
value per share of the Common Stock (including without limitation a
determination for purposes of granting Common Stock options or issuing Common
Stock under an employee benefit plan of the Company); and, upon request of the
Registered Holder, the Board of Directors (or a representative thereof) shall
promptly notify the Registered Holder of the Fair Market Value per share of
Common Stock. Notwithstanding the foregoing, if the Board of Directors has not
made such a determination within the three-month period prior to the Exercise
Date, then (A) the Fair Market Value per share of Common Stock shall be the
amount next determined by the Board of Directors to represent the fair market
value per share of the Common Stock (including without limitation a
determination for purposes of granting Common Stock options or issuing Common
Stock under an employee benefit plan of the Company), (B) the Board of Directors
shall make such a determination within 15 days of a request by the Registered
Holder that it do so, and (C) the exercise of this Warrant
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<PAGE> 110
pursuant to this Subsection 1(b) shall be delayed until such determination is
made.
(c) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in Subsection 1(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in Subsection
1(d) below shall be deemed to have become the holder or holders of record of the
Warrant Shares represented by such certificates.
(d) As soon as practicable after the exercise of this Warrant in full
or in part, and in any event within 10 days thereafter, the Company, at its
expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct:
(i) certificate or certificates for the number of
full Warrant Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; and
(ii) in case such exercise is in part only, a new
warrant or warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of Warrant Shares equal
(without giving effect to any adjustment therein) to the number of such shares
called for on the face of this Warrant minus the number of such shares purchased
by the Registered Holder upon such exercise as provided in Subsection 1(a)
above.
2. Adjustments.
(a) If the outstanding shares of the Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of the Common Stock, the Purchase Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. If outstanding
shares of the Company's Common Stock shall be combined into a smaller number of
shares, the Purchase Price in effect
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immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be proportionately increased.
(b) In the event that the Company consummates an underwritten
public offering of Common Stock pursuant to a registration statement filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, covering the initial offer and sale of Common Stock to the public in
which gross proceeds to the Company from such sale (before deducting
underwriting discounts and expenses of sale) are not less than $10,000,000 (a
"Qualifying Initial Public Offering"), then the Purchase Price in effect
immediately prior to the consummation of such Qualifying Initial Public Offering
(without regard to the operation of this Subsection 2(b)) (the "Pre-IPO Purchase
Price") shall be adjusted to be equal to the per share price to the public in
the Qualifying Initial Public Offering (the "IPO Price") if the IPO Price
exceeds the Pre-IPO Price (in which event, the IPO Price shall then become the
Purchase Price and shall thereafter be subject to further adjustment as provided
herein, other than pursuant to this Section 2(b)).
(c) When any adjustment is required to be made in the Purchase
Price as a result of the operation of Subsection 2(a) or 2(b), the number of
Warrant Shares purchasable upon the exercise of this Warrant shall be changed to
the number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(d) If there shall occur any capital reorganization or
reclassification of or other change in the Common Stock (other than a change in
par value or a subdivision or combination as provided for in Subsection 2(a)
above), or a transfer of all or substantially all of the assets of the Company
then, as part of any such reorganization, reclassification, as the case may be,
lawful provision shall be made so that the Registered Holder of this Warrant
shall receive upon the exercise hereof the kind and amount of shares of stock or
other securities or property which such Registered Holder would have been
entitled to receive if, immediately prior to any such reorganization,
reclassification, as the case may be, such Registered Holder had held the number
of shares of Common Stock which were then purchasable upon the exercise of this
Warrant. In any such
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<PAGE> 112
case, appropriate adjustment (as reasonably determined in good faith by the
Board of Directors of the Company) shall be made in the application of the
provisions set forth herein with respect to the rights and interests thereafter
of the Registered Holder of this Warrant, such that the provisions set forth in
this Section 2 (including provisions with respect to adjustment of the Purchase
Price) shall thereafter be applicable, as nearly as is reasonably practicable,
in relation to any shares of stock or other securities or property thereafter
deliverable upon the exercise of this Warrant.
3. Fractional Shares. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares (as determined on an
aggregate basis for each exercise pursuant to this Warrant), but shall make an
adjustment therefor in cash on the basis of the Fair Market Value per share of
Common Stock, as determined pursuant to Subsection 1(b) above.
4. Requirements for Transfer.
(a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company first shall
have been furnished with an opinion of legal counsel, reasonably satisfactory to
the Company (which opinion may be rendered by (x) staff counsel to the holder of
the Warrant or (y) a law firm then designated by the holder as its special
counsel) to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Each certificate representing Warrant Shares shall bear a
legend substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not be
offered, sold or otherwise transferred, pledged or hypothecated unless
and until such securities are registered under such Act or an opinion
of counsel satisfactory to the Company (which opinion may be rendered
by (x) staff counsel to the holder of the Warrant or (y) a law firm
then designated by the holder as its special counsel) is obtained to
the effect that such registration is not required."
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<PAGE> 113
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
5. No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through reorganization, consolidation, merger, dissolution,
sale of assets or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of this Warrant against impairment.
6. Liquidating Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Liquidating Dividend which
would have been paid to such Registered Holder if it had been the owner of
record of such Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
7. Notices of Record Date, etc. In case:
(a) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time deliverable upon the
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend or other distribution, or to receive any right to subscribe
for or purchase any shares of stock of any class or any other securities, or to
receive any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or
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(c) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
then, and in each such case, the Company will send or cause to be sent to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, (ii) the date on which such conversion was effective, or
(iii) the effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be given at least ten (10) days, or if such advance notice is not
practicable, then such shorter period as may be practicable, prior to the record
date or effective date for an event specified in Subsection 7(a), (b) or (c).
Such notice shall be given no later than ten (10) days after the effective date
of an event specified in Subsection 7(b).
8. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
9. Exchange of Warrants. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
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<PAGE> 115
10. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company (provided that, for purposes of this Section 10, a
letter of indemnity from an entity having total assets of at least $100,000,000
shall be deemed sufficient indemnity), or (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.
11. Transfers, etc.
(a) The Company will maintain a register containing the names
and addresses of the Registered Holders of this Warrant. Any Registered Holder
may change its or his address as shown on the warrant register by written notice
to the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this
Warrant and all rights hereunder are transferable, in whole or in part, upon
surrender of this Warrant with a properly executed assignment (in the form of
Exhibit II hereto) at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
(d) Overseas Holders. If such Registered Holder's principal
address is a location outside of the United States of America and its
territories, such Registered Holder (an "Overseas Holder"):
(i) is not a U.S. person (as defined in Securities
Act Rule 902(o) and is not acquiring this Warrant or any Warrant Shares
purchased hereunder for the account or benefit of any U.S. person;
(ii) will transfer this Warrant or any Warrant Shares
purchased pursuant to any exercise hereunder only (x) in accordance with the
provisions of Regulation S promulgated under the Securities Act ("Regulation
S"),
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<PAGE> 116
(y) pursuant to an effective registration statement under the Securities Act, or
(z) pursuant to an available exemption from registration under the Securities
Act; and
(iii) will not offer or sell this Warrant or any
Warrant Shares purchased hereunder to a U.S. person or to or for the account or
benefit of a U.S. person prior to the expiration of the one-year period after
the date of this Warrant, with respect to a transfer of this Warrant, or one
year after the exercise of this Warrant, with respect to any Warrant Shares
purchased hereunder.
12. Giving of Notices, etc. All notices and other communications from
the Company to the Registered Holder of this Warrant shall be in writing and
shall be deemed effective (i) upon delivery by hand, (ii) two business days
after deposit with an express courier service for delivery no later than two
business days after such deposit, addressed to the Registered Holder at the
address set forth on the warrant register maintained by the Company (or at such
other address as may have been last furnished to the Company in writing by the
holder), or (iii) upon confirmation of transmittal by telecopy to the Registered
Holder, with a hard copy sent in accordance with the preceding clause (ii), to
the telecopy number set forth on the warrant register maintained by the Company
(or to such telecopy number as may have been last furnished to the Company in
writing by the holder). All notices and other communications from the Registered
Holder of this Warrant to the Company shall be in writing and shall be deemed
effective (i) upon delivery by hand, (ii) two business days after deposit with
an express courier service for delivery no later than two business days after
such deposit, addressed to the Company at its principal office set forth below,
or (iii) upon confirmation of transmittal by telecopy, with a hard copy sent in
accordance with the preceding clause (ii), to the telecopy number of the Company
set forth below. If the Company should at any time change the location of its
principal office to a place other than as set forth below or change its telecopy
number to a number other than as set forth below, it shall give prompt written
notice to the Registered Holder of this Warrant in the manner prescribed herein,
and thereafter all references in this Warrant to the location of its principal
office or telecopy number at the particular time shall be as so specified in
such notice.
13. No Rights as Stockholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not
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have or exercise any rights by virtue hereof as a stockholder of the Company.
14. Change or Waiver. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of at least a majority of the Series F
Common Warrants (as defined in the Series F Convertible Preferred Stock and
Warrant Purchase Agreement, dated June 28, 1996, among the Company and the
Purchasers named therein).
15. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
16. Governing Law. This Warrant will be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
17. Termination. This Warrant, and the rights to purchase shares of
Common Stock hereunder, shall terminate immediately upon exercise of the Series
F Put Option (as defined in Section 7.4(c) of the Purchase Agreement) in
accordance with the terms of the Purchase Agreement.
ASCENT PHARMACEUTICALS, INC.
[Corporate Seal] By:___________________________
ATTEST: Title:________________________
________________________ Address: 9 Linnell Circle
Billerica, MA 01821
Telephone: 508-667-6300
Telecopier: 508-667-5322
ACCEPTED:
________________________
________________________
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EXHIBIT I
PURCHASE FORM
To:________________ Dated:_____________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. ___), hereby irrevocably elects to purchase shares of the Common
Stock covered by such Warrant and herewith makes payment of $___________,
representing the full purchase price for such shares at the price per share
provided for in such Warrant.
Signature:
Address: ______________________
______________________
<PAGE> 119
EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, _________________ hereby sells, assigns and
transfers all of the rights of the undersigned under the attached Warrant
(No.__) with respect to the number of shares of Common Stock covered thereby set
forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated:________________________ Signature:_________________
Dated:________________________ Signature:_________________
<PAGE> 120
Exhibit D
Subsequent Purchaser Signature Page
-----------------------------------
By its execution and delivery of this signature page, the undersigned
Subsequent Purchaser agrees to become a party to and be bound by the terms and
conditions of the Ascent Pharmaceuticals, Inc. Series F Convertible Preferred
Stock and Warrant Purchase Agreement, dated as of June 28, 1996 (the "Series F
Purchase Agreement"), and the Second Amended and Restated Voting Rights
Agreement (as defined in Section 5.8 of the Series F Purchase Agreement) as to:
(i) the Additional Total Commitment Amount, (ii) the Subsequent Purchaser First
Closing Funded Amount and (iii) the corresponding number of Subsequent Purchaser
First Shares, Subsequent Purchaser Total Commitment Warrants and Subsequent
Purchaser Funded Amount Warrants set forth below. The undersigned further
authorizes this signature page (as a photocopy or facsimile copy) to be attached
to the Series F Purchase Agreement and the Second Amended and Restated Voting
Rights Agreement as a part thereof.
Name of Subsequent Purchaser
____________________________________________
By:_________________________________________
Title:______________________________________
Additional Total Commitment Amount:
$___________________________________________
Subsequent Purchaser First Closing Funded
Amount: $___________________________________
Number of Subsequent Purchaser First Shares:
____________________________________________
Number of Subsequent Purchaser Total
Commitment Warrants: _______________________
Number of Subsequent Purchaser Funded
Amount Warrants at Subsequent Purchaser
First Closing: _____________________________
Agreed to and accepted this
____ day of _________, 1996.
ASCENT PHARMACEUTICALS, INC.
By:
-------------------------
Title:
<PAGE> 121
Exhibit E
ASCENT PHARMACEUTICALS, INC.
FOLLOW-ON FUNDING CLOSING NOTICE
To: The Purchasers of Series F Convertible Preferred Stock and Series F
Common Warrants
Date: ________ __, 199_
Re: Notice of Follow-On Funding Closing
Pursuant to Sections 1.4 and 2.4 of the Series F Convertible Preferred
Stock and Warrant Purchase Agreement, dated as of June __, 1996, among Ascent
Pharmaceuticals, Inc. (the "Company") and the Purchasers named on Exhibit A
thereto (the "Purchase Agreement"), the Company hereby provides notice of a
Follow-On Funding Closing to be held on [date]. Capitalized terms used herein
and not otherwise defined shall have the respective meanings ascribed to such
terms as in the Purchase Agreement.
The Call Amount at the Follow-On Funding Closing shall be $________. In
connection with the Follow-On Funding Closing, subject to the terms and
conditions of the Purchase Agreement, you will be called upon to fund an
aggregate amount equal to $_______ (your Follow-On Funding Commitment Percentage
multiplied by the Call Amount). In exchange, you will receive: __________
Follow-On Funding Shares and __________ Follow-On Funded Amount Warrants. Please
note that your Follow-On Funding Commitment Percentage and the associated number
of Follow-On Funding Shares and Follow-On Funded Amount Warrants are subject to
adjustment as providedin Section 1.5 of the Purchase Agreement. In the event
that such an
<PAGE> 122
adjustment is required, the Company will notify you prior to the Follow-On
Funding Closing.
ASCENT PHARMACEUTICALS, INC.
By:_________________________________
Title:______________________________
2
<PAGE> 123
Exhibit H
SECONDED AMENDED AND RESTATED VOTING RIGHTS AGREEMENT
-----------------------------------------------------
AGREEMENT made as of June 28, 1996 by and among those persons listed on
the signature page under the caption "The Series A Group) (the "Series A
Group"), those persons listed on the signature page under the caption "The
Series B Group" (the "Series B Group") and those persons listed on the signature
page under the caption "The Series D Group" (the "Series D Group"), those
persons listed on the signature page under the caption "The Burr, Egan, Deleage
Group" (the "Burr, Egan, Deleage Group"), the person listed on the signature
page under the caption "The Atlas Group" (the "Atlas Group"), those persons
listed on the signature page under the caption "The Series E Group" (the "Series
E Group"), those persons listed on the signature page under the caption "The
Series F Group" (together with any Subsequent Purchasers who have executed a
Subsequent Purchaser Signature Page, as such terms are defined in the Series F
Convertible Preferred Stock and Warrant Purchase Agreement of even date
herewith, collectively, the "Series F Group"), and Ascent Pharmaceuticals, Inc.,
a Delaware corporation (the "Company"). The Series A Group, the Series B Group,
the Series D Group, the Burr, Egan, Deleage Group, the Atlas Group, the Series E
Group and the Series F Group are sometimes hereinafter referred to individually
as a "Group" and collectively as "Stockholders."
