AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1997
REGISTRATION NO. 333-21209
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------
PERARDUA CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
---------------
DELAWARE 62-1667690
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NO.)
ORGANIZATION)
2836
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
---------------
PERARDUA CORPORATION SAMUEL P. SEARS, JR.
10940 WILSHIRE BOULEVARD, SUITE 1600 PERARDUA CORPORATION
LOS ANGELES, CALIFORNIA 90024 16 SOUTH MARKET STREET
(310) 443-4240 PETERSBURG, VIRGINIA 23803
(ADDRESS AND TELEPHONE NUMBER OF (804) 861-0681
PRINCIPAL EXECUTIVE OFFICES) (NAME, ADDRESS AND TELEPHONE
NUMBER OF AGENT FOR SERVICE)
PERARDUA CORPORATION
10940 WILSHIRE BOULEVARD, SUITE 1600
LOS ANGELES, CALIFORNIA 90024
(310) 443-4240
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS
OR INTENDED PRINCIPAL PLACE OF BUSINESS)
---------------
COPIES OF COMMUNICATIONS TO:
J. BENJAMIN ENGLISH, ESQ. WILLIAM M. PRIFTI, ESQ.
LECLAIR RYAN, A PROFESSIONAL CORPORATION LYNNFIELD WOODS OFFICE PARK
707 EAST MAIN STREET, SUITE 1100 220 BROADWAY, SUITE 204
RICHMOND, VIRGINIA 23219 LYNNFIELD, MASSACHUSETTS 01940
(804) 783-2003 (617) 593-4525
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable on
or after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
================================================================================
SUBJECT TO COMPLETION, DATED APRIL 24, 1997
PROSPECTUS
PERARDUA CORPORATION
1,000,000 SHARES OF COMMON STOCK
1,000,000 REDEEMABLE WARRANTS
PerArdua Corporation ("PerArdua" or the "Company") hereby offers (the
"Offering") 1,000,000 shares of the Company's common stock, $.01 par value per
share (the "Common Stock"), and 1,000,000 Redeemable Warrants (the "Redeemable
Warrants"). The Common Stock and the Redeemable Warrants offered hereby are
sometimes hereinafter collectively referred to as the "Securities." Each
Redeemable Warrant entitles the holder to purchase one share of Common Stock at
a price of $6.50 per share beginning , 1998 and ending , 2002, unless the
Redeemable Warrants are redeemed by the Company as provided herein. The
Redeemable Warrants are redeemable by the Company at a redemption rate of $.20
per Redeemable Warrant at any time commencing , 1998 upon 30 days' prior written
notice, provided that the average closing bid price of the Company's Common
Stock equals or exceeds $9.00 per share for a 20 consecutive trading day period.
See "DESCRIPTION OF SECURITIES."
Prior to the Offering, no public market for the Securities existed and no
assurance can be given that any such market will develop after the completion of
the Offering or, that if developed, such market will be sustained. It is
currently anticipated that the initial public offering prices will be $5.00 per
share of Common Stock and $.10 per Redeemable Warrant. For the method of
determining the initial public offering price of the Securities, see "RISK
FACTORS" and "UNDERWRITING." The Company intends to apply for inclusion of the
shares of Common Stock and the Redeemable Warrants on the Nasdaq SmallCap Market
under the symbols "PRDU" and "PRDUW," respectively.
---------------
THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY INVOLVE
A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. INVESTORS SHOULD
BE ABLE TO SUSTAIN A COMPLETE LOSS OF THEIR INVESTMENT. SEE "RISK FACTORS"
AND "DILUTION" ON PAGES 6 THROUGH 17 AND 19, RESPECTIVELY.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
------ ------------ ----------
<S> <C> <C> <C>
Per Share $5.00 $.50 $4.50
Per Redeemable Warrant $ .10 $.01 $ .09
Total(3) $5,100,000 $510,000 $4,590,000
</TABLE>
(1) Does not reflect additional compensation to be received in the form of (a) a
3% non-accountable expense allowance in the amount of $153,000 and a
consulting fee payable to Schneider Securities, Inc., as the representative
(the "Representative") of the underwriters (the "Underwriters") in the
amount of $3,000 per month for a period of 36 months and (b) warrants (the
"Representative's Warrants") to purchase up to 100,000 additional shares of
Common Stock and 100,000 Redeemable Warrants at 160% of the public offering
price of the Securities. In addition, the Company has agreed to indemnify
the Underwriters against certain civil liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). See
"UNDERWRITING."
(2) Before deducting additional expenses of the Offering payable by the Company,
estimated at $450,000, including the Representative's non-accountable
expense allowance and the consulting fee payable to the Representative.
(3) The Company has granted the Underwriters an option to purchase up to an
additional 150,000 shares of Common Stock and/or 150,000 Redeemable Warrants
on the same terms and conditions set forth above, solely to cover
over-allotments, if any. If the over-allotment option is exercised in full,
the total "Price to Public," "Underwriting Discounts" and "Proceeds to
Company" will be $5,865,000, $586,500 and $5,278,500, respectively. See
"UNDERWRITING."
The Securities are being offered on a "firm commitment" basis by the
Underwriters, when, as, and if delivered to and accepted by the Underwriters and
subject to prior sale, withdrawal or cancellation of the Offering without
notice. It is expected that delivery of certificates representing the Securities
will be made at the clearing offices of Schneider Securities, Inc., on or about
__________, 1997.
SCHNEIDER SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1997.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OR
THE REDEEMABLE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PRIOR TO THE OFFERING, THE COMPANY WAS NOT A REPORTING COMPANY UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SUBSEQUENT TO
THE OFFERING, THE COMPANY INTENDS TO FURNISH TO ITS SHAREHOLDERS ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY ITS INDEPENDENT ACCOUNTANTS, AND SUCH
OTHER PERIODIC REPORTS AS IT MAY DETERMINE TO FURNISH OR AS MAY BE REQUIRED BY
LAW.
CALIFORNIA INVESTORS SHOULD NOTE THAT THE DEPARTMENT OF CORPORATIONS
REQUIRES THAT INVESTORS MUST MEET THE FOLLOWING SUITABILITY STANDARDS: (I) AN
INVESTOR MUST HAVE A LIQUID NET WORTH OF NOT LESS THAN $250,000 (A NET WORTH
EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILE) PLUS $65,000 GROSS ANNUAL
INCOME OR $500,000 LIQUID NET WORTH; OR (II) $1,000,000 NET WORTH (INCLUSIVE) OR
$200,000 GROSS ANNUAL INCOME.
IN ADDITION, CALIFORNIA INVESTORS SHOULD NOTE THAT THE EXEMPTION PROVIDED BY
SECTION 25104(H) OF THE CALIFORNIA CORPORATION CODE WILL NOT BE AVAILABLE. THIS
MEANS THAT THERE WILL BE NO AFTERMARKET TRADING IN PERARDUA CORPORATION
SECURITIES IN THE STATE OF CALIFORNIA. PERARDUA AND THE UNDERWRITER HAVE AGREED
NOT TO APPLY FOR THE EXEMPTION PROVIDED UNDER SECTION 25101(B) FOR 90 DAYS FROM
THE CLOSING OF THE OFFERING.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information, including "RISK FACTORS" and the Company's financial
statements and related notes thereto appearing elsewhere in this Prospectus. The
Common Stock and Redeemable Warrants offered hereby involve a high degree of
risk. Investors in the Offering should be able to sustain a complete loss of
their investment. See "RISK FACTORS." This Prospectus contains certain
forward-looking statements that involve risks and uncertainties. See "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS." The Company's actual results and the
timing of certain events could differ materially from those discussed in or
projected by the forward-looking statements. Factors that could cause or
contribute to such differences include those discussed under "RISK FACTORS."
THE COMPANY
The Company is a development stage pharmaceutical company engaged in the
development of a single anti-viral compound for which the Company has adopted
the trade name "Thiovir(tm)." The initial focus of the Company's development
activities will be to demonstrate the safety and efficacy of Thiovir for
treatment of patients infected with human immunodeficiency virus ("HIV"), the
virus which is the precursor to acquired immunodeficiency syndrome ("AIDS"), and
patients showing active infection of the opportunistic virus cytomegalovirus
("CMV") which causes blindness and other conditions. CMV is a common
opportunistic infection among AIDS patients. The Company believes that Thiovir,
if successfully developed and approved for sale, would constitute a candidate
for inclusion in combination drug therapy for HIV/AIDS treatment and would
provide several benefits over existing treatments for CMV, particularly its
potential ability to replace more toxic intravenous treatment with a less toxic
oral treatment. The only development work on Thiovir to date has been limited to
laboratory and animal studies conducted by the University of Southern California
("USC"), which has licensed to the Company its proprietary rights to Thiovir,
and by other academic and/or research organizations which have no affiliation
with the Company. Therefore, Thiovir is in an early stage of development. See
"BUSINESS -- Targeted Indications for Thiovir" and "-- Research and Development
Status and Activities."
In the United States, the use and sale of Thiovir is subject to the rules
and regulations of the United States Food and Drug Administration ("FDA"), and
obtaining the necessary FDA approval will require substantial preclinical tests
and clinical trials. The Company expects to commence clinical trials for Thiovir
in 1997. The Company believes that Thiovir may meet the criteria established by
the FDA for accelerated approval. As a result, the Company may be able to
commercialize Thiovir in a shorter time period than has historically been
applicable for a drug that does not meet the criteria for accelerated approval.
See "BUSINESS -- Government Regulation."
Initially, the Company intends to maintain a limited corporate
infrastructure devoted almost exclusively to the development and
commercialization of Thiovir. Accordingly, the Company will engage contract
research organizations ("CROs") to conduct preclinical tests and clinical trials
on Thiovir. The Company will also contract with other companies to manufacture
the drug. The Company intends to rely upon part-time consultants and CROs to
provide expertise in designing appropriate tests and trials and in seeking FDA
and other government approvals. Furthermore, the Company does not believe that
it will be necessary to develop an extensive sales and marketing force to
promote the sale of Thiovir in the United States, if and when it may be sold,
since the market for HIV/AIDS and CMV therapies is concentrated among a
relatively small number of care providers. See "BUSINESS -- Sales and
Marketing," "-- Manufacturing" and "-- Personnel."
In August 1996, the Company acquired an exclusive worldwide license to
proprietary rights to Thiovir held by USC from a limited partnership which
funded the research and development of Thiovir. The Company has generated no
revenues from the sale of products and, as of February 28, 1997, had an
accumulated deficit of $2,227,784. There can be no assurance that the Company
will ever achieve profitable operations. See "BUSINESS -- Relationship With USC"
and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
On January 9, 1997, the Company reincorporated in the State of Delaware. The
term "Company," when used in this Prospectus, refers to both the Delaware
corporation and its predecessor Missouri corporation, unless the context
requires otherwise. The Company's offices are located at 10940 Wilshire
Boulevard, Suite 1600, Los Angeles, California, and its telephone
number is (310) 443-4240.
3
THE OFFERING
Securities Offered by the
Company................. 1,000,000 shares of Common Stock and
1,000,000 Redeemable Warrants. See
"DESCRIPTION OF SECURITIES."
Redeemable Warrants....... Each Redeemable Warrant entitles the holder
to purchase one share of Common Stock at a
price of $6.50 per share beginning , 1998
and ending , 2002, unless the Redeemable
Warrants are redeemed as provided herein.
The Redeemable Warrants are redeemable by
the Company at a redemption price of $.20
per Redeemable Warrant at any time
commencing thirteen months from the date of
this Prospectus on 30 days' prior written
notice, provided that the average closing
bid price of the Common Stock equals or
exceeds $9.00 per share for 20 consecutive
trading days ending within 10 days prior to
the notice of redemption. See "DESCRIPTION
OF SECURITIES."
Shares of Common Stock
Outstanding
before Offering......... 2,643,440 shares
Shares of Common Stock to
be Outstanding
after Offering.......... 3,643,440 shares
Use of Proceeds........... The net proceeds of this Offering will be
used for further research and development
and working capital. See "USE OF PROCEEDS."
Risk Factors.............. Investment in the Securities involves a high
degree of risk and immediate dilution. See
"RISK FACTORS" and "DILUTION."
Proposed Nasdaq SmallCap
Market Symbols(1)....... Common Stock -- "PRDU"
Redeemable Warrants -- "PRDUW"
- ----------
(1) No assurance can be given that an active trading market for the
Securities will develop or be maintained. See "RISK FACTORS -- No
Prior Market for Common Stock and the Redeemable Warrants."
Except as otherwise indicated, all share and per share data in this
Prospectus (i) assume no exercise of the Redeemable Warrants, (ii) give no
effect to the 300,000 shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option, including 150,000 shares of Common Stock
underlying the Redeemable Warrants subject to such option; (iii) give no effect
to 100,000 shares of Common Stock issuable upon exercise of the Representative's
Warrants; (iv) give no effect to the 100,000 shares of Common Stock issuable
upon the exercise of the Redeemable Warrants underlying the Representative's
Warrants; (v) assume no exercise of stock options to purchase up to 500,000
shares of Common Stock which may be issued pursuant to the Company's Stock
Incentive Plan, of which, as of the date of this Prospectus, the Company has
granted options to purchase 10,000 shares of Common Stock at an exercise price
of $7.50 per share and committed to grant to three outside directors and two
officers options to purchase an aggregate of 230,000 shares of Common Stock at
an exercise price to be determined, but not less than $5.00 per share; and (vi)
assume no exercise of the Company's outstanding warrants to purchase shares of
Common Stock, of which 700,000 warrants have been issued as of the date of this
Prospectus at an exercise price of $10.00 per share which may be paid in cash
or, in the event the fair market value of the Common Stock exceeds the warrant
exercise price, by a reduction in the number of shares of Common Stock issuable
upon excercise of any warrant determined in accordance with a formula. (the
"Outstanding Warrants"). See "CAPITALIZATION" and "MANAGEMENT -- Executive
Compensation and Other Information -- Stock Incentive Plan."
4
SUMMARY FINANCIAL INFORMATION
The following sets forth certain historical financial information of the
Company:
STATEMENT OF ACTIVITIES DATA:
<TABLE>
<CAPTION>
PERIOD FROM JULY 5, 1996, THREE MONTHS
DATE OF INCEPTION, TO ENDED
NOVEMBER 30, 1996 FEBRUARY 28, 1997
----------------- -----------------
<S> <C> <C>
Revenue:
Interest income $ 1,858 $ 2,475
----------- -----------
Costs and Expense:
Research and development 2,058,980 73,249
General and administrative 33,568 66,320
--------- -------
2,092,548 139,569
--------- -------
Net loss (2,090,690) (137,094)
========== ========
Net loss per common share(1) $ (.81) $ (.05)
=========== ===========
Shares used in computing net loss per common share(1) 2,593,440 2,593,996
=========== ===========
BALANCE SHEET DATA:
FEBRUARY 28, 1997
-----------------
ACTUAL AS ADJUSTED(2)
------ --------------
Cash and cash equivalents $ 213,029 $ 4,353,029
Working capital 431,362 4,571,362
Total assets 502,625 4,642,625
Deficit accumulated during the development stage (2,227,784) (2,227,784)
Total stockholders' equity 443,393 4,583,393
</TABLE>
- ------------
(1) See notes 1 and 4 of Notes to Financial Statements for information
concerning the computation of net loss per share of Common Stock and shares
of Common Stock used in computing net loss per common share.
(2) As adjusted to reflect the sale of the Common Stock and the Redeemable
Warrants offered hereby and the application of the estimated net proceeds
therefrom. See "USE OF PROCEEDS."
5
RISK FACTORS
The Securities offered pursuant to this Prospectus are speculative and
involve a high degree of risk, and an investment in the Securities should be
considered only by investors who are capable of affording an entire loss of the
amount invested. Prospective investors should carefully consider, along with the
other information contained in this Prospectus, the following considerations and
risks in evaluating an investment in the Company.
DEVELOPMENT STAGE COMPANY
The Company commenced development stage activities in July 1996 and
accordingly has only a limited operating history upon which an evaluation of the
Company's business and prospects can be based. The Company has generated no
revenue to date, except for interest income, and does not expect to generate any
substantial revenues in the near future. The Company's ability to generate
revenues and profits will depend on its ability to successfully develop clinical
applications and obtain regulatory approvals for the anti-viral drug Thiovir and
to protect its proprietary rights in Thiovir. The Company must also develop the
capacity or arrangements with third parties to manufacture, distribute and
market Thiovir. There can be no assurance that the Company will be successful in
doing so. See "BUSINESS -- Overview."
UNCERTAINTY OF PRODUCT DEVELOPMENT
Thiovir is in an early development stage and requires significant,
time-consuming and costly development, testing and regulatory clearance.
Although the Company anticipates that the development and commercialization of
Thiovir, if successful, will occur more rapidly than is typical for a new
pharmaceutical product, this process typically takes several years at a minimum
and can require substantially more time. The successful development of any new
drug is highly uncertain and subject to a number of significant risks. These
risks include, among others, the possibility that Thiovir will be found to be
ineffective or unacceptably toxic, to have unacceptable side effects, or
otherwise fail to receive necessary regulatory clearances, that Thiovir will not
achieve broad market acceptance, that third parties will market equivalent or
superior products, or that third parties will hold proprietary rights that will
preclude the Company from marketing Thiovir. There can be, therefore, no
assurance that the Company's development activities will demonstrate the
efficacy and safety of Thiovir as a therapeutic drug, or, even if demonstrated,
that there will be sufficient advantages to the use of Thiovir over other drugs
or treatments so as to render Thiovir commercially viable. See "BUSINESS --
Targeted Indications for Thiovir" and " -- Government Regulation."
UNCERTAINTY OF MARKET DEMAND FOR THIOVIR
There is a considerable degree of uncertainty as to the potential market
demand for Thiovir, particularly as a CMV drug.
The Company is not aware of published data which indicate the extent to
which new cases of active CMV infection have been reduced as a result of the
recent success of combination drug therapy among HIV patients. The Company
believes, however, and anecdotal reports confirm, that to the extent that
combination drug therapy, or any other therapy, is effective in treating HIV
patients, the number of new patients with active CMV infection has been and will
be proportionately reduced. Consequently, the demand for CMV drugs may be
significantly diminished at the time, if ever, the Company is able to market
Thiovir. See "BUSINESS -- Potential Market for Thiovir."
The ability of the HIV and CMV viruses to develop resistance to drugs has
reduced or eliminated the effectiveness of a number of existing drugs. Even if
Thiovir should initially prove effective, its effectiveness and acceptance in
the marketplace may be reduced by the development of resistant strains of the
HIV and CMV viruses.
COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN
The report of the Company's Independent Auditors contains an emphasis
paragraph as to matters that raise substantial doubt about the Company's ability
to continue as a going concern, and management's inability to provide any
assurance that the Company will obtain sufficient financing to continue as a
going
6
concern. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," the Company's Financial Statements and Notes, and the
Independent Auditor's Report included elsewhere herein.
RELIANCE ON A SINGLE TECHNOLOGY; LIMITED SCOPE OF OPERATIONS
The Company currently intends to focus its business exclusively on the
development and commercialization of the experimental drug Thiovir. In the event
the Company is not successful in developing and commercializing Thiovir,
investors are likely to realize a loss of all amounts invested in the Company.
ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE PROFITABILITY
The Company has incurred losses since its inception. As of February 28,
1997, the Company's accumulated deficit was $2,227,784. Losses have resulted
principally from costs incurred in the acquisition and development of Thiovir
and general and administrative costs. These costs have exceeded the Company's
revenues, which to date have been generated solely from interest income. The
Company has not generated any revenue to date from the sale of drugs and does
not expect to do so until Thiovir has been approved for sale. The Company
expects to incur significant additional operating losses which will increase as
the Company's drug development efforts expand. The Company's ability to achieve
profitability will depend upon its ability to develop and obtain regulatory
approval for Thiovir and to develop the capacity (or establish relationships
with third parties) to manufacture, market and sell Thiovir. There can be no
assurance that the Company will ever generate significant revenues or achieve
profitable operations. See "BUSINESS -- Government Regulation," "-- Sales and
Marketing," and "-- Manufacturing."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's drug development program requires substantial capital
expenditures, including expenditures for preclinical testing and clinical trials
of Thiovir. The Company's future capital requirements will depend on many
factors, including the scope and results of preclinical testing and clinical
trials, the cost, timing and outcome of regulatory reviews, administrative and
legal expenses (including potential expenses of defending and enforcing the
Company's proprietary patent rights to Thiovir), the establishment of capacity
for sales and marketing functions, the establishment of relationships with third
parties for manufacturing and sales and marketing functions and other factors.
The Company expects that its capital requirements will increase significantly in
the future. See "BUSINESS -- Government Regulation," "-- Sales and Marketing"
and "-- Manufacturing."
The Company has incurred negative cash flow from development stage
activities since inception and does not expect to generate positive cash flow to
fund its operations for at least the next several years. As a result, the
Company believes that substantial additional equity or debt financing may be
required to fund its operations. There can be no assurance that the Company will
be able to consummate any such financing at all or on favorable terms or that
such financings will be adequate to meet the Company's capital requirements. Any
additional equity financing could result in substantial dilution to the
Company's stockholders, and debt financing, if available, may involve
restrictive covenants which preclude the Company from making distributions to
stockholders and taking other actions beneficial to stockholders. If adequate
funds are not available, the Company may be required to delay or reduce the
scope of its drug development program or attempt to continue development by
entering into arrangements with collaborative partners or others that may
require the Company to relinquish some or all of its rights to Thiovir. The
Company's inability to fund its capital requirements would have a material
adverse effect on the Company. See "USE OF PROCEEDS" and "DILUTION."
EXTENSIVE GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
Human pharmaceutical products are subject to rigorous preclinical testing
and clinical trials and other approval procedures mandated by the FDA and
foreign regulatory authorities. Various federal and foreign statutes and
regulations also govern or influence the manufacturing, safety, labeling,
storage,
7
record keeping and marketing of pharmaceutical products. The process of
obtaining these approvals and the subsequent compliance with appropriate United
States and foreign statutes and regulations are time-consuming and require the
expenditure of substantial resources. In addition, these requirements and
processes vary widely from country to country. Among the uncertainties and risks
of the FDA approval process are the following: the possibility that studies and
clinical trials shall fail to prove the safety and efficacy of the drug, or that
any demonstrated efficacy will be so limited as to significantly reduce or
altogether eliminate the acceptability of the drug in the market place; the
possibility that the costs of development, which can far exceed the best of
estimates, may render commercialization of the drug marginally profitable or
altogether unprofitable; and the possibility that the amount of time required
for FDA approval of a drug may extend for years beyond that which is originally
estimated. In addition, the FDA or similar foreign regulatory authorities may
require additional clinical trials, which could result in increased costs and
significant development delays. Delays or rejections may also be encountered
based upon changes in FDA policy and the establishment of additional regulations
during the period of product development and FDA review. Similar delays or
rejections may be encountered in other countries. Thiovir may not qualify for
accelerated development and/or approval under FDA regulations and, even if
Thiovir does so qualify, it may not be approved for marketing sooner than would
be historically expected or at all.
There can be no assurance that even after substantial time and expenditures,
Thiovir will receive FDA approval on a timely basis or at all. If the Company is
unable to demonstrate the safety and efficacy of Thiovir to the satisfaction of
the FDA, the Company will be unable to commercialize Thiovir. Even if regulatory
approval of Thiovir is obtained, the approval may entail limitations on the
indicated uses for which Thiovir may be marketed. A marketed product, its
manufacturer and the manufacturer's 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. The failure to comply with applicable regulatory requirements can, among
other things, result in fines, suspension of regulatory approvals, refusal to
approve pending applications, refusal to permit exports from the United States,
product recalls, seizure of products, operating restrictions and criminal
prosecutions.
The effect of government regulation may be to delay the marketing of Thiovir
for a considerable period of time, to impose costly requirements on the
Company's activities or to provide a competitive advantage to the companies that
compete with the Company. Adverse clinical results by others could have a
negative impact on the regulatory process and timing with respect to the
development and approval of Thiovir. The Company is also subject to various
federal, state and local laws and regulations relating to safe working
conditions, laboratory and manufacturing practices, the experimental use of
animals and the use and disposal of hazardous or potentially hazardous
substances, including radioactive compounds and infectious disease agents, used
in connection with its development work. The extent and character of potentially
adverse governmental regulation that may arise from future legislation or
administrative action cannot be predicted. See "BUSINESS -- Government
Regulation."
UNCERTAINTIES RELATED TO CLINICAL TRIALS
Before obtaining required regulatory approvals for the commercial sale of
Thiovir, the Company must demonstrate through preclinical testing and clinical
trials that Thiovir is safe and effective for use in each target indication. The
results from preclinical testing and early clinical trials may not be predictive
of results that will be obtained in pivotal clinical trials. There can be no
assurance that the Company's clinical trials will demonstrate sufficient safety
and effectiveness to obtain required regulatory approvals or will result in a
marketable product. A number of companies in the pharmaceutical industry have
suffered significant setbacks in advanced clinical trials, even after promising
results in earlier trials. Similar setbacks in the Company's clinical trials
could interrupt, delay or halt clinical trials and could ultimately prevent its
approval by the FDA or foreign regulatory authorities for any and all targeted
indications. The Company or the FDA may suspend or terminate clinical trials at
anytime if it is believed that the trial participants are being exposed to
unacceptable health risks. There can be no assurance that clinical trials will
demonstrate that Thiovir is safe and effective.
8
There can be no assurance that if clinical trials are successfully
completed, the Company will be able to submit a New Drug Application ("NDA") in
a timely manner or that any such application will be approved by the FDA. Any
failure of the Company to complete successfully its clinical trials and obtain
approvals of corresponding NDAs would preclude the Company from commercializing
Thiovir in the United States. See "BUSINESS -- Government Regulation."
INTENSE COMPETITION
The Company is engaged in a segment of the pharmaceutical industry that is
highly competitive and rapidly changing. If successfully developed and approved,
Thiovir will compete with several existing HIV/AIDS and CMV therapies. In
addition, other companies are pursuing the development of pharmaceuticals that
target HIV/AIDS and/or CMV. The Company anticipates that it will face intense
and increasing competition in the future as new products enter the market and
advanced technologies become available. There can be no assurance that existing
products or new products developed by the Company's competitors will not be more
effective, or more effectively marketed and sold, than Thiovir. Competitive
products may render Thiovir obsolete or noncompetitive prior to the Company's
recovery of development or commercialization expenses. The Company's competitors
have significantly greater financial, technical and human resources than the
Company and may be better equipped to develop, manufacture and market products.
In addition, many of these companies have extensive experience in preclinical
testing and clinical trials, obtaining FDA and other regulatory approvals and
manufacturing and marketing pharmaceutical products. Many of these competitors
also have products that have been approved or are in late-stage development and
operate large, well-funded research and development programs. Smaller companies
may also prove to be significant competitors, particularly through collaborative
arrangements with large pharmaceutical and biotechnology companies. Furthermore,
academic institutions, government agencies and other public and private research
organizations are becoming increasingly aware of the commercial value of their
inventions and are actively seeking to commercialize the technology they have
developed. Accordingly, the Company's competitors may succeed in commercializing
products more rapidly or effectively than the Company, which would have a
material adverse effect on the Company. See "BUSINESS -- Potential Market for
Thiovir."
The ability of the HIV and CMV viruses to develop resistance to drugs has
reduced or eliminated the effectiveness of a number of existing drugs. Even if
Thiovir should initially prove effective, its effectiveness and acceptance in
the marketplace may be reduced by the development of resistant strains of the
HIV and CMV viruses.
UNCERTAINTY OF PATENTS; DEPENDENCE ON PATENTS, LICENSES AND PROPRIETARY RIGHTS
The Company's success will depend in large part on the ability of the
Company and its licensors to obtain patent protection with respect to Thiovir,
defend patents once obtained, maintain trade secrets and operate without
infringing upon the patents and proprietary rights of others and obtain
appropriate licenses to patents or proprietary rights held by third parties if
infringement would otherwise occur, both in the United States and in foreign
countries. The Company has no patents in its own name or patent applications of
its own pending, but has obtained a license to patents and other proprietary
rights from USC with respect to Thiovir. See "BUSINESS -- Relationship With
USC."
The patent positions of pharmaceutical companies, including those of the
Company, are uncertain and involve complex legal and factual questions for which
important legal principles are unresolved. There can be no assurance that the
Company or its licensor have or will develop or obtain the rights to products or
processes that are patentable, that patents will issue from any of the pending
applications or that claims allowed will be sufficient to protect the technology
licensed to the Company. In addition, no assurance can be given that any patents
issued to or licensed by the Company will not be challenged, invalidated,
infringed or circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company.
Initial research indicates that Thiovir may partially metabolize into
another drug, the use of which in the treatment of HIV and related infections is
subject to patents held by a third party, all of which are scheduled to expire
in or before 2000. The Company believes that the use of Thiovir in treatment of
HIV and CMV likely would not infringe on any known third party patent rights, or
that if infringement were to occur, it would not be likely to have a material
adverse effect on the Company. See "BUSINESS -- Patents."
9
There can be no assurance that the Company is aware of all patents or patent
applications that may materially affect the Company's ability to make, use or
sell Thiovir. United States patent applications are confidential while pending
in the United States Patent and Trademark Office (the "PTO"), and patent
applications filed in foreign countries are often first published six months or
more after filing. Any conflicts resulting from third party patent applications
and patents could significantly reduce the coverage of the patents or patent
applications licensed to the Company and limit the ability of the Company or its
licensors to obtain meaningful patent protection. If patents are issued to other
companies that contain competitive or conflicting claims, the Company may be
required to obtain licenses to these patents or to develop or obtain alternative
technology. There can be no assurance that the Company will be able to obtain
any such license on acceptable terms or at all. If such licenses are not
obtained, the Company could be delayed in or prevented from pursuing the
development or commercialization of Thiovir.
Litigation which could result in substantial cost to the Company may also be
necessary to enforce any patents to which the Company has rights, or to
determine the scope, validity and unenforceability of other parties' proprietary
rights which may affect the Company's rights to Thiovir. United States patents
carry a presumption of validity and generally can be invalidated only through
clear and convincing evidence. The Company's licensors may also have to
participate in interference proceedings declared by the PTO to determine the
priority of an invention, which could result in substantial cost to the Company.
There can be no assurance that the Company's licensed patents would be held
valid by a court or administrative body or that an alleged infringer would be
found to be infringing. The mere uncertainty resulting from the institution and
continuation of any technology-related litigation or interference proceeding
could have a material adverse effect on the Company pending resolution of the
disputed matters.
The Company may also rely on unpatented trade secrets and know-how to
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with employees, consultants and others. There can be
no assurance that these agreements will not be breached or terminated, that the
Company will have adequate remedies for any breach, or that the Company's trade
secrets will not otherwise become known or be independently discovered by
competitors. See "BUSINESS -- Patents."
DEPENDENCE ON AND NEED TO HIRE PERSONNEL
The Company is dependent on its senior management and scientific staff,
which currently consists of Dr. Francis E. O'Donnell, Jr., Chairman and Chief
Executive Officer, Nicholas Jon Virca, President and Chief Operating Officer,
Mary Anthony Gray, Executive Vice President, and Dr. Charles E. McKenna. Dr.
McKenna, who is the inventor of the patents licensed to the Company of the core
technology for Thiovir and who has directed the research on Thiovir at USC to
date, is a consultant to the Company and only devotes a limited portion of his
time to the Company's business. The services of Dr. O'Donnell, Mr. Virca, Ms.
Gray, and Dr. McKenna are important to the Company and the loss of any of their
services may adversely affect the Company. Dr. O'Donnell is serving as Chief
Executive Officer of the Company on an interim basis.
To develop and commercialize Thiovir, the Company must hire and retain a
number of additional highly qualified and experienced management and scientific
personnel, consultants and advisors. The Company's ability to attract and retain
qualified personnel is critical to the Company's success. Competition for
qualified individuals is intense, and the Company faces competition from
numerous pharmaceutical and biotechnology companies, universities and other
research institutions. There can be no assurance that the Company will be able
to attract and retain such individuals on acceptable terms or at all, and the
failure to do so would have a material adverse effect on the Company. See
"MANAGEMENT -- Executive Officers and Directors."
BROAD DISCRETION IN USE OF PROCEEDS
The net proceeds of the Offering will be added to the Company's working
capital and will be available for general corporate purposes, including the
Company's drug development program. As of the date of this Prospectus, the
Company cannot specify with certainty the particular uses for the net proceeds
to be added to its working capital. Accordingly, management will have broad
discretion in the application of the net proceeds. See "USE OF PROCEEDS."
10
RISKS RELATED TO LICENSE AGREEMENT
The agreement pursuant to which the Company has licensed the core technology
for Thiovir permits the Company's licensor, USC, to terminate the agreement
under certain circumstances, such as the failure by the Company to use its
reasonable best efforts to commercialize Thiovir or the occurrence of any other
uncured material breach by the Company. The termination of this agreement would
have a material adverse effect on the Company. The license agreement provides
that the licensor is primarily responsible for obtaining patent protection for
the technology licensed to the Company, and the Company is required to reimburse
it for the costs it incurs in performing these activities. The Company believes
that these costs will be substantial. The license agreement also requires the
Company to pay minimum royalties which start at $12,500 in 1998 and increase to
$125,000 in 2001 and each year thereafter. Any inability or failure of the
Company to pay these costs could result in the termination of the license
agreement. In addition, the license agreement reserves for the licensor the
right to approve sublicenses granted under the license agreement. Although such
approval may not be unreasonably withheld, the need for such approval may
inhibit the Company's development of strategic relationships necessary for the
commercialization of Thiovir. See "BUSINESS -- Research and Development Status
and Activities" and " -- Relationship with USC."
LACK OF MANUFACTURING CAPABILITIES
The Company does not have any manufacturing capacity and currently plans to
seek to establish relationships with third party manufacturers for the
manufacture of clinical trial material and the commercial production of Thiovir,
if any. There can be no assurance that the Company will be able to establish
relationships with third party manufacturers on commercially acceptable terms or
that third party manufacturers will be able to manufacture Thiovir on a
cost-effective basis in commercial quantities under good manufacturing practices
("GMPs") mandated by the FDA. The Company's dependence upon third parties for
the manufacture of its products may adversely affect the Company's profit
margins and its ability to develop and commercialize Thiovir on a timely and
competitive basis. Further, there can be no assurance that manufacturing or
quality control problems will not arise in connection with the manufacture of
the Company's products or that third party manufacturers will be able to
maintain the necessary governmental licenses and approvals to continue
manufacturing the Company's products. Any failure to establish relationships
with third parties for its manufacturing requirements on commercially acceptable
terms would have a material adverse effect on the Company. See "BUSINESS --
Manufacturing."
LACK OF SALES AND MARKETING CAPABILITIES
The Company currently has no marketing or sales personnel. The Company will
have to develop a sales force or rely on marketing partners or other
arrangements with third parties for the marketing, distribution and sale of
Thiovir. There can be no assurance that the Company will be able to establish
marketing, distribution or sales capabilities or make arrangements with third
parties to perform those activities on terms satisfactory to the Company, or
that any internal capabilities or third party arrangements will be
cost-effective.
In addition, any third parties with which the Company establishes marketing,
distribution or sales arrangements may have significant control over important
aspects of the commercialization of Thiovir, including market identification,
marketing methods, pricing, composition of sales force and promotional
activities. There can be no assurance that the Company will be able to control
the amount and timing of resources that any third party may devote to the
Company's products or prevent any third party from pursuing alternative
technologies or products that could result in the development of products that
compete with Thiovir and the withdrawal of support for Thiovir. See "BUSINESS --
Sales and Marketing."
DEPENDENCE ON THIRD PARTIES FOR DEVELOPMENT AND MANUFACTURING
The Company intends to engage consultants and independent contract research
organizations ("CROs") to design and conduct clinical trials in connection with
the development of Thiovir. The Company will also engage a third party to
manufacture Thiovir. As a result, these important aspects of the Company's
business will be outside the direct control of the Company. In addition, there
can be no assurance that such third parties will perform all of their
obligations under arrangements with the Company. See "BUSINESS -- Government
Regulation," "-- Research and Development Status and Activities," and "--
Manufacturing."
11
NO ASSURANCE OF MARKET ACCEPTANCE
The Company's success will depend in substantial part on the extent to which
Thiovir achieves market acceptance. The degree of market acceptance will depend
upon a number of factors, including the receipt and scope of regulatory
approvals, the establishment and demonstration in the medical community of the
safety and efficacy of Thiovir and its potential advantages over existing
treatment methods, and reimbursement policies of government and third party
payors. There can no be assurance that physicians, patients, payors or the
medical community in general will accept or utilize Thiovir.
UNCERTAINTY OF HEALTH CARE REFORM MEASURES AND THIRD PARTY REIMBURSEMENT
The business and financial condition of pharmaceutical companies will
continue to be affected by the efforts of governments and third party payors to
contain or reduce the cost of health care. A number of legislative and
regulatory proposals aimed at changing the health care system have been proposed
in recent years. In addition, an emphasis on managed care in the United States
has increased and will continue to increase the pressure on pharmaceutical
pricing. While the Company cannot predict whether legislative or regulatory
proposals will be adopted or the effect those proposals or managed care efforts
may have on its business, the announcement and/or adoption of such proposals or
efforts could have a material adverse effect on the Company. In the United
States and elsewhere, sales of prescription pharmaceuticals are dependent in
part on the availability of reimbursement to the consumer from third party
payors, such as government and private insurance plans that mandate
predetermined discounts from list prices. Third party payors are increasingly
challenging the prices charged for medical products and services. If the Company
succeeds in bringing Thiovir to the market, there can be no assurance that it
will be considered cost effective or that reimbursement to the consumer will be
available or will be sufficient to allow the Company to sell its products on a
competitive basis. See "BUSINESS -- Health Care Reform Measures and Third Party
Reimbursement."
ABSENCE OF PRODUCT LIABILITY INSURANCE; INSURANCE RISKS
The Company's business will expose it to potential product liability risks
that are inherent in the testing, manufacturing and marketing of pharmaceutical
products. There can be no assurance that product liability claims will not be
asserted against the Company. The Company does not currently have any product
liability insurance. The Company intends to obtain limited product liability
insurance for its clinical trials when they begin in the United States and to
expand its insurance coverage if and when the Company begins marketing
commercial products. However, there can no be assurance that the Company will be
able to obtain product liability insurance on commercially acceptable terms or
that the Company will be able to maintain such insurance at a reasonable cost or
in sufficient amounts to protect the Company against potential losses. A
successful product liability claim or series of claims brought against the
Company could have a material adverse effect on the Company.
HAZARDOUS MATERIALS
In the event the Company should establish its own laboratory facility to
further its drug development program, such activities will necessarily involve
the use of hazardous materials, chemicals and viruses. Although the Company will
develop procedures for the handling and disposing of such materials to comply
with the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company could be held liable
for any damages or fines that result and any such liability could exceed the
resources of the Company.
CONCENTRATION OF STOCK OWNERSHIP; CONTROL OF MANAGEMENT AND EXISTING
STOCKHOLDERS
Upon completion of the Offering, the Company's directors, executive
officers, other key personnel and their respective affiliates will beneficially
own approximately 21.3% of the outstanding Common Stock (approximately 20.4% if
the Underwriters' over-allotment option is exercised in
12
full). As a result, these stockholders will be able to exercise significant
influence over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. Such
concentration of ownership may also have the effect of delaying or preventing a
change in control of the Company that may be favored by other stockholders. See
"PRINCIPAL STOCKHOLDERS" and "DESCRIPTION OF SECURITIES -- Delaware Law and
Certain Certificate of Incorporation and Bylaw Provisions."
RELATED PARTY TRANSACTIONS
The Company has entered into certain transactions with parties who were
stockholders of the Company at the time of the transactions. A summary of the
terms and conditions of these transactions may be found under the heading
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." These transactions involve
inherent conflicts between the interest of the Company and the interests of the
other parties to the transactions.
SUBSTANTIAL SHARES OF COMMON STOCK RESERVED FOR THE EXERCISE OF OPTIONS AND
WARRANTS; OBLIGATIONS PURSUANT TO REGISTRATION RIGHTS
The Company has reserved 500,000 shares of Common Stock for issuance upon
the exercise of options granted or available for grant to employees, officers,
directors, advisors and consultants pursuant to the Company's Stock Incentive
Plan (the "Incentive Plan"), as well as an aggregate of 1,900,000 shares of
Common Stock for issuance upon exercise of the (i) Redeemable Warrants, (ii)
Representative's Warrants and (iii) Outstanding Warrants. These options and
warrants may adversely affect the Company's ability to obtain financing in the
future. The holders of such options and warrants can be expected to exercise
them at a time when the Company would otherwise be able to obtain additional
equity capital on terms more favorable to the Company. See "UNDERWRITING" and
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
The Company has agreed that, under certain circumstances, it will register
under federal and state securities laws the securities underlying the
Representative's Warrants. In addition, certain shares of Common Stock
previously issued by the Company are subject to registration rights granted by
the Company in connection with the private placement of such securities.
Exercise of these registration rights could involve substantial expense to the
Company at a time when it could not afford such expenditures and may adversely
affect the terms upon which the Company may obtain additional financing. See
"DESCRIPTION OF SECURITIES -- Common Stock."
POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALES;
REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public market
following the Offering could adversely affect the market price of the Common
Stock. Holders of approximately 2,343,440 shares of Common Stock (including the
shares issuable upon the exercise of the Outstanding Warrants) are entitled to
include, subject to certain limitations, such shares in certain registration
statements which the Company may use to register additional shares of Common
Stock. In addition, 2,643,440 shares will be eligible for resale, subject to
applicable holding periods, in the public market under Rule 144 or Rule 701
under the Securities Act, beginning 90 days after the date of this Prospectus.
1,950,000 shares held by the directors, officers and certain other stockholders
of the Company are subject to agreements which restrict their sale for 12 months
after the date of this Prospectus without the prior written consent of the
Representative. See "UNDERWRITING." The Company intends to file a registration
statement under the Act to register 500,000 shares of Common Stock reserved for
issuance under the Incentive Plan. The Company is unable to estimate the number
of shares which may actually be sold under Rule 144 or Rule 701 or pursuant to
registration rights, since this will depend upon the market price for the Common
Stock, the individual circumstances of the sellers and other factors. Any such
sales may have an adverse effect on the Company's ability to raise needed
capital through an offering of its equity or convertible debt securities and may
adversely affect the prevailing market price of the Common Stock. See
"DESCRIPTION OF SECURITIES -- Common Stock."
13
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF REDEEMABLE WARRANTS; REQUIREMENT
FOR QUALIFICATION OF SHARES AND CURRENT PROSPECTUS TO EXERCISE REDEEMABLE
WARRANTS
The Redeemable Warrants may be redeemed by the Company at any time after
thirteen months from the date hereof at a price of $.20 per Warrant upon 30
days' prior written notice, provided that the closing trading price of the
Common Stock for the 20 consecutive trading day period ending ten days prior to
the giving of notice of redemption, equals or exceeds $9.00 per share. Notice of
redemption of the Redeemable Warrants could force the holders to exercise the
Redeemable Warrants at a time when it might be disadvantageous for the holders
to do so or to sell the Redeemable Warrants at their then current market price
when the holders might otherwise wish to hold the Warrants for possible
appreciation. Alternatively, the holders may accept the redemption price, which
is likely to be substantially less than the market value of the Redeemable
Warrants at the time of redemption. Any holders who do not exercise their
Redeemable Warrants prior to their redemption, will forfeit the right to
purchase the shares of Common Stock underlying the Redeemable Warrants. Holders
of the Redeemable Warrants will have the right to exercise them to purchase
shares of Common Stock only if a current prospectus relating to such shares is
then in effect and only if the shares are qualified for sale under the
securities laws of the state or states in which the holder resides. Although the
Company intends to seek to qualify the shares of Common Stock underlying the
Redeemable Warrants for sale in those states in which they are to be offered, no
assurance can be given that such qualification will occur. The Redeemable
Warrants may be deprived of any value if a current prospectus covering the
shares issuable upon the exercise thereof is not filed and kept effective or if
such underlying shares are not, or cannot be, qualified in the applicable
states. While the Company may legally be permitted to give notice to redeem the
Redeemable Warrants at a time when a current prospectus is not available,
thereby leaving the Redeemable Warrant holders no opportunity to exercise their
Redeemable Warrants prior to redemption, the Company does not intend to redeem
the Redeemable Warrants unless a current prospectus is available at the time of
redemption. See "DESCRIPTION OF SECURITIES -- Redeemable Warrants."
REPRESENTATIVE'S WARRANTS AND ONGOING RELATIONSHIP WITH REPRESENTATIVE
In connection with the Offering, the Company will sell to the Representative
the Representative's Warrants to purchase up to 100,000 shares of Common Stock
and 100,000 Redeemable Warrants for a nominal amount. The Representative's
Warrants will be exercisable commencing on the date that is one year from the
effective date of this Prospectus and will continue to be exercisable up to the
date that is five years from the date hereof at an exercise price equaling 160%
of the public offering price of the Common Stock and the Redeemable Warrants,
respectively. During the term of the Representative's Warrants, the holders
thereof will be given the opportunity to profit from a rise in the market price
of the Common Stock or Redeemable Warrants with a resulting dilution in the
interest of the Company's other stockholders. The terms on which the Company
could obtain additional capital during the life of the Representative's Warrants
may be adversely affected because the holders of the Representative's Warrants
might be expected to exercise them if the Company were able to obtain any needed
additional capital in a new offering of securities at a price greater than the
exercise price of the Representative's Warrants. The Company has also entered
into a consulting agreement with the Representative under which the
Representative will provide certain financial consulting services to the Company
for a period of 36 months at a total cost of $108,000, all of which will be
prepaid upon completion of the Offering. See "DESCRIPTION OF SECURITIES --
Representative's Warrants."
