<PAGE>
As filed with the Securities and Exchange Commission on December 30, 1999
Registration Statement No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------------
ORAPHARMA, INC.
(Exact name of Registrant as specified in its charter)
Delaware 2834 22-3473777
(Primary Standard Industrial (IRS Employer
(State or other Classification Code No.) Identification Number)
jurisdiction of
incorporation or
organization)
732 Louis Drive
Warminster, PA 18974
215/956-2200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
MICHAEL D. KISHBAUCH
President and Chief Executive Officer
OraPharma, Inc.
732 Louis Drive
Warminster, PA 18974
215/956-2200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies to:
David R. King, Esq. Luci Staller Altman, Esq.
Morgan, Lewis & Bockius LLP Matthew F. Herman, Esq.
1701 Market Street Rishi A. Varma, Esq.
Philadelphia, PA 19103 Brobeck, Phleger & Harrison LLP
215/963-5000 1633 Broadway, 47th Floor
New York, NY 10019
212/581-1600
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Title of each Class of Maximum Aggregate Amount of the
Securities to be Registered Offering Price(1) Registration Fee
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<S> <C> <C>
Common Stock, $0.001 par share.............. $56,350,000 $14,877
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
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, as amended or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to such
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The Information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 30, 1999
[LOGO OF ORAPHARMA INC.]
Shares
Common Stock
OraPharma is offering shares of its common stock. This is our initial
public offering. We have applied to have our common stock approved for
quotation on the Nasdaq National Market under the symbol "OPHM." We anticipate
that the initial public offering price will be between $ and $ per
share.
--------------
Investing in our common stock involves a high degree of risk.
See "Risk Factors" beginning on page 7.
--------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price.......................................... $ $
Underwriting Discounts and Commissions......................... $ $
Proceeds to OraPharma.......................................... $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
OraPharma has granted the underwriters a 30-day option to purchase up to an
additional shares of common stock to cover over-allotments. FleetBoston
Robertson Stephens Inc. expects to deliver the shares to purchasers on ,
2000.
--------------
Robertson Stephens
U.S. Bancorp Piper Jaffray
Gerard Klauer Mattison & Co., Inc.
The date of this Prospectus is , 2000
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade our common stock, whether or not participating
in this offering, may be required to deliver a prospectus. This requirement is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
---------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY........................................................ 3
RISK FACTORS.............................................................. 7
FORWARD-LOOKING STATEMENTS................................................ 17
USE OF PROCEEDS........................................................... 18
DIVIDEND POLICY........................................................... 18
CAPITALIZATION............................................................ 19
DILUTION.................................................................. 20
SELECTED FINANCIAL DATA................................................... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.............................................................. 22
BUSINESS.................................................................. 27
MANAGEMENT................................................................ 42
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 52
PRINCIPAL STOCKHOLDERS.................................................... 54
DESCRIPTION OF CAPITAL STOCK.............................................. 57
SHARES ELIGIBLE FOR FUTURE SALE........................................... 60
UNDERWRITING.............................................................. 61
LEGAL MATTERS............................................................. 63
EXPERTS................................................................... 63
ADDITIONAL ORAPHARMA INFORMATION.......................................... 63
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
---------------------
OraPharma has applied for a federally registered trademark for
"OraPharma." This prospectus also includes trademarks and tradenames of other
parties.
<PAGE>
PROSPECTUS SUMMARY
This prospectus summary highlights selected information contained
elsewhere in this prospectus. You should read this summary together with the
more detailed information regarding our company and the common stock being sold
in this offering appearing elsewhere in this prospectus, including our
financial statements and related notes.
OraPharma
Introduction
OraPharma is developing pharmaceutical products for the treatment of oral
diseases and disorders. We completed two pivotal Phase 3 clinical trials in
October 1999, involving a total of 747 patients, for our lead product
candidate, Minocycline Periodontal Therapeutic System. MPTS is designed to
treat adult periodontitis, a chronic infection caused by plaque buildup on
teeth and the leading cause of adult tooth loss. Based on our clinical trial
results, we expect to file a New Drug Application, or NDA, with the Food and
Drug Administration, or FDA, in the first half of 2000 for periodontitis. Our
other research and development programs are directed at further establishing a
presence in oral care pharmaceuticals and leveraging our core drug-delivery
technology.
Periodontitis has no known cure and is thought to be linked to other
serious systemic health problems such as cardiovascular disease, diabetes and
low infant birth weight. According to the American Dental Association,
approximately 50 million Americans have periodontal disease and only 7.5
million Americans are currently receiving treatment. According to industry
sources, more than $6.0 billion is spent annually on products and services to
treat this condition. Pharmaceuticals for the treatment of periodontitis
comprise a rapidly emerging segment of the overall oral health care market. In
addition, we believe a broader market opportunity exists for the treatment of
other oral health care diseases and disorders with large, unmet medical needs.
Examples include oral mucositis, a condition that is a consequence of cancer
therapy and involves the formation of painful ulcers in the mouth and
esophagus, and various oral conditions requiring regeneration of bone and
tissue.
Our lead product candidate, MPTS, uses our core drug-delivery
technology--a patented polymer system developed to achieve both localized and
sustained release of drugs--and a specially designed dispenser to place the
antibiotic minocycline precisely at the site of periodontal infection. We
licensed MPTS and our drug-delivery technology from American Cyanamid, which is
now a part of American Home Products, or AHP. We have developed MPTS to enhance
the effect of the standard treatment for periodontitis, a mechanical procedure
known as scaling and root planing for the removal of accumulated plaque above
and below the gumline. We believe MPTS offers significant advantages over
existing pharmaceutical treatments, particularly speed and convenience of
administration. In addition, MPTS' local-delivery approach results in high drug
concentration at the infection site, with, we believe, reduced risk of drug
resistance. Finally, because MPTS is administered chair-side by oral care
professionals, patient compliance is ensured.
In the U.S., we intend to create a sales and marketing force of 50 to 75
persons and to begin hiring and training activities in late 2000. Assuming we
obtain FDA approval, we will target approximately 3,700 periodontists, and
approximately 25,000 general dentists whom we believe frequently perform
scaling and root planing procedures. In international markets, we intend to
enter into strategic collaborations to market and sell MPTS rather than
establish our own sales force.
We obtained licenses for two additional technologies in December 1998 in
order to develop other product candidates that are currently in preclinical
studies. The first, initially developed at Brigham and Women's Hospital, is for
the treatment of oral mucositis. This is a condition that occurs in more than
40% of patients receiving standard chemotherapy and virtually all patients who
receive head and neck radiation therapy,
3
<PAGE>
according to an article published in January 1995, Principles and Practice of
Oncology. The second, initially developed at Children's Hospital of Boston, is
for the regeneration of bone and soft-tissue to aid in the support of dental
implants and dentures. We also formed collaborations with both organizations to
support ongoing development of these technologies. In addition, we have begun
two earlier-stage research programs with the University of North Carolina--
Chapel Hill, that are directed at traumatic tooth injury and a next-generation
therapeutic treatment for periodontitis.
We aim to become a leader in oral care pharmaceuticals, including agents
that target both dental and non-dental pathologies of the oral cavity. Our
business strategy is based on leveraging our scientific and medical staff's
expertise in drug development, drug delivery and management of clinical trials;
building our own sales and marketing team for the commercialization of MPTS and
other oral healthcare product candidates in the U.S.; and forming strategic
collaborations to complete basic research and advance other functions such as
manufacturing and distribution.
Additional Information
We were formed in August 1996. Our principal executive offices are
located at 732 Louis Drive, Warminster, Pennsylvania 18974, and our telephone
number is 215-956-2200. We maintain a site on the World Wide Web at
www.orapharma.com. The information found on our site is not a part of this
prospectus and should not be relied upon when making a decision to invest in
our common stock.
4
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by OraPharma........ shares
Common stock to be outstanding after this
offering............................... shares
Use of Proceeds.......................... For further development and
commercialization of MPTS, ongoing
research and development, general
corporate and working capital
purposes, payments under licensing
agreements and obtaining new product
candidates or technology.
Proposed Nasdaq National Market Symbol... OPHM
</TABLE>
The number of shares outstanding after this offering excludes, as of
December 30, 1999:
. shares of common stock available for issuance under our 1999 Equity
Compensation Plan;
. 94,478 shares of common stock available for issuance under our 1996
Stock Option Plan;
. 1,173,947 shares of common stock issuable upon exercise of outstanding
stock options at a weighted average exercise price of $0.18 per share;
. warrants to purchase 62,500 shares of series A preferred stock, which
will either be exercised prior to the completion of this offering or
become exercisable for 62,500 shares of common stock upon the
completion of this offering at an exercise price of $1.00 per share;
. warrants to purchase 55,000 shares of common stock at an exercise price
of $1.82 per share;
. warrants to purchase 221,239 shares of common stock at an exercise
price of $6.46 per share issued in connection with the sale of series D
preferred stock; and
. warrants to purchase 82,305 shares of common stock at an exercise price
of $2.43 per share.
--------------------
Generally, the information in this prospectus, unless otherwise noted:
. assumes that the over-allotment option is not exercised; and
. reflects the automatic conversion of all outstanding shares of series
A, B, C and D preferred stock into an aggregate of 15,114,212 shares of
common stock at the closing of this offering.
5
<PAGE>
Summary Financial Data
The following table presents summary financial information for OraPharma.
The pro forma balance sheet data gives effect to the sale on December 23, 1999
of 1,106,194 shares of the series D preferred stock at $4.52 per share; and the
conversion of the outstanding shares of the series A preferred stock, series B
preferred stock, series C preferred stock and series D preferred stock. The pro
forma as adjusted balance sheet data reflects the sale by OraPharma of
shares of common stock in the offering at an assumed offering price of $ per
share and the use of the net proceeds as set forth in "Use of Proceeds" on page
18. The summary financial data for the period from inception (August 1, 1996)
through December 31, 1996, the years ended December 31, 1997 and 1998 and the
period from inception through December 31, 1998 are derived from the audited
financial statements. The summary financial data for the nine months ended
September 30, 1998 and 1999 and for the period from inception through September
30, 1999 are unaudited, but, in our opinion, include all adjustments necessary
for a fair presentation of such financial data. You should read this data
together with the financial statements and related notes included in this
prospectus.
<TABLE>
<CAPTION>
Period from Period from Period from
Inception Inception Inception
(August 1, (August 1, (August 1,
1996) Year Ended Nine Months Ended 1996) 1996)
Through December 31, September 30, Through Through
December 31, ------------------------ ------------------------ December 31, September 30,
1996 1997 1998 1998 1999 1998 1999
------------ ----------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Operating expenses:
Research and
development.......... $ 26,294 $ 1,706,393 $ 7,324,975 $ 3,710,157 $ 5,841,243 $ 9,057,662 $ 14,898,905
General and
administrative....... 408,295 939,469 1,590,375 930,285 1,403,988 2,938,139 4,342,127
--------- ----------- ----------- ----------- ----------- ------------ ------------
Operating loss........ (434,589) (2,645,862) (8,915,350) (4,640,442) (7,245,231) (11,995,801) (19,241,032)
Net interest income
(expense)............. (641) 504,123 424,488 302,195 513,171 927,970 1,441,141
--------- ----------- ----------- ----------- ----------- ------------ ------------
Net loss................ $(435,230) $(2,141,739) $(8,490,862) $(4,338,247) $(6,732,060) $(11,067,831) $(17,799,891)
========= =========== =========== =========== =========== ============ ============
Basic and diluted net
loss per share........ $ (2.30) $ (6.21) $ (3.29) $ (4.30)
=========== =========== =========== ===========
Shares used in computing
net loss per share.... 932,111 1,366,587 1,319,799 1,564,259
=========== =========== =========== ===========
Pro forma basic and
diluted net loss per
share................. $ (0.91) $ (0.43)
=========== ===========
Shares used in computing
pro forma basic and
diluted net loss per
share................. 9,349,465 15,572,277
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ------------ ------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........... $ 11,025,319 $ 16,000,316 $
Total assets........................ 12,345,449 17,320,446
Long-term debt...................... 336,277 336,277 336,277
Redeemable convertible preferred
stock............................. 28,771,713 -- --
Deficit accumulated during the
development stage................. (17,799,891) (17,799,891) (17,799,891)
Total stockholders' equity
(deficit)......................... (17,351,969) 16,394,741
</TABLE>
6
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors, together with
all of the other information contained in this prospectus before purchasing our
common stock. If any of the following risks actually occur, our business,
financial condition and operating results could be seriously harmed, the
trading price of our common stock could decline and you may lose all or part of
your investment.
Risks Related to Our Business
Our future revenue and operating results will be dependent on our ability to
market one product candidate.
Most of our future revenue and operating results will depend on our
ability to successfully market MPTS. Although we plan to develop and market
additional product candidates, we believe that most of our revenue for the
foreseeable future will come from sales of MPTS. We completed Phase 3 clinical
trials for MPTS in October 1999 and expect to file an NDA with the FDA in the
first half of 2000. If we are unable to obtain FDA approval for, and then to
gain market acceptance of, obtain adequate reimbursement coverage for, or
successfully commercialize MPTS, our business, financial condition and results
of operations will be materially adversely affected.
If we are unable to achieve product development milestones under our license
agreement with American Home Products, or if that agreement terminates, our
rights to commercialize MPTS and our core drug- delivery technology will be
materially adversely affected or lost.
We license MPTS and our core drug-delivery technology on an exclusive
basis for applications in the oral cavity from AHP. AHP has the right to
convert our exclusive license to commercialize MPTS to a non-exclusive license
if we fail to file an NDA for MPTS by August 2001, or if we fail to
commercialize MPTS by August 2003. AHP also has the right to convert our
exclusive license to other oral products to a non-exclusive license if we fail
to commercialize at least one other oral cavity or non-oral cavity product by
August 2007. In addition, AHP has the right to terminate the license agreement
for other reasons, including if we materially breach our payment or other
obligations under our license agreement. If AHP converts our license to a non-
exclusive license, AHP would be free to license MPTS and the core drug-delivery
technology to any third parties, including our competitors. If our license
agreement with AHP terminates, we would be forced to cease our efforts to
commercialize MPTS and other oral cavity products utilizing our drug-delivery
technology.
Most of our product candidates are at early stages of product development and
may never be commercialized.
Most of our product candidates are at an early stage of product
development. The successful commercialization of our product candidates will
require significant further research, development, testing, regulatory
approvals and investment. Product candidates that are not advanced beyond the
early stages of product development or that do not demonstrate clinical
efficacy or achieve regulatory approval will not be commercialized. Our product
candidates in the research and development stage may not yield results that
would permit or justify clinical testing, and those product candidates that
advance to clinical testing may not be approved or commercialized.
Even if we get our product candidates approved, they might not be accepted in
the marketplace.
The commercial success of our product candidates will depend upon their
acceptance by oral health care providers, insurance companies and other third-
party payors and patients as clinically useful, cost-
7
<PAGE>
effective and safe products. Even if our product candidates obtain regulatory
approval, they may not achieve market acceptance of any significance. If any of
our product candidates do not achieve market acceptance, our business and
financial condition will be materially adversely affected.
We have incurred substantial losses since we were formed, and we expect to
continue to incur such losses for the foreseeable future. These losses could
increase significantly as we continue our product development efforts.
We have incurred substantial losses since our inception and we may never
be profitable. As of September 30, 1999, we had a cumulative net loss of
approximately $17.8 million. These losses have resulted principally from costs
incurred in our research and development programs, including clinical trials,
and from our general and administrative costs. We have not derived revenues
from product sales or royalty revenue, and we do not expect to achieve revenue
from product sales or royalties until we receive regulatory approval and begin
commercialization of our product candidates. We are not certain of when, if
ever, that will occur. We expect to incur additional operating losses in the
future and these losses could increase significantly as we expand our
development and clinical trial efforts. Our operations may never be profitable
even if any of our product candidates are approved and commercialized.
We depend on sole-source suppliers for raw materials and components for MPTS
and may not be able to obtain an alternate supply on a timely or acceptable
basis.
We currently rely on sole-source suppliers to provide each of the four
separate raw materials and components for MPTS:
. the polymer component;
. minocycline, the active drug ingredient;
. the plastic dispenser component; and
. the stainless steel dispenser handle.
We have not entered into any agreements that provide us assurance of
continued supply of these components. Because we have not yet commercialized
any products, we have obtained only the limited supply of these materials and
components necessary to conduct clinical trials. We may not be able to obtain a
sufficient supply of these raw materials and components from each supplier at
competitive prices, if at all, necessary for the commercialization of MPTS. We
may not be able to find alternative suppliers in a timely manner that would
provide these materials and components at acceptable prices or in adequate
quantities. Any delay or disruption in the supply of these materials, including
those resulting from natural disasters, could slow or stop commercialization of
MPTS. Before replacing any of these suppliers or engaging second-source
suppliers, we would need to satisfy various regulatory requirements.
We depend on two sole-source contract manufacturers for the production and
packaging of MPTS, and have not entered into long-term agreements with either
manufacturer.
We have no experience in manufacturing and we currently lack the
resources or capability to manufacture any of our product candidates on a
clinical or commercial scale. As a result, we are dependent on third parties
for the assembly, testing and packaging of our product candidates. In the case
of MPTS, we are solely dependent on one company for the manufacture and testing
of MPTS microspheres. Additionally, we are solely dependent on another company
for filling and packaging the dispensers. We may not be able to enter into
agreements on acceptable terms for the commercial-scale manufacturing or
filling and packaging of MPTS. If we are unable to do so, our commercialization
of MPTS will be delayed or halted, as we would be required to satisfy various
regulatory requirements before engaging either a substitute or a second-source
manufacturer or packager. In addition, each manufacturer and manufacturing
facility of any component or aspect of MPTS must be inspected and meet
extensive FDA regulatory requirements, and these manufacturers' facilities may
not meet these requirements.
8
<PAGE>
We have no sales or marketing experience, and if we are unable to effectively
develop adequate sales and marketing capabilities, we may be unsuccessful in
commercializing our product candidates.
We currently have no sales, marketing or distribution capability. We
intend to market and sell our product candidates in the U.S. through a direct
sales and marketing force. In order to do this, we will have to develop a sales
and marketing force with technical expertise and establish a supporting
distribution capability. Developing a sales and marketing force is expensive
and time-consuming and could delay any product launch. Furthermore, while we
currently expect to create a direct sales and marketing force of 50 to 75
people, the actual number of representatives needed by us to reach our target
market may be significantly more or less than our current expectations. If we
are unable to successfully hire, deploy and manage our sales and marketing
force, our business and operating results will be harmed.
If we are unable to establish our sales and marketing capability, we will
need to enter into sales and marketing agreements with third parties to market
MPTS in the U.S. We plan to enter into these types of arrangements for sales
outside the U.S. If we are unable to establish successful distributor
relationships, we may fail to realize our full sales potential.
In addition, because we intend to develop this sales and marketing force
before we have received FDA approval of our NDA for MPTS, our results of
operations will be materially adversely affected if we fail to obtain FDA
approval on a timely basis.
Marketplace acceptance of our product candidates will depend on competition in
our industry, which is intense.
The extent to which any of our product candidates achieve market
acceptance will depend on competitive factors, many of which are beyond our
control. Competition in the pharmaceutical industries, and the market for oral
care pharmaceuticals in particular, is intense. Competition has been
accentuated by the rapid pace of technology development. FDA-approved products
currently exist that will compete with most of the product candidates we are
developing. We are also aware of companies that are developing products that
may compete in the same markets as our product candidates. Many of these
current and potential competitors have substantially greater research and
development capabilities and financial, scientific, marketing and sales
resources than we possess. These competitors may succeed in developing products
earlier and obtaining regulatory approvals from the FDA more rapidly than us.
These competitors may also develop products that are superior to those we are
developing and render our product candidates or technologies obsolete or non-
competitive. If any of our product candidates receive regulatory approvals, but
cannot compete effectively in the marketplace, our business, financial
condition and results of operations will be materially adversely affected.
Our ability to market and sell our product candidates will depend on the
availability of adequate reimbursement from government health administration
authorities, private health insurers and other organizations.
Our ability to market and sell our product candidates will depend on the
availability of adequate reimbursement for the cost of our product candidates
and related treatments from government health administration authorities,
private health insurers and other organizations. Reimbursement for oral care by
third-party payors is traditionally significantly more limited than
reimbursement for other fields of medical care. This is particularly an issue
for products administered by oral care professionals. We believe that
approximately one-half of all dental services are currently paid for directly
by patients and not by third-party payors. Reimbursement for oral care may
never reach levels equivalent to reimbursement for other fields of medical
care. Furthermore, third-party payors are increasingly challenging the price of
health-care products and services and have been slow to offer reimbursement for
newly approved health care products. Our products candidates, if
commercialized, may not be considered cost-effective or be covered by adequate
reimbursement. The lack of adequate reimbursement from government health
administration authorities, private health insurers and other organizations for
our product candidates would have a material adverse effect on our operating
results.
9
<PAGE>
If our licensing arrangements and collaborations with third parties are
terminated or prove to be unsuccessful, our efforts to develop and
commercialize other product candidates may be delayed.
We depend on licensing arrangements and collaborations with third parties
other than AHP for the development and commercialization for our other product
candidates. We also depend on arrangements with third parties for research,
development, and commercialization of our product candidates. Our licensing
arrangements may be terminated or reduced to a non-exclusive basis if we do not
perform as required under those arrangements. In addition, our third-party
licensors or collaborators may also breach or terminate their agreements with
us or otherwise fail to conduct their collaborative activities in a timely
manner. We would likely experience significant delays in the development or
commercialization of a product candidate if a license to applicable
technologies were terminated or rendered non-exclusive.
Collaborative arrangements in our industry can be very complex,
particularly with respect to intellectual property rights. Disputes may arise
in the future regarding ownership rights to technology developed by or with
other parties. These and other possible disagreements between us and our third-
party licensors and collaborators could lead to delays in the research,
development, manufacture and commercialization of our product candidates.
Third-party licensors and other collaborators may also pursue alternative
technologies or product candidates either on their own or in collaboration with
others in direct competition with us. These disputes could also result in
litigation or arbitration, both of which are time-consuming and expensive.
If we or the parties from which we license our technology fail to secure or
enforce the patents and other intellectual property rights underlying MPTS, our
core drug-delivery technology or our other product candidates, we may be unable
to compete effectively.
The pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and
processes. Our success depends on our ability and the ability of our third-
party licensors to:
. obtain and maintain patent protection for MPTS, our other product
candidates, and our core drug- delivery technology;
. preserve our trade secrets; and
. operate without infringing on the intellectual property rights of
third parties.
Patents may not ultimately be issued from any pending or future patent
applications. In addition, any issued patents may not be sufficient to protect
our product candidates or technologies. Our issued patents may be held to be
invalid if challenged. In addition, third parties may develop similar
technology which circumvents our or our licensors' patents. If we or our third-
party licensors do not obtain and maintain appropriate patent protection, we
may face increased competition in the United States and in foreign countries.
Our third-party licensors are primarily responsible for prosecuting and
maintaining all patents and patent applications covering MPTS, our drug-
delivery technology, and our other product candidates. If these third parties
do not diligently prosecute and maintain the patents and patent applications
upon which we rely, our ability to exclude others from competing with us may
suffer.
Patent applications in the United States are maintained in secrecy until
a patent issues. As a result, others may have filed patent applications for
products or technology covered by any pending patent applications we are
relying upon. There may be third-party patents, patent applications and other
intellectual property relevant to our product candidates and technologies which
are not known to us and that block or compete with our product candidates or
technologies. In addition, litigation may be necessary to enforce any patents
issued to us or to determine the scope and validity of the intellectual
property rights of third parties. Litigation and interference proceedings, even
if they are successful, are expensive to pursue.
10
<PAGE>
We may face significant expense and liability if our technologies, product
candidates, methods or processes are found to infringe the intellectual
property rights of others, or if we allege others infringe our intellectual
property rights.
If our technologies, product candidates, methods or processes infringe
the intellectual property rights of other parties, we could incur substantial
costs and we may have to:
. obtain licenses from the owners of such intellectual property rights;
. redesign our product candidates or processes to avoid infringement;
. stop using the subject matter claimed in the patents held by others;
. pay damages; or
. defend litigation or administrative proceedings which may be costly
whether we win or lose.
Although no third party has asserted a claim of infringement against us,
we cannot assure you that third parties will not, in the future, assert patent
or other intellectual property infringement claims against us with respect to
our product candidates, technologies or other matters. We are aware of an
issued patent that relates to use of antibiotics, including minocycline, to
inhibit collagenase to treat periodontal and other diseases, and which has been
exclusively licensed to a competitor. It is possible that a claim could be
asserted that the use of our MPTS product infringes this issued patent. We do
not believe that we infringe any valid and enforceable claims of the patent,
and we have received an opinion of patent counsel that the relevant claims of
the patent should be invalidated if asserted in litigation. If this patent is
found to contain claims infringed by the use of our MPTS product and such
claims are ultimately found to be valid and enforceable, we may not be able to
obtain a license from the competitor at a reasonable cost, if at all, or
develop or obtain alternative technology. If we cannot do either, our financial
condition and business would be harmed. In addition, we cannot assure you that
we will not have to defend ourselves in court against allegations of
infringement, which could result in substantial cost and diversion of
management's resources, or that our defense would be successful.
In addition, the products of others could infringe the patent and other
intellectual property rights upon which we rely. The defense and prosecution of
patent and other intellectual property claims is both costly and time-
consuming, even if the eventual outcome is favorable to us. Any adverse outcome
in a proceeding involving patent rights of others could subject us to
significant liabilities to third parties, require disputed rights to be
licensed from third parties, or require us to cease commercializing our
products and technologies.
Our success also depends upon the skills, knowledge and experience of our
scientific and technical personnel. The confidentiality agreements required of
our employees may not provide adequate protection for our trade secrets, know-
how or other proprietary information or prevent any unauthorized use or
disclosure or the lawful development by others. If any of our intellectual
property is disclosed, our business may suffer. In addition, many of our
scientific and management personnel have been recruited from other
biotechnology and pharmaceutical companies, where they were conducting research
in areas similar to those that we now pursue. As a result, we could be subject
to allegations of trade-secret violations and other claims relating to the
intellectual property rights of these companies.
We depend on key personnel and may not be able to retain these employees or
recruit additional qualified personnel, which would harm our business.
We are highly dependent on our key management and scientific personnel.
The employment of any of our key personnel could cease at any time. The loss of
any of our key management could cause our business to suffer.
Competition for qualified employees among companies in the pharmaceutical
industry is intense. Our future success depends upon our ability to attract,
retain and motivate highly-skilled employees. In order to successfully
commercialize our product candidates, we may be required to substantially
expand our personnel, particularly in the areas of sales and marketing,
clinical trials management and regulatory affairs.
11
<PAGE>
We may not be successful in recruiting or retaining qualified personnel,
which would harm our business.
We are likely to need additional financing, but our access to capital funding
is uncertain.
Our current and anticipated development projects require substantial
capital. We are likely to need substantial additional funds to conduct our
research activities, technical studies, clinical trials and other activities
relating to the successful commercialization of our product candidates.
However, our access to capital funding is uncertain. If adequate funds are
unavailable, we may be required to:
. delay, reduce the scope of, or eliminate one or more of our research
or development programs;
. license rights to technologies, product candidates or products on
terms that are less favorable to us than might otherwise be available;
or
. obtain funds through arrangements with collaborative partners or
others that may require us to relinquish rights to product candidates
or products that we would otherwise seek to develop or commercialize
ourselves.
If we raise additional funds by issuing equity securities, our existing
stockholders will own a smaller percentage of OraPharma, and new investors may
pay less on average for their securities than, and could have rights superior
to, existing stockholders.
We may be subject to product liability claims if our product candidates injure
people, and we have only limited product liability insurance.
Our business exposes us to potential product liability risks, which are
inherent in the testing, manufacturing, marketing and sale of pharmaceutical
products and candidates. We may not be able to avoid product liability claims.
Product liability insurance for the pharmaceutical industry is generally
expensive, if available at all. Our current product liability insurance
coverage, $1 million per occurrence and $5 million aggregate, may not be
adequate. If we are unable to obtain or maintain sufficient insurance coverage
on reasonable terms or to otherwise protect against potential product liability
claims, we may be unable to commercialize our product candidates. A successful
product liability claim brought against us in excess of our insurance coverage,
if any, may cause us to incur substantial liabilities.
If, because of our use of hazardous materials, we violate environmental
controls or regulations that apply to such materials, we may incur substantial
costs and expenses.
Our research and development activities involve the controlled use of
hazardous materials, including hazardous chemicals. We are subject to federal,
state and local laws and regulations governing the use, storage, handling and
disposal of these materials and some waste products. Accidental contamination
or injury from these materials could occur. In the event of an accident, we
could be liable for any resulting damages, and any liabilities could exceed our
resources. Compliance with environmental laws and regulations could require us
to incur substantial unexpected costs which could materially and adversely
affect our operating results.
We face uncertainty with year 2000 compliance.
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of our
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This may result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to receive supplies from our vendors or to operate our accounting and other
internal systems. If our software vendors are unable to address the year 2000
compliance of their products, or should our suppliers' operations be disrupted
by the year 2000 issue, then our ability to commercialize and develop our
product candidates may be materially adversely affected.
12
<PAGE>
Risks Related to Governmental Approvals
If the clinical trials of our product candidates fail, we will not be able to
market our product candidates.
To receive the regulatory approvals necessary for the sale of our product
candidates, we must demonstrate through human clinical trials that each product
candidate is safe and effective. If we are unable to obtain regulatory approval
of our product candidates, we will not be able to market and commercialize our
product candidates.
The clinical trial process is complex, uncertain and expensive. We incur
substantial expense for, and devote significant time to, clinical trials, yet
we cannot be certain that the trials will ever result in the commercial sale of
a product candidate. Positive results from preclinical studies and early
clinical trials do not ensure positive results in clinical trials designed to
permit application for regulatory approval, called pivotal clinical trials. We
may suffer significant setbacks in pivotal clinical trials, even after earlier
clinical trials show promising results. Any of our product candidates may
produce undesirable side effects in humans that could cause us or regulatory
authorities to interrupt, delay or halt clinical trials of a product candidate.
We, the FDA or foreign regulatory authorities may suspend or terminate clinical
trials at any time if we or they believe the trial participants face
unacceptable health risks. Clinical trials may fail to demonstrate that our
product candidates are safe or effective. Even if we successfully complete
clinical trials for our product candidates, we might not receive regulatory
approval for any or all of our product candidates.
Our MPTS clinical trials might not be deemed acceptable by the FDA.
We have completed two pivotal Phase 3 clinical trials with MPTS for the
treatment of adult periodontitis in conjunction with scaling and root planing,
and intend to submit in the first half of 2000 an NDA to the FDA based on the
results of these trials and the earlier Phase 1 and 2 trials. Although we
believe the two pivotal trials conducted by us with MPTS yielded successful
results, we cannot assure you that the FDA will not, after completing its own
analysis, either determine that such trials should have been conducted or
analyzed differently, and thus reach a different conclusion from that reached
by us, or request that further trials or analysis be conducted. Requiring us to
conduct additional trials would have a material adverse effect on us, as any
such additional trials would likely be time-consuming and expensive.
If our manufacturers do not obtain or maintain current Good Manufacturing
Practices, we may not be able to commercialize MPTS or any other product
candidate.
Following extensive review of an NDA, the FDA may grant marketing
approval, reject the application or require additional testing or information.
Sales of a new drug may commence following FDA approval of an NDA and
satisfactory completion of a pre-approval inspection of each manufacturing
facility, including a review of pertinent production records. Drug
manufacturing facilities are subject to a plant inspection before the FDA will
issue approval to market a new drug product, and all of the suppliers and
contract manufacturers that we intend to use must adhere to the current Good
Manufacturing Practices, or cGMP, prescribed by the FDA. Detailed manufacturing
information is also required to be submitted for review and approval by the FDA
as part of the NDA. Among other things, we must submit data indicating that the
drug product can be consistently manufactured by our supplier at the same
quality standard, that the drug product is stable over time, that the level of
chemical impurities in the drug product is below specified levels, and that the
delivery device developed by us for MPTS works as intended in a consistent
manner. Our manufacturers may not be able to obtain or maintain cGMP as
prescribed by the FDA.
After any FDA approval of our MPTS or future NDAs, we will still have to comply
with extensive regulations.
Continued compliance with all FDA requirements and the conditions in an
approved NDA, including those concerning product specifications, manufacturing
process, validation, labeling, promotional material,
13
<PAGE>
record-keeping and reporting, is required for all approved drug products.