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Series A Group owns certain of the outstanding shares of
Series A Convertible Preferred Stock, $.00004 par value per share, of the
Company ("Series A Stock"), the Series B Group owns certain of the outstanding
shares of Series B Convertible Preferred Stock, $.00004 par value per share, of
the Company ("Series B Stock"), the Series D Group and the Burr, Egan, Deleage
Group own certain of the outstanding shares of Series D Convertible Preferred
Stock, $.00004 par value per share, of the Company ("Series D Stock"), the
Series E Group owns certain of the outstanding shares of Series E Convertible
Preferred Stock, $.00004 par value per share, of the Company ("Series E Stock"),
and the Series F Group owns certain of the outstanding shares of Series F
Convertible Preferred Stock, $.00004 par value per share, of the Company
("Series F Stock");
WHEREAS, the Series A Group, the Series B Group, the Series D Group, the
Burr, Egan, Deleage Group, the Atlas Group and the Series E Group wish to
terminate the Amended and Restated Voting
<PAGE> 124
Rights Agreement, dated July 12, 1995, as amended (the "Previous Voting Rights
Agreement") in its entirety; and
WHEREAS, the Stockholders wish to set forth in writing certain of their
understandings and agreements relating to their stock ownership rights as set
forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, each of the Stockholders agrees as
follows:
1. Voting of Shares.
----------------
(a) At each annual meeting of the Company's stockholders, and at each
special meeting of the Company's stockholders at which directors are to be
elected, and at any other time at which the Company's stockholders vote for the
election of directors to the board of directors (whether by unanimous written
consent in lieu of a meeting or otherwise), each of the Stockholders shall vote,
whether in person or by proxy, or cause to be voted all Shares (as defined in
Section 2 hereof) owned by him, or over which he has voting control, and
otherwise use his reasonable best efforts and take all appropriate action, so as
to:
(i) fix the number of directors of the Company at eight (8);
(ii) nominate and elect as a director of the Company one (1)
member designated by members of the Burr, Egan, Deleage Group who hold shares
representing a majority of the capital stock of the Company (on an as-converted
basis) held by all members of the Burr, Eagan, Deleage Group (a "Burr, Eagan
Majority");
(iii) nominate and elect as a director of the Company one (1)
member designated by members of the Series A Group and the Series B Group who
hold shares representing a majority of the capital stock of the Company (on an
as-converted basis) held by all members of the Series A Group and the Series B
Group (voting together as a single class) (a "Series A and Series B Majority");
(iv) nominate and elect as a director of the Company one (1)
member designated by members of the the Atlas Group who hold shares representing
a majority of the capital stock of the Company (on an as-converted basis) held
by all members of the Atlas Group (an "Atlas Majority");
(v) nominate and elect as directors of the Company three (3)
members who are not employees of the Company and who are
2
<PAGE> 125
reasonably acceptable to each of (A) the Chief Executive Officer of the Company
(as such person shall be designated from time to time), (B) a Burr, Egan
Majority, (C) an Atlas Majority and (D) a Series A and Series B Majority; and
(vi) nominate and elect as directors of the Company two (2)
members who shall be (A) the President and Chief Executive Officer of the
Company, as such person shall be designated from time to time, and (B) the
Chairman of the Board of the Company, as such person shall be designated from
time to time.
The initial designees shall be Terrance McGuire (designated by Burr,
Egan, Deleage Group), Andre Lamotte (designated by the Series A and Series B
Group), Michael DuCros (designated by the Atlas Group), Ray Baddour, Robert
Baldini and Lee Schroeder (three designees who are reasonably acceptable to the
President and Chief Executive Officer of the Company, the Burr, Egan, Deleage
Group, the Atlas Group and the Series A and Series B Group), Alan F. Fox and
Emmett Clemente (the current President and Chief Executive Officer and the
Chairman of the Board of the Company, respectively).
(b) The Company shall provide each Stockholder with at least seven (7)
days prior written notice of any intended mailing of notice to stockholders for
(i) a meeting at which directors are to be elected or (ii) any proposed written
consent in lieu of a meeting of stockholders pursuant to which directors are to
be elected and the Burr, Egan, Deleage Group, the Atlas Group and the Series A
Group and Series B Group, as the case may be, shall notify the Company in
writing of the person(s) designated by it as its nominee for election as
director. If the Burr, Egan, Deleage Group, the Atlas Group or the Series A and
Series B Group shall fail to give notice to the Company as provided above, it
shall be deemed that the designee(s) of the Burr, Egan, Deleage Group, the Atlas
Group or the Series A Group and Series B Group, as the case may be, then serving
as director(s) shall be its designee(s) for reelection. If the Burr, Egan,
Deleage Group, the Atlas Group or the Series A Group and Series B Group shall
fail to give notice to the Company as provided above and its prior designee was
removed, died or resigned in accordance with (c) or (d) below, the designee(s)
shall be named a majority of the remaining members of the Board of Directors.
(c) No Stockholder shall vote to remove any director designated by
another party or parties, except for such director's bad faith or willful
misconduct. In the event that any director is so removed (a "Removed Director"),
a nominee to fill the
3
<PAGE> 126
vacancy so created shall be proposed by the parties who originally designated
the Removed Director and the Stockholders shall act in accordance with the
provisions of Section 1(a) hereof to elect such nominee to the Board of
Directors; provided, however, that, such parties shall not redesignate any
Removed Director.
(d) In the event that any director designated by another party dies or
resigns, a nominee to fill the vacancy so created shall be proposed by the
parties who originally designated the director and the Stockholders shall act in
accordance with the provisions of Section 1(a) hereof to elect such nominee to
the Board of Directors.
(e) The obligations of each Stockholder of a Group to elect directors
under this Section 1 may be satisfied by action taken by the Board of Directors
to elect directors satisfactory to the parties hereunder.
2. SHARES. As used in this agreement, the term "Shares" shall mean
and include any and all shares of capital stock of the Company, by whatever name
called, which carry voting rights and shall include any shares now owned or
subsequently acquired by the Stockholders, however acquired, including, without
limitation, through stock splits or stock dividends.
3. Termination.
-----------
(a) This Agreement, and all rights and obligations hereunder, shall
terminate upon the earlier to occur of the following: (i) immediately prior to
the closing of an Initial Public Offering (as such term is hereinafter defined)
or (ii) the tenth (10th) anniversary of this Agreement; provided, however, that
at any time within two (2) years prior to the tenth (10th) anniversary of this
Agreement, the parties hereto may, but shall not be obligated to, extend the
term of this Agreement for additional periods not to exceed ten (10) years.
(b) For purposes of Section 3(a) hereof, the term "Initial Public
Offering" shall mean an offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, of either the Shares or the common
stock of the Company with gross proceeds to the Company (before deduction of
underwriting discounts and expenses of sale) of not less than $10,000,000.
4. NO REVOCATION. The voting agreements contained herein are coupled
with an interest and may not be revoked, except by the
4
<PAGE> 127
written consent of a majority in interest (on an as-converted basis) of the
members of each Group.
5. RESTRICTIVE LEGEND. All certificates representing Shares owned or
hereafter acquired by the Stockholders, or any transferee bound by this
Agreement, shall have affixed thereto a legend substantially in the following
form:
"The shares of stock represented by this certificate are subject to
certain voting agreements as set forth in a Second Amended and Restated
Voting Rights Agreement by and among the registered owner of this
certificate, the Company and certain other stockholders of the Company, a
copy of which is available for inspection at the offices of the Secretary
of the Company."
6. ACTION AS DIRECTOR. No party hereto who is or may become a
director of the Company either agrees or implies that he will exercise his
authority as a director in any manner other than in accordance with his
considered judgment at such time with respect to the best interests of the
Company.
7. TRANSFEREES; BINDING EFFECT. Except for Shares transferred
pursuant to a registration statement filed under the Securities Act of 1933, as
amended, Shares which are transferred shall remain subject to, and be entitled
to the benefit of,
this Agreement and each Stockholder who intends to sell any Shares shall require
any proposed transferee, as a condition to such transfer, to deliver to the
Company a written instrument confirming that such transferee shall be bound by
all of the terms and conditions of this Agreement. This Agreement shall also be
binding upon and inure to the benefit of the Stockholders and their respective
heirs, executors, administrators and legal representatives.
8. General.
-------
(a) SEVERABILITY. The provisions of this Agreement are severable, so
that the invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other term or provision of this
Agreement, which shall remain in full force and effect.
(b) SPECIFIC PERFORMANCE. In addition to any and all other remedies
that may be available at law in the event of any breach of this Agreement, each
Stockholder shall be entitled to specific performance of the agreements and
obligations of the Company and the
5
<PAGE> 128
other Stockholders, respectively, hereunder and to such other injunctive or
other equitable relief as may be granted by a court of competent jurisdiction.
(c) GROUP. Except as otherwise expressly indicated herein, each Group
shall act as a group by a vote of a majority of the Shares (on an as-converted
basis) held by its respective members.
(d) GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the substantive laws of the State of Delaware,
excluding the conflicts of laws provisions of the State of Delaware.
(e) NOTICES. All notices, requests, consents and other communications
under this Agreement shall be in writing and shall be (i) delivered by hand,
(ii) mailed by first class certified or registered mail, return receipt
requested, postage prepaid or (iii) transmitted by telecopy with a hard copy
mailed by first class certified or registered mail as aforesaid:
If to the Company, at 9 Linnell Circle, Billerica, Massachusetts 01821,
telecopy number (508) 667-5322, Attention: President, or at such other address
or addresses as may have been furnished in writing by the Company to the
Stockholders, with a copy to David E. Redlick, Esq., Hale and Dorr, 60 State
Street, Boston, Massachusetts 02109, telecopy number (617) 526-5000; or
If to a Stockholder, at his address as it appears on the stock record
books of the Company, or at such other address or addresses as may have been
furnished to the Company in writing by such Stockholder.
Notices provided in accordance with this Section 8(e) shall be deemed
delivered upon personal delivery or (i) in the case of notices provided within
the continental United States, 48 hours after deposit in the mail, (ii) in the
case of notices provided between the United States and Europe or the Middle
East, ten (10) days after deposit in the mail and (iii) in the case of notices
provided by telecopy, upon completion of transmission to the addressee's
telecopier.
(f) TERMINATION OF PREVIOUS VOTING RIGHTS AGREEMENT; COMPLETE
AGREEMENT; AMENDMENTS. The Previous Voting Rights Agreement is hereby terminated
in its entirety and this Agreement now constitutes the full and complete
agreement of the parties hereto with respect to the subject matter hereof. No
amendment, modification or termination of any provision of this Agreement
6
<PAGE> 129
shall be valid unless in writing and signed by a majority in interest (based
upon their then current ownership of Shares on an as-converted basis) of each
Group.
(g) WAIVERS AND FURTHER AGREEMENTS. Any waiver by any party of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any other breach of that provision or of any other provision hereof.
Each of the parties hereto agrees to execute all such further instruments and
documents and to take all such further action as any other party may reasonably
require in order to effectuate the terms and purposes of this Agreement.
(h) PRONOUNS. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice-versa.
(i) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute an original, but all of which shall
be one and the same document.
(j) CAPTIONS. Captions of sections have been added only for
convenience and shall not be deemed to be a part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as a sealed instrument on the date first above written.
ASCENT PHARMACEUTICALS, INC.
By:
------------------------------------
Name:
Title:
7
<PAGE> 130
THE SERIES A GROUP:
---------------------------------------
Raymond Baddour
MEDICAL SCIENCE PARTNERS, L.P.
By:
------------------------------------
Name:
Title:
THE SERIES B GROUP:
MEDICAL SCIENCE PARTNERS, L.P.
By:
------------------------------------
Name:
Title:
EUROPAR
By:
------------------------------------
Name:
Title:
K/S NORDIC HEALTH CARE
PARTNERS
By:
------------------------------------
Name:
Title:
8
<PAGE> 131
HOEGH INVEST A/S
By:
------------------------------------
Name:
Title:
FOUNDATION THOMAS FEARNLEY
By:
------------------------------------
Name:
Title:
AL-MIDANI INVESTMENT COMPANY
By:
------------------------------------
Name:
Title:
--------------------------------------
Salah Salhab
THE SERIES D GROUP:
------------------
BENEFIT CAPITAL MANAGEMENT
CORPORATION, as investment
manager for The Prudential
Insurance Company of America (Separate
Account Number VCA-GA-5298)
9
<PAGE> 132
By:
------------------------------------
Name: Sue DeCarlo
Title: Chief Financial Officer
NEW YORK LIFE INSURANCE
COMPANY
By:
------------------------------------
Name: Richard Drake
Title: Assistant Vice President
AL-MIDANI INVESTMENT COMPANY
By:
------------------------------------
Name:
Title:
K/S NORDIC HEALTH CARE
PARTNERS
By:
------------------------------------
Name:
Title:
EUROPAR
By:
------------------------------------
Name:
Title:
MEDICAL SCIENCE PARTNERS, L.P.
10
<PAGE> 133
By:
------------------------------------
Name:
Title:
SEIF FOUNDATION-LEICHTENSTEIN
By:
------------------------------------
Name:
Title:
---------------------------------------
Mohamad Khaled Omari
SOLTER CORPORATION
By:
------------------------------------
Name:
Title:
-------------------------------
Riyad Ali Murtada
SAWARY LIMITED
By:
------------------------------------
Name:
Title:
11
<PAGE> 134
---------------------------------------
Richard J. Bradley
---------------------------------------
Martin Pestalozzi
JAHLEEL CORPORATION
By:
------------------------------------
Name:
Title:
---------------------------------------
Georges Muller
THE BURR, EGAN, DELEAGE GROUP:
ALTA V LIMITED PARTNERSHIP
By: Alta V Management
Partners L.P.
By:
------------------------------------
Name:
Title:
CUSTOM HOUSE PARTNERS
By:
------------------------------------
12
<PAGE> 135
Name:
Title:
ATLAS VENTURE FUND II, L.P.
By: Atlas Venture
Associates II, L.P.
By:
------------------------------------
Name:
Title:
VENTURES MEDICAL II, L.P.
By: Venture Medical Associates
By:
------------------------------------
Name:
Title:
The Atlas Group:
---------------
ATLAS VENTURE FUND II, L.P.
By: Atlas Venture Associates
II, L.P.
By:
------------------------------------
Name:
Title
THE SERIES E GROUP:
------------------
ALTA V LIMITED PARTNERSHIP
By: Alta V Management
13
<PAGE> 136
Partners L.P.
By:
------------------------------------
Name:
Title:
BENEFIT CAPITAL MANAGEMENT CORPORATION, as
investment manager for The Prudential
Insurance Company of America (Separate
Account Number VCA-GA-5298)
By:
------------------------------------
Name: Sue DeCarlo
Title: Chief Financial Officer
CUSTOM HOUSE PARTNERS
By:
------------------------------------
Name:
Title:
MEDICAL SCIENCE PARTNERS II, L.P.
By:
------------------------------------
Name:
Title:
NEW YORK LIFE INSURANCE COMPANY
By:
------------------------------------
Name: Richard F. Drake
Title: Vice President
14
<PAGE> 137
VENTURES MEDICAL II, L.P.
By: Ventures Medical Associates
By:____________________________
Name:
Title:
The Series F Group
ADAMS, HARKNESS & HILL, INC.
By:
------------------------------------
Name:
Title:
ATLAS VENTURE FUND II, L.P.
By: Atlas Venture Associates
II, L.P.
By:
------------------------------------
Name:
Title
--------------------------------------
Raymond Baddour
BENEFIT CAPITAL MANAGEMENT CORPORATION, as
investment manager for The Prudential
Insurance Company of America (Separate
Account Number VCA-GA-
5298)
15
<PAGE> 138
By:
------------------------------------
Name: Sue DeCarlo
Title: Chief Financial Officer
BURR, EGAN, DELEAGE & COMPANY
By:
------------------------------------
Name:
Title
NEW YORK LIFE INSURANCE COMPANY
By:
------------------------------------
Name: Richard Drake
Title: Vice President
16
<PAGE> 139
AMENDMENT
OF
SERIES F CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
DATED AS OF JUNE 28, 1996
Pursuant to Section 16 of the Series F Convertible Preferred Stock and
Warrant Agreement, dated as of June 28, 1996, among Ascent Pediatrics, Inc., a
Delaware corporation (the "Company"), the parties named on EXHIBIT A thereto and
certain other parties named therein (the "Agreement"), the undersigned, in its
capacity as holder of Shares, consents to an amendment of Section 1.3 of the
Agreement extending the Subsequent Purchaser Acceptance Period until December
31, 1996 and increasing the limit of the sum of the First Purchaser Total
Commitment Amount and the total of all Additional Total Commitment Amounts to
$15,000,005, so that said Section shall read in its entirety as follows:
"1.3 Sale of and Commitment to Purchase Shares and Series F Common
Warrants by Subsequent Purchaser(s).