Upon the exercise of the Redeemable Warrants more than one year after the
date of this Prospectus, and to the extent not inconsistent with the guidelines
of the National Association of Securities Dealers, Inc., and the rules and
regulations promulgated by the Securities and Exchange Commission (the
"Commission"), the Company has agreed to pay the Representative a commission
equal to five percent of the exercise price of the Redeemable Warrants. However,
no compensation will be paid to the Representative in connection with the
exercise of the Redeemable Warrants if (a) the market price of the underlying
shares of Common Stock is lower than the exercise price, (b) the Redeemable
Warrants are exercised in an unsolicited transaction, or (c) the Redeemable
Warrants
14
subject to the Representative's Warrant are exercised. In addition, in
connection with any solicitation by the Representative after the date of this
Prospectus of Redeemable Warrant exercises, unless granted an exemption by the
Commission from Regulation M promulgated under the Exchange Act, the
Representative and any other soliciting broker-dealer will be prohibited from
engaging in any market making activities with respect to the Company's
securities for the period commencing either one or five business days prior to
any solicitation of the exercise of Redeemable Warrants until the later of (i)
the termination of such solicitation activity or (ii) the termination (by waiver
or otherwise) of any right which the Representative or any other soliciting
broker-dealer may have to receive a fee for the exercise of Redeemable Warrants
following such solicitation. As a result, the Representative or any other
soliciting broker-dealer may be unable to provide a market for the Company's
securities, should it desire to do so, during certain periods while the
Redeemable Warrants are exercisable. See "UNDERWRITING."
NO PRIOR MARKET FOR COMMON STOCK AND THE REDEEMABLE WARRANTS
Prior to the Offering, there has been no public market for the Common Stock
or the Redeemable Warrants, and there can be no assurance that an active trading
market will develop or be sustained after the Offering or that investors will be
able to sell the Common Stock or the Redeemable Warrants should they desire to
do so. The initial public offering price was determined by negotiations between
the Company and the Representative and may bear no relationship to the price at
which the Common Stock or the Redeemable Warrants will trade upon completion of
the Offering. See "UNDERWRITING."
VOLATILITY OF STOCK PRICE
The market price of the Common Stock and the Redeemable Warrants is likely
to be highly volatile and could be subject to wide fluctuations in response to
factors concerning the Company or its competitors such as announcements of the
results of clinical trials, developments with respect to patents or proprietary
rights, announcements of technological innovations, new products or new
contracts, actual or anticipated variations in operating results due to a number
of factors including, among others, the level of development expenses, changes
in financial estimates by securities analysts, conditions and trends in the
pharmaceutical and other industries, adoption of new accounting standards
affecting the industry, general market conditions and other factors. The
Company's operating results may also be below the expectations of market
analysts and investors, which would likely have a material adverse effect on the
prevailing market price of the Common Stock or the Redeemable Warrants.
Further, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market prices of equity
securities of many pharmaceutical companies. These price fluctuations often have
been unrelated or disproportionate to the operating performance of such
companies. Market fluctuations, as well as general economic, political and
market conditions such as recessions or international currency fluctuations, may
adversely affect the market price of the Common Stock or the Redeemable
Warrants. In the past, following periods of volatility in the market price of
the securities of companies in the pharmaceutical industry, securities class
action litigation has often been instituted against those companies. Such
litigation, if instituted against the Company, could result in substantial costs
and a diversion of management attention and resources, which would have a
material adverse effect on the Company. The realization of any of the risks
described in these "RISK FACTORS" could have a dramatic and adverse impact on
the market price of the Common Stock or the Redeemable Warrants.
IMMEDIATE AND SUBSTANTIAL DILUTION -- POTENTIALLY 80%
Purchasers of the Common Stock in the Offering will suffer immediate and
substantial dilution of $3.90 per share in the net tangible book value of the
Common Stock from the initial public offering price. To the extent that
outstanding options and warrants to purchase the Company's Common Stock are
exercised, there will be further dilution. See "DILUTION."
15
NO DIVIDENDS
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently does not intend to pay any cash dividends in the
foreseeable future and intends to retain its earnings, if any, for the operation
of its business. See "DIVIDEND POLICY."
ARBITRARY DETERMINATION OF OFFERING PRICE
The offering price of the shares of Common Stock and Redeemable Warrants
will be determined through negotiations between the Company and the
Representative. Among the factors to be considered in determining the price are
prevailing market conditions, the general economic environment, estimates of the
prospects of the Company, the background and capital contributions of management
and current conditions in the securities market and the Company's industry.
There is, however, no relationship between the offering price of the shares of
Common Stock and Redeemable Warrants and the Company's assets, book value,
historical earnings or any other objective criteria of value. See
"UNDERWRITING."
ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
The Company's Certificate of Incorporation authorizes the Company's Board of
Directors (the "Board") to issue shares of undesignated preferred stock without
stockholder approval on such terms as the Board may determine. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any such preferred stock that may be issued in the
future. Moreover, the issuance of preferred stock may make it more difficult for
a third party to acquire, or may discourage a third party from acquiring, a
majority of the voting stock of the Company. The Company's Board is currently
classified into three classes of directors. With a classified Board, one class
of directors is elected each year with each class serving a three-year term.
These and other provisions of the Certificate of Incorporation and the Bylaws,
as well as certain provisions of Delaware law, could delay or impede the removal
of incumbent directors and could make more difficult a merger, tender offer or
proxy contest involving the Company, even if such events could be beneficial to
the interest of the stockholders. Such provisions could limit the price that
certain investors might be willing to pay in the future for the Common Stock.
However, the Company anticipates amending its Certificate of Incorporation and
Bylaws prior to completion of the Offering to eliminate the classification of
the Board, to provide that all directors elected by the holders of the Company's
Common Stock or appointed by such directors may be removed at any time, with or
without cause, by vote of a majority of the outstanding shares of the Company's
Common Stock, and to allow the holders of at least 10% of the outstanding shares
of Common Stock to require the Company to call a special meeting of
stockholders. See "DESCRIPTION OF SECURITIES -- Delaware Law and Certain
Certificate of Incorporation and Bylaw Provisions."
LIMITATION ON OFFICERS' AND DIRECTORS' LIABILITIES UNDER DELAWARE LAW
Pursuant to the Company's Certificate of Incorporation, as authorized under
applicable Delaware law, directors of the Company are not liable for monetary
damages for breach of fiduciary duty, except in connection with a breach of the
duty of loyalty, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, for dividend payments or
stock repurchases illegal under Delaware law or for any transaction in which a
director has derived an improper personal benefit. The Company's Certificate of
Incorporation provides that the Company must indemnify its officers and
directors to the fullest extent permitted by Delaware law for all expenses
incurred in the settlement of any actions against such persons in connection
with their having served as officers or directors of the Company. Upon
completion of the Offering, the Company also intends to enter into
indemnification agreements with its directors which will require the Company to
provide certain additional indemnification and contribution to its directors,
subject to certain limitations. See "MANAGEMENT -- Limitation on Officers' and
Directors' Liabilities."
MAINTENANCE REQUIREMENTS FOR NASDAQ SMALLCAP SECURITIES
It is anticipated that the Common Stock and the Redeemable Warrants will be
approved for listing on the Nasdaq SmallCap Market. An issuer seeking continued
inclusion of its securities on the SmallCap Market is required to meet certain
criteria including (i) total assets of at least $2,000,000; (ii) capital and
surplus of at least $1,000,000; and (iii) a minimum bid price of $1.00 per share
unless the market value of its public float is at least $1,000,000 and it has at
least $2,000,000 in capital and surplus. Upon completion of the Offering, the
16
Company anticipates that it will satisfy the criteria for continued inclusion of
its securities on the Nasdaq SmallCap Market. However, there can be no assurance
that the Company will continue to satisfy such criteria and for how long. See
"PROSPECTUS SUMMARY -- Summary Financial Information" and "CAPITALIZATION." The
Nasdaq SmallCap Market has recently proposed changes to its listing
requirements. If the Company became unable to meet such criteria of the SmallCap
Market and was suspended therefrom, the Company's securities could be subject to
a rule that imposes additional sales practice requirements on certain
broker/dealers who sell such securities to persons other than established
customers and accredited investors. Consequently, an investor would likely find
it more difficult to dispose of, or to obtain accurate quotations as to the
value of, the Securities.
REQUIRED DISCLOSURE CONCERNING TRADING OF PENNY STOCKS OR LOW-PRICED SECURITIES
The Securities and Exchange Commission (the "Commission") has adopted
regulations that define a "penny stock" to be any equity security that has a
market price (as defined therein) of less than $5.00 per share, subject to
certain exceptions. For any transaction involving a penny stock, unless exempt,
the rules require the delivery, prior to the transaction, of a disclosure
schedule prepared by the Commission relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market-maker of the penny
stock, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
While many securities listed on the Nasdaq SmallCap Market would be covered
by the definition of penny stock, transactions in such a security would be
exempt from all but the sole market-maker provision for (i) issuers who have
$2,000,000 in tangible assets ($5,000,000 if the issuer has not been in
continuous operation for three years), (ii) transactions in which the customer
is an institutional accredited investor, and (iii) transactions that are not
recommended by the broker-dealer. In addition, transactions in a SmallCap
security directly with a Nasdaq market-maker for such securities would be
subject only to the sole market-maker disclosure, and the disclosure with
respect to commissions to be paid to the broker-dealer and the registered
representative. Finally, all SmallCap securities would be exempt if The Nasdaq
Stock Market, Inc., the operator of the Nasdaq SmallCap Market, raised its
requirements for continued listing so that any issuer with less than $2,000,000
in net tangible assets or stockholders' equity would be subject to delisting.
These criteria are more stringent than the current maintenance requirements.
Consequently, these rules may restrict the ability of broker-dealers to sell the
Company's securities and may affect the ability of purchasers to sell the
Company's securities in the secondary market.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements herein regarding the time period during which the proceeds from the
Offering will fund the Company's operations and the dates on which the Company
anticipates commencing clinical trials with respect to Thiovir constitute
forward-looking statements under the federal securities laws. Such statements
are subject to certain risks and uncertainties that could cause the rate at
which the Company incurs expenses and the actual timing of clinical trials to
differ materially from those projected. With respect to such dates, the
Company's management team has made certain assumptions regarding, among other
things, the successful and timely completion of preclinical tests, the approval
of an Investigational New Drug Exemption Application ("IND") for Thiovir by the
FDA, the availability of adequate clinical supplies, the absence of delays in
patient enrollment, the availability of the capital resources necessary to
complete the preclinical tests and conduct the clinical trials, the nature,
scope, and number of the preclinical tests and clinical trials required for FDA
approval and the cost of completing these tests and trials. The Company's
ability to proceed with its drug development program in accordance with the
dates anticipated is subject to certain risks, as discussed under the caption
"RISK FACTORS" contained herein, and the Company's ability to estimate the time
period for which the proceeds of the Offering will fund the Company's operations
is subject to substantial uncertainty due to the factors outlined under the
caption "USE OF PROCEEDS" contained herein. Undue reliance should not be placed
on the dates and time periods referenced herein. These estimates are based on
the current expectations of the Company's management team, which may change in
the future due to a large number of potential events, including unanticipated
future developments.
17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby are estimated to be approximately $4,140,000 (approximately $4,805,550 if
the Underwriters' over-allotment option is exercised in full), after deducting
$510,000 for underwriting discounts (approximately $586,500 if the Underwriters'
over-allotment option is exercised in full) and approximately $450,000 for other
estimated offering expenses (approximately $472,950 if the Underwriters'
over-allotment option is exercised in full), including the Representative's
non-accountable expense allowance and the consulting fee payable to the
Representative, and assuming no exercise of the Redeemable Warrants offered
hereby.
The Company intends to use the net proceeds from the Offering, including any
interest thereon, to finance research and development activities with respect to
Thiovir, primarily for preclinical tests and clinical trials designed to satisfy
FDA standards for safety and efficacy, and to provide working capital. Due to
the nature of the drug development and approval process, the Company is unable
to accurately indicate the exact amount of proceeds allocable to each of the
Company's activities. The amounts actually expended for each activity may vary
significantly depending upon numerous factors, including the progress of
development activities, the scope and results of preclinical testing and
clinical trials, the cost, timing and outcome of regulatory agency reviews,
administrative and legal expenses, costs of developing a patent position, the
acquisition of technology that may enhance and/or be compatible with the
Company's then existing technology, the establishment of relationships with
consultants and with third parties for manufacturing and sales and marketing
functions, and on other factors. Commencing in 1998, the Company will also be
required to make minimum royalty payments in accordance with the license
agreement under which it licenses rights to the drug Thiovir, in the following
amounts: $12,500 in 1998, $25,000 in 1999, $50,000 in 2000 and $125,000 per year
thereafter.
Notwithstanding the foregoing, however, the information below constitutes
the Company's best estimate as to the use of the proceeds generated from the
Offering:
<TABLE>
<CAPTION>
ACTIVITY % OF PROCEEDS
<S> <C>
Testing and Clinical Trials 50
CROs and Consultants 20
General Working Capital 30
</TABLE>
Any net proceeds received from the exercise of the Underwriters'
over-allotment option will be used to supplement general working capital.
The Company believes that the estimated net proceeds of the Offering,
together with its existing cash and short-term investments, will be adequate to
satisfy its anticipated capital requirements at least through December 31, 1998.
See "RISK FACTORS -- Future Capital Needs; Uncertainty of Additional Funding"
and "SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS." Pending such uses, the
Company intends to invest proceeds primarily in short-term, investment grade
obligations.
DIVIDEND POLICY
The Company has not declared or paid any dividends on its capital stock. The
Company currently intends to retain all future earnings, if any, to finance
growth and development of its business and, therefore, does not expect to
declare or pay any cash dividends in the foreseeable future. The declaration of
dividends is within the discretion of the Company's Board. See "RISK FACTORS --
No Dividends."
18
DILUTION
At February 28, 1997, the net tangible book value of the Company was
$220,814, or approximately $.08 per share. "Net tangible book value" per share
of Common Stock represents the amount of the Company's total tangible assets,
less the amount of its total liabilities, divided by the number of shares of
Common Stock outstanding. Dilution represents the difference between the amount
per share of Common Stock paid by the new investors purchasing in the Offering
and the pro forma net tangible book value per share of Common Stock after the
Offering. After giving effect to the sale by the Company of the 1,000,000 shares
of Common Stock offered hereby at $5.10(1) per share and the payment of the
estimated expenses related to the Offering of $450,000, the pro forma net
tangible book value of the Company at February, 28 1997 would have been
$4,360,214, or $1.20 per share of Common Stock. This represents an immediate
increase in net tangible book value of $1.12 per share of Common Stock to
existing stockholders and an immediate dilution of $3.90 per share of Common
Stock to new investors purchasing Common Stock in the Offering, as illustrated
in the following table:
<TABLE>
<CAPTION>
<S> <C> <C>
Price per share in the Offering(1) $ 5.10
Net tangible book value per share before the Offering .08
Increase per share attributable to new investors 1.12
----
Pro forma net tangible book value per share after the Offering 1.20
----
Dilution to new investors $ 3.90
======
</TABLE>
- ---------
(1) Includes the purchase price of $.10 per Redeemable Warrant.
In the event that the Underwriters exercise the over-allotment option in
full, the pro forma net tangible book value per share of Common Stock after the
Offering (less underwriting commissions and discounts and estimated expenses of
the Offering) would be approximately $1.33 per share, representing an immediate
increase in net tangible book value of approximately $1.25 per share to current
stockholders and an immediate dilution of approximately $3.77 per share to new
investors.
The following table sets forth (i) the number of shares of Common Stock
purchased from the Company by the existing stockholders and the total
consideration paid and the average price per share paid for such shares by the
existing stockholders and (ii) the number of shares of Common Stock to be sold
by the Company in the Offering, the total consideration to be paid and the
average price per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------- -------------------
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
------ ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
New Investors 1,000,000 27.4% $5,000,000(2) 80.5% $5.00
Existing Stockholders 2,643,440 72.6% $1,210,654 19.5% $0.46(3)(4)
--------- ---- ---------- ---- ------- --
Total 3,643,440 100.0% $6,210,654 100.0%
========= ===== ========== =====
- ----------
(2) Prior to the deduction of expenses relating to the Offering.
(3) Excludes $1,519,050, representing the excess of the fair value of 950,000
shares issued (in August 1996) over cash received of $950, recorded as
research and development expense. See Note 5 of Notes to the Financial
Statements hereto.
(4) Includes 1,950,000 shares of Common Stock previously sold for an average of
$.05 per share and 693,440 shares of Common Stock previously sold for $1.60
per share.
</TABLE>
The foregoing table excludes shares of Common Stock issuable pursuant to the
exercise of the Outstanding Warrants, none of which are currently exercisable.
As of April 24, 1997, warrants to purchase an aggregate of 700,000 shares of
Common Stock at a price of $10.00 per share were outstanding. None of these
warrants are currently exercisable. The table also excludes shares of Common
Stock issuable upon the exercise of up to 500,000 stock options which may be
issued under the Company's Incentive Plan. As of April 24, 1997, the Company had
issued options to purchase an aggregate of 10,000 shares of Common Stock
pursuant to the Incentive Plan and had made commitments to three outside
directors and two officers to issue options to purchase an aggregate of 230,000
shares of Common Stock at exercise prices to be determined, but in any case not
less than $5.00 per share. See "MANAGEMENT -- Executive Compensation and Other
Information."
19
CAPITALIZATION
The following table sets forth the actual capitalization of the Company at
February 28, 1997, and the capitalization of the Company as adjusted to reflect
the sale by the Company of the Securities offered hereby and the initial
application of the estimated proceeds thereof. See "USE OF PROCEEDS." This table
should be read in conjunction with the Company's Financial Statements and the
Notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
-----------------
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Stockholders' equity:
Preferred stock -- $0.01 par value; 1,000,000 shares
authorized, actual and as adjusted -- 0 shares issued
and outstanding $ -- $ --
Common Stock -- $0.01 par value; 25,000,000 shares
authorized, actual shares issued and outstanding
2,643,440 and as adjusted 3,643,440 26,434 36,434
Additional paid-in capital 2,644,743 6,774,743
Deficit accumulated during the development stage (2,227,784) (2,227,784)
---------- ----------
Total stockholders' equity 443,393 4,583,393
------- ---------
Total capitalization $ 443,393 $4,583,393
=========== ==========
</TABLE>
20
SELECTED FINANCIAL DATA
The following selected financial data of the Company as of and for the
period ended November 30, 1996 are derived from the financial statements that
have been audited by McGladrey & Pullen, LLP, independent auditors. The
Company's financial statements for the three months and the cumulative period
ended February 28, 1997 are unaudited. However, in the opinion of the Company,
all adjustments, consisting of normal recurring accruals, necessary for a fair
presentation have been made. Interim results are not indicative of the results
to be expected for a full fiscal year. These data should be read in conjunction
with the Company's Financial Statements and the Notes thereto included elsewhere
in this Prospectus and Management's Discussion and Analysis of Financial
Condition and Results of Operations which follow.
STATEMENT OF ACTIVITIES DATA:
<TABLE>
<CAPTION>
PERIOD FROM JULY 5, 1996, THREE MONTHS PERIOD FROM JULY 5, 1996,
DATE OF INCEPTION, TO ENDED DATE OF INCEPTION, TO
NOVEMBER 30, 1996 FEBRUARY 28, 1997 FEBRUARY 28, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenue:
Interest income $ 1,858 $ 2,475 $ 4,333
--------- ------- ---------
Costs and Expense:
Research and development 2,058,980 73,249 2,132,229
General and administrative 33,568 66,320 99,888
--------- ------- ---------
2,092,548 139,569 2,232,117
--------- ------- ---------
Net loss (2,090,690) (137,094) (2,227,784)
========== ======== ==========
Net loss per common share(1) $ (.81) $ (.05) $ (.86)
=========== ========== ===========
Shares used in computing net loss per common
share(1) 2,593,440 2,593,996 2,593,668
========= ========= =========
BALANCE SHEET DATA:
NOVEMBER 30, 1996 FEBRUARY 28, 1997
----------------- -----------------
Cash and cash equivalents $ 495,421 $ 213,029
Working capital 503,621 431,362
Total assets 532,005 502,625
Deficit accumulated during the development stage (2,090,690) (2,227,784)
Total stockholders' equity 510,487 443,393
</TABLE>
- -----------
(1) See notes 1 and 4 of Notes to Financial Statements for information
concerning the computation of net loss per common share and shares used in
computing net loss per common share.
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with "SELECTED FINANCIAL DATA"
and the Company's Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
OVERVIEW
The Company is a development stage pharmaceutical company engaged in the
development of a single new antiviral drug candidate called Thiovir. The Company
was incorporated in 1988 but remained a "shell" corporation, i.e. without assets
or liabilities, until July 1996, when it commenced the acquisition of a license
of certain proprietary rights to, and the development of, Thiovir.
The Company is a development stage company, has not derived any revenues
from the sale of products and has relied upon private equity financing for its
capital. As of February 28, 1997, the Company's accumulated deficit was
$2,227,784.
The Company has no operating history upon which an evaluation of the Company
and its prospects can be based. The risks, expenses and difficulties encountered
by companies at an early stage of development must be considered when evaluating
the Company's prospects. There are numerous risks inherent in a development
stage company which is reliant upon the development of a single pharmaceutical
product, including the uncertainties of research and the outcome of preclinical
testing and clinical trials, a lengthy and expensive regulatory approval
process, obtaining and defending a satisfactory patent position, and attracting
and retaining motivated and qualified personnel. See "RISK FACTORS."
The operating expenses of the Company cannot be predicted with certainty and
will depend on several factors, primarily the level of drug development
expenses. Development expenses will depend on the progress and results of the
Company's development, preclinical tests and clinical trials of Thiovir, which
cannot be predicted. Management may be able to control the timing of development
expenses in part by accelerating or decelerating preclinical testing and
clinical trial activities, although attainment of the Company's business
objectives may necessitate pursuit of these activities on an accelerated basis.
RESULTS OF ACTIVITIES
PERIOD FROM INCORPORATION TO JULY 5, 1996, DATE OF INCEPTION
For the period from incorporation (1988) through July 5, 1996, the Company
was inactive, had no capital funds, received no revenues and incurred no
expenses.
PERIOD FROM JULY 5, 1996, DATE OF INCEPTION, TO NOVEMBER 30, 1996
The Company had interest income of $1,858 in the period ended November 30,
1996.
In August 1996, the Company purchased an option to acquire a license of
certain rights to the drug Thiovir. For the option, the Company paid $100,000 in
cash and issued to the grantor of the option 200,000 shares of Common Stock and
warrants to purchase an additional 200,000 shares of Common Stock. The
recipients of the shares of Common Stock and the warrants paid the Company a
total of $200 for these securities. Also in 1996, the Company issued an
additional 750,000 shares of Common Stock to Charles E. McKenna, Ph.D. (320,000
shares), Mary Anthony Gray (110,000 shares) and Thomas D. Wolfe (320,000
shares), for aggregate cash consideration of $750. Management estimated the fair
value of the 950,000 shares at $1.60 per share for a total of $1,520,000, based
upon the offering price of the Company's Common Stock in a private placement
offering commenced on August 20, 1996. In September 1996, the Company exercised
its option to acquire the license of rights to Thiovir and paid an additional
$440,000 in cash therefor. The Company charged the difference between the
estimated aggregate value and the aggregate cash purchase price of the 950,000
shares, or $1,519,050, and the cash consideration paid of approximately $540,000
for the licensing rights, as research and development expense. See "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS."
22
General and administrative expenses totaled $33,568, primarily consisting of
compensation, travel and office expense.
The Company incurred a net loss of $2,090,690 for the period ended November
30, 1996.
THREE MONTHS ENDED FEBRUARY 28, 1997
The Company had interest income of $2,475 in the quarter ended February 28,
1997.
Research and development expense for the quarter was $73,249, reflecting a
research grant to USC pursuant to a new research agreement which continues until
at least September 30, 1997. See "BUSINESS -- Research Agreement with USC."
General and administrative expenses for the quarter were $66,320, the
largest components of which were personnel compensation of $17,538 and legal and
consulting expenses of $21,800. The level of general and administrative expenses
for the quarter was higher than prior periods because of increased
administrative and management activity in the planning and preparation for
additional tests and clinical trials for Thiovir.
The Company incurred a net loss of $137,094 for the quarter ended February
28, 1997, resulting in an accumulated deficit of $2,227,784 during this
development stage of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its activities since July 5, 1996 primarily from
the net proceeds of private placements of Common Stock. As of February 28, 1997,
the Company had received aggregate cash proceeds of $1,210,654. In July 1996,
three stockholders of the Company contributed a total of $100,200 to the equity
capital of the Company. In October 1996, the Company paid cash of $539,930 and,
in August 1996, issued shares of its Common Stock with a value, net of cash
consideration received for the shares, of $1,519,050 in consideration for a
license of certain rights to Thiovir. In October 1996, the Company completed a
private placement of 665,000 shares at $1.60 per share for net proceeds of
$1,015,473, of which $34,496 was receivable at November 30, 1996 and paid in the
quarter ended February 28, 1997. An additional $45,504 was received in the
quarter ended February 28, 1997 from the sale of shares of Common Stock to a
single investor at $1.60 per share. At February 28, 1997, the Company's
liquidity consisted of total cash and cash equivalents of $213,029.
The Company expects that its capital requirements will increase
substantially in future periods as the Company funds its drug development
program. The Company's future capital requirements will depend on many factors,
including the progress of the Company's drug development program, the scope and
results of preclinical testing and clinical trials, the cost, timing and outcome
of regulatory reviews, costs of patent prosecution, administrative and legal
expenses, the establishment of capacity for sales and marketing functions, the
establishment of relationships with third parties for manufacturing and sales
and marketing functions, and other factors. Commencing in 1998, the Company will
also be required to make minimum royalty payments in accordance with the license
agreement under which it licenses rights to the drug Thiovir in the following
amounts: $12,500 in 1998, $25,000 in 1999, $50,000 in 2000 and $125,000 per year
thereafter.
The Company believes that the net proceeds of the Offering together with its
existing cash and short-term investments will be adequate to satisfy its
anticipated capital requirements through at least December 31, 1998. The Company
expects that it may be required to raise substantial additional funds through
equity or debt financings, collaborative arrangements with corporate partners or
from other sources. There can be no assurance that additional funding will be
available on favorable terms from any of these sources or at all. See "RISK
FACTORS -- Future Capital Needs; Uncertainty of Additional Funding" and "SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS."
For a discussion of the Company's plan of operation, see "USE OF PROCEEDS."
23
BUSINESS
OVERVIEW
The Company is a development stage pharmaceutical company engaged in the
development of thiophosphonoformic acid ("TPFA"), an anti-viral compound, for
which the Company has adopted the trade name "Thiovir(tm)." The initial focus of
the Company's development activities will be to demonstrate the safety and
efficacy of Thiovir for treatment of patients infected with HIV and patients
showing active infection of CMV, which causes blindness and other conditions.
CMV is a common opportunistic infection among AIDS patients. The Company
believes that Thiovir, if successfully developed and approved for sale, would
constitute a candidate for inclusion in combination drug therapy for HIV/AIDS
treatment and would provide several benefits over existing treatments for CMV,
particularly its potential ability to replace more toxic intravenous treatment
with a less toxic oral treatment. The only development work on Thiovir to date
has been limited to laboratory and animal studies conducted by USC, which has
licensed to the Company its proprietary rights to Thiovir, and by other academic
and/or research organizations which have no affiliation with the Company.
Therefore, Thiovir is in an early stage of development.
In the United States, the use and sale of Thiovir is subject to the rules
and regulations of the FDA, and obtaining the necessary FDA approval will
require substantial preclinical tests and clinical trials. The Company expects
to commence clinical trials for Thiovir in 1997. The Company believes that
Thiovir may meet the criteria established by the FDA for accelerated approval.
As a result, the Company may be able to commercialize Thiovir in a shorter time
period than has historically been applicable for a drug that does not meet the
criteria for accelerated approval. See "BUSINESS -- Government Regulation."
Initially, the Company intends to maintain a limited corporate
infrastructure devoted almost exclusively to the development and
commercialization of Thiovir. Accordingly, the Company will engage CROs to
conduct preclinical tests and clinical trials on Thiovir. The Company will also
contract with other companies to manufacture the drug. The Company intends to
rely upon part-time consultants and CROs to provide expertise in designing
appropriate tests and trials and in seeking FDA and other government approval.
Furthermore, the Company does not believe that it will be necessary to develop
an extensive sales and marketing force to promote the sale of Thiovir in the
United States, if and when it may be sold, since the market for HIV/AIDS and CMV
therapies is concentrated among a relatively small number of care providers.
In August 1996, the Company acquired an exclusive worldwide license to
proprietary rights to Thiovir held by USC from a limited partnership which
funded the research and development of Thiovir. The Company has generated no
revenues from the sale of products and, as of February 28, 1997, has an
accumulated deficit of $2,227,784. There can be no assurance that the Company
will ever achieve profitable operations.
The Company's executive offices are located at 10940 Wilshire Boulevard,
Suite 1600, Los Angeles, California, pursuant to a short-term lease. The Company
expects to relocate its offices, most likely in the Southern California region,
as it hires additional employees to staff increased operational activity. The
Company is a Delaware corporation and is the successor by merger to a Missouri
corporation which was originally formed in 1988, but remained a "shell"
corporation with no operations, assets or liabilities until its acquisition of
license rights to TPFA.
TARGETED INDICATIONS FOR THIOVIR
HIV/AIDS. HIV is the viral infection which causes AIDS. HIV replicates in
the body, resulting in an increasing amount of the virus referred to as an
increase in the "viral load." AIDS occurs when the HIV viral load reaches a
sufficiently high level to significantly compromise the immune system and/or
when certain opportunistic infections (such as CMV) occur. The treatment of AIDS
has increasingly focused on inhibiting two enzymes, known as "protease" and
"reverse transcriptase"
24
("RT"), the activity of which are necessary to the process of HIV replication.
Initially, AIDS was treated with a single drug (referred to as "monotherapy"),
such as AZT, which is a nucleoside RT inhibitor. Experience has shown that
monotherapy results in the rapid emergence of a mutated form of the virus which
is resistant to the drug. More recently, the treatment of HIV/AIDS has focused
on the use of combinations of protease and RT inhibitors (referred to as
"combination therapy") which has significantly reduced the viral load in many
cases.
The long-term efficacy of the drugs now being used to reduce HIV viral load
is an unresolved issue. Resistance to one or more drugs being used in
combination drug therapy has been increasingly recognized in some patients due
to HIV's ability to mutate. Patient compliance has also been recognized as a
problem with combination drug therapy because the treatment regimen is complex
and demanding and often results in serious, unwanted side effects. According to
published reports, the recently-introduced combination drug therapies have been
least effective among patients who had previously been subjected to a regimen of
AZT or other nucleoside RT inhibitors. Consequently, the search for new drugs,
and for new combinations of drugs for the treatment of HIV/AIDS, continues at an
intense level of activity.
Thiovir is a non-nucleoside RT inhibitor that has inhibited the replication
of HIV in laboratory tests. Thiovir is at least partially metabolized into
foscarnet in vitro in cells and in dogs and cats. Therefore, the Company
believes that Thiovir may likewise be partially converted to the active
ingredient in foscarnet in human patients. Although foscarnet has not been
widely used to treat HIV/AIDS because of the need for central intravenous
administration, it has been recognized to inhibit HIV replication in some human
patients. Consequently, the Company believes that the potential exists for
Thiovir to be an attractive candidate for inclusion in combination drug therapy
for HIV/AIDS for the following reasons:
* The resistance to combination drug therapies exhibited among patients who
had previously undergone therapy with a nucleoside RT inhibitor may not be
exhibited when the nucleoside RT inhibitor is replaced with a
non-nucleoside RT inhibitor.
* If Thiovir were to prove effective in treating both HIV/AIDS and CMV,
physicians may include Thiovir in a combination drug therapy for its
double effect of treating HIV/AIDS and, on a prophylactic basis, CMV.
CMV. CMV is a virus which resides in most human beings. It is an
opportunistic virus that may become active when the human immune system is
weakened. Consequently, AIDS patients are at considerable risk of active CMV
infection. The primary manifestation of active CMV infection, estimated at 85%
of all manifestations, is in the retina of the eye (CMV retinitis). Other CMV
manifestations include gastrointestinal infection (symptoms include ulcers and
chronic diarrhea) and neurologic infection (encephalitis and other
complications). If untreated, CMV retinitis causes blindness. Treatment controls
but does not eliminate CMV, so ongoing therapy is generally necessary.
Until recently, physicians typically treated CMV retinitis with two drugs,
foscarnet and ganciclovir. In June 1996, the FDA approved a third drug,
cidofovir, for treatment of CMV retinitis. The Company is aware of several other
drugs which are under development for the treatment of CMV retinitis. Foscarnet,
which exhibits renal toxicity, is generally administered intravenously on a
daily basis by means of a surgically-implanted central intravenous line because
it is not absorbed by the intestine. This precludes oral administration. Central
intravenous drug therapy is substantially more burdensome and costly than oral
drug therapy. Ganciclovir is available in oral and intravenous forms and is also
administered by a device surgically implanted in the eye for sustained release.
Oral administration, however, is typically used only after an induction period
of central intravenous administration. The use of an eye implant alone, without
simultaneous systemic therapy, often results in the development of CMV retinitis
in the other eye and/or manifestations of active CMV infection in the internal
organs. CMV has developed resistance to ganciclovir in some patients. In
addition, ganciclovir has exhibited bone marrow toxicity in some cases, as does
the often-used HIV/AIDS drug AZT. Consequently, simultaneous use of ganciclovir
and AZT has been reported to cause profound bone marrow suppression, resulting
in the inability to fight infection. Patients who use ganciclovir may require
administration of immune cell enhancement drugs in order to counteract the
adverse effects of ganciclovir. Cidofovir is administered intravenously and,
like foscarnet (and Thiovir), exhibits renal toxicity.
25
There is substantial ongoing research into and clinical trials of new
treatment methods using existing drugs, including intravitreal injection and
administration of various combinations of these drugs. The Company is also aware
of several other drugs which are under development for the treatment of CMV
retinitis.
The Company believes that, with the exception of oral ganciclovir, none of
the drugs described above are currently administered prophylactically prior to
manifestation of CMV retinitis.
The molecular structure of Thiovir is identical to that of foscarnet except
that a single oxygen atom in foscarnet is replaced with a sulfur atom in
Thiovir. To date, laboratory in vitro tests conducted by independent
laboratories on human cell cultures indicate that at certain concentrations
Thiovir is similar to foscarnet in inhibiting CMV replication. The potential
exists, therefore, that the application of Thiovir will result in a "double
hit," i.e., the portion of Thiovir that transforms to foscarnet and the portion
that retains its original chemical structure would both be present in the body
to control the CMV virus.
The Company believes that the potential exists for the following benefits to
the use of Thiovir in the treatment of CMV:
* Thiovir may be administered orally. Initial animal studies suggest that
Thiovir will demonstrate sufficient oral availability to humans. Oral
dosage is substantially less intrusive and burdensome than intravenous
administration.
* While Thiovir exhibits some renal toxicity, preliminary animal studies
suggest that Thiovir may involve a lesser degree of adverse, toxic
consequences than other drugs currently being used.
* Use of Thiovir may be significantly less costly than alternative drugs for
many patients because it avoids intravenous administration and the use of
immune cell enhancement drugs would not be required.
THE DEVELOPMENT OF THIOVIR IS IN AN EARLY STAGE. TO DATE, ONLY LIMITED
LABORATORY AND ANIMAL STUDIES HAVE BEEN CONDUCTED ON THIOVIR. FURTHER TESTS,
INCLUDING HUMAN CLINICAL TRIALS, WILL BE NECESSARY TO DEMONSTRATE THE ORAL
BIO-AVAILABILITY, THE EFFICACY AND THE TOXICITY AND OTHER SAFETY ATTRIBUTES OF
THE USE OF THIOVIR FOR THE TREATMENT OF HIV/AIDS AND CMV. THERE CAN BE NO
ASSURANCE THAT SUCH TESTS WILL ESTABLISH THAT USE OF THIOVIR WILL RESULT IN
THESE BENEFITS. SEE "RISK FACTORS -- UNCERTAINTY OF PRODUCT DEVELOPMENT" AND "
- -- UNCERTAINTIES RELATED TO CLINICAL TRIALS."
RESEARCH AND DEVELOPMENT STATUS AND ACTIVITIES
Research and development with respect to Thiovir has been performed to date
primarily at USC under the direction of Professor Charles E. McKenna. See
"MANAGEMENT -- Executive Officers, Directors and Key Consultants" and "PRINCIPAL
STOCKHOLDERS." In 1994, PerArdua Investors, L.P., a California limited
partnership (the "Limited Partnership"), was formed to fund the development of
Thiovir through research grants extended to USC. The Limited Partnership
obtained certain rights to obtain an exclusive license of the patents and other
intellectual property rights relating to Thiovir developed at USC. The Company
acquired such rights in August 1996. See "BUSINESS -- Relationship with USC" and
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
In vitro studies conducted at USC have demonstated the ability of Thiovir to
inhibit replication of HIV and CMV and indicated preliminarily that Thiovir may
have favorable oral bio-availability as compared to CMV drugs currently in use.
An effective and relatively simple method of synthesizing Thiovir was also
developed at USC. The proprietary rights of which the Company is the exclusive
licensee include a United States patent for the use of Thiovir for the treatment
of HIV, a U.S. patent on a method of synthesis of Thiovir, a pending patent
application, and certain other patent rights. See "BUSINESS -- Patents."
The Company plans to continue the research and development of Thiovir with a
view to obtaining FDA and other government approval for its sale and use in the
treatment of HIV/AIDS and active CMV infection and to investigate additional
potential therapeutic uses.
The Company is currently developing standard operating procedures for the
production of Thiovir pursuant to GMPs which will meet FDA requirements, and is
designing and planning laboratory and animal
26
studies intended to satisfy Phase I requirements of the FDA approval process.
Those studies, similar in some cases to the studies already conducted, will have
the objective of establishing the chemical stability of the product and its
toxicity and tolerance properties. Mutagenicity, immunogenicity and teragenicity
studies may also be performed if deemed necessary. The Company expects the
completion of these studies and the Phase I process to take one year or longer.
The production of Thiovir under GMP standards and the conduct of the Phase I
studies will be performed on behalf of the Company by CROs who have not as yet
been identified by the Company. The results of the studies performed during the
Phase I process will be submitted to the FDA as part of an IND, which must be
evaluated and found acceptable by the FDA before human clinical trials may
commence. See "BUSINESS -- Government Regulation."
RESEARCH AGREEMENT WITH USC
The Company has recently entered into a new research agreement (the
"Research Agreement") with USC with respect to Thiovir. The primary objectives
of the research to be conducted by USC include the following:
* to acquire initial in vitro data relating to the potential use of Thiovir
with other HIV and/or CMV inhibitor drugs as part of a combination
therapy;
* to conduct additional research into other potential applications of
Thiovir; and
* to transfer to the Company technology related to Thiovir and to continue
patent filings related to Thiovir.
The research at USC will be conducted under the direction of Professor
McKenna and will continue until at least September 30, 1997. The research is
being funded by a grant of approximately $176,000 which has already been paid by
the Company. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
POTENTIAL MARKET FOR THIOVIR
Market Size. The World Health Organization estimated at the end of 1996 that
there were more than 22 million people infected with HIV worldwide, of whom more
than eight million had developed AIDS. The United States Centers for Disease
Control and Prevention has disclosed that through December 1995 more than
500,000 persons in the United States with AIDS had been reported to it and that
approximately 343,000 of them had died. There are no reliable figures on the
number of AIDS patients in the United States or in the world with active CMV
infection. All HIV/AIDS patients represent the potential market for Thiovir.
Thiovir, as well as the other known drugs used to treat active CMV
infection, will not "cure" CMV; its use would merely suppress viral replication
and spread of the virus. Consequently, use of Thiovir would be on-going. Because
active CMV infection typically becomes manifest within a patient in the latter
stages of AIDS infection, the use of drug therapy to control CMV, at least until
recently, was inevitably shortened by the death of the patient. Treatment of
AIDS patients using combination drug therapy, however, has recently shown
significant clinical benefits including reduced HIV viral load and increased
patient longevity. There is insufficient published information to determine the
degree to which active CMV infection may have gone into remission in those AIDS
patients who have benefited from combination drug therapy. Anecdotal reports
indicate that active CMV infection is not significantly affected among those
patients.
The Company is not aware of published data which indicate the extent to
which new cases of active CMV infection have been reduced as a result of the
recent success of combination drug therapy among HIV patients. The Company
believes, however, and anecdotal reports confirm, that to the extent that
combination drug therapy, or any other therapy, significantly reduces the viral
load of HIV patients, the number of new patients with active CMV infection has
been and will be proportionately reduced. Consequently, the demand for CMV drugs
may be significantly diminished at the time, if ever, the Company is able to
market Thiovir. See "RISK FACTORS -- Uncertainty of Market Demand for Thiovir."
27
Competition. The segment of the pharmaceutical industry engaged in the
treatment of HIV/AIDS and associated viruses such as CMV is highly competitive
and rapidly changing. If successfully developed and approved as either an CMV or
HIV drug, or for both indications, Thiovir would compete with numerous therapies
now in existence and currently in development.
Regarding CMV, foscarnet is marketed under the name "Foscavir(R)" by Astra
Pharmaceuticals, ganciclovir is marketed under the name "Cytovene(R)" by the
Syntex Division of Hoffman LaRoche and under the name "Vitrasert(tm)" by Chiron
Vision, and cidofovir is marketed under the name "Vistide(R)" by Gilead
Sciences. All four companies possess vastly greater organizations, experience
and resources than the Company. See "RISK FACTORS -- Intense Competition; Risk
of Technological Change." The rights to other drugs known by the Company to be
the subject of testing for FDA approval for treatment of CMV retinitis are held
by Isis Corporation, Gilead Sciences, Bristol Myers-Squibb and Glaxo- Wellcome.
Other drugs that are not known to the Company may be in various stages of
development and testing.
Distributors of HIV/AIDS drugs which have been approved by the FDA include
Glaxo-Wellcome, Agouron Pharmaceuticals, Gilead Sciences, Merck, Abbott
Laboratories, Hoffman LaRoche, Bristol- Myers Squibb and Boehringer-Ingelheim.
These, as well as other companies which can be expected to gain FDA approval for
HIV/AIDS drugs, possess vastly greater organizations, experience and financial
resources than the Company.
The competitive factors which the Company expects to encounter when and if
it obtains government approval for the sale of Thiovir are primarily the
demonstrated efficacy of a product, ease of drug administration, the product's
compatibility with other drugs being administered to HIV/AIDS patients, the
relative degree of a product's adverse side effects, and the cost of using the
drug, which would include associated costs of administration and the cost of
drugs that might be taken to ameliorate adverse side effects.
SALES AND MARKETING
The Company has not yet formulated a specific marketing and sales plan for
Thiovir when and if it obtains government approval for Thiovir. Similarly, the
Company has no marketing or sales personnel. In the United States, the medical
care of a substantial percentage of HIV/AIDS patients is concentrated in a
relatively small number of medical facilities located in urban centers and there
is an extensive flow of information within the medical community that regularly
provides care to HIV/AIDS patients regarding the safety and efficacy of existing
and newly-developed therapies. Moreover, HIV/AIDS patients support groups are
active and themselves constitute a source of information on drug therapies. The
Company intends to provide information to the HIV/AIDS medical community and to
support groups on a continuous basis with respect to its progress, if any, in
further developing Thiovir. The Company does not expect that a large and costly
marketing and advertising program will be necessary to acquaint the marketplace
with Thiovir when and if it obtains FDA approval for its sale and use.
MANUFACTURING
The Company does not have any manufacturing capacity or relationships with
third parties and currently plans to seek to establish a relationship with an
unrelated third party manufacturer for the manufacture of clinical trial
material and, in the event FDA approval is received, the commercial production
of Thiovir. There can be no assurance that the Company will be able to establish
a relationship with a third party manufacturer on commercially acceptable terms
or that a third party manufacturer will be able to manufacture products on a
cost-effective basis in commercial quantities under GMPs mandated by the FDA.
The Company does believe, however, that the relatively simple chemical structure
of Thiovir and the methods of synthesizing Thiovir which have been developed and
licensed to the Company will allow an efficient, reliable and cost-effective
manufacturing process. Nevertheless, the Company's dependence upon third parties
for manufacturing may adversely affect the Company's profit margins and its
ability to develop and commercialize Thiovir on a timely and competitive basis.
Further, there can be no assurance that manufacturing or quality
28
control problems will not arise in connection with the manufacture of Thiovir or
that a third party manufacturer will be able to maintain the necessary
government licenses and approvals to continue manufacturing. Any failure to
establish a relationship with a third party for its manufacturing requirements
on commercially acceptable terms would have a material adverse effect on the
Company. See "RISK FACTORS -- Dependence on Third Parties for Development and
Manufacturing" and "BUSINESS -- Government Regulations."
GOVERNMENT REGULATION
The manufacture and sale of Thiovir are subject to government regulations in
the United States and in certain foreign countries. In the United States, the
Company is subject to the rules and regulations established by the FDA requiring
the presentation of data indicating that the Company's products are safe and
efficacious and are manufactured in accordance with the FDA's GMP regulations.
Safety and effectiveness standards are required in certain other countries. The
Company believes that only a limited number of foreign countries have extensive
regulatory requirements, specifically the countries comprising the European
Union and Japan.