Failure to comply with these requirements could result in warning letters,
product recall, criminal action or other FDA-initiated actions, which could
delay further marketing until the products are brought into compliance. Product
approvals may also be withdrawn if problems concerning safety, efficacy or
quality of the product occur following approval. In addition, if there are any
modifications to the drug, including any changes in indication, manufacturing
process, labeling, delivery devices or manufacturing facility, an NDA
supplement may be required to be submitted to the FDA. The FDA may also require
post-marketing testing and surveillance to monitor the effects of approved
products or place conditions on any approvals that could restrict the
commercial applications of such products.
Approval of any NDA will also require us and the FDA to agree upon a
package insert that will, among other things, identify possible side effects
and specify contraindications. These restrictions could limit our ability to
market MPTS or any other products.
We do not have, and may never obtain, the regulatory approvals we need to be
permitted to market our product candidates.
We have not applied for or received regulatory approval in the United
States or any foreign jurisdiction for the commercial sale of any of our
product candidates. We have completed Phase 3 trials for MPTS and are
conducting preclinical studies or research and development for our other
product candidates. We have not submitted an NDA for any of our product
candidates or, if any of our product candidates are determined to be medical
devices, a Premarket Approval Application or Premarket Notification to the FDA
or any equivalent application to any other foreign regulatory authorities for
any of our product candidates. To date, none of our product candidates has been
determined to be safe or effective.
The process of obtaining FDA and other required regulatory approvals,
including foreign approvals, often takes many years and can vary substantially
based upon the type, complexity and novelty of the product candidates involved.
Furthermore, this approval process is extremely expensive and uncertain. We
have only limited experience in filing and pursuing applications necessary to
gain regulatory approvals. We cannot guarantee that any of our product
candidates, including MPTS, will be found to be safe and effective by the FDA
and approved for marketing.
Any future clinical trials could take longer to complete than we expect.
Although for planning purposes we forecast the commencement and
completion of clinical trials, the actual timing of these events can vary
dramatically due to factors such as delays, scheduling conflicts with
participating clinicians and clinical institutions and the rate of patient
accruals. We cannot assure you that clinical trials involving our product
candidates will commence or be completed as forecasted, or that they will be
conducted successfully. Failure to commence or complete, or delays in, any of
our future clinical trials could have a material adverse effect on our business
and could cause our stock price to decrease.
In some circumstances we rely on corporate collaborators, academic
institutions or clinical research organizations to conduct, supervise or
monitor some or all aspects of preclinical and clinical trials involving our
product candidates. We will have less control over the timing and other aspects
of these clinical trials than if we conducted them entirely on our own.
14
<PAGE>
Risks Related to the Offering
The price of our common stock may be lower than the price you pay.
Prior to this offering, there has been no public market for our common
stock. If you purchase shares of our common stock in this offering, you will
not pay a price that was established in a competitive market. Rather, you will
pay a price that we negotiated with the representatives of the underwriters.
The price of our common stock that will prevail in the market after this
offering may be higher or lower than the price you pay. After this offering, an
active trading market in our stock might not develop or continue.
Our stock price may be highly volatile and you may not be able to resell your
shares at or above the initial public offering price.
The market price of our common stock may fluctuate significantly in
response to many factors, some of which are beyond our control, including the
following:
. results of preclinical studies and clinical trials conducted by us,
our collaborators or our competitors;
. announcements of technological innovations or new commercial products
by us, our collaborators or our competitors;
. regulatory developments in both the United States and foreign
countries;
. changes in reimbursement policies;
. developments or disputes concerning patents or other proprietary
rights;
. fluctuations in our operating results;
. changes in financial estimates or recommendations by security
analysts;
. public concern as to the safety and efficacy of products developed by
us, our collaborators or our competitors;
. lack of adequate trading liquidity as a public company; or
. general market conditions.
In addition, the market price for securities of early-stage drug
companies have been particularly volatile. In the past, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation has often been brought against the company. We may
become involved in this type of litigation in the future. Litigation of this
type is often extremely expensive and diverts management's attention and
resources.
You will incur immediate and substantial dilution of the stock value of your
shares.
The assumed offering price of our common stock is substantially higher
than the net tangible pro forma book value per share of our outstanding common
stock. As a result, investors purchasing common stock in this offering will
incur immediate and substantial dilution in the net tangible book value of
their common stock of $ per share. In the past, we issued options and warrants
to acquire capital stock at prices significantly below the assumed offering
price. There will be further dilution to investors when any of these
outstanding options and warrants are exercised.
Future sales of our common stock could cause the market price of our common
stock to decline.
The market price of our common stock could decline due to sales of a
large number of shares in the market after this offering or the perception that
such sales could occur, including sales or distributions of shares
15
<PAGE>
by our large stockholders. These sales could also make it more difficult for us
to sell equity securities in the future at a time and price that we deem
appropriate to raise funds through future offerings of common stock.
Our certificate of incorporation and Delaware law contain provisions that could
discourage a takeover.
Our certificate of incorporation provides for the division of our board
of directors into three classes and provides our board of directors the power
to issue up to five million shares of preferred stock without stockholder
approval. This preferred stock could have voting rights that could be superior
to that of our common stock, and our board of directors has the power to
determine these voting rights. Our certificate of incorporation also requires
supermajority approval of the removal of any member of our board of directors
and prevents our stockholders from acting by written consent. In addition,
Section 203 of the Delaware General Corporation Law contains provisions which
impose restrictions on stockholder action to acquire control of OraPharma. The
effect of these provisions of our certificate of incorporation and Delaware law
would likely discourage third parties from seeking to obtain control of
OraPharma.
The interests of our controlling stockholders may conflict with our interests
and the interests of our other stockholders.
Upon the completion of this offering, six stockholders will own
approximately % of our outstanding common stock. The interests of our
controlling stockholders could conflict with the interests of our other
stockholders. For example, if our controlling stockholders chose to act
together, they may be able to exert considerable influence over us, including
in the election of directors and the approval of actions submitted to our
stockholders. Also, the provision of Section 203 of the Delaware General
Corporation Law would not be applicable to them. In addition, without the
consent of these stockholders, we may be prevented from entering into
transactions that could be beneficial to us.
The net proceeds from the offering may be allocated in ways with which you and
other stockholders may not agree.
Management will have significant flexibility in applying the net proceeds
of this offering and could use these proceeds for purposes other than those
contemplated at the time of the offering.
16
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements under the captions
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and elsewhere. These
forward-looking statements include statements about the following:
. establishing a sales and marketing force, including related hiring and
training activities;
. our intentions regarding international collaborations;
. anticipated operating losses and capital expenditures;
. the anticipated filing date of our NDA for MPTS;
. anticipated regulatory filing dates for our other product candidates;
. our intention of making milestone payments in cash under our licensing
agreements;
. our product development efforts;
. the status of our regulatory process for MPTS and other product
candidates; and
. our intention to rely on third parties for manufacturing.
When used in this prospectus, the words "believe," "anticipate,"
"estimate," "expect," "seek," "intend," "may" and similar expressions are
generally intended to identify "forward-looking statements." Our forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause our actual results, performance or achievements, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by these forward-looking
statements. These factors are discussed in more detail elsewhere in this
prospectus, including under the captions "Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Because of these uncertainties, you should not
place undue reliance on our forward-looking statements. We do not intend to
update any of these factors or to publicly announce the result of any revisions
to any of our forward-looking statements contained herein, whether as a result
of new information, future events or otherwise.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to OraPharma from the sale of the shares of common
stock from this offering, are estimated to be approximately $ million, or $
million if the underwriters' over-allotment option is exercised in full. This
is based upon an assumed offering price of $ per share after deducting
underwriting discounts and commissions and estimated offering expenses.
We expect to use these proceeds for the following purposes:
. approximately $16.0 million for the further development and
commercialization of MPTS;
. ongoing research and development activities;
. general corporate and working capital purposes;
. payments under current licensing agreements; and
. obtaining licenses for new product candidates or technology.
In addition, a portion of the net proceeds may be used to acquire other
companies. We are not currently engaged in any negotiations to acquire any
other company.
The amounts and timing of our actual expenditures for each purpose may
vary significantly depending upon numerous factors, including:
. the size, scope and progress of our product candidate development
efforts;
. regulatory approvals;
. competition;
. marketing and sales activities;
. the market acceptance of any products introduced by us;
. future revenue growth; and
. the amount of cash, if any, we generate from operations.
As a result, we will retain broad discretion in the allocation of the net
proceeds of this offering. Pending uses described above, we intend to invest
the net proceeds of this offering in short-term, investment-grade, interest-
bearing securities.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We do not
anticipate paying any cash dividends in the foreseeable future as we currently
intend to retain any future earnings to fund the continued development and
growth of our business. In addition, our existing credit facility prohibits the
payment of dividends.
18
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
1999:
. on an actual basis derived from the unaudited financial statements;
. on a pro forma basis to give effect to the sale 1,106,194 shares of
series D preferred stock at $4.52 per share for net proceeds of
$4,975,000, which occurred on December 23, 1999, and the automatic
conversion of all outstanding shares of series A, B, C and D preferred
stock into common stock upon the completion of the offering; and
. on a pro forma as adjusted basis to give effect to the sale of
shares of common stock offered in the offering at an assumed offering
price of $ per share, after deducting underwriting discounts and
commissions and estimated offering expenses.
<TABLE>
<CAPTION>
As of September 30, 1999
------------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ------------ --------------
(in thousands, except share amounts)
<S> <C> <C> <C>
Long-term debt, less current
portion........................... $ 336 $ 336 $ 336
------------ ----------- ------------
Redeemable Convertible Preferred
Stock, $.001 par value:
Series A, 800,000 shares
authorized, issued and
outstanding actual, none issued
and outstanding pro forma and
pro forma as adjusted........... 800 -- --
Series B, 6,623,658 shares
authorized, issued and
outstanding actual, none issued
and outstanding pro forma and
pro forma as adjusted........... 12,023 -- --
Series C, 6,584,360 shares
authorized, issued and
outstanding actual, none issued
and outstanding pro forma and
pro forma as adjusted........... 15,949 -- --
------------ ----------- ------------
Total redeemable convertible
preferred stock.............. 28,772 -- --
------------ ----------- ------------
Stockholders' Equity (Deficit):
Common stock, $.001 par value,
20,000,000 shares authorized,
2,079,075 issued and
outstanding actual, 17,193,287
issued and outstanding pro
forma, issued and
outstanding pro forma as
adjusted........................ 2 17
Additional paid-in capital........ 773 34,505
Deferred compensation............. (327) (327) (327)
Deficit accumulated during the
development stage............... (17,800) (17,800) (17,800)
------------ ----------- ------------
Total stockholders' equity
(deficit).................... (17,352) 16,395
------------ ----------- ------------
Total capitalization........... $ 11,756 $ 16,731 $
============ =========== ============
</TABLE>
The number of shares of common stock to be outstanding after this
offering is based on the number of shares outstanding as of September 30, 1999
and does not include:
. 105,478 shares of common stock underlying stock options available for
future grants under our stock option plan;
. 1,162,947 shares of common stock issuable upon the exercise of
outstanding options at a weighted average exercise price of $0.17; and
. 421,044 shares of common stock issuable upon the exercise of
outstanding warrants at a weighted average exercise price of $4.26 per
share.
19
<PAGE>
DILUTION
As of September 30, 1999, our pro forma net tangible book value was
$16,193,808 or $0.94 per share. Pro forma net tangible book value per share is
determined by dividing pro forma net tangible book value (total tangible assets
less total liabilities) by the pro forma number of shares of common stock after
giving effect to:
. the sale of the series D preferred stock, net of offering cost, which
occurred on December 23, 1999; and
. the automatic conversion of all outstanding shares of series A, series
B, series C and series D preferred stock into an aggregate of
15,114,212 shares of common stock, which will occur upon the closing
of the offering.
Without taking into effect any changes in pro forma net tangible book
value after September 30, 1999, other than the issuance of the series D
preferred stock on December 23, 1999, and to give effect to the sale of the
common stock offered hereby at an assumed offering price of $ per share and
the application of the net proceeds of the offering, the pro forma as adjusted
net tangible book value would have been $ , or $ per share. This represents
an immediate increase in pro forma net tangible book value of $ per share to
existing stockholders and dilution in pro forma as adjusted net tangible book
value of $ per share to new investors who purchase shares in the offering.
The following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed offering price per share................................... $
Pro forma net tangible book value per share before the offering.. $0.94
Increase per share attributable to new investors.................
-----
Pro forma as adjusted net tangible book value per share after the
offering.........................................................
---
Dilution in net tangible book value per share to new investors..... $
===
</TABLE>
If the underwriters' over-allotment option were exercised in full, the
pro forma as adjusted net tangible book value per share after the offering
would be $ per share, the increase in net tangible book value per share to
existing stockholders would be $ per share and the dilution in net tangible
book value to new investors would be $ per share.
The following table summarizes, on a pro forma as adjusted basis as of
September 30, 1999, the differences between the total consideration paid and
the average price per share paid by the existing stockholders and the new
investors with respect to the number of shares of common stock purchased from
us based on an assumed offering price of $ per share:
<TABLE>
<CAPTION>
Shares Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 17,193,287 % $33,858,833 % $
New investors..............
---------- ----- ----------- -----
Total.................... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>
These tables do not assume exercise of stock options and warrants
outstanding at September 30, 1999 and include 406,629 shares subject to
repurchase by us.
At September 30, 1999, there were 1,162,947 shares of common stock
issuable upon exercise of outstanding stock options at a weighted average
exercise price of $0.17 per share and 421,044 shares of common stock issuable
upon exercise of outstanding warrants at a weighted average exercise price of
$4.26 per share.
20
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data of OraPharma should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on page 22 and the financial statements and related
notes beginning on page F-3. The selected financial data for the period from
inception (August 1, 1996) through December 31, 1996, the years ended December
31, 1997 and 1998 and the period from inception through December 31, 1998 are
derived from the audited financial statements. The selected financial data for
the nine months ended September 30, 1998 and 1999 and for the period from
inception through September 30, 1999 are unaudited, but, in our opinion,
include all adjustments necessary for a fair presentation of such financial
data.
<TABLE>
<CAPTION>
Period from Period from Period from
Inception Inception Inception
(August 1, (August 1, (August 1,
1996) Year Ended Nine Months Ended 1996) 1996)
Through December 31, September 30, Through Through
December 31, ------------------------ ------------------------ December 31, September 30,
1996 1997 1998 1998 1999 1998 1999
------------ ----------- ----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Operating expenses:
Research and
development.......... $ 26,294 $ 1,706,393 $ 7,324,975 $ 3,710,157 $ 5,841,243 $ 9,057,662 $ 14,898,905
General and
administrative....... 408,295 939,469 1,590,375 930,285 1,403,988 2,938,139 4,342,127
--------- ----------- ----------- ----------- ----------- ------------ ------------
Operating loss........ (434,589) (2,645,862) (8,915,350) (4,640,442) (7,245,231) (11,995,801) (19,241,032)
Net interest income
(expense)............. (641) 504,123 424,488 302,195 513,171 927,970 1,441,141
--------- ----------- ----------- ----------- ----------- ------------ ------------
Net loss................ $(435,230) $(2,141,739) $(8,490,862) $(4,338,247) $(6,732,060) $(11,067,831) $(17,799,891)
========= =========== =========== =========== =========== ============ ============
Basic and diluted net
loss per share........ $ (2.30) $ (6.21) $ (3.29) $ (4.30)
=========== =========== =========== ===========
Shares used in computing
basic and diluted net
loss per share........ 932,111 1,366,587 1,319,799 1,564,259
=========== =========== =========== ===========
Pro forma basic and
diluted net loss per
share................. $ (0.91) $ (0.43)
=========== ===========
Shares used in computing
pro forma basic and
diluted net loss per
share................. 9,349,465 15,572,227
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------ September 30,
1996 1997 1998 1999
--------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............. $ 37,704 $10,136,747 $ 19,236,084 $ 11,025,319
Total assets.............. 61,479 10,859,584 20,480,402 12,345,449
Long-term debt............ -- -- 480,978 336,277
Redeemable convertible
preferred stock......... -- 12,822,769 28,771,713 28,771,713
Deficit accumulated during
the development stage... (435,230) (2,576,969) (11,067,831) (17,799,891)
Total stockholders'
deficit................. (359,071) (2,446,806) (10,879,151) (17,351,969)
</TABLE>
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Background
We have devoted substantially all of our resources since we began our
operations in August 1996 to research and development of pharmaceutical product
candidates for oral healthcare. We are a development stage pharmaceutical
company and have not generated any revenues from product sales. We have not
been profitable and since our inception we have incurred a cumulative net loss
of approximately $17.8 million through September 30, 1999. These losses have
resulted principally from costs incurred in research and development
activities, including Phase 3 clinical trials for our lead product candidate
MPTS, and general and administrative expenses. We expect to incur additional
operating losses until such time as we generate sufficient revenue to offset
expenses. Research and development costs relating to product candidates will
continue to increase. Manufacturing, sales and marketing costs will increase as
we prepare for the commercialization of MPTS.
We completed Phase 3 clinical trials in October 1999 for MPTS, our lead
product candidate. We expect to file an NDA for MPTS with the FDA during the
first half of 2000. Most of our revenue for the foreseeable future will depend
on our ability to receive regulatory approvals for, and successfully market,
MPTS. Assuming we obtain FDA approval, we intend to deploy a sales and
marketing force of 50 to 75 persons in the U.S. and expect to begin hiring and
training activities in late 2000. In international markets, we intend to rely
on strategic collaborations to market and sell MPTS rather than establish our
own sales force.
Equity Financings
We have financed our operations primarily from the net proceeds generated
from the issuance of convertible preferred stock. As of December 30, 1999, we
have received total net proceeds of approximately $33.8 million from the
following sales of preferred stock:
. 800,000 shares of series A preferred stock were sold in February 1997
raising total net proceeds of approximately $800,000;
. 6,623,658 shares of series B preferred stock were sold in March 1997
raising total net proceeds of approximately $12.0 million;
. 6,584,360 shares of series C preferred stock were sold in December
1998 raising total net proceeds of approximately $16.0 million; and
. 1,106,194 shares of series D preferred stock were sold on December 23,
1999 raising total net proceeds of approximately $5.0 million.
Milestone Payments, Royalties and License Fees
We paid AHP $250,000 and issued AHP 220,000 shares of our common stock at
the time we entered into our license agreement with AHP. Our license agreement
with AHP requires us to make payments to AHP as two milestones are achieved,
and to pay AHP royalties on sales of MPTS and other products that are covered
by the AHP patents or developed using the AHP technology. The first milestone
payment of $500,000 will be paid to AHP if and when the FDA accepts submission
of our NDA for MPTS for the treatment of periodontitis. A second milestone
payment of $2.5 million is due to AHP if and when we receive FDA approval of
MPTS for the treatment of periodontitis. Instead of paying this second
milestone in cash, we may issue AHP warrants to purchase our common stock. In
addition, if our cash reserves are below $5 million at the time the first
payment is due, we may instead make this payment by issuing AHP a combination
of a promissory note and a warrant to purchase our common stock. We intend to
make both of these milestone payments in cash.
22
<PAGE>
We are also required to pay royalties on sales of MPTS to Gary R.
Jernberg, DDS, a holder of three U.S. patents, and to Technical Development and
Investments, Est., relating to technology previously licensed by AHP to this
third party. Royalties payable to these third parties can be fully credited
against up to 50% of the royalties payable under our agreement with AHP.
We paid Mucosal Therapeutics LLC $200,000 and issued Mucosal Therapeutics
a warrant to purchase 55,000 shares of our common stock in December 1998. On
December 28, 1999, we completed our first milestone and paid Mucosal
Therapeutics $100,000 and issued this third party a warrant to purchase 82,305
shares of our common stock. We are required to make payments to Mucosal
Therapeutics, in the form of cash and warrants to purchase our common stock, as
preclinical and clinical milestones are achieved, and upon FDA approval of a
pharmaceutical product for the treatment of oral mucositis. The license
agreement further obligates us to pay Mucosal Therapeutics royalties on sales
of pharmaceutical products covered by or involving use of this technology.
We have also entered into a research and consulting agreement with an
affiliate of Mucosal Therapeutics, Biomodels LLC to perform preclinical studies
on our behalf and to provide us with research and general consulting services
regarding our development of the oral mucositis technology. Payments to this
third party are expected to total approximately $1.4 million through 2002.
We issued 165,000 shares of common stock to Children's Medical Center
Corporation in December 1998. We are also required to make milestone payments
to CMCC, payable in shares of our common stock, upon submission of our first
NDA relating to a bone regeneration product candidate and upon approval of our
first NDA. We are also obligated to pay CMCC royalties on sales of products
covered by the CMCC patents or which are specified bone and soft-tissue
regeneration products. We have also entered into a sponsored research agreement
with Children's Hospital, a non-profit affiliate of CMCC, to conduct research
in the area of bone and soft-tissue regeneration and perform related
preclinical studies. Payments due under the sponsored-research agreement are
expected to total approximately $1.3 million through mid-2002.
Results of Operations
Nine Months Ended September 30, 1999 and 1998.
Research and Development Expenses. Research and development expenses
increased to approximately $5.8 million for the nine months ended September 30,
1999 compared to approximately $3.7 million in the same period in 1998, an
increase of 57.4%. This increase was primarily due to costs associated with
Phase 3 clinical trials of MPTS, and to a lesser extent expanded efforts to
develop new product candidates.
General and Administrative Expenses. General and administrative expenses
increased to approximately $1.4 million for the nine months ended September 30,
1999 compared to $930,000 in the same period in 1998, an increase of 50.9%.
This increase is primarily due to higher personnel costs, together with higher
facility costs and reflects the cost of preliminary marketing efforts for MPTS
and the pursuit of corporate collaborations.
Net Interest Income (Expense). Interest income for the nine months ended
September 30, 1999 and 1998 was $553,000 and $328,000, respectively. The
increase is attributable to higher levels of cash and cash equivalents
available for investment in 1999 from the proceeds of our series C preferred
stock. Interest expense for the same periods was $40,000 and $26,000 and
represents interest incurred on an equipment financing facility.
Net Loss. The net loss was approximately $6.7 million for the nine months
ended September 30, 1999 compared to approximately $4.3 million in the same
period in 1998, an increase of 55.2%. The increase reflects increases in
research and development and general and administrative expenses, offset by the
increase in interest income.
23
<PAGE>
Years Ended December 31, 1998 and 1997.
Research and Development Expenses. Research and development expenses
increased to approximately $7.3 million for the year ended December 31, 1998
compared to approximately $1.7 million in the same period in 1997, an increase
of 329.3%. This increase was primarily due to the cost of materials for and the
initiation of Phase 3 clinical trials of MPTS. We also initiated development
efforts on other new product candidates in 1998.
General and Administrative Expenses. General and administrative expenses
increased to approximately $1.6 million for the year ended December 31, 1998
compared to $939,000 in the same period in 1997, an increase of 69.3%. This
increase is primarily due to higher personnel costs, together with higher
facility costs, management and technical recruiting expenses and reflects the
cost of preliminary marketing efforts for MPTS and the pursuit of corporate
collaborations.
Net Interest Income (Expense). Interest income was approximately the same
for the years ended December 31, 1998 and 1997 at $463,000 and $506,000,
respectively. Interest expense for the same periods was $38,000 and $1,000, and
in 1998 represents interest incurred on an equipment financing facility.
Net Loss. The net loss was approximately $8.5 million for the year ended
December 31, 1998 compared to approximately $2.1 million in the same period of
1997, an increase of 296.4%. The increase reflects costs associated with the
initiation of Phase 3 clinical trials of MPTS together with higher personnel
related costs.
Year Ended December 31, 1997 and the period from inception (August 1, 1996)
through December 31, 1996.
We commenced operations on August 1, 1996. Therefore the period ended
December 31, 1996 was less than a full year. Comparisons between this period
and the full year 1997 may not be meaningful.
Research and Development Expenses. Research and development expenses
increased to approximately $1.7 million for the year ended December 31, 1997
compared to $26,000 for the period ended December 31, 1996. The increase was
due to 12 months being reflected in the later period and, to a lesser extent,
expenses relating to the preparation for Phase 3 clinical trials of MPTS.
General and Administrative Expenses. General and administrative expenses
increased to $939,000 for the year ended December 31, 1997 compared to $408,000
for the period ended December 31, 1996. The increase was due to 12 months being
reflected in the later period as well as increased facility costs, salaries and
professional costs.
Net Interest Income (Expense). Interest income for the year ended
December 31, 1997 of $506,000 was earned from the equity financing received in
the year. Interest income and expense were minimal in 1996.
Net Loss. The net loss for the year ended December 31, 1997 was
approximately $2.1 million. The net loss for the period ended December 31, 1996
was $435,000.
Liquidity and Capital Resources
As of September 30, 1999, we had cash and cash equivalents of
approximately $11.0 million, a decrease of approximately $8.2 million from
December 31, 1998. On December 23, 1999, we issued 1,106,194 shares of series D
preferred stock, raising total net proceeds of approximately $5.0 million.
During the nine months ended September 30, 1999 and the years ended
December 31, 1998 and 1997, net cash used in operating activities was
approximately $8.1 million, $6.8 million and $1.9 million, respectively. This
net use of cash was to fund our net losses for the periods, adjusted for non-
cash expenses and changes in operating assets and liabilities.
24
<PAGE>
Net cash used in investing activities for the nine months ended September
30, 1999 and the years ended December 31, 1998 and 1997 was $170,000, $700,000
and $711,000, respectively, primarily the result of the acquisition of
laboratory equipment, leasehold improvements and furniture and fixtures and
office equipment. During the year ended December 31, 1997, $250,000 was used
for the acquisition of intangible assets related to the licensing of the MPTS
technology.
We anticipate that our capital expenditures will be approximately $2.5
million in 2000.
Net cash proceeds from financing activities for the nine months ended
September 30, 1999 and the years ended December 31, 1998 and 1997 was $55,000,
$16.6 million and $12.7 million, respectively. The net cash proceeds from
financing activities during the years ended December 31, 1998 and 1997 were
primarily from the issuance of preferred stock.
In June 1999, we increased our credit facility with a bank from $750,000
to approximately $1.8 million. The facility may be used to finance purchases of
equipment, software and leasehold improvements through June 30, 2000.
Borrowings under this facility bear interest at the bank's prime rate plus
0.75%. As of September 30, 1999, there was $529,000 outstanding under this
facility, and $1.0 million available for future borrowings.
We lease our corporate and research and development facilities under an
operating lease expiring on September 30, 2003. We may extend this lease for
two additional five-year periods at rental rates equal to the then fair rental
value as determined by our landlord. We have also entered into operating lease
agreements for various office equipment. The terms of these lease agreements
range from 18 to 65 months. Current total minimum annual payments under these
leases are $18,740 per year.
We expect that our operating expenses and capital expenditures will
increase in future periods as a result of the manufacturing scale-up and in
anticipation of commercialization of MPTS. The initiation of commercial
manufacturing will require the purchase of production equipment and the hiring
of additional staff to coordinate raw material suppliers and manage contract
manufacturing services at multiple locations. Sales and marketing activities
will require hiring and training of a sales and marketing staff of 50 to 75
persons in late 2000 and early 2001. Research and development expenditures,
including clinical trials, are expected to continue at high levels as we
continue to develop new product candidates. We also intend to hire additional
research and development, clinical testing and administrative staff. Our
capital expenditure requirements will depend on numerous factors, including the
progress of our research and development programs, the time required to file
and process regulatory approval applications, the development of commercial
manufacturing capability, the ability to obtain additional licensing
arrangements, and the demand for our product candidates, if and when approved
by the FDA or other regulatory authorities.
We believe that our current cash position, available borrowings under our
credit facility and the proceeds of this offering will be sufficient to fund
our operations and capital expenditures for at least the next 12 months.
Income Taxes
As of December 31, 1998, we had approximately $9.3 million of net
operating loss carryforwards and $296,000 of research and development credit
carryforwards for federal income tax purposes. These carryforwards expire on
various dates beginning in 2011. These amounts reflect different treatment of
expenses for tax reporting than are used for financial reporting. As of
December 31, 1998, we had capitalized approximately $1.4 million of research
and development expenses for federal income tax purposes. U.S. tax law contains
provisions that may limit our ability to utilize net operating loss and tax
credit carryforwards in any year or if there has been an ownership change. Any
such future ownership change may limit the utilization of net operating loss
and tax credit carryforwards. We believe the offering will not have a material
effect on our ability to use those carryforwards.
25
<PAGE>
Year 2000 Compliance
We have identified year 2000 risks in the two major categories of
internal business operations software and software used by external suppliers.
A review of our non-information technology systems did not identify any
material risks.
With respect to our internal business operations software, most of our
computers and software programs have been recently acquired. We have relied on
the efforts of computer and software vendors to make their latest hardware and
software releases year 2000-compliant. As a result, we do not expect to incur
any compliance cost. We have contacted vendors to confirm the status of the
software that is used in our computers and have verified that each computer is
using the software version that the vendor represents is year 2000-compliant.
In addition, we have utilized consultants and year 2000 test software to
evaluate compliance.
We believe that because we are in an early stage of development and will
have no revenue from product sales for the forseeable future, any short-term
disruption relating to year 2000 will have little impact on our operations. We
have asked our suppliers about their year 2000 programs and they have advised
us that they are year 2000-compliant. We have also built appropriate
contingencies into our manufacturing scale-up schedules in the event that
certain key suppliers are not year 2000-compliant. These contingencies provide
for equipment and material to be on hand or scheduled for delivery earlier than
would otherwise be required so that any delay caused by a short-term supplier
disruption can be managed. We do not anticipate incurring any significant costs
resulting from these contingencies.
26
<PAGE>
BUSINESS
Introduction
OraPharma is developing pharmaceutical products for the treatment of oral
diseases and disorders. We completed two pivotal Phase 3 clinical trials in
October 1999 for our lead product candidate, MPTS, which is designed to treat
adult periodontitis. We expect to file an NDA with the FDA in the first half of
2000 for this indication. Our other research and development programs are
directed at further establishing a presence in oral care pharmaceuticals and
leveraging our core drug-delivery technology.
Oral Care Pharmaceuticals Market
We have targeted our oral care pharmaceutical development program to
include dental and other oral conditions. The Health Care Financing
Administration projects that dental services will become an industry of
approximately $60 billion in the year 2000, growing from $13 billion in 1980.
Other oral conditions, including soft-tissue and non-dental diseases, further
expand the market. Oral care pharmaceuticals comprise what we believe is a
rapidly emerging segment of this overall market.
There are a number of important factors driving the emergence of oral
care pharmaceuticals, including:
. Increased demand for oral health services. The number of oral exams in
the U.S. has nearly doubled from 131 million in 1979 to 256 million in
1997 according to the American Dental Association, or ADA. We believe
this increase in patient visits was driven by factors such as aging
demographics, heightened awareness about the benefits of good oral
hygiene, increased desire for new services, including cosmetic
services, and improved reimbursement. We believe that oral care
pharmaceuticals are likely to benefit from the rapid growth of the
overall oral health industry.
. Opportunities for locally-delivered oral care pharmaceuticals. Many
pharmaceutical compounds already exist to treat the rising number of
oral conditions that oral care professionals must address. However,
many of these drugs are in the form of pills, injections, creams or
ointments that are not optimal for delivery in the oral cavity. As
these compounds are reformulated, we believe the demand for oral care
pharmaceuticals will increase.
. Changing treatment approaches. Dentists and other oral care
professionals are treating an aging patient base with increasingly
complicated medical histories. This complexity is forcing oral care
professionals to move beyond late-stage mechanical interventions and
become better informed about physiological causes and medical
treatments for oral conditions. Further, this emphasis on
understanding disease processes is extending to oral conditions beyond
tooth decay and periodontal disease, such as oral cancer diagnosis,
treatment of pre-cancerous lesions, xerostomia (severe "dry mouth
conditions") and oral mucositis.
. Oral conditions complicating treatment of other diseases. Oral
diseases such as xerostomia and oral mucositis are serious
complications for cancer patients receiving chemotherapy and head and
neck radiation therapy. As more potent chemotherapeutic agents have
emerged, these conditions are increasingly limiting tolerable doses,
and, ultimately, a patient's response to treatment. We believe oral
care pharmaceuticals may be able to help treat or prevent some of
these conditions.