On and subject to the terms and conditions of this Agreement,
during the period commencing on the date of the First Closing and ending
on December 31, 1996 (the "Subsequent Purchaser Acceptance Period"), the
Company may (on one or more occasions), but shall not be obligated to,
obtain additional commitments to invest in Series F Preferred ("Additional
Total Commitment Amounts") from additional investors; PROVIDED, HOWEVER,
that in no event may the sum of (x) the First Purchaser Total Commitment
Amount and (y) the total of all Additional Total Commitment Amounts exceed
$15,000,005. Each party who desires to make such a commitment shall
execute and deliver an appropriate counterpart signature page to this
Agreement substantially in the form of Exhibit D (a "Subsequent Purchaser
Signature Page") which shall set forth the Additional Total Commitment
Amount of such party. From and after the execution and delivery by such
party of a Subsequent Purchaser Signature Page, each such party shall be
deemed a Subsequent Purchaser hereunder, shall be deemed a party to this
Agreement and shall be deemed to have committed to invest in Series F
Preferred and Series F Common Warrants an amount equal to such Subsequent
Purchaser's Additional Total Commitment Amount. Each Purchaser hereby
authorizes the Company to make appropriate amendments to Exhibit A and
Schedule 1.5 following each Subsequent Purchaser First Closing
<PAGE> 140
(as defined below) to reflect the Subsequent Purchasers, their status as
Priority Purchasers (as defined in Section 1.5), their Additional Total
Commitment Amounts and the number of Shares and Warrants purchased at
their Subsequent Purchaser First Closings, which amendments to Exhibit A
and Schedule 1.5 shall be binding upon all Purchasers absent manifest
error. At each first closing for any Subsequent Purchaser(s) (each, a
"Subsequent Purchaser First Closing"), each Subsequent Purchaser shall
purchase from the Company, for a cash purchase price agreed by the
Company and such Subsequent Purchaser and set forth on the Subsequent
Purchaser Signature Page executed by such Subsequent Purchaser (which
amount shall be such Subsequent Purchaser's "Subsequent Purchaser First
Closing Funded Amount"), and the Company shall sell and issue to each
Subsequent Purchaser funding for the first time at such Subsequent
Purchaser First Closing:
(a) the number of shares of Series F Preferred as is
equal to such Subsequent Purchaser's Subsequent Purchaser First
Closing Funded Amount divided by $6.50 (the "Subsequent Purchaser
First Shares");
(b) a Series F Common Warrant to purchase the number of
shares of Common Stock as is equal to a fraction, the numerator of
which shall be equal to the product of such Subsequent Purchaser's
Additional Total Commitment Amount and 0.1, and the denominator of
which shall be $6.50 (the "Subsequent Purchaser Total Commitment
Warrants"); and
(c) a Series F Common Warrant to purchase the number of
shares of Common Stock as is equal to a fraction, the numerator of
which shall be equal to the product of such Subsequent Purchaser's
Subsequent Purchaser First Closing Funded Amount and 0.3, and the
denominator of which shall be $6.50 (the "Subsequent Purchaser
Funded Amount Warrants")."
Capitalized terms used herein but not otherwise defined herein have the
meanings ascribed thereto in the Agreement.
The undersigned hereby agrees that this Amendment shall be effective for
all purposes upon the receipt of a telecopy by the Company or its counsel of a
signed signature page of this Amendment and that the Company or its counsel is
authorized to attach such signed signature page to the pages comprising the
balance of this Amendment.
This Amendment 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.
2
<PAGE> 141
Executed as a sealed instrument as of the date set forth below.
ADAMS, HARKNESS & HILL, INC.
By: /s/ Harold Wells
-----------------------------------
Name: Harold Wells
Title:
Date: 12/10/96
BENEFIT CAPITAL MANAGEMENT
CORPORATION, as investment manager for
The Prudential Insurance Company of
America (Separate Account Number VCA
GA-5298)
By: /s/ Sue DeCarlo
-----------------------------------
Name: Sue DeCarlo
Title: CFO
Date: 12/9/96
NEW YORK LIFE INSURANCE
COMPANY
By: /s/ Richard Drake
-----------------------------------
Name: Richard Drake
Title: Investment Vice President
Date: 12/11/96
ASCENT PEDIATRICS, INC.
By: /s/ Alan R. Fox
-----------------------------------
Name: Alan R. Fox
Title:
Date: 12/11/96
3
<PAGE> 142
AMENDMENT NUMBER 2 TO THE SERIES F CONVERTIBLE
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
The Series F Convertible Preferred Stock and Warrant Purchase Agreement,
dated as of June 28, 1996, as amended (the "Series F Purchase Agreement"), is
amended as follows:
1. Section 1.3 of the Series F Purchase Agreement is amended to
extend the Subsequent Purchaser Acceptance Period until February 28, 1997, so
that said Section shall read in its entirety as follows:
"1.3 Sale of and Commitment to Purchase Shares and Series F Common
Warrants by Subsequent Purchaser(s).
On and subject to the terms and conditions of this Agreement,
during the period commencing on the date of the First Closing and ending
on February 28, 1997 (the "Subsequent Purchaser Acceptance Period"), the
Company may (on one or more occasions), but shall not be obligated to,
obtain additional commitments to invest in Series F Preferred ("Additional
Total Commitment Amounts") from additional investors; provided, however,
that in no event may the sum of (x) the First Purchaser Total Commitment
Amount and (y) the total of all Additional Total Commitment Amounts exceed
$15,000,005. Each party who desires to make such a commitment shall
execute and deliver an appropriate counterpart signature page to this
Agreement substantially in the form of Exhibit D (a "Subsequent Purchaser
Signature Page") which shall set forth the Additional Total Commitment
Amount of such party. From and after the execution and delivery by such
party of a Subsequent Purchaser Signature Page, each such party shall be
deemed a Subsequent Purchaser hereunder, shall be deemed a party to this
Agreement and shall be deemed to have committed to invest in Series F
Preferred and Series F Common Warrants an amount equal to such Subsequent
Purchaser's Additional Total Commitment Amount. Each Purchaser hereby
authorizes the Company to make appropriate amendments to Exhibit A and
Schedule 1.5 following each Subsequent Purchaser First Closing (as defined
below) to reflect the Subsequent Purchasers, their status as Priority
Purchasers (as defined in Section 1.5), their Additional Total Commitment
Amounts and the number of Shares and Warrants purchased at their
Subsequent Purchaser First Closings, which amendments to Exhibit A and
Schedule 1.5 shall be binding upon all Purchasers absent manifest error.
At each first closing for any Subsequent Purchaser(s) (each, a "Subsequent
Purchaser First Closing"),
<PAGE> 143
each Subsequent Purchaser shall purchase from the Company, for a cash
purchase price agreed by the Company and such Subsequent Purchaser and
set forth on the Subsequent Purchaser Signature Page executed by such
Subsequent Purchaser (which amount shall be such Subsequent Purchaser's
"Subsequent Purchaser First Closing Funded Amount"), and the Company
shall sell and issue to each Subsequent Purchaser funding for the first
time at such Subsequent Purchaser First Closing:
(a) the number of shares of Series F Preferred as is
equal to such Subsequent Purchaser's Subsequent Purchaser First Closing
Funded Amount divided by $6.50 (the "Subsequent Purchaser First Shares");
(b) a Series F Common Warrant to purchase the number of
shares of Common Stock as is equal to a fraction, the numerator of which
shall be equal to the product of such Subsequent Purchaser's Additional
Total Commitment Amount and 0.1, and the denominator of which shall be
$6.50 (the "Subsequent Purchaser Total Commitment Warrants"); and
(c) a Series F Common Warrant to purchase the number of
shares of Common Stock as is equal to a fraction, the numerator of which
shall be equal to the product of such Subsequent Purchaser's Subsequent
Purchaser First Closing Funded Amount and 0.3, and the denominator of
which shall be $6.50 (the "Subsequent Purchaser Funded Amount
Warrants")."
2. Section 1.4 of the Series F Purchase Agreement is amended to
increase the Call Amount limit to the excess of (x) $15,000,005 over (y) the
total amount previously invested by the Purchasers at all prior closings
pursuant to the Series F Purchase Agreement, so that said Section shall read in
its entirety as follows:
"1.4 FOLLOW-ON FUNDING CLOSING(S) BY PURCHASERS. On and subject to
the terms and conditions of this Agreement, following the expiration of
the Subsequent Purchaser Acceptance Period and on or prior to June 30,
1997, the Company may, at its option, at one or more additional fundings
as specified in Section 2.4 (each a "Follow-On Funding Closing"), require
the Purchasers to provide additional funding to the Company (the
aggregate amount to be funded at a Follow-On Funding Closing being
referred to as the "Call Amount"); provided, however, that the Call
Amount may not exceed the excess of (x) $15,000,005 over (y) the total
amount previously invested by the Purchasers at all prior closings
pursuant to this Agreement. At each Follow-On Funding Closing, the
Company shall sell and issue to each Purchaser, and each Purchaser shall
purchase from the Company for cash:
2
<PAGE> 144
(a) the number of shares of Series F Preferred as is
equal to the product of the Call Amount for such Follow-On Funding
Closing and such Purchaser's Follow-On Funding Commitment Percentage (as
defined below) divided by $6.50 (the "Follow-On Funding Shares"); and
(b) a Series F Common Warrant to purchase the number of
shares of Common Stock as is equal to a fraction, the numerator of which
shall be equal to the product of the amount funded by such Purchaser at
such Follow-On Funding Closing (the "Follow-On Funded Amount") and 0.3,
and the denominator of which shall be $6.50 (the "Follow-On Funded Amount
Warrants").
The purchase price to be paid by a Purchaser at each Follow-On Funding Closing
shall be equal to the Call Amount times such Purchaser's Follow-On Funding
Commitment Percentage (as defined below). For purposes of this Agreement, a
Purchaser's Follow-On Funding Commitment Percentage (which shall be computed
separately for each Follow-On Funding Closing) shall mean a fraction, the
numerator of which shall be such Purchaser's Total Commitment Amount or
Additional Total Commitment Amount less the amount that the Purchaser previously
has invested in the Company pursuant to this Agreement and the denominator of
which shall be the total amount of all Purchasers' Total Commitment Amounts and
Additional Total Commitment Amounts less the sum of the amount that all
Purchasers previously have invested in the Company pursuant to this Agreement.
Follow-On Funding Commitment Percentages shall be subject to adjustment as
provided in Section 1.5. In no event shall a Purchaser be required to fund
pursuant to all closings under this Agreement an amount in excess of such
Purchaser's Total Commitment Amount or Additional Total Commitment Amount."
3. Section 1.6 of the Series F Purchase Agreement is amended to
provide that the Company will not use the proceeds from the sale of Series F
Preferred Stock for any purpose that would be a violation of Section 107.720 of
Title 13 of the Code of Federal Regulations, so that said Section shall read in
its entirety as follows:
"1.6 USE OF PROCEEDS. The Company will use the proceeds from the
sale of the First Shares, Subsequent Purchaser First Shares and Follow-On
Funding Shares (collectively, the "Shares") and the Series F Common
Warrants for (i) the continued development of the Company's products,
(ii) the development of the Company's sales and marketing efforts and
additional administrative functions, (iii) inventories and accounts
receivables related to the Company's internally developed products and
(iv) other working capital and valid corporate purposes; provided,
however, that the Company will not use the proceeds from the sale of such
shares for any purpose that would be a violation of Section 107.720 of
Title 13 of the Code of Federal Regulations."
3
<PAGE> 145
4. The Series F Purchase Agreement is amended to add the following
new Section 2.5, which section provides for the definition of "Final Closing":
"2.5. FINAL FIRST CLOSING. The final closing and sale and
commitment to sell the Shares shall occur on January 31, 1997, or such
other time and date as are mutually agreeable to the Company and the
Purchasers first funding at such closing (the "Final Closing")."
Section 3.2 of the Series F Purchase Agreement is amended to update the
capitalization of the Company as of the Final Closing, so that said Section
shall read in its entirety as follows:
"3.2 Capitalization.
--------------
(a) Immediately prior to the First Closing the
authorized capital stock of the Company will consist of 11,000,000 shares
of Common Stock, of which 233,125 shares will be issued and outstanding,
and 5,658,563 shares of Preferred Stock, $.00004 par value per share (the
"Preferred Stock"), of which:
(i) 800,000 shares will have been designated Series
A Convertible Preferred Stock, $.00004 par value per share
("Series A Preferred"), all of which shares will be issued
and outstanding and convertible on an aggregate basis into
800,000 shares of Common Stock;
(ii) 399,999 shares will have been designated Series
B Convertible Preferred Stock, $.00004 par value per share
("Series B Preferred"), all of which shares will be issued
and outstanding and convertible on an aggregate basis into
415,565 shares of Common Stock; and
(iii) 1,399,589 shares will have been designated
Series D Preferred Stock, $.00004 par value per share
("Series D Preferred"), 1,359,522 of which shares will be
issued and outstanding and convertible on an aggregate
basis into 1,359,522 shares of Common Stock;
(iv) 1,166,667 shares will have been designated
Series E Preferred Stock, $.00004 par value per share
("Series E Preferred"), 733,371 of which will be issued and
outstanding and convertible on an aggregate basis into
733,371 shares of Common Stock; and
(v) 1,892,308 shares have been designated Series F
Preferred, none of which will be issued and outstanding.
4
<PAGE> 146
(b) Immediately prior to the Final Closing the authorized capital
stock of the Company will consist of 20,000,000 shares of Common Stock,
of which 233,125 shares will be issued and outstanding, and 6,120,103
shares of Preferred Stock, $.00004 par value per share (the "Preferred
Stock"), of which:
(i) 800,000 shares will have been designated Series
A Convertible Preferred Stock, $.00004 par value per share
("Series A Preferred"), all of which shares will be issued
and outstanding and convertible on an aggregate basis into
800,000 shares of Common Stock;
(ii) 399,999 shares will have been designated Series
B Convertible Preferred Stock, $.00004 par value per share
("Series B Preferred"), all of which shares will be issued
and outstanding and convertible on an aggregate basis into
415,565 shares of Common Stock; and
(iii) 1,399,589 shares will have been designated
Series D Preferred Stock, $.00004 par value per share
("Series D Preferred"), 1,359,522 of which shares will be
issued and outstanding and convertible on an aggregate
basis into 1,359,522 shares of Common Stock;
(iv) 1,166,667 shares will have been designated
Series E Preferred Stock, $.00004 par value per share
("Series E Preferred"), 733,371 of which will be issued and
outstanding and convertible on an aggregate basis into
733,371 shares of Common Stock; and
(v) 2,353,848 shares have been designated Series F
Preferred, 811,536 of which will be issued and outstanding
and convertible on an aggregate basis into 811,536 shares
of Common Stock.
(c) EXHIBIT F sets forth the number of shares of
Common Stock reserved for issuance pursuant to the exercise
of stock options, warrants and other securities. All of
such issued and outstanding shares of Common Stock, Series
A Preferred, Series B Preferred, Series D Preferred, Series
E Preferred, and Series F Preferred have been duly
authorized and validly issued and are fully paid and
nonassessable. The relative rights, preferences,
restrictions and other provisions relating to the capital
stock of the Company are as set forth on EXHIBIT B hereto
and all designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid,
binding and enforceable in accordance with applicable law
and have been adopted in accordance with applicable law.