The steps required to be taken before a new prescription drug may be
marketed in the United States include (i) preclinical laboratory and animal
tests, (ii) the submission to the FDA of an IND, which must be evaluated and
found acceptable by the FDA before human clinical trials may commence, (iii)
adequate and well-controlled human clinical trials to establish the safety and
effectiveness of the drug, (iv) the submission of an NDA to the FDA and (v) FDA
approval of the NDA. Prior to obtaining FDA approval of an NDA, the facilities
that will be used to manufacture the drug must undergo a preapproval inspection
to ensure compliance with the FDA's GMP regulations.
Preclinical tests include laboratory evaluation of product chemistry and
animal studies to assess the safety and effectiveness of the product and its
formulation. The results of the preclinical tests are submitted to the FDA as
part of an IND, and unless the FDA objects, the IND will become effective 30
days following its receipt by the FDA. If the FDA has concerns about the
proposed clinical trial, it may delay the trial and require modifications to the
trial protocol prior to permitting the trial to begin. As a result, there can be
no assurance that the FDA will permit a proposed IND to become effective.
Clinical trials involve the administration of the pharmaceutical product to
healthy volunteers or to patients identified as having the condition for which
the pharmaceutical is being tested. The pharmaceutical is administered under the
supervision of a qualified principal investigator. Clinical trials are conducted
in accordance with protocols previously submitted to the FDA as part of the IND
that detail the objectives of the trial, the parameters used to monitor safety
and the efficacy criteria that are being evaluated. Each clinical trial is
conducted under the auspices of an Institutional Review Board ("IRB") at the
institution at which the trial is conducted. There IRB considers, among other
things ethical factors, the safety of the human subjects and the possible
liability risk for the institution.
Clinical trials are typically conducted in three sequential phases that may
overlap. In Phase I, the initial introduction of the pharmaceutical into healthy
human volunteers, the emphasis is on testing for safety (adverse effects),
dosage tolerance, metabolism, distribution, excretion and clinical pharmacology.
Phase II involves trials in a limited patient population to determine the
effectiveness of the pharmaceutical for specific targeted indications, to
determine dosage tolerance and optimal dosage and to identify possible adverse
side effects and safety risks. In serious diseases such as AIDS, patients
suffering from the disease rather than healthy volunteers are used in Phase I
trials. In addition, Phase I trials may be divided between Phase Ia, in which
single doses of the drug are given, and Phase Ib, in which multiple doses are
given. In the latter instance, some efficacy data may be obtained if the
subjects are patients suffering from the disease rather than healthy volunteers,
and these trials are referred to as "Phase Ib/IIa." After a compound has been
shown in Phase II trials to have an acceptable safety profile and probable
effectiveness, Phase III trials are undertaken to evaluate clinical
effectiveness further and to further test for safety within an expanded patient
population at multiple clinical study sites. The FDA reviews both the clinical
trial plans and the results of the trials at each phase and may discontinue the
trials at any time if there are significant safety issues.
The results of the preclinical tests and clinical trials are submitted to
the FDA in the form of an NDA for marketing approval. The testing and approval
process is likely to require substantial time and effort and
29
there can be no assurance that any FDA approval will be granted on a timely
basis or at all. The approval process is affected by a number of factors,
including the severity of the disease, the availability of alternative
treatments and the risks and benefits demonstrated in clinical trials.
Additional animal studies or clinical trials may be requested during the FDA
review process and may delay marketing approval. Upon approval, a drug may be
marketed only for the approved indications in the approved dosage forms. Further
clinical trials would be necessary to gain approval for the use of the product
for any additional indications or dosage forms. The FDA may also require
post-market reporting and may require surveillance programs to monitor the side
effects of the drug, which may result in withdrawal of approval.
Many foreign countries also regulate the clinical testing, manufacturing,
marketing and use of pharmaceutical products. The requirements relating to the
conduct of clinical trials, product approval, manufacturing, marketing, pricing
and reimbursement vary widely from country to country. There can be no assurance
that the Company or any third parties with which the Company may establish
collaborative relationships will be able to attain or maintain compliance with
such requirements.
The FDA has developed several regulatory procedures to accelerate the
clinical testing and approval of drugs intended to treat serious or
life-threatening illnesses under certain circumstances. For example, in 1988,
the FDA issued regulations to expedite the development, evaluation and marketing
of drugs for life-threatening and severely debilitating illnesses, especially
where no alternative therapy exists (the "1988 Regulations"). These procedures
encourage early consultation between the IND sponsors and the FDA in the
preclinical testing and clinical trial phases to determine what evidence will be
necessary for marketing approval and to assist the sponsors in designing
clinical trials. Under this program, the FDA works closely with the IND sponsors
to accelerate and condense Phase II clinical trials, which may, in some cases,
eliminate the need to conduct Phase III trials or limit the scope of Phase III
trials. Under the 1988 Regulations, the FDA may require post-marketing clinical
trials (Phase IV trials) to obtain additional information on the drug's risks,
benefits and optimal use.
In 1992, the FDA issued regulations establishing an accelerated NDA approval
procedure for certain drugs under Subpart H of the agency's NDA approval
regulations ("Subpart H Regulations"). The Subpart H Regulations provide for
accelerated NDA approval for new drugs intended to treat serious or
life-threatening diseases where the drugs provide a meaningful therapeutic
advantage over existing treatment. Under this accelerated approval procedure,
the FDA may approve a drug based on evidence from adequate and well-controlled
studies of the drug's effect on a surrogate endpoint that reasonably suggest
clinical benefits, or on evidence of the drug's effect on a clinical endpoint
other than survival or irreversible morbidity. This approval is conditional on
the favorable completion of trials to establish and define the degree of
clinical benefits to the patient. Such post-marketing clinical trials would
usually be underway when the product obtains this accelerated approval. If,
after approval, a post-marketing clinical study establishes that the drug does
not perform as expected, or if post-marketing restrictions are not adhered to or
are not adequate to ensure the safe use of the drug, or other evidence
demonstrates that the product is not safe and/or effective under its conditions
of use, the FDA may withdraw approval. The Subpart H Regulations can complement
the 1988 Regulations for expediting the development, evaluation and marketing of
drugs. These two procedures for expediting the clinical evaluation and approval
of certain drugs may shorten the drug development process by as much as two to
three years.
The Company believes that Thiovir may be a candidate for accelerated
development and/or approval under the 1988 Regulations and/or the Subpart H
Regulations. There can be no assurance, however, that Thiovir ultimately will be
eligible for development and/or approval under these regulations. In addition,
there can be no assurance that Thiovir will be approved by the FDA for marketing
at all or, if approved for marketing, will be approved for marketing sooner than
would be traditionally expected.
Once the sale of a product is approved, the FDA regulates the manufacturing,
marketing and other activities under the Federal Food, Drug, and Cosmetic Act
and the FDA's implementing regulations. The FDA periodically inspects both
domestic and foreign drug manufacturing facilities to ensure compliance with
applicable GMP regulations and other requirements. In addition, manufacturers in
the United States must register with the FDA and submit a list of every drug in
commercial distribution. Foreign manufacturers are subject only to the drug
listing requirement. The Company does not have or
30
currently intend to develop the facilities to manufacture Thiovir in commercial
quantities, and intends to establish a relationship with a contract manufacturer
for the commercial manufacture of Thiovir. There can be no assurance that the
Company's contract manufacturer will be able to attain or maintain compliance
with GMP regulations. Post-marketing reports are also required to monitor the
product's usage and effects. Product approvals may be withdrawn, or other action
as may be ordered, or sanctions imposed if compliance with regulatory
requirements is not maintained.
The Company expects to seek approval for Thiovir by the European Union
contemporaneously with seeking approval by the FDA. The processes and standards
of the European Union are similar to those of the FDA and are subject to the
same uncertainties regarding the time of completion and expenditure of
resources. The Company has no plans at this time to undertake the approval
process for Thiovir in Japan or any other foreign country. The Company may
decide to market Thiovir, prior to obtaining any FDA approval, in certain
foreign countries that do not require regulatory approval, although the Company
does not now have any plans for doing so.
In addition to the import requirements of foreign countries, a company must
also comply with United States laws governing the export of FDA regulated
products. Pursuant to the FDA Export Reform and Enhancement Act of 1996, a drug
that has not obtained FDA approval may be exported to any country in the world
without FDA authorization if the product both complies with the laws of the
importing country and has obtained valid marketing authorization in one of the
following countries: Australia, Canada, Israel, Japan, New Zealand, Switzerland,
South Africa, the European Union, or a country in the European Union, or a
country in the European Economic Area. The FDA is authorized to add countries to
this list in the future. Among other restrictions, a drug that has not obtained
FDA approval may be exported under the new law only if it is not adulterated,
accords to the specifications of the foreign purchaser, complies with the laws
of the importing country, is labeled for export, is manufactured in substantial
compliance with GMP regulations and is not sold in the United States.
PATENTS
Patent protection for Thiovir is an important part of the Company's business
strategy, and the Company's success depends, in part, on the ability of the
Company and its licensors to obtain patent protection for Thiovir, defend
patents once obtained, use patents to preclude competitors from marketing
Thiovir or substantially equivalent drugs, operate without infringing on the
patents and proprietary rights of third parties and obtain appropriate licenses
to patents or proprietary rights held by third parties if infringement would
otherwise occur. The proprietary rights licensed to the Company include a U.S.
patent relating to a method of synthesizing Thiovir, a U.S. patent for the use
of Thiovir for the treatment of HIV, a pending patent application, and certain
other patent rights.
There can be no assurance that all or any of the Company's patent rights are
enforceable, will not be invalidated, or will have sufficient scope to
effectively prevent others from marketing Thiovir or substantially equivalent
drugs. Furthermore, the commercial marketing of therapeutic drugs is a highly
competitive and litigation-prone field. Even if the Company is successful in
establishing and defending its patent position, the costs and management time
associated with such activities may significantly and adversely affect the
financial condition and business operations of the Company. See "RISK FACTORS --
Uncertainty of Patents; Dependence on Patents, Licenses and Proprietary Rights."
Astra Pharmaceutical ("Astra") owns United States patents on foscarnet and
methods of its use to treat viral infections, which patents are scheduled to
expire in or prior to 2000. Thiovir is at least partially metabolized to
foscarnet in vitro in cells and in dogs and cats. Therefore, the Company
believes that Thiovir may likewise be partially converted to the active
ingredient in foscarnet in human patients. It is unresolved whether metabolic
conversion of a drug into another patented drug constitutes infringement of a
patent protecting the second drug. Based upon review of the limited case law in
this area, the Company believes that its sale of Thiovir should not be held to
infringe the Astra patents on foscarnet for two reasons. First, the oral
delivery of Thiovir would constitute an improved delivery system as compared to
the intravenous delivery of foscarnet in the treatment of a life-threatening
illness.
31
Second, Thiovir is believed to be effective in treating HIV independent of its
possible conversion into the active ingredients in foscarnet. Moreover, even if
the Company's sale of Thiovir were held to constitute infringement of the Astra
patents, although there can be no assurance, the Company believes that the
remedy for infringement available to Astra would likely be limited to requiring
the Company to pay Astra a reasonable royalty on sales of Thiovir, and that
Astra would not succeed in enjoining the Company from selling Thiovir. This
royalty would likely be payable only through the remaining life of the Astra
patents.
The Company is not aware of any United States patent which would be
infringed by the manufacture of Thiovir pursuant to the method of synthesis.
There can be no assurance, however, that the Company is aware of all patents or
patent applications that may materially affect the Company's ability to make,
use or sell Thiovir. United States patent applications are confidential while
pending in the PTO, and patent applications filed in foreign countries are often
first published six months or more after filing. Any conflicts resulting from
third party patent applications and patents could significantly reduce the
coverage of the patents licensed to the Company and limit the ability of the
Company or its licensor to obtain meaningful patent protection. If patents are
issued to other companies that contain competitive or conflicting claims, the
Company may be required to obtain licenses to these patents or to develop or
obtain alternative technology. There can be no assurance that the Company will
be able to obtain any such license on acceptable terms or at all. If such
licenses are not obtained, the Company could be delayed in or prevented from
pursuing the development or commercialization of Thiovir, which would have a
material adverse effect on the Company.
RELATIONSHIP WITH USC
The Company holds an exclusive worldwide license from USC (the "USC License
Agreement") to practice the inventions covered by specified patents related to
TPFA in order to manufacture and sell products for the treatment of viral
infections ("Products"). The Company's exclusive licensing rights are subject
to: (i) nonexclusive rights that may be held by the United States government as
a result of any funding of research related to the inventions, as prescribed by
federal law; and (ii) USC's reserved but non-transferable right to conduct
research relating to the Products. In addition, all sub-licenses granted under
the license must be approved in advance and in writing by USC, but the license
provides that such approval shall not be unreasonably withheld. The Company will
be obligated to pay to USC royalties equal to 1% of any sales of the Products
and 50% of any royalties earned by the Company from any sublicensees. Minimum
annual royalties are payable, starting at $12,500 in 1998 and increasing to
$125,000 in 2001 and each year thereafter.
USC is obligated under the USC License Agreement to file, prosecute and
maintain certain United States patents and, if required by the Company, to file,
prosecute and maintain foreign patents. The Company is obligated to reimburse
USC for the legal expense of patent prosecution, plus a 15% administrative fee.
USC has no obligation to defend any of the patents while the Company has the
right to do so at its own expense (with certain rights to offset a portion of
royalties otherwise owing to USC). The Company has a first right to bring legal
action to enforce the patents, and USC may bring such action if the Company
elects not to exercise its right. The USC License Agreement also extends to the
Company a right-of-first-refusal to obtain an option and license for any
substantial improvements to the subject technology developed by Dr. McKenna on
the same terms and conditions as the USC License Agreement.
In January 1997, the Company entered into a new research agreement with USC
providing for the grant by the Company of $176,000 to fund further research on
Thiovir through September 30, 1997. See "BUSINESS -- Research and Development
Status and Activities."
OTHER PRODUCTS
The Company has no current plans or strategies for developing or acquiring
products other than Thiovir. The Company intends, however, to investigate
potential therapeutic applications of Thiovir other than the treatment of
HIV/AIDS and CMV, some of which have been suggested by in vitro studies. The
Company may explore possibilities of developing or acquiring medical products,
the
32
development and/or marketing of which would be compatible with the activities of
the Company with respect to Thiovir. There can be no assurance that the Company
will be successful in such endeavors.
HEALTH CARE REFORM MEASURES AND THIRD PARTY REIMBURSEMENT
The business and financial condition of pharmaceutical companies will
continue to be affected by the efforts of governments and third party payors to
contain or reduce the cost of health care through various means. A number of
legislative and regulatory proposals aimed at changing the health care system
have been proposed in recent years. In addition, an increasing emphasis on
managed care in the United States has and will continue to increase the pressure
on pharmaceutical pricing. While the Company cannot predict whether legislative
or regulatory proposals will be adopted or the effect such proposals or managed
care efforts may have on its business, the announcement and/or adoption of such
proposals or efforts could have a material adverse effect on the Company. In the
United States and elsewhere, sales of prescription pharmaceuticals are dependent
in part on the availability of reimbursement to the consumer from third party
payors, such as government and private insurance plans that mandate
predetermined discounts from list prices. Third party payors are increasingly
challenging the prices charged for medical products and services. If the Company
succeeds in bringing Thiovir to the market, there can be no assurance that it
will be considered cost effective or that reimbursement to the consumer will be
available or will be sufficient to allow the Company to sell Thiovir on a
competitive and profitable basis. See "RISK FACTORS -- Uncertainty of Health
Care Reform Measures and Third Party Reimbursement."
PERSONNEL
The Company currently has two employees. The Company intends to utilize from
time to time the services of consultants and independent contractors to provide
key functions that might otherwise be provided by Company-employed personnel.
The Company's future success will depend in large part upon its ability to
attract and retain highly qualified employees, consultants and independent
contractors. See "RISK FACTORS -- Dependence on and Need to Hire Personnel."
LEGAL PROCEEDINGS
The Company is not involved in any litigation.
33
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY CONSULTANTS
The executive officers, directors and key consultants of the Company and
their ages, as of April 1, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Francis E. O'Donnell, Jr., M.D. 47 Chairman of the Board, Chief Executive
Officer, Director and Founder
Nicholas Jon Virca 50 President and Chief Operating Officer
Samuel P. Sears, Jr. 53 Treasurer, Secretary and Director
Mary Anthony Gray 49 Executive Vice-President
Emanuela I. Charlton, Ph.D.(1)(2) 63 Director and Consultant
Thomas Quinn(1)(2) 47 Director
W. Howard Lewin, M.D. (1)(2) 76 Director
Charles E. McKenna, Ph.D. 52 Consultant
Thomas D. Wolfe 48 Consultant
- ----------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
</TABLE>
Each of the executive officers (other than Mr. Virca) and directors (other
than Dr. Lewin) assumed their responsibilities with the Company in 1996 at the
time of the Company's acquisition of a license of certain rights to Thiovir. Mr.
Virca became the Company's President and Chief Operating Officer in March 1997.
Dr. Lewin became a director in December 1996.
The Company's Certificate of Incorporation currently provides that the Board
shall be classified as nearly as possible into three classes, each containing,
as nearly as possible, one-third of the members of the Board. Emanuela I.
Charlton and Thomas Quinn are classified as Class I directors and shall serve
until the annual meeting of the Company's stockholders (the "Annual Meeting") to
be held in 1997; W. Howard Lewin, M.D. and Samuel P. Sears, Jr. are classified
as Class II directors and shall serve until the 1998 Annual Meeting; and Francis
E. O'Donnell, Jr., M.D. is classified as a Class III director and shall serve
until the 1999 Annual Meeting. Each successor to a director whose term expires
at an Annual Meeting will be elected to serve until the third succeeding Annual
Meeting after his or her election and until his or her successor has been duly
elected and qualified. Any director chosen to fill a vacancy on the Board shall
hold office until the next election of the class for which he or she shall have
been chosen, and until his or her successor is duly elected and qualified. The
Company anticipates amending its Certificate of Incorporation prior to
completion of the Offering to eliminate the classification of the Board and to
provide that each director elected by the holders of the Company's Common Stock
shall serve until the next Annual Meeting and until his or her successor has
been duly elected or appointed to the Board by the Board and qualified. The
Company plans to hold the 1997 Annual Meeting prior to the completion of the
Offering. As a result, at the time of the completion of the Offering, all
directors will have been elected to serve until the 1998 Annual Meeting and
until their respective successors have been elected and qualified. See
"DESCRIPTION OF SECURITIES -- Delaware Law and Certain Certificate of
Incorporation and Bylaw Provisions." Officers are elected by, and serve at the
discretion of, the Board. No director, executive officer, or significant
employee or consultant is related by blood, marriage or adoption to any other
director, executive officer, or significant employee or consultant.
The following is a brief summary of the background of each director,
executive officer and key consultant of the Company:
FRANCIS E. O'DONNELL, JR., M.D., Chairman of the Board, Chief Executive
Officer, Director and Founder. Since 1994, Dr. O'Donnell has been the Medical
Director of the O'Donnell Eye Institute and
34
a Clinical Professor, Department of Ophthalmology, at the St. Louis University
School of Medicine. Dr. O'Donnell also serves as Chairman of the Board of
LaserSight, Inc., a publicly traded corporation which manufactures medical laser
equipment and provides managed medical care services. Dr. O'Donnell is a
graduate of St. Louis University and Johns Hopkins University School of Medicine
and is a practicing ophthalmologist.
NICHOLAS JON VIRCA, President and Chief Operating Officer. Mr. Virca began
his employment with the Company in March 1997. From 1991 to 1997, he served as
Vice President of Operations and Co-Founder of Diametrix Detectors, Inc.
("Diametrix"), a privately held immunosensor company focused on the airborne
vapor detection of narcotics. From 1991 to 1994, Mr. Virca also served as Vice
President, Business Operations of IRT Corporation ("IRT"), a publicly traded
company that specialized in x-ray inspection and imaging systems for industrial
and security applications. From 1994 to 1997, Mr. Virca served as Business Unit
Manager, Security Products for Nicolet Imaging Systems, a company that purchased
substantially all of IRT's assets in 1994. Mr. Virca received a B.A. degree in
biology from Youngstown State University. Mr. Virca currently serves as a
director of Diametrix. Mr. Virca's prior experience includes key marketing and
general management positions with Fisher Scientific, Damon Biotech, Promega
Corp., the Ortho Division of Johnson & Johnson and the Ross Division of Abbott
Laboratories.
SAMUEL P. SEARS, JR., Treasurer, Secretary and Director. Since 1994, Mr.
Sears has been employed as the Chief Executive Officer and a director of Star
Tobacco Corporation, a privately-owned manufacturer of tobacco products. From
1993 to 1994, he served as "of Counsel" to the New York law firm of LeBoeuf,
Lamb, Greene & MacRae. Prior to 1993, Mr. Sears was the Managing Partner of the
Boston law firm of Burns & Levinson for over twelve years. He is also a director
of Eye Technology, Inc., a publicly-owned corporation which manufactures
intraocular lenses used in cataract surgery. Mr. Sears is a graduate of Harvard
College and Boston College Law School.
MARY ANTHONY GRAY, Executive Vice President. Since 1991, Ms. Gray has served
as a biomedical technology transfer advisor to the University of Southern
California. Since 1986, she has also been a partner of BioStrategies
International, a technology consulting firm. Ms. Gray's prior experience
includes business development and sales positions with the following companies:
Damon Biotech, Inc., Ortho Diagnostics Division of Johnson & Johnson and the
J.T. Baker Instruments Division of Richardson-Merrill Pharmaceuticals. Ms. Gray
holds B.S. and M.S. degrees from the University of Missouri.
EMANUELA I. CHARLTON, PH.D., Director and Consultant. Since 1994, Dr.
Charlton has served as the Director of Regulatory Affairs of LaserSight
Technologies, Inc., a manufacturer of excimer and solid state lasers for
ophthalmic purposes. In addition, since 1991, Dr. Charlton has served as a
director of its parent company, LaserSight, Inc., a publicly traded corporation.
Since 1985, she has been the President of North American Health Resources, Inc.,
a medical affairs consulting firm which she founded. Dr. Charlton has held
positions, primarily in the fields of medical regulatory affairs and medical
research, with the following companies: High Stoy Technological Corporation,
Baxter-Travenol, Inc., Searle Laboratories, Abbott Laboratories and Pfizer
Laboratories. She holds B.A. and M.S. degrees from New York University and a
Ph.D. degree from The Union Institute Graduate School.
THOMAS QUINN, Director. Since 1995, Mr. Quinn has served as Vice President
of Development of Olsten Kimberly Quality Care, a managed health care company.
From 1992 to 1995, Mr. Quinn was Vice President, Marketing and Sales, of
Integrated Health Services, Inc., a managed health care company. From 1989 to
1992, he served as President of Infu Tech, Inc., a national home infusion
therapy company. Mr. Quinn currently serves as a director of LaserSight, Inc., a
publicly-owned corporation. Mr. Quinn holds a B.S. degree from the University of
Pittsburgh.
W. HOWARD LEWIN, M.D., Director. Since 1960, Dr. Lewin has been the
President and Medical Director of Lewin & Milster Ophthalmology, Inc., a private
medical practice. In addition, since 1975, Dr. Lewin has been employed as a
Clinical Professor of Ophthalmology at the St. Louis University School of
Medicine. Dr. Lewin received a B.A. degree from Central College, Fayette,
Missouri and an M.D. degree from the St. Louis University School of Medicine.
35
CHARLES E. MCKENNA, PH.D., Consultant. Since 1989, Dr. McKenna has been a
Professor of Chemistry at USC. Dr. McKenna is the inventor of the two patents of
which the Company is the exclusive licensee, and he has directed the research of
TPFA conducted at USC pursuant to research grants formerly provided by PerArdua
Investors, L.P., the partnership from which the Company obtained the licenses
related to Thiovir. Dr. McKenna will serve as consultant to the Company for a
period of time ending three years after the date of the Offering or until June
30, 2000, whichever first occurs. Dr. McKenna received a B.A. degree from
Oakland University and a Ph.D. in Chemistry from the University of California at
San Diego.
THOMAS D. WOLFE, Consultant. Since 1993, Mr. Wolfe has been the Chief
Executive Officer of Palmyra Group, Inc., a company providing chemical
engineering process consulting services and related software services. From 1991
to 1993, he was a managing director of HPD, Incorporated, a retailer of
evaporization and crystallization systems. Mr. Wolfe was a founder of PerArdua
Investors, L.P. The Company expects to engage the services of Mr. Wolfe from
time to time to consult on manufacturing, marketing and other matters. Mr. Wolfe
received a B.A. degree in Chemistry from the University of California at San
Diego.
Dr. O'Donnell and Mr. Sears expect to devote approximately 25% of their
business time to the affairs of the Company. Ms. Gray expects to devote
approximately 80% of her business time to the affairs of the Company. Mr. Virca
will be a full-time employee of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board has established an Audit Committee and a Compensation Committee,
each composed of at least two independent directors. Currently, the Company's
three outside directors, Mr. Quinn, Dr. Lewin and Dr. Charlton, serve on both
committees. The Audit Committee will recommend the annual appointment of
auditors, with whom the Audit Committee will review the scope of audit and
non-audit assignments and related fees, accounting principles used by the
Company in financial reporting, internal auditing procedures and the adequacy of
the internal control procedures of the Company. The Compensation Committee will
establish salaries, bonuses and other compensation for the Company's executive
officers and administer the Company's Incentive Plan and other employee benefit
plans.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation. No executive officer of the
Company earned or received in excess of $100,000 for any fiscal year ended on or
prior to November 30, 1996. Dr. O'Donnell has not received any compensation from
the Company in any fiscal year. As a group, the Company's executive officers
(three individuals, only one of whom received or earned any compensation) earned
and received $11,230 during the fiscal year ended November 30, 1996, and no
compensation during any prior period.
Stock Option Grants. On August 20, 1996 the Company issued options to
purchase 10,000 shares of the Company's Common Stock to Mary Anthony Gray
pursuant to the Incentive Plan. The options granted have an exercise price of
$7.50 per share. The options granted to Ms. Gray vest on September 3, 1997 and
expire on September 2, 2001. The options were the only options granted by the
Company in the 1996 fiscal year.
Director Compensation. The Company's directors have not been compensated for
the services they provide to the Company. Upon the completion of the Offering,
the Company plans to issue options to acquire 10,000 shares of Common Stock
pursuant to the Incentive Plan to each of Dr. Charlton, Dr. Lewin and Mr. Quinn
at an exercise price to be determined, but not less than $5.00 per share. The
Company's directors receive reimbursement for any out-of-pocket expenses
incurred in attending meetings of the Company's Board.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS. On February 12, 1997, the Company entered into an employment
agreement with Nicholas Jon Virca pursuant to which Mr. Virca will serve as the
Company's President and Chief Operating Officer. Mr. Virca's employment
agreement expires on February 29, 2000, unless earlier terminated in accordance
with the terms thereof. Mr. Virca will receive a salary equal to $10,000 per
month. In addition, upon the completion of the
36
Offering, the Company will grant to Mr. Virca options to purchase 100,000 shares
of the Company's Common Stock pursuant to the Incentive Plan. The options will
vest over a two year period and will have an exercise price to be determined,
but in no case less than $5.00 per share. Upon a change in control of the
Company (as defined in the agreement), the employment agreement provides Mr.
Virca the right to receive a lump sum severance payment upon termination of
employment equal to (i) the lesser of six month's salary or the amount of salary
then remaining payable for the duration of the agreement's term plus (ii) an
amount equal to the most recent monthly payment made by the Company for Mr.
Virca's health and life insurance (including family coverage) multiplied by the
lesser of six or the number of months remaining in the term of the agreement.
The Company has entered into an employment agreement with Ms. Gray which
provides for monthly compensation of $7,000. This agreement will terminate on
February 29, 2000, unless either party terminates such agreement in accordance
with the terms thereof. In addition, upon the completion of the Offering, the
Company will grant to Ms. Gray options to purchase 100,000 shares of the
Company's Common Stock pursuant to the Incentive Plan. The options will vest
over a three year period and will have an exercise price to be determined, but
in no case less than $5.00 per share.
As of the date hereof, the Company has not entered into any other employment
contracts or any compensatory plans or arrangements relating to the resignation,
retirement or other termination of any of the Company's executive officers.
Similarly, as of the date of this Prospectus, the Company has not entered into
any other plan or agreement pursuant to which an executive officer of the
Company will receive any funds upon a change in control of the Company or a
change in his or her responsibilities following a change-in-control.
The Company has entered into a consulting agreement (the "McKenna
Agreement") with Charles E. McKenna, Ph.D. which continues until September 30,
1999. The McKenna Agreement provides that Dr. McKenna, who is a Professor of
Chemistry at USC and who is the inventor of the two issued patents to which the
Company holds an exclusive license from USC, will provide consulting services to
the Company upon matters which relate to the field of chemistry and to the
development of Thiovir, subject to his obligations to USC. The Company is
obligated to pay Dr. McKenna a retainer of $5,000 for the period October 1, 1996
through March 31, 1997, $5,000 for the period April 1, 1997 through September
30, 1997, $12,500 for the period October 1, 1997 through September 30, 1998 and
$15,000 for the period October 1, 1998 through September 30, 1999. In addition,
the Company will pay a fee to Dr. McKenna for actual services rendered at the
rate of $1,000 per day or $600 per half day and will reimburse him for
out-of-pocket expenditures incurred in the performance of his services to the
Company. The McKenna Agreement contains (i) certain restrictive covenants
limiting Dr. McKenna's right to engage in the development or commercialization
of drugs that might compete with Thiovir, (ii) confidentiality provisions, and
(iii) provisions relating to the assignment to the Company of certain
inventions, improvements and modifications made by him during the term of the
McKenna Agreement. The rights and obligations of the Company and Dr. McKenna
under the McKenna Agreement are subject to Dr. McKenna's obligations to USC,
which include assignment of all rights to intellectual property he develops in
his area of expertise and restrictions on the amount of time he devotes to
consulting activities. Dr. McKenna is also the principal investigator in the
ongoing research concerning Thiovir being conducted under the Company's
sponsored research agreement with USC. See "BUSINESS -- Relationship with USC"
and "CERTAIN TRANSACTIONS."
INCENTIVE PLAN
On July 5, 1996, the Board adopted and the stockholders of the Company
approved the Company's Incentive Plan. The Incentive Plan provides for the
granting to employees, officers, directors, consultants and certain
non-employees of the Company of (i) options to purchase shares of Common Stock
and (ii) stock appreciation rights ("SARs"). The maximum number of shares of
Common Stock that may be issued pursuant to options and SARs under the Incentive
Plan is 500,000, subject to adjustment in the event of a stock split, stock
dividend or other change in the Common Stock or the capital structure of the
Company. The Incentive Plan will be administered by the Compensation Committee
of the Board of Directors. Subject to the provisions of the Incentive Plan, the
Compensation Committee will be authorized to determine who may participate in
the Incentive Plan, the number and type of awards to each participant, the
schedule on which each award will become exercisable and the terms, conditions
and limitations applicable to each award. The Compensation Committee will have
the exclusive power to interpret the Incentive Plan and to adopt such
37
rules and regulations as it may deem necessary or appropriate for purposes of
administering the plan. Subject to certain limitations, the Board of Directors
will be authorized to amend, modify or terminate the Incentive Plan to meet any
changes in legal requirements or for any other purpose permitted by law.
Options. Options granted under the Incentive Plan may be either "incentive
stock options" within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended, or non-qualified options. Incentive stock options may be
granted only to employees of the Company (including directors who are
employees), while non-qualified options may be granted to non-employee
directors, employees, consultants, advisors and other independent contractors
providing services to the Company. The per share exercise price of the Common
Stock subject to an option granted pursuant to the Incentive Plan is determined
by the Compensation Committee at the time the option is granted. In the case of
incentive stock options, the exercise price must not be less than 100% of the
fair market value of the shares covered thereby at the time the incentive stock
option is granted (but in no event less than par value). "Fair market value"
shall be determined by the Board, or by its designated committee, in good faith
and using any reasonable method. No person who owns, directly or indirectly, at
the time of the granting of an incentive stock option to him, 10% or more of the
total combined voting power of all classes of Common Stock (a "10%
Stockholder"), shall be eligible to receive an incentive stock option under the
Incentive Plan unless the option price is at least 110% of the fair market value
of the Common Stock subject to the option, determined on the date of grant.
Non-qualified options are not subject to this limitation.
No incentive stock option may be transferred by an optionee other than by
will or the laws of descent and distribution, and during the lifetime of an
optionee, the option will be exercisable only by the optionee. In the event of
termination of employment, other than by death or permanent, total disability,
the optionee will have three months after such termination to exercise the
option to the extent it was exercisable on the date of such termination. Upon
termination of employment of an optionee by reason of death or permanent
disability, an option remains exercisable for one year thereafter to the extent
it was exercisable on the date of such termination. No similar limitation
applies to non-qualified options.
Incentive stock options granted under the Incentive Plan cannot be exercised
more than 10 years from the date of grant, except that incentive stock options
issued to a 10% Stockholder are limited to five year terms. All options granted
under the Incentive Plan may provide for the payment of the exercise price in
cash, by cash equivalent acceptable to the Company, or by delivery to the
Company of shares of Common Stock already owned by the optionee having a fair
market value equal to the exercise price of the options being exercised, or by a
combination of such methods of payment. Therefore, a participant may be able to
tender shares of Common Stock to purchase additional shares of Common Stock and
may, theoretically, exercise all of his or her stock options with no additional
investment other than his or her original shares. Any unexercised options that
expire or terminate become available once again for issuance.
Stock Appreciation Rights. Under the Incentive Plan, the Compensation
Committee also may grant SARs either in tandem with an option or alone. SARs
granted in tandem with a stock option may be granted at the same time as the
stock option or at a later time. A SAR entitles the participant to receive from
the Company an amount payable in cash, in shares of Common Stock or in a
combination of cash and Common Stock equal to the positive difference between
the fair market value of a share of Common Stock on the date of exercise and the
grant price.
Tax Consequences. No income is recognized by a participant at the time an
option is granted. If the option is an incentive stock option, no income will be
recognized upon the participant's exercise of the option. Income is recognized
by a participant when he or she disposes of shares acquired under an incentive
stock option. The exercise of a nonqualified stock option generally is a taxable
event that requires the participant to recognize, as ordinary income, the
difference between the shares' fair market value and the option price. No income
is recognized upon the grant of an SAR. The exercise of an SAR generally is a
taxable event. The participant generally must recognize income equal to any cash
that is paid and the fair market value of Common Stock that is received in
settlement of an SAR. The Company will be entitled to claim a federal income tax
deduction on account of the exercise of a nonqualified option or SAR. The amount
of the deduction is equal to the ordinary income recognized by the participant.
The Company will not be entitled to a federal income tax deduction on account of
the grant
38
or the exercise of an incentive stock option. The Company may claim a federal
income tax deduction on account of certain dispositions of stock issued upon the
exercise of an incentive stock option.
Change in Control Provisions. In the event of a "change in control"
transaction, the Company's Compensation Committee may take any one or more of
the following actions either at the time an option or SAR is granted or at any
time thereafter: (i) provide for the acceleration of any time periods relating
to the exercise of any option or SAR so that such option or SAR may be exercised
in full on or before a date initially fixed by the Compensation Committee; (ii)
provide for the purchase or settlement of any option or SAR by the Company for
an amount of cash equal to the amount which could have been obtained upon the
exercise of such option or SAR or realization of such participant's rights had
such option or SAR been currently exercisable or payable; (iii) make such
adjustment to any option or SAR then outstanding as the Compensation Committee
deems appropriate to reflect such "change in control" transaction; or (iv) cause
any option or SAR then outstanding to be assumed, or new rights substituted
therefor, by the acquiring or surviving corporation in such "change in control"
transaction. In relation to the Incentive Plan, a "change in control"
transaction is defined to constitute any of the following: (i) a merger or
consolidation in which holders of outstanding voting stock of the Company would
receive less than 50% of the voting stock of the surviving or resulting
corporation; (ii) adoption by the Company of a plan of liquidation or approval
of the dissolution of the Company; (iii) the sale or transfer of substantially
all of the assets of the Company; or (iv) a tender offer or exchange offer for
shares of Common Stock of the Company other than any such offer made by the
Company or any corporation affiliated with the Company.
LIMITATION ON OFFICERS' AND DIRECTORS' LIABILITIES
Pursuant to the Company's Certificate of Incorporation and the Delaware
General Corporation Law, directors of the Company are not liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty, except
for liability in connection with a breach of the duty of loyalty, for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, for dividend payments or stock repurchases or redemptions in
violation of Delaware law, or for any transaction in which a director has
derived an improper personal benefit.
The Company's Certificate of Incorporation includes provisions to indemnify
its officers and directors and other persons against expenses, judgments, fines
and amounts paid in settlement in connection with threatened, pending or
completed suits or proceedings against such persons by reason of serving or
having served as officers, directors or in other capacities, except in relation
to matters with respect to which such persons shall be determined not to have
acted in good faith, lawfully or in the best interests of the Company. Except in
the event indemnification is ordered by a court, the Company's Certificate of
Incorporation provides for indemnification only to the extent that the Company
determines that such person acted in good faith and in a manner not opposed to
the best interests of the Company. Upon completion of the Offering, the Company
also intends to enter into indemnification agreements with its directors which
will require the Company to provide certain additional indemnification and
contribution to its directors, subject to certain limitations.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
Currently, there is no pending litigation or proceeding involving a director
or officer of the Company as to which indemnification is being sought, nor is
the Company aware of any threatened litigation that may result in claims for
indemnification by any officer or director.
39
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of the date of this Prospectus and as adjusted
to reflect the sale of the Common Stock offered hereby of (i) each person who is
known by the Company to own of record or beneficially more than five percent
(5%) of the Common Stock, (ii) each director and executive officer of the
Company and (iii) all directors and executive officers of the Company as a
group. Unless otherwise indicated, each of the persons or entities listed below
has sole voting and investment power with respect to all shares shown
beneficially owned by them, except to the extent such power is shared by a
spouse under applicable law.
<TABLE>
<CAPTION>
PERCENT OF SHARES
OUTSTANDING
NUMBER OF BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1) OFFERING(1) OFFERING(1)
- ------------------------------------ --------- ----------- -----------
<S> <C> <C> <C>
Francis E. O'Donnell, Jr., M.D.(2)(3)(4) 280,000 10.6% 7.7%
Nicholas Jon Virca(2) 0 * *
Samuel P. Sears, Jr.(2)(4) 50,000 1.9 1.4
Thomas L. DePetrillo(4)(5) 368,750 13.9 10.1
Mary Anthony Gray(2) 110,000 4.2 3.0
Charles E. McKenna, Ph.D.(6) 320,000 12.1 8.8
Thomas D. Wolfe(7) 328,930 12.4 9.0
W. Howard Lewin M.D.(4)(8) 5,000 * *
Thomas Quinn(4)(9) 5,000 * *
Emanuela I. Charlton, Ph.D.(4)(10) 5,000 * *
The Starwood Trust(4)(11) 275,000 10.4 7.5
Yuan Lin(12) 200,000 7.6 5.5
All Directors and Officers as a Group (7 persons) 455,000 17.2 12.5
</TABLE>
- ----------
* Less than 1%.
(1) Pursuant to the SEC rules, shares of Common Stock which an individual or
group has the right to acquire within 60 days pursuant to the exercise of
warrants or options are deemed to be outstanding for the purpose 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 in the table.
(2) The beneficial owner's address is c/o PerArdua Corporation, 10940 Wilshire
Boulevard, Suite 1600, Los Angeles, California 90024.
(3) Of such shares, 205,000 shares are held by Kathleen O'Donnell as trustee of
the Irrevocable Trust #4 f/b/o Francis E. O'Donnell, Jr. In addition, 75,000
shares are held by Kathleen O'Donnell as trustee of the Francis E. O'Donnell
Descendants Trust. Dr. O'Donnell disclaims beneficial ownership of such
shares.
(4) All of such shares were originally issued to the beneficial owner or the
person from whom the beneficial owner acquired such shares when the
Company's Missouri predecessor corporation was formed in 1988 under the name
Home Test, Inc.("HTI"). These shares now reflect ownership in the current
Delaware corporation into which the Missouri corporation was merged.
40
(5) Includes 50,000 shares of Common Stock held by Mr. DePetrillo's spouse. Mr.
DePetrillo disclaims beneficial ownership of such shares. Mr. DePetrillo was
a founder of HTI. Mr. DePetrillo advised the Company in its acquisition of
rights to the drug Thiovir, but is no longer active in the business of the
Company. Mr. DePetrillo' address is 65 Peaked Rock Road, Narragansett, Rhode
Island 02882.
(6) Dr. McKenna's address is 16625 Pequeno Place, Pacific Palisades, California
90272.
(7) Mr. Wolfe's address is 16288 Gleko Road, Rough and Ready, California 95975.
(8) Dr. Lewin's address is #8 Ridgecreek, St. Louis, Missouri 63141.
(9) Mr. Quinn's address is Nine Corland Trails, Mahwah, New Jersey 07430.
(10) Dr. Charlton's address is 619 Long Lake Drive, Oviedo, Florida 32765.
(11)The Starwood Trust is an irrevocable trust for the benefit of the children
of a founder of HTI, who is not active in the business of the Company. The
Starwood Trust's address is 120 Bayview Lane Osprey, Florida 34229.
(12) Ms. Lin's address is 730 Willow Run Lane, Winter Springs, Florida 32708.
The table above does not contain Outstanding Warrants issued to the
individuals referenced therein, which will become excercisable at a price of
$10.00 per share when the Company receives FDA approval for the sale of Thiovir.
In the event the fair market value of the Common Stock exceeds the exercise
price of an Outstanding Warrant at the time of exercise, the holder may elect to
pay the exercise price by surrendering a portion of the shares of Common Stock
for which the Outstanding Warrant is excercisable determined in accordance with
a formula in lieu of paying the exercise price in cash. These Outstanding
Warrants have been issued as follows:
<TABLE>
<CAPTION>
NAME NUMBER OF OUTSTANDING WARRANTS
---- ------------------------------
<S> <C>
Francis E. O'Donnell, Jr., M.D. .......................... 150,000
Thomas L. DePetrillo ..................................... 200,000
Thomas D. Wolfe .......................................... 8,930
The Starwood Trust ....................................... 150,000
</TABLE>
41
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1996, the Company issued to three of the then stockholders of the
Company warrants to purchase an aggregate of 500,000 shares of Common Stock. The
recipients of these warrants, each of whom paid no consideration for their
issuance, were Francis E. O'Donnell, Jr., M.D., who is Chairman of the Board,
Chief Executive officer, Director and Founder of the Company (warrants to
purchase 150,000 shares of Common Stock); The Starwood Trust, an irrevocable
trust for the benefit of a founder of HTI who is not active in the balances of
the Company (warrants to purchase 150,000 shares of Common Stock); and Thomas L.
DePetrillo, who was a founder of HTI and advised the Company in its acquisition
of rights to the drug Thiovir, but is no longer active in the business of the
Company. (warrants to purchase 200,000 shares of Common Stock). See "MANAGEMENT"
and "PRINCIPAL STOCKHOLDERS."
Pursuant to an Option and Asset Purchase Agreement, dated July 8, 1996 (the
"Acquisition Agreement"), the Company acquired certain rights of PerArdua
Investors, L.P., a California limited partnership (the "Limited Partnership").
Prior to such acquisition, the Limited Partnership was unaffiliated with the
Company and had been formed and operated for the purpose of conducting research
and development on Thiovir, primarily through research grants to USC. The
Company acquired an assignment of the Limited Partnership's rights and
obligations under an Option and License Agreement by and between the Limited
Partnership and USC. See "BUSINESS -- Relationship with USC." The Acquisition
Agreement granted to the Company, in consideration of $100,000, an option, which
was exercised, to acquire the rights for $350,000 plus reimbursement for
specified liabilities which totaled $90,000, for a total purchase price of
$440,000. Simultaneously with the closing of the acquisition of the rights
pursuant to the Acquisition Agreement, the Company entered into a Stockholders'
Agreement (the "Stockholders' Agreement") with all of its then stockholders, the
limited partners of the Limited Partnership (the "Limited Partners"), USC,
Charles E. McKenna, Ph.D., Mary Anthony Gray, and Thomas D. Wolfe, the latter of
whom was also a Limited Partner. See "MANAGEMENT" and "PRINCIPAL STOCKHOLDERS."
Under the terms of the Stockholders' Agreement, the Limited Partners were
granted the right to acquire a total of 192,000 shares of Common Stock and
192,000 Outstanding Warrants for total consideration of $192.00; USC was granted
the right to acquire 8,000 shares of Common Stock and 8,000 Outstanding Warrants
for total consideration of $8.00; and Dr. McKenna, Ms. Gray and Mr. Wolfe were
granted the right to acquire 320,000, 110,000 and 320,000 shares of Common
Stock, respectively, for total consideration of $320.00, $110.00, and $320.00,
respectively. All such rights to acquire shares of Common Stock and Outstanding
Warrants were exercised. All persons to whom shares of Common Stock and
Outstanding Warrants were issued upon the exercise of such rights are entitled
to certain registration rights with respect to the Common Stock issued and
issuable upon exercise of the Outstanding Warrants. See "DESCRIPTION OF
SECURITIES" -- Common Stock." Mr. Wolfe received, as a Limited Partner, 8,930
shares of Common Stock and 8,930 Oustanding Warrants in addition to the 320,000
shares of Common Stock he acquired directly from the Company. Dr. McKenna and
Mr. Wolfe are consultants to the Company, and Ms. Gray is an executive officer
of the Company. See "MANAGEMENT" and "PRINCIPAL STOCKHOLDERS."