. Suspected links between oral health and systemic health. Many
researchers are actively studying relationships between oral health
and medical problems elsewhere in the human body. For example, recent
studies suggest that patients with periodontal disease are at higher
risk for cardiovascular disease and diabetes. These same studies
suggest that periodontitis may contribute to low infant birth weight.
In addition, the National Institutes of Health have made oral health
an area of focus for 2000.
27
<PAGE>
. Increased focus on time-efficient treatments. While the demand for
oral care services is increasing, the supply of professionals has not
kept pace. An important implication of this growing supply and demand
imbalance is the growing need to minimize patient time in offices,
which places a premium on more time-efficient chair-side treatments.
An increasing number of pharmaceuticals, such as MPTS, are being
developed to offer oral care professionals faster solutions for
treating patients.
Business Strategy
We believe that oral care medicine is a rapidly emerging field and
presents an opportunity for us to become a leader in the development and
marketing of pharmaceutical products for the treatment of oral diseases and
disorders. Key elements of our business strategy to achieve this objective
include:
Focusing initially on approval and commercialization of MPTS.
Developing a direct sales and marketing organization for select
markets. We intend to develop our own domestic sales and marketing group for
the commercialization of our future product candidates. We believe we can
effectively sell our initial product candidates within the United States by
targeting a concentrated group of oral care specialists. Alternatively, outside
of the United States, and for product candidates targeted at markets with
larger practitioner populations, we intend to pursue strategic collaborations
to market and sell our product candidates.
Identifying and capitalizing on promising product candidate
categories. We select pharmaceutical product categories which we believe can
improve treatment through enhanced therapeutic and economic benefits, and
improved convenience to patients, professionals and payors. As an outgrowth of
this approach, we are focused primarily on product candidates and formulations
that are administered chair-side. The chair-side approach allows the
professional to retain control of the patient's treatment, thereby avoiding
concerns about compliance, compared to pharmacy-dispensed drugs.
Focusing on product candidates with known pharmaceutical and clinical
activity and low technical risk. We emphasize product candidates that treat
serious diseases or conditions of the oral cavity where the compound is well
characterized and the biological and pharmaceutical role of the drug substance
is well understood. For example, minocycline, the active ingredient in MPTS, is
an FDA-approved drug for the systemic treatment of acne. To reduce the high
cost and risks associated with conducting basic research on new chemical
entities, we evaluate readily available compounds that can be reformulated for
application in the oral cavity and generally have a known safety and efficacy
profile. We believe this approach will result in quicker drug development.
Leveraging core drug-delivery technology. Our initial focus is to
identify product opportunities and product candidates directed at oral care
that can leverage our polymer delivery technology. This delivery technology is
compatible with a wide variety of drug types, from simple compounds to
proteins. We believe that this delivery technology has broad application both
inside and outside the oral cavity.
Leveraging product candidate development expertise. We believe that we
can leverage our significant formulation development and clinical trial
management expertise by in-licensing or acquiring new product candidates and
technologies, which we will develop to further establish a presence in oral
care pharmaceuticals, and, possibly, to expand into non-oral health
applications, primarily for out-licensing.
28
<PAGE>
Product Candidates Summary
The following chart contains information regarding our product
candidates:
<TABLE>
<CAPTION>
Product
Therapeutic Indication Candidate Development Status Licensors/Research Collaborators
- ---------------------- --------- ------------------- --------------------------------
<S> <C> <C> <C>
Periodontitis/Pocket- MPTS Phase 3 clinical American Home Products
depth Reduction trials complete
Oral Mucositis OC-1012 Preclinical Brigham and Women's
Hospital/of Mucosal
Therapeutics
Bone Regeneration OC-1016 Preclinical Children's Hospital of
Boston
Traumatic Tooth Injury MPTS Label extension University of North
Preclinical Carolina--Chapel Hill
Periodontitis/Anti- -- Preclinical University of North
inflammatory Carolina--Chapel Hill
</TABLE>
MPTS for the Treatment of Periodontitis
Periodontitis and Market
Periodontitis, a condition caused by plaque build-up on teeth, is
characterized by the progressive, chronic infection and inflammation of the
gums and surrounding tissue. In its mildest form, the disease is termed
gingivitis, which is accompanied by swollen, bleeding gums. When gingivitis is
not controlled, the disease often progresses to periodontitis. This chronic
infection and inflammation causes destruction of a tooth's supporting
structures, primarily bone and periodontal ligament, and results in the
formation of spaces between the gums and teeth, or periodontal pockets.
An average case of periodontitis affects three to four teeth, according
to The Journal of Periodontology. Our estimates suggest that the average
patient has 12 periodontal pockets. These periodontal pockets provide a site
for the accumulation of disease-causing bacteria. With increasing depth of the
pocket, bacterial plaque becomes less accessible to typical oral hygiene
practices, such as brushing and flossing, and routine dental procedures, such
as checkups and cleanings. Beyond a depth of 4mm, brushing and bacterial mouth
rinses, which may be effective in treating gingivitis, cannot reach the base of
the pocket and the bacteria that cause the disease. A pocket depth of 5mm to
7mm constitutes moderate periodontitis and a pocket depth of greater than 7mm
constitutes severe periodontitis. The destructive process will continue at the
base of the pocket in spite of the continuing use of effective oral hygiene
unless treated by an oral care professional. If left untreated, periodontitis
will continue to progress and eventually lead to tooth and bone loss.
ILLUSTRATION OF TOOTH SURROUNDED BY BOTH HEALTHY AND INFLAMED
GUMS AND IDENTIFYING ITS PERIODONTAL POCKET
Periodontitis has no known cure and is the most common cause of adult
tooth loss. An epidemiological study published in The Journal of Periodontology
concludes that approximately 35.7 million persons in the U.S. have
periodontitis to some degree. Along with this widespread prevalence, the ADA
estimated that in 1990, oral care professionals completed 14.0 million
treatment procedures for periodontitis. According to industry sources, the U.S.
population spends more than $6 billion per year on products and services to
treat periodontitis.
Effective treatment is possible only through periodic professional
intervention. The most common treatment is a mechanical procedure, scaling and
root planing, which may require the oral care professional to anesthetize the
gums and remove accumulated plaque above and below the gumline. A patient's
typical course of treatment involves two scaling and root planing procedures
annually. For more serious cases, treatment may include various forms of gum
surgery. These procedures are painful, may increase gum recession and root
sensitivity and may compromise aesthetics. These treatments are seldom curative
because the bacteria typically
29
<PAGE>
return and the infection recurs. In an attempt to stabilize the disease
progression, oral care professionals generally place patients on maintenance
programs that involve frequent follow-up for evaluation and ongoing scaling and
root planing.
Systemic antibiotics have occasionally been used in conjunction with
scaling and root planing to treat periodontitis. However, concerns over side
effects and drug resistance have prompted the search for alternatives. Several
therapeutics were developed and recently approved by the FDA for the treatment
of periodontitis, including:
. Atridox, a biodegradable gel which delivers the antibiotic doxycycline
into periodontal pockets. Atridox is a product consisting of a powder
and a gel which must be refrigerated and then mixed immediately prior
to use. Mixing involves manually pumping the powder and gel 100 times
between two interconnected syringes. After mixing, the practitioner
draws the product into one syringe, removes the other syringe and
replaces it with an application tip. The product is then injected into
the periodontal pockets. The practitioner is then instructed to cover
those pockets filled with Atridox with either a periodontal dressing
or a dental adhesive. FDA-approved labeling also specifies that the
patient should not brush any treated areas for seven days.
. PerioChip, a sustained-release biodegradable collagen chip containing
chlorhexidine, an anti-microbial, which is released over 7 to 10 days.
A chip is inserted into each periodontal pocket by the practitioner.
FDA-approved labeling limits each treatment to eight chips, and the
product must be refrigerated before use. FDA labeling also indicates
that mild to moderate sensitivity is normal during the first week
after placement, and patients are advised to promptly notify the
practitioner if a chip dislodges.
. Periostat, a 20 mg systemic doxycycline capsule taken orally twice
daily for up to nine months. The dosage is not intended to be
sufficient for an antibiotic effect, but is intended to suppress
collagenase, an enzyme that causes tissue destruction. The product is
a prescription drug, not a chair-side treatment.
PerioChip and Periostat are similarly indicated for use in conjunction
with scaling and root planing, the standard of treatment adopted by oral care
professionals. Atridox is indicated as a stand-alone treatment for
periodontitis.
Core Technology and Treatment Approach
MPTS uses our drug-delivery technology and consists of a drug product
candidate that is prepackaged in a specially designed dispenser tip. The drug
substance is specially formulated into microspheres, which are small spherical
particles of polymer. Within the microspheres, the drug exists as smaller
particles distributed throughout the spheres. Minocycline, an antibiotic, is
the active drug in MPTS. When MPTS is administered, the polymer begins to
slowly dissolve thereby releasing minocycline at a sustained rate for at least
14 days. As the polymer dissolves, it is bioresorbed, that is, it chemically
breaks down into components that are excreted from the body. The polymer, PGLA,
or poly (glycolide-co-dl-lactide), has three functions: to control the rate of
drug release, to provide adhesion in the periodontal pocket and to stabilize
the active drug. Polymers of this type have a long history of use in medical
devices such as sutures and in other drug-delivery systems.
We chose minocycline as the active ingredient because:
. its antibiotic profile places it among the most effective agents
against the pathogens associated with periodontitis; and
. it promotes gum reattachment through alteration of tooth root surface
chemistry.
30
<PAGE>
The following chart illustrates the administration of MPTS:
<TABLE>
<S> <C> <C>
Illustration of dispenser Illustration of tip being Illustration of tip on
and product candidate in loaded into handle handle, in hand ready for
trays administration
</TABLE>
The MPTS microspheres are in a dry powder form, and are packaged in a
small disposable tip that attaches to the specially designed dispenser. To
administer MPTS, the oral care professional removes the disposable tip from its
package and simply connects the tip to the dispenser, and then dispenses the
microspheres directly into the periodontal pocket. Each tip contains a metered
dose for one periodontal pocket and can be administered in only a few seconds.
Exposure to moisture in the periodontal pocket causes the microspheres to
adhere to the pocket, and then begin to break down, thereby releasing the
active ingredient at a sustained rate. This sustained release has been designed
to maintain drug levels sufficient to kill bacteria for at least 14 days.
Because the microspheres totally disintegrate, a return visit will not be
required to remove MPTS. Further, our clinical trial experience suggests that
MPTS' adhesion characteristics ensure retention without the need for a
periodontal dressing or adhesive. We designed our MPTS treatment in part to
eliminate the restricted dosage, refrigeration, mixing, dental dressing and/or
nonchair-side limitations of the other recently introduced treatments
available.
MPTS is designed to be administered immediately following scaling and
root planing, and application of MPTS should be repeated periodically for as
long as a periodontal pocket of at least 5mm exists. MPTS enables drug
placement directly into the periodontal pocket. This local administration of
MPTS has been designed to permit delivery of an antibiotic to affected tissues
with minimal systemic exposure. This administration also generates
significantly higher local drug concentrations than could be safely obtained
with systemic administration. Finally, its administration by oral care
professionals eliminates the concern about patient compliance, a common problem
with pharmacy-dispensed and orally-administered drugs.
In summary, we believe that MPTS' advantages include:
. high drug concentration at the infection site with reduced risk of
drug resistance;
. simple preparation without the need for mixing;
. rapid and easy administration;
. precise dosage control;
. improved patient compliance, comfort or convenience;
. simplified storage that avoids the need for refrigeration;
. bioresorbability, eliminating the need for a follow-up visit to remove
the product; and
. elimination of the need for adhesives and dressings.
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<PAGE>
Clinical Trials
Phases 1 and 2
MPTS' clinical trial history includes two Phase 1 trials and four Phase 2
multi-center trials, involving a total of 293 patients. These trials were
conducted by American Cyanamid prior to its merger with AHP, and prior to the
subsequent licensing of the technology to OraPharma. The Phase 1 trials
suggested that the product candidate was well tolerated, with minocycline
concentration levels sufficient to kill bacteria maintained in treated sites
for at least 14 days, with no local or systemic adverse events. Phase 2 trials
were conducted at four U.S. university centers and a benefit in periodental
pocket-depth reduction was demonstrated in the patient population, with no
adverse events. We used these Phase 2 trials as a basis to design the Phase 3
trials.
Phase 3
In November 1997, the FDA accepted transfer of the AHP IND to OraPharma,
and in August 1998, we commenced our Phase 3 clinical program to study MPTS
used as an adjunct to scaling and root planing (S/RP) for the treatment of
adult periodontitis. We completed enrollment of 747 patients on schedule in
January 1999, and the last patient visit was in October 1999, at 18 university
centers in the U.S. The design comprised two well controlled safety and
efficacy trials that compared three arms: S/RP alone, S/RP plus MPTS, and S/RP
plus vehicle (non-drug polymer acting as placebo). In these trials, the results
evaluators were blinded as to which of the three arms the patient fell into in
order to preserve trial integrity. We conducted an additional open-label safety
study in 174 patients at four U.S. university centers and one private practice.
Finally, we added a two-center pharmacokinetic study of 18 patients to measure
MPTS in blood serum and saliva in order to observe the drug release profile,
and to assess the development of minocycline resistance. In November 1999, we
announced initial results from these trials:
. The primary endpoint was a reduction in mean pocket depth from
baseline, with the patient as the unit of analysis. Combined data from
the two pivotal studies of 747 patients showed significant pocket
depth reduction in comparing MPTS plus S/RP to both S/RP alone and
S/RP plus vehicle. These results were statistically significant at the
99.9% level, or what is commonly referred to as p(less than or
=)0.001. This means that, applying standard statistical methods, the
chance that these results could have occurred by chance is less than
or equal to 1 in 1,000. Each study independently generated
statistically significant results.
. A key secondary endpoint was subgroup population analysis for reduced
mean pocket depth across all subgroups. These results were
statistically significant at the 99% level, or p(less than or =)0.01,
in the subgroups relating to smoking, age greater than 50 and prior
history of cardiovascular disease.
. An additional key secondary endpoint was responder analysis. This
analysis demonstrated that the S/RP plus MPTS group achieved a higher
percentage of pockets with greater than 2 mm reduction than did the
other groups.
. Additional analysis also revealed that pockets with increased severity
of disease (i.e., deeper pockets) respond to MPTS treatment with
increasing pocket depth reduction.
. There appeared to be no safety issues related to the treatment of MPTS
among the 939 patients dosed in these studies. Thirteen patients
withdrew from the studies due to adverse events; however, we believe
that these events were not related to MPTS.
. Trace amounts of minocycline were detectable in serum during the first
18 hours, and in saliva during the first 14 days after administration,
providing evidence that MPTS is a slow-release formulation. We found
no changes in gastrointestinal microorganisms, providing no evidence
of antibiotic resistance.
Over the next few months, we expect to complete analysis of the clinical
data. We are at the same time preparing the NDA for submission to the FDA. The
NDA consists of five main sections:
. a summary of our trials from an efficacy standpoint;
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. an overall safety summary;
. an annotated package insert;
. a complete final chemistry, manufacturing and controls description;
and
. a summary of our preclinical and toxicology studies.
We intend to make this submission in the first half of 2000.
Manufacturing and Materials Supply
We do not currently have any internal manufacturing capabilities. We rely
on two sole-source manufacturers for the production and packaging of MPTS and
on four sole-source suppliers for other required materials and components. If
we were to change any of our contract manufacturers or material suppliers, we
and they would need to satisfy regulatory requirements.
Contract Manufacturers
Applied Analytical Industries, Inc., or AAI, Wilmington, NC, manufactures
and performs the required testing of MPTS microspheres. We designed and own the
MPTS production equipment used by AAI. We are currently negotiating, but have
not finalized any long-term agreement with this manufacturer.
Packaging Coordinators, Inc., or PCI, Philadelphia, PA, a Cardinal Health
Company, fills the dispensers with the microspheres manufactured by AAI, and
provides all packaging services. The equipment used by PCI to fill the
microspheres was developed and is owned by us. We are currently negotiating,
but have not finalized any long-term agreement with this manufacturer.
Raw Material Suppliers
The bioresorbable polymer component of MPTS is custom-made for us
according to procedures and specifications supplied by us. We believe that
alternative supply sources are available, and that we could stockpile
sufficient polymer to cover demand until an alternate supplier is found, if
needed. We are currently negotiating, but have not finalized any long-term
agreement with this supplier.
We purchase the active ingredient, minocycline, from an FDA-inspected
supplier. We are aware of other sources of minocycline, and we believe we could
rapidly arrange for another supplier, if necessary.
An injection molder manufactures the dispensers used to administer MPTS.
We own the molds, and expect that production could be easily transferred to
another qualified molder, if required.
The stainless steel dispenser handle to which the MPTS dispenser is
attached for administration of the product is also manufactured for us. We
supplied the handle design. We expect that fabrication of the dispenser could
easily be transferred to another manufacturer, if necessary.
Commercialization
In the U.S., assuming we obtain FDA approval, we intend to create a sales
and marketing force that will target 3,700 periodontists and approximately
25,000 general dentists that we believe are "perio-aware", that is, those who
perform the most scaling and root planing procedures. We believe a sales and
marketing force of 50 to 75 persons will provide adequate reach and frequency,
and we expect to begin hiring and training activities in late 2000.
In international markets, we intend to seek collaborators to market and
sell MPTS rather than establish our own sales force. We are currently holding
preliminary discussions with a number of companies.
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Additional Product Candidates
We are developing multiple compounds to further establish a presence in
the oral care pharmaceutical market. Some programs are based on our core drug-
delivery technology, while additional programs are based on other technology
licensed to us. In connection with these product candidates, we have formed
collaborations to capitalize on our drug delivery technology and exploit our
expertise in formulation and development. We believe these collaborations will
contribute to the development and commercialization of our product candidates.
OC-1012 for the Prophylaxis and Treatment of Oral Mucositis
We are developing an agent for the prevention and treatment of oral
mucositis. Oral mucositis is a serious complication for patients receiving
chemotherapy and head and neck radiation therapy for cancer. In healthy
patients, the mucosal lining forms an important barrier, preventing entry of
potentially lethal organisms into the body. Normally, cells of the mucous
membranes lining the mouth and gastrointestinal tract undergo rapid renewal.
Both chemotherapy and head and neck radiation therapy for cancer interfere with
this renewal process, and can result in painful ulcers in the mouth and
esophagus. In extreme cases of oral mucositis, these ulcers can be an entry
point for disease organisms. In many cases, the mucositis advances to a point
where patients can no longer eat and must be hospitalized to enhance
nutritional intake. In the most severe cases, cancer treatment may be either
stopped, delayed, or treatment intensity reduced until the condition
stabilizes. This may compromise the patient's response to cancer treatment.
The American Cancer Society expects that approximately 1.2 million cases
of cancer will be diagnosed in the U.S. in 1999. A January 1995 Principles and
Practice of Oncology update cites that more than 40% of patients receiving
standard chemotherapy, and virtually all patients who receive head and neck
radiation therapy, develop oral mucositis.
Our oral mucositis program is based on intellectual property developed
initially by Brigham and Women's Hospital of Boston, and licensed by us. We
have identified several compounds that are effective in reducing the severity
of mucositis in preclinical studies. We are currently applying our drug
delivery expertise to develop a formulation optimized for delivery of these
compounds. Our goal is to file an IND for an oral mucositis treatment product
candidate during 2001.
OC-1016 for Bone Regeneration
Our bone regeneration program is based on technology licensed from
Children's Hospital of Boston, and is currently in preclinical studies. The
technology is based on the protein osteopontin, which promotes the attachment
of bone forming cells. We direct our program at two oral health applications--
dental implants and bone augmentation. Our technology may also have application
outside the oral cavity in orthopedics, which we believe presents potential
out-licensing opportunities.
We are currently developing two formulations as product candidates. One
formulation is a solution for coating dental implants applied prior to
installation. Dental implants are used to replace teeth that are lost due to
injury, tooth decay, or as a consequence of periodontitis. An implant procedure
involves an initial step of installing a post into the jawbone, and a second
step of attaching an artificial tooth to the post. After the implant post is
installed, a patient must typically wait for three to four months for the post
to integrate securely into the bone before it is loaded with a new tooth. This
waiting period is uncomfortable and aesthetically displeasing, as patients do
not have use of the missing teeth. To the practitioner, it poses a risk of
stressing the implant before it properly integrates into the bone. According to
the National Institute of Dental Research, this premature stressing is the
leading cause of implant failure. Our program is directed at developing an
implant coating that would accelerate and strengthen integration of the implant
into the bone, thus reducing loading time and reducing early implant failures.
The ADA estimated in 1990 that approximately 640,000 implant procedures were
performed in the U.S.
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We are also developing a semi-solid material that can be placed at a site
where bone growth is desired. Bone augmentation applications in the oral cavity
involve bone repair where the addition of bone will aid in supporting implants
and/or dentures, or reconstruction after tooth loss. To date, bone augmentation
procedures have lacked predictability in restoring sufficient quantity and
quality of bone. Our program is directed at providing a semi-solid material
that can be shaped precisely in the form of desired bone, thereby overcoming
the unpredictability of current bone growth approaches. We are designing the
material to be resorbed as new bone is deposited, which further simplifies the
procedure.
We are conducting work on the bone regeneration program through a
sponsored-research agreement with Children's Hospital of Boston, in
collaboration with our internal scientific staff. We expect product candidates
from this program to be regulated by the FDA as devices, rather than as drug
product candidates. Our goal is to file an initial IDE for at least one of
these formulations in 2001.
Our primary interests in non-oral health care applications include
orthopedic implants and spinal fusion. Other potential orthopedic applications
include wrist fractures, poor-healing fractures, and osteonecrosis, or
conditions of bone degeneration. Our current plan is to seek partners to
develop and commercialize the orthopedic and other non-oral health
applications.
MPTS for the Treatment of Traumatic Tooth Injury
We are engaged in a research and development effort jointly with the
University of North Carolina--Chapel Hill that targets traumatic tooth injury
as a potential line extension for MPTS. Our program is directed at improving
the viability of teeth that have been loosened or dislodged due to traumatic
injury. Recent studies suggest that topical application of antibiotics to the
tooth prior to reinstallation may improve the chance of recovery. We plan to
conduct preclinical studies in 2000 to understand MPTS' effect for this
indication.
Research and Development for the Treatment of Periodontitis
As part of a cooperative research agreement with the University of North
Carolina--Chapel Hill, we have begun work on a next-generation periodontal
agent as a follow-up to MPTS. This effort is aimed at identifying new compounds
to be administered via our core drug-delivery system. Studies reveal that much
of the tissue destruction associated with periodontal disease is ultimately
caused by the body's response to inflammation, and we are testing various
compounds to affect this response. We believe that modifying the body's
response may augment our current antimicrobial approach.
Technology Licenses and Patents
MPTS and Our Core Delivery-System Technology
In February 1997, we licensed our lead product candidate, MPTS, and our
core polymer delivery-system technology from American Cyanamid, now part of
AHP. MPTS and this technology are covered by seven issued U.S. patents that are
owned by American Cyanamid, now part of AHP. These patents claim the process
for producing microspheres, MPTS and other compositions produced by this
process, the device used for administering microspheres, the machine for
filling this administration device, and methods for treating dental conditions
by the administration of MPTS and other compositions produced using our
microsphere process. The AHP patents expire between 2008 and 2010, with the
exception of one patent covering the delivery-system technology that expires in
2014. Corresponding patents are in effect or pending in other countries
including Australia, Canada, France, Germany, Italy, Japan, and Sweden where we
believe the market potential for MPTS is significant.
Under our agreement with AHP, we have an exclusive, worldwide license
under both the AHP patents and all related AHP technology to commercialize MPTS
and other products for use in the oral cavity. We also have a non-exclusive,
worldwide license under the AHP patents and technology to commercialize
products for use outside of the oral cavity. Additionally, we have the right to
sublicense this technology. Our agreement with
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AHP expires upon expiration of the last to expire of the AHP patents, at which
time our license rights become fully paid-up and non-cancelable.
Our agreement with AHP required us to make an initial payment to AHP and
to grant AHP an equity position in OraPharma. The agreement further obligates
us to make payments to AHP if and when two milestones are achieved (FDA
acceptance of our NDA submission and FDA approval of our product candidates)
and to pay AHP royalties on sales of MPTS and other products that are covered
by the AHP patents or developed using the AHP technology.
In order to reacquire certain rights to our core microsphere delivery
system technology previously licensed out by AHP, we were required to enter
into a license agreement with Technical Developments and Investments, Est., or
TDI, a corporation formed under the laws of Liechtenstein. Under this
agreement, TDI granted us an exclusive, worldwide sublicense to use the AHP
technology in the oral cavity. This agreement obligates us to pay royalties to
TDI on sales of products using the AHP technology in the oral cavity. As under
our agreement with Dr. Jernberg, royalties payable to TDI can be fully credited
against up to 50% of the royalties payable under our agreement with AHP.
In addition to our agreement with AHP, we have licensed three U.S.
patents from a periodontist and inventor, Gary R. Jernberg, DDS. One of these
patents expires in 2004 and covers local delivery of chemotherapeutics to treat
periodontitis by insertion of bioresorbable time-release microspheres into
periodontal pockets. The other two expire in 2010 and cover additional
embodiments of the method for local delivery using periodontal barriers. There
are no corresponding foreign patents. Our agreement with Dr. Jernberg requires
us to make royalty payments to him. In addition, this agreement obligates us to
make milestone payments to Dr. Jernberg (generally, upon the submission of the
NDA covering the licensed patents and upon FDA approval) and to engage him as
an ongoing consultant and to pay him royalties on sales of licensed products.
Royalties payable to Dr. Jernberg can be fully credited against up to 50% of
the royalties payable under our agreement with AHP.
Oral Mucositis Program
In December 1998, we entered into an agreement with Mucosal Therapeutics
LLC to license our oral mucositis technology. Mucosal Therapeutics is a
research entity established to commercially exploit this technology, which was
originally developed at Brigham and Women's Hospital in Boston. The technology
is the subject of two U.S. patent applications that have been assigned to
Mucosal Therapeutics. These patent applications claim methods for treating or
preventing mucositis by administering various inhibitors both alone and in
combination with antibiotics and other compounds. One of these patent
applications was filed in 1998 and the other in 1999. A patent application
corresponding to the 1999 U.S. patent application has been filed under the
Patent Cooperation Treaty or PCT. This PCT application designates foreign
countries where we believe the market potential for a product to treat oral
mucositis is significant.
Our license agreement with Mucosal Therapeutics affords us an exclusive,
worldwide license under the Mucosal technology to manufacture and sell
pharmaceutical products. The term of the license agreement is for the longer of
20 years or until expiration of the last to expire of any patents covering this
technology. Shortly after signing the license agreement, we paid Mucosal
Therapeutics an initial license fee and issued it warrants to purchase our
common stock. We are required to make payments to Mucosal Therapeutics, in the
form of cash and warrants to purchase our common stock, as preclinical and
clinical milestones are achieved and upon FDA approval of a pharmaceutical
product for the treatment of oral mucositis. The license agreement further
obligates us to pay Mucosal Therapeutics royalties on sales of pharmaceutical
products covered by or involving use of this technology. Additionally, we have
the right to sublicense this technology.
We have also entered into a research and consulting agreement with an
affiliate of Mucosal Therapeutics, Biomodels LLC to perform preclinical studies
on our behalf and to provide us with research and general consulting services
with respect to our development of the Mucosal technology. Our agreement with
Biomodels expires at the end of 2002.
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Regeneration Program
In December 1998, we entered into an agreement to license our bone and
soft-tissue regeneration technology from Children's Medical Center Corporation,
or CMCC. This license covers two technologies, one relating to a non-
immunogenic bulking agent and the other to peptides derived from osteopontin
and related uses in bone regeneration. Two issued U.S. patents and one pending
U.S. patent application claim methods for using non-immunogenic cartilage and
bone suspension as bulking agents and expire in 2014 and 2016, respectively. A
corresponding application is pending in the European Patent Offices. Five
additional patent applications claim novel compositions and methods of use for
osteopontin peptides, methods and compositions for programming an organic
matrix for remodeling into a target tissue, and osteopontin peptide-coated
surfaces and methods of use. All of the patent applications were filed in 1997
and 1998. Corresponding PCT applications have been filed. The PCT applications
designate foreign countries where we believe the market potential for bone and
soft-tissue regeneration products is significant.
Our license agreement with CMCC provides us with worldwide license rights
under the CMCC patents and know-how to commercialize bone and soft-tissue
regeneration products for use in the oral cavity. Our license rights are
exclusive with respect to the CMCC patents and non-exclusive with respect to
the CMCC know-how. For products that are osseoinductive devices for bone
augmentation and regeneration, our license rights extend beyond the oral cavity
to all orthopedic uses in humans and therapeutic uses in animals. The term of
our license agreement with CMCC ends upon expiration of the last of the CMCC
patents to expire. Additionally, we have the right to sublicense this
technology.
Shortly after signing the license agreement, we made a payment to CMCC in
the form of shares of our common stock. We are required to make milestone
payments to CMCC upon submission of our first NDA and upon approval of our
first NDA. The license agreement further obligates us to pay CMCC royalties on
sales of products covered by the CMCC patents or which are specified bone and
soft-tissue regeneration products.
We have also entered into a sponsored-research agreement with Children's
Hospital, a non-profit affiliate of CMCC, to conduct research in the area of
bone and soft-tissue regeneration and perform related preclinical studies. The
sponsored-research agreement expires on October 1, 2002.
Manufacturing
Our ability to conduct clinical trials on a timely basis, to obtain
regulatory approvals and to commercialize any of our product candidates will
depend in part on our ability to manufacture our product candidates either
directly or through third parties, at a competitive cost and in accordance with
applicable FDA and other regulatory requirements, including cGMP regulations.
We do not currently operate manufacturing facilities for clinical or
commercial production of our proposed product candidates. We have no experience
in manufacturing, and currently lack the resources and capability to
manufacture any of our proposed product candidates on a clinical or commercial
scale. Accordingly, we are, and intend to continue to be, dependent on third
parties for clinical- and commercial-scale manufacturing and distribution of
MPTS and our other product candidates. We are negotiating with various third-
party manufacturers and suppliers for production of MPTS to support product
candidate approval and commercialization.
Marketing and Sales
We currently have limited internal marketing, and no sales or
distribution capabilities. To promote our lead product candidate, MPTS, in the
U.S., we intend to hire, train and, assuming we obtain FDA approval, deploy a
sales and marketing force of 50 to 75 professionals. This sales force would be
available to market our present and future product candidates to oral health
care professionals. In international markets, we intend to seek strategic
collaborators to market and sell MPTS rather than establishing our own sales
force. We will also
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need to establish distribution capabilities to successfully commercialize any
of our product candidates. We may also promote our product candidates in
collaboration with marketing partners or rely on relationships with one or more
companies that have established distribution systems and direct sales forces.
Government Regulation
The FDA and comparable regulatory agencies in state and local
jurisdictions and in foreign countries impose substantial requirements on the
clinical development, manufacture and marketing of pharmaceutical product
candidates. These agencies and other federal, state and local entities regulate
research and development activities and the testing, manufacture, quality
control, safety, effectiveness, labeling, storage, record-keeping, approval and
promotion of our product candidates. All of our product candidates will require
regulatory approval before commercialization. In particular, therapeutic
product candidates for human use are subject to rigorous preclinical and
clinical testing and other requirements of the Federal Food, Drug, and Cosmetic
Act, or FDC Act, implemented by the FDA, as well as similar statutory and
regulatory requirements of foreign countries. Obtaining these marketing
approvals and subsequently complying with ongoing statutory and regulatory
requirements is costly and time-consuming. Any failure by us or our
collaborators, licensors or licensees to obtain, or any delay in obtaining,
regulatory approvals or in complying with other requirements could adversely
affect the commercialization of product candidates then being developed by us
and our ability to receive product or royalty revenues.