Except with respect to warrants to purchase
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<PAGE> 147
an aggregate of 40,067 shares of Series D Preferred (the
"Series D Warrants") and warrants to purchase 360,802
shares of Common Stock immediately prior to the First
Closing (712,573 shares of Common Stock immediately prior
to the Final Closing) (all warrants outstanding being
referred to collectively as the "Warrants") and except as
set forth in EXHIBIT F hereto or provided in this Agreement
and in the terms of the Warrants, (i) no subscription,
warrant, option, convertible security or other right
(contingent or otherwise) to purchase or acquire any shares
of capital stock of the Company is authorized or
outstanding, (ii) there is not any commitment of the
Company to issue any subscription, warrant, option,
convertible security or other such right or to issue or
distribute to holders of any shares of its capital stock
any evidences of indebtedness or assets of the Company, and
(iii) the Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any
shares of its capital stock or any interest therein or to
pay any dividend or make any other distribution in respect
thereof. Except as provided in this Agreement or as set
forth on EXHIBIT F hereto, no person or entity is entitled
to (i) any preemptive or similar right with respect to the
issuance of any capital stock of the Company, or (ii) any
rights with respect to the registration of any capital
stock of the Company under the Securities Act (as defined
in Section 8.1). All of the issued and outstanding shares
of Common Stock, Series A Preferred, Series B Preferred,
Series D Preferred, Series E Preferred and the Warrants
have been offered, issued and sold by the Company in
compliance with applicable Federal and state securities
laws. Except as set forth on EXHIBIT F hereto or by the
terms of this Agreement, to the best of the Company's
knowledge there are no restrictions on transfer relating to
any capital stock of the Company other than those arising
from Federal and state securities laws and there are no
voting trusts, shareholders agreements, pledge agreements
or buy/sell agreements between a stockholder and any other
person or entity relating to any capital stock of the
Company."
5. Section 3.8 of the Series F Purchase Agreement is amended to
provide that the Company shall provide the Purchasers purchasing at the Final
Closing unaudited balance sheets and related statements of operations,
stockholder's equity (deficit) and cash flows for the Company for the periods
ending March 31, 1996, June 30, 1996, and September 30, 1996, and to provide
that such information shall be deemed "Financial Statements" for purposes of
Section 3.8, so that said Section shall read in its entirety as follows:
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<PAGE> 148
"3.8 FINANCIAL STATEMENTS. The Company has furnished to the
Purchasers (i) the audited balance sheet and related statements of
operations, stockholders' equity (deficit) and cash flows for the Company
as at and for the year ended December 31, 1995 (the "Audited Financial
Statements"), and (ii) the unaudited balance sheet and related statements
of operations, stockholders' equity (deficit) and cash flows for the
Company for the period ending March 31, 1996 (the "Unaudited Financial
Statements") (the Audited Financial Statements and the Unaudited
Financial Statements, collectively, the "Financial Statements"). The
Financial Statements have been prepared in accordance with generally
accepted accounting principles consistently applied, except that the
Unaudited Financial Statements do not contain footnotes and are subject
to year-end adjustment. The Financial Statements fairly present in all
material respects the financial position and results of operations of the
Company as at the dates thereof and for the periods covered thereby.
Since March 31, 1996, after giving effect to the consideration that the
Company is a development stage company which has incurred substantial
operating losses and expects to incur further operating losses, and that
developments concerning the Company must be assessed in that context, (i)
there has been no change in the assets, liabilities or financial
condition of the Company except for changes in the ordinary course of
business which, individually and in the aggregate, have not been
materially adverse and (ii) the business, prospects, financial condition,
operations, property or affairs of the Company or its subsidiaries have
not been materially adversely affected by any occurrence or development,
individually or in the aggregate, other than occurrences and developments
generally affecting the economy and the industry in which the Company
operates. For Purchasers purchasing at the Final Closing the Company has
furnished to such Purchasers unaudited balance sheets and related
statements of operations, stockholder's equity (deficit) and cash flows
for the Company for the periods ending March 31, 1996, June 30, 1996, and
September 30, 1996, and such information shall be deemed Financial
Statements for purposes of this Section 3.8."
6. The Series F Purchase Agreement is amended to add the following
new Section 3.23, which section provides for the representation and warranty by
the Company regarding certain Small Business Administration ("SBA") Forms:
"3.23 SBIC INFORMATION. All information set forth in the SBA Forms
regarding the Company and its affiliates is accurate and complete. Copies
of such forms have been, on or prior to the date hereof (or within 20
days of closing in the case of Form 1031), completed and executed by the
Company and delivered to any Stockholder that is a Small Business
Investment Company ("SBIC")."
7. The Series F Purchase Agreement is amended to add the following
new Section 3.24, which section provides that the Company and its subsidiaries
do not
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<PAGE> 149
engage in any activity which would render the Company ineligible to receive
financing assistance from an SBIC as provided in 13 USC 107.720:
"3.24 ELIGIBILITY. The Company and its subsidiaries do not engage
in any activity which would render the Company ineligible to receive
financing assistance from an SBIC as provided in 13 U.S.C. 107.720."
8. Section 5.1 of the Series F Purchase Agreement is amended to
provide that the representations and warranties of Section 3 shall apply to the
Final Closing, so that said Section shall read in its entirety as follows:
"5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. In the case of
the First Closing and the Final Closing, each representation and warranty
contained in Section 3 shall be true on and as of the date of the First
Closing and the date of the Final Closing with the same effect as though
such representation and warranty had been made on and as of those dates.
In the case of each Subsequent Purchaser First Closing and Follow-On
Funding Closing, the representations and warranties contained in Sections
3.1, 3.5, 3.6 and 3.7 shall be true and correct on and as of the date of
such Follow-On Funding Closing."
9. Section 5.3 of the Series F Purchase Agreement is amended to
provide that the opinion from Hale and Dorr LLP to be issued at the Final
Closing shall be dated the date of the Final Closing, so that said Section shall
read in its entirety as follows:
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<PAGE> 150
"5.3 Opinion of Counsel.
------------------
(a) At each First Closing and each Subsequent
Purchaser First Closing, each Purchaser purchasing Shares and
Series F Common Warrants at each such Closing shall have received
an opinion from Hale and Dorr LLP, counsel for the Company, dated
the date of each such Closing, addressed to such Purchasers at
each such Closing, satisfactory in form and substance to each
Purchaser, to the effect that:
(i) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware and has full corporate power and authority to conduct
its business as presently conducted, to enter into and perform
this Agreement and to carry out the transactions contemplated by
this Agreement. The Company is duly qualified to do business and
in good standing in the Commonwealth of Massachusetts.
(ii) After the filing of the Amended and Restated
Certificate with the Secretary of State of the State of Delaware,
the authorized and (based solely on such counsel's review of the
Company's stock record books) outstanding capital stock of the
Company will be as described in subsection 3.2 of this Agreement.
(iii) The issuance, sale and delivery of the Shares
and Series F Common Warrants to be sold at such Closing by the
Company in accordance with this Agreement, and the issuance and
delivery of the shares of Common Stock issuable upon conversion of
such Shares or exercise of such Series F Common Warrants, have
been duly authorized and reserved for issuance, as the case may
be, by all necessary corporate action on the part of the Company,
and such Shares and Series F Common Warrants when so issued, sold
and delivered against payment therefor in accordance with the
provisions of this Agreement, and the shares of Common Stock
issuable upon conversion of such Shares or exercise of such Series
F Common Warrants, when issued upon such conversion or upon such
proper exercise, will be duly and validly issued, fully paid and
nonassessable. Neither the issuance, sale or delivery of the
Shares and Series F Common Warrants is, nor will the issuance or
delivery of the shares of Common Stock upon proper conversion or
exercise thereof be, subject to any preemptive right of
stockholders of the Company arising under the General Corporation
Laws of the State of Delaware or the Company's Certificate of
Incorporation or By-laws, or, to the best of such counsel's
knowledge, under any contractual right of first refusal or other
right in favor of any person that has not been waived or complied
with.
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<PAGE> 151
(iv) The execution, delivery and performance by
the Company of this Agreement, the Series F Common Warrants and
the Second Amended and Restated Voting Rights Agreement and the
execution and filing of the Amended and Restated Certificate have
been duly authorized by all necessary corporate action, and this
Agreement has been duly executed and delivered by the Company.
This Agreement (other than subsections 8.7 and 8.8 hereof, as to
which no opinion need be expressed) constitutes the valid and
binding obligation of the Company, enforceable in accordance with
its terms, subject as to enforcement of remedies to applicable
bankruptcy, insolvency, reorganization or similar laws affecting
generally the enforcement of creditors' rights and subject to a
court's discretionary authority with respect to the granting of a
decree ordering specific performance or other equitable remedies.
The execution, delivery and performance of this Agreement and the
offer, issue and sale of the Shares and the Series F Common
Warrants to be sold at such Closing hereunder and the issue of
shares of Common Stock upon proper conversion or exercise, will
not conflict with, or result in any breach of any of the terms,
conditions, or provisions of, or constitute a default under, the
Amended and Restated Certificate of Incorporation, as amended, or
By-laws of the Company, or any indenture, lease, agreement, or
other instrument known to such counsel to which the Company is a
party or by which it or any of its properties are bound and which
is set forth on Exhibit F hereto, or any decree, judgment or order
specifically naming the Company and known to such counsel.
(v) Except as obtained and in effect at such
Closing, no consent, approval, order or authorization of, or
registration, qualification, designation, declaration, or filing
with, any governmental authority other than filings required to be
made under applicable Federal and state securities laws, is
required on the part of the Company in connection with the
execution, delivery and performance of this Agreement, the Series
F Common Warrants and the Second Amended and Restated Voting
Rights Agreement, or (assuming no change in applicable facts or
circumstances) the offer, issue, sale and delivery of the Shares
and the Series F Common Warrants to be sold at such Closing and
the shares of Common Stock to be issued and delivered upon
conversion or exercise thereof, or the other transactions to be
consummated at the Closing pursuant to this Agreement.
(vi) Based on the representations of each of the
Purchasers in Section 4, the offer, issuance and sale of the
Shares and the Series F Common Warrants to be sold at such Closing
pursuant to this Agreement and the issuance of the shares of
Common Stock to be issued upon conversion or exercise thereof, are
exempt from registration under the Securities Act of 1933, as
amended.
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<PAGE> 152
(vii) To the best of such counsel's knowledge,
except as set forth in EXHIBIT F to this Agreement, there is no
action, suit or proceeding, or governmental inquiry or
investigation, pending or threatened against the Company.
(viii) Based on representations of the Company,
neither the issuance and sale of the Shares and Series F Common
Warrants to be sold at the Closing pursuant to this Agreement nor
the intended use of the proceeds thereof will violate Regulations
G, T, U or X of the Board of Governors of the Federal Reserve
System, and it is not necessary for a Purchaser to obtain a
statement in conformity with the requirements of Federal Reserve
Form FR G-3.
(b) At each Follow-On Funding Closing, each Purchaser
purchasing Shares and Series F Common Warrants at such Closing
shall have received an opinion from Hale and Dorr LLP, dated the
date of such Follow-On Funding Closing, addressed to such
Purchasers covering the matters described in clauses (i), (ii),
(iii), (iv), (v), (vi) and (viii) of Section 5.3(a), except that
the opinion described in clause (ii) as to outstanding capital
stock shall relate to the Company's capital stock as of the date
of the First Closing."
10. The Series F Purchase Agreement is amended to add the
following new Section 5.14, which section provides that the Company shall
provide certain executed SBA Forms to SBIC Purchasers:
"5.14 SBIC FORMS. On the date hereof, any Purchaser that
is an SBIC shall have received from the Company fully executed
Small Business Administration Forms 480 and 652 (together with
Small Business Administration Form 1031, the "SBA Forms")."
11. Section 7.1 of the Series F Purchase Agreement is amended
to provide certain observance rights to any Purchaser that is an SBIC, so
that said Section shall read in its entirety as follows:
"7.1 INSPECTION. The Company shall permit each
Stockholder, or any authorized representative thereof, to visit
and inspect the properties of the Company, including its corporate
and financial records, and to discuss its business and finances
with officers of the Company, during normal business hours
following reasonable notice and as often as may be reasonably
requested. In the event that the Stockholder is a SBIC and, if the
Company requests, the SBIC Stockholder and the Company execute a
confidentiality agreement reasonably satisfactory to the Company,
the Company further covenants and agrees that it will permit such
Stockholder and its appropriate permitted transferees and its and
their appropriate representatives (including without limitation,
examiners from the SBA) to inspect the properties of the Company
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<PAGE> 153
and to examine and make extracts and copies from the books and records of
the Company during normal business hours (including, without limitation,
for purposes of verifying the certifications and representations made by
the Company in the SBA Forms and this Agreement and in verifying
compliance with the covenants contained in this Agreement)."
12. The Series F Purchase Agreement is amended to add the following
new section 7.11, which section provides that the Company shall provide certain
information to the Purchasers:
"7.11 INFORMATION. In addition, the Company covenants and agrees
to provide to the Stockholders any other information which any
Stockholder reasonably requests, including without limitation, at least
annually, sufficient financial and other information necessary to allow
the Stockholder to evaluate the financial condition of the Company for
the purpose of valuing the Stockholder's interest in the Company, to
determine the continued eligibility of the Company under the Small
Business Investment Act of 1958, as amended (the "SBIA") and the
regulations thereunder, including Title 13, Code of Federal Regulations,
Section 121.301, and to verify the use of the proceeds received by the
Company from the purchase of the shares. All such information shall be
certified by the President, Chief Executive Officer, Treasurer or Chief
Financial Officer of the Company. Within 20 days of the date hereof, the
Company shall have provided any Purchaser that is an SBIC a completed
Small Business Administration Form 1031. Promptly after the end of each
fiscal year of the Company (and in any event prior to February 28 of each
year), the Company shall provide to any Purchaser that is an SBIC a
written assessment in form and substance satisfactory to any Purchaser
that is an SBIC of the economic impact of the financing assistance
provided to the Company by any Purchaser that is an SBIC, specifying the
full time equivalent jobs created or retained, and the impact of the
financing on the revenues and profits of the business and on taxes paid
by the business and its employees. Upon the request of any Purchaser that
is an SBIC the Company will also provide all information requested by any
Purchaser that is an SBIC in order for it to prepare and file SBA Form
468 and any other information requested or required by any governmental
agency asserting jurisdiction over any Purchaser that is an SBIC.
13. The Series F Purchase Agreement is amended to add the following
new section 7.12, which section provides that the Company shall not for a period
of one year after the Final Closing change its business activity to render the
Company ineligible to receive financial assistance from a SBIC under the SBA and
the regulations thereunder:
"7.12 BUSINESS. For a period of one year following the date
hereof, the Company will not change its business activity if such change
would render the
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<PAGE> 154
Company ineligible to receive financial assistance from a SBIC under the
SBA and the regulations thereunder."
14. The Series F Purchase Agreement is amended to add the following
new section 7.13, which section provides that the Company shall at all times
comply with the nondiscrimination requirements of 13 C.F.R., Parts 112, 113 and
117:
"7.13 NON-DISCRIMINATION. The Company shall at all times comply
with the nondiscrimination requirements of 13 C.F.R., Parts 112, 113 and
117."
15. The Series F Purchase Agreement is amended to add the following
new section 7.14, which section provides for certain regulatory sales or
dispositions of the Shares:
"7.14 REGULATORY SALE OR DISPOSITION. Anything herein to the
contrary notwithstanding, in the event that any Stockholder or any of its
Affiliates shall deliver to the Company an opinion of counsel to such
Stockholder or such Affiliate, as the case may be, to the effect that if
such Stockholder or such Affiliate, as the case may be, shall continue to
hold some or all of the Shares or any other securities of the Company
held by it, there is a material risk that such ownership will result in
the violation of any statute, regulation or rule of any governmental
authority (including, without limitation, Regulation Y), such Stockholder
or such Affiliate, as the case may be, may sell, exchange or otherwise
dispose of its Shares, as the case may be, in as prompt and orderly a
manner as is reasonably necessary. The Company shall cooperate with such
Stockholder or such Affiliate as the case may be, in (i) disposing of its
Shares or (ii) to the extent the parties to this Amendment have the power
to so provide, exchanging all or any portion of its voting Shares on a
share-for-share basis for shares of a non-voting security of the Company
(such non-voting security shall, to the extent the parties to this
Amendment have the power to so provide, be identical in all respects to
such voting Shares, except that they shall be non-voting and shall be
convertible or exercisable into voting securities on such conditions as
are requested by such Stockholder in light of the regulatory
considerations prevailing). Without limiting the forgoing, at the request
of such Stockholder or such Affiliate, as the case may be, the Company
shall provide (and authorize such Stockholder or such Affiliate, as the
case may be, to provide) financial and other information concerning the
Company to any prospective purchaser of the Shares owned by such
Stockholder or such Affiliate, as the case may be, and shall, to the
extent the parties to this Amendment have the power to so provide, amend
this Agreement, the articles of incorporation of the Company, the bylaws
of the Company, and any related agreements and instruments and shall take
such additional actions, to the extent the parties to this Amendment have
the power to so provide, in order to effectuate and reflect the
foregoing. The provisions of this Section 7.14 shall inure solely to the
benefit of the
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<PAGE> 155
Stockholders and their Affiliates which are subject to the provisions of
the Bank Holding Company Act of 1956, as amended (including Regulation Y
promulgated thereunder) or the SBIA. The Company shall not be required to
provide any such information unless the recipient thereof signs a
confidentiality agreement reasonably satisfactory to the Company."