In January 1997, the Company entered into a Research Agreement with USC
providing for the grant by the Company to USC of $176,000 for continued research
and development of Thiovir. See "BUSINESS -- Relationship with USC." Dr. McKenna
is the principal investigator under the research grant and, as such, it is
expected that he will receive salary and other benefits, estimated at less than
$25,000, funded by the Company's research grant. See "MANAGEMENT" and "PRINCIPAL
STOCKHOLDERS." In addition, the Company has entered into a consulting agreement
with Dr. McKenna. Pursuant to this agreement, Dr. McKenna will provide
consulting services related to the development of Thiovir for a term ending
September 30, 1999. The Company will pay Dr. McKenna a semi-annual retainer and
an hourly fee in consideration of such services. See "MANAGEMENT -- Executive
Compensation and Other Information."
Samuel P. Sears, Jr., a director and executive officer of the Company,
received, in June 1996, 50,000 shares of Common Stock from certain other
stockholders of the Company without paying any monetary consideration therefor
as an inducement for Mr. Sears to become involved with the management of the
Company. See "MANAGEMENT" and "PRINCIPAL STOCKHOLDERS."
Each of Emanuela I. Charlton, Ph.D., Thomas Quinn and W. Howard Lewin, M.D.,
directors of the Company, received 5,000 shares of the Company's Common Stock
from certain stockholders of the Company without paying any monetary
consideration therefor as an inducement to join the Company's
42
Board. In addition, the Board intends to grant to each of Drs. Charlton and
Lewin and Mr. Quinn, as of the date of completion of the Offering, options to
acquire 10,000 shares of Common Stock of the Company at an exercise price to be
determined, but in no case less than $5.00 per share, pursuant to the terms of
the Company's Incentive Plan.
The Company believes that all of the transactions noted above were made on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties.
All future transactions between the Company and its officers, directors,
principal stockholders and their respective affiliates will be approved in
accordance with the Delaware General Corporation Law by a majority of the Board,
including a majority of the independent and disinterested directors of the
Board, and will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
43
DESCRIPTION OF SECURITIES
The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Certificate of
Incorporation.
COMMON STOCK
The Company is authorized to issue up to 25,000,000 shares of Common Stock,
$.01 par value per share. As of the date of this Prospectus, 2,643,440 shares of
Common Stock are issued and outstanding and held by 51 stockholders of record.
Upon the completion of the Offering, 3,643,440 shares of Common Stock will be
outstanding.
The holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. There is no
cumulative voting for election of directors, with the result that the holders of
more than fifty percent of the shares voting for the election of directors can
elect all of the directors elected by the holders of Common Stock. Subject to
the prior rights of any series of Preferred Stock which may from time to time be
outstanding, if any, holders of Common Stock are entitled to receive ratably
such dividends as may be declared by the Board out of funds legally available
therefor and in the event of liquidation, dissolution, or winding up of the
Company, are entitled to share ratably in all assets remaining after payment of
liabilities and payment of accrued dividends and liquidation preferences on the
Preferred Stock, if any. Holders of Common Stock have no preemptive rights and
have no rights to convert their Common Stock into any other securities. All of
the outstanding shares of Common Stock are, and the shares of Common Stock to be
outstanding upon completion of the Offering will be, validly issued, fully paid
and nonassessable.
Prior to the Offering, the Company's current principal stockholders
beneficially owned approximately 73.7% of the outstanding shares of Common Stock
of the Company. Subsequent to the Offering, the Company's current principal
stockholders will beneficially own 53.5% of the outstanding shares of the Common
Stock of the Company (51.3% if the Underwriters' over-allotment option is
exercised in full). As a result, subject to the voting rights of any series of
Preferred Stock, they will likely be able to control all matters requiring
approval by the stockholders of the Company, including the election of
directors.
Upon the completion of the Offering, holders of approximately 2,343,440
shares of Common Stock (including the shares issuable upon the exercise of the
Outstanding Warrants) will be entitled to certain rights with respect to the
registration of such shares under the Securities Act, subject to certain
limitations. If the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other security
holders exercising registration rights, such holders are entitled to notice of
such registration and are entitled to include shares therein. These rights are
subject to certain conditions and limitations, including, in certain
circumstances, the right of the underwriters of an offering to limit the number
of shares included in such registration or exclude all shares.
The holders of the Representative's Warrants also have the right for a
period beginning one year after the effective date of this Prospectus and ending
four years thereafter, to include shares of Common Stock issuable upon exercise
of the Representative's Warrants or the Redeemable Warrants underlying the
Representative's Warrants (the "Underlying Securities") as part of certain other
registered offerings of securities commenced by the Company. In addition, for a
period beginning one year after the effective date of this Prospectus and ending
four years thereafter, upon written demand of holders representing a majority of
the Representative's Warrants, the Company has agreed, on one occasion, to
promptly register the Underlying Securities at the Company's expense. Upon
receipt of such a request, the Company has agreed to use its best efforts to
file a registration statement registering the Underlying Securities. Finally,
for a period beginning one year after the effective date of this Prospectus and
ending four years thereafter, upon written demand of any holder(s) of the
Representative's Warrants, the Company has agreed, on one occasion, to promptly
register the Underlying Securities solely at the expense of such holder(s).
44
REDEEMABLE WARRANTS
The following summary description of certain provisions of the Redeemable
Warrants is believed to reflect all material provisions of the Redeemable
Warrants, but is not necessarily complete and reference is made to the Warrant
Agreement (the "Warrant Agreement") by and between the Company and American
Securities Transfer & Trust, Inc. (the "Transfer Agent"). The Warrant Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part for a detailed description thereof.
Each Redeemable Warrant entitles the holder thereof to purchase one share of
Common Stock at an exercise price of $6.50 per share. Unless the Redeemable
Warrants are redeemed as provided below, the Redeemable Warrants may be
exercised at any time on or before ____________, 2002, at which time the
Redeemable Warrants expire.
The Redeemable Warrants are redeemable by the Company at $.20 per Redeemable
Warrant upon 30 days prior written notice, provided that the average closing bid
price of the Common Stock equals or exceeds $9.00 per share for a 20 consecutive
day trading period ending within 10 days prior to the notice of redemption. For
purposes of the Warrant Agreement, "average closing bid price" is defined as the
closing bid price as quoted on the Nasdaq SmallCap Market. The Redeemable
Warrants may not be redeemed unless they are then exercisable and a current
prospectus covering the Redeemable Warrants and the shares of Common Stock
issuable thereunder is then in effect. The Redeemable Warrants will remain
exercisable until the close of business on the fifth business day prior to the
date of redemption. Redemption of the Redeemable Warrants may force the holders
to exercise the Redeemable Warrants and pay the exercise price at a time when it
may be disadvantageous for them to do so or sell the Redeemable Warrants at the
current market price when they might otherwise desire to hold the Redeemable
Warrants.
Upon the exercise of the Redeemable Warrants more than one year after this
Offering and to the extent not inconsistent with the guidelines of the National
Association of Securities Dealers, Inc., and the rules and regulations of the
Commission, the Company has agreed to pay the Representative a commission equal
to five percent of the exercise price of the Redeemable Warrants. However, no
compensation will be paid to the Representative in connection with the exercise
of the Redeemable Warrants if (a) the market price of the underlying shares of
Common Stock is lower than the exercise price, (b) the Redeemable Warrants are
exercised in an unsolicited transaction, or (c) the Redeemable Warrants are held
in any discretionary accounts and (d) advance disclosure is made to a Redeemable
Warrant holder. In addition, unless granted an exemption by the Commission from
Regulation M under the Exchange Act, the Representative will be prohibited from
engaging in any market making activities or solicited brokerage activities with
regard to the Company's securities for a period of one to five days before the
solicitation of the exercise of any Redeemable Warrant or before the exercise of
any Redeemable Warrant based upon a prior solicitation, until the later of the
termination of such solicitation activity or the termination by waiver or
otherwise of any right the Representatives may have to receive a fee for the
exercise of the Redeemable Warrants following such solicitation.
The holders of the Redeemable Warrants will not have any of the rights or
privileges of stockholders of the Company (except to the extent they otherwise
own Common Stock) prior to the exercise of the Redeemable Warrants. The
Redeemable Warrants will be entitled to the benefit of adjustments in the
exercise price and in the number of shares of Common Stock deliverable upon the
exercise thereof upon the occurrence of certain events, including a stock
dividend, stock split or similar reorganization.
In order for a holder to exercise a Redeemable Warrant, there must be a
current registration statement on file with the Commission and various state
securities commissions to register the shares of Common Stock underlying the
Redeemable Warrants for sale to the holder of the Redeemable Warrant. Pursuant
to Section 10(a)(3) of the Securities Act, the information contained in this
Prospectus will be deemed "stale" nine months from the date of this Prospectus.
The Company has agreed, so long as the Redeemable Warrants are outstanding, to
use its best efforts to keep a registration statement effective under the
Securities Act and state securities laws to permit the issuance of the shares of
45
Common Stock upon exercise or exchange of the Redeemable Warrants. Nevertheless,
although the Company intends to do so, no assurance can be given that the
registration statement will be kept current, the failure of which may result in
the Redeemable Warrants not being exercisable or exchangeable and therefore
worthless.
REPRESENTATIVE'S WARRANTS
In connection with this Offering, the Company has agreed to sell to the
Representative, at a price of $.001 per warrant, warrants to purchase from the
Company 100,000 shares of Common Stock and 100,000 Redeemable Warrants (the
"Representative's Warrants"). The Representative's Warrants are exercisable at a
price of $8.00 per share of Common Stock and $.16 per Redeemable Warrant (160%
of the respective initial public offering price of the Securities) for a period
of four years commencing one year from the effective date of this Prospectus.
The shares of Common Stock and the Redeemable Warrants issuable upon exercise of
the Representative's Warrants are identical to those offered hereby except for
the exercise prices and that the Redeemable Warrants contained therein cannot be
redeemed.
The Company has agreed to register, at its expense, under the Securities
Act, the Underlying Securities at the request of a majority in interest of the
holders thereof. Such request may be made at any time during a period beginning
one year after the effective date of this Prospectus and ending four years
thereafter. In addition, for a period beginning one year after the effective
date of this Prospectus and ending four years thereafter, upon written demand of
any holder(s) of the Representative's Warrants, the Company has agreed, on one
occasion, to promptly register the Underlying Securities for purposes of a
public offering, solely at the expense of such holder(s). The Company also
granted the Representative "piggyback" registration rights concerning the
Representative's Warrants and the Underlying Securities which may be exercised
at any time during a period beginning one year after the effective date of this
Prospectus and ending four years thereafter.
For the term of the Representative's Warrants, the holder thereof has the
opportunity to profit from a rise in the market price of the Company's
securities which may result in a dilution of the interest of the stockholders.
The Company may find it more difficult to raise additional equity capital if it
should be needed for the business of the Company while the Representative's
Warrants are outstanding. At any time when the holders thereof might be expected
to exercise it, the Company would probably be able to obtain additional equity
capital on terms more favorable than those provided by the Representative's
Warrants. See "RISK FACTORS -- Representative's Warrants."
PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of Preferred
Stock, $.01 par value per share, none of which are issued and outstanding as of
the date of this Prospectus. The Preferred Stock may be issued in one or more
series, the terms of which may be determined at the time of issuance by the
Board, without further action by the stockholders, and may include voting rights
(including the right to vote as a series on particular matters), preferences as
to dividends and liquidation, conversion, redemption rights and sinking fund
provisions. The Company has no present plans for the issuance of any shares of
Preferred Stock. The issuance of any such Preferred Stock could reduce the
rights, including voting rights, of the holders of Common Stock, and, therefore,
reduce the value of the Common Stock. In particular, specific rights granted to
future holders of Preferred Stock could be used to restrict the Company's
ability to merge with or sell its assets to a third party, thereby preserving
control of the Company's existing management. See "RISK FACTORS -- Anti-takeover
Effects of Certificate of Incorporation, Bylaws and Delaware Law."
DELAWARE LAW AND CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Certain provisions of the Delaware General Corporation Law, the Company's
Certificate of Incorporation, Bylaws and the Incentive Plan, may be deemed to
have an anti-takeover effect and may delay, defer or prevent a hostile tender
offer or takeover attempt that a stockholder might consider in his or her best
interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders.
46
DELAWARE ANTI-TAKEOVER LAW
Section 203 of the Delaware General Corporation Law ("Section 203") applies
to a Delaware corporation with a class of voting stock listed on a national
securities exchange, authorized for quotation on an interdealer quotation system
or held of record by 2,000 or more persons. In general, Section 203 prevents an
"interested stockholder" (defined generally as any person owning, or who is an
affiliate or associate of the corporation and has owned in the preceding three
years, 15 percent or more of a corporation's outstanding voting stock and
affiliates and associates of such person) from engaging in a "business
transaction" (as defined therein) with a Delaware corporation for three years
following the date such person became an interested stockholder unless (1)
before such person became an interested stockholder, the board of directors of
the corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder; (2) upon
consummation of the transaction which resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owned at least 85
percent of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by employee stock plans that do not provide employees
with the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer); or (3) on or subsequent to
the date such person became an interested stockholder, the business combination
is approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of two-thirds of
the outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, the restrictions described above do not apply to
certain business combinations proposed by an interested stockholder following
the announcement or notification of one of certain extraordinary transactions
involving the corporation and a person who had not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors.
SPECIAL MEETING OF STOCKHOLDERS
The Company's Bylaws currently provide that special meetings of the
stockholders of the Company may be called only by the Board. This provision will
make it more difficult for stockholders to take action opposed by the Board.
STOCKHOLDER ACTION BY WRITTEN CONSENT
The Certificate of Incorporation provides that no action required or
permitted to be taken at an annual or special meeting of the stockholders of the
Company may be taken without a meeting.
CLASSIFIED BOARD OF DIRECTORS
The Company's Certificate of Incorporation currently provides for the Board
to be divided into three classes of directors serving staggered three year
terms. As a result, approximately one-third of the Board will be elected each
year. Moreover, under the Delaware General Corporation Law, in the case of a
corporation having a classified Board, stockholders may remove a director only
for cause. This provision, when coupled with the current provision of the
Company's Bylaws authorizing only the Board to fill vacant directorships
(subject to the rights of the holders of Preferred Stock), will preclude a
stockholder from removing incumbent directors without cause and simultaneously
gaining control of the Board by filling the vacancies created by such removal
with its own nominees.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS
The Company's Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for election
as directors at an annual or a special meeting of stockholders in lieu of an
annual meeting (collectively, an "Annual Meeting"), must provide timely notice
thereof in writing and be present at such meeting, either in person or by
representative. For the first Annual Meeting following the Offering, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Company at its principal executive office not later than the close of
business on the later of (A) the 75th day prior to the scheduled date of such
Annual Meeting or (B) the 15th day following the day on which public
announcement of the date of such of such Annual Meeting is first made by the
Company. For all subsequent Annual Meetings, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Company at its
principal executive office not less than 75 days
47
nor more than 120 days prior to the anniversary date of the immediately
preceding Annual Meeting (the "Anniversary Date"); provided, however, that in
the event the Annual Meeting is scheduled to be held on a date more than 30 days
before the Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Company at its principal executive office not later than the close of
business on the later of (A) the 75th day prior to the scheduled date of such
Annual Meeting or (B) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the Company.
These provisions may preclude some stockholders from bringing matters before the
stockholders at an Annual Meeting or from making nominations for directors at an
Annual Meeting.
AMENDMENTS TO THE BYLAWS
The Company's Certificate of Incorporation and Bylaws provide that subject to
the rights of the holders of Preferred Stock, the majority of all directors or
the vote of holders of two-thirds of the outstanding stock entitled to vote is
required to alter, amend or repeal the Bylaws; provided, however, if the Board
has previously recommended the action to be taken to the Company's stockholders,
the affirmative vote of a majority of the stockholders may amend or repeal the
Company's Bylaws.
PROPOSED AMENDMENTS TO THE CERTIFICATE OF INCORPORATION AND BYLAWS
Prior to completion of the Offering, the Company intends to amend its
Certificate of Incorporation in the following respects:
* The Board of Directors will no longer be classified so that each director
elected by the holders of the Common Stock or appointed to the Board by
the Board of Directors shall serve until the next Annual Meeting and until
his or her successor has been duly elected and qualified.
* All directors elected by the holders of the Common Stock or appointed to
the Board by the Board of Directors will be subject to removal with or
without cause by vote of the majority of the outstanding shares of Common
Stock.
* Amendment of certain provisions of the Certificate of Incorporation will
require a two-thirds vote of the stockholders.
The foregoing amendments to the Company's Certificate of Incorporation will
require stockholder approval in order to become effective, and the Company has
called a stockholders meeting to be held prior to completion of the Offering for
the purpose of considering these amendments and certain other matters.
Prior to completion of the Offering, and assuming stockholder approval of
the foregoing amendments to the Certificate of Incorporation, the Company
intends to amend its Bylaws in the following respects:
* Vacancies occurring in the Board of Directors as a result of removal of a
director elected by the holders of the Common Stock or appointed to the
Board by the Board of Directors by vote of such stockholders or otherwise
may be filled either by the Board or by vote of a majority of the
outstanding shares of Common Stock.
* The holders of at least ten percent of the issued and outstanding shares
of Common Stock may require the Company to call a special meeting of
stockholders by notice to the Company stating the purpose for which the
special meeting is to be held. The Company must give notice of the special
meeting within 15 days of its receipt of the stockholder notice, with the
meeting to be held not more than 75 days after the date of the Company's
receipt of the stockholder request to call a special meeting.
* Stockholders may nominate a candidate for election or re-election of a
director at a special meeting of stockholders called for that purpose;
provided that the nominations must be submitted within 15 days after the
date on which the Company publicly announces the date of the special
meeting.
Assuming stockholder approval of the amendments to the Certificate of
Incorporation, the Company believes that the foregoing proposed amendments to
the Certificate of Incorporation and the By-laws will ameliorate the
anti-takeover effect of certain provisions of the Company's Certificate of
Incorporation and Bylaws described above.
TRANSFER AGENT AND REGISTRAR
American Securities Transfer & Trust, Inc. will serve as the Company's
transfer agent and registrar.
48
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Schneider
Securities, Inc. is acting as the Representative, have severally agreed, subject
to the terms and conditions of the Underwriting Agreement (the form of which has
been filed as an exhibit to the Registration Statement), to purchase from the
Company the respective numbers of shares of Common Stock and Redeemable Warrants
set forth opposite their names in the table below. The Underwriting Agreement
provides that the obligations of the Underwriters are subject to certain
conditions precedent and that the Underwriters shall be obligated to purchase
all of the shares of Common Stock and Redeemable Warrants, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF
NAME OF COMMON STOCK REDEEMABLE WARRANTS
---- --------------- -------------------
<S> <C> <C>
Schneider Securities, Inc. ..................
--------- ---------
TOTAL .................................... 1,000,000 1,000,000
========= =========
</TABLE>
Through the Representative, the several Underwriters have advised the
Company that they propose to offer the shares of Common Stock and the Redeemable
Warrants to the public at the initial public offering prices set forth on the
cover of this Prospectus. The Representative has advised the Company that it may
allow to certain dealers concessions of not in excess of $.25 per share of
Common Stock and $.005 per Redeemable Warrant, of which a sum not in excess of
$.13 per share of Common Stock and $.0025 per Redeemable Warrant may in turn be
reallowed by such dealers to other dealers. After the issuance of the shares of
Common Stock and Redeemable Warrants, the public offering prices, the
concessions and the reallowances may be changed. The Representative has further
advised the Company that it does not expect sales to discretionary accounts to
exceed five percent of the total number of Securities offered hereby.
The Company has agreed to pay to the Representative a non-accountable
expense allowance equal to three percent of the total proceeds of the Offering,
of which $50,000 has already been paid.
The Company has granted an option to the Underwriters, exercisable during
the 45-day period following the effective date of the Underwriting Agreement, to
purchase up to 150,000 shares of Common Stock and/or 150,000 Redeemable Warrants
at the offering price less underwriting discounts and the non-accountable
expense allowance. The Underwriters may exercise such option only to satisfy
over-allotments in the sale of the shares of Common Stock and Redeemable
Warrants.
Upon the exercise of the Redeemable Warrants more than one year after the
Offering and to the extent not inconsistent with the guidelines of the National
Association of Securities Dealers, Inc., and the rules and regulations of the
Commission, the Company has agreed to pay the Representative a commission equal
to five percent of the exercise price of the Redeemable Warrants. However, no
compensation will be paid to the Representative in connection with the exercise
of the Redeemable Warrants if (a) the market price of the underlying shares of
Common Stock is lower than the exercise price, (b) the Redeemable Warrants are
exercised in an unsolicited transaction, or (c) the Redeemable Warrants are held
in any discretionary accounts. In addition, unless granted an exemption by the
Commission from Regulation M promulgated under the Exchange Act, the
Representative will be prohibited from engaging in any market making activities
or solicited brokerage activities with regard to the Company's securities for a
period of one or five days before the solicitation of the exercise of any
Redeemable Warrant or before the exercise of any Redeemable Warrant based upon a
prior solicitation, until the later of the termination of such solicitation
activity or the termination by waiver or otherwise of any right the
Representative or any other soliciting broker-dealer may have to receive a fee
for the exercise of the Redeemable Warrants following such solicitation.
In connection with the Offering, the Company has agreed to sell to the
Representative, for nominal consideration, warrants (the "Representative's
Warrants"), which confer the right to purchase up to 100,000 shares of Common
Stock and up to 100,000 Redeemable Warrants. The Representative's
49
Warrants are initially exercisable at the price (the "Exercise Price") of $8.00
per share of Common Stock and $.16 per Redeemable Warrant (160% of the
respective initial public offering prices) for a period of four years commencing
one year from the effective date of this Prospectus. The shares of Common Stock
and Redeemable Warrants issuable upon exercise of the Representative's Warrants
are identical to those offered hereby. The Representative's Warrants contain
provisions providing for adjustment of the Exercise Price and the number and
type of securities issuable upon the exercise thereof upon the occurrence of
certain events. The Representative's Warrants grant to the holders thereof
certain demand and "piggyback" rights of registration of the securities issuable
upon the exercise thereof upon the occurrence of certain events beginning one
year after the date of this Prospectus.
The Company has agreed to enter into a three-year consulting agreement with
the Representative, pursuant to which the Representative will act as a financial
consultant to the Company, commencing upon the closing date of the Offering. The
Representative will make available qualified personnel for this purpose. The
consulting fee of $3,000 per month for a period of 36 months is payable in full
at the closing of the Offering.
Certain principal stockholders and the Company have agreed that, for a
period of 12 months from the date of this Prospectus, they will not sell any
securities (except for shares of Common Stock issued pursuant to exercise of
options which may be granted under the Incentive Plan and for shares issued
pursuant to the exercise of the Redeemable Warrants) without the
Representative's prior written consent, which shall not be unreasonably
withheld.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
The foregoing summary of certain provisions of the Underwriting Agreement
summarizes all of the material provisions of the Underwriting Agreement, but
does not purport to be a complete statement of all of its terms and conditions.
A copy of the Underwriting Agreement is on file with the Commission as an
exhibit to the Registration Statement of which this Prospectus is a part.
Prior to the Offering, there has been no public market for the Securities.
The initial public offering prices of the shares of Common Stock and Redeemable
Warrants will be determined by negotiations between the Company and the
Representative and are not necessarily related to the Company's assets,
earnings, or book value or any other established criteria of value. Factors
considered in determining the initial public offering price of the shares of
Common Stock and Redeemable Warrants included estimates of business potential,
financial condition, future prospects, gross proceeds to be raised, percentage
of stock owned by officers and directors on the date hereof, the type of
business in which the Company engages, and an assessment of the Company's
management. The foregoing factors were evaluated in light of the existing state
of the securities market.
50
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 3,643,440 shares of
Common Stock outstanding (3,793,440 shares, if the Underwriters' over-allotment
option is exercised in full). Of these shares, the 1,000,000 shares offered
hereby will be freely tradable without further registration under the Securities
Act.
Up to 100,000 additional shares of Common Stock may be purchased by the
Representative after the first anniversary of this Prospectus through the
exercise of the Representative's Warrants. Any and all shares of Common Stock
purchased upon exercise of the Representative's Warrants may be freely tradable,
provided that the Company satisfies certain securities registration and
qualification requirements in accordance with the terms of the Representative's
Warrants. See "UNDERWRITING."
All of the presently outstanding 2,643,440 shares of Common Stock are
"restricted securities" within the meaning of Rule 144 of the Securities Act and
will be eligible for sale in the public market in reliance upon, and in
accordance with, the provisions of Rule 144.
In general, Under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act,
will be entitled to sell within any three-month period a number of shares
beneficially owned for at least two years that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock, or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice, and the availability of current
public information about the Company. However, a person who is not deemed to
have been an affiliate of the Company during the 90 days preceding a sale by
such person, and who has beneficially owned the shares of Common Stock for at
least three years, may sell such shares without regard to the volume, manner of
sale, or notice requirements of Rule 144.
Prior to this Offering, there has been no public market for the Company's
Securities. Following this Offering, the Company cannot predict the effect, if
any, that sales of Common Stock pursuant to Rule 144 or otherwise, or the
availability of such shares for sale, will have on the market price prevailing
from time to time. Nevertheless, sales by the current stockholders of
substantial amounts of Common Stock in the public market could adversely affect
prevailing market prices for the Common Stock. In addition, the availability for
sale of a substantial amount of Common Stock acquired through the exercise of
the Redeemable Warrants or the Representative's Warrants could adversely affect
prevailing market prices for the Common Stock. The Company's officers, directors
and certain holders of 5% of the outstanding shares of Common Stock have agreed
not to sell the shares beneficially owned by such persons during a 12 or 13
month period following the date of this Prospectus (except for shares of Common
Stock that are subject to the Underwriters over-allotment option) without the
Representative's consent. In addition, the Company has agreed that it will not
issue any shares of Common Stock during a 13 month period following the date of
this Prospectus without the Representative's written consent.
51
LEGAL MATTERS
The validity of shares of Common Stock offered hereby will be passed upon
for the Company by LeClair Ryan, A Professional Corporation, Richmond, Virginia,
and certain matters for the Underwriters by William M.
Prifti, Esquire, Lynnfield, Massachusetts.
EXPERTS
The financial statements of the Company as of November 30, 1996 appearing in
this Prospectus and Registration Statement have been audited by McGladrey &
Pullen, LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement and have been
included herein in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
SB-2 (as amended from time to time and together with all exhibits and schedules
thereto, the "Registration Statement") under the Securities Act with respect to
the Common Stock and the Redeemable Warrants to be sold in the Offering. This
Prospectus constitutes a part of the Registration Statement and does not contain
all the information set forth therein, certain portions of which have been
omitted as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the content of any contract or other document
are not necessarily complete, and in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
For further information regarding the Company, the Common Stock and the
Redeemable Warrants to be sold in the Offering, reference is hereby made to the
Registration Statement. A copy of the Registration Statement, including the
exhibits and schedules thereto, may be inspected by anyone without charge at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the following Regional Offices
of the Commission: New York Regional Office, 7 World Trade Center, 13th Floor,
New York, New York 10048; and Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of the Registration Statement and
the exhibits and schedules thereto can be obtained from the Public Reference
Section of the Commission upon payment of prescribed fees. In addition the
Commission maintains a Web site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the Commission. Such information can be accessed free of charge (other than
costs associated with acquiring access to the Internet) at the Commission's Web
site (http://www.sec.gov).
Prior to filing the Registration Statement of which this Prospectus is a
part, the Company was not subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act. Upon effectiveness of the Registration
Statement, the Company will become subject to the informational and periodic
reporting requirements of the Exchange Act, and in accordance therewith, will
file periodic reports, proxy statements and other information with the
Commission. Such periodic reports, proxy statements and other information will
be available for inspection and copying at the public reference facilities and
other regional officers referred to above. The Company intends to register the
Securities offered by the Registration Statement under the Exchange Act
simultaneously with the effectiveness of the Registration Statement and to
furnish its stockholders with annual reports containing audited financial
statements and quarterly reports for the first three quarters of each fiscal
year containing unaudited interim financial information.
The shares of Common Stock and the Redeemable Warrants registered in
connection with the Offering will be listed on the Nasdaq SmallCap Market.
Reports and other information required to be filed with such market may be
inspected at the offices of the Nasdaq SmallCap Market at 1735 K Street, N.W.,
Washington, D.C. 20006.
52
PERARDUA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report ...................................... F-2
Financial Statements:
Balance Sheet .................................................. F-3
Statement of Activities ........................................ F-4
Statement of Stockholders' Equity .............................. F-5
Statement of Cash Flows ........................................ F-6
Notes to Financial Statements .................................. F-7
</TABLE>
F-1
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
PERARDUA CORPORATION
Petersburg, Virginia
We have audited the accompanying balance sheet of PerArdua Corporation (a
development stage company) as of November 30, 1996, and the related statements
of activities, stockholders equity, and cash flows for the period from July 5,
1996, date of inception, to November 30, 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 audit.
We conducted our audit 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 audit provides 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 PerArdua Corporation as of
November 30, 1996, and the results of its activities and its cash flows for the
period from July 5, 1996, date of inception, to November 30, 1996 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered losses from its development stage
activities; the Company's operations will consist primarily of research and
development activities over the next several years; and the Company does not
expect operating profits or significant cash flows from operating activities
during that period. This raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
MCGLADREY & PULLEN, LLP
Richmond, Virginia
January 24, 1997, except
for Note 6 as to which
the date is April 9, 1997
F-2
PERARDUA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28,
1996 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 495,421 $ 213,029
Prepaid expenses 106,459
Deferred offering costs 29,718 171,106
----------- -----------
Total current assets 525,139 490,594
Equipment 5,875
Organization costs, net of amortization 6,866 6,156
----------- -----------
$ 532,005 $ 502,625
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 20,036 $ 57,231
Accrued expenses 1,482 2,001
----------- -----------
Total current liabilities 21,518 59,232
----------- -----------
Stockholders' Equity:
Preferred Stock, par value $.01 per share, 1,000,000 shares
authorized, none issued
Common Stock, par value $.01 per share, 25,000,000
authorized 2,593,440 issued and outstanding at
November 30, 1996 (2,643,440 at February 28, 1997) 25,934 26,434
Additional paid-in capital 2,609,739 2,644,743
Deficit accumulated during the development stage (2,090,690) (2,227,784)
Subscription receivable (34,496)
----------- -----------
Total stockholders' equity 510,487 443,393
----------- -----------
$ 532,005 $ 502,625
=========== ===========
</TABLE>
See Notes to Financial Statements.
F-3
PERARDUA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF ACTIVITIES
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JULY 5, 1996, DATE THREE MONTHS JULY 5, 1996, DATE
OF INCEPTION, TO ENDED OF INCEPTION, TO
NOVEMBER 30, 1996 FEBRUARY 28, 1997 FEBRUARY 28, 1997
----------------- ----------------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Interest income $ 1,858 $ 2,475 $ 4,333
------------ ---------- -----------
Expense:
Research and development 2,058,980 73,249 2,132,229
General and administrative 33,568 66,320 99,888
------------ ---------- -----------
2,092,548 139,569 2,232,117
------------ ---------- -----------
Net loss $ (2,090,690) $ (137,094) $(2,227,784)
============ ========== ===========
Net loss per common share $ (.81) $ (0.05) $ (0.86)
============ ========== ===========
Weighted average common shares 2,593,440 2,593,996 2,593,668
============ ========== ===========
</TABLE>
See Notes to Financial Statements.
F-4
PERARDUA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(DEFICIT)
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE STOCK
------------ PAID-IN DEVELOPMENT SUBSCRIPTION
SHARES AMOUNT CAPITAL STAGE RECEIVABLE TOTAL
------ ------ ------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Stock issued at inception
retroactively restated to
reflect 41 2/3 to 1 stock
split declared on July 5,
1996 1,000,000 $ 10,000 $ 90,200 $ $ $ 100,200
Issuance (valued at $1.60
per share) for cash and
acquisition of technology 950,000 9,500 1,510,500 1,520,000
Issuance (at $1.60 per share)
for cash, net of issuance
costs of $48,527 643,440 6,434 1,009,039 (34,496) 980,977
Net loss (2,090,690) (2,090,690)
--------- ------- ---------- ----------- --------- -----------
Balance, November 30, 1996 2,593,440 $25,934 $2,609,739 $(2,090,690) $ (34,496) $ 510,487
(Unaudited)
Issuance (at $1.60 per
share) for cash, net
of costs of $10,000 50,000 500 35,004 34,496 70,000
Net loss (137,094) (137,094)
--------- ------- ---------- ----------- --------- ----------
Balance, February 28, 1997 2,643,440 $26,434 $2,644,743 $(2,227,784) $ 0 $ 443,393
========= ======= ========== =========== ========= ==========
</TABLE>
See Notes to Financial Statements.
F-5
PERARDUA CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
JULY 5, 1996, DATE THREE MONTHS JULY 5, 1996, DATE
OF INCEPTION, TO ENDED OF INCEPTION, TO
NOVEMBER 30, 1996 FEBRUARY 28, 1997 FEBRUARY 28, 1997
----------------- ----------------- -----------------
(UNAUDITED)
<S> <C> <C> <C>
Development stage activities:
Net loss $(2,090,690) $(137,094) $(2,227,784)
Adjustments to reconcile net loss to net cash used in
development stage activities:
Amortization 237 710 947
Charges to expense for value of stock issued for
technology 1,519,050 1,519,050
Change in operating assets and liabilities:
Increase in prepaid expenses (106,459) (106,459)
Increase (decrease) in accounts payable and
accrued expenses 21,518 (19,517) 2,001
Net cash used in development stage activities (549,885) (262,360) (812,245)
----------- --------- -----------
Investing activities:
Equipment purchases (5,875) (5,875)
Organization costs (7,103) (7,103)
----------- --------- -----------
Net cash used in investing activities (7,103) (5,875) (12,978)
----------- --------- -----------
Financing activities:
Proceeds from issuance of common stock 1,130,654 80,000 1,210,654
Offering costs (78,245) (94,157) (172,402)
----------- --------- -----------
Net cash provided by financing activities 1,052,409 (14,157) 1,038,250
----------- --------- -----------
Net increase (decrease) in cash 495,421 (282,392) 213,029
Cash, beginning of period 495,421
----------- --------- -----------
Cash, end of period $ 495,421 $ 213,029 $ 213,029
=========== ========= ==========
</TABLE>
See Notes to Financial Statements.
F-6
PERARDUA CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business: PerArdua Corporation (the Company) was incorporated in
1988. The Company was a "shell" corporation, i.e. without assets or liabilities,
until July 1996, when the Company acquired from PerArdua Investors, L.P. (the
Limited Partnership) a license to certain patent rights to a drug called
"Thiovir". The Company's operations will focus on the development and United
States Food and Drug Administration (FDA) approval of Thiovir for treatment of
HIV/AIDS patients and patients showing active infection of the opportunistic
virus cytomegalovirus (CMV) and, ultimately, commercial sale of the product.
The Company is in the development stage. Its major activities through
November 30, 1996 have been limited to acquiring a licensing agreement and
conducting research and development related to its proposed product and to
obtaining equity capital. These activities have not generated any recurring
revenues; accordingly, the accompanying financial statements include the
disclosures required by Statement of Financial Accounting Standard No. 7,
"Accounting and Reporting by Development Stage Enterprises".
Accounting Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents: Cash and cash equivalents includes all cash
balances and highly liquid investments with a purchased maturity of three months
or less. The Company places its temporary cash investments with high credit
quality financial institutions. At November 30, 1996, the Company had cash
balances in excess of insured limits.
Research and Development: Research and development costs are expensed
as incurred.
Income Taxes: The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standard No. 109, "Accounting
for Income Taxes," which utilizes an asset and liability approach to financial
accounting and reporting for income taxes. Deferred tax assets are recognized
for deductible temporary differences and operating loss and tax credit carry
forwards; deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between reported amounts
of assets and liabilities and their tax bases. Deferred income tax assets and
liabilities that will result in taxable or deductible amounts in the future are
based on enacted laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. The income tax provision or credit is the tax payable or
refundable for the period plus or minus the change during the period in deferred
tax assets and liabilities.
Net Loss Per Common Share: Net loss per common share is computed based upon
the weighted average number of common shares outstanding during the year. As
further explained in Note 3, the Company is in the process of preparing its
initial public offering (IPO) of common stock and warrants. In accordance with
Securities and Exchange Commission Staff Accounting Bulletin Topic 4D, the
weighted average number of common shares outstanding includes for the entire
year, all common shares issued below the anticipated IPO price per share.
Deferred Offering Costs: Costs incurred in connection with the proposed IPO
have been deferred as of November 30, 1996. If the IPO is completed, the
deferred offering costs will be deducted from the proceeds and charged against
additional paid-in capital. If the IPO is not completed, such costs will be
charged to operations.
F-7
PERARDUA CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
(CONTINUED)
Interim Financial Information: The balance sheet as of February 28, 1997 and
the related statements of activities, stockholders' equity, and cash flows for
the three months then ended and the cumulative amounts from inception to
February 28, 1997 have been prepared by the Company, without audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position at February 28,
1997 and the results of activities and cash flows for the interim periods
presented have been made. The statement of activities for the three months ended
February 28, 1997 is not necessarily indicative of the results to be expected
for the full year.
NOTE 2. GOING CONCERN CONSIDERATIONS AND BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles which contemplate the continuation of
the Company as a going concern. However, during the period from July 5, 1996,
date of inception, to November 30, 1996, the Company incurred a loss of
$2,090,690. Such loss was funded through proceeds received from issuance of
common stock. Management believes that the Company's operations will consist
primarily of research and development activities over the next several years,
and therefore, it does not expect the Company to generate operating profits or
significant cash flows from operating activities during that period. To obtain
the additional funds it needs to continue its research activities at planned
levels during the fiscal year ending November 30, 1997, management believes that
the Company will need substantial funds from debt obligations or equity
financing, such as its proposed IPO. Management cannot provide any assurances
that the Company will be able to obtain such financing. These conditions raise
substantial doubts about the Company's ability to continue as a going concern.
The accompanying financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the amounts
and classifications of liabilities that might be necessary should the Company be
unable to continue as a going concern.
NOTE 3. PROPOSED IPO
On October 24, 1996, the Company and an investment banking firm signed a
letter of intent whereby the investment banking firm agreed to underwrite the
Company's IPO, which is expected to consist of 1,000,000 shares of common stock
at $5.00 per share. Additionally, the letter of intent calls for issuance of
1,000,000 redeemable warrants at a price of $.10 each with an exercise price of
$6.50 per share of common stock for a period of 60 months commencing thirteen
(13) months from the effective date. The warrants will be redeemable by the
Company commencing thirteen (13) months from the effective date at $.20 per
warrant, provided that the average closing bid price of the common stock equals
or exceeds $9.00 per share for 20 consecutive trading days.
The letter of intent includes an over-allotment option which would allow for
the Underwriter to purchase securities, up to an additional 15% of the offering,
for a period of forty-five (45) days following the effective date solely for the
purpose of covering any short position in the offering. The Company has also
agreed to sell the underwriter, for nominal consideration, five (5) year
warrants to purchase ten percent (10%) of the number of securities being
underwritten. These warrants will be exercisable any time during a period of
four (4) years commencing one year from the effective date of the final
prospectus at a price equaling 160% of the IPO price.
NOTE 4. STOCKHOLDERS' EQUITY
On July 5, 1996, the Board of Directors and stockholders approved amendments
to the Company's Articles of Incorporation that (i) changed the name of the
Company from Home Test Inc. to PerArdua Corporation; (ii) converted the no par
common stock to common stock with a par value of $0.001 per
F-8
PERARDUA CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE 4. STOCKHOLDERS' EQUITY -- (CONTINUED)
share; (iii) increased the total number of authorized common shares from 30,000
to 10,000,000; and (iv) ordered that each share of Home Test Inc. no par common
stock be exchanged for 41 2/3 shares of PerArdua Corporation common stock, par
value of $0.001 per share.
Effective January 1997, the Company was merged with and into its
wholly-owned subsidiary PerArdua Corporation, a Delaware corporation. The sole
purpose of the merger was to change the Company's jurisdiction of incorporation
from Missouri to Delaware. As a result of the merger, the surviving Delaware
corporation assumed all of the assets and liabilities of the Company, and
holders of shares of common stock in the Missouri corporation became holders of
the same number of shares of common stock in the Delaware corporation; the par
value of common stock was changed from $.001 per share to $.01 per share; common
stock authorization was increased to 25,000,000 shares and 1,000,000 shares of
$.01 par value Preferred Stock were authorized for future issuance.
The changes in the par value of the common stock and the stock split have
been retroactively reflected in the accompanying financial statements and these
notes for the period from inception.
On August 20, 1996, the Company issued 500,000 warrants for the purchase of
the Company's common stock. The warrants grant the holders the right to purchase
additional shares of common stock at an exercise price of $10.00 per share. The
warrants can be exercised in whole or in part, from time to time, following FDA
approval, with a final expiration date of June 30, 2006.
On October 4, 1996, pursuant to a Private Placement Memorandum, dated August
20, 1996, the Company completed an offering of 665,000 shares of its common
stock at $1.60 per share. Net proceeds to the Company were $1,015,473, after
related expenses of $48,527.
During the private placement offering the Company accepted a subscription
from an investor for 21,560 shares of common stock. The total consideration for
this subscription was $34,496 and has been recognized as an increase to
additional paid in Capital.
On August 20, 1996 the Board of Directors approved the sale of 950,000
shares of common stock and warrants to purchase an additional 200,000 shares of
common stock. As more fully discussed in Note 5 below, the shares were valued at
$1.60 per share, although the Company only received cash consideration of $.001
per share ($950). The warrants grant the holders the right to purchase
additional shares of common stock at an exercise price of $10.00 per share. The
warrants can be exercised in whole or in part, from time to time, following FDA
approval, with a final expiration date of June 30, 2006.
The Board of Directors and the stockholders of the Company approved a stock
incentive plan (the Incentive Plan) during 1996. The plan provides for grants of
incentive stock options or stock appreciation rights only to the Company's
employees and nonqualified stock options and stock appreciation rights to the
Company's employees, directors, members of the advisory board, independent
contractors or consultants of the Company. The Company has reserved 500,000
shares of common stock for issuance under the Plan. The purchase price for each
share to be awarded or sold and the exercise price and the term for each option
or stock appreciation right to be granted under the Incentive Plan will be
determined by the Board of Directors or its Compensation Committee.
On August 20, 1996 the Board of Directors granted an officer of the Company
an option under the Incentive Plan to purchase 10,000 shares of common stock at
an exercise price of $7.50 per share. The option will vest one year after the
date employment commences and will remain in effect for a period of five years
unless employment is terminated earlier.
F-9
PERARDUA CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE 5. OPTION AND LICENSE AGREEMENT
Pursuant to an agreement, dated July 8, 1996 (the Acquisition Agreement),
the Company acquired certain rights from the Limited Partnership. The rights
acquired consist of an exclusive license to certain patent and other
intellectual property rights related to the drug, Thiovir.
The Limited Partnership's sole activity was to receive capital contributions
and fund research and development of Thiovir from 1994 to 1996, without
receiving any revenue. Expenditures incurred by the partnership were as follows:
<TABLE>
<CAPTION>
RESEARCH AND
DEVELOPMENT OTHER TOTAL
----------- ----- -----
<S> <C> <C> <C>
1994 ...................................... $164,000 $12,000 $176,000
1995 ...................................... 71,000 15,000 86,000
1996 ...................................... 53,000 42,000 95,000
-------- ------- ---------
$288,000 $69,000 $357,000
======== ======= ========
</TABLE>
The license rights are pursuant to a license agreement between the Limited
Partnership and the University of Southern California (USC) (the USC License
Agreement), the rights and obligations of which were transferred by the Limited
Partnership to the Company through an Assignment, Assumption and Consent
Agreement among the Company, the Limited Partnership and USC. The USC License
Agreement contains an exclusive worldwide license to practice the inventions set
forth in any relevant patents and patent applications of USC related to Thiovir.
In return, the Limited Partnership funded development of Thiovir through
research grants to USC. Funding of the research is now the responsibility of the
Company. Subsequent to November 30, 1996, the Company signed an agreement with
USC providing for $ 176,000 of research funding for the project. The research
period will be effective through September 30, 1997, at which time USC can
request an eight month extension period at no additional cost to the Company.
Consideration paid by the Company to the Limited Partnership under the
Acquisition Agreement consisted of $540,000 cash, which included $100,000 of
cash received from the initial stockholders and $440,000 paid out of the net
proceeds of the private offering (see Note 4). Additionally, the limited
partners, together with USC and three individuals who have been actively
involved in the development of Thiovir, were extended the right, which was
exercised, to acquire 950,000 shares of the Company's common stock for $950
($.001 per share) along with warrants to purchase 200,000 additional shares at
$10.00 per share through June 30, 2006. These warrants will only become
exercisable upon FDA approval of Thiovir. The 950,000 shares issued for $950
were valued at $1.60 per share as determined by the per share amount received in
the private offering completed several months after the completion of the
transactions contemplated by the Acquisition Agreement.
Charges resulting from cash paid ($540,000) and shares issued ($1,519,000)
under the Acquisition Agreement were recorded as research and development
expense since Thiovir is still in an early stage of development. The drug has
undergone certain laboratory and animal studies, but must still undergo
successful further studies, as well as in human clinical trials, all pursuant to
protocols yet to be approved by the FDA, in order to be commercially marketable.
The Acquisition Agreement also contains a provision whereby the purchase
price shall be adjusted upward in the event that the Company should sell all or
any portion of its rights in Thiovir in consideration of $5,000,000 or more
prior to the filing of a registration statement for its IPO. In that event, the
purchase price payable to the Limited Partnership by the Company shall be equal
to 49% of the sales proceeds.