The steps required before a new drug product candidate may be distributed
commercially in the U.S. generally include:
. conducting appropriate preclinical laboratory evaluations of the
product candidate's chemistry, formulation and stability, and
preclinical studies to assess the potential safety and efficacy of the
product candidate;
. submitting the results of these evaluations and tests to the FDA,
along with manufacturing information and analytical data, in an IND;
. making the IND effective after the resolution of any safety or
regulatory concerns of the FDA;
. obtaining approval of Institutional Review Boards, or IRBs, to
introduce the drug into humans in clinical studies;
. conducting adequate and well-controlled human clinical trials that
establish the safety and efficacy of the product candidate for the
intended use, typically in the following three sequential, or slightly
overlapping stages:
Phase 1: The product candidate is initially introduced into healthy
human subjects or patients and tested for safety, dose tolerance,
absorption, metabolism, distribution and excretion;
Phase 2: The product candidate is studied in patients to identify
possible adverse effects and safety risks, to determine dosage
tolerance and the optimal dosage, and to collect some efficacy data;
and
Phase 3: The product candidate is studied in an expanded patient
population at multiple clinical study sites, to confirm efficacy and
safety at the optimized dose, by measuring a primary endpoint
established at the outset of the study;
. submitting the results of preliminary research, preclinical studies,
and clinical trials as well as chemistry, manufacturing and control
information on the product candidate to the FDA in an NDA; and
. obtaining FDA approval of the NDA prior to any commercial sale or
shipment of the product candidate.
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This process can take a number of years and require substantial financial
resources. The results of preclinical studies and initial clinical trials are
not necessarily predictive of the results from large-scale clinical trials, and
clinical trials may be subject to additional costs, delays or modifications due
to a number of factors, including the difficulty in obtaining enough patients,
clinical investigators, product candidate supply, or financial support. The FDA
may also require testing and surveillance programs to monitor the effect of
approved product candidates that have been commercialized, and the agency has
the power to prevent or limit further marketing of a product candidate based on
the results of these post-marketing programs. Upon approval, a product
candidate may be marketed only in those dosage forms and for those indications
approved in the NDA. However, pursuant to recent Federal Court decisions, drug
marketers are in some limited circumstances permitted to distribute materials
concerning indications outside of the FDA labeling for product candidates.
In addition to obtaining FDA approval for each indication to be treated
with each product candidate, each domestic product candidate manufacturing
establishment must register with the FDA, list its product candidates with the
FDA, comply with cGMP and permit and pass manufacturing plant inspections by
the FDA. Moreover, the submission of applications for approval may require
additional time to complete manufacturing stability studies. Foreign
establishments manufacturing product candidates for distribution in the United
States also must list their product candidates with the FDA and comply with
cGMP. They are also subject to periodic inspection by the FDA or by local
authorities under agreement with the FDA.
Any product candidates manufactured or distributed by us pursuant to FDA
approvals are subject to extensive continuing regulation by the FDA, including
record-keeping requirements and reporting of adverse experiences with the
product candidate. In addition to continued compliance with standard regulatory
requirements, the FDA may also require post-marketing testing and surveillance
to monitor the safety and efficacy of the marketed product candidate. Adverse
experiences with the product candidate must be reported to the FDA. Product
candidate approvals may be withdrawn if compliance with regulatory requirements
is not maintained or if problems concerning safety or efficacy of the product
candidate are discovered following approval.
The FDC Act also mandates that product candidates be manufactured
consistent with cGMP. In complying with the FDA's regulations on cGMP,
manufacturers must continue to spend time, money and effort in production,
recordkeeping, quality control, and auditing to ensure that the marketed
product candidate meets applicable specifications and other requirements. The
FDA periodically inspects manufacturing facilities to ensure compliance with
cGMP. Failure to comply subjects the manufacturer to possible FDA action, such
as Warning Letters, suspension of manufacturing, seizure of the product,
voluntary recall of a product or injunctive action, as well as possible civil
penalties. We currently rely on, and intend to continue to rely on, third
parties to manufacture our compounds and product candidates. These third
parties will be required to comply with cGMP.
Even after FDA approval has been obtained, further studies, including
post-marketing studies, may be required. Results of post-marketing studies may
limit or expand the further marketing of the products. If we propose any
modifications to a product, including changes in indication, manufacturing
process, manufacturing facility or labeling, a supplement to our NDA may be
required to be submitted to the FDA.
Products manufactured in the United States for distribution abroad will
be subject to FDA regulations regarding export, as well as to the requirements
of the country to which they are shipped. These latter requirements are likely
to cover the conduct of clinical trials, the submission of marketing
applications, and all aspects of manufacturing and marketing. Such requirements
can vary significantly from country to country. As part of our strategic
relationships, our collaborators may be responsible for the foreign regulatory
approval process of our product candidates, although we may be legally liable
for noncompliance.
Some of our product candidates may be regulated as medical devices by the
FDA. Under the FDC Act, medical devices are instruments, machines, implants, in
vitro reagents, or any contrivance that is intended to
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affect the structure or function of the body of man or animals, which does not
achieve its primary intended purposes through chemical action within or on the
body of man or animals and which is not dependent upon being metabolized for
the achievement of its primary intended purposes. The FDA's regulation of
certain types of medical devices is similar in many respects to the Agency's
regulation of drugs, including requirements for pre-approval testing,
manufacture, quality control, safety, effectiveness, labeling and promotion.
We are also subject to various federal, state and local laws, rules,
regulations and policies 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 used in connection
with our research work. Although we believe that our safety procedures for
handling and disposing of such materials comply with current federal, state and
local laws, rules, regulations and policies, the risk of accidental injury or
contamination from these materials cannot be entirely eliminated.
The extent of government regulation which might result from future
legislation or administrative action cannot be accurately predicted. In this
regard, although the Food and Drug Administration Modernization Act of 1997
modified and created requirements and standards under the FDC Act with the
intent of facilitating product candidate development and marketing, the FDA is
still in the process of developing regulations implementing the Food and Drug
Administration Modernization Act of 1997. Consequently, the actual effect of
these developments on our business is uncertain and unpredictable.
Competition
The pharmaceutical industry, and the oral care pharmaceuticals business
in particular are intensely competitive and are characterized by rapid
technological progress. Some pharmaceutical and oral care pharmaceutical
companies and academic and research organizations currently engage in, have
engaged in or may engage in efforts related to the discovery and development of
new oral care pharmaceuticals, some of which may be competitive. Significant
levels of research also occur in universities and other nonprofit research
institutions. These entities have become increasingly active in seeking patent
protection and licensing revenues for their research results. They also compete
with us in recruiting skilled scientific talent.
We are currently aware of three FDA-approved products introduced in the
U.S. during 1998 for the treatment of periodontitis. They are: Atridox, a
product developed by Atrix Laboratories and marketed by Block Drug; PerioChip,
a product developed by Perio Products and marketed by Astra; and Periostat, a
drug developed and marketed by CollaGenex. Atridox and PerioChip are chair-side
therapies involving the insertion of drug products into the periodontal pocket
by the oral care professional. Periostat represents a systemic approach toward
treating periodontal disease through enzyme inhibition.
We are also aware of three products introduced between 1994 and 1998 for
the treatment of periodontitis. Of the three, neither Dentomycin Gel, developed
and marketed by Lederle nor Elyzol Dental Gel, developed and marketed by
Alpharma, are currently approved for use in the U.S. We believe the third
product, Actisite Fiber, developed by Alza and sold by Procter & Gamble, while
approved in the U.S., is no longer actively promoted.
We believe that if we obtain FDA approval for any of our product
candidates, our ability to compete successfully will be based upon many
factors, including:
. efficacy and safety of our products;
. methods of administering our products;
. degree of clinical benefits of our products relative to their costs;
. timing and scope of regulatory approval;
. product reliability and availability;
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. marketing and sales capability;
. patent protection; and
. reimbursement coverage from insurance companies and others.
Our competitive position will also depend upon our ability to attract and
retain qualified personnel, to obtain patent protection or otherwise develop
proprietary products or processes, and to secure sufficient capital resources
for the often substantial period between technological conception and
commercial sales.
We believe that we and our collaborators are or will be competitive with
respect to these factors. Nonetheless, because our product candidates have
either not been approved by the FDA or are still under development, our
relative competitive position in the future is difficult to predict.
Employees
As of December 15, 1999, we had 18 employees. Of these employees, 11 were
engaged in research, development, clinical testing, regulatory affairs and/or
manufacturing activities, and seven were engaged in marketing, finance and
administrative activities. None of our employees is covered by collective
bargaining agreements. We consider relations with our employees to be good.
Facilities
Our leased corporate facilities, located in Warminster, Pennsylvania,
currently occupy approximately 11,300 square feet. This lease expires in
September of 2003 and has two five-year renewal options. We believe that our
existing facility is adequate for our current needs and that suitable
additional or alternative space will be available in the future on commercially
reasonable terms.
Legal Proceedings
We are not currently a party to any material legal proceedings.
41
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table presents information about our executive officers and
directors. Our board of directors is divided into three classes serving
staggered three-year terms.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Michael D. Kishbauch.... 50 President, Chief Executive Officer and Director
Mark B. Carbeau......... 39 Vice President, Corporate Development
J. Ronald Lawter,
Ph.D.................. 56 Vice President, Chief Scientific and Technical Officer
Jan N. Lessem, M.D.,
Ph.D.................. 51 Vice President, Chief Medical Officer
James A. Ratigan........ 51 Vice President, Chief Financial Officer and Secretary
Joseph E. Zack.......... 48 Vice President, Sales and Marketing
James J. Mauzey (1)..... 51 Director
Christopher Moller,
Ph.D. (2)............. 46 Director
Eileen M. More (2)...... 53 Director
Harry T. Rein (1)....... 55 Director
Seth A. Rudnick, M.D.... 51 Director
David I. Scheer (1)..... 47 Director
Jesse I. Treu, Ph.D.
(2)................... 52 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Mr. Kishbauch has served as our President and Chief Executive Officer and
as a director of OraPharma since September 1996. He served as President and
Chief Operating Officer for two business units of Nelson Communications, Inc.,
an integrated healthcare services firm, from February 1995 to August 1996. He
also served as President, Chief Operating Officer and director of MedImmune,
Inc., a Maryland-based biotechnology company, from December 1992 to February
1995. From February 1982 to May 1992, Mr. Kishbauch served with the
Pharmaceuticals Division of Ciba-Geigy Corporation in various sales and
marketing positions, ending as Vice President Product Planning and Promotion.
Mr. Kishbauch worked through positions of increasing responsibility in brand
management with The Procter and Gamble Company from June 1976 to February 1982.
Mr. Kishbauch received a B.A. in biology from Wesleyan University and an M.B.A.
from the Wharton School of the University of Pennsylvania.
Mr. Carbeau has served as our Vice President, Corporate Development since
May 1999. From September 1996 to April 1999, he served as General Partner in
The Lucas Group, a Boston-based strategy consulting and mergers and
acquisitions advisory firm, and from January 1995 to September 1996 as a
Principal in North Atlantic Capital, a private equity firm. Prior to that, he
was a consultant and case manager for The Boston Consulting Group, a management
consulting firm, from September 1990 through December 1994. Mr. Carbeau held a
number of cross-functional positions with Eli Lilly and Company, a
pharmaceutical company, from September 1982 to July 1988. He holds a B.S. in
industrial engineering from the Pennsylvania State University and an M.B.A.
from the Wharton School of the University of Pennsylvania.
Dr. Lawter has served as our Vice President, Chief Scientific and
Technical Officer since he joined us in March 1997. From October 1983 to March
1997, he held scientific and management positions in pharmaceutical product
development at American Cyanamid and at American Home Products after its
42
<PAGE>
acquisition of American Cyanamid in 1994. While at American Cyanamid, he led
the team that developed the drug-delivery technology that is the basis for our
lead product, MPTS. From August 1979 through October 1983, he was a senior
research scientist in the Advanced Drug Delivery Group at Ciba-Geigy. From 1977
through 1979, he was a research manager in the Biomedical Division of Abcor,
Inc. and from 1972 through 1977, was a consultant with Arthur D. Little, Inc.
He received a B.S. in chemistry from the University of South Carolina and a
Ph.D. in physical chemistry from the Massachusetts Institute of Technology.
Dr. Lessem has served as our Vice President, Chief Medical Officer since
June 1998. From May 1995 to June 1998, he served as Medical Director and Vice
President of Drug Strategy at Takeda America, a pharmaceutical company. Prior
to that, he was involved in various clinical research and management roles at
several pharmaceutical companies, specifically: SmithKline Beecham from June
1991 to May 1995; Union Chemique Belgique Pharmaceutical in Brussels, Belgium,
from May 1990 to May 1991; Syntex Research from January 1986 to May 1990;
Bristol Myers from August 1983 to December 1985; and Merck Sharp & Dohme from
May 1982 to August 1983. Between 1974 and 1982, he was a Fellow, instructor and
Associate Professor in Cardiology and Geriatrics, at the University of Lund, in
Sweden. He is a Fellow of the American College of Cardiology, and a member of
the New York Academy of Sciences, as well as The Swedish Medical Association.
Dr. Lessem earned a M.D. from the University of Lund in Sweden in 1974, a Ph.D.
in clinical cardiology from the same university in 1982, and was Board
Certified in Cardiology in Sweden in 1982.
Mr. Ratigan has served as our Vice President, Chief Financial Officer
since June 1997 and was named Secretary in December 1999. From February 1997 to
June 1997, Mr. Ratigan served as the Chief Financial Officer of TL Ventures,
one of the initial investors in OraPharma. From September 1996 to February
1997, Mr. Ratigan served as the Vice President--Finance of Robotic Vision
Systems, Inc., a publicly-held company widely engaged in machine vision and
electronic imaging. From October 1993 to August 1996, Mr. Ratigan served as the
Executive Vice President, Chief Operating Officer and Chief Financial Officer
and a director of Perception, Inc., a publicly-held company which provides
three dimensional machine vision technologies to the automotive, forestry
products and aerospace industries. From March 1983 to October 1992, Mr. Ratigan
was with the Adler Group, a venture capital fund, where he served in a number
of positions including venture manager, Chief Financial Officer, and Chief
Executive Officer of a machine vision company controlled by the Adler Group.
Earlier, Mr. Ratigan spent eight years with Arthur Andersen LLP, where, as a
manager, he focused on entrepreneurial clients. Mr. Ratigan received his B.S.
degree in finance and accounting from LaSalle University, Philadelphia, PA and
is a CPA.
Mr. Zack has served as our Vice President, Sales and Marketing since
March 1998. From 1993 to 1998, Mr. Zack held senior management positions of
General Manager and Executive Director Marketing with Advanced Tissue Sciences,
a biotechnology company focused on tissue engineering. Prior to that, he was
Executive Director Marketing for Ciba-Geigy from 1987 to 1993, and Product
Director from 1982 to 1987, where he was responsible for a number of successful
product launches. From 1973 to 1982, he held positions in sales and new product
development with Ciba-Geigy. Mr. Zack obtained a B.A. in biology from Colgate
University, and an M.B.A. from St. John's University in New York.
Mr. Mauzey has been a director of OraPharma since July 1997. Since March
1999, Mr. Mauzey has been the Chief Executive Officer of Innovex, a division of
Quintiles Transnational. From March 1994 through February 1999, Mr. Mauzey was
Chairman and Chief Executive Officer of Alteon, Inc., a biotechnology company.
Prior to that, he spent 22 years in major roles with leading pharmaceutical
companies, including as President of the Bristol-Myers Squibb U.S.
Pharmaceutical Division from March 1989 through March 1994 and as the President
of the Squibb Corporation U.S. Pharmaceutical Group and Vice President of both
U.S. and international operations of Lederle.
Dr. Moller has been a director of OraPharma since March 1997. Since 1990,
he has served as Vice President of TL Ventures, a Company which manages a
series of private equity funds. Since 1994, Dr. Moller
43
<PAGE>
has served as a Managing Director of the following funds managed by TL
Ventures; Radnor Venture Partners, Technology Leaders, Technology Leaders II,
TL Ventures III and TL Ventures IV. He is principally responsible for the life
science portfolio at TL Ventures, specializing in financing and development of
early-stage biotechnology, bioinformatics and e-health companies. Dr. Moller
also currently serves as a director on the boards of Adolor Corporation,
Assurance Medical, Esperion Therapeutics, Immunicon Corporation, eMerge
Interactive, Inc., ChromaVision Systems, Inc. and Genomics Collaborative. Dr.
Moller holds a Ph.D. in immunology from the University of Pennsylvania.
Ms. More has been a director of OraPharma since September 1996. She has
been associated with Oak Investment Partners, a venture capital firm, since
1978 and has been a general partner since 1980. She currently serves as a
director of several private companies including Halox Technologies, Psychiatric
Solutions and Teloquent Communications Corp. Ms. More was also a founding
investor in Genzyme and has also been responsible for early-stage investments
in numerous companies including Alkermes, Alexion Pharmaceuticals, Esperion
Theraputics, KeraVision, Pharmacopeia, Trophix Pharmaceuticals, Compaq
Computer, Network Equipment Technologies, Octel Communications and Stratus
Computer.
Mr. Rein has been a director of OraPharma since March 1997. He is the
principal founder of Canaan Partners and has served as Managing General Partner
since its inception in 1984, with extensive experience working with small and
mid-sized companies. Prior to that, he was President and Chief Executive
Officer of GE Venture Capital Corporation. Mr. Rein joined General Electric
Company in 1979 and directed several of GE's lighting businesses as General
Manager before joining the venture capital subsidiary. Prior to his GE career,
Mr. Rein worked in various capacities with Polaroid Corporation, Transaction
Systems, Inc. and Gulf Oil Corporation. In addition to serving on the board of
several private companies, Mr. Rein is also on the Board of Anadigics.
Dr. Rudnick has been a director of OraPharma since July 1997. He
currently is consulting for several venture capital firms, and serves on the
board of NaPro BioTherapeutics, Inc. He was Chairman and CEO of
Cytotherapeutics, Inc. from 1995 through 1998. Prior to that, Dr. Rudnick
served as Senior Vice President of the R.W. Johnson Pharmaceutical Research
Group of Ortho Pharmaceutical Corporation, Senior Vice President of Development
with Biogen Research Corporation and Director of Clinical Research with
Schering-Plough. Dr. Rudnick has held various faculty appointments with Brown
University, the University of North Carolina and Yale University, and received
his M.D. from the University of Virginia, with fellowships at Yale in oncology
and epidemiology.
Mr. Scheer has been a director of OraPharma since September 1996. He
currently has been President of Scheer & Company, Inc., a firm with activities
in venture capital, corporate strategy, and transactional advisory services
focused on the life sciences industry since 1981. In venture capital, Mr.
Scheer has been involved in the founding of our company, ViroPharma, Inc.,
Esperion Therapeutics, Inc. and Achillon Pharmaceuticals, Inc. and has been a
member of the board of directors of Nonlinear Dynamics, Inc. and a series of
private and public companies. He has led engagement teams from Scheer providing
corporate strategic advisory services to a broad range of companies including
Agouron Pharmaceuticals (now a Division of Warner-Lambert), American Cyanamid
(now a division of American Home Products), B.F. Goodrich, Pharmacia AB,
Pharmacia & Upjohn, Hoffman La-Roche, Eli Lilly, and a range of smaller,
publicly- and privately-held companies. Mr. Scheer has also led or played a
significant role in a series of transactions involving corporate alliances,
licensing arrangements, divestments, acquisitions and mergers in the life
sciences. He received his B.A. from Harvard College and his M.S. from Yale
University.
Dr. Treu has been a director of OraPharma since December 1998. He is a
managing member of Domain Associates, L.L.C., and has served in this or similar
capacities with this firm since 1986. He has served as a director of over 20
early-stage health companies, ten of which have so far become public companies.
He is currently a director of Focal, Inc., GelTex Pharmaceuticals, Trimeris
Inc. and Simione Central Holdings, Inc. Prior to the formation of Domain, Dr.
Treu had 12 years health care experience at General Electric and Technicon
Corporation in a number of research, marketing management and corporate staff
positions. Dr. Treu received his B.S. from Rensselaer Polytechnic Institute,
and from Princeton University his M.A. and Ph.D. degrees in physics.
44
<PAGE>
Board of Directors
Our board of directors is divided into the following three classes, with
the members of the respective classes serving for staggered three-year terms:
. Class 1 directors, whose terms expire at the annual meeting of
stockholders to be held in 2001;
. Class 2 directors, whose terms expire at the annual meeting of
stockholders to be held in 2002; and
. Class 3 directors, whose terms expire at the annual meeting of
stockholders to be held in 2003.
Messrs. , and are our Class 1 directors, Messrs. ,
and are our Class 2 directors, and Messrs. , and are our
Class 3 directors. At each annual meeting of stockholders following this
offering, our stockholders will elect the successors to directors whose terms
have expired to serve from the time of election and qualification until the
third annual meeting following election.
All directors were nominated and elected as directors by the holders of
our common and preferred stock in accordance with provisions of our current
stockholders agreement. These provisions of our stockholders agreement will
terminate upon the completion of this offering. Each of the individuals will
remain as a director until resignation or until the stockholders elect their
replacements in accordance with our certificate of incorporation.
Our executive officers are appointed by the board of directors and serve
until their successors have been duly elected and qualified. There are no
family relationships among any of our executive officers or directors.
Board Committees
Our board of directors has a compensation committee and an audit
committee. The compensation committee is responsible for the administration of
all salary and incentive compensation plans for our officers, including bonuses
and options granted under our option and equity compensation plans. The audit
committee is responsible for reviewing with management our financial controls
and accounting and reporting activities. In addition, the audit committee will
review the qualifications of our independent auditors, make recommendations to
the board of directors regarding the selection of independent auditors, review
the scope, fees and results of any audit and review any non-audit services and
related fees.
45
<PAGE>
Scientific Advisory Board
The Chairman of OraPharma's Scientific Advisory Board is Ray C. Williams,
DMD, who was first introduced to our technology and MPTS while Chairman of
Harvard's Periodontology Department, and who more recently has served as
Chairman of Periodontics at the University of North Carolina--Chapel Hill.
Through Dr. Williams, we have retained a Scientific Advisory Board
consisting of individuals with expertise in dental and periodontal medicine,
oral pathology and soft-tissue therapeutics. This group was assembled during
our first quarter of operations. Members of our Scientific Advisory Board
advise us concerning long-term scientific planning and research and
development, periodically evaluate our research programs, and periodically
review and evaluate our clinical development plans and clinical trials. Dr. Van
Dyke was a principal investigator for one of our Phase 2 trials and Drs.
Cochran and Van Dyke were principal investigators in our Phase 3 trials. The
current members of our Scientific Advisory Board are as follows:
<TABLE>
<CAPTION>
Member University Affiliation Professional Concentration
- --------------------- --------------------------------- -------------------------------
<S> <C> <C>
Dr. Ray Williams Professor/Chairman Educator and expert in host
(Chairman) Periodontology, UNC--Chapel pathways and periodontal
Hill; formerly Chairman, disease
Department of Periodontology,
Harvard University
Dr. Steven Professor, UNC--Chapel Hill; Inflammation research, link
Offenbacher formerly Chairman of between infant birth weight,
Periodontology, Emory cardiac conditions and
University periodontal disease
complications of cancer
therapy
Dr. George McDonald Professor, University of Gastroenterology, Soft-tissue
Washington, Fred Hutchinson disease, oral mucositis
Cancer Center
Dr. David Cochran Professor/Department Chairman, Growth factors, regeneration,
University of Texas San Antonio implantology
Dr. Niklaus Lang Professor/Department Chairman, Periodontology, implantology
University of Bern (Switzerland) research
Dr. Roy Page Professor, University of Microbiology, immunology
Washington
Dr. James Sciubba Director of Dental and Oral Dental education, oral
Medicine, Johns Hopkins Medical pathology and medicine, soft-
Center tissue disease
Dr. Thomas Van Dyke Professor, Boston University Inflammatory process in
periodontal disease, clinical
trials
</TABLE>
Director and Scientific Advisory Board Compensation
We reimburse each member of our board of directors and our scientific
advisory board for out-of-pocket expenses incurred in connection with attending
board meetings. We also pay each member of our board of directors and
scientific advisory board who is not an investor a fee of $1,500 for each board
meeting attended, and have granted stock options to each member of our
scientific advisory board.
46
<PAGE>
Executive Compensation
The following table presents information concerning the compensation we
paid for the year ended December 31, 1998 to our chief executive officer and to
each of our other four most highly compensated executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
-------------------- ---------------------
Restricted Securities
Stock Underlying All Other
Name and Principal Position Salary Bonus Awards(#) Options(#) Compensation (1)
- --------------------------- ---------- --------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Michael D. Kishbauch..... $ 212,458 $ 63,900 (5) -- $13,960
President, Chief
Executive Officer and
Director
James A. Ratigan......... 122,875 36,000 -- -- 514
Vice President, Chief
Financial Officer and
Secretary
James R. Lawter, Ph.D. .. 126,469 25,350 (6) -- 5,535
Vice President, Chief
Scientific and
Technical Officer
Jan N. Lessem, M.D.,
Ph.D.(2)............... 102,917 22,167 -- 105,000 300
Vice President, Chief
Medical Officer
Joseph E. Zack(3)........ 117,222 24,000 -- 125,000 38,691
Vice President, Sales
and Marketing
Mark B. Carbeau(4) ...... -- -- -- -- --
Vice President, Business
Development
</TABLE>
- --------
(1) Includes $13,583 partial forgiveness of a loan to Mr. Kishbauch, $4,974 of
relocation expense reimbursement to Dr. Lawter, $38,475 of relocation
expenses reimbursed to Mr. Zack, and term life insurance premiums in the
amounts of $377, $514, $561, $300 and $216 paid by us for Mr. Kishbauch,
Mr. Ratigan, Dr. Lawter, Dr. Lessem and Mr. Zack, respectively.
(2) Dr. Lessem's employment began on June 1, 1998, and the table above reflects
only compensation paid since this date.
(3) Mr. Zack's employment began on March 23, 1998, and the table above reflects
only compensation paid since this date.
(4) Mr. Carbeau's employment began on May 1, 1999.
(5) No restricted stock grants were made to Mr. Kishbauch during the last year.
As of December 31, 1998, Mr. Kishbauch held 672,925 shares of restricted
common stock, subject to a restricted stock purchase agreement, dated March
6, 1997. These restricted shares were deemed to have a value of $ as of
the last day of the year, based on the assumed offering price of $ per
share less the $.001 price per share paid for those shares. As of December
31, 1998, 302,816 of these shares had vested and the remaining 55% of the
restricted shares will vest at the rate of 5% per calendar quarter over Mr.
Kishbauch's period of continued service with us.
(6) No restricted stock grants were made to Dr. Lawter during the last year. As
of December 31, 1998, Dr. Lawter held 178,750 shares of restricted common
stock, subject to a restricted stock purchase agreement, dated March 19,
1997. These restricted shares were deemed to have a value of $ as of the
last day of the year, based on the assumed offering price of $ per share
less the $.001 per share paid for those shares. As of December 31, 1998,
98,313 of these shares had vested and the remaining 45% of the restricted
shares will vest at the rate of 5% per calendar quarter over Dr. Lawter's
period of continued service with us.
47
<PAGE>
Stock Option Grants
The following table contains information concerning stock options to
purchase common stock that we granted in 1998 to each of the officers named in
the summary compensation table. We generally grant stock options at 100% of the
fair market value of the common stock as determined by our board of directors
on the date of grant. In reaching the determination of fair market value at the
time of each grant, the board of directors considers a range of factors,
including our current financial position, results of operations and cash flows,
the status of development activities for our product candidates, our assessment
of competitive position in our market and prospects for the future, current
industry market conditions, including valuations for comparable companies and
the illiquidity of an investment in the common stock. We granted stock options
to employees to purchase a total of 248,000 shares of common stock in 1998.
Option Grants in 1998
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------
Potential Realizable
Value at Assumed
Percent of Annual Rates
Number of Total of Stock Price
Securities Options Appreciation
Underlying Granted to Exercise for Option Term
Options Employees Price Per Expiration ---------------------
Name Granted in 1998 Share Date 5% 10%
- ---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jan N. Lessem, M.D. .... 105,000 42.3% $0.18 06/01/08 $ 11,886 $ 30,122
Joseph E. Zack.......... 125,000 50.4 0.18 03/23/08 14,150 35,859
</TABLE>
The following table contains information concerning stock options to
purchase common stock held as of December 31, 1998 by each of the officers
named in the summary compensation table that have stock options.
1998 Year-End Option Values
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised In-
Underlying Unexercised the-Money Options at Year
Options at Year End End(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James A. Ratigan............ 45,000 105,000 $-- $--
Jan N. Lessem, M.D. ........ -- 105,000 -- --
Joseph E. Zack.............. -- 125,000 -- --
Mark B. Carbeau............. -- -- -- --
</TABLE>
- --------
(1) There was no public trading market for the common stock as of December 31,
1998. Accordingly, these values have been calculated on the basis of the
assumed offering price of $ per share minus the applicable per share
exercise price.
Employment and Agreements
None of our executive officers has entered into employment agreements
with us. Our policy is to provide salary, benefits continuation and continued
vesting for six months if we terminate an executive officer without having
cause. In addition, all existing stock options and shares of restricted common
stock held by an executive officer will vest upon any termination without cause
following a change of control of our company.
Equity Compensation Plans
1996 Stock Option Plan
We maintain the 1996 Stock Option Plan, which has been approved by our
board of directors and our stockholders. The 1996 plan provides for grants of
incentive stock options and nonqualified stock options to our directors,
officers, employees, consultants and advisors; however, only employees,
officers, and directors who
48
<PAGE>
are our employees may receive grants of incentive stock options. The 1996 plan
authorizes up to 1,268,825 shares of common stock for issuance under the terms
of the plan. As of September 30, 1999, 1,162,947 options were outstanding under
the 1996 plan. We will not make any additional grants under the 1996 plan.
1999 Equity Compensation Plan
We will also maintain the 1999 Equity Compensation Plan. The 1999 plan
provides for grants of incentive stock options, nonqualified stock options,
stock awards and performance units to our employees, advisors, consultants, and
non-employee directors.
General. The 1999 plan authorizes up to shares of our common stock for
issuance under the terms of the plan. No more than shares in the aggregate
may be granted to any individual in any calendar year. If options granted under
the plan expire or are terminated for any reason without being exercised, or if
stock awards or performance units are forfeited, the shares of common stock
underlying the grants will again be available for purposes of the plan.
Administration of the Plan. The compensation committee of the board of
directors administers and interprets the plan. The compensation committee has
the sole authority to:
. determine the individuals to whom grants will be made under the plan;
. determine the type, size and terms of the grants to be made to each
individual;
. determine the time when the grants will be made and the duration of
any exercise or restriction period, including the criteria for
exercisability and acceleration of exercisability;
. amend the terms of any previously issued grant; and
. deal with any other matters arising under the plan.
Grants. Grants under the plan may consist of:
. options intended to qualify as incentive stock options within the
meaning of Section 422 of the Internal Revenue Code;
. nonqualified stock options that are not intended to so qualify;
. stock awards; and
. performance units.
Eligibility for Participation. Grants may be made to any employee of
OraPharma or any of our subsidiaries, including employees who are our officers
or members of our board of directors, and to any non-employee member of our
board of directors. Consultants and advisors who perform services for us are
also eligible to receive grants under the plan. No options have been issued
under the 1999 plan.
Options. Incentive stock options may be granted only to employees.
Nonqualified stock options may be granted to employees, non-employee directors,
consultants and advisors. The exercise price of common stock underlying an
option will be determined by the compensation committee, and must be equal to
or greater than the fair market value of our common stock on the date the
option is granted.
Participants may pay the exercise price:
. in cash;
. with the approval of the compensation committee, by delivering shares
of common stock owned by the grantee and having a fair market value on
the date of exercise equal to the exercise price of the option;
49
<PAGE>
. payment through a broker in accordance with procedures permitted by
Regulation T of the Federal Reserve Board; or
. by such other method as the compensation committee may approve.
The compensation committee will determine the term of each option, up to
a maximum ten year term. Options become exercisable according to the terms and
conditions determined by the compensation committee and specified in the grant
instrument. The compensation committee may accelerate the exercisability of any
or all outstanding options at any time for any reason.
Stock Awards. The compensation committee may issue shares of common stock
to participants subject to restrictions or no restrictions, as the compensation
committee determines. Unless the compensation committee determines otherwise,
during the restriction period, grantees will have the right to vote shares of
stock awards and to receive dividends or other distributions paid on such
shares. If a grantee's employment or service terminates during the restriction
period or if any other conditions are not met, the stock awards will terminate
as to all shares on which restrictions are still applicable, and the shares
must be immediately returned to us, unless the compensation committee
determines otherwise.
Performance Units. The compensation committee may make grants of
performance units to employees, consultants and advisors. Performance units may
be payable partly in cash or shares of our common stock, provided that the cash
portion does not exceed 50% of the amount to be distributed at the end of a
specified performance period. Payment will be contingent on achieving
performance goals by the end of the performance period. The measure of a
performance unit shall equal the fair market value of a share of our common
stock. The compensation committee will determine the performance criteria, the
length of the performance period, the maximum payment value of an award, and
the minimum performance goals required before payment will be made.