16. The Series F Purchase Agreement is amended to add the following
new section 7.15, which section provides that the Company acknowledges its
awareness that Paribas Principal Inc. is a Federal licensee under the Small
Business Investment Act of 1958, as amended:
"7.15 COMPANY AWARENESS. The Company acknowledges its awareness
that Paribas Principal Inc. is a Federal licensee under the Small
Business Investment Act of 1958, as amended."
17. The Series F Purchase Agreement is amended to add the following new
Section 7.16, which section provides certain rights related to first refusal and
preemptive rights to any Stockholder that is an SBIC:
"7.16 SBIC RIGHTS RE FIRST REFUSAL AND PREEMPTIVE RIGHTS. In the
event any SBIC has the right to purchase any securities pursuant to any
right of first refusal under this Agreement ("Right of First Refusal
Securities"), but is prohibited from exercising such right under the
SBIA, or the regulations promulgated thereunder, such SBIC may assign
such right to the Company and upon such assignment the Company shall,
subject to any legal or contractual restrictions, purchase such Right of
First Refusal Securities and promptly sell to such SBIC such Right of
First Refusal Securities, or, if requested by such SBIC, and to the
extent the parties to this Amendment have the power to so provide, other
securities that do not have voting rights but are convertible into voting
securities in circumstances determined by such SBIC and otherwise have
the same terms as such Right of First Refusal Securities, for the
purchase price upon which such Right of First Refusal Securities were
purchased by the Company. In the event an SBIC has the right to purchase
any voting securities pursuant to a preemptive right under this Agreement
("Preemptive Securities"), the Company shall, at such SBIC's request, and
to the extent the parties to this Amendment have the power to so provide,
offer to sell to such SBIC other securities that do not have voting
rights but are convertible into voting securities in circumstances
determined by such SBIC and otherwise have the same terms as such
Preemptive Securities."
18. The Series F Purchase Agreement is amended to add the following
new Section 7.17, which section provides that any Stockholder subject to the
provisions of Bank Holding Company Act or the Small Business Investment Company
Act shall not
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<PAGE> 156
be required to accept any securities which would cause such stockholder to be in
violation of such statutes and the regulations promulgated thereunder:
"7.17 REORGANIZATION EVENTS. Notwithstanding anything to the
contrary, any Stockholder subject to the provisions of Bank Holding
Company Act or the Small Business Investment Company Act, shall not be
required to accept any securities which would cause such stockholder to
be in violation of such statutes and the regulations promulgated
thereunder."
19. The Series F Purchase Agreement is amended to add the following
new Section 7.18, which section provides that it will not, in certain
circumstances, purchase, redeem, retire or otherwise acquire certain partnership
interests:
"7.18 REPURCHASE OF EQUITY INTERESTS. The Company covenants and
agrees that it will not, without prior written notice to any Stockholder
which is subject to the provisions of the Bank Holding Company Act of
1956, as amended (including Regulation Y promulgated thereunder),
directly or indirectly, purchase, redeem, retire or otherwise acquire any
equity interests if, as a result of such purchase, redemption, retirement
or other acquisition, such Stockholder, together with its Affiliates,
will own, or be deemed to own, Shares representing capital equal to 25%
or more of the aggregate equity interests then outstanding (assuming the
exercise of all Warrants then held by such Stockholder and its
Affiliates)."
20. Section 7.11 of the Series F Purchase Agreement is amended to
change its number to 7.19 and to extend indefinitely the rights granted under
Sections 7.1, 7.5, 7.11, 7.13, 7.14 and 7.18, so that said Section shall read in
its entirety as follows:
"7.19 TERMINATION OF CERTAIN COVENANTS. All rights granted to
Stockholders under this Section 7, except the rights granted under
Sections 7.1, 7.5, 7.11, 7.13, 7.14 and 7.18, shall terminate upon the
consummation of an underwritten public offering of Common Stock of the
Company pursuant to a registration statement filed with the Commission,
(as defined in Section 8.1) under the Securities Act covering the offer
and sale of Common Stock to the public in which (A) gross proceeds from
such sale to the Company (before deduction of underwriting discounts and
expenses of sale) are not less than $10,000,000 and (B) the sale price to
the public per share is at least equal to 100% of the Series E Conversion
Price (as defined in the Amended and Restated Certificate of the
Company).
21. Any reference to EXHIBIT F in the Series F Purchase Agreement
shall mean (i) with respect to the First Closing, EXHIBIT F as attached to the
Series F Purchase Agreement in connection with the First Closing and (ii) with
respect to the Final
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Closing, EXHIBIT F as attached to the Series F Purchase Agreement, as amended,
in connection with the Final Closing.
16
<PAGE> 1
Exhibit 10.14
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH WARRANT IS REGISTERED
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. THIS
WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON PURCHASE OF THIS
WARRANT ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN
SECTIONS 4 AND 11 OF THIS WARRANT
Warrant No. F- Number of Shares:____
(subject to adjustment)
Date of Issuance: February __, 1997
ASCENT PEDIATRICS, INC.
Common Stock Purchase Warrant
(Void after February , 2002)
Ascent Pediatrics, Inc., a Delaware corporation (the "Company"), for
value received, hereby certifies that Chestnut Partners, Inc., or its registered
assigns (the "Registered Holder"), is entitled, subject to the terms set forth
below, upon exercise of this Warrant to purchase from the Company, at any time
or from time to time on or after the first to occur of (x) March 1, 1997 and (y)
the occurrence of a Change in Control of the Company (as defined below) and on
or before February ___, 2002 at not later than 5:00 p.m. (Boston, Massachusetts
time), _____________________ shares of the Company's common stock, $.00004 par
value per share (the "Common Stock"), at a purchase price of $6.50 per share.
The shares purchasable upon exercise of this Warrant, and the purchase price per
share, each as adjusted from time to time pursuant to the provisions of this
Warrant, are hereinafter referred to as the "Warrant Shares" and the "Purchase
Price," respectively.
This Warrant is one of a series of warrants comprising the Company's
Series F Common Warrants (as defined in a certain Series F Convertible Preferred
Stock and Warrant Purchase Agreement, dated June 28, 1996, among the Company and
the Purchasers named therein, as amended, (the "Purchase Agreement")).
<PAGE> 2
For purposes of this Warrant, the following events shall be deemed to
be a Change in Control of the Company:
(a) the date on which any "person," as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of
the Company, any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as
their ownership of stock of the Company, or the Registered Holder or
any of its affiliates), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing more than 50% of the combined
voting power of the Company's then outstanding securities;
(b) the closing of a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; and
(c) a complete liquidation of the Company or the sale or
disposition by the Company of all or substantially all of the Company's
assets.
1. Purchase.
(a) This Warrant may be exercised by the Registered Holder, in
whole or in part, by surrendering this Warrant, with the purchase form
appended hereto as Exhibit I duly executed by such Registered Holder or
by such Registered Holder's duly authorized attorney, at the principal
office of the Company, or at such other office or agency as the Company
may designate, accompanied by payment in full, in lawful currency of
the United States, of the Purchase Price payable in respect of the
number of shares of Warrant Shares purchased upon such exercise.
(b) The Registered Holder may, at its option, elect to pay
some or all of the Purchase Price payable upon an exercise of this
Warrant by cancelling a portion of this Warrant exercisable for such
number of Warrant Shares as is determined by dividing (i) the total
Purchase Price payable in respect of the number of Warrant Shares being
purchased upon such exercise by (ii) the excess of the Fair Market
Value per share of Common Stock as of the effective
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<PAGE> 3
date of exercise, as determined pursuant to Subsection 1(c) below (the "Exercise
Date") over the Purchase Price per share. The Fair Market Value per share of
Common Stock shall be determined as follows:
(i) If the Common Stock is listed on a national securities exchange,
the Nasdaq National Market, the Nasdaq system, or another nationally recognized
exchange or trading system as of the Exercise Date, the Fair Market Value per
share of Common Stock shall be deemed to be the last reported sale price per
share of Common Stock thereon on the Exercise Date; or, if no such price is
reported on such date, such price on the next preceding business day (provided
that if no such price is reported on the next preceding business day, the Fair
Market Value per share of Common Stock shall be determined pursuant to clause
(ii)).
(ii) If the Common Stock is not listed on a national securities
exchange, the Nasdaq National Market, the Nasdaq system or another nationally
recognized exchange or trading system as of the Exercise Date, the Fair Market
Value per share of Common Stock shall be deemed to be the amount most recently
determined by the Board of Directors to represent the fair market value per
share of the Common Stock (including without limitation a determination for
purposes of granting Common Stock options or issuing Common Stock under an
employee benefit plan of the Company); and, upon request of the Registered
Holder, the Board of Directors (or a representative thereof) shall promptly
notify the Registered Holder of the Fair Market Value per share of Common Stock.
Notwithstanding the foregoing, if the Board of Directors has not made such a
determination within the three-month period prior to the Exercise Date, then (A)
the Fair Market Value per share of Common Stock shall be the amount next
determined by the Board of Directors to represent the fair market value per
share of the Common Stock (including without limitation a determination for
purposes of granting Common Stock options or issuing Common Stock under an
employee benefit plan of the Company), (B) the Board of Directors shall make
such a determination within 15 days of a request by the Registered Holder that
it do so, and (C) the exercise of this Warrant pursuant to this Subsection 1(b)
shall be delayed until such determination is made.
(c) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in Subsection 1(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in Subsection
1(d) below shall be deemed to have become the holder or holders of record of the
Warrant Shares represented by such
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<PAGE> 4
certificates.
(d) As soon as practicable after the exercise of this Warrant in full
or in part, and in any event within 10 days thereafter, the Company, at its
expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct:
(i) certificate or certificates for the number of full Warrant
Shares to which such Registered Holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such Registered Holder would
otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of Warrant Shares equal (without giving
effect to any adjustment therein) to the number of such shares called for on the
face of this Warrant minus the number of such shares purchased by the Registered
Holder upon such exercise as provided in Subsection 1(a) above.
2. Adjustments.
(a) If the outstanding shares of the Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of the Common Stock, the Purchase Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. If outstanding
shares of the Company's Common Stock shall be combined into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased.
(b) In the event that the Company consummates an underwritten
public offering of Common Stock pursuant to a registration statement filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended, covering the initial offer and sale of Common Stock to the public in
which gross proceeds to the Company from such sale (before deducting
underwriting discounts and expenses of sale) are not less than $10,000,000 (a
"Qualifying Initial Public Offering"), then the Purchase Price in effect
immediately prior to the consummation of such Qualifying Initial Public Offering
(without regard to the operation of this
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<PAGE> 5
Subsection 2(b)) (the "Pre-IPO Purchase Price") shall be adjusted to be equal to
the per share price to the public in the Qualifying Initial Public Offering (the
"IPO Price") if the IPO Price exceeds the Pre-IPO Price (in which event, the IPO
Price shall then become the Purchase Price and shall thereafter be subject to
further adjustment as provided herein, other than pursuant to this Section
2(b)).
(c) When any adjustment is required to be made in the Purchase
Price as a result of the operation of Subsection 2(a) or 2(b), the number of
Warrant Shares purchasable upon the exercise of this Warrant shall be changed to
the number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(d) If there shall occur any capital reorganization or
reclassification of or other change in the Common Stock (other than a change in
par value or a subdivision or combination as provided for in Subsection 2(a)
above), or a transfer of all or substantially all of the assets of the Company
then, as part of any such reorganization, reclassification, as the case may be,
lawful provision shall be made so that the Registered Holder of this Warrant
shall receive upon the exercise hereof the kind and amount of shares of stock or
other securities or property which such Registered Holder would have been
entitled to receive if, immediately prior to any such reorganization,
reclassification, as the case may be, such Registered Holder had held the number
of shares of Common Stock which were then purchasable upon the exercise of this
Warrant. In any such case, appropriate adjustment (as reasonably determined in
good faith by the Board of Directors of the Company) shall be made in the
application of the provisions set forth herein with respect to the rights and
interests thereafter of the Registered Holder of this Warrant, such that the
provisions set forth in this Section 2 (including provisions with respect to
adjustment of the Purchase Price) shall thereafter be applicable, as nearly as
is reasonably practicable, in relation to any shares of stock or other
securities or property thereafter deliverable upon the exercise of this Warrant.
3. Fractional Shares. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares (as determined on an
aggregate basis for each exercise pursuant to this Warrant), but shall make an
adjustment therefor in cash on the basis of the Fair Market Value per share of
Common Stock, as determined pursuant to Subsection 1(b) above.
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<PAGE> 6
4. Requirements for Transfer.
(a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company first shall
have been furnished with an opinion of legal counsel, reasonably satisfactory to
the Company (which opinion may be rendered by (x) staff counsel to the holder of
the Warrant or (y) a law firm then designated by the holder as its special
counsel) to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Each certificate representing Warrant Shares shall bear a
legend substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not be
offered, sold or otherwise transferred, pledged or hypothecated unless
and until such securities are registered under such Act or an opinion
of counsel satisfactory to the Company (which opinion may be rendered
by (x) staff counsel to the holder of the Warrant or (y) a law firm
then designated by the holder as its special counsel) is obtained to
the effect that such registration is not required."
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
5. No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through reorganization, consolidation, merger, dissolution,
sale of assets or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of this Warrant against impairment.
6. Liquidating Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof,
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<PAGE> 7
in addition to the Warrant Shares purchased upon such exercise, the Liquidating
Dividend which would have been paid to such Registered Holder if it had been the
owner of record of such Warrant Shares immediately prior to the date on which a
record is taken for such Liquidating Dividend or, if no record is taken, the
date as of which the record holders of Common Stock entitled to such dividends
or distribution are to be determined.
7. Notices of Record Date, etc. In case:
(a) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time deliverable upon the
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend or other distribution, or to receive any right to subscribe
for or purchase any shares of stock of any class or any other securities, or to
receive any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
then, and in each such case, the Company will send or cause to be sent to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, (ii) the date on which such conversion was effective, or
(iii) the effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be given at least ten (10) days, or if such advance notice is not
practicable, then such shorter period as may be practicable, prior to the record
date or effective date for an event specified in Subsection 7(a), (b) or (c).
Such notice shall be given no later than ten (10) days after the effective date
of an event specified in Subsection 7(b).
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<PAGE> 8
8. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
9. Exchange of Warrants. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
10. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company (provided that, for purposes of this Section 10, a
letter of indemnity from an entity having total assets of at least $100,000,000
shall be deemed sufficient indemnity), or (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.