F-10
PERARDUA CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - (Continued)
NOTE 5. OPTION AND LICENSE AGREEMENT -- (CONTINUED)
Pursuant to the USC License Agreement (and subsequent Assignment, Assumption
and Consent Agreement), the Company will be obligated to pay royalties to USC in
conjunction with future sales and to reimburse USC for legal expenses that may
be incurred in connection with patent prosecution and defense. Royalties are
payable equal to 1% of sales of the products and 50% of any royalties earned
from sublicensees. Minimum annual royalties are payable starting at $12,500 in
1998, increasing to $125,000 in 2001 and each year thereafter.
NOTE 6. EMPLOYMENT AND CONSULTING AGREEMENTS
On August 20, 1996 the Company's Board of Directors approved and entered
into a Consulting Agreement with one of its stockholders for research and
development activities. The agreement's term is to be for the period from
October 1, 1996 until September 30, 1999 and requires retainers of $5,000 for
the period October 1, 1996 through March 31, 1997, $5,000 for the period April
1, 1997 through September 30, 1997, $12,500 for the period October 1, 1997
through September 30, 1998, and $15,000 for the period October 1, 1998 through
September 30, 1999 and a per diem of $1,000 for each full day and $600 for each
half day of consulting services provided to the Company.
On February 12, 1997, the Company entered into an employment agreement with
an individual who will serve as the Company's President and Chief Operating
Officer. The agreement expires on February 29, 2000, unless earlier terminated
in accordance with the terms thereof,and provides for a salary of $10,000 per
month. In addition, upon completion of the Proposed IPO, the Company is to grant
the President options to purchase 100,000 shares of the Company's Common Stock
pursuant to the Incentive Plan. The options will vest over a two year period and
will have an exercise price to be determined, but in no case less, than $5.00
per share.
The Company has also entered into an employment agreement with a stockholder
which provides for monthly compensation of $7,000. This agreement expires on
February 29, 2000, unless earlier terminated in accordance with the terms
thereof. In addition, upon completion of the Proposed IPO, the Company is to
grant the stockholder options to purchase 100,000 shares of the Company's Common
Stock pursuant to the Incentive Plan. The options will vest over a three year
period and will have an exercise price to be determined, but in no case less
than $5.00 per share.
NOTE 7. INCOME TAXES
At November 30, 1996, the Company had net operating loss (NOL) carryforwards
available to reduce future taxable income, if any, of approximately $37,710 for
federal and state income tax reporting purposes that expire in 2011. The
Company's ability to utilize the NOL will also be subject to annual limits
established by Internal Revenue Code Section 382.
The net operating loss carryforward and a temporary difference of $540,000 for
rights acquired under the Acquisition Agreement (see Note 5) could have resulted
in the recognition of deferred tax assets of approximately $217,000 at November
30, 1996. However, due to the uncertainties inherent in the Company's
operations, the deferred tax assets and the related tax benefits have been
offset by a valuation allowance in the same amount and accordingly, have not
been reflected in the accompanying financial statements.
Research and development expense of $1,519,000, represented by the value of
common stock issued under the Acquisition Agreement, is not deductible for
income tax purposes.
F-11
================================================================================
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MAKE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary 3
Risk Factors 6
Special Note Regarding Forward
Looking Statements 17
Use of Proceeds 18
Dividend Policy 18
Dilution 19
Capitalization 20
Selected Financial Data 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 22
Business 24
Management 34
Principal Stockholders 40
Certain Relationships and Related
Transactions 42
Description of Securities 44
Underwriting 49
Shares Eligible for Future Sale 51
Legal Matters 52
Experts 52
Additional Information 52
</TABLE>
UNTIL ________ , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THE DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
PERARDUA CORPORATION
1,000,000 SHARES OF COMMON STOCK
1,000,000 REDEEMABLE WARRANTS
----------
PROSPECTUS
----------
SCHNEIDER SECURITIES, INC.
, 1997
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the Delaware General Corporation Law enables a
corporation in its original certificate of incorporation or an amendment thereto
validly approved by the corporation's stockholders to eliminate or limit
personal liability of members of its Board for violations of a director's
fiduciary duty of care. However, the elimination of limitation shall not apply
where there has been a breach of the duty of loyalty, failure to act in good
faith, engaging in intentional misconduct or knowingly violating a law, paying a
dividend or obtaining an improper personal benefit.
In addition, Section 145 of the Delaware General Corporation Law permits a
corporation organized under Delaware law to indemnify directors and officers
with respect to any matter in which the director or officer acted in good faith
and in a manner he or she reasonably believed to be not opposed to the best
interests of the Company, and, with respect to any criminal action, he or she
had reasonable cause to believe his or her conduct was not lawful.
Article VII, Section 2 of the Company's Certificate of Incorporation
provides as follows:
Subject to the operation of Section 4 of this Article VII, each [officer
and director of the Company) shall be indemnified and held harmless by the
[Company) to the fullest extent authorized by the General Corporation Law of
the State of Delaware, as the same exists or may hereafter be amended (but
in the case of such amendment, only to the extent that such amendment
permits the [Company) to provide broader indemnification rights than such
law permitted the [Company) to provide prior to such amendment) against any
and all [e)xpenses, judgments, penalties, fines and amounts reasonably paid
in settlement that are incurred by such [officer or director) or on such
[officer's or director's) behalf in connection with any threatened, pending
or completed [p)roceeding or any claim, issue or matter therein, which such
[officer or director) is, or is threatened to be made, a party to or
participant in by reason of such [officer's or director's) [c)orporate
[s)tatus, if such [officer or director) acted in good faith and in a manner
such [officer or director) reasonably believed to be in or not opposed to
the best interests of the [Company) and, with respect to any criminal
proceeding, has no reasonable cause to believe his or her conduct was
unlawful. The rights of indemnification provided by this Section 2 shall
continue as to an [officer or director) after he or she has ceased to be an
[officer or director) and shall inure to the benefit of his or her heirs,
executors, administrators and personal representatives. Notwithstanding the
foregoing, the [Company) shall indemnify any [officer or director) seeking
indemnification in connection with a [p)roceeding initiated by such [officer
or director) only if such [p)roceeding was authorized by the Board of
Directors of the [Company).
In addition, Article VII, Section 4 of the Company's Certificate of
Incorporation provides as follows:
Unless ordered by a court, no indemnification shall be provided pursuant
to this Article VII to an [o)fficer . . . unless a determination shall have
been made that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
[Company) and, with respect to any criminal [p)roceeding, such person had no
reasonable cause to believe his or her conduct was unlawful. Such
determination shall be made by (a) a majority vote of the [d)isinterested
[d)irectors, even though less than a quorum of the Board . . . (b) if there
are no such [d)isinterested [d)irectors, or if a majority of [d)isinterested
[d)irectors so direct by independent legal counsel in a written opinion, or
(c) by the stockholders of the [Company).
The Company's Certificate of Incorporation provides for payment of
indemnifiable expenses in advance of the final disposition of an action,
suit or proceeding upon receipt of an undertaking of the indemnified person
to repay such amount if it shall ultimately be determined that he or she is
II-1
not entitled to be indemnified by the Company, and further provides that the
Board of Directors may, in its discretion, provide indemnification to
non-officer employees.
The Company intends to enter into indemnification agreements (Exhibit
10.8 hereto) with each of its directors which attempt to provide the maximum
protection permitted by Delaware law, as it may be amended from time to
time. Under such additional indemnification provisions, however, an
individual will not receive indemnification for judgments, settlements or
expenses if he or she is found liable to the Company (except to the extent
the court determines he or she is fairly and reasonably entitled to
indemnity for expenses), for settlements not approved by the Company or for
settlements and expenses if the settlement is not approved by the court. In
the event the Company does not pay a requested indemnification amount, the
indemnification agreements will allow the indemnified party to contest this
determination by bringing an action against the Company to recover the
unpaid amount and costs and expenses. In the event indemnification is
unavailable and the Company is found jointly liable with the indemnified
party, the indemnification agreements will enable the indemnified party to
require the Company to contribute to the payment of damages and expenses,
based on the relative benefit to and fault of the indemnified party and the
Company. The Company also intends to purchase directors' and officers'
liability insurance.
The Underwriting Agreement (Exhibit 1.1 hereto) contains provisions by
which the Underwriters have agreed to indemnify the Company, each person, if
any, who controls the Company within the meaning of Section 15 of the
Securities Act, each director of the Company, and each officer of the
Company who signs this Registration Statement, with respect to liabilities
arising from information furnished in writing by or on behalf of the
Underwriters for use in the Registration Statement.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a list of the estimated expenses to be incurred by the Company
in connection with the issuance and distribution of the shares of Common Stock
being registered, other than the underwriting discount and commissions. All of
the following expenses will be paid by the Company.
<TABLE>
<CAPTION>
<S> <C>
Commission Filing Fee $ 4,600.00
Nasdaq SmallCap Fee 5,000.00
NASD Filing Fee 2,000.00
Blue Sky Fees and Expenses 15,000.00
Non-Accountable Expense Allowance to the Representative 153,000.00
Printing and Engraving Expenses 40,000.00
Accounting Fees and Expenses 25,000.00
Legal Fees and Expenses 85,000.00
Transfer Agent and Registrar Fees 5,000.00
Consulting Fees 108,000.00
Miscellaneous Fees and Expenses 7,400.00
-----------
TOTAL (Estimated) $450,000.00
===========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since February , 1994, the Company has sold and issued the following
unregistered securities:
On August 12, 1996, the Company issued warrants to purchase an aggregate of
150,000 shares of Common Stock at $10.00 per share to The Starwood Trust for no
consideration.
On August 12, 1996, the Company issued warrants to purchase an aggregate of
150,000 shares of Common Stock at $10.00 per share to Francis E. O'Donnell, Jr.
for no consideration.
On August 12, 1996, the Company issued warrants to purchase an aggregate of
200,000 shares of Common Stock at $10.00 per share to Thomas L. DePetrillo for
no consideration.
II-3
On August 16, 1996, the Company, in connection with the acquisition of a
license of certain rights to Thiovir, issued an aggregate of 200,000 warrants
and 200,000 shares of Common Stock to 16 investors for a total aggregate cash
consideration of $200.00. Fifteen of the investors were limited partners in the
limited partnership which transferred the license; the other investor was the
University of Southern California, the licensor under the license.
On August 16, 1996, the Company issued 320,000 shares of Common Stock to
Charles E. McKenna, Ph.D. for $320.00.
On August 16, 1996, the Company issued 110,000 shares of Common Stock to
Mary Anthony Gray for $110.00.
On August 16, 1996, the Company issued 320,000 shares of Common Stock to
Thomas D. Wolfe for $320.00.
On September 8, 1996, the Company issued options to purchase 10,000 shares
of Common Stock at an exercise price of $7.50 per share to Mary Anthony Gray
pursuant to the Company's Stock Incentive Plan.
On October 4, 1996, the Company issued an aggregate of 643,440 shares of
Common Stock to investors for a total, aggregate purchase price of $1,029,504.
On January 9, 1997, the Company issued 21,560 shares of Common Stock to a
single investor for $34,496.
On March 1, 1997, the Company issued 28,440 shares of Common Stock to a
single investor for $45,504.
The sales and issuance of the securities in the above transactions were
deemed to be exempt under the Securities Act by virtue of Sections 3(b) and/or
4(2) thereof and/or Regulation D promulgated thereunder as transactions not
involving any public offering. The purchasers in each case represented their
intention to acquire the securities for investment only and not with a view to
the distribution thereof. Appropriate legends were affixed to the certificates
issued in such transactions.
Shortly after the completion of the Offering, the Company also intends to
issue options to purchase an aggregate of 230,000 shares of Common Stock to two
Officers and three of the Company's outside directors pursuant to the Incentive
Plan at an exercise price to be determined, but not less than $5.00 per share.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
1.1 -- Form of Underwriting Agreement*
1.2 -- Form of Selected Dealers Agreement*
1.3 -- Form of Agreement Among Underwriters*
2.1 -- Option and Asset Purchase Agreement, dated July 8, 1996, by and between PerArdua
Investors, L.P. and the Company**
3.1 -- Certificate of Incorporation of Registrant*
3.2 -- Bylaws of Registrant*
4.1 -- Form of Common Stock Certificate**
4.2 -- Form of Stock Purchase Warrant*
4.3 -- Form of Private Placement Subscription Agreement*
4.4 -- Form of Acquisition Transaction Subscription Agreement**
4.5 -- Form of Representative's Warrants*
4.6 -- Form of Warrant Agreement (including form of Redeemable Warrant Certificate)**
II-3
5.1 -- Form of Opinion of LeClair Ryan, A Professional Corporation**
10.1 -- Option & License Agreement, dated March 28, 1994, by and between PerArdua Investors,
L.P. and the University of Southern California**
10.2 -- Stockholders' Agreement, dated July 8, 1996, by and between the Company, the
stockholders of the Company, and the limited partners of PerArdua Investors, L.P.**
10.3 -- Research Agreement, dated January 7, 1997, by and between the University of Southern
California and the Company*
10.4 -- Consulting Agreement, dated September 30, 1996, by and between the Company and
Charles E. McKenna, Ph.D.*
10.5 -- Assignment, Assumption and Consent, dated as of July 31, 1996, by and between
PerArdua Investors, L.P., the Company and the University of Southern California*
10.6 -- Form of Consulting Agreement by and between the Company and Schneider Securities,
Inc.*
10.7 -- Employment Agreement, dated as of September 3, 1996 by and between the Company
and Mary Anthony Gray, as amended**
10.8 -- Form of Indemnification Agreement**
10.9 -- Employment Agreement, dated February 12, 1997, by and between the Company and
Nicholas Jon Virca**
10.10 -- PerArdua Corporation Stock Incentive Plan**
23.1 -- Consent of McGladrey & Pullen, LLP**
23.2 -- Consent of LeClair Ryan, A Professional Corporation (included in Exhibit 5.1 hereto)**
24.1 -- Power of Attorney (see Page II-5)*
27.1 -- Financial Data Schedule**
</TABLE>
* Previously filed.
** Filed herewith.
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) Include any additional or changed material information on the plan
of distribution.
Provided, however, that paragraphs 1(i) and 1(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
II-4
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment of
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer 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 registrant hereby undertakes that:
(1) For the purpose 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 is 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.
The undersigned small business issuer 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.
II-5
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS OF FILING ON FORM SB-2 AND AUTHORIZED THIS AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE IN
THE CITY OF RICHMOND, COMMONWEALTH OF VIRGINIA, ON APRIL 23, 1997.
PERARDUA CORPORATION
By: /s/ NICHOLAS JON VIRCA
----------------------------------
NICHOLAS JON VIRCA
PRESIDENT AND CHIEF OPERATING
OFFICER
PURSUANT TO THE REQUIREMENT OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED:
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
*
------------------------------------- Chairman of the Board and April 23, 1997
FRANCIS E. O'DONNELL, JR., M.D., Chief Executive Officer
(Principal Executive
Officer) and Director
- -------------------------------------- Treasurer (Principal Financial April 23, 1997
SAMUEL P. SEARS, JR. Officer), Secretary and
Director
*
- -------------------------------------- Director April 23, 1997
EMANUELA I. CHARLTON, PH.D.
*
- -------------------------------------- Director April 23, 1997
THOMAS QUINN
*
- -------------------------------------- Director April 23, 1997
W. HOWARD LEWIN, M.D.
*/s/ SAMUEL P. SEARS, JR.
- --------------------------------------
ATTORNEY-IN-FACT
</TABLE>
II-6
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
1.1 -- Form of Underwriting Agreement*
1.2 -- Form of Selected Dealers Agreement*
1.3 -- Form of Agreement Among Underwriters*
2.1 -- Option and Asset Purchase Agreement, dated July 8, 1996, by and between PerArdua
Investors, L.P. and the Company**
3.1 -- Certificate of Incorporation of Registrant*
3.2 -- Bylaws of Registrant*
4.1 -- Form of Common Stock Certificate**
4.2 -- Form of Stock Purchase Warrant*
4.3 -- Form of Private Placement Subscription Agreement*
4.4 -- Form of Acquisition Transaction Subscription Agreement**
4.5 -- Form of Representative's Warrants*
4.6 -- Form of Warrant Agreement (including form of Redeemable Warrant Certificate)**
5.1 -- Form of Opinion of LeClair Ryan, A Professional Corporation**
10.1 -- Option & License Agreement, dated March 28, 1994, by and between PerArdua Investors,
L.P. and the University of Southern California**
10.2 -- Stockholders' Agreement, dated July 8, 1996, by and between the Company, the
stockholders of the Company, and the limited partners of PerArdua Investors, L.P.**
10.3 -- Research Agreement, dated January 7, 1997, by and between the University of Southern
California and the Company*
10.4 -- Consulting Agreement, dated September 30, 1996, by and between the Company and
Charles E. McKenna, Ph.D.*
10.5 -- Assignment, Assumption and Consent, dated as of July 31, 1996, by and between
PerArdua Investors, L.P., the Company and the University of Southern California*
10.6 -- Form of Consulting Agreement by and between the Company and Schneider Securities,
Inc.*
10.7 -- Employment Agreement, dated as of September 3, 1996 by and between the Company
and Mary Anthony Gray, as amended**
10.8 -- Form of Indemnification Agreement**
10.9 -- Employment Agreement, dated February 12, 1997, by and between the Company and
Nicholas Jon Virca**
10.10 -- PerArdua Corporation Stock Incentive Plan**
23.1 -- Consent of McGladrey & Pullen, LLP**
23.2 -- Consent of LeClair Ryan, A Professional Corporation (included in Exhibit 5.1 hereto)**
24.1 -- Power of Attorney (see Page II-5)*
27.1 -- Financial Data Schedule**
</TABLE>
* Previously filed.
** Filed herewith.
OPTION AND ASSET PURCHASE AGREEMENT
This Option and Asset Purchase Agreement (the "Agreement") is made as of
this 8th day of July 1996, by and between PerArdua Corporation, a corporation
organized under the laws of the State of Missouri (hereinafter "Buyer") and
PerArdua Investors, L.P., a limited partnership organized under the laws of the
State of California (hereinafter "Seller").
This Agreement is made with respect to the following facts and
circumstances.
A. Seller possesses a certain exclusive license to manufacture and market
products related to a pharmaceutical drug called Thiofoscarnet or Thiovir, as
more particularly described in that certain Option & License Agreement between
the University of Southern California ("USC") and Seller effective as of March
28, 1994, a copy of which, as amended, is attached hereto as Exhibit A (as
amended, the "License Agreement");
B. Buyer desires to grant Seller an option to purchase the foregoing
assets; and
C. Seller and Buyer have agreed upon the terms and conditions of such
option and the exercise thereof.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged , Seller and Buyer agree as
follows:
1. DEFINITIONS.
The terms below shall, for the purpose of this Agreement, have the
following meanings:
(a) "Agreement" shall mean this Option and Asset Purchase Agreement.
(b) "Assets" shall mean (1) any and all license and option rights of Seller
described in the License Agreement; (2) the rights to the use of the name
"PerArdua" or any variation thereof to the extent Seller possesses such rights
as of the date of this Agreement (the "Corporate Name"); (3) all of Seller's
right, title and interest to any and all trade secrets, technical information,
test data, clinical trial data, products, inventions, product design
information, copyrights, trademarks and any other intellectual property relating
in any way to TPFA, or any other anti-viral drug, and any and all physical
properties, including without limitation written documents, print-outs, notes,
tapes, films, blueprints, drawings, sketches, diskettes,
floppy disks, or the like, which embody any of the foregoing described
intellectual property to the extent Seller possesses such rights as of the date
of this Agreement; and (4) all of Sellers right, title and interest in and
under those certain Research Agreements listed on Appendix B of the License
Agreement.
(c) "Assumable Liabilities" means those current liabilities
of Seller, which shall be assumed by Buyer to the extent provided in this
Agreement and which are more particularly described on Exhibit B attached
hereto.
(d) "Closing" shall mean delivery by Buyer and Seller of
those items specified in Sections 7.2 and 7.3 hereof, which closing shall take
place by delivery of signed documents by each party and delivery by Buyer of a
certified check on the Closing Date in the offices of Greene, Radovsky, Maloney
& Share LLP ("GRM&S"), Spear Street Tower, Suite 4200, San Francisco,
California.
(e) "Closing Date" shall mean the date which is five (5)
business days following the date on which the Option Exercise Notice is
delivered to the Company.
(f) "Corporate Name" shall have the meaning set forth in
Section l(b) of this Agreement.
(g) "Notice of USC Consent" shall mean the notice delivered
by Seller to Buyer notifying Buyer that USC has consented to the assignment of
the License Agreement.
(h) "Option" shall mean the option described in Section 2 of
this Agreement.
(i) "Option Exercise Notice" shall mean the notice of option
exercise delivered by Buyer to Seller notifying Seller of Buyer's exercise
of the option.
(j) "Option Exercise Period" shall mean the period commencing
the date hereof and ending at 5:00 p.m. local time on September 15, 1996.
(k) "Option Premium" shall mean One Hundred Thousand Dollars
($100,000) cash, which Option Premium shall be payable as provided in Section
2.2 hereof.
(l) "Purchase Price" shall be Three Hundred Fifty Thousand
Dollars ($350,000) plus the amount, if any, of the Assumable Liabilities which
have been paid by Seller on or prior to the Closing Date, which Purchase Price
shall be payable as provided in Section 3.1, subject to adjustment in accordance
with Section 8 of this Agreement.
2
(m) "Stockholders' Agreement" shall mean that certain
agreement among the Buyer's stockholders, a form of which is set forth on
Exhibit C hereto.
(n) "TPFA" shall mean the drug known as Thiofoscarnet and
Thiovir.
2. OPTION.
2.1. Grant of Option. Seller hereby grants to Buyer the option to
purchase the Assets on the terms and conditions set forth in this Agreement.
2.2. Option Premium. Within three (3) business days of the date on
which Buyer receives the Notice of USC Consent, Buyer shall pay Seller the
Option Premium by certified check made payable to GRM&S as consideration for the
grant of the Option. This Option Premium shall not be applied to the Purchase
Price, and shall be retained by Seller whether or not the Option is exercised.
2.3. Exercise of Option. The Option is exercisable at any time during
the Option Exercise Period by delivery of the Option Exercise Notice. If the
Option is not exercised during the Option Exercise Period, it shall lapse and be
of no further force and effect.
2.4. Acknowledgement of Deliveries by Buyer. Seller hereby acknowledges
receipt of each of the following from the Buyer:
2.4.1. The Stockholders' Agreement duly executed by the Buyer and
by Francis E. O'Donnell, Jr., Samuel P. Sears, Jr., as Trustee for the Jonnie R.
Williams Irrevocable Trust #1, Samuel P. Sears, Jr. and Thomas DePetrillo.
2.4.2. Duly executed stock certificates and stock warrants of the
Buyer representing Buyer's Common Stock and issued in the names, and for the
amounts, set forth on Exhibit E attached hereto.
2.5. Acknowledement of Deliveries by Seller. The Buyer hereby
acknowledges receipt of each of the following from Seller:
2.5.1. Stock subscription forms duly executed by each of the
individuals and/or entities listed on Exhibit E attached hereto.
2.5.2. The Stockholders' Agreement, duly executed by each of the
individuals and/or entities set forth on Exhibit E.
3
2.5.3. The letter with respect to the Corporate Name, duly
executed by Seller and by PerArdua, Inc., as general partner of Seller in the
form attached hereto as Exhibit F.
3. PURCHASE AND SALE.
3.1. Purchase and Sale; Purchase Price. Subject to the conditions set
forth in this Agreement, upon Buyer's exercise of the Option in accordance with
this Agreement, Seller shall sell, and Buyer shall purchase, the Assets on and
as of the Closing Date in consideration of payment of the Purchase Price.
3.2. Payment Terms. The Purchase Price shall be paid to Buyer in cash
by certified check payable to GRM&S at the Closing.
4. ASSUMPTION OF OBLIGATIONS AND LIABILITIES.
4.1. Assumable Liabilities. In connection with the purchase described
in this Agreement, Buyer shall assume the balance, if any, of those Assumable
Liabilities which have not been paid prior to the Closing Date. As of the
Closing, Buyer does assume and agree to pay when due and perform those debts,
liabilities, obligations and contracts of any kind and nature as provided in the
Assignment of License Agreement set forth in Exhibit G.
4.2. Indemnity. Buyer hereby agrees to save Seller harmless from and
indemnify and defend Seller against any and all injury, loss, damage, liability
(or any claims in respect to the foregoing), costs or expenses (including,
without limitation, attorneys' fees, reasonable investigation and discovery
costs), of whatever nature, to any person or property caused or claimed to be
caused by or resulting from the violation, alleged or otherwise, of any
provision of the License Agreement which occurs or is claimed to have occurred
on or after the Closing Date.
5. WARRANTIES AND REPRESENTATIONS.
5.1. Buyer's Warranties and Representations. Buyer hereby warrants and
represents the following:
5.1.1 Organizational Power; Qualification. The Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of Missouri, has all requisite corporate power and authority to own its
properties and to carry on its business as now being and hereafter proposed to
be conducted, and is duly qualified and authorized to do business in each
jurisdiction in which Buyer is required to be so qualified. Buyer hereby
certifies that, except as provided in the preceding sentence, there is no other
jurisdiction in which the properties owned by Buyer or the business conducted
by Buyer or hereafter
4
proposed to be conducted by Buyer would make such qualification necessary.
5.1.2. Capital Structure. The authorized capital stock of the
Buyer consists solely of 10,000,000 shares of common stock, $.001 par value, of
which 1,000,000 shares are validly issued and outstanding, fully paid and
nonassessable (the "Buyer's Common Stock"). The owners of the Buyer's Common
Stock are set forth on Exhibit D attached hereto. There are no outstanding or
authorized subscriptions, warrants, options calls, rights, commitments or other
agreements or understandings of any character which obligate or may obligate
Buyer to issue any additional shares of its capital stock or any securities
convertible into or evidencing the right to subscribe for any shares of Buyer's
capital stock, except as may be set forth on said Exhibit D.
5.1.3. Authorization of Agreement. The Buyer has the right and
power and has taken all necessary action to execute, deliver and perform this
Agreement and all documents executed by Buyer in accordance with the terms of
this Agreement. This Agreement has been duly executed and delivered by a duly
authorized officer of the Buyer and is a legal, valid and binding obligation of
the Buyer, enforceable in accordance with its terms.
5.1.4. No Subsidiaries. Buyer has no interest in any subsidiary
corporations, nor is Buyer a participant in any joint venture, partnership or
similar arrangement.
5.1.5. Compliance of Agreement. The execution, delivery and
performance of this Agreement on the part of the Buyer and the consummation by
Buyer of the transactions contemplated in this Agreement in accordance with its
terms does not (a) require the consent, approval or authorization of any person
or governmental entity, (b) violate any applicable law relating to the Buyer, or
(c) conflict with, result in a breach of, or constitute a default under any
provision of the charter documents or by-laws of Buyer, or any restriction,
lien, encumbrance, indenture, contract, lease, sublease, loan agreement, note or
other obligation, agreement, instrument or liability to which Buyer is a party
or is bound or to which any of its assets are subject, or result in the creation
of any lien or encumbrance upon said assets or Buyer's Common Stock.
5.1.6. No Litigation. There is currently no claim, litigation,
proceeding or governmental investigation pending or threatened against or
relating to Buyer or the transactions contemplated by this Agreement. Buyer
shall give Seller immediate notice of any such claim, litigation proceeding or
investigation which becomes known to it on or before the Closing Date.
5
5.1.7. Tax Compliance. All United States federal, state and local
and foreign national, provincial and local and all other taxes, customs,
impositions, assessments and other charges in the nature thereof, which are due
and payable, have been paid or otherwise satisfied in full.
5.1.8. Compliance with Laws. Currently and as of the Closing
Date, Buyer is in compliance with all federal, state and local laws, ordinances,
rules and, to the best knowledge of Buyer, has not been cited for the violation
of any such law, rule, ordinance or regulation.
5.1.9. Financial Condition. As of the date hereof, but prior to
the performance of the obligations to be performed at the Closing, the Buyer's
accrued liabilities (the "Accrued Liabilities") shall not exceed Twenty
Thousand Dollars ($20,000) in the aggregate, all as more particularly shown on
the balance sheet and pro forma financial statements attached hereto as Schedule
1. As of the date hereof and the Closing Date, there are no outstanding
liabilities or other monetary obligations or other agreements or understanding
to make monetary payments, authorized or unauthorized, of any character which
relate to Buyer in any way or manner other than the Accrued Liabilities as shown
on Schedule 1.
5.1.10. Agreements. There are no outstanding agreements or
understandings, authorized or unauthorized, of any character which obligate or
may obligate Buyer in any way or manner other than those agreements listed on
Schedule 2 attached hereto and incorporated herein, a full and complete copy of
each of which has been previously delivered to Seller.
5.1.11. Brokers/Finders. No broker, finder, agent or similar
intermediary has acted on behalf of the Buyer in connection with this Agreement
or the transactions contemplated hereby, and there are no brokerage commissions,
finders fees, or similar fees or commissions in connection therewith based on
any agreement, arrangement or understanding with the Buyer or any action taken
by the Buyer.
5.1.12. Completeness of Warranties and Representations. All
representations and warranties contained in this Section 5.1 or made in writing
by Buyer in connection with the transaction herein provided for shall be true
and correct on the date hereof, and on the Closing Date as if made on that date,
and liability for misrepresentation or breach of warranty or covenant shall
survive the execution and delivery of this Agreement and the Closing as provided
in Section 9.7. In addition, none of the representations and warranties made in
this Section 5.1 contains any untrue statement of a material fact, or omits to
state a material fact necessary to make the statements
6
made, in the light of the circumstances under which such statements were made,
not misleading. It is agreed that Seller's damages resulting from
misrepresentation or breach of warranty or covenant by Buyer shall include,
without limitation, court costs and reasonable attorney's fees, reasonably
incurred or sustained by Seller in connection therewith.
5.2. Seller's Warrant and Representations. Seller hereby warrants and
represents, to the best of its knowledge, the following:
5.2.1. Organizational Power; Qualification. The Seller is a
limited partnership duly organized, validly existing and in good standing under
the laws of California, has all requisite power and authority to own its
properties and to carry on its business as now being and hereafter proposed to
be conducted, and is duly qualified and authorized to do business in each
jurisdiction in which Seller is required to be so qualified. Seller hereby
certifies that, except as provided in the preceding sentence, there is no other
jurisdiction in which the properties owned by Buyer or the business conducted by
Buyer or hereafter proposed to be conducted by Buyer would make such
qualification necessary.
5.2.2. General Partner. The sole general partner of the Seller is
PerArdua, Inc., a corporation duly organized, validly existing and in good
standing under the laws of California. PerArdua, Inc., has the corporate power
and authority to act as general partner of Seller.
5.2.3. Authorization of Agreement. The Seller has the right and
power and has taken all necessary action to authorize it to execute, deliver and
perform this Agreement in accordance with its terms. This Agreement has been
duly executed and delivered by a duly authorized officer of PerArdua, Inc.,
acting in the name and on behalf of PerArdua, Inc. as the sole general partner
of the Seller. This Agreement is a legal, valid and binding obligation of
Seller, enforceable in accordance with its terms.
5.2.4. Compliance of Agreement. Except for the consent referenced
in Section 6.3, the execution, delivery and performance of this Agreement on the
part of the Seller and the consummation by Seller of the transactions
contemplated in this Agreement in accordance with its terms do not (a) require
the consent, approval or authorization of any person or governmental entity, (b)
violate any applicable law relating to the Seller, (c) conflict with, result in
a breach of, or constitute a default under any provision of the charter
documents or by-laws of Seller, or (d) violate any restriction, lien,
encumbrance, indenture, contract, lease, sublease, loan agreement, note or other
obligation, agreement, instrument or liability to which
7
Seller is a party or is bound or to which any of its assets are subject, or
result in the creation of any lien or encumbrance upon said assets.
5.2.5. No Litigation. There is currently no claim, litigation,
proceeding or governmental investigation pending or threatened against or
relating to the Assets or the transactions contemplated by this Agreement.
Seller shall give Buyer immediate notice of any such claim, litigation
proceeding or investigation which becomes know to it on or before the Closing
Date.
5.2.6. Tax Compliance. All United States federal, state and local
and foreign national, provincial and local and all other taxes, customs,
impositions, assessments and other charges in the nature thereof, which are due
and payable, have been paid or otherwise satisfied in full.
5.2.7. Financial Condition. The Assumable Liabilities constitute
the only liabilities of the Seller as of the date of this Agreement. There are
no other liabilities of any kind, whether accrued, accruable, contingent or
otherwise, of Seller as of said date, except contingent liabilities to
University of Southern California and BioStrategics International, Inc.
5.2.8. Brokers/Finders. Except with respect to those contingent
amounts which may become due to BioStrategics International, Inc., and Toni Gray
in connection with this transaction as referenced in Section 5.2.7, which
contingent amounts the Seller has agreed to pay, no broker, finder, agent or
similar intermediary has acted on behalf of the Seller in connection with this
Agreement or the transactions contemplated hereby, and there are no brokerage
commissions, finders fees, or similar fees or commissions in connection
therewith based on any agreement, arrangement or understanding with the Seller
or any action taken by the Seller.
5.2.9. Completeness of Warranties and Representations. To the
extent provided herein, all representations and warranties contained in this
Section 5.2 or made in writing by Seller in connection with the transaction
herein provided for shall be true and correct on the date hereof, and on the
Closing Date as if made on that date, and liability for misrepresentation or
breach of warranty or covenant shall survive the execution and delivery of this
Agreement and the Closing as provided in Section 9.7. In addition, none of the
representations and warranties made in this Section 5.2 contains any untrue
statement of a material fact, or omits to state a material fact necessary to
make the statements made, in the light of the circumstances under which such
statements were made, not misleading. It is agreed that Buyer's damages
resulting from misrepresentation or breach of warranty or covenant by Seller
shall include, without limitation, court costs
8
and reasonable attorney's fees, reasonably incurred or sustained by Seller in
connection therewith.
5.2.10. Negation of Warranties.
(a) Nothing in this Agreement shal1 be construed as: (i) a
warranty or representation by Seller as to the validity or scope of the Patent,
as defined in the License Agreement, and/or Patent Application, as defined in
the License Agreement; (ii) a warranty or representation that any Products, as
defined in the License Agreement, made, used, sold or otherwise disposed of
under any license granted in this Agreement or the License Agreement is or will
be free from infringement of patents of third parties; or (iii) an obligation to
bring or prosecute actions or suits against third parties for infringement.
(b) Seller makes no express or implied warranties of
merchantability or fitness for a particular purpose, nor does Seller represent
that the rights granted hereunder will result in Products that are commercially
successful.
(c) Buyer further agrees that it will not rely upon technical
information provided by Sellers in developing and manufacturing any Products
hereunder, but will independently test, analyze and evaluate all Products prior
to manufacture and distribution of such Products.
6. CONDITIONS.
6.1. Conditions to Obligations of Buyer. The obligations of the Buyer
to be performed at the Closing in accordance with Section 7.2 of this Agreement
shall be subject and conditional upon each of the following, all or any portion
of which may be waived by Buyer in its sole discretion (singularly and
collectively, the "Buyer Waived Condition"), which waiver shall be evidenced
only by a written instrument executed by the Buyer and which waiver shall also
automatically waive Buyer's right to claim a breach of this Agreement by Seller
based upon lack of performance by Seller of any such Buyer Waived Condition:
6.1.1. All of the warranties and representations of the Seller
set forth in Section 5.2 of this Agreement shall be true and complete on and as
of the Closing Date.
6.1.2. All of the obligations of the Seller to be performed at
the Closing shall have been performed in full.
6.1.3. No action, proceeding, investigation, regulation or
legislation shall have been instituted threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit or to
obtain substantial damages in respect, of or which is related to or arises out
of
9
this Agreement or the consummation of the transactions contemplated hereby.
6.2. Conditions to Obligations of Seller. The obligations of the Seller
to be performed at the Closing in accordance with Section 7.3 of this Agreement
shall be subject and conditional upon each of the following, all or any portion
of which may be waived by Seller in its sole discretion (singularly and
collectively, the "Seller Waived Condition"), which waiver shall be evidenced
only by a written instrument executed by the Seller and which waiver shall also
automatically waive Seller's right to, claim a breach of this Agreement by Buyer
based upon lack of performance by Buyer of any such Seller Waived Condition:
6.2.1. All of the warranties and representations of the Buyer set
forth in Section 5.1 of this Agreement shall be true and complete on and as of
the Closing Date.
6.2.2. All of the obligations of the Buyer to be performed at the
Closing shall have been performed in full.
6.2.3. No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit or to
obtain substantial damages in respect of or which is related to or arises out of
this Agreement or the consummation of the transactions contemplated hereby.
6.3. Approval by USC. Notwithstanding the above conditions to
performance by Buyer and Seller of their respective obligations hereunder at the
Closing, the Closing shall not be deemed to have occurred unless and until
formal approval of the assignment of the Assets by USC in a form reasonably
satisfactory to the parties is received by Buyer and a copy thereof is delivered
to Seller. Buyer and Seller each agree to make best efforts to secure approval
of the assignment of the Assets by USC as soon as practicable after the date of
this Agreement.
7. CLOSING TRANSACTIONS.
7.1. Closing. The purchase and sale of the Assets shall be effected on
the Closing Date at the Closing.
7.2. Delivery by Buyer. The Buyer shall deliver to Seller at the
Closing the Purchase Price in the amount and the manner set forth in Article 3
of this Agreement.
7.3. Delivery by Seller. The Seller shall deliver to Buyer at the
Closing the Assignment of the License Agreement in the form attached hereto and
incorporated herein as Exhibit G.
10
7.4. Name Change. The Seller and its General Partner shall do all acts
necessary to enable Buyer to amend its Articles of Incorporation to change its
name to PerArdua, Inc. including executing any necessary consents, certificates
of amendment, or any other document prepared by Buyer.
8. ADJUSTMENT TO PURCHASE PRICE
8.1. Adjustment To Purchase Price For Assumable Liabilities. In the
event the aggregate amount of Assumable Liabilities is reduced below that total
amount listed in Exhibit B on or before the Closing, the Purchase Price shall be
adjusted at the Closing to equal Three Hundred Fifty Thousand Dollars ($350,000)
plus that amount by which the aggregate amount of Assumable Liabilities has been
so reduced (the "Reduced Amount").
8.2. Post-Closing Adjustment to Purchase Price. In the event Buyer
shall sell all or any portion of the Assets in consideration for Five Million
Dollars ($5,000,000) or more at any time prior to the date the Buyer may file
with the Securities and Exchange Commission a registration statement for the
sale of Buyer's securities in an initial public offering of such securities to
the public, then the Purchase Price shall automatically be equal to forty-nine
percent (49%) of the consideration received by Buyer from said sale of Assets
(the "Asset Consideration"). Within ten (10) days after receipt of the Asset
Consideration, Buyer shall pay to Seller the balance of the Purchase Price (as
adjusted pursuant to this Section 8.2) which has not previously been paid to
Seller. In the event that all or any portion of said Asset Consideration is paid
to Buyer in securities or other instruments or property, then the amount to be
paid to Seller hereunder may be paid by Buyer in such securities or other
instruments or property pro rata to the extent received by Buyer.
9. MISCELLANEOUS
9.1. Notices. All notices under this Agreement shall be deemed
delivered upon personal delivery to Buyer or Seller, as the case may be, or five
(5) business days after deposit in the United States mail, registered or
certified, postage fully prepaid and addressed to the respective parties,
effective on delivery (or deemed delivery) or on receipt if by reputable courier
service which provides written evidence of delivery, or on receipt at the
telephone number designated herein if by telephone facsimile (i.e. "fax"), to
the addresses stated in the first paragraph of this Agreement, or such other
address as the parties may from time to time designate in writing. Notices to
any party shall be sent to it at the following address, or any other address of
which the other party is notified in writing:
11
If to the Buyer: PerArdua Corporation, a Missouri
corporation c/o Francis E. O'Donnell,
Jr., M.D. 709 The Hamptons Lane, Town &
Country, Missouri 63017 Fax: (314)
434-7030 -
If to the Seller: PerArdua Investors, L.P. c/o Martin I.
Zankel 900 Front Street, Suite 300 San
Francisco, CA 94111 Fax: (415) 956-1152
9.2. Binding Effect; Assignment. All the provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. No assignment hereof shall relieve any party
of its obligations hereunder.
9.3. Amendments. Any term, agreement or condition of this Agreement may
be amended or waived if, but only if, such amendment or waiver is in writing
signed all the parties hereto or, in the case of a waiver, by the party waiving
an obligation, or condition applicable to the other party.
9.4. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability without
invalidating the remainder of the such provision or the remaining provisions
hereof or affecting the validity or enforceability of such provision in any
other jurisdiction.
9.5. Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of California.
9.6. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and shall be binding upon all parties, their successors and assigns, and all of
which taken together shall constitute one and the same agreement.
9.7. Survival. The representations and warranties contained in Sections
5.1 and 5.2 of this Agreement shall survive the Closing for a period of one year
(the "Limitation Period") and shall be in addition to any other obligations or
liabilities either party hereto may have to the other party at common law or
otherwise.
12
9.8. Attorneys' Fees. In the event of litigation, arbitration,
mediation, or other proceeding ("Proceeding") is initiated by any party against
any other party to enforce, interpret or otherwise obtain judicial or
quasi-judicial relief in connection with this Agreement, the prevailing party in
such Proceeding shall be entitled to recover from the unsuccessful party all
costs, expenses, and actual attorney's fees relating to or arising out of (1)
such Proceeding (whether or not such Proceeding proceeds to judgment), and (2)
any post-judgment or post-award proceeding including without limitation one to
enforce any judgment or award resulting from any such Proceeding. Any such
judgment or award shall contain a specific provision for the recovery of all
such subsequently incurred costs, expenses, and actual attorney's fees.
9.9. Further Assurances. Seller and Buyer each agree to execute any and
all documents and agreements reasonably requested by the other party to further
evidence or effectuate this Agreement.
9.10. Termination of Agreement.
9.10.1. This Agreement may be terminated prior to the Closing
upon the occurrence of the following:
(a) At the election of the Seller, if any one or more of the
conditions to its obligation to close has not been fulfilled as of the Closing
Date, or shall have become incapable of fulfillment prior to such time, or if
the Buyer has breached any material covenant or agreement contained in this
Agreement;
(b) At the election of the Buyer, if any one or more of the
conditions to its obligation to close has not been fulfilled as of the Closing
Date, or shall have become incapable of fulfillment prior to such time, or if
the Seller has breached any material covenant or agreement contained in this
Agreement;
(c) At the election of either the Seller or the Buyer, if
formal approval of the assignment of the Assets by USC is not received at least
ten (10) days prior to the Closing Date;
(d) At the election of either the Seller or the Buyer, if the
consummation of the transaction contemplated hereunder are enjoined by a final
order of a court of competent jurisdiction from which no appeal may be taken; or
(e) At any time on or prior to the Closing Date, by mutual
written consent of the Seller and the Buyer.
In the event this Agreement is terminated as provided above, the Agreement shall
immediately thereupon become null and void and
13
shall have no further force or effect, except to the extent otherwise
provided herein.
9.11. Limitation on Liability. If Buyer or Seller shall be more than
one person or entity, the obligation of either Buyer or Seller hereunder shall
be joint and several. Except as specifically provided herein, no trustee or
beneficiary of any trust, no officer, shareholder or director of any
corporation, no partner in any joint venture or partnership, and no individual
or other entity who or which holds either Buyer's or Seller's interest in this
Agreement shall be personally liable for any of the agreements, express or
implied, hereunder except that such Agreement shall, as the case may be, be
binding upon (i) the trustees of a trust personally as trustees, but not
individually, and upon the trust estate, or (ii) upon an individual, a group of
individuals jointly and severally, joint venture or partnership but only to the
extent of their ownership interest in this Agreement and the proceeds and
profits therefrom. Nothing in this Section 9.11 shall be construed as a bar to
any injunctive remedy or equitable relief available to either Buyer or Seller.
9.12. Time of Essence. Time is of the essence of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first written above.
Buyer: Seller:
PerArdua Corporation, PerArdua Investors, L.P.,
a Missouri corporation a California corporation
/s/ Samuel P. Sears, Jr. By: PerArdua, Inc., a
- ---------------------------- California corporation
By: Samuel P. Sears, Jr. Its General Partner
Treasurer
By: /s/ Herbert A. West
-----------------------
Herbert A. West
Its: Vice President
14
EXHIBIT 4.1
PERARDUA CORPORATION
NUMBER SHARES
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE CUSIP 713603 10 8
This Certifies that
is the record holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
PERARDUA CORPORATION
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney, upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ Samuel P. Sears, Jr.
SECRETARY PRESIDENT
CORPORATE SEAL
COUNTERSIGNED AND REGISTERED:
American Securities Transfer & Trust, Inc.
P.O. Box 1596
Denver, Colorado 80201
By
---------------------------------
Transfer Agent Authorized Signature
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- .................. Custodian ...................
(Cust) (Minor)
under Uniform Gifts to Minors
Act ............................................
(State)
UNIF TRF MIN ACT -- ............. Custodian (until age ......)
(Cust)
........................ under Uniform Transfers
(Minor)
to Minors Act ..................................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
____________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
____________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ______________________________
X___________________________________________
X___________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By ____________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS) WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM PURSUANT TO
S.E.C. RULE 17Ad-15.