Deferrals. The compensation committee may permit or require that a
grantee defer the receipt of cash or the delivery of shares that would
otherwise be due to the grantee in connection with any option, the lapse or
waiver of restrictions applicable to stock awards, or the satisfaction of any
requirements or objectives with respect to performance units.
Transferability. Grants are generally not transferable by the
participant, except in the event of death. However, the compensation committee
may permit participants to transfer nonqualified stock options to family
members or related entities on such terms as the compensation committee deems
appropriate.
Amendment and Termination of the Plan. The board of directors may amend
or terminate the plan at any time. However, the board of directors may not make
any amendment without stockholder approval if such stockholder approval is
required by Section 162(m) or Section 422 of the Internal Revenue Code or is
required by an applicable stock exchange. The plan will terminate on the day
immediately preceding the tenth anniversary of its effective date, unless the
board of directors terminates the plan earlier or extends it with approval of
the stockholders.
Adjustment Provisions. Upon a merger, spin-off, stock split or other
transaction identified in the plan, the compensation committee may
appropriately adjust:
. the maximum number of shares available for grants;
. the maximum number of shares that any participant may be granted in
any year;
. the number of shares covered by outstanding grants;
. the kinds of shares issued under the plan; and
. the price per share or the applicable market value of such grants.
50
<PAGE>
Change of Control. Upon a change of control where we are not the
surviving company or where we survive only as a subsidiary of another company,
the compensation committee may, but is not required to:
. accelerate the vesting and exercisability of outstanding stock options
and stock awards;
. determine that grantees holding performance units will receive a
payment in settlement of these performance units;
. require that grantees surrender their outstanding options and in
exchange for payment by us, in cash or common stock, as determined by
the compensation committee, in an amount equal to the amount by which
the fair market value of the shares of common stock subject to the
grantee's unexercised and vested options; and
. after giving grantees an opportunity to exercise their outstanding
options to the extent vested, terminate any and all unexercised
options.
Section 162(m). Under Section 162(m) of the Internal Revenue Code, we may
be precluded from claiming a federal income tax deduction for total
remuneration in excess of $1,000,000 paid to our chief executive officer or to
any of our other four mostly highly compensated officers in any one year. Total
remuneration includes amounts received upon the exercise of stock options
granted under the plan and the value of shares or cash paid pursuant to other
grants. An exception exists, however, for "qualified performance-based
compensation." The 1999 plan is intended to allow grants to meet the
requirements of "qualified performance-based compensation."
Stock options should generally meet the requirements of "qualified
performance-based compensation" if the exercise price is at least equal to the
fair market value of our common stock on the date of grant. The compensation
committee may grant performance units and stock awards that are intended to be
"qualified performance-based compensation" under Section 162(m) of the Internal
Revenue Code. In that event, the compensation committee will establish in
writing the objective performance goals that must be met and other conditions
of the grant at the beginning of the performance period. The performance goals
may relate to the employee's business unit or to our performance as a whole, or
any combination of the two. The compensation committee will use objectively
determinable performance goals based on one or more of the following criteria:
stock price, earnings per share, net earnings, operating earnings, return on
assets, stockholder return, return on equity, growth in assets, unit volume,
sales, market share, scientific goals, preclinical or clinical goals,
regulatory approval or strategic business criteria consisting of one or more
objectives based on meeting specified revenue goals, market penetration goals,
geographic business expansion goals, cost targets or goals relating to
acquisitions, divestitures or strategic partnerships. With respect to stock
awards or performance units granted as "qualified performance-based
compensation," not more than 1,000,000 shares of stock may be granted to an
employee under the performance units or stock awards for any performance
period.
Plan Benefits. Because the compensation committee will make grants from
time to time to persons selected by the committee, we cannot presently
determine the benefits and amounts that may be received in the future by
persons eligible to participate in the 1999 plan.
401(k) Plan
On July 1, 1998, we adopted a tax-qualified employee savings and
retirement plan, our 401(k) plan, for our eligible employees. At the discretion
of the board of directors, we may make matching contributions on behalf of all
participants who have elected to make deferrals to the 401(k) plan. To date, we
have not made any matching contributions to the 401(k) plan. Any contributions
to the 401(k) plan by us or by our participants are paid to a trustee. The
401(k) plan, and the accompanying trust, are intended to qualify under Section
401(k) of the Internal Revenue Code, as amended, so that contributions and
income earned, if any, are not taxable to employees until withdrawn. The
contributions made by us vest in increments according to a vesting schedule. At
the direction of each participant, the trustee invests the contributions made
to the 401(k) plan in any number of investment options.
51
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Previous Capital Stock Financings
Preferred Stock
We sold 800,000 shares of series A preferred stock in February 1997 and
6,623,658 shares of series B preferred stock in March 1997. In December 1998 we
sold 6,584,360 shares of series C preferred stock. In December 1999 we sold
1,106,194 shares of series D preferred stock. Substantially all of our shares
of preferred stock have been sold to venture capital funds, each consisting of
one or more related funds.
The detailed description of the ownership within each venture capital
fund is contained in the footnotes to the Principal Stockholder's table on page
54. Each share of preferred stock will automatically convert into common stock
upon completion of this offering.
Series A Preferred Stock. We sold 800,000 shares of series A preferred
stock in February 1997 at a purchase price per share of $1.00 for a total of
$800,000. In these transactions, we sold 200,000 shares to each of Oak
Investment Partners, Canaan Partners, TL Ventures III, and Frazier Healthcare.
We also granted warrants to each of Oak Investment Partners and to Canaan
Partners that are exercisable for 31,250 shares of common stock at an exercise
price of $1.00 per share in connection with loans of $62,500 that each such
venture fund made to us. These warrants expire in December 2003.
Series B Preferred Stock. We sold 6,623,658 shares of series B preferred
stock in March 1997 at a purchase price per share of $1.82 for a total of
approximately $12 million. In these transactions, we sold 1,648,352 shares of
series B preferred stock to each of Oak Investment Partners, Canaan Partners
and TL Ventures III; and 1,678,602 shares to Frazier Healthcare.
Series C Preferred Stock. We sold 6,584,360 shares of series C preferred
stock in December 1998 at a purchase price per share of $2.43 for a total of
approximately $16 million. In these transactions, we sold:
. 1,090,534 shares to Oak Investment Partners,
. 740,740 shares to Canaan Partners,
. 740,740 shares to TL Ventures III,
. 329,219 shares to Frazier Healthcare,
. 2,074,074 shares to Domain Partners IV, L.P.,
. 518,519 shares to Biotechnology Investments,
. 720,164 shares to HealthCap KB, and
. 370,370 shares to Sentron Medical, Inc.
Series D Preferred Stock. We sold 1,106,194 shares of series D preferred
stock in December 1999 at a purchase price per share of $4.52 for a total of
approximately $5 million. In these transactions, we sold:
. 265,487 shares to Oak Investment Partners,
. 206,006 shares to Canaan Partners,
. 110,619 shares to TL Ventures III,
. 44,248 shares to Frazier Healthcare,
. 35,398 shares to Domain Partners IV, L.P.,
. 8,850 shares to Biotechnology Investments,
. 302,843 shares to HealthCap KB, and
. 132,743 shares to Sentron Medical, Inc.
We also issued warrants to these investors exercisable for the following
number of shares of our common stock at an exercise price of $6.46 per share.
These warrants expire in December 2006 and are not exercisable until December
2000. These warrants were issued to:
. 53,097 to Oak Investment Partners,
. 41,201 to Canaan Partners,
. 22,123 to TL Ventures III,
52
<PAGE>
. 8,850 to Frazier & Company,
. 7,080 to Domain Partners IV, L.P.,
. 1,770 to Biotechnology Investments,
. 60,569 to HealthCap KB, and
. 26,549 to Sentron Medical, Inc.
Transactions with Directors
Scheer and Company Inc., a company owned and controlled by David I.
Scheer, one of our directors, provides business consulting and advisory
services to us for which it receives $15,000 per quarter plus out-of-pocket
expenses. Scheer and Company Inc. was paid $21,190 in 1997, $82,009 in 1998 and
$55,785 in 1999.
Seth Rudnick, M.D., one of our directors, provides product candidate
development consulting services to us. Including out-of-pocket expenses, Dr.
Rudnick was paid $27,095 in 1998 and $5,803 in 1999 for these services.
Transactions with Scientific Advisory Board Members
Dr. Raymond Williams is the Chairman of our scientific advisory board.
Dr. Williams provides product candidate development and industry-specific
consulting services to us. For providing these services, we pay Dr. Williams
$4,000 per month plus expenses. We paid Dr. Williams $38,467 in 1997, $49,759
in 1998 and $36,000 in 1999 for these services.
Dr. Stephen Offenbacher, a member of our scientific advisory board,
provides product candidate development services to us for which we pay him
$3,000 per month plus out-of-pocket expenses. We paid Dr. Offenbacher $27,000
in 1997, $36,711 in 1998 and $27,000 in 1999.
Dr. Thomas Van Dyke, a member of our scientific advisory board, provides
product candidate development consulting services to us. Dr. Van Dyke was a
principal investigator for one of our Phase 2 trials and our Phase 3 trials. We
paid Dr. Van Dyke $4,019 in 1998 and $3,622 in 1999, including out-of-pocket
expenses, for product development consulting services.
Dr. Williams and Dr. Offenbacher are reimbursed for expenses associated
with their attendance at our scientific advisory board meetings. They have
received $3,904 and $3,936, respectively, for this activity. All other
scientific advisory board members are paid $1,500 for each meeting attended,
and are reimbursed for expenses they incur to attend such meetings.
We have granted stock options to each member of our scientific advisory
board that are exercisable for the following number of shares of common stock:
<TABLE>
<CAPTION>
Scientific Advisory
Board Member Shares
------------------- -------
<S> <C>
Dr. Ray Williams 123,535
Dr. Stephen Offenbacher 74,121
Dr. David Cochran 20,000
Dr. Niklaus Lang 13,750
Dr. Roy Page 13,750
Dr. James Sciubba 13,750
Dr. Thomas Van Dyke 13,750
Dr. George McDonald 13,750
</TABLE>
53
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides information regarding the beneficial
ownership of our common stock as of December 30, 1999, and as adjusted to
reflect the sale of the shares of our common stock offered hereby, by:
. each person or entity who beneficially owns more than 5% of our stock;
. each of our directors;
. our named executive officers; and
. all executive officers and directors as a group.
Unless otherwise indicated, the address of each executive officer named
in the table below is care of OraPharma, Inc., 732 Louis Drive, Warminster, PA
18974. The amounts and percentages of common stock beneficially owned are
reported on the basis of regulations of the Securities and Exchange Commission
governing the determination of beneficial ownership of securities. Under the
rules of the Commission, a person is deemed to be a "beneficial owner" of a
security if that person has or shares "voting power," which includes the power
to vote or to direct the voting of such security, or "investment power," which
includes the power to dispose of or to direct the disposition of such security.
A person is also deemed to be a beneficial owner of any securities of which
that person has a right to acquire beneficial ownership within 60 days. Under
these rules, more than one person may be deemed a beneficial owner of the same
securities and a person may be deemed to be the beneficial owner of securities
as to which such person has no economic interest.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
Number of Shares ------------------------------
Name of Beneficial Owner Beneficially Owned Before Offering After Offering
- ------------------------ ------------------ --------------- --------------
<S> <C> <C> <C>
5% Stockholders
- ---------------
Oak Investment Partners
(1)....................... 3,609,623 21.0% %
Canaan Partners (2)......... 2,826,348 16.4
TL Ventures III (3)......... 2,699,711 15.7
Frazier & Company (4)....... 2,252,069 13.1
Domain Partners IV, L.P.
(5)....................... 2,109,472 12.3
Healthcap KB (6)............ 1,023,007 6.0
<CAPTION>
Directors and Executive
Officers
- -----------------------
<S> <C> <C> <C>
Eileen M. More (1).......... 3,609,623 21.0% %
Harry T. Rein (2)........... 2,826,348 16.4
Christopher Moller (3)...... 2,699,711 15.7
Jesse I. Treu (5)........... 2,109,472 12.3
Michael D. Kishbauch (7).... 444,130 2.6
David I. Scheer (8)......... 335,500 2.0
J. Ronald Lawter (9)........ 138,063 *
James A. Ratigan (10)....... 76,500 *
Joseph E. Zack (11)......... 44,950 *
Jan N. Lessem (12).......... 35,109 *
James J. Mauzey (13)........ 25,000 *
Seth A. Rudnick (13)........ 25,000 *
Mark B. Carbeau (14)........ -- *
All directors and executive
officers as a group (15).. 12,369,406 70.8%
</TABLE>
- --------
* less than one percent
54
<PAGE>
(1) Includes 3,496,784 shares owned by Oak Investment Partners VI, Limited
Partnership and 81,589 shares owned by Oak VI Affiliates Fund Limited
Partnership. Also includes 31,250 shares of series A preferred stock
obtainable upon exercise of warrants. Ms. More is a general partner of Oak
Associates VI, LLC and Oak VI Affiliates, LLC, the general partners of Oak
Investment Partners VI, Limited Partnership and Oak VI Affiliates Fund,
Limited Partnership, respectively. Ms. More shares voting and investment
power with respect to these limited partnerships with the other general
partners of Oak Associates VI, LLC and Oak VI Affiliates, LLC. Ms. More
disclaims beneficial ownership of shares in which she does not have a
pecuniary interest. The address of both Oak Investment Partners VI, Limited
Partnership and Oak VI Affiliates Limited Partnership is One Gorham Island,
Westport, CT 06880.
(2) Includes 1,663,517 shares owned by Canaan S.B.I.C., L.P., 19,777 shares
owned by Canaan Capital Limited Partnership, 165,058 shares owned by Canaan
Capital Offshore Limited Partnership C.V. and 946,746 shares owned by
Canaan Equity L.P. Also includes 31,250 shares of series A preferred stock
obtainable upon exercise of warrants. Mr. Rein is Managing General Partner
of Canaan Partners, the fund manager for each of the Canaan entities. Mr.
Rein disclaims beneficial ownership of shares in which he does not have a
pecuniary interest. The address of all the Canaan Partners entities is 105
Rowayton Avenue, Rowayton, CT 06853.
(3) Includes 2,173,728 shares owned by TL Ventures III L.P., 455,009 shares
owned by TL Ventures III Offshore L.P. and 70,974 shares owned by TL
Ventures III Interfund L.P. TL Ventures III L.P., TL Ventures III Offshore
L.P., and TL Ventures III Interfund L.P. are referred to as TL Ventures
III. TL Ventures III L.P., TL Ventures III Offshore L.P., and TL Ventures
III Interfund L.P. are venture capital partnerships that are required by
their governing documents to make all investment, voting and disposition
actions in tandem. TL Ventures III Management L.P., a limited partnership,
is the sole general partner of TL Ventures III L.P. TL Ventures III
Offshore Partners L.P. is the sole general partner of TL Ventures III
Offshore L.P. TL Ventures III LLC is the sole general partner of TL
Ventures III Interfund L.P. The general partners have sole authority and
responsibility for all investment, voting and disposition decisions for TL
Ventures III. The general partners of TL Ventures III Management L.P., TL
Ventures III Offshore Partners L.P. and TL Ventures III LLC are Safeguard
Scientifics (Delaware), Inc., Robert E. Keith, Jr., Gary J. Anderson, Mark
J. DeNino, Robert A. Fabbio and Christopher Moller, a director of
OraPharma. Dr. Moller disclaims beneficial ownership of shares in which he
does not have a pecuniary interest. The address for each of the TL Ventures
investment funds is 700 Building, 435 Devon Park Drive, Wayne, PA 19087.
(4) Includes shares 2,221,819 owned by Frazier Healthcare II, L.P., 5,500
shares owned by Frazier & Company, Inc., 5,500 shares owned by Charles
Blanchard, 2,750 shares owned by Jon Gilbert, 5,500 shares owned by Nader
Naini, 5,500 shares owned by Glenn Stewart and 5,500 shares owned by Fred
Silverstein. The address for Frazier Healthcare II L.P., Frazier & Company,
Inc., Charles Blanchard, Jon Gilbert, Nader Naini, Glenn Stewart and Fred
Silverstein is 2 Union Square, 601 Union Street, Suite 2110, Seattle, WA
98101. The general partner of Frazier Healthcare II, L.P. is FHMII, LLC.
Charles Blanchard, Jon Gilbert, Nader Naini, Glenn Stewart and Fred
Silverstein are members of Frazier Management, L.L.C., the managing member
of the member of FHMII, LLC and each individually disclaim beneficial
ownership in shares which he does not have a pecuniary interest.
(5) Includes 2,060,106 shares beneficially owned by Domain Partners IV, L.P.
and 49,366 shares beneficially owned by DP IV Associates, L.P. Dr Treu is a
managing member of One Palmer Square Associates IV, L.L.C., the general
partner of Domain Partners IV, L.P. and DP IV Associates, L.P. Dr. Treu
shares voting and investment power with respect to these shares and
disclaims beneficial ownership of such shares except to the extent of his
proportionate interest therein. Excludes 527,369 shares beneficially owned
by Biotechnology Investments Limited ("BIL"). Dr. Treu is a managing member
of Domain Associates, L.L.C. Pursuant to a contractual agreement, Domain
Associates, L.L.C. is the U.S. Venture Capital Advisor to BIL. Domain
Associates, L.L.C. has no voting or investment power with respect to BIL's
shares. Dr. Treu disclaims beneficial ownership of BIL's shares.
55
<PAGE>
(6) Includes 429,663 shares owned by HealthCap KB and 593,344 shares owned by
HealthCap Co Invest KB. The address for HealthCap KB and HealthCap Co
Invest KB is Sturegatan 34, S-11436 Stockholm, Sweden. HealthCap KB and
HealthCap Co Invest KB are Swedish limited partnerships.
(7) Excludes 235,524 shares of restricted common stock.
(8) Includes 335,500 shares owned by Scheer Investment Holdings I, L.L.C. Mr.
Scheer is President of Scheer & Company, Inc., the fund manager of Scheer
Investment Holdings I, L.L.C. Mr. Scheer disclaims beneficial ownership of
any shares in which he does not have a pecuniary interest.
(9) Includes 4,000 shares of common stock obtainable upon the exercise of
warrants. Excludes 44,687 shares of restricted common stock and 16,000
shares of common stock obtainable upon the exercise of non-vested stock
options.
(10) Includes 76,500 shares of common stock obtainable upon exercise of vested
stock options. Excludes 81,000 shares of common stock obtainable upon
exercise of non-vested stock options.
(11) Includes 44,950 shares of common stock obtainable upon the exercise of
vested stock options. Excludes 86,050 shares of common stock obtainable
upon exercise of non-vested stock options.
(12) Includes 35,109 shares of common stock obtainable upon exercise of vested
stock options. Excludes 87,936 shares of common stock obtainable upon
exercise of non-vested stock options.
(13) Includes 25,000 shares of common stock obtainable upon exercise of vested
stock options. Excludes 25,000 shares of common stock obtainable upon
exercise of non-vested stock options.
(14) Excludes 200,000 shares of common stock obtainable upon exercise of non-
vested stock options.
(15) Includes 62,500 shares of common stock obtainable upon exercise of
warrants and 217,288 shares of common stock obtainable upon exercise of
stock options.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our Authorized Capital Stock
. 50 million shares of common stock, par value $.001 per share
. five million shares of preferred stock, par value $.001 per share
. immediately after the sale of the shares of common stock in this
offering, we will have shares of common stock outstanding and no
shares of preferred stock outstanding
Common Stock
Voting:
. one vote for each share held of record on all matters submitted to a
vote of stockholders
. no cumulative voting rights
. election of directors by plurality of votes cast
. all other matters by majority of the votes cast
Dividends:
. subject to preferential dividend rights of outstanding shares of
preferred stock, if any, common stockholders are entitled to receive
ratably declared dividends
. the board of directors may only declare dividends out of legally
available funds
Additional Rights:
. subject to the preferential liquidation rights of outstanding shares of
preferred stock, if any, common stockholders are entitled to receive
ratably net assets, available after the payment of all debts and
liabilities, upon our liquidation, dissolution or winding up
. no preemptive rights
. no subscription rights
. no redemption rights
. no sinking fund rights
. no conversion rights
The rights and preferences of common stockholders are subject to the
right of any series of preferred stock we may issue in the future.
Preferred Stock
We may, by resolution of our board of directors, and without any further
vote or action by our stockholders, authorize and issue, subject to limitations
prescribed by law, up to an aggregate of five million shares of preferred
stock. The preferred stock may be issued in one or more classes or series of
shares of any class or series. With respect to any classes or series, the board
of directors may determine the designation and the number of shares,
preferences, limitations and special rights, including dividend rights
conversion rights, voting rights, redemption rights and liquidation
preferences. Because of the rights that may be granted, the issuance of
preferred stock may delay, defer or prevent a change of control.
Prior to this offering, we had 800,000 shares of series A preferred
stock, 6,623,658 shares of series B preferred stock, 6,584,360 shares of series
C preferred stock and 1,106,194 shares of series D preferred stock issued and
outstanding. Upon the completion of this offering, all of our outstanding
shares of preferred stock will be subject to mandatory conversion into an
aggregate of 15,114,212 shares of common stock.
57
<PAGE>
Warrants
On completion of this offering we will have outstanding warrants to
purchase:
. 62,500 shares of common stock exercisable at a price of $1.00 per
share which expire in December 2003;
. 55,000 shares of common stock exercisable at a price of $1.82 per
share, which expire in January 2004;
. 221,239 shares of common stock exercisable at $6.46 per share which
expire in December 2006; and
. 82,305 shares of common stock exercisable at $2.43 per share which
will expire in December 2006.
To exercise these warrants, the holder must enter into a restricted stock
purchase agreement. The agreement will grant the holder rights to register the
shares of common stock issuable upon exercise of the warrants. The exercise
price and the number of shares of common stock issuable on exercise of the
warrants may be adjusted following specific events including stock splits,
stock dividends, reorganizations, recapitalization, merger or sale of all or
substantially all our assets.
Registration Rights
Following completion of this offering, holders of shares of common
stock, including holders of warrants to purchase shares of common stock,
will have the right to have their shares registered under the Securities Act of
1933. These rights are provided under the terms of agreements between us and
the holders of such securities. These agreements provide, in specific
instances, the holders of shares of common stock with the right to file a
registration statement on their behalf. In addition, pursuant to these
agreements, the holders of shares of common stock are entitled to require us
to include their registrable securities in future registration statements we
file under the Securities Act of 1933. Registration of shares of common stock
pursuant to the exercise of these registration rights would result in such
shares becoming freely tradable without restriction under the Securities Act of
1933 immediately upon the effectiveness of such registration and may adversely
affect our stock price.
Stockholders' Meeting
Our next annual meeting of stockholders will be held in 2001.
Limitations on Liability
Our certificate of incorporation limits or eliminates the liability of
our directors to us or our stockholders for monetary damage to the fullest
extent permitted by the Delaware General Corporation Law. As permitted by the
Delaware General Corporation Law, our certificate of incorporation provides
that our directors shall not be personally liable to us or our stockholders for
monetary damages for a breach of fiduciary duty as a director, except for
liability:
. for any breach of such person's duty of loyalty;
. for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law; and
. for any transaction resulting in receipt by such person of an improper
personal benefit.
Our certificate of incorporation also contains provisions indemnifying
our directors and officers to the fullest extent permitted by the Delaware
General Corporation Law.
We currently have directors' and officers' liability insurance to provide
our directors and officers with insurance coverage for losses arising from
claims based on breaches of duty, negligence, errors and other wrongful acts.
Anti-Takeover Effects of Provisions of Charter Documents and Delaware Law
Upon completion of this offering our certificate of incorporation will
provide for the division of our board of directors into three classes. Each
class must be as nearly equal in number as possible. Additionally,
58
<PAGE>
each class must serve a three-year term. The terms of each class are staggered
so that each term ends in a different year over a three-year period. A
director may only be removed for cause and only by the vote of more than 50%
of the shares entitled to vote for the election of directors.
Our certificate of incorporation also provides that our board of
directors may establish the rights of, and cause us to issue, substantial
amounts of preferred stock without the need for stockholder approval. Further,
our board of directors may determine the terms, conditions, rights, privileges
and preferences of the preferred stock. Our board is required to exercise its
business judgment when making such determinations. Our board of directors' use
of the preferred stock may inhibit the ability of third parties to acquire
OraPharma. Additionally, our board may use the preferred stock to dilute the
common stock of entities seeking to obtain control of OraPharma. The rights of
the holders of common stock will be subject to, and may be adversely affected
by, any preferred stock that may be issued in the future. Our preferred stock
provides desirable flexibility in connection with possible acquisitions,
financings and other corporate transactions. However, it may have the effect
of discouraging, delaying or preventing a change in control of OraPharma. We
have no present plans to issue any shares of preferred stock.
The existence of the foregoing provisions in our certificate of
incorporation could make it more difficult for third parties to acquire or
attempt to acquire control of us or substantial amounts of our common stock.
After this offering is completed, Section 203 of the Delaware General
Corporation Law will apply to OraPharma. Section 203 of the Delaware General
Corporation Law generally prohibits certain "business combinations" between a
Delaware corporation and an "interested stockholder." An "interested
stockholder" is generally defined as a person who, together with any
affiliates or associates of such person, beneficially owns, or within three
years did own, directly or indirectly, 15% or more of the outstanding voting
shares of a Delaware corporation. The statute broadly defines business
combinations to include:
. mergers;
. consolidations;
. sales or other dispositions of assets having an aggregate value in
excess of 10% of the consolidated assets of the corporation or
aggregate market value of all outstanding stock of the corporation;
and
. certain transactions that would increase the "interested
stockholder's" proportionate share ownership in the corporation.
The statute prohibits any such business combination for a period of
three years commencing on the date the "interested stockholder" becomes an
"interested stockholder," unless:
. the business combination is approved by the corporation's board of
directors prior to the date the "interested stockholder" becomes an
"interested stockholder";
. the "interested stockholder" acquired at least 85% of the voting stock
of the corporation (other than stock held by directors who are also
officers or by certain employee stock plans) in the transaction in
which it becomes an "interested stockholder"; and
. the business combination is approved by a majority of the board of
directors and by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the "interested
stockholder."
The Delaware General Corporation Law contains provisions enabling a
corporation to avoid Section 203's restrictions if stockholders holding a
majority of the corporation's voting stock approve an amendment to the
corporation's certificate of incorporation or by-laws to avoid the
restrictions. In addition, the restrictions contained in Section 203 are not
applicable to any of our existing stockholders. We have not and do not
currently intend to "elect out" of the application of Section 203 of the
Delaware General Corporation Law.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is StockTrans,
Inc., Ardmore, Pennsylvania.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market
following this offering could adversely affect the market price of our common
stock and adversely affect our ability to raise capital at a time and on terms
favorable to us.
Of the shares to be outstanding after this offering (assuming that
the underwriters do not exercise their over-allotment option), the shares
of common stock offered hereby will be freely tradable without restriction in
the public market unless such shares are held by "affiliates," as that term is
defined in Rule 144 under the Securities Act of 1933. The remaining shares of
common stock to be outstanding after this offering are "restricted securities"
under the Securities Act of 1933 and may be sold in the public market under
Rule 144, subject to the manner of sale and other limitations of Rule 144.
In addition, as of , there were options to purchase shares of
common stock, of which options were fully exercisable. An additional
shares were reserved for issuance under our stock option plan, of which options
to purchase shares are being granted on or prior to the completion of this
offering. We intend to register the shares of common stock issued, issuable or
reserved for issuance under the plan following the date of this prospectus.
Following completion of the offering, holders of shares of common
stock, including holders of warrants to purchase shares of common stock,
are entitled to registration rights with respect to such shares for resale
under the Securities Act. If such holders, by exercising their registration
rights, cause a large number of shares to be registered and sold in the public
market, this will likely cause an adverse effect on the market price for our
common stock. These registration rights may not be exercised prior to the
expiration of 180 days from the date of this prospectus. See "Description of
Capital Stock--Registration Rights."
Lock-Up Agreements
Substantially all of our stockholders, warrant holders and option
holders, and all of our officers and directors, have agreed under written
"lock-up" agreements not to sell any shares of common stock for 180 days after
the date of this prospectus without the prior written consent of FleetBoston
Robertson Stephens Inc.
60
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., U.S. Bancorp Piper Jaffray Inc., and
Gerard Klauer Mattison & Co., Inc., have severally agreed with us, subject to
the terms and conditions set forth in the underwriting agreement, to purchase
from us the number of shares of common stock set forth opposite their names
below. The underwriters are committed to purchase and pay for all shares if any
are purchased.
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
FleetBoston Robertson Stephens Inc................................
U.S. Bancorp Piper Jaffray Inc....................................
Gerard Klauer Mattison & Co., Inc.................................
Total...........................................................
</TABLE>
The representatives have advised us that the underwriters propose to
offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus and to certain dealers at
that price less a concession of not in excess of $ per share, of which $
may be reallowed to other dealers. After this offering, the public offering
price, concession and reallowance to dealers may be reduced by the
representatives. This reduction shall not change the amount of proceeds to be
received by us as stated on the cover page of this prospectus. The common stock
is offered by the underwriters as stated herein, subject to receipt and
acceptance by them and subject to their right to reject any order in whole or
in part.
The underwriters have informed us that they do not intend to confirm
sales to any accounts over which they exercise discretionary authority. The
underwriters have advised us that they do not expect sales to discretionary
accounts to exceed 5% of the total number of shares offered.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to additional shares of common stock at the same price per
share as we will receive for the shares that the underwriters have agreed
to purchase. If the underwriters exercise this option, each of the underwriters
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage of such additional shares that the number of
shares of common stock to be purchased by it shown in the above table bears to
the shares of common stock offered in this offering. If purchased, such
additional shares will be sold by the underwriter on the same terms as those on
which the shares offered in this offering are being sold. We will be
obligated, pursuant to the option, to sell shares to the underwriters to the
extent the option is exercised. The underwriters may exercise such option only
to cover over-allotments made in connection with the sale of the shares of
common stock offered in this offering. If such option is exercised in full, the
total public offering price, underwriting discounts and commissions and
proceeds to us will be $ , $ and $ , respectively.
Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters and us against various civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements. Each executive officer, director, and substantially
all of our stockholders, agreed with the representatives for a period of 180
days after the date of this prospectus, subject to certain exceptions, not to
offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of common stock, any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock, owned as of the date of this
prospectus or thereafter acquired directly by such holders or with respect to
which they have or hereafter
61
<PAGE>
acquire the power of disposition, without the prior written consent of
FleetBoston Robertson Stephens Inc. FleetBoston Robertson Stephens Inc. may, in
its sole discretion and at any time or from time to time without notice,
release all or any portion of the securities subject to the lock-up agreements.
There are no agreements between the representatives and any of our stockholders
who have executed a lock-up agreement providing consent to the sale of shares
prior to the expiration of the lock-up period.
Future Sales. In addition, we have agreed that during the 180 days after
the date of this prospectus we will not, subject to certain exceptions, without
the prior written consent of FleetBoston Robertson Stephens Inc. (i) consent to
the disposition of any shares held by stockholders subject to lock-up
agreements prior to the expiration of the lock-up period or (ii) issue, sell,
contract to sell, or otherwise dispose of, any shares of common stock, any
options or warrants to purchase any shares of common stock or any securities
convertible into, exercisable for or exchangeable for shares of common stock
other than the sale of shares in this offering, the issuance of common stock
upon the exercise of outstanding options or warrants and the issuance of
options under our existing stock option and incentive plans, provided that
those options do not vest prior to the expiration of the lock-up period.
Listing. We have applied to have the common stock approved for quotation
on The Nasdaq National Market under the symbol "OPHM."