11. Transfers, etc.
(a) The Company will maintain a register containing the names
and addresses of the Registered Holders of this Warrant. Any Registered Holder
may change its or his address as shown on the warrant register by written notice
to the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this
Warrant and all rights hereunder are transferable, in whole or in part, upon
surrender of this Warrant with a properly executed assignment (in the form of
Exhibit II hereto) at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
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<PAGE> 9
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
(d) Overseas Holders. If such Registered Holder's principal
address is a location outside of the United States of America and its
territories, such Registered Holder (an "Overseas Holder"):
(i) is not a U.S. person (as defined in Securities
Act Rule 902(o) and is not acquiring this Warrant or any Warrant Shares
purchased hereunder for the account or benefit of any U.S. person;
(ii) will transfer this Warrant or any Warrant Shares
purchased pursuant to any exercise hereunder only (x) in accordance with the
provisions of Regulation S promulgated under the Securities Act ("Regulation
S"), (y) pursuant to an effective registration statement under the Securities
Act, or (z) pursuant to an available exemption from registration under the
Securities Act; and
(iii) will not offer or sell this Warrant or any
Warrant Shares purchased hereunder to a U.S. person or to or for the account or
benefit of a U.S. person prior to the expiration of the one-year period after
the date of this Warrant, with respect to a transfer of this Warrant, or one
year after the exercise of this Warrant, with respect to any Warrant Shares
purchased hereunder.
12. Giving of Notices, etc. All notices and other communications from
the Company to the Registered Holder of this Warrant shall be in writing and
shall be deemed effective (i) upon delivery by hand, (ii) two business days
after deposit with an express courier service for delivery no later than two
business days after such deposit, addressed to the Registered Holder at the
address set forth on the warrant register maintained by the Company (or at such
other address as may have been last furnished to the Company in writing by the
holder), or (iii) upon confirmation of transmittal by telecopy to the Registered
Holder, with a hard copy sent in accordance with the preceding clause (ii),
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<PAGE> 10
to the telecopy number set forth on the warrant register maintained by the
Company (or to such telecopy number as may have been last furnished to the
Company in writing by the holder). All notices and other communications from the
Registered Holder of this Warrant to the Company shall be in writing and shall
be deemed effective (i) upon delivery by hand, (ii) two business days after
deposit with an express courier service for delivery no later than two business
days after such deposit, addressed to the Company at its principal office set
forth below, or (iii) upon confirmation of transmittal by telecopy, with a hard
copy sent in accordance with the preceding clause (ii), to the telecopy number
of the Company set forth below. If the Company should at any time change the
location of its principal office to a place other than as set forth below or
change its telecopy number to a number other than as set forth below, it shall
give prompt written notice to the Registered Holder of this Warrant in the
manner prescribed herein, and thereafter all references in this Warrant to the
location of its principal office or telecopy number at the particular time shall
be as so specified in such notice.
13. No Rights as Stockholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
14. Change or Waiver. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of at least a majority of the Series F
Common Warrants (as defined in the Series F Convertible Preferred Stock and
Warrant Purchase Agreement, dated June 28, 1996, among the Company and the
Purchasers named therein).
15. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
16. Governing Law. This Warrant will be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
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<PAGE> 11
17. Termination. This Warrant, and the rights to purchase shares of
Common Stock hereunder, shall terminate immediately upon exercise of the Series
F Put Option (as defined in Section 7.4(c) of the Purchase Agreement) in
accordance with the terms of the Purchase Agreement.
ASCENT PEDIATRICS, INC.
[Corporate Seal] By: ________________________________
ATTEST: Title: _____________________________
Address: 187 Ballardvale Street
Suite B125
Wilmington, MA 01887
Telephone: 508-658-2500
Telecopier: 508-658-3937
ACCEPTED:
By:_______________________
Name:_____________________
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<PAGE> 12
EXHIBIT I
PURCHASE FORM
To:________________ Dated:_____________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. ___), hereby irrevocably elects to purchase shares of the Common
Stock covered by such Warrant and herewith makes payment of $___________,
representing the full purchase price for such shares at the price per share
provided for in such Warrant.
Signature:
Address: ______________________
______________________
<PAGE> 13
EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED,______________ hereby sells, assigns and transfers
all of the rights of the undersigned under the attached Warrant (No. __) with
respect to the number of shares of Common Stock covered thereby set forth below,
unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated:__________________________ Signature:__________________________
Dated:__________________________ Signature:__________________________
<PAGE> 1
Exhibit 10.15
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH WARRANT IS REGISTERED
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. THIS
WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON PURCHASE OF THIS
WARRANT ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN
SECTIONS 4 AND 11 OF THIS WARRANT
Warrant No. F-72 Number of Shares: 12,000
(subject to adjustment)
Date of Issuance: February 28, 1997
ASCENT PEDIATRICS, INC.
Common Stock Purchase Warrant
(Void after February 28, 2002)
Ascent Pediatrics, Inc., a Delaware corporation (the "Company"), for
value received, hereby certifies that Banque Paribas, or its registered assigns
(the "Registered Holder"), is entitled, subject to the terms set forth below,
upon exercise of this Warrant to purchase from the Company, at any time or from
time to time on or after the first to occur of (x) April 1, 1997 and (y) the
occurrence of a Change in Control of the Company (as defined below) and on or
before March 1, 2002 at not later than 5:00 p.m. (Boston, Massachusetts time),
Twelve Thousand (12,000) shares of the Company's common stock, $.00004 par value
per share (the "Common Stock"), at a purchase price of $7.00 per share. The
shares purchasable upon exercise of this Warrant, and the purchase price per
share, each as adjusted from time to time pursuant to the provisions of this
Warrant, are hereinafter referred to as the "Warrant Shares" and the "Purchase
Price," respectively.
This Warrant is one of a series of warrants comprising the Company's
Series F Common Warrants (as defined in a certain Series F Convertible Preferred
Stock and Warrant Purchase Agreement, dated June 28, 1996, among the Company and
the Purchasers named therein, as amended, (the "Purchase Agreement")).
<PAGE> 2
For purposes of this Warrant, the following events shall be deemed to
be a Change in Control of the Company:
(a) the date on which any "person," as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of
the Company, any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as
their ownership of stock of the Company, or the Registered Holder or
any of its affiliates), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing more than 50% of the combined
voting power of the Company's then outstanding securities;
(b) the closing of a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; and
(c) a complete liquidation of the Company or the sale or
disposition by the Company of all or substantially all of the Company's
assets.
1. Purchase.
(a) This Warrant may be exercised by the Registered Holder, in
whole or in part, by surrendering this Warrant, with the purchase form
appended hereto as Exhibit I duly executed by such Registered Holder or
by such Registered Holder's duly authorized attorney, at the principal
office of the Company, or at such other office or agency as the Company
may designate, accompanied by payment in full, in lawful currency of
the United States, of the Purchase Price payable in respect of the
number of shares of Warrant Shares purchased upon such exercise.
(b) The Registered Holder may, at its option, elect to pay
some or all of the Purchase Price payable upon an exercise of this
Warrant by cancelling a portion of this Warrant exercisable for such
number of Warrant Shares as is determined by dividing (i) the total
Purchase Price payable in respect of the number of Warrant Shares being
purchased upon such exercise by (ii) the excess of the Fair Market
Value per share of Common Stock as of the effective
2
<PAGE> 3
date of exercise, as determined pursuant to Subsection 1(c) below (the "Exercise
Date") over the Purchase Price per share. The Fair Market Value per share of
Common Stock shall be determined as follows:
(i) If the Common Stock is listed on a national securities exchange,
the Nasdaq National Market, the Nasdaq system, or another nationally recognized
exchange or trading system as of the Exercise Date, the Fair Market Value per
share of Common Stock shall be deemed to be the last reported sale price per
share of Common Stock thereon on the Exercise Date; or, if no such price is
reported on such date, such price on the next preceding business day (provided
that if no such price is reported on the next preceding business day, the Fair
Market Value per share of Common Stock shall be determined pursuant to clause
(ii)).
(ii) If the Common Stock is not listed on a national securities
exchange, the Nasdaq National Market, the Nasdaq system or another nationally
recognized exchange or trading system as of the Exercise Date, the Fair Market
Value per share of Common Stock shall be deemed to be the amount most recently
determined by the Board of Directors to represent the fair market value per
share of the Common Stock (including without limitation a determination for
purposes of granting Common Stock options or issuing Common Stock under an
employee benefit plan of the Company); and, upon request of the Registered
Holder, the Board of Directors (or a representative thereof) shall promptly
notify the Registered Holder of the Fair Market Value per share of Common Stock.
Notwithstanding the foregoing, if the Board of Directors has not made such a
determination within the three-month period prior to the Exercise Date, then (A)
the Fair Market Value per share of Common Stock shall be the amount next
determined by the Board of Directors to represent the fair market value per
share of the Common Stock (including without limitation a determination for
purposes of granting Common Stock options or issuing Common Stock under an
employee benefit plan of the Company), (B) the Board of Directors shall make
such a determination within 15 days of a request by the Registered Holder that
it do so, and (C) the exercise of this Warrant pursuant to this Subsection 1(b)
shall be delayed until such determination is made.
(c) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in Subsection 1(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in Subsection
1(d) below shall be deemed to have become the
3
<PAGE> 4
holder or holders of record of the Warrant Shares represented by such
certificates.
(d) As soon as practicable after the exercise of this Warrant in full
or in part, and in any event within 10 days thereafter, the Company, at its
expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct:
(i) certificate or certificates for the number of
full Warrant Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; and
(ii) in case such exercise is in part only, a new
warrant or warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of Warrant Shares equal to
the number of such shares called for on the face of this Warrant minus the
number of such shares purchased by the Registered Holder upon such exercise as
provided in Subsection 1(a) above.
(e) The Registered Holder shall be entitled to Required Registration
rights pursuant to Section 8.3 and Incidental Registration rights pursuant to
Section 8.4 of the Purchase Agreement in respect of all shares of Common Stock
acquired through the exercise of this Warrant; for the limited purpose of
granting such Required Registration rights and Incidental Registration rights to
the Registered Holder under Sections 8.3 and 8.4 of the Purchase Agreement, the
shares of Common Stock issuable to the Registered Holder upon exercise of this
Warrant shall be considered "Registrable Shares" under Section 8.1 of the
Purchase Agreement.
2. Adjustments.
(a) If the outstanding shares of the Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of the Common Stock, the Purchase Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. If outstanding
shares of the Company's Common Stock shall be combined into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased.
4
<PAGE> 5
(b) When any adjustment is required to be made in the Purchase
Price as a result of the operation of Subsection 2(a), the number of Warrant
Shares purchasable upon the exercise of this Warrant shall be changed to the
number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(c) If there shall occur any capital reorganization or
reclassification of or other change in the Common Stock (other than a change in
par value or a subdivision or combination as provided for in Subsection 2(a)
above), or a transfer of all or substantially all of the assets of the Company
then, as part of any such reorganization, reclassification, as the case may be,
lawful provision shall be made so that the Registered Holder of this Warrant
shall receive upon the exercise hereof the kind and amount of shares of stock or
other securities or property which such Registered Holder would have been
entitled to receive if, immediately prior to any such reorganization,
reclassification, as the case may be, such Registered Holder had held the number
of shares of Common Stock which were then purchasable upon the exercise of this
Warrant. In any such case, appropriate adjustment (as reasonably determined in
good faith by the Board of Directors of the Company) shall be made in the
application of the provisions set forth herein with respect to the rights and
interests thereafter of the Registered Holder of this Warrant, such that the
provisions set forth in this Section 2 (including provisions with respect to
adjustment of the Purchase Price) shall thereafter be applicable, as nearly as
is reasonably practicable, in relation to any shares of stock or other
securities or property thereafter deliverable upon the exercise of this Warrant.
3. Fractional Shares. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares (as determined on an
aggregate basis for each exercise pursuant to this Warrant), but shall make an
adjustment therefor in cash on the basis of the Fair Market Value per share of
Common Stock, as determined pursuant to Subsection 1(b) above.
4. Requirements for Transfer.
(a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company first shall
have been furnished with an opinion of legal counsel, reasonably satisfactory to
the Company (which opinion may be rendered by (x) staff counsel to the
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<PAGE> 6
holder of the Warrant or (y) a law firm then designated by the holder as its
special counsel) to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Each certificate representing Warrant Shares shall bear a
legend substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not be
offered, sold or otherwise transferred, pledged or hypothecated unless
and until such securities are registered under such Act or an opinion
of counsel satisfactory to the Company (which opinion may be rendered
by (x) staff counsel to the holder of the Warrant or (y) a law firm
then designated by the holder as its special counsel) is obtained to
the effect that such registration is not required."
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
5. No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through reorganization, consolidation, merger, dissolution,
sale of assets or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of this Warrant against impairment.
6. Liquidating Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Liquidating Dividend which
would have been paid to such Registered Holder if it had been the owner of
record of such Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
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<PAGE> 7
7. Notices of Record Date, etc. In case:
(a) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time deliverable upon the
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend or other distribution, or to receive any right to subscribe
for or purchase any shares of stock of any class or any other securities, or to
receive any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
then, and in each such case, the Company will send or cause to be sent to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, (ii) the date on which such conversion was effective, or
(iii) the effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be given at least ten (10) days, or if such advance notice is not
practicable, then such shorter period as may be practicable, prior to the record
date or effective date for an event specified in Subsection 7(a), (b) or (c).
Such notice shall be given no later than ten (10) days after the effective date
of an event specified in Subsection 7(b).
8. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
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<PAGE> 8
9. Exchange of Warrants. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
10. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company (provided that, for purposes of this Section 10, a
letter of indemnity from an entity having total assets of at least $100,000,000
shall be deemed sufficient indemnity), or (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.
11. Transfers, etc.
(a) The Company will maintain a register containing the names
and addresses of the Registered Holders of this Warrant. Any Registered Holder
may change its or his address as shown on the warrant register by written notice
to the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this
Warrant and all rights hereunder are transferable, in whole or in part, upon
surrender of this Warrant with a properly executed assignment (in the form of
Exhibit II hereto) at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
(d) Overseas Holders. If such Registered Holder's principal
address is a location outside of the United States of America and its
territories, such Registered Holder (an "Overseas Holder"):
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<PAGE> 9
(i) is not a U.S. person (as defined in Securities
Act Rule 902(o) and is not acquiring this Warrant or any Warrant Shares
purchased hereunder for the account or benefit of any U.S. person;
(ii) will transfer this Warrant or any Warrant Shares
purchased pursuant to any exercise hereunder only (x) in accordance with the
provisions of Regulation S promulgated under the Securities Act ("Regulation
S"), (y) pursuant to an effective registration statement under the Securities
Act, or (z) pursuant to an available exemption from registration under the
Securities Act; and
(iii) will not offer or sell this Warrant or any
Warrant Shares purchased hereunder to a U.S. person or to or for the account or
benefit of a U.S. person prior to the expiration of the one-year period after
the date of this Warrant, with respect to a transfer of this Warrant, or one
year after the exercise of this Warrant, with respect to any Warrant Shares
purchased hereunder.
12. Giving of Notices, etc. All notices and other communications from
the Company to the Registered Holder of this Warrant shall be in writing and
shall be deemed effective (i) upon delivery by hand, (ii) two business days
after deposit with an express courier service for delivery no later than two
business days after such deposit, addressed to the Registered Holder at the
address set forth on the warrant register maintained by the Company (or at such
other address as may have been last furnished to the Company in writing by the
holder), or (iii) upon confirmation of transmittal by telecopy to the Registered
Holder, with a hard copy sent in accordance with the preceding clause (ii), to
the telecopy number set forth on the warrant register maintained by the Company
(or to such telecopy number as may have been last furnished to the Company in
writing by the holder). All notices and other communications from the Registered
Holder of this Warrant to the Company shall be in writing and shall be deemed
effective (i) upon delivery by hand, (ii) two business days after deposit with
an express courier service for delivery no later than two business days after
such deposit, addressed to the Company at its principal office set forth below,
or (iii) upon confirmation of transmittal by telecopy, with a hard copy sent in
accordance with the preceding clause (ii), to the telecopy number of the Company
set forth below. If the Company should at any time change the location of its
principal office to a place other than as set forth below or change its telecopy
number to a number other than as set forth below, it shall give prompt written
notice to the Registered Holder of this Warrant in the manner prescribed herein,
and thereafter all references in this Warrant to the location of its principal
office or telecopy number at the particular time shall be as so specified in
such notice.