SUBSCRIPTION AGREEMENT
This Subscription Agreement (the "Agreement") is made by and between
PerArdua Corporation, a Missouri corporation (the "Company") and the undersigned
subscribing investor ("Subscriber").
I. Subscription and Payment.
1. Acknowledgment of Receipt. By executing this Subscription Agreement
Subscriber acknowledges receipt of a copy of the Confidential Offering
Memorandum dated July 8, 1996 (the "Memorandum").
2. Subscription and Payment. Subscriber hereby subscribes for __________
Shares of Common Stock, par value $.001 per share (the "Shares") of the Company
and One (1) Warrant to purchase__________ Shares at a price of $10.00 per Share
(the "Warrant", and together with the Shares, the "Units"), at a total purchase
price of $__________ and hereby delivers a check in said amount to cover the
full purchase price of such Units.
3. Representations and Warranties. Subscriber hereby represents and
warrants to the Company as follows:
(a) SUBSCRIBER HAS READ CAREFULLY AND UNDERSTANDS THE
MEMORANDUM AND HAS CONSULTED HIS OWN ATTORNEY, ACCOUNTANT OR INVESTMENT ADVISOR
WITH RESPECT TO THE INVESTMENT CONTEMPLATED HEREBY AND THE SUITABILITY OF SUCH
INVESTMENT FOR THE SUBSCRIBER. ANY SPECIFIC ACKNOWLEDGMENT SET FORTH BELOW WITH
RESPECT TO ANY STATEMENT CONTAINED IN THE MEMORANDUM SHALL NOT BE DEEMED TO
LIMIT THE GENERALITY OF THIS REPRESENTATION AND WARRANTY;
(b) The Company has made available to the Subscriber, during
the course of this transaction and prior to the purchase of any of the
securities referred to herein, the opportunity to ask questions of and receive
answers from officers and directors of the Company concerning the terms and
conditions of the offering described in the Memorandum, and to obtain any
additional information necessary to verify the information contained in the
Memorandum or otherwise relative to the financial data and business of the
Company, to the extent that such parties possess
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such information or can acquire it without unreasonable effort or expense;
(c) The Subscriber has adequate means of providing for his
current needs and personal contingencies and has no need for liquidity in
connection with this investment;
(d) The Subscriber's overall commitment to investments which
are illiquid is not disproportionate to the net worth of the Subscriber, and the
Subscriber's investment in the Shares and Warrant will not cause such overall
commitment to become excessive;
(e) The Subscriber is purchasing the Shares and Warrant for
Subscriber's own account for investment only, and without any view to the
distribution thereof or resale to others;
(f) Subscriber has evaluated the risks of purchasing the
Shares and Warrant, including those risks particularly described in the
Memorandum, and has determined that the Shares and Warrant are a suitable
investment, that Subscriber has adequate fluancial resources for an investment
of such character, and that at this time Subscriber could bear a complete loss
of this investment;
(g) Subscriber understands that all documents, instruments,
records, and books pertaining to the Company and this investment have been made
available to Subscriber and, if requested, to his attorney, accountant or
investment adviser;
(h) Subscriber has been advised and is aware that (i) there
is no public market for the Shares or Warrant and there is no assurance that any
public market will develop, (ii) it may not be possible to liquidate this
investment, and (iii) Subscriber must bear the economic risk of this investment
in the Shares and Warrant for an indefinite period of time because the Shares
and Warrant have not been registered under the Securities Act of 1933, as
amended (the "Act") or under any applicable state securities or "blue sky" laws,
and, therefore, cannot be sold unless they are subsequently registered under the
Act or such applicable state laws, or unless an exemption from such registration
is available;
2.
(i) Subscriber will not sell or otherwise transfer any or all
of the Shares or Warrant without registration under the Act and the applicable
state laws or unless an exemption therefrom is available, and Subscriber
understands that the Company has no obligation to effect such registration
(except as provided herein) or to comply with any such exemption;
(j) Subscriber acknowledges that if this subscription is
accepted by the Company, the certificate evidencing the Shares and the Warrant
purchased by Subscriber will bear a legend reciting the substance of, or
otherwise referring to the restrictions on transfer of the Shares and Warrant
described above, and acknowledges that notations restricting the transfer of the
Shares and Warrant may also be made on the records of the Company and a stop
transfer order may be entered with the Companys' transfer agent, if one is
appointed;
(k) If the Subscriber is a corporation or partnership, it is
authorized to make the investment contemplated herein, and the person signing
this Subscription Agreement on behalf of such entity has been duly authorized by
such entity to do so;
(l) No representations or warranties have been made to the
undersigned by any officer, director, employee or agent of the Company, other
than as set forth herein and in the Memorandum;
(m) Subscriber understands that this offering has not been
reviewed, nor have the merits been passed upon, by the Securities and Exchange
Commission nor by agencies or officials of any state, including the state in
which Subscriber is a resident;
(n) Except for the Memorandum and such other documents and
information which Subscriber has requested in writing in connection with this
offering has not considered or relied upon any other offering material or
literature of the Company in connection with Subscriber's decision to make this
investment.
Subscriber understands the meaning and legal consequences of
the foregoing representations and warranties which are true as of the date
hereof and will be true as of the date of the purchase of the Shares and Warrant
subscribed for herein. Each such representation and Warranty shall survive such
purchase.
3.
II. Representations. Warranties and Covenants of the Company
1. The Company hereby represents and warrants to the Subscriber as
follows:
(a) All of the representations and warranties set forth in
the Option and Asset Purchase Agreement are hereby made to the Subscriber, and
are true and correct as of the date hereof, except with respect to those
representations and warranties which are made as of a date specified therein, in
which case such representations and warranties are hereby made as of the
specified date.
(b) The Company has provided the Subscriber with all
information reasonably available to it without undue expense that such
Subscriber has requested for deciding whether to purchase the Units and all
information that the Company believes is reasonably necessary to enable such
Subscriber to make such decision. To the best of the Company's knowledge after
reasonable investigation, neither the Memorandum, the Option and Asset Purchase
Agreement or any other written agreements, statements or certificates made or
delivered in connection herewith or therewith contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein or herein not misleading.
(c) All of the representations made by the Company herein
shall survive the closing of the sale of Shares pursuant to this Agreement.
2. The Company hereby covenants as follows:
(a) Limitations on Subsequent Registration Rights. The
Company shall not (i) grant, at any time, any "piggyback" registration rights on
terms more favorable than those granted hereunder, and (ii) grant, prior to the
initial public offering of the Company's securities, any demand registration
rights unless such demand registration rights are also granted to the Holders,
as defined hereafter, on the same terms and conditions.
(b) Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission that may permit the
sale of the Restricted Securities
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to the public without registration, the Company agrees to use its best efforts
to:
(i) Make and keep public information regarding the Company
available as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after ninety (90) days following the
effective date of the first registration under the Securities Act filed by
the Company for an offering of its securities to the general public;
(ii) 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;
(iii) So long as a Holder owns any Restricted Securities, furnish
to the Holder forthwith upon written request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144
(at any time from and after ninety (90) days following the effective date
of the first registration statement filed by the Company for an offering of
its securities to the general public), 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 so filed as a Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without
registration.
III. Registration Riahts.
1. If the Company proposes to file a registration statement (the
"Registration Statement") for registration of any shares of Common Stock under
the Securities Act other than a registration relating solely to an employee
benefits plan or a corporate reorganization or other transaction under Rule 145
or a registration on any form that does not permit secondary sales, the Company
will:
(i) Give written notice of such intention to the holder of Common
Stock purchased hereby (a "Holder," and
5.
together with other holders of Common Stock originally purchased pursuant
to Subscription Agreements in the form hereof executed in connection with
the Option and Asset Purchase Agreement between the Company and PerArdua
Investors, L.P., the "Holders") at least thirty (30) days prior to the
proposed filing date; and
(ii) Use its best efforts to include in such registration the
number of shares of the Holder's Common Stock which were originally
purchased hereby (the "Registrable Securities") specified in a notice
received by the Company within twenty (20) days of the date of the notice
specified in (i) above is mailed or delivered to the Holder.
Notwithstanding the foregoing, if in any firmly underwritten public offering the
managing underwriter thereof determines that any of the Registrable Securities
of the Holders and any other holders of registration rights must be excluded
from the registration as a result of marketing factors, which determination
shall be given in writing, the number of shares of Registrable Securities owned
by the Holders to be included in the offering shall be allocated among the
Holders and any other holders of registration rights pro rata in accordance with
the number of shares of Common Stock requested to be included in such
registration.
2. If and whenever the Company is required by the provisions of this
Section to use its best efforts to include any Registrable Securities in any
registration of any of its securities under the Securities Act, the Company
will, as expeditiously as possible and at its sole cost and expense:
(i) cause any registration statement filed to become and
remain effective until all of the Registrable Securities are sold, but not
for any period longer than nine months;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
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registration statement whenever the Holders shall desire to dispose of the
same;
(iii) furnish to each Holder such number of copies of a
summary prospectus or other prospectus, including a preliminary prospectus,
in conformity with the requirements of the Securities Act and such other
documents as such Holder may reasonably request in order to facilitate the
disposition of the securities owned by such Holder; and
(iv) use its best efforts to register or qualify the
securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each Holder shall
request and ase its best efforts to do any and all other acts and things
which may be reasonably necessary to enable such Holder to consummate the
disposition in such jurisdiction of the securities owned by such Holder.
(v) cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar
securities issued by the Company are then listed.
(vi) provide a transfer agent and registrar for all
Registrable Securities registered pursuant to such registration statement
and a CUSIP number for all such Registrable Securities, in each case not
later than the effective date of such registration.
3. The Company shall pay all expenses incurred by it in complying with
this Article III (including without limitation all registration and filing fees,
printing expenses and fees and disbursements or counsel for the Company) but not
the fees and disbursements of counsel for the Holders.
4. In the event of any registration of any of its securities under the
Securities Act pursuant to this Section, the Company will indemnify and hold
harmless the Holder of such securities and each other person, if any, who
controls such Holder within the meaning of the Securities Act and each other
perso~ who participates in the offering of such securities, against any
expenses, losses, claims, damages or liabilities, joint or several, to which
such Holder or controlling person or
7.
participating person may become subject under the Securities Act or otherwise,
in so far as such expenses, losses, claims, damages or liabilities (or action in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained, on the effective date thereof,
in any qualification or registration statement under which such securities were
registered under the Securities Act or qualified under any applicable state
securities law, any preliminary prospectus or final prospectus contained therein
or any amendment or supplement thereto, or any document incident to any such
registration or qualification (collectively the "Offering Documents"), or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation of the Securities Act or State
securities law or any other regulation thereunder in connection with any
registration, qualification or compliance, and will reimburse such Holder and
each such controlling person or participating person for any legal or any other
expenses reasonably incurred by such Holder or such controlling person or
participating person 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 expense, loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any Offering
Document in reliance upon and in conformity with written information furnished
to the Company through an instrument duly executed by such Holder specifically
for use in the preparation thereof. Each Holder shall, upon the receipt of
notice of the commencement of any action against such Holder or against any such
controlling person or participating person, in respect of which indemnity may be
sought from the Company on account of the indemnity agreement contained in this
Article III, Section 4, promptly notify the Company in writing of the
commencement thereof. The omission of such Holder so to notify the Company of
any such action shall not relieve the Company from any liability which the
Company may have to such Holder or such controlling person or participating
person on account of the indemnity agreement contained in this Section to the
extent such failure is not prejudicial. In case any such action shall be brought
against any Holder or any such controlling person or participating person and
such Holder shall notify the Company of the commencement
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thereof, the Company shall be entitled to participate in (and, to the extent
that the Company sr.all wish, to direct) the defense thereof at the Company's
own expense, in which event the defense shall be conducted by recognized counsel
chosen by the Company and reasonably satisfactory to the Holder. In the event of
any registration by the Company o- any of its securities under the Securities
Act pursuant to this Section, the Holder of the securities so registered will
indemnify and hoId harmless the Company and each other person, if any, who
controls the Company within the meaning of the Securities Act and each officer
and director of the Company and the other Holders to the same extent that the
Company agrees to indemnify it, but only with respect to the written information
relating to such Holder furnished to the Company by such Holder as aforesaid.
Notwithstanding the foregoing, in no event shall any indemnity by the Holder
exceed the gross proceeds from the sale of Registrable Securities received by
such Holder in the Offering.
IV. General.
1. The Agreement (i) shall be binding upon and shall inure to the
benefit of the Subscriber and the heirs, legal representatives, successors, and
assigns of the Subscriber, (ii) shall be governed, construed and enforced in
accordance with the laws of the State of Missouri (except insofar as affected by
the state securities or "blue sky" laws of the jurisdiction in which the
offering described herein has been made to the Subscriber as aforesaid), and
(iii) shall, if the Subscriber consists of more than one person, be the joint
and several obligation of all such persons.
2. This Agreement constitutes the final and entire agreement between
the parties hereto with respect to the subject matter hereof, and, except as
herein provided, may be amended or waived only by a writing executed by all of
the parties hereto.
9.
3. All notices or other communications given or made hereunder shall be
in writing and shall be delivered or mailed by registered or certified mail,
return receipt requested, postase prepaid, to Subscriber at the address set
forth on the signature page hereof, and to the Company at its address set forth
in the Memorandum.
EXECUTED as of the date set forth below.
Date:_____________________, 1996
If an individual:
SUBSCRIBER:
________________________
________________________
Print Name
If a corporation or other entity:
________________________
By:_____________________
Its:____________________
ACCEPTED:
PerArdua Corporation
By:_____________________
Its:____________________
10.
EXHIBIT 4.6
WARRANT AGREEMENT
PERARDUA CORPORATION, a Delaware corporation (the "Company"), and
AMERICAN SECURITIES TRANSFER & TRUST, INC. (the "Warrant Agent"), a Colorado
corporation, agree as follows:
1. PURPOSE. The Company proposes to publicly offer and issue an
aggregate of 1,000,000 Redeemable Warrants (the "Redeemable Warrants").
2. REDEEMABLE WARRANTS. Each Redeemable Warrant will entitle the
registered holder thereof (the "Warrant Holder") to purchase from the Company
one share of the Company's Common Stock, $.01 par value per share ("Common
Stock") at an exercise price of $6.50 per share (the "Exercise Price").
3. EXERCISE PERIOD. Subject to Section 5, the Redeemable Warrants may
be exercised on any date at any time during the period commencing
__________________, 1998 (the "Commencement Date") and ending at 5:00 p.m. New
York time on _________, 2002 (the "Expiration Date"), except as altered by
Section 13 of this Agreement. If the Expiration Date shall be a holiday or a day
on which banks are authorized to close in the State of New York, the term
"Expiration Date" shall mean 5:00 p.m. New York time on the next following day
which is not a holiday or a day on which banks are authorized to close in the
State of New York. Following the Expiration Date, all unexercised Redeemable
Warrants will be void and all rights of Warrant Holders shall cease.
4. DETACHABILITY. The Redeemable Warrants shall trade separately from
shares of the Company's Common Stock in the marketplace.
5. REDEMPTION OF REDEEMABLE WARRANTS.
a. REDEMPTION; REDEMPTION PRICE. Commencing _________, 1998,
the Company may from time to time redeem the Redeemable Warrants, in whole or in
part, at $.20 per Redeemable Warrant (the "Redemption Price") upon 30 days'
written notice, provided that the average closing bid price of the Company's
Common Stock equals or exceeds $9.00 per share for a twenty consecutive trading
day period ending within 10 days prior to the Company issuing its notice of
redemption ("Notice of Redemption"). For the purposes of this Agreement, the
term "closing bid price" shall mean the closing bid price of the Company's
Common Stock, as quoted on the Nasdaq SmallCap Market. If the Company's Common
Stock is no longer quoted on the Nasdaq SmallCap Market, the "closing bid price"
shall mean the average of the high bid and low ask price for the Redeemable
Warrants on any inter-dealer quotation system used in connection with the
trading of the Redeemable Warrants at the time of redemption. If the Company
shall determine to redeem less than all of the outstanding Redeemable Warrants,
the Warrant Agent shall determine the Redeemable Warrants to be redeemed by such
manner or method as it shall deem fair and appropriate, either by lot or pro
rata among all Warrant Holders.
b. NOTICE OF REDEMPTION. In order to enable the Warrant Agent
to provide services in accordance with the terms of this Agreement, the Company
shall provide 10 days prior written notice to the Warrant Agent of any
anticipated redemption. Upon notice from the Company, Warrant Agent shall
deliver the Notice of Redemption to all Warrant Holders to be redeemed at least
30 days prior to the date established for redemption (the "Redemption Date").
Each Notice of Redemption shall (a) specify the Redemption Date and the
Redemption Price; (b) state that payment of the Redemption Price will be made by
the Warrant Agent upon presentation and surrender to the Warrant Agent at its
principal office of the Warrant Certificates (as defined herein) representing
the Redeemable Warrants to be redeemed by the Company; (c) state that the rights
to exercise the Redeemable Warrants shall terminate at 5:00 p.m. New York time
on the fifth business day preceding the Redemption Date; and (d) if less than
all of the Redeemable Warrants then outstanding are to be redeemed, specify the
serial numbers or portions of the Redeemable Warrants to be redeemed by the
Company.
c. PAYMENT OF REDEMPTION PRICE. On or prior to the opening of
business on the Redemption Date, the Company will deposit with the Warrant Agent
cash, or an irrevocable letter or credit issued by a national or state bank and
in a form reasonably satisfactory to the Warrant Agent, sufficient in amount to
redeem all of the Redeemable Warrants stated in the Notice of Redemption.
Payment of the Redemption Price shall be made by the Warrant Agent upon
presentation and surrender of the Warrant Certificates representing the
Redeemable Warrants to be redeemed to the Warrant Agent at its principal office.
If the Notice of Redemption shall have been duly given and if the Company shall
have duly deposited with the Warrant Agent the cash or irrevocable letter of
credit required by this Section 5c, any Redeemable Warrants subject to such
Notice of Redemption not exercised by 5:00 p.m. New York time on the Redemption
Date shall no longer be deemed to be outstanding, and all rights with respect to
such Redeemable Warrants shall from and after such time and date cease and
terminate. Notwithstanding the foregoing, however, the Warrant Holders shall
retain the right to receive the Redemption Price, without interest.
6. CERTIFICATES. The Redeemable Warrants shall be in registered form
only and shall be evidenced by a warrant certificate (the "Warrant Certificate")
substantially in the form set forth as Exhibit A hereto. Warrant Certificates
shall be signed by, or shall bear the facsimile signature of, the President or a
Vice President of the Company and the Secretary or an Assistant Secretary of the
Company and shall bear a facsimile of the Company's corporate seal. If any
person, whose facsimile signature has been placed upon any Warrant Certificate
as the signature of an officer of the Company, shall have ceased to be such
officer before such Warrant Certificate is countersigned, issued and delivered,
such Warrant Certificate shall be countersigned, issued and delivered with the
same effect as if such person had not ceased to be such officer. Any Warrant
Certificate may be signed by, or made to bear the facsimile signature of, any
person who at the actual date of the preparation of such Warrant Certificate
shall be a proper officer of the Company to sign such Warrant Certificate, even
though such person was not such an officer upon the date of this Agreement.
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7. COUNTERSIGNING. Warrant Certificates shall be manually countersigned
by the Warrant Agent and shall not be valid for any purpose unless so
countersigned. The Warrant Agent is hereby authorized to countersign any Warrant
Certificate which is properly issued and to deliver such Warrant Certificate in
accordance with the instructions of the appropriate Warrant Holder.
8. REGISTRATION OF TRANSFER AND EXCHANGES.
a. Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Redeemable Warrants or
may be transferred in whole or in part. The Warrant Agent shall, from time to
time, register the transfer of outstanding Warrant Certificates upon records
maintained by the Warrant Agent for such purpose upon surrender of a Warrant
Certificate to the Warrant Agent for transfer, accompanied by appropriate
instruments of transfer in a form satisfactory to the Company and the Warrant
Agent. Upon any such registration of transfer, the Warrant Agent shall issue a
new Warrant Certificate in the name of and to the transferee. The Warrant Agent
shall then cancel the surrendered Warrant Certificate.
9. EXERCISE OF THE REDEEMABLE WARRANTS.
a. Any Redeemable Warrant evidenced by a Warrant Certificate
may be exercised on or after the Commencement Date and on or before the
Expiration Date. A Warrant Holder may exercise a Redeemable Warrant by (i)
surrendering the Warrant Certificate to the Warrant Agent with the exercise form
on the reverse of such Warrant Certificate fully completed and (ii) delivering
the Exercise Price for each share of Common Stock to be purchased to the Warrant
Agent by a cashier's check or certified funds payable to the order of the
Company.
b. Upon receipt of a Warrant Certificate with the exercise
form thereon duly executed and full payment of the Exercise Price, the Warrant
Agent shall requisition the appropriate number of shares of Common Stock from
the Company's transfer agent, and upon receipt thereof shall deliver
certificates evidencing the total number of shares of Common Stock for which
Redeemable Warrants are then being exercised in such names and denominations as
are required for delivery to, or in accordance with the instructions of, the
Warrant Holder. The certificates for the shares of Common Stock shall be deemed
to be issued, and the person for whom the shares of Common Stock are issued
shall be deemed to have become a holder of record of such shares, as of the date
of the surrender of the Warrant Certificate and payment of the Exercise Price,
whichever shall last occur.
c. If less than all the Redeemable Warrants evidenced by a
Warrant Certificate are exercised upon a single occasion, the Warrant Agent
shall issue a new Warrant Certificate to the Warrant Holder for the balance of
the Redeemable Warrants not so exercised. The Warrant Agent shall deliver the
Warrant Certificate to, or in accordance with the transfer instructions properly
given by, the Warrant Holder prior the Expiration Date.
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d. The Warrant Agent shall cancel all Warrant Certificates
surrendered upon exercise of the Redeemable Warrants.
e. Upon the exercise of a Redeemable Warrant, the Warrant
Agent shall promptly deposit the payment of the Exercise Price into an escrow
account established by mutual agreement of the Company and the Warrant Agent at
a federally insured commercial bank. All funds deposited in the escrow account
will be disbursed on a weekly basis to the Company once they have been
determined by the Warrant Agent to be collected funds. Once the Warrant Agent
has determined the funds to be collected, the Warrant Agent shall cause the
Common Stock certificate(s) representing the exercised Redeemable Warrants to be
issued to an exercising Warrant Holder.
f. Reasonable expenses incurred by the Warrant Agent will be
paid by the Company. These expenses, including delivery of Common Stock
certificates to the Company's shareholders, will be deducted from the Exercise
Price submitted by an exercising Warrant Holder prior to distribution of such
funds to the Company. A detailed accounting statement relating to the number of
shares of Common Stock issued, names of registered Warrant Holders and the net
amount of exercised funds remitted will be given to the Company with the payment
of each Exercise Price.
g. At the time of the exercise of the Redeemable Warrants, the
Company shall pay the transfer fee associated with the exercise. The Warrant
Agent's fee schedule is attached as Exhibit B hereto.
h. The Company covenants that if any securities to be reserved
for the purpose of exercise of the Redeemable Warrants hereunder require
registration with, or approval of, any governmental authority under any federal
securities law before such securities may be validly issued or delivered upon
such exercise, the Company will file a registration statement under the federal
securities laws or a post-effective amendment, use its best efforts to cause the
same to become effective and use its best efforts to keep such registration
statement current while any of the Redeemable Warrants are outstanding. In
addition, the Company shall deliver a prospectus which complies with Section 10
of the Securities Act of 1933, as amended, to the Warrant Holder exercising the
Redeemable Warrant (except, if in the opinion of counsel to the Company, such
registration is not required under the federal securities laws or if the Company
receives a no-action letter from the staff of the Securities and Exchange
Commission stating that the staff would not recommend any enforcement action if
registration is not effected). The Company will use its best efforts to obtain
appropriate approvals or registrations under state "blue sky" securities laws,
if applicable. With respect to any such securities, however, Redeemable Warrants
may not be exercised by, or shares of Common Stock issued to, any Warrant Holder
in any state in which such exercise would be unlawful.
10. TAXES. The Company will pay all taxes attributable to the initial
issuance of the shares of Common Stock upon exercise of the Redeemable Warrants.
The Company shall not, however, be required to pay any tax which may be payable
in respect to any transfer involved
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in the issuance of Warrant Certificates or in the issuance of any certificates
of shares of Common Stock in the name other than that of the Warrant Holder upon
the exercise of a Redeemable Warrant.
11. MUTILATED OR MISSING WARRANT CERTIFICATES. If any Warrant
Certificate is mutilated, lost, stolen or destroyed, the Company and the Warrant
Agent may, on such terms as to indemnity or otherwise as they may in their sole
discretion impose (which shall, in the case of a mutilated Warrant Certificate,
include the surrender thereof), and upon receipt of evidence satisfactory to the
Company and the Warrant Agent of such mutilation, loss, theft or destruction,
issue a substitute Warrant Certificate of like denomination or tenor as the
Warrant Certificate so mutilated, lost, stolen or destroyed. Applicants for
substitute Warrant Certificates shall comply with such other reasonable
regulations and pay any reasonable charges the Company or the Warrant Agent may
prescribe.
12. RESERVATION OF SHARES. For the purpose of enabling the Company to
satisfy all obligations to issue shares of Common Stock upon exercise of the
Redeemable Warrants, the Company will at all times reserve and keep available
free from preemptive rights, out of the aggregate of its authorized but unissued
shares of Common Stock, the full number of shares which may be issued upon the
exercise of the Redeemable Warrants. These shares will, upon issue in accordance
herewith, be fully paid and nonassessable by the Company and free from all
taxes, liens, charges and security interests with respect to the issuance
thereof.
13. GOVERNMENTAL RESTRICTIONS. If any shares of Common Stock issuable
upon the exercise of the Redeemable Warrants require registration or approval of
any governmental authority, the Company will endeavor to secure such
registration or approval; provided that in no event shall the shares be issued,
and the Company shall have the authority to suspend the exercise of all
Redeemable Warrants, until such registration or approval shall have been
obtained. All Redeemable Warrants, the exercise of which is requested during any
such suspension, shall be exercisable at the Exercise Price. If any such period
of suspension continues past the Expiration Date, all Redeemable Warrants, the
exercise of which have been requested on or prior to the Expiration Date, shall
be exercisable upon the removal of such suspension until the close of business
on the business day immediately following the expiration of such suspension.
14. ADJUSTMENTS. If, prior to the exercise of any Redeemable Warrants,
the Company shall have effected one or more stock splits, stock dividends or
other increases or reductions of the number of shares of Common Stock
outstanding without receiving compensation therefor in money, services or
property, the number of shares of Common Stock subject to the Redeemable
Warrants granted shall (i) if a net increase shall have been effected in the
number of outstanding shares of Common Stock, be proportionately increased, and
the cash consideration payable per share shall be proportionately reduced, or
(ii) if a net reduction shall have been effected in the number of outstanding
shares of Common Stock, be proportionately reduced and the cash consideration
payable per share be proportionately increased.
5
15. NOTICE TO WARRANT HOLDERS. Upon any adjustment as described in
Section 14, the Company shall, within 20 days thereafter (i) cause to be filed
with the Warrant Agent a certificate signed by a Company officer setting forth
the details of such adjustment, the method of calculation and the facts upon
which such calculation is based, which certificate shall be conclusive evidence
of the correctness of the matters set forth therein, and (ii) cause written
notice of such adjustments to be given to each Warrant Holder as of the record
date applicable to such adjustment. Also, if the Company proposes to enter into
any reorganization, reclassification, sale of substantially all of its assets,
consolidation, merger, dissolution, liquidation or winding up, the Company shall
give notice of such fact to all Warrant Holders at least 20 days prior to such
action, and such notice shall set forth sufficient factual information necessary
to indicate the effect of such action (to the extent such effect may be known at
the date of such notice) on the Exercise Price and the kind and amount of the
shares of Common Stock deliverable upon exercise of the Redeemable Warrants.
Without limiting the obligation of the Company hereunder to provide notice to
each Warrant Holder, failure of the Company to give notice shall not invalidate
any corporate action taken by the Company.
16. NO FRACTIONAL WARRANTS OR SHARES. The Company shall not be required
to issue fractions of Redeemable Warrants upon the reissue of Redeemable
Warrants, any adjustments as described in Section 14 or otherwise. In lieu
thereof, the Company shall round up or down to the nearest full Redeemable
Warrant. If the total Redeemable Warrants surrendered by exercise would result
in the issuance of a fractional share, the Company shall not be required to
issue a fractional share, but rather the Company shall round up or down the
aggregate number of shares issuable to the nearest full share.
17. RIGHTS OF WARRANT HOLDERS. No Warrant Holder, as such, shall have
any rights of a shareholder of the Company, either at law or equity, and the
rights of the Warrant Holders, as such, are limited to those rights expressly
provided in this Agreement or in the Warrant Certificates. The Company and the
Warrant Agent may treat the Warrant Holder in respect of any Warrant
Certificates as the absolute owner thereof for all purposes notwithstanding any
notice to the contrary.
18. WARRANT AGENT. The Company hereby appoints the Warrant Agent to act
as the agent of the Company, and the Warrant Agent hereby accepts such
appointment upon the following terms and conditions:
a. Statements contained in this Agreement and in the Warrant
Certificates shall be taken as statements of the Company. The Warrant Agent
assumes no responsibility for the correctness of any of the same, except as such
describes the Warrant Agent or for action taken or to be taken by the Warrant
Agent.
b. The Warrant Agent shall not be responsible for any failure
of the Company to comply with any of the Company's covenants contained in this
Agreement or in the Warrant Certificates.
6
c. The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company), and the Warrant Agent
shall incur no liability or responsibility to the Company or to any Warrant
Holder in respect of any action taken, suffered or omitted by it hereunder in
good faith and in accordance with the opinion or the advice of such counsel,
provided the Warrant Agent shall have exercised reasonable care in the selection
and continued employment of such counsel.
d. The Warrant Agent shall incur no liability or
responsibility to the Company or to any Warrant Holder for any action taken in
reliance upon any notice, resolution, waiver, consent, order, certificate or
other paper, document or instrument reasonably believed by it to be genuine and
to have been signed, sent or presented by the proper party or parties.
e. The Company agrees to pay to the Warrant Agent the fees
indicated on Exhibit B hereto, to reimburse the Warrant Agent for all reasonable
expenses, taxes (other than income taxes) and governmental charges and all other
charges of any kind in nature incurred by the Warrant Agent in the execution of
this Agreement and to indemnify the Warrant Agent and save it harmless against
any and all liabilities, including judgments, costs and counsel fees, for this
Agreement, except as a result of the Warrant Agent's negligence or bad faith.
f. The Warrant Agent shall be under no obligation to institute
any action, suit or legal proceeding or to take any other action likely to
involve expense unless the Company or one or more Warrant Holders shall furnish
the Warrant Agent with reasonable security and indemnity for any costs and
expenses which may be incurred in connection with such action, suit or legal
proceeding. Notwithstanding the foregoing, however, this provision shall not
effect the power of the Warrant Agent to take such action as the Warrant Agent
may consider proper, whether with or without any such security or indemnity. All
rights or action under this Agreement or under any of the Redeemable Warrants
may be enforced by the Warrant Agent without the possession of any of the
Warrant Certificates or the production thereof at any trial or the proceeding
relative thereto. Any such action, suit or proceeding instituted by the Warrant
Agent shall be brought in its name as Warrant Agent, and any recovery of
judgment shall be for the ratable benefit of the Warrant Holders as their
respective rights or interest may appear.
g. The Warrant Agent and any shareholder, director, officer or
employee of the Warrant Agent may buy, sell or deal in any of the Redeemable
Warrants or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested. In addition, the Warrant
Agent may contract with or lend money to the Company or otherwise act as fully
and freely as though it were not Warrant Agent under this Agreement. Nothing
herein shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
19. SUCCESSOR WARRANT AGENT. Any corporation into which the Warrant
Agent may be merged or converted or with which it may be consolidated, or any
corporation
7
resulting from any merger, conversion or consolidation to which the Warrant
Agent shall be a party, or any corporation succeeding to the corporate trust
business of the Warrant Agent, shall be the successor to the Warrant Agent
hereunder without the execution or filing of any paper or any further act of a
party or the parties hereto. In any such event or if the name of the Warrant
Agent is changed, the Warrant Agent or such successor may adopt the
countersignature of the original Warrant Agent and may countersign such Warrant
Certificates either in the name of the predecessor Warrant Agent or in the name
of the successor Warrant Agent.
20. CHANGE OF WARRANT AGENT. The Warrant Agent may resign or be
discharged by the Company from its duties under this Agreement by the Warrant
Agent or the Company, as the case may be, giving notice in writing to the other,
and by giving a date on which such resignation or discharge shall take effect,
which notice shall be sent at least 30 days prior to the date so specified. If
the Warrant Agent shall resign, be discharged or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Warrant Agent.
If the Company shall fail to make such appointment within a period of 30 days
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Warrant Agent or by any Warrant Holder or after
discharging the Warrant Agent, any Warrant Holder may apply to the District
Court for Denver County, Colorado, for the appointment of a successor to the
Warrant Agent. Pending appointment of a successor to the Warrant Agent, either
by the Company or by such court, the duties of the Warrant Agent shall be
carried out by the Company. Any successor Warrant Agent, whether appointed by
the Company or by such court, shall be a bank or a trust company, in good
standing, organized under the laws of the Untied States of America and having at
the time of its appointment as Warrant Agent, a combined capital and surplus of
at least four million dollars. After appointment, the successor Warrant Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Warrant Agent without further act or deed, and
the former Warrant Agent shall deliver and transfer to the successor Warrant
Agent any property at the time held by it thereunder, and execute and deliver
any further assurance, conveyance, act or deed necessary for effecting the
delivery or transfer. Failure to give any notice provided for in this section,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Warrant Agent or the appointment of the successor
Warrant Agent, as the case may be.
21. NOTICES. Any notice or demand authorized by this Agreement to be
given or made by the Warrant Agent or by any Warrant Holder to or on the Company
shall be sufficiently given or made if sent by mail, first class, certified or
registered, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent), as follows:
PerArdua Corporation
10940 Wilshire Boulevard, Suite 1600
Los Angeles, California 90024
Attn: President
8
Any notice or demand authorized by this Agreement to be given or made by any
Warrant Holder or by the Company to or on the Warrant Agent shall be
sufficiently given or made if sent by mail, first class, certified or
registered, postage prepaid, addressed (until another address is filed in
writing by the Warrant Agent with the Company), as follows:
American Securities Transfer & Trust, Inc.
1825 Lawrence Street, Suite 444
Denver, Colorado 80202-1817
Any distribution, notice or demand required or authorized by this Agreement to
be given or made by the Company or the Warrant Agent to or on the Warrant
Holders shall be sufficiently given or made on the day of mailing if sent by
mail, first class, certified or registered, postage prepaid, addressed to the
Warrant Holders at their last known addresses as they shall appear on the
registration books for the Warrant Certificates maintained by the Warrant Agent.
22. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Agent may,
from time to time, supplement or amend this Agreement without the approval of
any Warrant Holders in order to cure any ambiguity or to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Warrant Agent may deem
necessary or desirable.
23. SUCCESSORS. All the covenants and provisions of this Agreement by
or for the benefit of the Company or the Warrant Agent shall bind and inure to
the benefit of their respective successors and assignees hereunder.
24. TERMINATION. This Agreement shall terminate at the close of
business on the Expiration Date or such earlier date upon which all Redeemable
Warrants have been exercised; provided, however, that if exercise of the
Redeemable Warrants is suspended pursuant to Section 13 and such suspension
continues past the Expiration Date, this Agreement shall terminate at the close
of business on the business day immediately following expiration of such
suspension. The provisions of Section 18 shall survive such termination.
25. GOVERNING LAW. This Agreement and each Warrant Certificate issued
hereunder shall be deemed to be a contract make under the laws of the State of
Colorado and for all purposes and shall be construed in accordance with the laws
of said state.
26. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give any person or corporation other than the Company, the Warrant
Agent and the Warrant Holders any legal or equitable right, remedy or claim
under this Agreement. This Agreement shall be for the sole and exclusive benefit
of the Company, the Warrant Agent and the Warrant Holders.
9
27. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of such counterparts shall for all purposes be deemed to be
an original and all such counterparts shall together constitute but one and the
same instrument.
10
Effective Date: __________ , 1997
PERARDUA CORPORATION
By:
------------------------
Its:
-----------------------
Date:
----------------------
AMERICAN SECURITIES TRANSFER &
TRUST, INC.
By:
------------------------
Its:
-----------------------
Date:
----------------------
11
WARRANT CERTIFICATE
THIS WARRANT EXPIRES AT 5:00 P.M., NEW YORK TIME, ON ___________ , 2002
NUMBER WARRANTS
W CUSIP 713603 11 6
REDEEMABLE WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
PERARDUA CORPORATION
This certifies that FOR VALUE RECEIVED
or registered assigns
(the ``Registered Holder'') is the owner of the number of Redeemable Warrants
(``Warrants'') specified above. Each Warrant initially entitles the Registered
Holder to purchase subject to the terms and conditions set forth in this
Certificate and the Warrant Agreement (as hereinafter defined), one fully paid
and nonassessable share of Common Stock, $.01 par value, of PerArdua
Corporation, a Delaware corporation (the ``Company''), at any time between June
28, 1998 through June 28, 2002 (the ``Last Exercise Date''), upon the
presentation and surrender of this Warrant Certificate with the Subscription
Form on the reverse hereof duly executed, at the corporate office of American
Securities Transfer & Trust Company as Warrant Agent, or its successor (the
``Warrant Agent''), accompanied by payment of $6.50 (the ``Purchase Price'') in
lawful money of the United States of America in cash or by official bank or
certified check made payable to the order of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the ``Warrant Agreement''), dated June 28, 1997,
by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York time) on the Last
Exercise Date, or such earlier date as the Warrants shall be redeemed. If such
date shall in the State of New York be a holiday or a day on which the banks are
authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of the Warrants represented by this Warrant Certificate unless a
registration statement under the Securities Act of 1933, as amended, with
respect to such securities is effective. The Company has covenanted and agreed
that it will file post effective amendments to the registration statement (which
events require such amendments) and cause the same to become effective and to
keep such registration statement current. The Warrants represented hereby shall
not be exercisable by a Registered Holder in any state where such exercise would
be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment together with any service charge in
addition to any tax or other governmental charge imposed in connection
therewith, for registration or transfer of this Warrant Certificate at such
office, a new Warrant Certificate or Warrant Certificates representing an equal
aggregate number of Warrants will be issued to the transferee in exchange
therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a shareholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
Warrants represented by this Warrant Certificate may be redeemed at the
option of the Company, on or after June 21, 1998, at a redemption price of $.20
per Warrant, provided the average closing bid price (as defined in the Warrant
Agreement) for the Common Stock issuable upon exercise of such Warrant is at
least $9.00 per share for a twenty consecutive trading day period ending within
10 days prior to the date on which the notice of redemption is given. Notice of
redemption shall be given at least thirty days prior to the date fixed for
redemption as provided in the Warrant Agreement. On and after the date fixed for
redemption, the Registered Holder shall have no rights with respect to the
Warrants represented by this Warrant Certificate except to receive the $.20 per
Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: PERARDUA CORPORATION
By By
/s/ Samuel P. Sears, Jr.
Secretary President
CORPORATE SEAL
COUNTERSIGNED AND REGISTERED:
American Securities Transfer & Trust, Inc.
P.O. Box 1596
Denver, Colorado 80201
By ____________________________________
Transfer Agent Authorized Signature
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
_______________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
________________
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(please print or type name and address)
and be delivered to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, _________________________________ the undersigned hereby
sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(please print or type name and address)
- --------------------------------------------------------------------------------
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints
______________________________________________________________________ Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
Dated: __________________________ X ___________________________________
Signature Guaranteed
___________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS REDEEMABLE WARRANT CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST
BE GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE 17Ad-15 UNDER THE
SECURITIES EXCHANGE ACT OF 1934) WHICH MAY INCLUDE A COMMERCIAL BANK, TRUST
COMPANY OR SAVINGS ASSOCIATION, CREDIT UNION OR MEMBER FIRM OF THE AMERICAN
STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR MIDWEST STOCK
EXCHANGE.
EXHIBIT 5.1
April 1, 1997
PerArdua Corporation
10940 Wilshire Boulevard
Suite 1600
Los Angeles, California 90024
Ladies and Gentlemen:
We have acted as counsel to PerArdua Corporation, a Delaware
corporation (the "Company"), in connection with the preparation and filing of
the Company's registration statement on Form SB-2 (Registration No. 333-2129)
and all amendments thereto (the "Registration Statement"), as originally filed
with the Securities and Exchange Commission on February 5, 1997. The
Registration Statement relates to the offering of (i) 1,000,000 shares (the
"Issuance Shares") of the Company's common stock, $.01 par value per share
("Common Stock"), (ii) 1,000,000 Redeemable Warrants (the "Redeemable Warrants")
to be sold by certain underwriters (the "Underwriters") for whom Schneider
Securities, Inc. is acting as representative (the "Representative") and (iii)
150,000 additional shares of Common Stock and/or 150,000 additional Redeemable
Warrants which may be sold by the Underwriters to cover over-allotments (the
"Over-Allotment Securities"). In addition, the Registration Statement relates to
the issuance of a warrant (the "Representative's Warrant")to the Representative
to purchase up to 100,000 shares of Common Stock and/or 100,000 Redeemable
Warrants.
In connection with this opinion, we have examined the Registration
Statement and the prospectus contained therein, the Company's Certificate of
Incorporation, the Company's bylaws and the originals, or copies certified to
our satisfaction, of such records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinions expressed below (the "Documents"). We are relying (without
any independent investigation thereof) upon the truth and accuracy of the
statements, covenants, representations and warranties set forth in the
Documents. In addition, for all purposes of this opinion, we have assumed that
the underwriting agreement pursuant to which all securities will be sold (the
"Underwriting Agreement") will be duly executed and delivered and will be a
valid and binding agreement of the parties thereto in accordance with its terms.
On the basis of the foregoing, and in reliance thereon, we are of the
opinion that:
1. (i) The Issuance Shares, the Redeemable Warrants and the
Over-Allotment Securities, if issued, (ii) the Representative's Warrant, (iii)
the Common Stock underlying the Redeemable Warrants and (iv) the Common Stock
and/or the Redeemable Warrants underlying the Representative's Warrant
(including the Common Stock underlying the Redeemable Warrants underlying the
Representative's Warrant) have been duly authorized and upon the sale thereof in
accordance with the terms of the Underwriting Agreement, such securities will be
validly issued.
2. The Issuance Shares and the Over-Allotment Securities (to the extent
such securities are in the form of Common Stock), when sold to the Underwriters
in accordance with the terms of the Underwriting Agreement, will be fully paid
and non-assessable.
3. The shares of Common Stock issuable upon the exercise of the
Redeemable Warrants (including the Redeemable Warrants subject to the
Representative's Warrant), when issued upon the exercise of the Redeemable
Warrants and the Representative's Warrant in accordance with the respective
terms thereof, will be fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the prospectus contained therein and any further amendments thereto.
Subject to the foregoing sentence, however, this opinion is given as of the date
hereof solely for your benefit and may not be relied upon, circulated, quoted or
otherwise referred to for any purpose without our prior written consent.
Very truly yours,
LECLAIR RYAN,
A Professional Corporation
By:_________________________________
Title:_______________________________
OPTION & LICENSE AGREEMENT
1. INTRODUCTION
THIS AGREEMENT is between the UNIVERSITY OF SOUTHERN CALIFORNIA
(hereinafter USC), a California nonprofit corporation with its principal place
of business at University Park, Los Angeles, California 90089, and PerArdua
Investors, L.P., a California limited partnership, with its principal place of
business at One Embarcadero Center, Suite 1200, San Francisco, California 94111,
(hereinafter Licensee).
WHEREAS USC warrants that it is the owner and that it has the right to
exclusively license those inventions which are the subject matter of the patents
and patent applications listed in Appendix A and of which the inventors are Dr.
Charles McKenna of USC (hereinafter Inventors);
WHEREAS Licensee desires to obtain an exclusive license in the defined
FIELD OF USE to manufacture and market products utilizing the inventions as
hereinafter defined;
WHEREAS, USC is willing to grant a worldwide, exclusive license in the
defined FIELD OF USE to Licensee subject to the terms, conditions, limitations,
and restrictions set forth below;
NOW, THEREFORE, in consideration of the covanants herein contained, the
parties agree as follows:
2. DEFINITIONS
For all purposes of this Agreement the following terms shall have the
meanings specified below:
a. The term "PATENT" or "PATENTS" shall mean any and all patents and
patents applications listed in Appendix A (Appendix A may be added to from time
to time by USC and USC shall notify Licensee of any such additions), any and all
patents issued thereon or any continuation, division, extensions or reissue
thereof, and any and all foreign patents issuing from any application filed
which corresponds to claims contained in any of the foregoing patents or
applications.
b. "PRODUCT" or "PRODUCTS" shall mean any article, composition, apparatus,
substance, chemical, material, method or service which is made, used or sold by
Licensee which:
i. is covered in whole by one or more pending or unexpired claims
contained in a PATENT in the country in which the PRODUCT(S) is made, used or
sold;
ii. is manufactured using a method or process which is covered in whole
by one or more pending or unexpired claims contained in a PATENT in the country
in which (a) the PRODUCT(S) is made, used, or sold, or (b) the method or process
is used, or sold;
iii. the use of which is covered in whole by one or more pending or
unexpired claims contained in a PATENT in the country in which (a) the
PRODUCT(S) is made, used, or sold, or (b) the method or process is used or sold;
iv. incorporates technology transferred to Licensee pursuant to the
confidential disclosure agreement dated November 1993 between USC and Licensee.