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price
for the common stock offered hereby will be determined through negotiations
between us and the representatives of the underwriters. Among the factors to be
considered in such negotiations are prevailing market conditions, certain of
our financial information, market valuations of other companies that we and the
representatives, believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Stabilization. The representatives of the underwriters have advised us
that, pursuant to Regulation M under the Securities Act, certain persons
participating in this offering may engage in transactions, including
stabilizing bids, syndicate covering transactions or the imposition of penalty
bids, that may have the effect of stabilizing or maintaining the market price
of the common stock at a level above that which might otherwise prevail in the
open market. A "stabilizing bid" is a bid for or the purchase of shares of
common stock on behalf of the underwiters for the purpose of fixing or
maintaining the price of the common stock. A "syndicate covering transaction"
is the bid for or the purchase of the common stock on behalf of the
underwriters to reduce a short position incurred by the underwriters in
connection with this offering. A "penalty bid" is an arrangement permitting the
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with this offering if the common
stock originally sold by such underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter or syndicate member. The
representatives have advised us that such transactions may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
Directed Share Program. At our request, the underwriters have reserved up
to 5% of the common stock to be issued by us and offered for sale in this
offering, at the initial public offering price, to our directors, officers,
employees, business associates and related persons. The number of shares of
common stock available for sale to the general public will be reduced to the
extent such individuals purchase such reserved shares. Any reserved shares
which are not so purchased will be offered by the underwriters to the general
public on the same basis as the other shares offered in this offering.
62
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for OraPharma by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.
Certain legal matters will be passed upon for the Underwriters by Brobeck,
Phleger & Harrison LLP, New York, New York.
EXPERTS
The audited financial statements included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of that firm as
experts in giving said reports.
The statements in this prospectus under the sections "Risk Factors--If we
or the parties from which we license our technology fail to secure or enforce
the patents and other intellectual property rights underlying MPTS, our core
drug-delivery technology or our other product candidates, we may be unable to
compete effectively"; "Risk Factors--We may face significant expense and
liability if our technologies, product candidates, methods or processes are
found to infringe on the intellectual property rights of others, or if we
allege others infringe our intellectual property rights"; and "Business--
Technology, Licenses and Patents" have been reviewed and approved by Arnall,
Golden & Gregory, LLP, Atlanta, Georgia, our patent counsel, as experts on such
matters and are included in this prospectus in reliance upon that review and
approval.
ADDITIONAL ORAPHARMA INFORMATION
We have filed with the SEC a registration statement on Form S-1 with
respect to the common stock offered hereby. This prospectus, which constitutes
a part of the registration statement, does not contain all of the information
set forth in the registration statement or the exhibits and schedules which are
part of the registration statement. For further information with respect to
OraPharma and our common stock, reference is made to the registration statement
and the exhibits and schedules thereto. You may read and copy any document we
file at the SEC's public reference rooms in Washington, D.C., New York, New
York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information about the public reference rooms. Our SEC filings are also
available to the public from the SEC's web site at http://www.sec.gov. Upon
completion of this offering, we will become subject to the information and
periodic reporting requirements of the Securities Exchange Act and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the SEC. Such periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms and the Web site of the SEC referred to above.
63
<PAGE>
ORAPHARMA, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders'
Deficit................................................................ F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To OraPharma, Inc.:
We have audited the accompanying balance sheets of OraPharma, Inc. (a
Delaware corporation in the development stage) as of December 31, 1997 and
1998, and the related statements of operations, redeemable convertible
preferred stock and stockholders' deficit and cash flows for the years ended
December 31, 1997 and 1998 and for the period from inception (August 1, 1996)
to December 31, 1996, and for the period from inception to December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of OraPharma, Inc. as
of December 31, 1997 and 1998, and the results of its operations and its cash
flows for the years ended December 31, 1997 and 1998 and for the period from
inception (August 1, 1996) to December 31, 1996, and for the period from
inception to December 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
February 19, 1999
F-2
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------- September 30,
1997 1998 1999
----------- ------------ -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $10,136,747 $ 19,236,084 $ 11,025,319
Prepaid expenses and other.......... 36,060 46,441 162,753
----------- ------------ ------------
Total current assets............... 10,172,807 19,282,525 11,188,072
Fixed assets, net.................... 430,987 971,413 956,444
Intangible assets, net............... 255,790 226,464 200,933
----------- ------------ ------------
$10,859,584 $ 20,480,402 $ 12,345,449
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt... $ -- $ 192,935 $ 192,935
Accounts payable.................... 238,888 821,931 41,706
Accrued expenses.................... 244,733 1,091,996 354,787
----------- ------------ ------------
Total current liabilities.......... 483,621 2,106,862 589,428
----------- ------------ ------------
Long-term debt....................... -- 480,978 336,277
----------- ------------ ------------
Redeemable convertible preferred
stock.............................. 12,822,769 28,771,713 28,771,713
----------- ------------ ------------
Commitments (Note 7)
Stockholders' deficit:
Common stock, par value $.001 per
share, 17,500,000 shares
authorized, 1,906,175, 1,914,075
and 2,079,075 issued and
outstanding....................... 1,906 1,914 2,079
Additional paid-in capital.......... 215,040 250,136 773,253
Deferred compensation............... (86,783) (63,370) (327,410)
Deficit accumulated during the
development stage................. (2,576,969) (11,067,831) (17,799,891)
----------- ------------ ------------
Total stockholders' deficit........ (2,446,806) (10,879,151) (17,351,969)
----------- ------------ ------------
$10,859,584 $ 20,480,402 $ 12,345,449
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from Period from Period from
Inception Inception Inception
(August 1, (August 1, (August 1,
1996) Year Ended Nine Months Ended 1996) 1996)
Through December 31, September 30, Through Through
December 31, ------------------------ ------------------------ December 31, September 30,
1996 1997 1998 1998 1999 1998 1999
------------ ----------- ----------- ----------- ----------- ------------ -------------
(unaudited) (unaudited)
------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating expenses:
Research and
development.......... $ 26,294 $ 1,706,393 $ 7,324,975 $ 3,710,157 $ 5,841,243 $ 9,057,662 $ 14,898,905
General and
administrative....... 408,295 939,469 1,590,375 930,285 1,403,988 2,938,139 4,342,127
--------- ----------- ----------- ----------- ----------- ------------ ------------
Operating loss........ (434,589) (2,645,862) (8,915,350) (4,640,442) (7,245,231) (11,995,801) (19,241,032)
Interest income......... 252 505,529 462,506 328,073 553,488 968,287 1,521,775
Interest expense........ (893) (1,406) (38,018) (25,878) (40,317) (40,317) (80,634)
--------- ----------- ----------- ----------- ----------- ------------ ------------
Net loss................ $(435,230) $(2,141,739) $(8,490,862) $(4,338,247) $(6,732,060) $(11,067,831) $(17,799,891)
========= =========== =========== =========== =========== ============ ============
Basic and diluted net
loss per share........ $ (2.30) $ (6.21) $ (3.29) $ (4.30)
=========== =========== =========== ===========
Shares used in computing
basic and diluted net
loss per share........ 932,111 1,366,587 1,319,799 1,564,259
=========== =========== =========== ===========
Pro forma basic and
diluted net loss per
share (unaudited)..... $ (0.91) $ (0.43)
=========== ===========
Shares used in computing
pro forma basic and
diluted net loss per
share (unaudited)..... 9,349,465 15,572,277
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Stockholders' Deficit
-------------------------------------------------------------------
Redeemable Deficit
Convertible Accumulated
Preferred Stock Common Stock Additional During the
---------------------- ---------------- Paid-in Deferred Development
Shares Amount Shares Amount Capital Compensation Stage Total
---------- ----------- --------- ------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at Inception,
August 1, 1996......... -- $ -- -- $ -- $ -- $ -- $ -- $ --
Deferred compensation
related to stock
options and grants.... -- -- -- -- 189,210 (189,210) -- --
Amortization of
deferred stock-based
compensation.......... -- -- -- -- -- 76,159 -- 76,159
Net loss............... -- -- -- -- -- -- (435,230) (435,230)
---------- ----------- --------- ------ -------- --------- ------------ ------------
Balance, December 31,
1996................... -- -- -- -- 189,210 (113,051) (435,230) (359,071)
Sale of common stock
and restricted common
stock to founders..... 1,646,175 1,646 90 -- -- 1,736
Issuance of common
stock and warrant as
partial payment for
intangible assets..... -- -- 220,000 220 23,780 -- -- 24,000
Exercise of warrant to
purchase common
stock................. -- -- 40,000 40 1,960 -- -- 2,000
Sale of Series A
Preferred stock....... 800,000 800,000 -- -- -- -- -- --
Sale of Series B
Preferred stock, net
of expenses .......... 6,623,658 12,022,769 -- -- -- -- -- --
Amortization of
deferred stock-based
compensation.......... -- -- -- -- -- 26,268 -- 26,268
Net loss............... -- -- -- -- -- -- (2,141,739) (2,141,739)
---------- ----------- --------- ------ -------- --------- ------------ ------------
Balance, December 31,
1997................... 7,423,658 12,822,769 1,906,175 1,906 215,040 (86,783) (2,576,969) (2,446,806)
Sale of Series C
Preferred stock, net
of expenses........... 6,584,360 15,948,944 -- -- -- -- -- --
Sale of restricted
common stock to a
founder and exercise
of employee stock
options............... -- -- 7,900 8 39 -- -- 47
Issuance of warrant to
purchase common stock
in connection with
acquisition of
technology............ -- -- -- -- 35,057 -- -- 35,057
Amortization of
deferred stock-based
compensation.......... -- -- -- -- -- 23,413 -- 23,413
Net loss............... -- -- -- -- -- -- (8,490,862) (8,490,862)
---------- ----------- --------- ------ -------- --------- ------------ ------------
Balance, December 31,
1998................... 14,008,018 28,771,713 1,914,075 1,914 250,136 (63,370) (11,067,831) (10,879,151)
Issuance of common
stock in connection
with acquisition of
technology
(unaudited)........... -- -- 165,000 165 199,485 -- -- 199,650
Deferred compensation
related to stock
options (unaudited)... -- -- -- -- 323,632 (313,532) -- 10,100
Amortization of
deferred stock-based
compensation
(unaudited)........... -- -- -- -- -- 49,492 -- 49,492
Net loss (unaudited)... -- -- -- -- -- -- (6,732,060) (6,732,060)
---------- ----------- --------- ------ -------- --------- ------------ ------------
Balance, September 30,
1999 (unaudited)....... 14,008,018 $28,771,713 2,079,075 $2,079 $773,253 $(327,410) $(17,799,891) $(17,351,969)
========== =========== ========= ====== ======== ========= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Period from Period from
Inception Inception Inception
(August 1, (August 1, (August 1,
1996) Year Ended Nine Months Ended 1996) 1996)
Through December 31, September 30, Through Through
December 31, ------------------------ ------------------------ December 31, September 30,
1996 1997 1998 1998 1999 1998 1999
------------ ----------- ----------- ----------- ----------- ------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Flows from
Operating Activities:
Net loss.............. $(435,230) $(2,141,739) $(8,490,862) $(4,338,247) $(6,732,060) $(11,067,831) $(17,799,891)
Adjustments to
reconcile net loss to
net cash used in
operating
activities--
Depreciation and
amortization........ 938 61,251 188,956 127,584 210,288 251,145 461,433
Stock based
compensation
expense............. 76,159 26,268 23,413 17,633 59,592 125,840 185,432
Common stock and
warrant issued in
connection with
acquisition of
technology.......... -- -- 234,707 -- -- 234,707 234,707
Changes in operating
assets and
liabilities--
Prepaid expenses and
other............... (10,246) (25,813) (10,382) (60,570) (116,312) (46,441) (162,753)
Accounts payable..... 221,968 16,920 583,043 145,131 (780,225) 821,931 41,706
Accrued expenses..... 73,582 171,151 647,613 (27,094) (737,559) 892,346 154,787
--------- ----------- ----------- ----------- ----------- ------------ ------------
Net cash used in
operating
activities....... (72,829) (1,891,962) (6,823,512) (4,135,563) (8,096,276) (8,788,303) (16,884,579)
--------- ----------- ----------- ----------- ----------- ------------ ------------
Cash Flows Used in
Investing Activities:
Capital expenditures.. (4,828) (460,500) (700,055) (602,942) (169,788) (1,165,383) (1,335,171)
Expenditures for
intangible assets.... (9,639) (250,000) -- -- -- (259,639) (259,639)
--------- ----------- ----------- ----------- ----------- ------------ ------------
Net cash used in
investing
activities....... (14,467) (710,500) (700,055) (602,942) (169,788) (1,425,022) (1,594,810)
--------- ----------- ----------- ----------- ----------- ------------ ------------
Cash Flows Provided by
Financing Activities:
Proceeds from issuance
of notes payable..... 125,000 40,000 750,000 500,000 -- 915,000 915,000
Proceeds from the sale
of preferred stock,
net of expenses...... -- 12,822,769 15,948,944 -- -- 28,771,713 28,771,713
Proceeds from the sale
of common stock and
exercise of stock
options and warrant.. -- 3,736 47 8 -- 3,783 3,783
Proceeds from PA
Opportunity Grant.... -- -- -- -- 200,000 -- 200,000
Repayment of notes
payable.............. -- (165,000) (76,087) (54,348) (144,701) (241,087) (385,788)
--------- ----------- ----------- ----------- ----------- ------------ ------------
Net cash provided
by financing
activities....... 125,000 12,701,505 16,622,904 445,660 55,299 29,449,409 29,504,708
--------- ----------- ----------- ----------- ----------- ------------ ------------
Net Increase (decrease)
in Cash and Cash
Equivalents........... 37,704 10,099,043 9,099,337 (4,292,845) (8,210,765) 19,236,084 11,025,319
Cash and Cash
Equivalents, Beginning
of Period............. -- 37,704 10,136,747 10,136,747 19,236,084 -- --
--------- ----------- ----------- ----------- ----------- ------------ ------------
Cash and Cash
Equivalents, End of
Period................ $ 37,704 $10,136,747 $19,236,084 $ 5,843,902 $11,025,319 $ 19,236,084 $ 11,025,319
========= =========== =========== =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS
1. Background:
OraPharma, Inc. (the "Company") was incorporated on August 1, 1996. In
February 1997, the Company acquired certain technologies and other assets
related to drug delivery technologies, together with certain exclusive patent
license rights to apply the acquired technologies to oral health care, as well
as certain nonexclusive patent license rights for other potential applications
of the acquired technologies.
Since February 1997, the Company has focused its efforts on research and
development activities related to the completion of its lead product candidate,
Minocycline Periodontal Therapeutic System (MPTS), which is based on the
acquired technologies. During 1998, the Company initiated Phase 3 clinical
trials in order to obtain the approval of the United States Food and Drug
Administration ("FDA") for this oral healthcare product. These trials were
completed in October, 1999. The Company plans to file a new drug application
("NDA") with the FDA during the first half of 2000.
During 1998, the Company acquired license rights to certain other
technologies which it intends to develop into future product candidates.
The Company has not generated any revenues from product sales and has
incurred substantial losses since its inception. The Company anticipates
incurring additional losses over at least the next several years and such
losses may increase as the Company expands its research and development
activities. Substantial financing will be needed by the Company to fund its
operations and to commercially develop its product candidates. There is no
assurance that such financing will be available when needed. Operations of the
Company are subject to certain additional risks and uncertainties including,
among others, dependence on MPTS and its exclusive licenses, uncertainty of
product development, supplier and manufacturing dependence, sales and marketing
inexperience, competition, reimbursement availability, dependence on other
exclusive licenses and collaborations, uncertainties regarding patents and
proprietary rights, dependence on key personnel and other risks related to
governmental regulations and approvals.
2. Summary of Significant Accounting Policies:
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of expenses incurred during the reporting
period. Actual results could differ from those estimates.
Interim Financial Statements
The financial statements as of September 30, 1999 and for the nine months
ended September 30, 1998 and 1999 are unaudited and, in the opinion of
management, include all adjustments (consisting only of normal and recurring
adjustments) necessary for a fair presentation of results for these interim
periods. The results of operations for the nine months ended September 30, 1999
are not necessarily indicative of the results expected for the entire year.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
maturities of three months or less to be cash equivalents. Fair value
approximates carrying value because of the short maturity of the cash
equivalents.
F-7
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Fixed Assets
Depreciation and amortization are provided using the straight-line method
of accounting over the estimated useful lives of the related assets or lease
term, whichever is shorter. The Company uses lives of three to five years.
Intangible Assets
Certain acquired technologies, together with acquired patent license
rights have been recorded at cost and are being amortized on a straight-line
basis over their estimated useful life of ten years.
Research and Development
Research and development costs are charged to expense as incurred.
Stock-Based Compensation
The Company accounts for stock-based compensation to employees using the
intrinsic value method in accordance with Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has
recognized deferred stock compensation related to certain stock option grants
(see Note 9). The Company accounts for stock-based compensation to nonemployees
using the fair value method in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" and Emerging Issues Task Force (EITF) 96-18.
Net Loss Per Common Share
The Company has presented basic and diluted net loss per share pursuant
to SFAS No. 128, "Earnings per Share," and the Securities and Exchange
Commission Staff Accounting Bulletin No. 98. In accordance with SFAS 128, basic
and diluted net loss per share has been computed using the weighted-average
number of shares of common stock outstanding during the period, less shares
subject to repurchase. Pro forma basic and diluted net loss per common share,
as presented in the statements of operations, has been computed for the year
ended December 31, 1998 and the nine months ended September 30, 1999 as
described above, and also gives effect to the conversion of the redeemable
convertible preferred stock which will automatically convert to common stock
upon the closing of the Company's initial public offering from the original
date of issuance.
F-8
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table presents the calculation of basic, diluted and pro
forma basic and diluted net loss per share:
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
------------------------ ------------------------
1997 1998 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net loss................ $(2,141,739) $(8,490,862) $(4,338,247) $(6,732,060)
=========== =========== =========== ===========
Basic and diluted:
Weighted-average shares
of common stock
outstanding.......... 1,385,512 1,912,674 1,912,301 1,970,888
Less: weighted-average
shares subject to
repurchase........... (453,401) (546,087) (592,502) (406,629)
----------- ----------- ----------- -----------
Weighted-average shares
used in computing
basic and diluted net
loss per share....... 932,111 1,366,587 1,319,799 1,564,259
=========== =========== =========== ===========
Basic and diluted net
loss per share........ $ (2.30) $ (6.21) $ (3.29) $ (4.30)
=========== =========== =========== ===========
Pro forma:
Net loss............... $(8,490,862) $(6,732,060)
=========== ===========
Shares used above...... 1,366,587 1,564,259
Pro forma adjustment to
reflect weighted
effect of assumed
conversion of
convertible preferred
stock (unaudited).... 7,982,878 14,008,018
----------- -----------
Shares used in
computing pro forma
basic and diluted net
loss per share
(unaudited).......... 9,349,465 15,572,277
=========== ===========
Pro forma basic and
diluted net loss per
share (unaudited).... $ (0.91) $ (0.43)
=========== ===========
</TABLE>
The Company has excluded all redeemable convertible preferred stock,
outstanding stock options and warrants, and shares subject to repurchase from
the calculation of basic and diluted loss per common share because all such
securities are antidilutive for all applicable periods presented. The pro forma
calculations exclude outstanding stock options and warrants as they are
antidilutive. Basic and diluted net loss per share is not presented for the
period from inception through December 31, 1996 since the Company had no shares
of common stock outstanding during that period.
3. Fixed Assets:
<TABLE>
<CAPTION>
December 31,
------------------- September 30,
1997 1998 1999
-------- --------- -------------
<S> <C> <C> <C>
Laboratory and production equipment... $397,910 $ 652,848 $ 756,143
Leasehold improvements................ -- 293,776 293,776
Furniture and fixtures and office
equipment........................... 67,418 218,759 285,253
-------- --------- ---------
465,328 1,165,383 1,335,172
Less--Accumulated depreciation and
amortization........................ (34,341) (193,970) (378,728)
-------- --------- ---------
$430,987 $ 971,413 $ 956,444
======== ========= =========
</TABLE>
F-9
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Acquisition of Intangible Assets:
In February 1997, the Company executed agreements with a pharmaceutical
company and a periodontist, whereby the Company acquired certain technologies
and other assets related to drug delivery technologies, together with certain
exclusive patent license rights to apply the acquired technologies to oral
health care, as well as certain nonexclusive patent license rights for other
potential applications for the required technologies.
During 1998, the Company initiated Phase 3 clinical trials on its first
oral healthcare product candidate which is based on the acquired technologies.
These trials were completed on October 15, 1999. The Company plans to file an
NDA with the FDA during the first half of 2000.
On the date of acquisition, the Company paid $250,000 in cash and issued
220,000 shares of common stock and a five-year warrant to purchase 40,000
shares of common stock for the acquired technologies and patent license rights.
These initial payments, valued at $274,000, have been recorded as an intangible
asset. The Company is obligated to make milestone payments which aggregate
$3,150,000, upon submission of an NDA to the FDA, and additional milestone
payments upon the FDA approving the NDA. Under certain circumstances, the
Company may make certain of these milestone payments by issuing shares of its
common stock and five-year warrants to purchase common stock. Should the
Company issue any warrants in connection with these milestone payments, the
exercise price of these warrants would be at the fair market value of the
Company's common stock, as defined, on the date of issuance.
The Company is also obligated to make royalty payments on future revenues
derived from products that are based on the acquired technology.
The Company has engaged one of the licensors as an advisor to the Company
and has agreed to pay $30,000 per year for such advisory services.
5. Accrued Expenses
<TABLE>
<CAPTION>
December 31,
------------------- September 30,
1997 1998 1999
-------- ---------- -------------
<S> <C> <C> <C>
Accrued compensation.......................... $128,955 $ 208,273 $ 5,452
Accrued research and development.............. 76,410 784,955 48,675
Accrued other................................. 39,368 98,768 100,660
Deferred revenue.............................. -- -- 200,000
-------- ---------- --------
$244,733 $1,091,996 $354,787
======== ========== ========
</TABLE>
6. Long-Term Debt:
As of September 30, 1999, the Company had a $1,750,000 equipment credit
facility with a bank, of which $1,000,000 was available for future borrowings.
During 1998, the Company borrowed $750,000 under this facility to finance
various fixed assets. Borrowings under the facility are evidenced by notes
which bear interest at the bank's prime rate plus 1%, are payable in equal
monthly principal payments over 48 months and are secured by the assets
financed. The facility expires at June 30, 2000.
As of December 31, 1998, the remaining principal payments were as
follows:
<TABLE>
<S> <C>
1999............................................................ $ 192,935
2000............................................................ 192,935
2001............................................................ 192,935
2002............................................................ 95,108
---------
673,913
Less--Current portion........................................... (192,935)
---------
$ 480,978
=========
</TABLE>
F-10
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
This credit facility requires the Company to maintain minimum tangible
net worth and liquidity ratios. The Company is prohibited from paying
dividends, incurring indebtedness or disposing of assets. The agreement also
places certain restrictions on the Company's ability to make investments,
change its business, ownership or management, or enter into merger or
acquisition agreements.
7 Commitments:
Facility Lease
On October 1, 1998, the Company entered into a five-year operating lease
for the facility that it currently occupies. The following is a summary, as of
December 31, 1998, of the future minimum annual lease payments required under
this lease:
<TABLE>
<S> <C>
1999............................................................. $165,263
2000............................................................. 170,912
2001............................................................. 176,562
2002............................................................. 182,213
2003............................................................. 139,838
--------
Total minimum lease payments.................................... $834,788
========
</TABLE>
The Company has also entered into operating lease agreements for various
office equipment. The term of these lease agreements range from 18 to 65
months. Current minimum annual payments under these leases aggregate $16,686
per year.
Rental expense for all operating leases in 1996, 1997 and 1998 was
$3,400, $24,089 and $176,170, respectively.
License Agreements
In December 1998, the Company entered into agreements to acquire certain
rights to technologies from two entities. Under the terms of these agreements,
the Company received exclusive licenses and patent rights for certain product
applications based on these development-stage technologies. The Company also
entered into sponsored research and consulting agreements with these entities
to continue the development of these technologies on behalf of the Company.
In connection with these agreements, during 1998 the Company incurred
aggregate minimum licensing fees in the amount of $434,707, inclusive of
$200,000 paid in cash and the value of 165,000 shares of the Company's common
stock and a five-year warrant to purchase 55,000 shares of common stock at an
exercise price of $1.82 per share. The Company issued the common stock during
the first quarter of 1999. The Company has also agreed, contingent on
achievement of milestones, to make future license payments in the aggregate
amount of $3,100,000 and to issue a five-year warrant to purchase 82,305 shares
of the Company's common stock at an exercise price of $2.43 per share. These
milestone payments are due upon the successful completion of animal studies,
NDA submission and NDA approval, respectively.
F-11
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
During 1998, the Company also incurred $625,600 of sponsored research
and consulting expenses in connection with these agreements. As of December
31, 1998, future sponsored research and consulting payments are scheduled to
be an aggregate of $2,284,400, payable as follows:
<TABLE>
<S> <C>
1999.............................................................. $869,956
2000.............................................................. 712,778
2001.............................................................. 457,778
2002.............................................................. 243,888
</TABLE>
Under certain circumstances, either the Company or the other entities
may cancel these agreements.
As discussed in Note 4, the Company is obligated to make certain
milestone and future royalty payments in connection with the 1997 acquisition
of certain technology.
8. Preferred Stock:
As of December 31, 1998, the authorized and outstanding redeemable
convertible preferred stock series and their principal terms are as follows:
<TABLE>
<CAPTION>
Liquidation
Shares Shares Carrying Value
Series Authorized Outstanding Amount Per Share
------ ---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
A 800,000 800,000 $ 800,000 $1.00
B 6,623,658 6,623,658 12,022,769 1.82
C 6,584,360 6,584,360 15,948,944 2.43
---------- ---------- -----------
14,008,018 14,008,018 $28,771,713
========== ========== ===========
</TABLE>
The Company sold 800,000 shares of Series "A" Convertible Preferred
stock ("Series A"), 6,623,658 shares of Series "B" Convertible Preferred stock
("Series B") and 6,584,360 shares of Series "C" Convertible Preferred stock
("Series C") in February 1997, March 1997, and December 1998, at $1.00, $1.82
and $2.43 per share, respectively. All of these convertible preferred shares
were sold to accredited investors, and Series A, Series B and Series C shares
have the same preferences, other than the liquidation value.
The preferred shares are convertible into common stock on a share for
share basis and are entitled to vote together with the common stockholders as
one class. The preferred stockholders are entitled to receive 8% annual
cumulative dividends after January 2, 2002, and to participate equally with
respect to dividends or other distributions made on the common stock or any
other class or series of stock then ranking junior to or in parity with the
preferred shares. The preferred shares automatically convert into common stock
upon the closing of an initial public offering, as defined.
At the request of any holder of preferred shares, the Company is
obligated to redeem up to one third of such shares between January 1, 2002 and
December 31, 2002, up to one half of such shares between January 1, 2003 and
December 31, 2003 and all such shares thereafter. The redemption price shall
be $1.00 per share for Series A, $1.82 for Series B and $2.43 for Series C
Convertible Preferred shares plus any unpaid cumulative or other dividends
thereon. The preferred stockholders are also entitled to certain anti-dilution
and registration rights.
F-12
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
9. Stockholders' Deficit:
Stock Options
The Company has adopted the 1996 Stock Option Plan (the "Plan"), which
provides for the granting of options to purchase a maximum of 1,268,825 shares
of the Company's common stock. Under the Plan, options may be granted to
directors, officers, employees, consultants and advisors to the Company.
Options under the Plan generally become exercisable as follows: 20% at
the first anniversary of the option grant date and 5% at each subsequent
quarterly anniversary date. All options expire ten years after the grant date.
The Company applies APB No. 25, "Accounting for Stock Issued to
Employees," and the related interpretations in accounting for its stock option
plans. The Company follows the disclosure requirement of SFAS No. 123,
"Accounting for Stock-Based Compensation." The weighted average fair value of
the options granted during 1997 and 1998 is estimated at $.06 and $.05 per
share, respectively, on the date of grant using the Black-Scholes option
pricing model with the following assumptions: dividend yield of zero;
volatility of zero; weighted average risk-free interest rate of 6.47% in 1997
and 5.81% in 1998, and an expected life of 6 years. Had compensation cost for
the Company's common stock option plan been determined based upon the fair
value of the options at the date of grant, as prescribed under SFAS No. 123,
the Company's net loss for the years ended December 31, 1997 and 1998 would
have been as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1998
----------- -----------
<S> <C> <C>
Net loss--as reported.......................... $(2,141,739) $(8,490,862)
=========== ===========
Net loss--pro forma............................ $(2,145,157) $(8,495,952)
=========== ===========
Basic and diluted net loss per share--as
reported..................................... $ (2.30) $ (6.21)
=========== ===========
Basic and diluted net loss per share--pro
forma........................................ $ (2.30) $ (6.21)
=========== ===========
</TABLE>
Activity under the Plan is shown in the following table:
<TABLE>
<CAPTION>
Aggregate
Exercise Exercise
Shares Price Price
--------- -------- ---------
<S> <C> <C> <C>
Outstanding, Date of Inception.............. -- $ -- $ --
Granted.................................... 273,656 .01-.10 2,827
--------- --------
Outstanding, December 31, 1996.............. 273,656 .01-.10 2,827
Granted.................................... 295,000 .18 53,100
--------- --------
Outstanding, December 31, 1997.............. 568,656 .01-.18 55,927
Granted.................................... 261,750 .18 47,115
Exercised.................................. (400) .10 (40)
Forfeited.................................. (600) .10 (60)
--------- --------
Outstanding, December 31, 1998.............. 829,406 .01-.18 102,942
Granted.................................... 333,541 .30 100,062
--------- --------
Outstanding, September 30, 1999............. 1,162,947 $.01-.30 $203,004
========= ========
</TABLE>
F-13
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The following table summarizes information about stock options at
September 30, 1999:
<TABLE>
<CAPTION>
Outstanding Stock Options Exercisable Stock Options
------------------------- -------------------------
Weighted
Average
Remaining
Exercise Contractual Exercise
Prices Shares Life Shares Price
-------- ------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
$.01 272,656 7.3 years 149,961 $ .01
.18 556,750 8.2 years 195,625 .18
.30 333,541 9.5 years -- .30
</TABLE>
At September 30, 1999, outstanding options to purchase 1,162,947 shares
had been granted, of which 345,586 were exercisable, and options to purchase
105,478 shares were available for future grants. The weighted average remaining
exercise period relating to the outstanding options was approximately 8.3
years.
During the nine months ended September 30, 1999, in connection with the
grant of options to employees, the Company recorded deferred stock compensation
of $313,532, representing the difference between the exercise price and the
deemed fair value of the Company's common stock for financial reporting
purposes on the date such stock options were granted. Deferred compensation is
included as a component of stockholders' deficit and is being amortized to
expense ratability over the five-year vesting period of the options.
Warrants
In November 1996, the Company issued warrants to purchase 62,500 shares
of Series A at an exercise price of $1.00 per share in connection with the
issuance of convertible notes. None of these warrants, which expire in December
2003, have been exercised.
In December 1998, the Company issued a warrant to purchase 55,000 shares
of common stock at $1.82 per share in connection with the acquisition of
certain technology (see Note 7).
Common Stock Subject to Repurchase
During 1997, the Company sold 934,175 shares of common stock to certain
members of management at $.001 per share. These shares are subject to
repurchase by the Company, at $.001 per share, in the event that their
employment is terminated. The number of shares repurchasable by the Company
decreases upon the individuals first anniversary of employment, and further
reduces upon subsequent quarterly anniversary dates. As of September 30, 1999,
406,629 shares of common stock are subject to repurchase by the Company.
10. Income Taxes:
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." The Company has net operating loss carryforwards
for tax reporting purposes that will begin to expire in 2011. Since realization
of the tax benefit associated with this carryforward is not assured, a
valuation allowance was recorded against this tax benefit as required by SFAS
No. 109. In addition, pursuant to income tax regulations, the annual
utilization of these losses may be limited. The Company believes that any such
limitation will not have a material impact on the utilization of these
carryforwards.
As of December 31, 1998, the Company had federal net operating loss
carryforwards of $9,258,000. The Company also had federal research and
development tax credit carryforwards of $296,000.