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<PAGE> 10
13. No Rights as Stockholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
14. Change or Waiver. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of at least a majority of the Series F
Common Warrants (as defined in the Series F Convertible Preferred Stock and
Warrant Purchase Agreement, dated June 28, 1996, among the Company and the
Purchasers named therein).
15. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
16. Governing Law. This Warrant will be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
ASCENT PEDIATRICS, INC.
[Corporate Seal] By: _______________________________
ATTEST: Title: ____________________________
Address: 187 Ballardvale Street
Suite B125
Wilmington, MA 01887
Telephone: 508-658-2500
Telecopier: 508-658-3939
ACCEPTED:
By:_______________________
Name:_____________________
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<PAGE> 11
EXHIBIT I
PURCHASE FORM
To:________________ Dated:_____________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. ___), hereby irrevocably elects to purchase shares of the Common
Stock covered by such Warrant and herewith makes payment of $___________,
representing the full purchase price for such shares at the price per share
provided for in such Warrant.
Signature:
Address: ______________________
______________________
-1-
<PAGE> 12
EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, ____________________ hereby sells, assigns and
transfers all of the rights of the undersigned under the attached Warrant
(No. __) with respect to the number of shares of Common Stock covered thereby
set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated:_________________________ Signature:__________________________
Dated:_________________________ Signature:__________________________
-1-
<PAGE> 1
Exhibit 10.16
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH WARRANT IS REGISTERED
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. THIS
WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON PURCHASE OF THIS
WARRANT ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN
SECTIONS 4 AND 11 OF THIS WARRANT
Warrant No. F-____ Number of Shares: _______
(subject to adjustment)
Date of Issuance: February 28, 1997
ASCENT PEDIATRICS, INC.
Common Stock Purchase Warrant
(Void after February 28, 2002)
Ascent Pediatrics, Inc., a Delaware corporation (the "Company"), for
value received, hereby certifies that _________________, or his registered
assigns (the "Registered Holder"), is entitled, subject to the terms set forth
below, upon exercise of this Warrant to purchase from the Company, at any time
or from time to time on or after the first to occur of (x) April 1, 1997 and (y)
the occurrence of a Change in Control of the Company (as defined below) and on
or before March 1, 2002 at not later than 5:00 p.m. (Boston, Massachusetts
time), _________________________ shares of the Company's common stock, $.00004
par value per share (the "Common Stock"), at a purchase price of $0.01 per
share. The shares purchasable upon exercise of this Warrant, and the purchase
price per share, each as adjusted from time to time pursuant to the provisions
of this Warrant, are hereinafter referred to as the "Warrant Shares" and the
"Purchase Price," respectively.
This Warrant is one of a series of warrants comprising the Company's
Series F Common Warrants (as defined in a certain Series F Convertible Preferred
Stock and Warrant Purchase Agreement, dated June 28, 1996, among the Company and
the Purchasers named therein, as amended, (the "Purchase Agreement")).
<PAGE> 2
For purposes of this Warrant, the following events shall be deemed to
be a Change in Control of the Company:
(a) the date on which any "person," as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of
the Company, any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as
their ownership of stock of the Company, or the Registered Holder or
any of its affiliates), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing more than 50% of the combined
voting power of the Company's then outstanding securities;
(b) the closing of a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; and
(c) a complete liquidation of the Company or the sale or
disposition by the Company of all or substantially all of the Company's
assets.
1. Purchase.
(a) This Warrant may be exercised by the Registered Holder, in
whole or in part, by surrendering this Warrant, with the purchase form
appended hereto as Exhibit I duly executed by such Registered Holder or
by such Registered Holder's duly authorized attorney, at the principal
office of the Company, or at such other office or agency as the Company
may designate, accompanied by payment in full, in lawful currency of
the United States, of the Purchase Price payable in respect of the
number of shares of Warrant Shares purchased upon such exercise.
(b) The Registered Holder may, at its option, elect to pay
some or all of the Purchase Price payable upon an exercise of this
Warrant by cancelling a portion of this Warrant exercisable for such
number of Warrant Shares as is determined by dividing (i) the total
Purchase Price payable in respect of the number of Warrant Shares being
purchased upon such exercise by (ii) the excess of the Fair Market
Value per share of Common Stock as of the effective
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<PAGE> 3
date of exercise, as determined pursuant to Subsection 1(c) below (the "Exercise
Date") over the Purchase Price per share. The Fair Market Value per share of
Common Stock shall be determined as follows:
(i) If the Common Stock is listed on a national securities exchange,
the Nasdaq National Market, the Nasdaq system, or another nationally recognized
exchange or trading system as of the Exercise Date, the Fair Market Value per
share of Common Stock shall be deemed to be the last reported sale price per
share of Common Stock thereon on the Exercise Date; or, if no such price is
reported on such date, such price on the next preceding business day (provided
that if no such price is reported on the next preceding business day, the Fair
Market Value per share of Common Stock shall be determined pursuant to clause
(ii)).
(ii) If the Common Stock is not listed on a national securities
exchange, the Nasdaq National Market, the Nasdaq system or another nationally
recognized exchange or trading system as of the Exercise Date, the Fair Market
Value per share of Common Stock shall be deemed to be the amount most recently
determined by the Board of Directors to represent the fair market value per
share of the Common Stock (including without limitation a determination for
purposes of granting Common Stock options or issuing Common Stock under an
employee benefit plan of the Company); and, upon request of the Registered
Holder, the Board of Directors (or a representative thereof) shall promptly
notify the Registered Holder of the Fair Market Value per share of Common Stock.
Notwithstanding the foregoing, if the Board of Directors has not made such a
determination within the three-month period prior to the Exercise Date, then (A)
the Fair Market Value per share of Common Stock shall be the amount next
determined by the Board of Directors to represent the fair market value per
share of the Common Stock (including without limitation a determination for
purposes of granting Common Stock options or issuing Common Stock under an
employee benefit plan of the Company), (B) the Board of Directors shall make
such a determination within 15 days of a request by the Registered Holder that
it do so, and (C) the exercise of this Warrant pursuant to this Subsection 1(b)
shall be delayed until such determination is made.
(c) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in Subsection 1(a) above.
At such time, the person or persons in whose name or names any certificates for
Warrant Shares shall be issuable upon such exercise as provided in Subsection
1(d) below shall be deemed to have become the
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<PAGE> 4
holder or holders of record of the Warrant Shares represented by such
certificates.
(d) As soon as practicable after the exercise of this Warrant in full
or in part, and in any event within 10 days thereafter, the Company, at its
expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct:
(i) certificate or certificates for the number of full Warrant
Shares to which such Registered Holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such Registered Holder would
otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of Warrant Shares equal (without giving
effect to any adjustment therein) to the number of such shares called for on the
face of this Warrant minus the number of such shares purchased by the Registered
Holder upon such exercise as provided in Subsection 1(a) above.
(e) The Registered Holder shall be entitled, in respect of all shares
of Common Stock acquired through the exercise of this Warrant, to Incidental
Registration rights pursuant to Section 8.4 of the Purchase Agreement in
connection with (i) any registration statement that the Company proposes to file
and (ii), notwithstanding anything to the contrary in Section 8.4 of the
Purchase Agreement, any registration statement proposed to be filed pursuant to
Section 8.3 of the Purchase Agreement; for the limited purpose of granting such
Incidental Registration rights to the Registered Holder, the shares of Common
Stock issuable to the Registered Holder upon exercise of this Warrant shall be
considered "Registrable Shares" under Section 8.1 of the Purchase Agreement, it
being expressly understood that the Registered Holder shall have no Required
Registration rights pursuant to Section 8.3 of the Purchase Agreement in respect
of any shares of Common Stock issuable upon exercise of this Warrant.
2. Adjustments.
(a) If the outstanding shares of the Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of the Common Stock, the Purchase Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately
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<PAGE> 5
after the record date of such dividend be proportionately reduced. If
outstanding shares of the Company's Common Stock shall be combined into a
smaller number of shares, the Purchase Price in effect immediately prior to such
combination shall, simultaneously with the effectiveness of such combination, be
proportionately increased.
(b) When any adjustment is required to be made in the Purchase
Price as a result of the operation of Subsection 2(a), the number of Warrant
Shares purchasable upon the exercise of this Warrant shall be changed to the
number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(c) If there shall occur any capital reorganization or
reclassification of or other change in the Common Stock (other than a change in
par value or a subdivision or combination as provided for in Subsection 2(a)
above), or a transfer of all or substantially all of the assets of the Company
then, as part of any such reorganization, reclassification, as the case may be,
lawful provision shall be made so that the Registered Holder of this Warrant
shall receive upon the exercise hereof the kind and amount of shares of stock or
other securities or property which such Registered Holder would have been
entitled to receive if, immediately prior to any such reorganization,
reclassification, as the case may be, such Registered Holder had held the number
of shares of Common Stock which were then purchasable upon the exercise of this
Warrant. In any such case, appropriate adjustment (as reasonably determined in
good faith by the Board of Directors of the Company) shall be made in the
application of the provisions set forth herein with respect to the rights and
interests thereafter of the Registered Holder of this Warrant, such that the
provisions set forth in this Section 2 (including provisions with respect to
adjustment of the Purchase Price) shall thereafter be applicable, as nearly as
is reasonably practicable, in relation to any shares of stock or other
securities or property thereafter deliverable upon the exercise of this Warrant.
3. Fractional Shares. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares (as determined on an
aggregate basis for each exercise pursuant to this Warrant), but shall make an
adjustment therefor in cash on the basis of the Fair Market Value per share of
Common Stock, as determined pursuant to Subsection 1(b) above.
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<PAGE> 6
4. Requirements for Transfer.
(a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company first shall
have been furnished with an opinion of legal counsel, reasonably satisfactory to
the Company (which opinion may be rendered by (x) staff counsel to the holder of
the Warrant or (y) a law firm then designated by the holder as its special
counsel) to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Each certificate representing Warrant Shares shall bear a
legend substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not be
offered, sold or otherwise transferred, pledged or hypothecated unless
and until such securities are registered under such Act or an opinion
of counsel satisfactory to the Company (which opinion may be rendered
by (x) staff counsel to the holder of the Warrant or (y) a law firm
then designated by the holder as its special counsel) is obtained to
the effect that such registration is not required."
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
5. No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through reorganization, consolidation, merger, dissolution,
sale of assets or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of this Warrant against impairment.
6. Liquidating Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof,
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<PAGE> 7
in addition to the Warrant Shares purchased upon such exercise, the Liquidating
Dividend which would have been paid to such Registered Holder if it had been the
owner of record of such Warrant Shares immediately prior to the date on which a
record is taken for such Liquidating Dividend or, if no record is taken, the
date as of which the record holders of Common Stock entitled to such dividends
or distribution are to be determined.
7. Notices of Record Date, etc. In case:
(a) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time deliverable upon the
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend or other distribution, or to receive any right to subscribe
for or purchase any shares of stock of any class or any other securities, or to
receive any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
then, and in each such case, the Company will send or cause to be sent to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, (ii) the date on which such conversion was effective, or
(iii) the effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be given at least ten (10) days, or if such advance notice is not
practicable, then such shorter period as may be practicable, prior to the record
date or effective date for an event specified in Subsection 7(a), (b) or (c).
Such notice shall be given no later than ten (10) days after the effective date
of an event specified in Subsection 7(b).
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<PAGE> 8
8. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
9. Exchange of Warrants. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
10. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company (provided that, for purposes of this Section 10, a
letter of indemnity from an entity having total assets of at least $100,000,000
shall be deemed sufficient indemnity), or (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.
11. Transfers, etc.
(a) The Company will maintain a register containing the names
and addresses of the Registered Holders of this Warrant. Any Registered Holder
may change its or his address as shown on the warrant register by written notice
to the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this
Warrant and all rights hereunder are transferable, in whole or in part, upon
surrender of this Warrant with a properly executed assignment (in the form of
Exhibit II hereto) at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
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<PAGE> 9
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
(d) Overseas Holders. If such Registered Holder's principal
address is a location outside of the United States of America and its
territories, such Registered Holder (an "Overseas Holder"):
(i) is not a U.S. person (as defined in Securities
Act Rule 902(o) and is not acquiring this Warrant or any Warrant Shares
purchased hereunder for the account or benefit of any U.S. person;
(ii) will transfer this Warrant or any Warrant Shares
purchased pursuant to any exercise hereunder only (x) in accordance with the
provisions of Regulation S promulgated under the Securities Act ("Regulation
S"), (y) pursuant to an effective registration statement under the Securities
Act, or (z) pursuant to an available exemption from registration under the
Securities Act; and
(iii) will not offer or sell this Warrant or any
Warrant Shares purchased hereunder to a U.S. person or to or for the account or
benefit of a U.S. person prior to the expiration of the one-year period after
the date of this Warrant, with respect to a transfer of this Warrant, or one
year after the exercise of this Warrant, with respect to any Warrant Shares
purchased hereunder.
12. Giving of Notices, etc. All notices and other communications from
the Company to the Registered Holder of this Warrant shall be in writing and
shall be deemed effective (i) upon delivery by hand, (ii) two business days
after deposit with an express courier service for delivery no later than two
business days after such deposit, addressed to the Registered Holder at the
address set forth on the warrant register maintained by the Company (or at such
other address as may have been last furnished to the Company in writing by the
holder), or (iii) upon confirmation of transmittal by telecopy to the Registered
Holder, with a hard copy sent in accordance with the preceding clause (ii), to
the telecopy number set forth on the warrant register maintained by the Company
(or to such telecopy number as may have been last furnished to the Company in
writing by the holder). All notices and other communications from the Registered
Holder of this Warrant to the Company shall be in writing and shall be deemed
effective (i) upon delivery by hand, (ii) two business days after deposit with
an express courier service for delivery no later than two business days after
such deposit, addressed to the Company at its principal office set forth below,
or (iii) upon confirmation of transmittal by telecopy, with a hard copy sent in
accordance with the preceding clause (ii),
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<PAGE> 10
to the telecopy number of the Company set forth below. If the Company should at
any time change the location of its principal office to a place other than as
set forth below or change its telecopy number to a number other than as set
forth below, it shall give prompt written notice to the Registered Holder of
this Warrant in the manner prescribed herein, and thereafter all references in
this Warrant to the location of its principal office or telecopy number at the
particular time shall be as so specified in such notice.
13. No Rights as Stockholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
14. Change or Waiver. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of at least a majority of the Series F
Common Warrants (as defined in the Series F Convertible Preferred Stock and
Warrant Purchase Agreement, dated June 28, 1996, among the Company and the
Purchasers named therein).
15. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
16. Governing Law. This Warrant will be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
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<PAGE> 11
ASCENT PEDIATRICS, INC.
[Corporate Seal] By: ______________________________
ATTEST: Title: ___________________________
Address: 187 Ballardvale Street
Suite B125
Wilmington, MA 01887
Telephone: 508-658-2500
Telecopier: 508-658-3939
ACCEPTED:
By:_______________________
Name:_____________________
11
<PAGE> 12
EXHIBIT I
PURCHASE FORM
To:________________ Dated:_____________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. ___), hereby irrevocably elects to purchase shares of the Common
Stock covered by such Warrant and herewith makes payment of $___________,
representing the full purchase price for such shares at the price per share
provided for in such Warrant.
Signature:
Address: ______________________
______________________
<PAGE> 13
EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, ________________________ hereby sells, assigns and
transfers all of the rights of the undersigned under the attached Warrant
(No. __) with respect to the number of shares of Common Stock covered thereby
set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated:_________________________ Signature:__________________________
Dated:_________________________ Signature:__________________________
<PAGE> 1
Exhibit 10.17
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH WARRANT IS REGISTERED
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. THIS
WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON PURCHASE OF THIS
WARRANT ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN
SECTIONS 4 AND 11 OF THIS WARRANT
Warrant No. F-____ Number of Shares: _______
(subject to adjustment)
Date of Issuance: February 28, 1997
ASCENT PEDIATRICS, INC.