A PRODUCT is covered by a pending or unexpired claim of a PATENT if in
the course of manufacture, use or sale, it would, in the absence of this
Agreement, infringe one or more claims of the PATENT which has not been held
invalid by a court from which no appeal can be taken.
c. "FIELD OF USE" shall mean the use of thiophosphonoformic acid (TPFA) and
derivatives thereof for treatment of infection by Cytomegalovirus (CMV) and
other viral infections.
d. "NET SALES PRICE" shall mean the gross billing price of any PRODUCT
received Licensee or its SUBLICENSEE for the sale or distribution of any
PRODUCT, less the following amounts actually paid by Licensee or SUBLICENSEE:
i. discounts allowed;
ii. returns;
iii. transportation charges or allowances
iv. packing and transportation packing material costs (not including
product containers or product packing containers as manufactured by the
Company);
v. customs and duties charges; and
vi.sales, transfer and other excise taxes or other governmental charges
levied on or measured by the sales but no franchise or income tax of any kind
whatsoever.
Every commercial use or disposition of any PRODUCT, in addition to a bona
fide sale to a customer, shall be considered a sale of such a PRODUCT, except
for promotional distributions, humanitarian uses which are uncompensated, and
products provided for testing of trial purposes. The NET SALES PRICE, in the
case
-2-
of a use or disposition other than a bona fide sale, shall be equivalent to the
then payable NET SALES PRICE of such PRODUCT in an arm's length transaction.
e. "SUBLICENSEE" shall mean any third party licensed by Licensee to make,
or sell any PRODUCT.
f. "EFFECTIVE DATE" of this Agreement shall be the date when the last party
has signed this Agreement.
3. OPTION PHASE
a. USC hereby grants Licensee the royalty-free exclusive right to practice
the invention in PATENTS to conduct various technical, pre-clinical, marketing,
patent, and other studies on PRODUCTS in the FIELD OF USE during an eighteen
(18) month period commencing on the EFFECTIVE DATE. The option period may be
extended by Licensee, for an additional twelve (12) month period, if before the
end of the original 18 month period at least one of the following conditions
occur:
i. Licensee provides additional research support to USC in the minimum
amount of $50,000;
ii. At least one patent application is filed by USC at the request of
Licensee under the terms of Paragraph 7;
iii. Licensee pays to USC an option extension fee of $15,000.
c. The consideration for the grant of this option phase shall be research
support in the amount of $163,760.00 as evidenced by a "Research Agreement,"
attached hereto as Appendix B, providing grant funds to USC for the development
of PRODUCTS. To the extent that provisions of the Research Agreement conflict
with the terms herein, this Agreement shall control.
d. All terms of this Agreement shall apply during the Option Phase unless
specifically stated to the contrary.
4. LICENSE PHASE
a. In consideration of the license fee and royalties as set forth in this
Agreement and effective upon written notification to USC during the option phase
that Licensee desires to license the PATENT(S), USC hereby grants to Licensee:
i. the exclusive worldwide license to practice the PATENTS to
manufacture and sell the PRODUCT(S) in the FIELD OF USE; and
-3-
ii. the right to grant sublicenses to any PATENT licensed exclusively
hereunder provided that any SUBLICENSEE agrees to be bound by the terms and
conditions of this Agreement applicable to SUBLICENSEES.
b. If USC is not notified of Licensee's desire to enter the license phase
by the end of the option phase or any extensions thereto, this Agreement and the
license granted herein shall immediatly terminate. Payments referred to in
Section 3 shall not be refunded upon such termination.
c. All licenses pursuant to 4.a. and 4.b. to inventions conceived or first
actually reduced to practice during the course of research funded by a U.S.
federal agency are subject to the rights, conditions and limitations imposed by
U.S. law. USC agrees to use reasonable efforts to comply with the requirements
of such laws and applicable regulations. The words "exclusive license" as used
herein shall mean exclusive except for the royalty free non-exclusive license
granted to the U.S. government by USC pursuant to 35 USC Section 202 (c) (4) for
any PATENT claiming an invention subject to 35 USC Section 201 and except for
the rights of USC and Inventors as set forth in Paragraphs 6 and 7.
d. In addition to the royalty referred to in Paragraph 5 the Licensee shall
pay USC a license fee of twenty-five hundred dollars ($2,500), payable within
five (5) days of the exercise of the option granted herein.
e. To become effective on the date of expiration of the term of this
Agreement, USC hereby grants Licensee an exclusive, paidup, worldwide license to
use the technology and all know-how in Licensee's possession relating to the
manufacture of PRODUCTS in the FIELD OF USE.
5. ROYALTY
a. On all sales of PRODUCTS anywhere in the world by Licensee, Licensee
shall pay USC a royalty of four percent (4%) of the NET SALES PRICE. This earned
royalty rate shall apply only to the initial Licensee, PerArdua. On all sales of
PRODUCTS anywhere in the world by any assignee, transferee,
successor-in-interest, or other party receiving all of Licensee's rights and
obligations as permitted under this agreement, such party shall pay USC a
royalty of one percent (1%) of the NET SALES PRICE.
b. If any PRODUCT is manufactured and sold under sublicense from the
Licensee (or Licensee's transferee or assignee of this Agreement), the Licensee,
(or its transferee or assignee) shall pay USC a royalty equal to Fifty percent
(50%) of the Licensee's (or its transferee's or assignee's) earned royalty from
the sublicense in lieu of the royalty specified in Paragraph 5a.
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c. The Licensee will pay an annual minimum royalty. The minimum royalty on
the PRODUCTS will be Twenty-Five Hundred Dollars ($2,500) commencing on the
earlier of the second year of sales or the fourth anniversary date of this
agreement, Five Thousand Dollars ($5,000) for the next succeeding year, Ten
Thousand Dollars ($10,000) for the following year, and thereafter Twenty-Five
Thousand Dollars ($25,000) for each succeeding year up to the date of expiration
of the last PATENT. Minimum royalties are to be paid biannually to USC, one half
due and payable on January 1 of each year and the second half due and payable on
July 1 of each year. Should Licensee fail to make earned royalty payments
sufficient to meet said minimum royalty requirements, it may pay the difference
between the earned royalty requirement to keep this Agreement in force.
d. The minimum royalty amounts listed above shall apply only to the initial
Licensee, PerArdua. The minimum royalty requirement for the assignee,
transferee, successor-in-interest, or other party receiving all of Licensee's
rights and obligations as permitted under this Agreement shall be five times the
amounts listed in Paragraph 5.c. The payments shall be due on the same dates as
required above.
e. If it become desirable to engineer a PRODUCT into a complex with a drug,
toxin or other therapeutic agent, the royalty as defined in Paragraph 5a will be
applied, but the net selling price as defined in Paragraphs 5b and 5c will be
based on the net sales price of the complex minus the net sales price of the
drug, toxin or therapeutic agent when sold alone.
f. Licensee shall pay such royalties to USC on a calendar quarter basis.
With each quarterly payment, Licensee shall deliver to USC a full and accurate
accounting to include at least the following information:
i. Quantity of each PRODUCT sold (by country) by Licensee and its
SUBLICENSEES;
ii. Total receipts for each PRODUCT (by country);
iii. Quantities of each PRODUCT used by Licensee and its SUBLICENSEES;
iv. Names and addresses of SUBLICENSEES of Licensee; and
v. Total royalties payable to USC.
g. In each year the amount of royalty due shall be calculated quarterly as
of March 31, June 30, September 30 and December 31 and shall be paid quarterly
within the thirty next(30) days following such date. Every such payment shall be
supported by the accounting prescribed in paragraph 5.e. and
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shall be made in United States currency. Whenever for the purpose of calculating
royalties conversion from foreign currency shall be required, such conversion
shall be at the rate of exchange thereafter published in the Wall Street Journal
for the business day closest to the applicable end of calendar quarter.
h. The royalty payments due under this Agreeement shall, if overdue, bear
interest until payment at a per annum rate equal to one and a half percent
(1.5%) above the prime rate in effect at Bank of America, Los Angeles on the due
date, not to exceed the maximum permitted by law. The payments of such interest
shall not preclude USC from exercising any other rights it may have as a
consequence of the lateness of any royalty payment.
6. RIGHTS RETAINED BY UNIVERSITY
Notwithstanding the exclusive license granted in Paragraph 4a, USC and
Inventors will have the absolute, nontransferable right to use the technology
covered by the PATENTS and all improvements thereof, in conducting research.
7. PATENT PROSECUTION
a. USC shall file, prosecute and maintain, during the course of this
Agreement, the patent applications and patents listed in Appendix A. Should
Licensee require the filing of foreign patents, USC shall take responsibility
for filing, prosecuting and maintaining said foreign patents.
b. Notwithstanding the reimbursement obligation of Licensee in Paragraph
7.c. for expenses incurred by USC prior to the EFFECTIVE DATE, Licensee may
defer reimbursement to the following dates: i) when Licensee assigns its rights
under Paragraph 16 or ii) when Licensee exercises its option and takes a
license under this Agreement. Notwithstanding, all expenses under Paragraph
7.a. incurred by USC before the EFFECTIVE DATE shall be reimbursed by Licensee
within 60 days after USC files the first U.S. patent application, other than
those on file on the EFFECTIVE DATE, covering the use of PRODUCT. All expenses
under Paragraph 7.a. incurred by USC after the EFFECTIVE DATE shall be
reimbursed by Licensee within 30 days of request by USC.
c. Licensee shall reimburse all reasonable legal expenses incurred plus a
15% administrative fee on the expenses and paid by USC in filing, prosecuting
and maintaining the U.S. and foreign applications listed (or to be listed
pursuant to Paragraph 2a.) in Appendix A, whether such expenses were incurred
before or after the date of this Agreement. These legal expenses shall include
the attorneys' and agents' fees, foreign filing fees and out-of-pocket costs
associated with responding to office actions and any other fees and costs
directly related to obtaining and/or maintaining patent protection in the
countries
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listed in Appendix A. Licensee is not obligated to reimburse the legal expenses
which were incurred prior to the EFFECTIVE DATE which exceed, in total, twelve
thousand nine hundred dollars ($12,900). Licensee shall advance payments of
maintenance fees and annuities as part of such legal expenses to be reimbursed
by Licensee within 30 days of request by USC, unless Licensee is advised
otherwise by timely notice from USC.
d. If the Licensee elects (i) not to pursue a PATENT or (ii) to terminate
the prosecution or maintenance of a PATENT in any country, the Licensee
surrenders its right to make, sue or sell PRODUCTS covered by the non-elected
PATENT in that particular country and shall grant to USC the exclusive rights
previously granted to Licensee, without limitation, for that country. Licensee
agrees to execute all necessary documents to carry out this grant of rights to
USC. Payments referred to in Paragraphs 7.a. and 7.b. shall not be refunded upon
such non-election or termination.
8. IMPROVEMENTS
Should Inventors or any successor, conceive substantial improvements to the
technology, whether patentable or not, during the course of this Agreement which
are not covered by a PATENT, USC will inform the Licensee of said substantial
improvements and offer the right of first refusal to obtain an option and
license for such invention on the same terms as those set forth herein, except
that no additional option or license fees are due, which right of refusal, if
not accepted within 60 days, will be deemed to be rejected. Thereafter, USC
shall be free to offer a corresponding option and license to any other party. If
there is any subsequent modification of those terms, USC shall notify Licensee
of such modification in writing and again to offer Licensee a right of first
refusal. Any resubmission to Licensee based upon a modification of the terms
initially offered to Licensee shall be deemed to be rejected if not accepted in
writing within twenty (20) days. Nothing in this Agreement shall be construed to
give Licensee a royalty-free license to these substantial improvements.
9. PATENT INFRINGEMENT
a. Defensive Controversy
Except for the placing in escrow of a portion of royalties as referred to
hereinafter, USC shall have no obligation or liability in the event that legal
action is brought against Licensee for patent infringement. License may choose
legal counsel and defend the patent infringement lawsuit. During such lawsuit,
Licensee may place all of the royalties derived from sales of the PRODUCT in the
country where such lawsuit is pending in an interest-bearing escrow account. The
escrow
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account shall be established in a bank mutually acceptable to both parties
under escrow instructions insulating the funds from claims of any creditor. Upon
termination of the action, one-half (1/2) of any judgment amount, reasonable
attorneys' fees and costs, may be paid from this escrow account. Should the
settlement of any such patent infringement lawsuit involve payment of royalties
by Licensee to a third party for the continued right to manufacture, use, and
sell the PRODUCT, then funds in the escrow account and royalties payable to USC
may be applied against up to one-half (1/2) of such royalties to a third party.
Any funds thereafter remaining in the escrow shall be paid to USC. The above
shall constitute USC's sole liability in the event of such action. Royalties
paid to third parties as provided for above shall be included when determining
whether the minimum royalty provided for in this Agreement has been paid in a
given year. During the patent infringement litigation both parties shall keep
each other informed in writing of significant developments in the lawsuit.
b. Offensive Controversy.
In the event that a third party infringes on a PRODUCT, Licensee shall have
the right but not an obligation to bring legal action to enforce any such
patent. If Licensee exercises such right, Licensee shall select legal counsel
and pay all legal fees and costs of prosecution of such action. In the event
that Licensee shall choose not to take such action, USC shall have the right, at
its option and at its own expense, to prosecute any action to enjoin such
infringement or to prosecute any claim for damages. The party prosecuting any
such action shall be entitled to retain any funds received as a result of
settlement or judgment of such action. The parties may also agree to jointly
pursue infringers. After deduction and payment to the parties of their
respective costs and fees incurred in prosecuting any such actions, the net
funds obtained as a result of settlement or of judgment of any such jointly
prosecuted action shall be divided in the following manner: 25% of all net funds
shall be divided equally by the parties and 75% of all the net funds shall be
divided between the parties in the proportion to the amount of legal fees and
costs incurred by the parties in the prosecution of such actions. If funds are
insufficient to pay all costs and fees then all of the funds shall be paid to
the parties in such proportion.
c. During any litigation hereunder both parties shall keep each other
timely informed of any significant development in the litigation and provide all
reasonably requested non-monetary assistance. During any said controversy, full
royalty payment shall continue, except as otherwise provided herein.
-8-
10. RECORDS
Licensee and SUBLICENSEES shall keep complete, true and accurate books of
account and records for the purpose of showing the derivation of all amounts
payable to USC under this Option and License Agreement. Said books and records
shall be kept at Licensee's principal place of business for at least four (4)
years following the end of the calendar year to which they pertain and shall be
open at all reasonable times for inspection by a representative of USC for the
purpose of verifying Licensee's royalties statement or Licensee's compliance in
other respects with this Option and License Agreement. All information obtained
as a result of such audit shall be maintained in confidence, except during each
year, as determined in such audit. Should an audit by USC show an underpayment
of royalties by more than 10%, Licensees shall pay for USC's reasonable audit
expenses.
11. SERVICES OF INVENTORS
USC shall make reasonable efforts to make Inventors available during
regular business hours to answer questions concerning certain technical aspects
of the technology. Should Licensee desire to use the services of Inventors for
further testing and/or market studies of the technology, a separate research and
development and/or consulting agreement should be negotiated with Inventors and
the USC Office of Contracts and Grants.
12. SUBLICENSE PERMISSION
Licensee may sublicense the PATENT(S) only with prior written permission
from USC, which permission will not be unreasonably withheld.
13. PATENT MARKING
Licensee shall use reasonable efforts to place all appropriate patent
marking and indicia on product and marketing literature for the PRODUCTS as
needed to protect the patent of USC and right for damages for infringement
thereof.
14. PUBLICATIONS
Nothing in this Agreement shall limit or prevent USC or Investors from
publishing any information about the PATENT. Thirty (30) days prior to
submission for publication, USC and Inventors will use their reasonable efforts
to submit the proposed publication, for review only, to Licensee.
-9-
15. PUBLICITY
Neither party shall use the name, tradename, trademark or other designation
of the other party in connection with any products, promotion or advertising
without the prior written permission of the other party.
16. ASSIGNMENTS/TRANSFERS
Licensee may not assign or transfer this Agreement in whole or part to any
third party without the prior written permission of USC, which permission shall
not be unreasonably withheld. The Licensee may only assign the entire Agreement
to successors of the entire business of the PRODUCTS if the successor agrees to
be bound by this Agreement and prior written notice is provided to USC. Upon
assignment or transfer of this Agreement by Licensee, Licensee agrees to pay USC
4% of the proceeds received by Licensee for such assignment or transfer.
17. TERMINATION
a. Upon the breach of or default under this Option and License Agreement by
either party, the non-breaching party may terminate this Option and License
Agreement by forty-five (45) days written notice to the breaching party. Said
notice shall be effective at the end of such period unless during said period
breaching party shall remedy such defect or default. Licensee may also terminate
this Agreement at any time, for any reason, by providing USC a thirty (30) days
written notice. No option fees, license fees, or royalties shall be returnable.
Upon termination of the Agreement all rights granted to or provided by each
party to the other shall automatically and irrevocably revert to the granting
party.
b. Surviving any termination are:
i. Licensee's obligation to pay royalties accrued or accruable.
ii. Licensee's obligation of Paragraph 10 to keep and follow a
final audit.
iii. Any cause of action or claim of Licensee or USC, accrued or to
accrue, because of any breach or default by the other party.
iv. The provisions of Paragraphs 23, 24 and 25.
18. NOTICES, REPORTS AND PAYMENTS
Any notice, report or payment permitted or required under this Agreement
shall be in writing, and shall be sent or
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delivered to the receiving party at the address as such party may from time to
time designate.
USC: Officer of Patent and Copyright Administration
University of Southern California
3716 South Hope Street, Suite 313
Los Angeles, California 90007-4344 (U.S.A.)
Attn: Director
LICENSEE PerArdua, Inc.
One Embarcardero Center, Suite 1200
San Francisco, California 94111
Attn: Chief Executive Officer
19. PARAGRAPH HEADINGS
Paragraph headings are for the convenience of this Agreement only and shall
not add to or detract from any of the terms or provisions.
20. SEVERABILITY
If any provision of this Agreement is held invalid under any law applicable
to the parties, SUBLICENSEES and assignees, that provision shall be considered
severable and its invalidity shall not affect the remainder of this Agreement,
which shall continue in full force and effect.
21. CONTROLLING LAW, JURISDICTION AND VENUE
This Agreement shall be deemed to be executed and to be performed in the
State of California, and shall be construed in accordance with the laws of the
State of California as to all matters, including but not limited to matters of
validity, construction, effect and performance.
22. TERM OF THE AGREEMENT
Except as otherwise terminated pursuant to the other provisions of this
OPTION AND LICENSE AGREEMENT, this Agreement shall terminate upon expiration of
the last to expire of the patents or fifteen (15) years from the Effective Date
of this Agreement, whichever is longer.
-11-
23. NEGATION OF WARRANTIES
a. Nothing in this Agreement shall be construed as:
i. a warranty or representation by USC as to the validity or scope
of the PATENT and/or PATENT Application; or
ii. a warranty or representation that any PRODUCTS made, used, sold
or otherwise disposed of under any license granted in this
Agreement is or will be free from infringement of patents of
third parties; or
iii. an obligation to bring or prosecute actions or suits against
third parties for infringement; or
iv. conferring the rights to use in advertising, publicity or
otherwise any trademark, trade name, or names or any
contraction, abbreviation, simulation or adoption thereof, of
USC or Licensee; or
v. any obligation to furnish any know-how not provided.
b. USC MAKES NO EXPRESS OR IMPLIED WARRANTIES OR MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE, nor does USC represent that the rights granted
hereunder will result in PRODUCTS that are commercially successful.
c. Licensee further agrees that it will not rely upon technical information
provided by USC and Inventors in developing and manufacturing any PRODUCTS
hereunder, but will independently test, analyze and evaluate all PRODUCTS prior
to manufacture and distribution of such PRODUCTS.
24. INDEMNITY
a. Licensee shall defend, indemnify and hold harmless USC and its trustees,
officers, medical and professional staff, employees and agents and their
respective successors, heirs and assigns (the "Indemnitees"), against all
liability, demand, damage, loss, or expense incurred by or imposed upon the
Indemnitees or any one of them in connection with any claims, suits, actions,
demands or judgments arising out of any theory of liability (including but not
limited to, actions in the form of tort, warrantee, or strict liability) for
death, personal injury, illness, or property damage arising from Licensee's use,
sale, or other dispostion of the PRODUCTS(S).
B. Licensee agrees, at its own expense, to provide attorneys reasonably
acceptable to USC to defend against any
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actions brought or filed against any party indemnified hereunder with respect to
the subject of indemnity contained herein, whether or not such actions are
rightfully brought.
25. INSURANCE
a. Upon the execution of this Agreement Licensee shall at its sole cost and
expense, procure and maintain in effect a comprehensive general liability policy
of insurance in single limit coverage of not less than One Million Dollars
($1,000,000) per incident and One Million Dollars ($1,000,000) annual aggregate
for death, bodily injury or illness and Two Hundred thousand Dollars ($200,000)
annual aggregate in property damage. Such comprehensive general liability
insurance shall provide (i) product liability coverage and (ii) broad form
contractual liability coverage for Licensee's indemnification. If Licensee
elects to self-insure all or part of the limits described above (including
deductibles or retention which are in excess of $50,000 annual aggregate) such
self-insurance program must be acceptable to USC. Each such policy of insurance
shall name USC as an additional insured and shall provide for not less than
thirty (30) days prior written notice before any cancellation or material change
in coverage shall be effective. A Certificate evidencing the comprehensive
general liability policy herein defined shall be delivered to USC within ten
(10) days of the EFFECTIVE DATE of this Agreement. Licensee shall maintain such
comprehensive general liability insurance until such time as the policy in
Paragraph 25.5 is procured, or until fifteen years after the term of this
Agreement.
b. During such time and in each country where PRODUCT, or any modification
thereof, is administered to humans, manufactured or distributed for any such
purpose (including for the purpose of obtaining regulatory approvals) by
Licensee or any SUBLICENSEE, Licensee shall at its sole cost and expense,
procure and maintain in effect a comprehensive general liability policy of
insurance in single limit coverage of not less than Ten Million Dollars
($10,000,000) per incident and Ten Million Dollars ($10,000,000) annual
aggregate for death, bodily injury, illness or property damage. Such
comprehensive general liability insurance shall provide (i) product liability
coverage and (ii) broad form contractual liability coverage for Licensee's
indemnification. If Licensee elects to self-insure all or part of the limits
described above (including deductibles or retention which are in excess of
$250,000 annual aggregate) such self-insurance program must be acceptable to
USC. Each such policy of insurance shall name USC as an additional insured and
shall provide for not less than thirty (30) days prior written notice before any
cancellation or material change in coverage shall be effective. A Certificate
evidencing the comprehensive general liability policy herein defined shall be
delivered to USC prior to any manufacture, sale, distribution or administration
to humans. Licensee shall maintain such comprehensive general liability
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insurance during the period that the PRODUCT or any modification thereof is
being manufactured, sold, distributed or administered to humans by the Licensee
or its SUBLICENSEES and a reasonable period thereafter which in no event shall
be less than fifteen (15) years.
c. Alternatively, Licensee and USC may obtain an independent opinion from
legal counsel mutually agreeable to the parties in each country in which
Licensee intends to manufacture and/or distribute PRODUCTS, such opinion to
assist in determining the amount of general and products liability insurance
required to be carried by Licensee in such country. Where independent legal
counsel determines that little or no liability risk to USC exists under the
present and reasonably anticipated future legal trends in that country, Licensee
will be required to maintain liability insurance on USC's behalf which is
determined by USC to be reasonably adequate to pay litigation defense costs.
Where independent legal counsel determines that the risk of liability on the
part of USC is more than minimal in that country, USC and Licensee will evaluate
such risk and negotiate in good faith to determine the amounts of liability
insurance necessary to reasonably insure USC's interests. If USC and Licensee
cannot agree on the amounts and types of insurance reasonably necessary to
protect USC's interest in a particular country, Licensee will not manufacture or
market the PRODUCTS in that country.
d. In the event that Licensee does not maintain such insurance, but is
self-insured, or carries a substantial self-retention, USC may grant permission
for such sublicense only if, in the sole discretion of USC, the net worth,
assets and earnings of such prospective SUBLICENSEE are deemed sufficient to
protect USC's economic interests in the event of claims, liability, demands,
damages, expenses and losses from, death, personal injury, illness, or property
damage.
e. The minimum amounts of insurance coverage required under this Paragraph
(subparts 25.1., 25.b. and 25.c.) shall not be construed to create a limit of
Licensee's liability with respect to its indemnification in Paragraph 24 of this
Agreement.
f. BY SUBLICENSEES
As a condition precedent to a grant of permission by USC for Licensee to
sublicense the PATENT rights herein, the prospective SUBLICENSEE shall agree to
indemnify Licensee and USC to the same extent and degree as Licensee has agreed
to indemnify USC herein. Such SUBLICENSEE shall also provide insurance identical
in coverage and amount to that required of Licensee in subparagraph a, above,
naming both Licensee and USC as additional insured. A Certificate evidencing the
comprehensive general liability policy shall be delivered to USC prior to USC's
giving permission for such sublicensing agreement and a Certificate evidencing
the product liability coverage shall be delivered prior to first manufacture of
any PRODUCTS by the SUBLICENSEE. In the event a
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prospective SUBLICENSEE does not maintain such insurance, but is self-insured,
or carries a substantial self-retention, USC may grant permission for such
sublicense only if, in the sole discretion of USC, the net worth, assets and
earnings of such prospective SUBLICENSEE are deemed sufficient to protect USC's
economic interests in the event of claims, liability, demands, damages, expenses
and losses from death, personal injury, illness, or property damage.
26. ATTORNEYS' FEES
In any action on or concerning this Agreement, the prevailing party shall
be awarded its reasonable attorneys' fees, costs and necessary disbursements, to
be paid by the nonprevailing party.
27. PRODUCT DEVELOPMENT
If Licensee exercises its option, Licensee shall use its reasonable efforts
to test, develop the PRODUCT for commercial purposes throughout the world. On or
before January 1 of each year during the term of this Agreement, commencing
January 1, 1994, Licensee shall submit to USC a report detailing its research,
regulatory approval, marketing and product development objectives the coming
year as well as the research, regulatory approval, marketing and development
activities which Licensee undertook during the preceding year. The reports shall
identify specific future milestones (regulatory approval and product
development) and information demonstrating that the Licensee is providing
sufficient financial and manpower resources to evidence its use of reasonable
efforts. Within six (6) months after the signing of this Agreement and each two
years thereafter, provided that Licensee has executed its option, a
representative of the Office of Patent and Copyright Administration of USC, at
Licensee's expense (including transportation, and, if appropriate, lodging and
meals), shall visit the manufacturing and marketing facilities of Licensee and
be presented with an in-depth updating of the manufacturing capability and
marketing network of Licensee. No visit shall take place unless Licensee has
exercised its option.
28. INDEPENDENT CONTRACTOR
In rendering performances under this Agreement, Licensee will function
solely as an independent contractor and not as agent, partner, employee or joint
venturer with USC.
29. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof. No amendment of
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this Agreement shall be binding on the parties unless mutually agreed to and
executed in writing by each of the parties.
UNIVERSITY OF SOUTHERN PERARDUA INVESTORS, L.P.
CALIFORNIA
/s/ Dennis F. Dougherty /s/ Norman H. Scheint
- ------------------------------------- -----------------------------------
(Signature) (Signature)
Dennis F. Dougherty Norman H. Scheint
- ------------------------------------- -----------------------------------
(Print or Type Name) (Print or Type Name)
Senior Vice President, President, PerArdua, Inc.
Administration General Partner
- ------------------------------------- -----------------------------------
(Official Title) (Official Title)
3-28-94 3-9-94
- ------------------------------------- -----------------------------------
(Date) (Date)
ACKNOWLEDGED
/s/ Charles E. McKenna
- -------------------------------------
Charles E. McKenna
Department of Chemistry
Principal Investigator
3/28/94
- -------------------------------------
(Date)
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APPENDIX A
Filing Issue
USC # Serial # Date Patent # Date Country TITLE
- --------------------------------------------------------------------------------
2227 369,468 6/21/89 5,072,032 12/10/91 U.S.A. Preparation and Use
of Thiophosphonates
and Thioanalogues of
Phosphonoformic Acid
2227A 768,155 9/30/91 5,183,812 2/2/93 U.S.A. Preparation and Use
of Thiophosphonates
and Thioanalogues of
Phosphonoformic Acid
-17-
DRAFT APRIL 1, 1996
AMENDMENT
THIS AMENDMENT is between the UNIVERSITY OF SOUTHERN CALIFORNIA (hereinafter
USC), a California nonprofit corporation with its principal place of business at
University Park, Los Angeles, California 90089, and PerArdua Investors, L.P., a
California limited partnership, with its principal place of business at One
Embarcadero Center, Suite 1200, San Francisco, California 94111, (hereinafter
Licensee).
WHEREAS USC and Licensee are parties to an Option and License Agreement
(hereinafter "AGREEMENT") for certain USC inventions;
WHEREAS the initial eighteen month option period as set forth in paragraph 3.a
has been extended twelve months upon the occurance of one or more of the
conditions specified in paragraph 3.a.i, 3.a.ii or 3.a.iii of the AGREEMENT;
WHEREAS Licensee desires to obtain an additional extension to the options period
in the AGREEMENT in consideration of the payment of additional funds in
connection with an extension of an existing research grant.
NOW, THEREFORE, in consideration of the covenants herein contained, the parties
agree as follows:
Provided the Licensee pays to USC $32,813 (under a separate written
agreement for the extension of existing research grant(s) executed by each
party) on or before October 1, 1996, the Option period in Paragraph 3.a. of the
AGREEMENT shall be extended to and including October 1, 1997.
The conditions specified in paragraphs 3.a.i, 3.a.ii and 3.a.iii of the
Agreement applied only to the initial eighteen month option period specified in
paragraph 3.a of the AGREEMENT and the occurance of any of these milestones
shall have no effect on the duration of the option period as amended herein.
UNIVERSITY OF SOUTHERN PERARDUA INVESTORS, L.P.
CALIFORNIA
/s/ Dennis F. Dougherty /s/ Craig H. Scheint
- ------------------------------------- -----------------------------------
(Signature) (Signature)
Dennis F. Dougherty Craig H. Scheint
- ------------------------------------- -----------------------------------
(Print or Type Name) (Print or Type Name)
President & CEO, PerArdua, Inc.
Sr. V.P., Administration its General Partner
- ------------------------------------- -----------------------------------
(Official Title) (Official Title)
4-2-96 4-15-96
- ------------------------------------- -----------------------------------
(Date) (Date)
STOCKHOLDERS' AGREEMENT
AGREEMENT made as of this 8th day of July, 1996, by and among PerArdua
Corporation, a Missouri corporation (the "Corporation"), and the following
owners of the Common Stock, par value $.001 per share, of the Corporation (the
"Shares"): Francis E. O'Donnell, Jr. ("O'Donnell"), Samuel P. Sears, Jr., as
Trustee of the Jonnie R. Williams Irrevocable Trust #1 ("Williams"), Thomas L.
DePetrillo ("DePetrillo"), Samuel P. Sears, Jr. ("Sears"), Charles E. McKenna
("McKenna"), Thomas Wolfe ("Wolfe"), Mary Anthony Gray ("Gray"), the University
of Southern California ("USC"), and the Limited Partners of PerArdua Investors,
L.P. on the attached Exhibit A. All of the above named stockholders shall be
collectively referred to hereinafter as the "Stockholders" and may individually
and interchangeably be referred to as a "Stockholder." O'Donnell, Williams,
Sears and DePetrillo shall be referred to collectively as the "O'Donnell Group,"
McKenna, Wolfe and Gray shall be referred to collectively as the "MWG Group,"
and the remaining Stockholders shall be referred to collectively as the "LP
Group."
WHEREAS, the Corporation and the Stockholders have devised a plan for
the financing of the Corporation and believe it is in their mutual best
interests to provide for stability of management and stock ownership in
furtherance of said financing plan;
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Subscriptions.
The Corporation hereby accepts each of the subscriptions (the
"Subscriptions") for purchase of Shares and Common Stock warrants ("Warrants")
of each of USC, the MWG Group and the LP Group, a form of which Subscription is
attached hereto as Exhibit B. The amounts of Shares and Warrants to be purchased
by each of USC, the MWG Group and the LP Group are set forth on Exhibit C
attached hereto. The form of the Warrants is set forth as Exhibit D attached
hereto. The Corporation shall issue certificates for the Shares and the Warrants
as soon as practicable after the date hereof and upon payment of the purchase
price thereof.
2. Certificate of Amendment.
The Corporation shall file a certificate of amendment to its
certificate of incorporation to provide for cumulative voting. Prior to the
initial public offering of the Company's securities on the terms described in
Section 5 hereof, the parties hereto shall thereupon use their best efforts to
cause a new certificate of amendment to the Corporation's certificate of
incorporation to be filed to eliminate the cumulative voting provisions thereof.
1.
3. Private Placement.
The Corporation and the O'Donnell Group shall use their reasonable best
efforts to effect a private placement of 800,000 Shares of the Corporation at a
price of $1.25 per share for total proceeds of $1,000,000 within ninety (90)
days of the date of this Agreement (the "Private Placement"). Such proceeds
shall be used to exercise that certain Option to purchase assets from PerArdua
Investors, L.P. pursuant to the Option and Asset Purchase Agreement dated of
even date herewith, and to support pre-clinical studies for the continued
development of the drug Thiofoscarnet estimated to be approximately $150,000,
and to provide working capital for the Corporation.
4. Call Rights.
In the event the Private Placement is not effected as defined in
Section 3 above, PerArdua Investors, L.P., a California limited partnership (the
"Partnership") shall have the right to purchase from each member of the
O'Donnell Group all of their Shares at a price of $.001 per Share (the
"O'Donnell Call Right"). The O'Donnell Call Right shall be exercised, if at all,
by written notice thereof given to each of the O'Donnell Group within 30 days
after the end of the 90-day period described in Section 3. Upon such exercise,
each of the O'Donnell Group shall promptly tender the certificates for their
Shares for transfer. Also upon such exercise, all of the Warrants held by the
O'Donnell Group shall be automatically cancelled.
5. No Issuance of Shares.
The parties agree that, while this Agreement is in effect, the
Corporation shall not issue any Shares or other securities of the Corporation
except (a) pursuant to the Private Placement, (b) pursuant to the Subscriptions,
(c) Shares issuable upon exercise of Warrants held by the O'Donnell Group to
purchase 500,000 Shares at a price not less than $10.00 per Share and
exercisable only after such time as the Corporation has an FDA approved drug for
sale ("FDA Approval"), and (d) options to purchase 500,000 Shares at an exercise
price of $7.50 exercisable following FDA Approval, which options may be issued,
if at all, to members of management of the Corporation in the discretion of its
Board of Directors. Notwithstanding the restriction upon issuance of Securities
contained herein, it is understood and agreed that the Corporation and the
O'Donnell Group shall use their reasonable best efforts to obtain, on or before
December 31, 1996, a so-called "firm commitment" for an initial public offering
from a securities underwriter for the purchase and sale, subsequent to the
Private Placement, of 1,000,000 Shares at $5.00 per Share in a "unit"
transaction whereby a warrant to purchase a Share at $7.50 per Share would be
sold with each Share sold (the "IPO"). The Corporation and the O'Donnell Group
shall use their reasonable best efforts to close the IPO on or before March 31,
1997.
2.
6. Restrictions on Transfer.
(a) No Stockholder shall sell or otherwise transfer any of the Shares
without the prior consent of the Board of Directors of the Corporation.
(b) The restriction set forth in this Section 6 is in addition to any
restrictions which may be set forth in the Subscription Agreements with respect
to the Subscriptions.
7. "Lock-up" Agreement.
Each of the Stockholders agrees that, in connection with the IPO and if
required by the underwriter of the IPO, each Stockholder shall agree, and shall
execute and deliver a written instrument to that effect, that he, she or it
shall not sell any Shares following the date of the IPO and for a period not to
exceed one year (the "Lock Up Period") thereafter without the prior written
consent of said underwriter; provided however, that the Lock Up Period
automatically shall be reduced to such shorter lock up period applicable to any
other Corporation shareholder in connection with any public offering.
8. Cooperation with Private Placement and Registration
Process.
Each of the Stockholders agrees that he, she or it will cooperate with
the Corporation with respect to the Private Placement and the IPO by promptly
providing such information and by executing and delivering such instruments and
documents as may be reasonably requested by the Corporation for such purposes.
9. Voting Agreement.
USC, the MWG and the LP Group agree that for the term of this Agreement
they shall vote their shares for the election of the O'Donnell Group Directors,
to the extent that such vote is necessary when added to the votes cast for all
shares held by the O'Donnell Group Members to elect such directors. The
"O'Donnell Group Directors" means the minimum number of directors constituting a
majority of the Board of Directors who shall have been appointed by O'Donnell.
10. Stockholder Rights.
Prior to the closing of the IPO, a representative elected by a majority
in interest of USC, the LP Group and the MWG Group, voting together (with each
share of common stock entitled to one vote), (the "Representative") shall have
the right to receive due notice of all meetings of the Board of Directors, and
shall have the rights to attend and participate in the discussions at all such
meetings. The Representative shall have the right to receive all written
material and information made available to the Board of Directors, including
without limitation, audited financial information for the Corporation. In
addition, prior to December 31, 1996, the Company will deliver to the
3.
Representative, as soon as practical after the end of each month and in any
event within thirty (30) days thereafter, a consolidated balance sheet of the
Company and its subsidiaries, if any, as at the end of such month and
consolidated statements of income and cash flows of the Company and its
Subsidiaries, for each month and for the current fiscal year of the Company to
date, all subject to normal year-end audit adjustments, prepared in accordance
with generally accepted accounting principles consistently applied and certified
by the principal financial or accounting officer of the Company, together with a
comparison of such statements to the corresponding periods of the prior fiscal
year and to the Company's operating plan then in effect and approved by its
Board of Directors. Following December 31, 1996, all of the foregoing statements
shall be prepared and delivered to the Representative on a quarterly basis.
11. Legend Requirements.
(a) Certificates representing all shares of the common stock of the
Corporation shall be endorsed with a legend which provides substantially as
follows:
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS
OF THAT CERTAIN STOCKHOLDERS' AGREEMENT DATED JULY 8,
1996 (AS SUCH AGREEMENT MAY BE AMENDED) BY AND AMONG THE
CORPORATION AND ITS SHAREHOLDERS. A COPY OF SUCH
AGREEMENT IS ON FILE IN THE PRINCIPAL OFFICE OF THE
CORPORATION, A COPY OF WHICH WILL BE SENT WITHOUT CHARGE
TO EACH STOCKHOLDER WHO SO REQUESTS. SUCH REQUEST MUST
BE MADE TO THE SECRETARY OF THE CORPORATION AT ITS
PRINCIPAL OFFICE.
(b) The legend described in paragraph (a) of this Section 11 shall be
removed upon the termination of this Agreement.
12. Termination.
This Agreement, and all obligations set forth herein (except as
specially otherwise provided) shall automatically terminate upon the first to
occur of the following:
(a) the valid exercise by the Partnership of the O'Donnell Call Right
(the obligations to close the purchase and sale of Shares subject to such call
rights shall survive termination);
(b) the closing of the IPO;
(c) June 30,1997; or
(d) written agreement of all the Stockholders to terminate this
Agreement.
4.
It is understood and agreed that each of the agreements, other than
this Agreement, which are referenced in this Agreement has independent
significance and shall not be terminated by reason of the termination of this
Agreement.
13. Miscellaneous.
(a) Notices. All notices and communications provided in, or
given in connection with, this Agreement shall be deemed given if in writing
delivered personally, or sent by overnight courier service, by certified or
registered mail, postage prepaid, or by facsimile transmission and shall be
deemed received, in the case of personal delivery, when delivered, in the case
of overnight courier service, on the next business day after delivery to such
service, in the case of mailing, on the third postal delivery day after mailing,
and, in the case of facsimile transmission, upon transmittal. Notices to any
party shall be sent to it at the address set forth opposite the Stockholder's
name on Exhibit A attached hereto, or in the case of the Corporation c/o
O'Donnell, or any other address of which the other parties are notified in
writing.
(b) Binding Effect; Assignment. All the provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, representatives, successors and assigns. No
assignment hereof shall relieve any party of its obligations hereunder.
(c) Amendments. Any term, agreement or condition of this
Agreement may be amended or waived if, but only if, such amendment or waiver is
in writing signed by all the parties hereto or, in the case of a waiver, by the
party waiving an obligation or condition applicable to the other parties.
(d) Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the extent of such prohibition or unenforceability
without invalidating the remainder of such provision or the remaining provisions
hereof or affecting the validity or enforceability of such provision in any
other jurisdiction.
(e) Arbitration. Except with respect to a claim for equitable
relief, any controversy or claim arising out of, or relating to, this Agreement,
or the making, performing, or interpreting hereof, shall be settled by
arbitration according to the following rules: (i) arbitration will be held in
San Francisco, California in accordance with the Commercial Arbitration Rules of
the American Arbitration Association then in effect; (ii) the arbitration will
be conducted by a single arbitrator who is a licensed attorney with at least 15
years of experience in dealing with statutory close corporations formed in
jurisdictions including Delaware and California; in the absence of mutual
agreement on a single arbitrator, each relevant party
5.
to the arbitration will submit three names of proposed arbitrators to the
Presiding Judge of the San Francisco Superior Court who will be petitioned to
select one person to serve as the arbitrator; (iii) the arbitration will be
conducted in an expedited manner, designed to preserve the confidentiality of
the dispute; (iv) the decision of the arbitrator will be final and binding in
the absence of manifest fraud; and (v) the arbitrator will be directed to make
findings as to which parties have substantially prevailed in the proceeding and
which parties have failed substantially to prevail in the proceeding, with the
parties who have failed substantially to prevail being joint and severally
liable for the fees and expenses of the arbitrator and the reasonable attorneys'
fees and costs of the prevailing parties.
(f) Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Missouri.
(g) Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and shall be binding upon all parties, their heirs, representatives,
successors and assigns, and all of which taken together shall constitute one and
the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first written above.
O'DONNELL GROUP: /S/
------------------------------
Francis E. O'Donnell, Jr.
/s/
------------------------------
Samuel P. Sears, Jr.,
as Trustee for the Jonnie R.
Williams Irrevocable Trust #1
/s/
------------------------------
Thomas L. DePetrillo
MWG GROUP: /S/
------------------------------
Samuel P. Sears, Jr.
/s/
------------------------------
Charles E. McKenna
6.
/s/
------------------------------
Thomas Wolfe
/s/
------------------------------
Mary Anthony Gray
USC: THE UNIVERSITY OF
SOUTHERN CALIFORNIA
/s/
------------------------------
Its:
--------------------------
LIMITED PARTNERS: /s/
------------------------------
Print Name:
-------------------
THE CORPORATION: PERARDUA CORPORATION
/s/
------------------------------
Its:
--------------------------
7.
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
AGREEMENT, dated and effective as of September 3, 1996 by and between
PerArdua Corporation, a Missouri corporation, (the "Company") and Mary Anthony
Gray, an individual with an ADDRESS AT 10538 Strathmore Drive, Los Angeles,
California 90024 ("Executive").
WITNESSETH:
WHEREAS, the Executive is willing to serve as Executive Vice President
and Chief Operating Officer of the Company, and the Company desires to retain
the Executive in such capacities on the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. Employment; Position and Duties; Extent of Services.
(a) Employment. The Company agrees to employ the Executive,
and the Executive agrees to be employed by the Company, for the Term provided in
Section 2 below and upon the other terms and conditions hereinafter provided.
(b) Position and Duties. During the Term as defined in
Section 2 herein, the Executive agrees to serve as the Executive Vice
President and Chief Operating Officer of the Company and to perform such
reasonable duties consistent with such position as may be delineated by the
Chief Executive Officer and as may be assigned to her from time to time by the
Board of Directors and/or Chief Executive Officer of the Company.
(c) Extent of Services. During the Term, and except for
illness or incapacity, the executive shall devote not less than seventy-five
percent (75%) of her business time, attention, skill and efforts exclusively to
the business and affairs of the Company, shall not be engaged in any business
activity in violation of Section 6 of this Agreement or which would conflict
with her obligations hereunder, and shall perform and discharge well and
faithfully the duties which may be assigned to her from time to time by the
Chief Executive Officer and/or Board of Directors; provided, however, that
nothing in this Agreement shall preclude the Executive from devoting
reasonable time during reasonable periods required for any or all of the
following:
1
(i) serving as a director or member of a committee of any
other company or organization involving no actual or potential conflict of
interest with the Company or any of its subsidiaries or affiliates;
(ii) engaging in charitable and community activities;
(iii) investing her personal assets in businesses in such
form or manner as will not require any services on the part of the Executive in
the operation or affairs of such businesses; and/or
(iv) serving as biotechnology transfer advisor to the
University of Southern California in a manner similar to the period prior to her
employment with the Company.
At the request of the Company, the Executive shall advise the Company
of the nature and identity of other business organizations or endeavors in which
she may be involved.
2. Term of Employment.
The Company hereby agrees to employ the Executive, and the Executive
hereby agrees to accept such employment in the capacity set forth herein, for a
period of time commencing on the Monday following the date on which the Company
shall have completed a $1,000,000 private placement of its Common Stock to
investors (the "Commencement Date"), but if the Commencement Date shall not have
occurred on or prior to October 31, 1996, then this Agreement shall be null and
void and of no further force and effect.. The term shall continue after the
Commencement Date until the first to occur of the following: (i) the first
anniversary of the Commencement Date, or (ii) the closing date of an
underwritten initial public offering of the Company's securities which Offering
has been registered with the Securities and Exchange Commission pursuant to the
registration provisions of the Securities Act of 1933, as amended; provided,
however, that either party may terminate this agreement at any time by written
notice to the other given at least ninety (90) days prior to the termination
date specified in such written notice. The Company agrees that, at least thirty
days prior to the anticipated expiration of the term specified hereinabove, it
will, if the Executive so desires, negotiate in good faith with the Executive
regarding continued employment beyond said expiration date pursuant to a
compensation arrangement which would include a performance bonus in the event
the Executive refers to the Company, and the company acquires or obtains rights
to or an exclusive license to, products or rights to products which are
complementary to products or rights then possessed by the Company.