F-14
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Tax Reform Act of 1986 contains provisions that limit the utilization
of net operating loss and tax credit carryforwards if there has been a
"ownership change." Any such future "ownership change," as described in Section
382 of the Internal Revenue Code, may limit the Company's utilization of its
net operating loss and tax credit carryforwards. Management believes the
proposed initial public offering will not have a material effect on the
Company's ability to utilize these carryforwards.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Based upon the Company's
loss history, a valuation allowance for deferred tax assets has been provided:
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 350,000 $ 3,144,000
Capitalized research and development expenses... 522,000 464,000
Research and development credit carryforwards... 35,000 296,000
Capitalized patent rights....................... -- 148,000
--------- -----------
Total deferred tax assets...................... 907,000 4,052,000
Valuation allowance for deferred tax assets...... (907,000) (4,052,000)
--------- -----------
Net deferred tax assets........................ $ -- $ --
========= ===========
</TABLE>
F-15
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The expenses (other than underwriting discounts and commissions and the
underwriter's non-accountable expense allowance) payable in connection with
this offering of the rights and the sale of the Common Stock offered hereby are
as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $14,877
NASD filing fee................................................... 6,135
Nasdaq filing fee................................................. *
Printing and engraving expenses................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue Sky fees and expenses (including legal fees)................. *
Transfer agent and rights agent and registrar fees and expenses... *
Miscellaneous..................................................... *
-------
Total........................................................... $ *
=======
</TABLE>
- --------
*To be filed by amendment
All expenses are estimated except for the SEC fee and the NASD fee.
Item 14. Indemnification of Directors and Officers
The Registrant's Certificate of Incorporation permits indemnification to
the fullest extent permitted by Delaware law. The Registrant's by-laws require
the Registrant to indemnify any person who was or is an authorized
representative of the Registrant, and who was or is a party or is threatened to
be made a party to any corporate proceeding, by reason of the fact that such
person was or is an authorized representative of the Registrant, against
expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with such third-party
proceeding if 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
Registrant and, with respect to any criminal third-party proceeding (including
any action or investigation which could or does lead to a criminal third-party
proceedings had no reasonable cause to believe such conduct was unlawful. The
Registrant shall also indemnify any person who was or is an authorized
representative of the Registrant and who was or is a party or is threatened to
be made a party to any corporate proceeding by reason of the fact that that
such person was or is an authorized representative of the Registrant, against
expenses actually and reasonably incurred by such person in connection with the
defense or settlement of such corporate action if such person acted in good
faith and in a manner reasonably believed to be in, or not opposed to, the best
interests of the Registrant, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Registrant unless and only to the extent that the
Delaware Court of Chancery or the court in which such corporate proceeding was
pending shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such authorized
representative is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper. Such
indemnification is mandatory under the Registrant's by-laws as to expenses
actually and reasonably incurred to the extent that an authorized
representative of the Registrant had been successful on the merits or otherwise
in defense of any third party or corporate proceeding or in defense of any
claim, issue or matter therein. The determination of whether an individual is
entitled to indemnification may be made by a majority of disinterested
directors, independent legal counsel in a written legal opinion or the
stockholders. Delaware law also permits indemnification in connection with a
proceeding brought by or in the right of the Registrant to procure a judgment
in its favor. Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers or persons controlling
II-1
<PAGE>
the Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in that Act and is
therefore unenforceable. The Registrant maintains a directors and officers
liability insurance policy.
The Underwriting Agreement provides that the underwriter is obligated,
under certain circumstances, to indemnify directors, officers, and controlling
persons of the Registrant against certain liabilities, including liabilities
under the Act.
Item 15. Recent Sales of Unregistered Securities
In the preceding three years, the Registrant has issued the following
securities that were not registered under the Act:
Since its inception, the Company has issued an aggregate of 2,079,075
shares of common stock, par value $0.001 per share. These shares include (i)
374,000 shares issued in February 1997 at a purchase price per share of $0.001
for a total of $374; (ii) 335,500 shares issued in March 1997 at a purchase
price of $0.001 for a total of $336; (iii) 220,000 shares issued in February
1997 at a purchase price per share of $0.10 for a total of $22,000; (iv) 40,000
shares issued in April 1997 at a purchase price per share of $0.05 for a total
of $2,000; (v) 5,000 shares issued in October 1997 at a purchase price per
share of $0.01 for a total of $50; (vi) 165,000 shares issued in December 1998
at a purchase price per share of $0.17 for a total of $28,050; and (vii)
934,175 shares of restricted stock issued to certain employees and other
persons, consisting of 672,925 shares issued in March 1997 at a purchase price
per share of $0.001 for a total of $673; 178,750 shares issued in October 1997
at a purchase price per share of $0.001 for a total of $179; 75,000 shares
issued in October 1997 at a purchase price per share of $0.001 for a total of
$75; and 7,500 shares issued in February 1998 at a purchase price per share of
$0.001 for a total of $8.
Since its inception, the Company has also issued an aggregate of
15,114,212 shares of preferred stock: consisting of (i) 800,000 shares of
series A preferred stock issued in February 1997 at a purchase price of $1.00
for a total of $800,000; (ii) 6,623,658 shares of series B preferred stock
issued in March 1997 at a purchase price per share of $1.82 for a total of
approximately $12 million; (iv) 6,584,360 shares of series C preferred stock
issued in December 1998 at a purchase price per share of $2.43 for a total of
approximately $16 million; and (v)1,106,194 shares of series D preferred stock
issued on December 23, 1999 for a purchase price per share of $4.52 for a total
of approximately $5 million. All such issuances were made under the exemption
from registration provided under Section 4(2) of the Act.
Since its inception, the Company has issued warrants to purchase (i)
62,500 shares of series A preferred stock in February 1997, which will become
exercisable for 62,500 shares of common stock upon the completion of this
offering at an exercise price of $1.00 per share, which expire in December
2003; (ii) 55,000 shares of common stock on February 1, 1999 at an exercise
price of $1.82 per share, which expire in January 2004; (iii) 221,239 shares of
common stock on December 23, 1999, at an exercise price of $6.46 per share,
which expire in December 2006; and (iv) 82,305 shares of common stock on
December 28, 1999, at an exercise price of $2.43 per share, which expire in
December 2006. All such issuances were made under the exemption from
registration provided under Section 4(2) of this Act.
Pursuant to the Company's 1996 Stock Option Plan, since its inception the
Company has granted options to purchase a total of 1,174,947 shares of common
stock at a weighted average exercise price of $0.18 per share, of which options
for 400 shares have been exercised and options for 600 shares have been
forfeited.
II-2
<PAGE>
For a more detailed description of the Company's 1996 Stock Option Plan, see
"Description of Capital Stock--Equity Compensation Plans" in this registration
statement. In granting the options and selling the underlying securities upon
exercise of the options, the Company is relying upon exemptions from
registration set forth in Rule 701 and Section 4(2) of the Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.#
3.1 Amended and Restated Certificate of Incorporation of the Company.#
3.2 Amended and Restated Bylaws of the Company.#
4.1 Second Amended and Restated Stockholders Agreement among Orapharma,
Inc. and the parties set forth therein, dated December 23, 1999.*
4.2 Warrant issued to Canaan Ventures II Limited Partnership.*
4.3 Warrant issued to Canaan Ventures II Offshore C.V.*
4.4 Warrant issued to Canaan S.B.I.C., L.P.*
4.5 Warrant issued to Canaan Capital Limited Partnership.*
4.6 Warrant issued to Canaan Capital Offshore Limited Partnership.*
4.7 Series A Preferred and Series B Preferred Stock Purchase Agreement
among Orapharma and the parties named therein, date February 26,
1997.#
4.8 Series C Preferred Stock Purchase Agreement among Orapharma, Inc. and
the parties named therein, dated December 1, 1998.#
4.9 Series D Preferred Stock Purchase Agreement among Orapharma, Inc. and
the parties named therein, dated December 23, 1999.*
4.10 Restricted Stock Purchase Agreement between BioMorphics Group, Inc.
and OraPharma dated December 31, 1998.*
4.11 Restricted Stock Purchase Agreement between Children's Medical Center
Corporation and OraPharma dated December 31, 1998.*
4.12 Warrant issued to Mucosal Therapeutics.*
4.13 Restricted Stock Purchase Agreement between American Cyanamid Company
and OraPharma, dated February 26, 1997.*
4.14 Restricted Stock Purchase Agreement between Scheer Investment Holdings
I, L.L.C. and OraPharma dated February 24, 1997.#
4.15 Restricted Stock Purchase Agreement between Oak VI Affiliates Fund,
Limited Partnership and OraPharma, dated February 26, 1997.#
4.16 Restricted Stock Purchase Agreement between Oak Investment Partners
VI, Limited Partnership and OraPharma, dated February 26, 1997.#
4.17 Restricted Stock Purchase Agreement between Michael D. Kishbauch and
OraPharma, dated March 6, 1997.#
4.18 Restricted Stock Purchase Agreement between J. Ronald Lawter and
OraPharma, dated March 19, 1997.#
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
5.1 Opinion of Morgan, Lewis & Bockius LLP.#
10.1 OraPharma, Inc. 1996 Stock Option Plan.*
10.2 OraPharma, Inc. 1999 Equity Compensation Plan.*
10.3 Office Space Lease for 730 Louis Drive, Warminster, Pennsylvania, between Equivest Management
Corporation and OraPharma, Inc. dated July 31, 1998.#
10.4 Loan and Security Agreement between Silicon Valley Bank and OraPharma dated October 10, 1997.#
10.5 Children's Hospital Sponsored Research Agreement, between Children's Hospital and OraPharma,
dated December 31, 1998.*@
10.6 License Agreement between Children's Medical Center Corporation and OraPharma, dated
December 31, 1998.*@
10.7 License Agreement between Mucosal Therapeutics LLC and OraPharma, dated December 14, 1998.*@
10.8 Research and Consulting Agreement between Biomodels LLC and OraPharma dated
December 14, 1998.*@
10.9 License Agreement between American Cyanamid Company and OraPharma, Inc. dated
February 26, 1997.*@
10.10 License Agreement between Gary R. Jernberg and OraPharma, dated December 19, 1996.*@
10.11 License Agreement between Technical Developments and Investments, Est. and OraPharma dated
February 13, 1997.*@
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit 5.1).#
23.3 Consent of Arnall, Golden & Gregory, LLP.*
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.*
</TABLE>
- -------
*Filed herewith.
#To be filed by amendment.
@Confidential Treatment Requested.
(b) Financial Statement Schedules
All information for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission is either included in
the financial statements or is not required under the related instructions or
are inapplicable, and therefore have been omitted.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-4
<PAGE>
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and 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
20 percent change in the maximum aggregate offering price set forth in
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the
plan of distribution no previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(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 any of the securities being registered which remain unsold at
the termination of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 above, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes (1) to provide to the
underwriter at the closing specified in the standby underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser; (2) that for
purposes of determining any liability under the Act, the information omitted
from the form of prospectus filed as part of a registration statement in
reliance upon Rule 430(a) and contained in the form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the act shall be
deemed to be part of this registration statement as of the time it was declared
effective; and (3) that for the purpose of determining any liability under the
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to supplement the
prospectus, after the expiration of the subscription period, to set forth the
results of the subscription offer, the transactions by the underwriter during
the subscription period, the amount of unsubscribed securities to be purchased
by the underwriter, and the terms of any subsequent reoffering thereof. If any
public offering by the underwriter is to be made on terms differing from those
set forth on the cover page of the prospectus, a post-effective amendment will
be filed to set forth the terms of such offering.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has duly reasonable grounds to believe that it
meets all of the requirements for filing on Form S-1 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Warminster, Pennsylvania, on December 30, 1999.
OraPharma Inc.
/s/ Michael D. Kishbauch
By: _________________________________
Michael D. Kishbauch
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below in so signing also makes, constitutes and appoints Michael D. Kishbauch
and James A. Ratigan and each of them acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to execute
and cause to be filed with the Securities and Exchange Commission any and all
amendments and post-effective amendments to this Registration Statement and a
related registration statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, and in each case to file the
same, with all exhibits thereto and other documents in connection therewith,
and hereby ratifies and confirms all that said attorney-in-fact or his
substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael D. Kishbauch President, Chief Executive December 30, 1999
______________________________________ Officer and Director
Michael D. Kishbauch (Principal Executive
Officer)
/s/ James A. Ratigan Vice President, Chief December 30, 1999
______________________________________ Financial Officer and
James A. Ratigan Secretary (Principal
Financial Officer)
/s/ Robert D. Haddow Controller (Principal December 30, 1999
______________________________________ Accounting Officer)
Robert D. Haddow
/s/ James J. Mauzey Director December 30, 1999
______________________________________
James J. Mauzey
/s/ Christopher Moller Director December 30, 1999
______________________________________
Christopher Moller
/s/ Eileen M. More Director December 30, 1999
______________________________________
Eileen M. More
/s/ Harry T. Rein Director December 30, 1999
______________________________________
Harry T. Rein
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Seth A. Rudnick Director December 30, 1999
______________________________________
Seth A. Rudnick
/s/ David I. Scheer Director December 30, 1999
______________________________________
David I. Scheer
/s/ Jesse I. Treu Director December 30, 1999
______________________________________
Jesse I. Treu
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.#
3.1 Amended and Restated Certificate of Incorporation of the Company.#
3.2 Amended and Restated Bylaws of the Company.#
4.1 Second Amended and Restated Stockholders Agreement among Orapharma,
Inc. and the parties set forth therein, dated December 23, 1999.*
4.2 Warrant issued to Canaan Ventures II Limited Partnership.*
4.3 Warrant issued to Canaan Ventures II Offshore C.V.*
4.4 Warrant issued to Canaan S.B.I.C., L.P.*
4.5 Warrant issued to Canaan Capital Limited Partnership.*
4.6 Warrant issued to Canaan Capital Offshore Limited Partnership.*
4.7 Series A Preferred and Series B Preferred Stock Purchase Agreement
among Orapharma and the parties named therein, date February 26,
1997.#
4.8 Series C Preferred Stock Purchase Agreement among Orapharma, Inc. and
the parties named therein, dated December 1, 1998.#
4.9 Series D Preferred Stock Purchase Agreement among Orapharma, Inc. and
the parties named therein, dated December 23, 1999.*
4.10 Restricted Stock Purchase Agreement between BioMorphics Group, Inc.
and OraPharma dated December 31, 1998.*
4.11 Restricted Stock Purchase Agreement between Children's Medical Center
Corporation and OraPharma dated December 31, 1998.*
4.12 Warrant issued to Mucosal Therapeutics.*
4.13 Restricted Stock Purchase Agreement between American Cyanamid Company
and OraPharma, dated February 26, 1997.*
4.14 Restricted Stock Purchase Agreement between Scheer Investment Holdings
I, L.L.C. and OraPharma dated February 24, 1997.#
4.15 Restricted Stock Purchase Agreement between Oak VI Affiliates Fund,
Limited Partnership and OraPharma, dated February 26, 1997.#
4.16 Restricted Stock Purchase Agreement between Oak Investment Partners
VI, Limited Partnership and OraPharma, dated February 26, 1997.#
4.17 Restricted Stock Purchase Agreement between Michael D. Kishbauch and
OraPharma, dated March 6, 1997.#
4.18 Restricted Stock Purchase Agreement between J. Ronald Lawter and
OraPharma, dated March 19, 1997.#
</TABLE>
II-8
<PAGE>
<TABLE>
<S> <C>
5.1 Opinion of Morgan, Lewis & Bockius LLP.#
10.1 OraPharma, Inc. 1996 Stock Option Plan.*
10.2 OraPharma, Inc. 1999 Equity Compensation Plan.*
10.3 Office Space Lease for 730 Louis Drive, Warminster, Pennsylvania, between Equivest Management
Corporation and OraPharma, Inc. dated July 31, 1998.#
10.4 Loan and Security Agreement between Silicon Valley Bank and OraPharma dated October 10, 1997.#
10.5 Children's Hospital Sponsored Research Agreement, between Children's Hospital and OraPharma,
dated December 31, 1998.*@
10.6 License Agreement between Children's Medical Center Corporation and OraPharma, dated
December 31, 1998.*@
10.7 License Agreement between Mucosal Therapeutics LLC and OraPharma, dated December 14, 1998.*@
10.8 Research and Consulting Agreement between Biomodels LLC and OraPharma dated
December 14, 1998.*@
10.9 License Agreement between American Cyanamid Company and OraPharma, Inc. dated
February 26, 1997.*@
10.10 License Agreement between Gary R. Jernberg and OraPharma, dated December 19, 1996.*@
10.11 License Agreement between Technical Developments and Investments, Est. and OraPharma dated
February 13, 1997.*@
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit 5.1).#
23.3 Consent of Arnall, Golden & Gregory, LLP.*
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.*
</TABLE>
- --------
*Filed herewith.
#To be filed by amendment.
@Confidential Treatment Requested.
II-9
<PAGE>
Exhibit 4.1
SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT dated as of the 23rd day
of December, 1999, by and among ORAPHARMA, INC., a Delaware corporation (the
"Company"), and those stockholders of the Company whose names appear on the
- ---------
signature pages hereof (the "Investors").
---------
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company and certain of the Investors are entering into a Stock
Purchase Agreement dated as of the date hereof (the "Stock Purchase Agreement")
------------------------
in connection with which the Company has agreed to sell shares of its Series D
Preferred Stock (as defined below) to such Investors; and
WHEREAS, in connection with the Stock Purchase Agreement, the parties
hereto desire to enter into this Stockholders Agreement.
NOW, THEREFORE, in consideration of the foregoing, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
SECTION 1. Definitions.
-----------
As used in this Agreement, the following terms shall have the following
respective meanings:
"Acceptance" shall have the meaning set forth in Section 4.2(e).
----------
"Business Day" shall mean any day that is not a Saturday or Sunday or
------------
a day on which banks located in the Commonwealth of Pennsylvania, or New York,
New York are authorized or required to be closed.
"By-Laws" shall mean the By-Laws of the Company.
-------
"Capital Stock" shall mean any (i) shares of Common Stock, Preferred
-------------
Stock or any other equity security of the Company, (ii) debt securities
convertible into or exchangeable for any equity security of the Company, or
(iii) options, warrants or other rights to subscribe for, purchase or otherwise
acquire any such equity security or debt security of the Company.
"Charter" shall mean the Third Amended and Restated Certificate of
-------
Incorporation of the Company, as restated and amended from time to time.
"Commission" shall mean the Securities and Exchange Commission or any
----------
other Federal agency administering the Securities Act at the applicable time.
"Common Shares" shall mean the issued and outstanding shares of the
-------------
Company's Common Stock, at the applicable time.
<PAGE>
"Common Stock" shall mean the Common Stock, par value $.001 per share,
------------
of the Company.
"Common Stockholder" shall mean each Person who has purchased Common
------------------
Stock from the Company or who acquires Common Stock by Transfer or otherwise and
who becomes a party to this Agreement, other than Preferred Stockholders who
acquire Restricted Shares upon conversion of the Preferred Shares.
"Equity Stock" shall have the meaning set forth in Rule 3a11-1 under
------------
the Exchange Act.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, and any successor statute and the rules and regulations thereunder, as
shall be in effect from time to time.
"Excluded Stock" shall have the meaning given to such term in the
--------------
Charter.
"Family" shall include any spouse, lineal ancestor or descendant, or
------
sibling, any trust for the exclusive benefit of any of the foregoing, or any
corporation, limited partnership, limited liability company or other entity
majority controlled by any of the foregoing individuals or trusts.
"Founders" shall mean Scheer Investment Holdings I, L.L.C., Oak
--------
Investment Partners VI, Limited Partnership and Oak VI Affiliates Fund, Limited
Partnership, and any permitted transferee of a Founder pursuant to Section
4.1(b), each of whom shall become a party to this Agreement by executing a copy
hereof.
"Founders Pro Rata Fraction" shall have the meaning set forth in
--------------------------
Section 4.2(b) hereof.
"Group" shall mean as to (a) a Stockholder that is a partnership, any
-----
or all of its general or limited partners or any "affiliate" thereof (as defined
by Rule 405 promulgated under the Securities Act), (b) a Stockholder that is a
trust, any of the beneficiaries, settlers or grantors now existing or hereafter
arising from, or any Person under common control with, such trust, (c) a
Stockholder that is a corporation, any of its stockholders, any subsidiary of
such Stockholder or any corporation which is under common control with such
Stockholder, or any directors, officers or employees of the Stockholder, and (d)
a Stockholder, that is a limited liability company, any of its members.
"Initial Public Offering" or "IPO" shall mean the Company's initial
--------------------------------
distribution of New Securities in an underwritten Public Offering to the general
public pursuant to a registration statement filed with and declared effective by
the Commission pursuant to the Securities Act at a price per New Security of not
less than $4.00 (as adjusted for stock splits, stock dividends or similar
recapitalizations) and resulting in gross proceeds (before underwriting
commissions and offering expenses) to the Company of not less than $15 million.
"New Securities" shall mean any Equity Stock, including, but not
--------------
limited to, shares of Common Stock, any security which is convertible into or
exercisable or exchangeable for Common Stock, or any right, option or warrant to
acquire any Common Stock of the Company.
"Offer" shall have the meaning set forth in Section 4.2(a) hereof.
-----
-2-
<PAGE>
"Offered Founders Shares" shall have the meaning set forth in Section
-----------------------
4.2(b) hereof.
"Offered Shares" shall have the meaning set forth in Section 4.2(a)
--------------
hereof.
"Option Shares" shall mean shares of Common Stock issued, available
-------------
for issuance or subject to options, warrants or rights granted or authorized to
be granted to employees, directors, consultants and others who provide services
to the Company pursuant to any Stock Plan.
"Person" shall mean and include a natural person, a corporation, a
------
limited liability company, a partnership, a trust, an unincorporated
organization, a joint stock company, a joint venture, a government or any
department, agency or political subdivision thereof or any other entity of
whatever nature.
"Preferred Registrable Securities" shall have the meaning set forth in
--------------------------------
Section 8.2.
"Preferred Shares" shall mean the issued and outstanding shares of the
----------------
Company's Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock.
"Preferred Stockholder" shall mean each of the Stockholders who has
---------------------
purchased Preferred Shares from the Company pursuant to the Stock Purchase
Agreement and any Person to whom Preferred Shares or Restricted Shares are
Transferred in accordance with the provisions hereof.
"Pro Rata Fraction" shall have the meaning set forth in Section
-----------------
4.2(c).
"Public Offering" shall mean a distribution of New Securities in an
---------------
underwritten public offering to the general public pursuant to a registration
statement filed with and declared effective by the Commission pursuant to the
Securities Act.
"Purchasing Stockholder" shall have the meaning set forth in Section
----------------------
4.2(f).
"Registrable Securities" shall have the meaning set forth in Section
----------------------
8.2.
"Restricted Shares" shall mean the shares of Common Stock issued or
-----------------
issuable upon the conversion of Preferred Shares.
"Restricted Stock Agreements" shall mean the Restricted Stock Purchase
---------------------------
Agreements between the Company and each of the Founders.
"Securities Act" shall mean the Securities Act of 1933, as amended,
--------------
and any successor statute and the rules and regulations of the Commission
thereunder, as shall be in effect at the applicable time.
"Selling Stockholder" shall have the meaning set forth in Section
-------------------
4.2(a).
"Series A Preferred Registrable Securities" shall mean the shares of
-----------------------------------------
Common Stock issued or issuable upon conversion or exercise of Series A
Preferred Restricted Securities or constituting a portion of the Series A
Preferred Restricted Securities.
-3-
<PAGE>
"Series A Preferred Restricted Securities" shall mean Series A
----------------------------------------
Preferred Stock issued to Preferred Stockholders and the Common Stock issued or
issuable upon the conversion of the Series A Preferred Stock issued to Preferred
Stockholders, and any other securities of the Company which may be issued
hereafter to such Preferred Stockholders or any member of their Group which are
convertible into or exercisable or exchangeable for shares of Common Stock
(including, without limitation, other classes or series of Preferred Stock,
warrants, options or other rights to purchase Common Stock or convertible
debentures or other convertible debt securities, but excluding the Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock), and the
Common Stock issued or issuable upon such conversion or exercise of such other
securities, which have not been sold (a) in connection with an effective
registration statement filed pursuant to the Securities Act, or (b) pursuant to
Rule 144 or Rule 144A promulgated by the Commission under the Securities Act.
"Series A Preferred Stock" shall mean the Series A Preferred Stock,
------------------------
par value $.001 per share, of the Company.
"Series B Preferred Registrable Securities" shall mean the shares of
-----------------------------------------
Common Stock issued or issuable upon conversion or exercise of Series B
Preferred Restricted Securities or constituting a portion of the Series B
Preferred Restricted Securities.
"Series B Preferred Restricted Securities" shall mean Series B
----------------------------------------
Preferred Stock issued to Preferred Stockholders and the Common Stock issued or
issuable upon the conversion of the Series B Preferred Stock issued to Preferred
Stockholders, and any other securities of the Company which may be issued
hereafter to such Preferred Stockholders or any member of their Group which are
convertible into or exercisable or exchangeable for shares of Common Stock
(including, without limitation, other classes or series of Preferred Stock,
warrants, options or other rights to purchase Common Stock or convertible
debentures or other convertible debt securities, but excluding the Series A
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock), and the
Common Stock issued or issuable upon such conversion or exercise of such other
securities, which have not been sold (a) in connection with an effective
registration statement filed pursuant to the Securities Act, or (b) pursuant to
Rule 144 or Rule 144A promulgated by the Commission under the Securities Act.
"Series B Preferred Stock" shall mean the Series B Preferred Stock,
------------------------
par value $.001 per share, of the Company.
"Series C Preferred Registrable Securities" shall mean the shares of
-----------------------------------------
Common Stock issued or issuable upon conversion or exercise of Series C
Preferred Restricted Securities or constituting a portion of the Series C
Preferred Restricted Securities.
"Series C Preferred Restricted Securities" shall mean Series C
----------------------------------------
Preferred Stock issued to Preferred Stockholders and the Common Stock issued or
issuable upon the conversion of the Series C Preferred Stock issued to Preferred
Stockholders, and any other securities of the Company which may be issued
hereafter to such Preferred Stockholders or any member of their Group which are
convertible into or exercisable or exchangeable for shares of Common Stock
(including, without limitation, other classes or series of Preferred Stock,
warrants, options or other rights to purchase Common Stock or convertible
debentures or other convertible debt securities, but excluding the Series A
Preferred Stock, Series B Preferred Stock and Series D Preferred Stock), and the
Common Stock issued or issuable upon such conversion or exercise of such other
securities, which have not been sold (a) in connection with an
-4-
<PAGE>
effective registration statement filed pursuant to the Securities Act, or (b)
pursuant to Rule 144 or Rule 144A promulgated by the Commission under the
Securities Act.
"Series C Preferred Stock" shall mean the Series C Preferred Stock,
------------------------
par value $.001 per share, of the Company.
"Series D Preferred Registrable Securities" shall mean the shares of
-----------------------------------------
Common Stock issued or issuable upon conversion or exercise of Series D
Preferred Restricted Securities or constituting a portion of the Series D
Preferred Restricted Securities.
"Series D Preferred Restricted Securities" shall mean Series D
----------------------------------------
Preferred Stock issued to Preferred Stockholders and the Common Stock issued or
issuable upon the conversion of the Series D Preferred Stock issued to Preferred
Stockholders, and any other securities of the Company which may be issued
hereafter to such Preferred Stockholders or any member of their Group which are
convertible into or exercisable or exchangeable for shares of Common Stock
(including, without limitation, other classes or series of Preferred Stock,
warrants, options or other rights to purchase Common Stock or convertible
debentures or other convertible debt securities, but excluding the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock), and the
Common Stock issued or issuable upon such conversion or exercise of such other
securities, which have not been sold (a) in connection with an effective
registration statement filed pursuant to the Securities Act, or (b) pursuant to
Rule 144 or Rule 144A promulgated by the Commission under the Securities Act.
"Series D Preferred Stock" shall mean the Series D Preferred Stock,
------------------------
par value $.001 per share, of the Company.
"Shares" shall mean and include all shares of Capital Stock of the
------
Company now owned or hereafter acquired by any Stockholder or transferee of such
Stockholder.
"Stockholder" shall mean each Person who has purchased Shares from the
-----------
Company or who acquires Shares upon conversion of the Preferred Shares, the
exercise of options, any Transfer or otherwise and who is a party to this
Agreement.
"Stock Plan" shall mean any stock option or rights plan for officers,
----------
directors, employees and consultants and others who render services to the
Company.
"Stock Purchase Agreement" shall have the meaning set forth in the
------------------------
first paragraph of this Agreement.
"Transfer" shall include any direct or indirect sale, assignment,
--------
transfer, pledge (but not including a pledge in favor of the Company),
hypothecation or other disposition of any Shares or of any legal or beneficial
interest therein.
"Voting Stock" shall mean and include all shares of voting capital
------------
stock of the Company now owned or hereafter acquired by any Stockholder or
transferee of such Stockholder.
-5-
<PAGE>
"Warrant Shares" shall mean the shares of Common Stock issuable upon
--------------
exercise of the Warrants issued to the holders of the Series D Preferred Stock
pursuant to the Stock Purchase Agreement.
SECTION 2. Representations.
---------------
2.1 By the Company. The Company represents to each Stockholder that:
--------------
(a) The execution, delivery and performance by the Company of this
Agreement and all transactions contemplated in this Agreement have been duly
authorized by all action required by law, its Charter, its By-Laws or otherwise.
(b) This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms.
2.2 By the Stockholders. Each Stockholder, as to itself or himself or
-------------------
herself, represents to the Company and the other Stockholders that:
(a) The execution, delivery and performance by such Stockholder of
this Agreement and, in the case of any Stockholder that is not an individual,
all transactions contemplated in this Agreement have been duly authorized by all
action required by law, and by the certificate of incorporation and by-laws,
partnership agreement, operating agreement or other governing instrument of such
Stockholder.
(b) This Agreement has been duly executed and delivered by such
Stockholder and constitutes the legal, valid and binding obligation of such
Stockholder enforceable against it, him or her in accordance with its terms.
SECTION 3. Legend on Shares and Notice of Transfer.
---------------------------------------
3.1 Restrictive Legends. (a) Each certificate evidencing Shares, and each
-------------------
certificate evidencing Shares held by subsequent transferees of any such
certificate, shall (unless otherwise permitted by the provisions of Section 3.2
hereof) be stamped or otherwise imprinted with a legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR ANY EXEMPTION
THEREFROM UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAW.
-6-
<PAGE>
(b) Each certificate evidencing Shares, and each certificate
evidencing Shares held by subsequent transferees of any such certificate, shall
also be stamped or otherwise imprinted with a legend in substantially the
following form:
ADDITIONALLY, THE TRANSFER AND VOTING OF THESE SECURITIES
IS SUBJECT TO THE TERMS AND CONDITIONS OF A STOCKHOLDERS
AGREEMENT, AS AMENDED AND/OR RESTATED FROM TIME TO TIME,
AMONG ORAPHARMA, INC., THE HOLDER OF RECORD OF THIS
CERTIFICATE AND CERTAIN OTHER SIGNATORIES THERETO,
AND NO SALE, ASSIGNMENT, TRANSFER, PLEDGE, HYPOTHECATION
OR OTHER DISPOSITION OF SUCH SECURITIES SHALL BE VALID OR
EFFECTIVE EXCEPT IN ACCORDANCE WITH SUCH AGREEMENT AND UNTIL
SUCH TERMS AND CONDITIONS HAVE BEEN FULFILLED. COPIES OF
SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF ORAPHARMA, INC.
3.2 Notice of Transfer. (a) Each of the Stockholders, and any other
------------------
holder of any Shares by acceptance thereof, agrees that, prior to any Transfer
of any Shares, such holder will give written notice to the Company of such
holder's intention to effect such Transfer and to comply in all other respects
with the provisions of this Section 3.2. Each such notice shall contain (i) a
statement setting forth the intention of said holder's prospective transferee
with respect to its retention or disposition of said Shares, and (ii) unless
waived by the Company, an opinion of counsel for said holder (who may be the
inside or staff counsel employed by said holder), as to the necessity or non-
necessity for registration under the Securities Act and applicable state
securities laws in connection with such Transfer and stating the factual and
statutory bases relied upon by counsel. The following provisions shall then
apply:
(i) If the proposed Transfer of Shares may be effected without
registration or qualification under the Securities Act and any applicable
state securities laws, then the registered holder of such Shares shall be
entitled to Transfer such Shares in accordance with Section 4 hereof and
the intended method of disposition specified in the statement delivered by
said holder to the Company.
(ii) If the proposed Transfer of such Shares may not be effected
without registration under the Securities Act or registration or
qualification under any applicable state securities laws, the registered
holder of such Shares shall not be entitled to Transfer such Shares
pursuant to Section 4 until the required registration or qualification is
effective.
(b) Notwithstanding the provisions of Section 3.2(a), in the case of a
Transfer by a holder to a member of such holder's Family or Group, no such
opinion of counsel shall be necessary; provided, that the transferee agrees in
--------
writing to be subject to Section 3 hereof to the same extent as if such
transferee were originally a signatory to this Agreement.