Common Stock Purchase Warrant
(Void after February 28, 2002)
Ascent Pediatrics, Inc., a Delaware corporation (the "Company"), for
value received, hereby certifies that ___________________, or his registered
assigns (the "Registered Holder"), is entitled, subject to the terms set forth
below, upon exercise of this Warrant to purchase from the Company, at any time
or from time to time on or after the first to occur of (x) April 1, 1997 and (y)
the occurrence of a Change in Control of the Company (as defined below) and on
or before March 1, 2002 at not later than 5:00 p.m. (Boston, Massachusetts
time), _______________ shares of the Company's common stock, $.00004 par value
per share (the "Common Stock"), at a purchase price of $6.95 per share. The
shares purchasable upon exercise of this Warrant, and the purchase price per
share, each as adjusted from time to time pursuant to the provisions of this
Warrant, are hereinafter referred to as the "Warrant Shares" and the "Purchase
Price," respectively.
This Warrant is one of a series of warrants comprising the Company's
Series F Common Warrants (as defined in a certain Series F Convertible Preferred
Stock and
<PAGE> 2
Warrant Purchase Agreement, dated June 28, 1996, among the Company and the
Purchasers named therein, as amended, (the "Purchase Agreement")).
For purposes of this Warrant, the following events shall be deemed to
be a Change in Control of the Company:
(a) the date on which any "person," as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of
the Company, any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as
their ownership of stock of the Company, or the Registered Holder or
any of its affiliates), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing more than 50% of the combined
voting power of the Company's then outstanding securities;
(b) the closing of a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; and
(c) a complete liquidation of the Company or the sale or
disposition by the Company of all or substantially all of the Company's
assets.
1. Purchase.
(a) This Warrant may be exercised by the Registered Holder, in
whole or in part, by surrendering this Warrant, with the purchase form
appended hereto as Exhibit I duly executed by such Registered Holder or
by such Registered Holder's duly authorized attorney, at the principal
office of the Company, or at such other office or agency as the Company
may designate, accompanied by payment in full, in lawful currency of
the United States, of the Purchase Price payable in respect of the
number of shares of Warrant Shares purchased upon such exercise.
(b) The Registered Holder may, at its option, elect to pay
some or all of the Purchase Price payable upon an exercise of this
Warrant by cancelling a portion of this Warrant exercisable for such
number of Warrant Shares as is
2
<PAGE> 3
determined by dividing (i) the total Purchase Price payable in respect of the
number of Warrant Shares being purchased upon such exercise by (ii) the excess
of the Fair Market Value per share of Common Stock as of the effective date of
exercise, as determined pursuant to Subsection 1(c) below (the "Exercise Date")
over the Purchase Price per share. The Fair Market Value per share of Common
Stock shall be determined as follows:
(i) If the Common Stock is listed on a national securities exchange,
the Nasdaq National Market, the Nasdaq system, or another nationally recognized
exchange or trading system as of the Exercise Date, the Fair Market Value per
share of Common Stock shall be deemed to be the last reported sale price per
share of Common Stock thereon on the Exercise Date; or, if no such price is
reported on such date, such price on the next preceding business day (provided
that if no such price is reported on the next preceding business day, the Fair
Market Value per share of Common Stock shall be determined pursuant to clause
(ii)).
(ii) If the Common Stock is not listed on a national securities
exchange, the Nasdaq National Market, the Nasdaq system or another nationally
recognized exchange or trading system as of the Exercise Date, the Fair Market
Value per share of Common Stock shall be deemed to be the amount most recently
determined by the Board of Directors to represent the fair market value per
share of the Common Stock (including without limitation a determination for
purposes of granting Common Stock options or issuing Common Stock under an
employee benefit plan of the Company); and, upon request of the Registered
Holder, the Board of Directors (or a representative thereof) shall promptly
notify the Registered Holder of the Fair Market Value per share of Common Stock.
Notwithstanding the foregoing, if the Board of Directors has not made such a
determination within the three-month period prior to the Exercise Date, then (A)
the Fair Market Value per share of Common Stock shall be the amount next
determined by the Board of Directors to represent the fair market value per
share of the Common Stock (including without limitation a determination for
purposes of granting Common Stock options or issuing Common Stock under an
employee benefit plan of the Company), (B) the Board of Directors shall make
such a determination within 15 days of a request by the Registered Holder that
it do so, and (C) the exercise of this Warrant pursuant to this Subsection 1(b)
shall be delayed until such determination is made.
(c) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in Subsection 1(a) above.
At such time, the person or persons in whose name or
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<PAGE> 4
names any certificates for Warrant Shares shall be issuable upon such exercise
as provided in Subsection 1(d) below shall be deemed to have become the holder
or holders of record of the Warrant Shares represented by such certificates.
(d) As soon as practicable after the exercise of this Warrant in full
or in part, and in any event within 10 days thereafter, the Company, at its
expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct:
(i) certificate or certificates for the number of
full Warrant Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; and
(ii) in case such exercise is in part only, a new
warrant or warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of Warrant Shares equal
(without giving effect to any adjustment therein) to the number of such shares
called for on the face of this Warrant minus the number of such shares purchased
by the Registered Holder upon such exercise as provided in Subsection 1(a)
above.
(e) The Registered Holder shall be entitled, in respect of all shares
of Common Stock acquired through the exercise of this Warrant, to Incidental
Registration rights pursuant to Section 8.4 of the Purchase Agreement in
connection with (i) any registration statement that the Company proposes to file
and (ii), notwithstanding anything to the contrary in Section 8.4 of the
Purchase Agreement, any registration statement proposed to be filed pursuant to
Section 8.3 of the Purchase Agreement; for the limited purpose of granting such
Incidental Registration rights to the Registered Holder, the shares of Common
Stock issuable to the Registered Holder upon exercise of this Warrant shall be
considered "Registrable Shares" under Section 8.1 of the Purchase Agreement, it
being expressly understood that the Registered Holder shall have no Required
Registration rights pursuant to Section 8.3 of the Purchase Agreement in respect
of any shares of Common Stock issuable upon exercise of this Warrant.
2. Adjustments.
(a) If the outstanding shares of the Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock
4
<PAGE> 5
shall be paid in respect of the Common Stock, the Purchase Price in effect
immediately prior to such subdivision or at the record date of such dividend
shall simultaneously with the effectiveness of such subdivision or immediately
after the record date of such dividend be proportionately reduced. If
outstanding shares of the Company's Common Stock shall be combined into a
smaller number of shares, the Purchase Price in effect immediately prior to such
combination shall, simultaneously with the effectiveness of such combination, be
proportionately increased.
(b) When any adjustment is required to be made in the Purchase
Price as a result of the operation of Subsection 2(a), the number of Warrant
Shares purchasable upon the exercise of this Warrant shall be changed to the
number determined by dividing (i) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
(c) If there shall occur any capital reorganization or
reclassification of or other change in the Common Stock (other than a change in
par value or a subdivision or combination as provided for in Subsection 2(a)
above), or a transfer of all or substantially all of the assets of the Company
then, as part of any such reorganization, reclassification, as the case may be,
lawful provision shall be made so that the Registered Holder of this Warrant
shall receive upon the exercise hereof the kind and amount of shares of stock or
other securities or property which such Registered Holder would have been
entitled to receive if, immediately prior to any such reorganization,
reclassification, as the case may be, such Registered Holder had held the number
of shares of Common Stock which were then purchasable upon the exercise of this
Warrant. In any such case, appropriate adjustment (as reasonably determined in
good faith by the Board of Directors of the Company) shall be made in the
application of the provisions set forth herein with respect to the rights and
interests thereafter of the Registered Holder of this Warrant, such that the
provisions set forth in this Section 2 (including provisions with respect to
adjustment of the Purchase Price) shall thereafter be applicable, as nearly as
is reasonably practicable, in relation to any shares of stock or other
securities or property thereafter deliverable upon the exercise of this Warrant.
3. Fractional Shares. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares (as determined on an
aggregate basis for each exercise pursuant to this Warrant), but shall make an
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<PAGE> 6
adjustment therefor in cash on the basis of the Fair Market Value per share of
Common Stock, as determined pursuant to Subsection 1(b) above.
4. Requirements for Transfer.
(a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company first shall
have been furnished with an opinion of legal counsel, reasonably satisfactory to
the Company (which opinion may be rendered by (x) staff counsel to the holder of
the Warrant or (y) a law firm then designated by the holder as its special
counsel) to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Each certificate representing Warrant Shares shall bear a
legend substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not be
offered, sold or otherwise transferred, pledged or hypothecated unless
and until such securities are registered under such Act or an opinion
of counsel satisfactory to the Company (which opinion may be rendered
by (x) staff counsel to the holder of the Warrant or (y) a law firm
then designated by the holder as its special counsel) is obtained to
the effect that such registration is not required."
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
5. No Impairment. The Company will not, by amendment of its Certificate
of Incorporation or through reorganization, consolidation, merger, dissolution,
sale of assets or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of this Warrant against impairment.
6. Liquidating Dividends. If the Company pays a dividend or
makes a distribution on the Common Stock payable otherwise than in cash out
of earnings or earned surplus (determined in accordance with generally
6
<PAGE> 7
accepted accounting principles) except for a stock dividend payable in shares of
Common Stock (a "Liquidating Dividend"), then the Company will pay or distribute
to the Registered Holder of this Warrant, upon the exercise hereof, in addition
to the Warrant Shares purchased upon such exercise, the Liquidating Dividend
which would have been paid to such Registered Holder if it had been the owner of
record of such Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
7. Notices of Record Date, etc. In case:
(a) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time deliverable upon the
exercise of this Warrant) for the purpose of entitling or enabling them to
receive any dividend or other distribution, or to receive any right to subscribe
for or purchase any shares of stock of any class or any other securities, or to
receive any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company;
then, and in each such case, the Company will send or cause to be sent to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, (ii) the date on which such conversion was effective, or
(iii) the effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or such other stock or securities at the time
deliverable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up. Such
notice shall be given at least ten (10) days, or if such advance notice is not
practicable, then such shorter period as may be practicable, prior to the record
date or effective
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<PAGE> 8
date for an event specified in Subsection 7(a), (b) or (c). Such notice shall be
given no later than ten (10) days after the effective date of an event specified
in Subsection 7(b).
8. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant
such number of Warrant Shares and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
9. Exchange of Warrants. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
10. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company (provided that, for purposes of this Section 10, a
letter of indemnity from an entity having total assets of at least $100,000,000
shall be deemed sufficient indemnity), or (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will issue, in lieu
thereof, a new Warrant of like tenor.
11. Transfers, etc.
(a) The Company will maintain a register containing the names
and addresses of the Registered Holders of this Warrant. Any Registered Holder
may change its or his address as shown on the warrant register by written notice
to the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this
Warrant and all rights hereunder are transferable, in whole or in part, upon
surrender of this Warrant with a properly executed assignment (in the form of
Exhibit II hereto) at the principal office of the Company.
8
<PAGE> 9
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
(d) Overseas Holders. If such Registered Holder's principal
address is a location outside of the United States of America and its
territories, such Registered Holder (an "Overseas Holder"):
(i) is not a U.S. person (as defined in Securities
Act Rule 902(o) and is not acquiring this Warrant or any Warrant Shares
purchased hereunder for the account or benefit of any U.S. person;
(ii) will transfer this Warrant or any Warrant Shares
purchased pursuant to any exercise hereunder only (x) in accordance with the
provisions of Regulation S promulgated under the Securities Act ("Regulation
S"), (y) pursuant to an effective registration statement under the Securities
Act, or (z) pursuant to an available exemption from registration under the
Securities Act; and
(iii) will not offer or sell this Warrant or any
Warrant Shares purchased hereunder to a U.S. person or to or for the account or
benefit of a U.S. person prior to the expiration of the one-year period after
the date of this Warrant, with respect to a transfer of this Warrant, or one
year after the exercise of this Warrant, with respect to any Warrant Shares
purchased hereunder.
12. Giving of Notices, etc. All notices and other communications from
the Company to the Registered Holder of this Warrant shall be in writing and
shall be deemed effective (i) upon delivery by hand, (ii) two business days
after deposit with an express courier service for delivery no later than two
business days after such deposit, addressed to the Registered Holder at the
address set forth on the warrant register maintained by the Company (or at such
other address as may have been last furnished to the Company in writing by the
holder), or (iii) upon confirmation of transmittal by telecopy to the Registered
Holder, with a hard copy sent in accordance with the preceding clause (ii), to
the telecopy number set forth on the warrant register maintained by the Company
(or to such telecopy number as may have been last furnished to the Company in
writing by the holder). All notices and other communications from the Registered
Holder of this Warrant to the Company shall be in writing and shall be deemed
effective (i) upon delivery by hand,
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<PAGE> 10
(ii) two business days after deposit with an express courier service for
delivery no later than two business days after such deposit, addressed to the
Company at its principal office set forth below, or (iii) upon confirmation of
transmittal by telecopy, with a hard copy sent in accordance with the preceding
clause (ii), to the telecopy number of the Company set forth below. If the
Company should at any time change the location of its principal office to a
place other than as set forth below or change its telecopy number to a number
other than as set forth below, it shall give prompt written notice to the
Registered Holder of this Warrant in the manner prescribed herein, and
thereafter all references in this Warrant to the location of its principal
office or telecopy number at the particular time shall be as so specified in
such notice.
13. No Rights as Stockholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
14. Change or Waiver. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of at least a majority of the Series F
Common Warrants (as defined in the Series F Convertible Preferred Stock and
Warrant Purchase Agreement, dated June 28, 1996, among the Company and the
Purchasers named therein).
15. Headings. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
16. Governing Law. This Warrant will be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
10
<PAGE> 11
ASCENT PEDIATRICS, INC.
[Corporate Seal] By: ____________________________
ATTEST: Title: _________________________
Address: 187 Ballardvale Street
Suite B125
Wilmington, MA 01887
Telephone: 508-658-2500
Telecopier: 508-658-3939
ACCEPTED:
By:_______________________
Name:_____________________
11
<PAGE> 12
EXHIBIT I
PURCHASE FORM
To:________________ Dated:_____________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. ___), hereby irrevocably elects to purchase shares of the Common
Stock covered by such Warrant and herewith makes payment of $___________,
representing the full purchase price for such shares at the price per share
provided for in such Warrant.
Signature:
Address: ______________________
______________________
-1-
<PAGE> 13
EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, ______________________ hereby sells, assigns and
transfers all of the rights of the undersigned under the attached Warrant
(No. __) with respect to the number of shares of Common Stock covered thereby
set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated:__________________________ Signature:_________________
Dated:__________________________ Signature:_________________
-1-
<PAGE> 1
Exhibit 10.18
AMENDMENT 1
This Amendment dated the ___ day of ________, 1996 is hereby incorporated in
its entirety into that certain Development and License Agreement between
Recordati S.A. Chemical and Pharmaceutical Company ("Recordati") and Ascent
Pediatrics, Inc. ("Ascent") dated October 8, 1996 (the "Agreement").
Pursuant to Section 9.9 of the Agreement, the parties hereby amended the
Agreement by deleting Australia and Canada from the list of "Major Countries"
in Exhibit B of the Agreement.
Agreed & Accepted:
Recordati S.A. Chemical Ascent Pediatrics, Inc.
and Pharmaceutical Company
By: /s/ Luciano Boccasso By: /s/ Emmett Clemente
------------------------- -------------------------
Name: Luciano Boccasso Name: Emmett Clemente
Title: President Title: Chairman
Date: Date: February 28, 1997
-------------------- --------------------
<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
April 3, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion, in this 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
April 3, 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
March 27, 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
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