2
3. Compensation.
As compensation to the Executive for all services to be rendered by her
in any capacity hereunder, the Company shall pay a monthly salary at a rate of
Five Thousand and no/100 Dollars ($5,000.00) payable twice monthly. Executive
shall be entitled to four (4) weeks paid vacation per year. In additions
promptly upon commencement of Executive's employment hereunder the Company shall
grant to her incentive stock options to purchase lO,OOO shares at a price of
$7.50 per share and fully vesting one year after said commencement date.
4. Location.
Executive shall maintain an office at, and shall work out of, her
residence in Los Angeles, California or such other residence that she maintains
from time to time in the United States. The Company shall pay to Executive the
sum of One Thousand Dollars ($1,000) each month to defray the costs of such an
office and, in addition to such monthly payment, shall provide and pay for the
following: a separate telephone line dedicated to the affairs of the Company; a
separate telephone facsimile line dedicated to the affairs of the Company;
appropriate telephone and facsimile equipment; a personal computer and modem
as may be acceptable to the Company in its discretion reasonably exercised; any
computer software acceptable to the Company in its discretion reasonably
exercised; and such other office supplies and equipment as may be approved in
advance by the Company. The Company is not obligated to provide any office
furniture.
5. Trade Secrets and Confidential Information.
(a) Definition. As used in this Agreement (i) "Confidential Information
and Trade Secrets" means all information, processes, process parameters,
methods, practices, chemical and other formulae, fabrication techniques,
technical plans, algorithms, computer programs and related documentation,
customer lists, price lists, supplier lists, marketing plans, financial
information, and all other compilations of information which relate to the
business of the Company and which have not been released by the Company to the
general public, but shall not include general technical and business skills and
expertise which Executive has acquired or developed by reason of prior
experience, and (ii) a "Business Competitive with the Company" means an
enterprise which is engaged in the development or promotion of a product or
service which may be reasonablely considered to compete, or have the potential
to compete, in the marketplace with a product or service which the Company has
been developing or promoting, or has had plans to develop or promote, at anytime
during the Executive's employment hereunder.
(b) Restrictive Covenants.
(i) EXECUTIVE acknowledges that during the term of employment with the
3
Company, Executive will have access to and become acquainted with the
Confidential Information and Trade Secrets of the Company. Executive agrees not
to use or disclose (directly or indirectly) any Confidential Information and
Trade Secrets of the Company at any time or in any manner, except as required
in the course of employment with the Company. The obligations of this paragraph
are continuing and survive the termination of Executive's employment with the
Company. All documents and equipment relating to the business of the Company,
whether prepared by Executive or otherwise coming into Executive's possession,
are the exclusive property of the Company, and must not be removed from the
premises of the Company except as required in the course of employment with the
Company. All such documents and equipment must be returned to the Company when
Executive leaves the employment of the Company.
(ii) While employed by the Company, Executive agrees not to undertake
any planning for any outside business which would constitute a Business
Competitive with the Company.
(iii) While employed by the Company and for five (5) years after that
employment ends, Executive agrees not to enter into any employment with a
Business Competitive with the Company in which the complete fulfillment of the
duties of the competitive employment would inherently require Executive to
reveal or use any of the Confidential Information and Trade Secrets of the
Company learned or obtained by Executive while employed by the Company.
(iv) While employed by the Company and for five (5) years after that
employment ends, Executive agrees not to divert or attempt to divert (by
solicitation or by any other means) the customers of the Company existing at the
time Executive's employment ends.
(c) No Conflict.
The Company acknowledges and agrees that the Executive's
activities as biotechnology transfer advisor to the University of Southern
California shall not be in conflict with any of the provisions of this
agreement.
6. Miscellaneous.
(a) Successors and Assigns. This Agreement is intended to benefit
and is binding on (i) the successors and assigns of the Company and (ii) the
heirs and legal successors of Executive.
(b) Governing law. This Agreement shall be construed in accordance
with and governed by the laws of the State of California.
4
(c) Separate Enforcement of Provisions. If for any reason a part
of this Agreement is unenforceable, the remainder of the Agreement shall be
enforced to the extent possible.
(d) Modification of Agreement. This Agreement may only be modified
by a writing signed (i) by Executive and (ii) by an authorized representative of
the Company.
(e) No Conflicting Contracts. Executive represents that Executive
has no contracts with any other party that would interfere with Executive's
compliance with the terms and conditions of this Agreement.
(f) No Right to Continuing Employment. No provision of this
Agreement shall be construed as giving Executive the right to be retained in the
employment of the Company, except to the extent expressly set forth in this
Agreement.
Executed as of the date first above written.
/S/ Mary Anthony Gray
- --------------------------------------------- PerArdua Corporation
Mary Anthony Gray
By: /S/ Samuel P. Sears, Jr.
-------------------------
Treasurer
AMENDMENT NO.1
TO
EMPLOYMENT AGREEMENT
Reference is made to an Employment Agreement dated September 3, 1996, by
and between PerArdua Corporation, a Missouri corporation which, subsequent to
September 3, 1996, merged with and into PerArdua Corporation, a Deleware
corporation (the"Company") and Mary Anthony Gray, an individual with an address
at 10538 Strathmore Drive, Los Angeles , California 90024 ("Executive").
The Company and Executive do hereby agree to amend the aforesaid Employment
Agreement, as follows:
1.Section 1 (b): The words "and Chief Operating Officer" are deleted.
2. Section 1 (c): In the first sentence, the words/numbers "seventy-five
percent (75%)" are deleted, and there is substituted therefor "eighty percent
(80%)."
3.Section 2: The parties acknowledge that the Comencement Date occured
prior to October 31, 1996. The second sentence is deleted and there is
substituted therefor the following: "The term shall continue after the
Commencement Date until February 29, 2000, provided, however, that either party
may terminate this agreement at any time by written notice to the other given at
least ninety (90) days prior to the termination date specified in such written
notice."
4. Section 3: Beginning with the Monday first following the effective date
(the "Effective Date") of an underwritten initial public offering of the
Company's securities which offering has been registered with the Securities and
Exchange commission pursuant to the registration provisions of the Securities
Act of 1933, as amended, the Executive's monthly salary shall be increased from
$5,000 per month to $7,000 per month. The balance of the provisions in Section 3
shall remain in full force and effect. In addition. Executive shall receive upon
Effective Date stock options pusuant to the Company's 1996 Incentive Stock
Option Plan to purchase 100,000 shares of the Company's Common Stock at a price
not less than $5.00 per share. Such options shall be contingent upon continued
employment with the Company, and shall vest at the following rate: 35,000 shares
on January 1, 1998, 35,000 shares January 1, 1999, and 30,000 shares on January
1, 2000. Executive shall also be entitled to receive upon the Effective Date
medical insurance to the same extent as is provided to other management
personnel of the Company.
Except as amended hereby, the Company and Executive hereby ratify confirm
and approve the Employment Agreement.
Executed as of February 20, 1997.
Company: PerArdua Corporation
by: Samuel P. Sears
-----------------------
Executive: Mary Anthony Gray
-----------------------
Mary Anthony Gray
EXHIBIT 10.8
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made and entered into this ____day of _______, 1997
by and between PerArdua Corporation, a Delaware corporation ("Corporation"), and
______________("Director").
RECITALS:
A. Director currently serves as a member of Corporation's Board of
Directors and performs a valuable service in such capacity for Corporation;
B. The Certificate of Incorporation (the "Certificate") provides for
the indemnification of the officers, directors, agents and employees of
Corporation to the maximum extent authorized by Section 145 of the Delaware
General Corporation Law, as amended (the "Law");
C. The Certificate and the Law, by their non-exclusive nature, permit
contracts between Corporation and its directors with respect to indemnification
of directors of Corporation;
D. In accordance with the authorization as provided by the Law,
Corporation may from time to time purchase and maintain a policy or policies of
directors and officers liability insurance ("D & O Insurance"), covering certain
liabilities which may be incurred by its directors and officers in the
performance of services as directors and officers of Corporation;
E. As a result of developments affecting the terms, scope and
availability of D & O Insurance there exists general uncertainty as to the
extent and overall desirability of protection afforded directors by such D & O
Insurance, if any, and by indemnification provisions set forth in the
Certificate and the Law; and
F. In order to induce Director to continue to serve as a member of
Corporation's Board of Directors, Corporation has determined and agreed to enter
into this contract with Director.
NOW, THEREFORE, in consideration of Director's continued service as a
member of Corporation's Board of Directors after the date hereof, the parties
hereto agree as follows:
1. INDEMNITY OF DIRECTOR. Corporation agrees to hold harmless and
indemnify Director to the fullest extent authorized or permitted by the
provisions of the Law, as it may be amended from time to time.
2. ADDITIONAL INDEMNITY. Subject only to the exclusions set forth in
Section 3 hereof, Corporation further agrees to hold harmless and indemnify
Director:
(a) against any and all legal expenses (including attorneys'
fees), witness fees, judgments, fines and amounts paid in settlement actually
and reasonably incurred by Director in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (including an action by or in the right of Corporation) to
which Director is, was or at any time becomes a party, or is threatened to be
made a party, by reason of the fact that Director is, was or at any time becomes
a director, officer, employee or agent of Corporation, or is or was serving or
at any time serves at the request of Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to
Director by Corporation under the non-exclusivity provisions of the Certificate
of Corporation and the Law.
3. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 2 hereof shall be paid by Corporation:
(a) except to the extent the aggregate of losses to be
indemnified thereunder exceeds the sum of such losses for which Director is
indemnified pursuant to Section 1 hereof or pursuant to any D & O Insurance
purchased and maintained by Corporation;
(b) in respect of remuneration paid to Director if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any action, suit or proceeding in which
judgment is rendered against Director for an accounting of profits made from the
purchase or sale by Director of securities of Corporation pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law;
(d) on account of Director's conduct which is finally adjudged
to have been knowingly fraudulent or deliberately dishonest, or to constitute
willful misconduct;
(e) on account of Director's conduct which is the subject of
an action, suit or proceeding described in Section 7(c)(ii) hereof;
(f) on account of or arising in response to any action, suit
or proceeding (other than an action, suit or proceeding referred to in Section
8(b) hereof) initiated by Director or any of Director's affiliates against
Corporation or any officer, director or stockholder of Corporation unless such
action, suit or proceeding was authorized in the specific case by action of the
Board of Directors of Corporation;
2
(g) on account of any action, suit or proceeding to the extent
that Director is a plaintiff, a counter-complainant or a cross-complainant
therein (other than an action, suit or proceeding permitted by Section 3(f)
hereof); or
(h) if a final decision by a Court having jurisdiction in the
matter shall determine that such indemnification is not lawful (and, in this
respect, both Corporation and Director have been advised that the Securities and
Exchange Commission believes that indemnification for liabilities arising under
the federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication).
4. CONTRIBUTION. If the indemnification provided in Sections 1 and 2 is
unavailable and may not be paid to Director for any reason other than those set
forth in paragraphs (b) through (g) of Section 3, then in respect of any
threatened, pending or completed action, suit or proceeding in which Corporation
is or is alleged to be jointly liable with Director (or would be if joined in
such action, suit or proceeding), Corporation shall contribute to the amount of
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred and paid or payable by Director in
such proportion as is appropriate to reflect (i) the relative benefits received
by Corporation on the one hand and Director on the other hand from the
transaction from which such action, suit or proceeding arose, and (ii) the
relative fault of Corporation on the one hand and of Director on the other hand
in connection with the events which resulted in such expenses, judgments, fines
or settlement amounts, as well as any other relevant equitable considerations.
The relative fault of Corporation on the one hand and of Director on the other
hand shall be determined by reference to, among other things, the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent the circumstances resulting in such expenses, judgments, fines or
settlement amounts. Corporation agrees that it would not be just and equitable
if contribution pursuant to this Section 4 were determined by pro rata
allocation or any other method of allocation which does not take account of the
foregoing equitable considerations.
5. CONTINUATION OF OBLIGATIONS.
(a) All agreements and obligations of Corporation contained
herein shall continue during the period Director is a director, officer,
employee or agent of Corporation (or is or was serving at the request of
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise)
and shall continue thereafter so long as Director shall be subject to any
possible claim or threatened, pending or completed action, suit or proceeding,
whether civil, criminal or investigative, by reason of the fact that Director
was serving Corporation or such other entity in any capacity referred to herein.
(b) For six years after the effective time of (i) the
acquisition of the Corporation by another entity by means of any transaction or
series of related transactions (including, without limitation, any
reorganization, merger or consolidation) or (ii) the sale of
3
all or substantially all of the assets of the Corporation by means of any
transaction or series of related transactions, the Corporation (to the extent
the Corporation is not the continuing or surviving person of such
reorganization, merger, consolidation or sale) shall cause the acquiring,
continuing or surviving corporation to (x) indemnify and hold harmless Director
in accordance with Sections 1 and 2 hereof, (y) provide contributions in
accordance with Section 4 hereof, and (z) use its best efforts to provide D&O
Insurance on terms substantially similar to the terms of the Corporation's then
current D&O Insurance policy in effect on the date thereof, or any other
arrangement reasonably satisfactory to Director, in respect of acts or omissions
occurring on or prior to the effective time of the reorganization, merger,
consolidation or sale.
6. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Director of notice of the commencement of any action, suit or
proceeding, Director will, if a claim in respect thereof is to be made against
Corporation under this Agreement, notify Corporation of the commencement
thereof; but the omission so to notify Corporation will not relieve it from any
liability which it may have to Director otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Director
notifies Corporation of the commencement thereof:
(a) Corporation will be entitled to participate therein at its
own expense;
(b) except as otherwise provided below, to the extent that it
may wish, Corporation jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Director. After notice from Corporation to Director of its
election to assume the defense thereof, Corporation will not be liable to
Director under this Agreement for any legal or other expenses subsequently
incurred by Director in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below. Director shall
have the right to employ his or her own counsel in such action, suit or
proceeding but the fees and expenses of such counsel incurred after notice from
Corporation of its assumption of the defense thereof shall be at the expense of
Director unless (i) the employment of counsel by Director has been authorized by
Corporation, (ii) Director shall have reasonably concluded that there may be a
conflict of interest between Corporation and Director in the conduct of the
defense of such action or (iii) Corporation shall not in fact have employed
counsel to assume the defense of such action, in each of which cases the fees
and expenses of Director's separate counsel shall be at the expense of
Corporation. Corporation shall not be entitled to assume the defense of any
action, suit or proceeding brought by or on behalf of Corporation or as to which
Director shall have made the conclusion provided for in (ii) above; and
(c) Corporation shall not be liable to indemnify Director
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. Corporation shall be permitted to settle
any action except that it shall not settle any action or claim in any manner
which would impose any penalty, out-of-pocket liability, or limitation on
4
Director without Director's written consent. Neither Corporation nor Director
will unreasonably withhold its or his or her consent to any proposed settlement.
7. ADVANCEMENT AND REPAYMENT OF EXPENSES.
(a) In the event that Director employs his or her own counsel
pursuant to Section 6(b)(i) through (iii) above, Corporation shall advance to
Director, prior to any final disposition of any threatened or pending action,
suit or proceeding, whether civil, criminal, administrative or investigative,
any and all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding within ten (10)
days after receiving copies of invoices presented to Director for such expenses.
(b) Director agrees that Director will reimburse Corporation
for all reasonable expenses paid by Corporation in defending any civil or
criminal action, suit or proceeding against Director in the event and only to
the extent it shall be ultimately determined by a final judicial decision (from
which there is no right of appeal) that Director is not entitled, under the
provisions of the Law, the Certificate, this Agreement or otherwise, to be
indemnified by Corporation for such expenses.
(c) Notwithstanding the foregoing, Corporation shall not be
required to advance such expenses to Director if Director (i) commences any
action, suit or proceeding as a plaintiff unless such advance is specifically
approved by a majority of the Board of Directors or (ii) is a party to an
action, suit or proceeding brought by Corporation and approved by a majority of
the Board which alleges willful misappropriation of corporate assets by
Director, disclosure of confidential information in violation of Director's
fiduciary or contractual obligations to Corporation, or any other willful and
deliberate breach in bad faith of Director's duty to Corporation or its
stockholders.
8. ENFORCEMENT.
(a) Corporation expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on Corporation
hereby in order to induce Director to continue as a Director of Corporation, and
acknowledges that Director is relying upon this Agreement in continuing in such
capacity.
(b) In the event Director is required to bring any action to
enforce rights or to collect amounts due under this Agreement and is successful
in such action, Corporation shall reimburse Director for all of Director's
reasonable fees and expenses in bringing and pursuing such action.
9. SUBROGATION. In the event of payment under this Agreement,
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Director, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable
Corporation effectively to bring suit to enforce such rights.
5
10. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Director by this
Agreement shall not be exclusive of any other right which Director may have or
hereafter acquire under any statute, provision of Corporation's Certificate or
Bylaws, agreement, vote of stockholders or Officers, or otherwise, both as to
action in his or her official capacity and as to action in another capacity
while holding office.
11. SURVIVAL OF RIGHTS. The rights conferred on Director by this
Agreement shall continue after Director has ceased to be a director, officer,
employee or other agent of Corporation or such other entity and shall inure to
the benefit of Director's heirs, executors and administrators.
12. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any or
all of the provisions hereof shall be held to be invalid or unenforceable to any
extent for any reason, such invalidity or unenforceability shall not affect the
validity or enforceability of the other provisions hereof or the obligation of
Corporation to indemnify Director to the full extent provided by the
Certificate, the Corporation's Bylaws or the Law, and the affected provision
shall be construed and enforced so as to effectuate the parties' intent to the
maximum extent possible.
13. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the internal laws of the State of Delaware.
14. BINDING EFFECT. This Agreement shall be binding upon Director and
upon Corporation, its successors and assigns, and shall inure to the benefit of
Director, his or her heirs, personal representatives and assigns and to the
benefit of Corporation, its successors and assigns.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless set forth in a
writing signed by both parties hereto.
6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
PERARDUA CORPORATION
By:
-----------------------
Its:
-----------------------
--------------------------
Director
7
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
AGREEMENT, dated and effective as of Feb. 12, 1997 by and between
PerArdua Corporation, a Delaware corporation, (the "Company") and Nicholas Jon
Virca, an individual with an address at 11475 Cypress Woods Drive, San Diego,
California 92131 ("Executive").
W I T N E S S E T H:
WHEREAS, the Executive is willing to serve as President and Chief
Operating Officer of the Company, and the Company desires to retain the
Executive in such capacities on the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. Employment: Position and Duties: Extent of Services.
(a) Employment. The Company agrees to employ the Executive,
and the Executive agrees to be employed by the Company, for the Term provided
in Section 2 below and upon the other terms and conditions hereinafter provided.
(b) Position and Duties. During the Term as defined in
Section 2 herein, the Executive agrees to serve as the President and Chief
Operating Officer of the Company and to perform such reasonable duties
consistent with such position as may be delineated by the Chief Executive
Officer and as may be assigned to him from time to time by the Board of
Directors and/or Chief Executive Officer of the Company.
(c) Extent of Services. During the Term, and except for
illness or incapacity, the Executive shall devote all of his business time,
attention, skill and efforts exclusively to the business and affairs of the
Company, shall not be engaged in any business activity in violation of Section 6
of this Agreement or which would conflict with his obligations hereunder, and
shall perform and discharge well and faithfully the duties which may be
assigned to him from time to time by the Chief Executive Officer and/or Board of
Directors; provided, however, that nothing in this Agreement shall preclude the
Executive from devoting reasonable time during reasonable periods required for
any or all of the following:
1
(i) serving as a director or member of a committee of any other
company or organization involving no actual or potential conflict of interest
with the Company or any of its subsidiaries or affiliates;
(ii) engaging in charitable and community activities; and/or
(iii) investing his personal assets in businesses in such form or
manner as will not require any services on the part of the Executive in the
operation or affairs of such businesses.
At the request of the Company, the Executive shall advise the Company of
the nature and identity of other business organizations or endeavors in which he
may be involved.
2. Term of Employment.
The Company hereby agrees to employ the Executive, and the Executive
hereby agrees to accept such employment in the capacity set forth herein, for a
period beginning either March 3 or March 10, 1997, the exact date to be
determined in the discretion of the Executive, and expiring February 29, 2000,
subject to the provisions of Section 5 of this Agreement (the "Term"). The
Company agrees that, at least ninety (90) days prior to the anticipated
expiration of the Term, it will, if the Executive so desires, negotiate in good
faith with the Executive regarding continued employment beyond said expiration
date.
3. Compensation and Benefits.
As compensation to the Executive for all services to be rendered by
him in any capacity hereunder, the Company shall pay a monthly salary at a rate
of Ten Thousand and no/100 Dollars ($10,000.00) payable bi-weekly. Executive
shall be entitled to four (4) weeks paid vacation per year. In addition,
promptly upon the closing of an underwritten initial public offering of
Securities of the Company's Common Stock, the Company shall grant to him stock
options to purchase 100,000 shares of the Company's Common Stock pursuant to the
provisions of the Company's 1996 Stock Option Plan at a per share price not
greater than the market value of the stock on the date of grant and not less
than $5.00 per share. The options shall vest as follows: 30,000 shares on the
date of grant, 35,000 shares on June 30, 1998, and 35,000 shares on December 31,
1999. The Company shall reimburse Executive for the amounts necessary for the
Executive to maintain health insurance for himself and his immediate family
during the Term pursuant to his COBRA rights with respect to his preceding
employer. When such rights expire the Company will pay for comparable health
insurance coverage to the extent the same is available. The Company will provide
annual renewable term life insurance on the life of the Executive in an amount
of $200,000
2
plus $100,000 additiona1 in the event of an accidental death. Executive may
designate the beneficiary of such policy.
4. Location.
At the commencement of the Term, the Company is maintaining temporary
executive office space at 10940 Wilshire Boulevard, Los Angeles, California, and
intends to maintain such space at least until the completion of the Company
initial public offering of securities. The Company then intends to establish its
executive offices in the San Diego area. Executive agrees to travel from his
home in San Diego to the Company's office in Los Angeles so as to be present in
such office at least three days a week, subject to any business travel. The
Company will reimburse Executive for his reasonable out-of-pocket expenses, upon
presentation of appropriate voucher, for such travel between San Diego and Los
Angeles, including lodging and meals.
5. Change-of-Control.
Any of the following transactions shall be deemed to constitute a
"Change of Control:"
(i) the adoption of a plan of merger or consolidation of the Company
with any other corporation as a result of which the holders of the
outstanding voting stock of the Company as a group would receive
less than 50% of the voting stock of the surviving or resulting
corporation;
(ii)the adoption of a plan of liquidation or the approval of the
dissolution of the Company;
(iii)the sale or transfer of all or substantially all of the assets of
the Company; or
(iv)a tender offer or exchange offer for shares of Common Stock other
than any such offer made by the Company.
If following a Change of Control the Executive's employment should be
terminated for any reason whatsoever, including voluntary termination by
Executive, or if Executive employment's hereunder shall be terminated by the
Company at any time without good cause, then Executive shall be entitled to
receive in a single lump sum payment, the following:
(a) an amount equal to the lesser of six (6) months salary or the
amount
3
of salary then remaining to be payable for the duration of the
Term, plus
(b) an amount equal the then most recent monthly payment made by the
Company for health insurance for the Executive and his immediate
family, multiplied by the lesser of six or the number of months
then remaining in the Term.
6. Trade Secrets and Confidential Information.
(a) Definition. As used in this Agreement (i) "Confidential
Information and Trade Secrets" means all information, processes, process
parameters, methods, practices, chemical and other formulae, fabrication
techniques, technical plans, algorithms, computer programs and related
documentation, customer lists, price lists, supplier lists, marketing plans,
financial information, and all other compilations of information which relate to
the business of the Company and which have not been released by the Company to
the general public, but shall not include general technical and business skills
and expertise which Executive has acquired or developed by reason of prior
experience, and (ii) a "Business Competitive with the Company" means an
enterprise which is engaged in the development or promotion of a product or
service which may be reasonablely considered to compete, or have the potential
to compete, in the marketplace with a product or service which the Company has
been developing or promoting, or has had plans to develop or promote, at any
time during the Executive's employment hereunder.
(b) Restrictive Covenants.
(i) Executive acknowledges that during the term of employment with the
Company, Executive will have access to and become acquainted with the
Confidential Information and Trade Secrets of the Company. Executive agrees not
to use or disclose (directly or indirectly) any Confidential Information and
Trade Secrets of the Company at any time or in any manner, except as required in
the course of employment with the Company. The obligations of this paragraph are
continuing and survive the termination of Executive's employment with the
Company. All documents and equipment relating to the business of the Company,
whether prepared by Executive or otherwise coming into Executive's possession,
are the exclusive property of the Company, and must not be removed from the
premises of the Company except as required in the course of employment with the
Company. All such documents and equipment must be returned to the Company when
Executive leaves the employment of the Company.
(ii) While employed by the Company, Executive agrees not to undertake
any planning for any outside business which would constitute a Business
Competitive with the Company.
4
(iii) While employed by the Company and for five (5) years after that
employment ends, Executive agrees not to enter into any employment with a
Business Competitive with the Company in which the complete fulfillment of the
duties of the competitive employment would inherently require Executive to
reveal or use any of the Confidential Information and Trade Secrets of the
Company learned or obtained by Executive while employed by the Company.
(iv) While employed by the Company and for five (5) years after that
employment ends, Executive agrees not to divert or attempt to divert (by
solicitation or by any other means) the customers of the Company existing at the
time Executive's employment ends.
7. Miscellaneous.
(a) Successors and Assigns. This Agreement is intended to benefit
and is binding on (i) the successors and assigns of the Company and (ii) the
heirs and legal successors of Executive.
(b) Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of California.
(c) Separate Enforcement of Provisions. If for any reason a part
of this Agreement is unenforceable, the remainder of the Agreement shall be
enforced to the extent possible.
(d) Modification of Agreement. This Agreement may only be
modified by a writing signed (i) by Executive and (ii) by an authorized
representative of the Company.
(e) No Conflicting Contracts. Executive represents that Executive
has no contracts with any other party that would interfere with Executive's
compliance with the terms and conditions of this Agreement.
(f) No Right to Continuing Employment. No provision of this
Agreement shall be construed as giving Executive the right to be retained in the
employment of the Company, except to the extent expressly set forth in this
Agreement.
Executed as of the date first above written.
Nicholas Jon Virca PerArdua Corporation
- ---------------------------
Nicholas Jon Virca
by: Samuel P. Sears
--------------------
Treasurer
5
EXHIBIT 10.10
PERARDUA CORPORATION
STOCK INCENTIVE PLAN
ARTICLE 1
DEFINITIONS
ARTICLE 1.1 Affiliate means any "subsidiary" or "parent corporation"
(within the meaning of Section 422 of the Code) of the Corporation.
ARTICLE 1.2 Agreement means a written agreement (including any
amendment or supplement thereto) between the Corporation and a Participant
specifying the terms and conditions of an Option or SAR granted to such
Participant.
ARTICLE 1.3 Board means the Board of Directors of the Corporation.
ARTICLE 1.4 Code means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
ARTICLE 1.5 Committee means the Compensation Committee of the Board or,
in the absence of such a committee, the Board.
ARTICLE 1.6 Common Stock means the Common Stock of the Corporation, par
value $0.01 per share.
ARTICLE 1.7 Corporation means PerArdua Corporation.
ARTICLE 1.8 Corresponding SAR means an SAR that is granted in relation
to a particular Option and that can be exercised only upon the surrender to the
Corporation, unexercised, of that portion of the Option to which the exercise of
the SAR relates.
ARTICLE 1.9 Fair Market Value means, on any given date, the fair market
value of a share of Common Stock determined by the Committee in good faith and
using any reasonable method.
ARTICLE 1.10 Initial Value means, with respect to an SAR, the Fair
Market Value of one share of Common Stock on the date of grant, as set forth in
the Agreement.
ARTICLE 1.11 Option means a stock option that entitles the holder to
purchase from the Corporation a stated number of shares of Common Stock at the
price set forth in the Agreement.
ARTICLE 1.12 Participant means an employee of the Corporation or of an
Affiliate, a member of the Board, or a consultant or other independent
contractor providing services to the Corporation, who satisfies the requirements
of Article 4 and is selected by the Committee to receive an Option.
ARTICLE 1.13 Plan means the PerArdua Corporation Stock Incentive Plan.
ARTICLE 1.14 SAR means a stock appreciation right that entitles the
holder to receive, with respect to each share of Common Stock encompassed by the
exercise of such SAR, the excess of the Fair Market Value at the time of
exercise over the Initial Value of the SAR. References to "SARs" include both
Corresponding SARs and SARs granted independently of Options, unless the context
requires otherwise.
ARTICLE 1.15 Ten Percent Shareholder means any individual owning more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Corporation or an Affiliate. An individual shall be considered to
own any voting stock owned (directly or indirectly) by or for his brothers,
sisters, spouse, ancestors or lineal descendants and shall be considered to own
proportionately any voting stock owned (directly or indirectly) by or for a
corporation, partnership, estate or trust of which such individual is a
shareholder, partner or beneficiary.
ARTICLE 2
PURPOSES
The Plan is intended to assist the Corporation in recruiting and
retaining key employees, directors, advisors and consultants with ability and
initiative by enabling employees, directors, advisors and consultants who
contribute significantly to the Corporation or an Affiliate to participate in
its future success and to associate their interests with those of the
Corporation and its shareholders. The Plan is intended to permit the issuance of
both Options qualifying under Section 422 of the Code ("Incentive Stock
Options") and Options not so qualifying. No Option that is intended to be an
Incentive Stock Option shall be invalid for failure to qualify as an Incentive
Stock Option. The proceeds received by the Corporation for the sale of Common
Stock pursuant to this Plan shall be used for general corporate purposes.
ARTICLE 3
ADMINISTRATION
The Plan shall be administered by the Committee. If the Corporation
registers securities under Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the individuals who serve as members of the
Committee on and after the date of such registration shall be individuals each
of whom is a "Non-Employee Director" within the meaning of Rule 16b-3
promulgated under Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Committee shall have authority to grant
Options and SARs upon such terms
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(not inconsistent with the provisions of this Plan) as the Committee may
consider appropriate. Such terms may include conditions (in addition to those
contained in this Plan) on the exercisability of all or any part of an Option or
SAR. Notwithstanding any such conditions, the Committee may, in its discretion,
accelerate the time at which any Option or SAR may be exercised; provided,
however, that in the event such acceleration would result in Incentive Stock
Options held by a Participant first becoming exercisable for shares having a
fair market value (determined on the date the Option was granted) in excess of
$100,000 in any calendar year such excess amount of Options shall cease to be
Incentive Stock Options simultaneous with their acceleration. In addition, the
Committee shall have complete authority to interpret all provisions of this
Plan; to prescribe the form of Agreements; to adopt, amend and rescind rules and
regulations pertaining to the administration of the Plan; and to make all other
determinations necessary or advisable for the administration of this Plan. The
express grant in the Plan of any specific power to the Committee shall not be
construed as limiting any power or authority of the Committee. Any decision
made, or action taken, by the Committee or in connection with the administration
of this Plan shall be final and conclusive. No member of the Committee shall be
liable for any act done in good faith with respect to this Plan or any
Agreement, Option or SAR. All expenses of administering this Plan shall be borne
by the Corporation.
ARTICLE 4
ELIGIBILITY
ARTICLE 4.1 General. Any employee, director, member of the advisory
board, independent contractor or consultant of the Corporation or of any
Affiliate (including any corporation that becomes an Affiliate after the
adoption of this Plan) who, in the judgment of the Committee, has contributed
significantly or can be expected to contribute significantly to the profits or
growth of the Company or an Affiliate may be granted one or more Options, SARs,
or Options and SARs.
ARTICLE 4.2 Grants. The Committee will designate individuals to whom
Options and SARs are to be granted and will specify the number of shares of
Common Stock subject to each grant. An Option may be granted with or without a
related SAR. A SAR may be granted with or without a related Option. All Options
and SARs granted under the Plan shall be evidenced by Agreements which shall be
subject to applicable provisions of this Plan and to such other provisions as
the Committee may adopt. No Participant may be granted Incentive Stock Options
or related SARs (under all Incentive Stock Option plans of the Corporation and
Affiliates) which are first exercisable in any calendar year for stock having an
aggregate Fair Market Value (determined as of the date an option is granted)
exceeding $100,000. The preceding annual limitation shall not apply with respect
to Options that are not Incentive Stock Options.
-3-
ARTICLE 5
STOCK SUBJECT TO OPTIONS
Upon the exercise of any Option or Corresponding SAR, the Corporation
may deliver to the Participant authorized but unissued Common Stock. The maximum
aggregate number of shares of Common Stock that may be issued pursuant to
Options and Corresponding SARs granted under this Plan is 500,000, subject to
adjustment as provided in Article 9. If an Option is terminated or expires, in
whole or in part, for any reason other than its exercise or the exercise of a
Corresponding SAR, the number of shares of Common Stock allocated to the Option
or portion thereof may be reallocated to other Options or Options and
Corresponding SARs to be granted under this Plan.
ARTICLE 6
OPTION PRICE
The price per share for Common Stock purchased on the exercise of an
Option shall be determined by the Committee on the date of grant. The price per
share for Common Stock purchased on the exercise of any Option that is an
Incentive Stock Option shall not be less than the Fair Market Value on the date
the Option is granted; provided, however, that the price per share shall not be
less than 110% of the Fair Market Value in the case of an Incentive Stock Option
that is granted to a Ten Percent Shareholder.
ARTICLE 7
EXERCISE OF OPTIONS
ARTICLE 7.1 Maximum Option or SAR Period. The maximum period in which
an Option or SAR may be exercised shall be determined by the Committee on the
date of grant. No Option that is an Incentive Stock Option or related SAR shall
be exercisable after the expiration of 10 years from the date the Option was
granted or 5 years in the case of an Incentive Stock Option or related SAR that
was granted to a Ten Percent Shareholder. The terms of any Option or SAR may
provide that it is exercisable for a period less than such maximum periods.
ARTICLE 7.2 Non-Transferability. Any Option or SAR granted under this
Plan shall be non-transferable except by will or by the laws of descent and
distribution. In the event of any such transfer, the Option and any related SAR
must be transferred to the same person or persons. During the lifetime of the
Participant to whom the Option or SAR is granted, the Option or SAR may be
exercised only by the Participant. No right or interest of a Participant in any
Option or SAR shall be liable for, or subject to, any lien, obligation, or
liability of such Participant.
-4-
ARTICLE 7.3 Employee Status. For purposes of determining the
applicability of Section 422 of the Code (relating to Incentive Stock Options),
or in the event that the terms of any Option or SAR provide that it may be
exercised only during employment or within a specified period of time after
termination of employment, the Committee may decide to what extent leaves of
absence for governmental or military service, illness, temporary disability or
other reasons shall not be deemed interruptions of continuous employment.
ARTICLE 7.4 General Restriction. Each Participant shall, prior to the
exercise of any Option, deliver to the Corporation any reasonable information in
order for the Corporation to be able to satisfy itself that the shares of Common
Stock issuable upon exercise of an Option will be acquired in accordance with
the terms of an applicable exemption from the securities registration
requirements of applicable federal and state securities law. With respect to
Options that are not Incentive Stock Options and without limiting the scope of
the Corporation's or the Committee's discretion to withhold approval or
otherwise administer this Plan, approval may be withheld to the extent that the
exercise, either individually or in the aggregate together with the exercise of
other previously exercised Options and/or offers and sales pursuant to any prior
or contemplated offering of securities, would, in the sole and absolute judgment
of the Corporation, require the filing of a registration statement with the
United States Securities and Exchange Commission or with the securities
commission of any state. The Corporation shall avail itself of any exemptions
from registration contained in applicable federal and state securities laws
which are reasonably available to the Corporation on terms which, in its sole
and absolute discretion, it deems reasonable and not unduly burdensome or
costly. If an Option which is not an Incentive Stock Option cannot be exercised
at the time it would otherwise expire due to the restrictions contained in this
Section, the exercise period for that Option shall be extended for successive
one-year periods until that Option can be exercised in accordance with this
Section.
ARTICLE 8
METHOD OF EXERCISE
ARTICLE 8.1 Exercise. Subject to the provisions of Articles 7 and 11,
an Option or SAR may be exercised in whole at any time or in part from time to
time at such times and in compliance with such requirements as the Committee
shall determine; provided, however, that an SAR that is related to an Incentive
Stock Option may be exercised only to the extent that the related Option is
exercisable and when the Fair Market Value exceeds the option price of any
related Option. Any Option or SAR granted under this Plan may be exercised with
respect to any number of whole shares less than the full number for which the
Option or SAR could be exercised. Such partial exercise of an Option or SAR
shall not affect the right to exercise the Option or SAR from time to time in
accordance with this Plan with respect to remaining shares subject to the Option
or related to the SAR. The exercise of either an Option or Corresponding SAR
shall result in the termination of the other to the extent of the number of
shares with respect to which the Option or Corresponding SAR is exercised.
-5-
ARTICLE 8.2 Payment. Unless otherwise provided by the Agreement,
payment of the option price shall be made in cash or cash equivalent acceptable
to the Committee. If the Agreement provides, payment of all or part of the
option price may be made by surrendering shares of Common Stock to the
Corporation. If Common Stock is used to pay all or part of the option price, the
shares surrendered must have a Fair Market Value (determined as of the day
preceding the date of exercise) that is not less than such price or part
thereof.
ARTICLE 8.3 Determination of Payment of Cash and/or Common Stock Upon
Exercise of SAR. At the Committee's discretion, the amount payable as a result
of the exercise of an SAR may be settled in cash, Common Stock, or a combination
of cash and Common Stock. No fractional shares will be deliverable upon the
exercise of an SAR but a cash payment will be made in lieu thereof.
ARTICLE 8.4 Shareholder Rights. No Participant shall have any rights as
a shareholder with respect to shares subject to his Option or SAR until (i) the
Option or SAR shall have been exercised pursuant to the terms thereof, (ii) all
requirements under applicable law and regulations shall have been complied with
to the satisfaction of the Corporation, (iii) the Corporation shall have signed
and delivered a stock certificate representing the shares to the Participant and
(iv) the Participant's name shall have been entered as a stockholder of record
on the books of the Corporation.
ARTICLE 9
ADJUSTMENT UPON CHANGE IN COMMON STOCK
Should the Corporation effect one or more stock dividends, stock
split-ups, subdivisions or consolidations of shares or other similar changes in
capitalization, then the maximum number of shares as to which Options and SARs
may be granted under this Plan shall be proportionately adjusted and the terms
of Options and SARs shall be adjusted as the Committee shall determine to be
equitably required. Any determination made under this Article 9 by the Committee
shall be final and conclusive.
This issuance by the Corporation of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares of obligations
of the Corporation convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to,
Options or SARs.
-6-
ARTICLE 10
CHANGE IN CONTROL
ARTICLE 10.1 Definition of Change in Control. The following
transactions constitute "Change of Control" events:
a. the adoption of a plan of merger or consolidation of the
Corporation with any other corporation as a result of which the holders of the
outstanding voting stock of the Corporation as a group would receive less than
50% of the voting stock of the surviving or resulting corporation;
b. the adoption of a plan of liquidation or the approval of
the dissolution of the Corporation;
c. the sale or transfer of substantially all of the assets of
the Corporation; or
d. the transfer of more than 50% of the issued and outstanding
shares of Common Stock pursuant to a tender offer or exchange offer for shares
of Common Stock other than any such offer made by the Corporation or an
Affiliate.
ARTICLE 10.2 Effect on Outstanding Options and SARs. In the event of a
Change in Control of the Corporation, the Committee, as constituted before such
Change in Control, in its sole discretion may, as to any outstanding Option or
SAR, either at the time the Option or SAR is granted or any time thereafter,
take any one or more of the following actions: (i) provide for the acceleration
of any time periods relating to the exercise or realization of any such Option
or SAR so that such Option or SAR may be exercised or realized in full on or
before a date initially fixed by the Committee; (ii) provide for the purchase or
settlement of any such Option or SAR by the Company for an amount of cash equal
to the amount which could have been obtained upon the exercise of such Option or
SAR or realization of such Participant's rights had such Option or SAR been
currently exercisable or payable; (iii) make such adjustment to any such Option
or SAR then outstanding as the Committee deems appropriate to reflect such
Change in Control; or (iv) cause any such Option or SAR then outstanding to be
assumed, or new rights substituted therefor, by the acquiring or surviving
corporation in such Change in Control.
ARTICLE 10.3 Notice. Holders of Options will be mailed notice of any
anticipated transaction described in Section 10.1 at least 20 days prior to the
occurrence of such event.
ARTICLE 11
COMPLIANCE WITH LAW AND
APPROVAL OF REGULATORY BODIES
No Option or SAR shall be exercisable, no Common Stock shall be issued,
no certificates for shares of Common Stock shall be delivered, and no payment
shall be made under this Plan except in compliance with all applicable federal
and state laws and regulations (including, without limitation,
-7-
withholding tax requirements) and the rules of all domestic stock exchanges on
which the Corporation's shares may be listed. The Corporation shall have the
right to rely on an opinion of its counsel as to such compliance. Any share
certificate issued to evidence Common Stock for which an Option or SAR is
exercised may bear such legends and statements as the Committee may deem
advisable to assure compliance with federal and state laws and regulations. No
Option or SAR shall be exercisable, no Common Stock shall be issued, no
certificate for shares shall be delivered, and no payment shall be made under
this Plan until the Corporation has obtained such consent or approval as the
Committee may deem advisable from regulatory bodies having jurisdiction over
such matters. The exercise of any Option granted under this Plan shall
constitute a Participant's full and complete consent to whatever action the
Committee deems necessary to satisfy any federal and state tax withholding
requirements which the Committee, acting in its discretion, deems applicable to
such exercise.
ARTICLE 12
GENERAL PROVISIONS
ARTICLE 12.1 Effect on Employment. Neither the adoption of this Plan,
its operation, nor any documents describing or referring to this Plan (or any
part thereof) shall confer upon any employee any right to continue in the employ
of the Corporation or an Affiliate or in any way affect any right and power of
the Corporation or an Affiliate to terminate the employment of an employee at
any time with or without assigning a reason thereunder.
ARTICLE 12.2 Unfunded Plan. The Plan, insofar as it provides for
grants, shall be unfunded, and the Corporation shall not be required to
segregate any assets that may at any time be represented by grants under this
Plan. Any liability of the Corporation to any person with respect to any grant
under this Plan shall be based solely upon any contractual obligations that may
be created pursuant to this Plan. No such obligation of the Corporation shall be
deemed to be secured by any pledge of, or other encumbrance on, any property of
the Corporation.
ARTICLE 12.3 Rules of Construction. Headings are given to the articles
and sections of this Plan solely as a convenience to facilitate reference. The
reference to any statute, regulation, or other provision of law shall be
construed to refer to any amendment to or successor of such provision of law.
ARTICLE 12.4 Section 16. This Plan is intended to comply with all
aspects of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder in the event the Corporation shall register securities
under Section 12 of the Exchange Act. To the extent any provision of the Plan or
action by the Committee fails to so comply, it shall be deemed null and void to
the extent permitted by law and deemed advisable by the Committee.
-8-
ARTICLE 13
AMENDMENT
The Board may amend from time to time or terminate this Plan; provided,
however, that no amendment may become effective until shareholder approval is
obtained if the amendment (i) increases the aggregate number of shares that may
be issued pursuant to Options and SARs, (ii) reduces the option price, (iii)
changes the class of employees who may be granted Incentive Stock Options, (iv)
changes the class of employees, directors or consultants eligible to become
Participants, or (v) in some other way confers a material benefit on
Participants. No amendment shall, without a Participant's consent, adversely
affect any rights of such Participant under any Option or SAR outstanding at the
time such amendment is made.
ARTICLE 14
DURATION OF PLAN
No Option or SAR may be granted under this Plan after July 1, 2006.
Options and SARs granted before that date shall remain valid in accordance with
their terms.
ARTICLE 15
INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification that they may have
as directors of the Corporation or as members of the Committee, the members of
the Committee shall be indemnified by the Corporation against the reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan or
any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided the settlement is approved by independent legal
counsel selected by the Corporation) or paid by them in satisfaction of a
judgment in any such action, suit or proceeding, except in relation to matters
as to which it shall be adjudged in the action, suit or proceeding that the
Committee member is liable for negligence or misconduct in the performance of
his or her duties; provided that within sixty (60) days after institution of the
action, suit or proceeding a Committee member shall in writing offer the
Corporation the opportunity, at its own expense, to handle and defend it.
-9-
ARTICLE 16
EFFECTIVE DATE OF PLAN
Options and SARs may be granted under this Plan upon its adoption by
the Board, provided that no Option or SAR will be effective unless this Plan is
approved (at a duly held shareholders' meeting within twelve months of such
adoption) by shareholders holding a majority of the Corporation's outstanding
voting stock.
-10-
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement of our report,
dated January 24, 1997, except for Note 6 as to which the date is April 9, 1997,
relating to the financial statements of PerArdua Corporation, and to the
reference to our Firm under the caption "Experts" in the Prospectus.
MCGLADREY & PULLEN, LLP
Richmond, Virginia
April 18, 1997
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