-7-
<PAGE>
(c) Each certificate evidencing the Shares issued upon such Transfer
(and each certificate evidencing any untransferred balance of such Shares) shall
bear the legend set forth in Section 3.1(a) hereof unless (i) in the opinion of
counsel (acceptable to the Company) addressed to the Company the registration of
future Transfers is not required by the applicable provisions of the Securities
Act or applicable state securities laws; (ii) the Company shall have waived the
requirement of such legend; or (iii) in the reasonable opinion of counsel to the
Company, such Transfer shall have been made in connection with an effective
registration statement filed pursuant to the Securities Act or in compliance
with the requirements of Rule 144 or Rule 144A (or any similar or successor
rule) promulgated under the Securities Act, and in compliance with applicable
state securities laws.
(d) Each certificate evidencing the Shares issued upon such Transfer
(and each certificate evidencing any untransferred balance of such Shares) shall
bear the legend set forth in Section 3.1(b) hereof, for so long as the
provisions of Sections 4 and 5 hereof remain in effect. In the event of the
termination of such provisions, a holder of Shares may request that the Company
issue a new certificate not bearing the legend set forth in Section 3.1(b)
hereof.
SECTION 4. Covenants of Stockholders and Company.
-------------------------------------
4.1 Prohibited Transfers. (a) Each Stockholder agrees that it, he or she
--------------------
shall not Transfer any of its, his or her Shares without the prior written
consent of the holders of sixty-six and two-thirds of the outstanding Shares
other than the Shares held by the Transferring Stockholder, except as provided
for in Section 4.2.
(b) Notwithstanding anything to the contrary contained herein, a
Stockholder may Transfer all or any of its, his or her Shares: (i) if the
Stockholder is a limited partnership or a trust, to any member of the Group of
which such Stockholder is a member; provided, that such transferee shall agree
--------
in writing with the Company, prior to and as a condition precedent to such
Transfer, to be bound by all of the provisions of this Agreement; (ii) if the
Stockholder is a corporation, to any member of its Group; provided, that such
--------
transferee shall agree in writing with the Company, prior to and as a condition
precedent to such Transfer, to be bound by all of the provisions of this
Agreement; (iii) to any member of the Family of a Common Stockholder; provided,
--------
that such transferee shall agree in writing with the Company, prior to and as a
condition precedent to such Transfer, to be bound by all of the provisions of
this Agreement and, provided, further, that the interests in any Family trusts
-------- -------
shall be non-transferable; and (iv) by will or the laws of descent and
distribution, in which event each such transferee shall be bound by all of the
provisions of this Agreement to the same extent as if such transferee were the
deceased Stockholder.
(c) If requested in writing by the managing underwriters, if any, of
any Public Offering, each Stockholder agrees not to offer, sell, contract to
sell or otherwise dispose of any Shares except as part of such Public Offering
within thirty (30) days before or one hundred and eighty (180) days after the
effective date of the registration statement filed with respect to said
offering, and the Company hereby also so agrees; provided, however, that this
--------
restriction will not apply to Transfers permitted under Section 4.1(b) provided
such transferee agrees to be bound by the restriction contained in this Section
4.1(c). Notwithstanding the foregoing, in the event that a Selling Stockholder
shall have accepted an offer to purchase Offered Shares which have been offered
pursuant to Section 4.2(a), such
-8-
<PAGE>
Selling Stockholder shall not be prohibited from consummating such sale,
provided, that the purchaser agrees to be bound by the restrictions contained
- ---------
in this Section 4.1(c).
4.2 Right of First Offer on Dispositions.
------------------------------------
(a) Without limiting a Stockholder's right to Transfer all or any part
of its, his or her Shares pursuant to any other provisions of this Agreement, if
a Stockholder (for purposes of this Section 4.2, the "Selling Stockholder")
-------------------
desires to Transfer, voluntarily or involuntarily, all or any part of its, his
or her Shares pursuant to this Section 4.2 to any Person, the Selling
Stockholder shall submit a written offer (the "Offer") to sell such Shares (the
-----
"Offered Shares"), to the Company and the Stockholders, which Offer shall
--------------
specify the number of Offered Shares proposed to be sold, the total number of
Shares owned by the Selling Stockholder, and the terms and conditions, including
price, at which the Shares are being offered to the Company and the
Stockholders.
(b) Subject to and in accordance with the priorities of rights
established in subsection (e) below, if the Offered Shares are Common Shares
originally issued to a Founder pursuant to a Restricted Stock Agreement
("Founders' Common Shares") and are being offered by such Founder ("Offered
- ------------------------- -------
Founders Shares"), each of the other Founders shall have the right to purchase
- ---------------
that number of Offered Founders Shares, on the same terms and conditions
specified in the Offer, as shall be equal to the number of Offered Founders
Shares multiplied by a fraction, the numerator of which shall be the number of
Founders' Common Shares then owned by such Founder and the denominator of which
shall be the aggregate number of Founders' Common Shares then owned by all of
the Founders other than the Selling Stockholder (the "Founders Pro Rata
-----------------
Fraction").
(c) The Company shall have the right to purchase all or any portion of
the Shares offered by a Selling Stockholder other than the Offered Founders
Shares and all of the remaining Offered Founders Shares, on the same terms and
conditions specified in the Offer.
(d) Subject to and in accordance with the priorities of rights
established in subsection (e) below, if the Company and the Founders (to the
extent applicable under Section 4.2(b)) do not accept the Offer in accordance
with Section 4.2(b) and 4.2(c), respectively, as to any or all of the Offered
Founders Shares or Offered Shares, as the case may be, each Preferred
Stockholder shall have the right to purchase, on the same terms and conditions
specified in the Offer, that number of Offered Founders Shares or Offered
Shares, as the case may be, as shall be equal to the remaining number of Offered
Founders Shares or Offered Shares, as the case may be, multiplied by a fraction,
the numerator of which shall be the number of Shares then owned by such
Preferred Stockholder and the denominator of which shall be the aggregate number
of Shares then owned by all of the Preferred Stockholders (the "Pro Rata
--------
Fraction"). For the purpose of calculating the Pro Rata Fraction, each
- --------
Preferred Share shall be deemed to represent the number of Common Shares into
which the Preferred Share is then convertible.
(e) The Founders and Preferred Stockholders shall have a right of
oversubscription such that, if any Founders and Preferred Stockholders fail to
accept the Offer as to its, his or her full Founders Pro Rata Fraction or Pro
Rata Fraction, as the case may be, the other Founders and Preferred Stockholders
shall, among them, have the right to purchase up to the balance of the Offered
Founders Shares or Offered Shares, as the case may be, not so purchased. Such
right of oversubscription may be exercised by a Founder or Preferred Stockholder
by accepting the offer as to more than its, his or her Founders Pro Rata
Fraction or Pro Rata Fraction, as the case may be. If, as a result thereof,
such
-9-
<PAGE>
oversubscriptions exceed the total number of Offered Founders Shares or
Offered Shares, as the case may be, available in respect of such
oversubscription privilege, the oversubscribing Founders and Preferred
Stockholders shall be cut back with respect to their oversubscriptions so as to
purchase the Offered Founders Shares or Offered Shares as nearly as possible in
accordance with their respective Founders Pro Rata Fraction or Pro Rata
Fraction, as the case may be, or as they may otherwise agree among themselves.
In all instances, the Preferred Stockholders shall have the right to purchase
only such Offered Founders Shares as are not purchased by the Company and the
Founders. Each Preferred Stockholder shall not be required to purchase more
than his or its Pro Rata Fraction and all such purchases shall be on the same
terms and conditions as those available to any proposed purchaser pursuant to
this Section 4.2.
(f) If the Company desires to purchase all or any portion of the
Offered Shares or, in the case of the Offered Founders Shares, the portion of
the Offered Founders Shares not accepted by the other Founders, on the same
terms and conditions specified in the Offer, the Company shall communicate in
writing its election to purchase (an "Acceptance") to the Selling Stockholder
----------
and the other Stockholders, which Acceptance shall state the number of Offered
Founders Shares or Offered Shares the Company desires to purchase and shall be
delivered in person or mailed to the Selling Stockholder and the Stockholders
within 20 days of the date the Offer was made.
(g) If a Founder or Preferred Stockholder desires to purchase all or
any part of the Offered Founders Shares or Offered Shares, as the case may be,
on the same terms and conditions specified in the Offer, such Founder or
Preferred Stockholder (a "Purchasing Stockholder") shall communicate in writing
----------------------
its, his or her Acceptance to the Selling Stockholder and the Company, which
Acceptance shall state the number of Offered Founders Shares or Offered Shares
the Purchasing Stockholder desires to purchase and shall be delivered in person
or mailed to the Selling Stockholder at the address set forth in the Offer, with
a copy to the Company and the other Stockholders, within 20 days of the date the
Offer was made by the Selling Stockholder pursuant to Section 4.2(a), in the
case of the Founders, or 30 days of the date the Offer was made by the Selling
Stockholder pursuant to Section 4.2(a), in the case of the Preferred
Stockholders.
(h) If the Company and/or the Purchasing Stockholders elect to
exercise their rights under this Section to purchase the Offered Shares, sale of
the Offered Shares shall be made on a business day, as designated by the Selling
Stockholder, at the offices of the Company not less than 30 nor more than 60
days following the expiration of the period applicable pursuant to Section
4.2(f) and (g) after the Offer is made. Such sales shall be effected by the
Selling Stockholder's delivery to each Purchasing Stockholder or the Company, as
the case may be, of a certificate or certificates evidencing the Offered Shares
to be purchased by it, him or her, duly endorsed for transfer to the Purchasing
Stockholder or the Company, as the case may be, which Offered Shares shall be
delivered free and clear of all liens, charges, claims and encumbrances of any
nature whatsoever, against payment to the Selling Stockholder of the purchase
price therefor by the Company or such Purchasing Stockholder, as the case may
be. Payment for the Offered Shares shall be made as provided in the Offer or by
wire transfer or certified check.
(i) If the Purchasing Stockholders and the Company do not elect to
purchase the Offered Founder Shares or Offered Shares, then the remaining
Offered Founder Shares or Offered Shares may be sold by the Selling Stockholder
at any time within 150 days after the date the Offer was made to any third party
so long as such third party agrees in writing to become a party hereto and be
bound
-10-
<PAGE>
hereby. Any such sale shall be upon terms and conditions, including price, not
less favorable to the Selling Stockholder than those specified in the Offer.
Any Offered Founder Shares or Offered Shares not sold within such 150- day
period shall continue to be subject to the requirements of a prior offer
pursuant to this Section 4.2.
4.3 Election of Directors.
---------------------
(a) Each of the Stockholders agrees to take such action, including the
voting of the Shares constituting Voting Stock owned or controlled by such
Stockholder (x) at any annual or special meeting of Stockholders of the Company
called for the purpose of voting on the election or removal of Directors, or (y)
by consensual action of Stockholders with respect to the election or removal of
Directors, as may be necessary to cause the following:
(i) the Board of Directors shall consist of up to nine (9)
persons;
(ii) four (4) directors shall be designees of the Preferred Shares,
(A) one of whom (initially, Eileen M. More) shall be selected by Oak Investment
Partners VI, Limited Partnership so long as Oak shall be a Stockholder at the
time, (B) one of whom (initially, Harry T. Rein) shall be selected by Canaan
Ventures II Limited Partnership so long as any Canaan fund shall be a
Stockholder at the time; (C) one of whom (initially, Christopher Moller) shall
be selected by TL Ventures III L.P., TL Ventures III Offshore L.P. and TL
Ventures III Interfund L.P. so long as any TL Ventures partnership shall be a
Stockholder at the time; and (D) one of whom (initially Jesse I. Treu) shall be
selected by Domain Associates so long as any Domain partnership shall be a
Stockholder at the time;
(iii) two (2) directors shall be selected by a vote of, or
written consent of, the holders of a majority of the Common Stock, voting
separately as a class, one of whom (initially, David I. Scheer) shall be
selected by Scheer Investment Holdings I, L.L.C. ("Scheer") so long as Scheer is
------
a Stockholder at the time, and the other one of whom shall initially be Michael
Kishbauch;
(iv) up to three (3) directors shall be selected by a vote of, or
written consent of, the holders of a majority of the Common Stock and Preferred
Stock, voting together as a class, two of whom shall initially be James Mauzey
and Seth Rudnick; and
(v) the removal, with or without cause, of any Director upon the
request of the party or parties designating such Director and for the election
to the Board of a substitute designated by such party or parties in accordance
with the provisions of this Section 4.4(a).
(b) If at any time a vacancy is created on the Board of Directors by
reason of the death, removal or resignation of any director, the Stockholders
agree to take immediate action to nominate and elect a person to fill such
vacancy in accordance with subsection (a) above.
(c) The Company shall reimburse each director on the Board of
Directors of the Company for all expenses (including travel expenses) reasonably
incurred by him or her in connection with such directorship.
(d) No Stockholder shall grant any proxy or enter into or agree to be
bound by any voting agreement or voting trust with respect to voting any Shares
constituting Voting Stock, except as
-11-
<PAGE>
provided herein. No Stockholder shall enter into any stockholder agreement or
arrangement of any kind with any Person with respect to any Shares inconsistent
with the provisions of this Agreement (whether or not such agreements and
arrangements are with other Stockholders or holders of Shares that are not bound
by this Agreement), including, but not limited to, agreements or arrangements
with respect to the acquisition, disposition or voting of Shares, or act, for
any reason, as a member of a group or in concert with any other Persons in
connection with the acquisition, disposition or voting of Shares in any manner
which is inconsistent with the provisions of this Agreement.
SECTION 5. Certain Transactions.
--------------------
(a) Drag Along. Subject to Section 4.2 above, anything in this
----------
Agreement to the contrary notwithstanding, in the event that the holders of
sixty-six and two-thirds of the Preferred Shares by vote or written consent
approves a transaction pursuant to which any Person or Persons not affiliated
with any of the Preferred Stockholders will acquire 50% or more of the Shares of
the Company (by stock purchase, merger or otherwise) or all or substantially all
of the assets of the Company, upon the written request of the holders of sixty-
six and two-thirds of the Preferred Shares, each of the Stockholders agrees to
offer to sell all of its, his or her Shares, and to sell all of its, his or her
Shares, to such Person or Persons or to vote all of its, his or her Voting Stock
in favor of the sale of assets, as the case may be, in either case upon the
terms and conditions of the transaction approved by the holders of sixty-six and
two-thirds of the Preferred Shares; provided, however, that a Stockholders'
-------- -------
obligation to sell its, his or her Shares pursuant to this Section 5 shall only
apply if all of the Shares are to be sold on the same terms and conditions.
(b) Tag Along. Subject to Section 4.2 above, anything in this
---------
Agreement to the contrary notwithstanding, in the event that the holders of
sixty-six and two-thirds of the Preferred Shares receive and desire to accept an
offer to Transfer such Preferred Shares to a Person or Persons not affiliated
with any of the Preferred Stockholders, such selling Preferred Stockholders
shall provide all of the other Preferred Stockholders with written notice of
such proposed Transfer at least thirty (30) days prior to the proposed
consummation thereof. Upon written request of any such other Preferred
Stockholder, it, he or she shall be entitled to sell its, his or her Shares to
such Person or Persons in the same proportion of such other Preferred
Stockholder's Shares as the selling Preferred Stockholders are selling to such
Person or Persons, and on the same terms and conditions as the selling Preferred
Stockholders.
SECTION 6. Rights to Purchase Additional Stock.
-----------------------------------
(a) Except for Excluded Stock, the Preferred Stockholders and the
Founders shall have the right to subscribe to any and all issuances of Capital
Stock of the Company in an amount equal to its, his or her Proportional Share of
the issuances to the extent set forth in this Section 6. For purposes of
determining the "Proportional Share" of the securities to be issued to which
------------------
each Preferred Stockholder and Founder is entitled to subscribe, the number of
shares of Common Stock or of Common Stock into which a Preferred Share is then
convertible (without giving effect to the proposed issuance of securities) held
by the Preferred Stockholder or Founder, as the case may be, divided by the
total number of shares of Common Stock outstanding prior to the offering on a
fully diluted basis (i.e., assuming that all the outstanding Preferred Shares
and any other security of the Company convertible into or
-12-
<PAGE>
exercisable or exchangeable for shares of Common Stock shall have been converted
into or exercised or exchanged for shares of Common Stock and that all options
have been exercised. The Preferred Stockholders shall have a right of
oversubscription such that if any Preferred Stockholders fails to subscribe for
its, his or her full Proportional Share, the other Preferred Stockholders shall,
among them, have the right to subscribe for the balance of shares of Capital
Stock in such issuance not so subscribed for. Such right of oversubscription
may be exercised by a Preferred Stockholder by offering to subscribe for more
than its, his or her Proportional Share. If, as a result thereof, such
oversubscriptions exceed the total number of shares of Capital Stock available
in respect of such oversubscription privilege, the oversubscribing Preferred
Stockholders shall be cut back with respect to their oversubscriptions so as to
subscribe for the number of shares of Capital Stock as nearly as possible in
accordance with their respective Proportional Share or as they may otherwise
agree among themselves. In any event, each Preferred Stockholder's Proportional
Share shall be such number of securities as may be necessary so that such
holders' fully diluted Common Stock ownership is not reduced as a result of the
foregoing preemptive rights transaction.
(b) In the event the Company shall propose to issue Capital Stock
other than Excluded Stock, the Company shall give written notice (the "Section 6
---------
Offer") to each Preferred Stockholder and Founder which shall set forth the
- -----
number and kind or class of shares of Capital Stock proposed to be issued (the
"Section 6 Offered Securities"), the terms and conditions thereof and the price
- -----------------------------
therefor. Such notice shall be given at least 30 days prior to the issuance of
such Capital Stock.
(c) The Section 6 Offer by its terms shall remain open and irrevocable
for a period of 30 days from the date of its delivery to such Preferred
Stockholder or Founder ("30-Day Period").
-------------
(d) A Preferred Stockholder or Founder shall evidence its, his or her
acceptance of the Section 6 Offer by delivering a written notice ("Notice of
---------
Acceptance"), signed by the Preferred Stockholder or Founder, as the case may
- ----------
be, and setting forth the number of Section 6 Offered Securities which the
Preferred Stockholder or Founder elects to purchase. The Notice of Acceptance
must be delivered to the Company prior to the end of the 30-Day Period.
(e) If the Preferred Stockholders and the Founders do not tender
Notices of Acceptance for all of the Section 6 Offered Securities, the Company
shall have 120 days from the expiration of the 30-Day Period to sell all or any
part of the Section 6 Offered Securities refused by the Preferred Stockholders
and the Founders to any person(s). Any such sale shall be upon terms and
conditions, including price, not less favorable to the Company than those
specified in the Section 6 Offer.
(f) Upon the closing of the sale of Section 6 Offered Securities to
any third party, each Preferred Stockholder and Founder shall purchase from the
Company, and the Company shall issue and sell to such Preferred Stockholder and
Founder any Section 6 Offered Securities for which such Preferred Stockholder or
Founder tendered a Notice of Acceptance upon the terms specified in the Section
6 Offer.
(g) In each case, any Section 6 Offered Securities not purchased
either by the Preferred Stockholders, the Founders or by any other person in
accordance with this Section 6 may not be sold or otherwise disposed of until
they are again offered to the Preferred Stockholders and Founders under the
procedures specified in this Section 6.
-13-
<PAGE>
(h) Notwithstanding the time periods set forth above, in the event the
Section 6 Offered Securities to be issued by the Company are to be issued
pursuant to a Public Offering, the Company may require that the Preferred
Stockholders and Founders make an election on such date prior to the filing of
the registration statement or any amendment thereto relating to the Public
Offering as shall be determined by the Company to either (i) commit to purchase
from the Company at the public offering price at the closing of the Public
Offering, or (ii) waive their rights to subscribe for their Proportional Share
of Section 6 Offered Securities to be issued in the Public Offering. In
addition to the foregoing, the offering of the Section 6 Offered Securities
shall be subject to the following provisions: (a) the subscription right shall
not be applicable to Section 6 Offered Securities issuable upon exercise of the
underwriters' over-allotment option, and (b) the purchase by the Preferred
Stockholders and the Founders shall only be made in a sale pursuant to Section
4(2) under the Securities Act which shall close simultaneously with the closing
of the Public Offering.
SECTION 7. Reporting of Public Information; Rule 144.
-----------------------------------------
With a view to making available the benefits of Rule 144 under the
Securities Act (or any similar or successor rule which may at any time permit
the sale of Common Shares to the public without registration), at all times
after ninety (90) days after any registration statement covering an offering of
securities of the Company under the Securities Act shall have become effective,
the Company agrees to:
(a) make and keep public information available, as those terms are
defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) furnish to each Stockholder promptly upon request a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144 and the Exchange Act and the Securities Act, a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed by the Company as such holder may reasonably request in availing itself
of any law, rule or regulation of the Commission allowing a Stockholder to sell
any such securities without registration (or any similar or successor law, rule
or regulation).
SECTION 8. Registration Rights.
-------------------
8.1 Demand Registration Rights. At any time after the earlier to occur of
--------------------------
March 1, 2001 or six months after consummation of an Initial Public Offering,
upon written request by the holders of Preferred Registrable Securities holding
in the aggregate at least 30% of the total number of Preferred Registrable
Securities that have not been registered under the Securities Act, the Company
shall use its best efforts to effect the registration under the Securities Act
and registration or qualification under all applicable state securities laws of
the Preferred Registrable Securities, as requested by the holders of Preferred
Registrable Securities, all as provided in the following provisions of this
Section 8. Holders of Preferred Registrable Securities may require the Company
to effect no more than four registrations under the Securities Act, in the
aggregate, upon the request of the holders of Preferred Registrable Securities
-14-
<PAGE>
pursuant to this Section 8.1(a). Any registration which is not declared
effective pursuant to the Securities Act and which does not remain effective as
required by Section 8.5(a) below shall not constitute one of the two
registrations which the Company is obligated to effect pursuant to this Section
8.1. A request by a holder of Shares to have the Company effect the
registration of Preferred Registrable Securities shall not obligate the holder
of Shares to convert them into Common Stock, whether or not the registration of
the Preferred Registrable Securities shall become effective; provided, that
--------
shares of Preferred Stock are automatically converted into Preferred Registrable
Securities immediately prior to the closing of the sale of such Preferred
Registrable Securities pursuant to such registration.
8.2 Registration Requested by Holders. Whenever the Company shall be
---------------------------------
requested pursuant to Section 8.1 hereof to effect the registration of any of
the Series A Preferred Registrable Securities, Series B Preferred Registrable
Securities, Series C Preferred Registrable Securities, or Series D Preferred
Registrable Securities (together, the "Preferred Registrable Securities") under
--------------------------------
the Securities Act (a "Request for Registration"), the Company shall promptly
------------------------
give notice of such proposed registration, which shall set forth information, to
the extent then known, as to offering price or range, the number of shares to be
offered, the proposed manner of distribution and the proposed managing
underwriter(s) of the offering, to all holders of Preferred Registrable
Securities and the Warrant Shares and the Founders (the Common Stock held by the
Founders, together with the Preferred Registrable Securities and the Warrant
Shares, being hereinafter referred to as the "Registrable Securities") and
----------------------
thereupon shall, as expeditiously as possible after such notice, use its best
efforts to effect the registration, qualification or compliance under the
Securities Act and under all applicable state securities laws of (a) all
Preferred Registrable Securities which the Company has been requested to
register pursuant to the Request for Registration, and (b) all other Registrable
Securities which holders of Registrable Securities have, within 30 days after
the Company has given such notice, requested the Company to register all to the
extent required to permit the sale or other disposition by the holders of the
Preferred Registrable Securities so to be registered. Subject to the foregoing,
the Company shall file a registration statement covering the Registrable
Securities so requested to be registered as soon as reasonably practicable after
receipt of the Request for Registration, but in any event within 150 days for
any registration which is an IPO, and, 60 days for any registration which is not
an IPO. If the holders of Preferred Registrable Securities who requested the
registration of Preferred Registrable Securities engage one or more
underwriter(s) to distribute such Preferred Registrable Securities, the Company
shall permit the managing underwriter(s) and counsel to the underwriter(s) at
the Company's expense to visit and inspect any of the properties of the Company,
examine its books, take copies and extracts therefrom and discuss the affairs,
finances and accounts of the Company with its officers, employees and public
accountants (and by this provision the Company hereby authorizes said
accountants to discuss with such underwriter(s) and such counsel its affairs,
finances and accounts), at reasonable times and upon reasonable notice, with or
without a representative of the Company being present. The Company shall have
the right to include in any registration of Preferred Registrable Securities
required pursuant to this Section 8.2 additional shares of its Common Stock
("Third Party Registrable Securities") that have the benefit of duly exercised
- ------------------------------------
registration rights contractually binding on the Company. If any Preferred
Registrable Securities to be so registered for sale are to be distributed by or
through underwriter(s), then all Registrable Securities to be so registered for
sale, and Third Party Registrable Securities, if any, shall be included in such
underwriting on the same terms; provided, that if, in the written opinion of the
--------
managing underwriter(s), the total amount of such securities to be registered
will exceed the maximum amount of the Company's securities which can be marketed
(i) at a price reasonably related to their then current market value, or (ii)
without otherwise materially and adversely affecting the entire offering, then
the Company shall exclude from such underwriting (x) first, the maximum number
of Third Party
-15-
<PAGE>
Registrable Securities as is necessary in the opinion of the managing
underwriter(s) to reduce the size of the offering and (y) then, the minimum
number of Registrable Securities, pro rata to the extent practicable, on the
--- ----
basis of the number of Registrable Securities requested to be registered among
the participating holders of Registrable Securities as is necessary to reduce
the size of the offering.
8.3 "Piggyback" Registrations. (a) If the Company at any time proposes
------------------------
other than in accordance with a Request for Registration to register any of its
securities under the Securities Act on Form S-1, S-2 or S-3 or on any other form
upon which the Registrable Securities may be registered for sale to the general
public, other than on Form S-4 or S-8 or other similar form, whether for its own
account or for the account of others, the Company will at each such time
promptly give written notice to each holder of Registrable Securities of such
proposal, which shall set forth information, to the extent then known, as to
offering price or range, the number of shares to be offered, the proposed manner
of distribution and the proposed managing underwriter(s) of the offering. Upon
the written request of any holder of Registrable Securities given within 20 days
after the Company has given such notice, the Company will cause the Registrable
Securities which the Company has been requested to register by such holder of
Registrable Securities to be registered under the Securities Act (and any
related qualification under blue sky laws or other compliance), all to the
extent required to permit the sale or other disposition by such holder of
Registrable Securities of the Registrable Securities so registered.
(b) If securities are to be registered for sale under a registration
not initiated by a Request for Registration and are to be distributed for the
account of the Company by or through a firm of underwriter(s), then any
Registrable Securities which the Company has been requested to register pursuant
to clause (a) of this Section 8.3 shall also be included in such underwriting on
the same terms as other securities of the same class as the Registrable
Securities included in such underwriting; provided, that if, in the written
--------
opinion of the managing underwriter(s), the total amount of such securities to
be so registered, when added to the Registrable Securities and the securities
held by holders of securities other than the Registrable Securities, if any,
will exceed the maximum amount of the Company's securities which can be marketed
(i) at a price reasonably related to their then current market value, or (ii)
without otherwise materially and adversely affecting the entire offering, then
(subject to clause (d) of this Section 8.3) the Company shall exclude from such
underwriting (x) first, the maximum number of securities, if any, other than
Registrable Securities being sold for the account of persons other than the
Company as is necessary to reduce the size of the offering and (y) then, the
minimum number of Registrable Securities pro rata to the extent practicable, on
--- ----
the basis of the number of Registrable Securities requested to be registered
among the participating holders of Registrable Securities as is necessary in the
opinion of the managing underwriter(s) to reduce the size of the offering.
(c) If securities are to be registered for sale under a registration
not initiated by a Request for Registration and are to be distributed for the
account of holders of Third Party Registrable Securities or holders (other than
the Company) of other securities of the Company other than Registrable
Securities by or through a firm of underwriter(s) of recognized standing under
underwriting terms appropriate for such transaction, then any Registrable
Securities which the Company has been requested to register pursuant to clause
(a) of this Section 8.3 shall also be included in such underwriting on the same
terms as other securities included in such underwriting, provided, that if, in
--------
the written opinion of the managing underwriter(s), the total amount of such
securities to be so registered, when added to such Registrable Securities, will
exceed the maximum amount of the Company's securities which can be marketed (i)
at a price reasonably related to their then current market value, or (ii)
without otherwise materially and adversely affecting the entire offering, then
the Company shall exclude from such
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underwriting the number of Registrable Securities and other securities, pro rata
--- ----
to the extent practicable, on the basis of the number of securities requested to
be registered, as is necessary in the opinion of the managing underwriter(s) to
reduce the size of the offering.
(d) Notwithstanding Section 8.3(a), (b) and (c), the Company may
exclude all Registrable Securities from registration in connection with the
Company's Initial Public Offering if the inclusion of such Registrable
Securities would, in the written opinion of the managing underwriter(s)
adversely affect the marketing of the New Securities to be sold by the Company
therein, provided, however, that such number of shares of Registrable Securities
shall not be reduced if any shares are to be included in such underwriting for
the account of any person other than the Company.
8.4 Registrations on S-3. At such time as the Company shall have
--------------------
qualified for the use of Form S-3 (or any successor form promulgated under the
Securities Act), the holders of Preferred Registrable Securities and the Warrant
Shares shall have the right to request in writing an unlimited number of
registrations on Form S-3; provided, that the Preferred Registrable Securities
--------
and the Warrant Shares proposed to be included in the registration statement
have a proposed aggregate offering price of at least $500,000. Each such
request shall (a) specify the number of Preferred Registrable Securities and the
Warrant Shares that the holders intend to sell or dispose of, and (b) state the
intended method by which the holders intend to sell or dispose of such Preferred
Registrable Securities and the Warrant Shares. Upon receipt of a request
pursuant to this Section 8.4, the Company shall give prompt written notice of
such proposed registration to all holders of Preferred Registrable Securities
and the Warrant Shares who shall have the right to request in writing, within 30
days after the Company has given such notice, to participate in such
registration on Form S-3. The Company shall use its best efforts to effect such
registration or registrations (and any related state securities qualification or
blue sky compliance with respect to such securities) on Form S-3 of all
Preferred Registrable Securities and the Warrant Shares requested to be
registered hereunder as would permit or facilitate the sale and distribution of
all or such portion of such Preferred Registrable Securities and the Warrant
Shares.
8.5 Company's Obligations in Registration. Whenever the Company is
-------------------------------------
obligated to effect the registration of any Registrable Securities under the
Securities Act, as expeditiously as possible the Company will use its best
efforts to:
(a) prepare and file with the Commission, a registration statement
with respect to such Registrable Securities and cause such registration
statement to become and remain effective, provided, that the Company shall not
--------
be required to keep such registration statement effective, or to prepare and
file any amendments or supplements thereto, later than the last business day of
the ninth month following the date on which such registration statement becomes
effective under the Securities Act, and, provided, further, that in the event
-------- -------
the Commission shall have declared any other registration statement with respect
to an offering of securities of the Company to be effective within four months
prior to the Company's receiving a Request for Registration, the Company may
delay the effective date of the registration statement filed in response to the
Request for Registration until six months after the effective date of the
previous registration statement;
(b) 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 for
a period of nine months following the date on which such registration statement
becomes effective under the Securities Act and to comply with provisions of the
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Securities Act with respect to the disposition of all Registrable Securities
covered by such registration statement whenever the holders of Registrable
Securities covered by such registration statement shall desire to dispose of the
same;
(c) furnish to the holders of Registrable Securities for whom such
Registrable Securities are registered or are to be registered such numbers of
copies of a printed prospectus, including a preliminary prospectus and any
amendments or supplements thereto, in conformity with the requirements of the
Securities Act, and such other documents as such holders of Registrable
Securities may reasonably request in order to facilitate the disposition of such
Registrable Securities;
(d) notify each holder of Registrable Securities, at any time when a
prospectus relating to the Registrable Securities covered by such registration
statement is required to be delivered under the Securities Act, of the Company's
becoming aware that the prospectus in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and at the request of any holder of Registrable
Securities, prepare and furnish to such holder any reasonable number of copies
of any supplement to or amendment of such prospectus necessary so that, as
thereafter delivered to any purchaser of the Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading;
(e) register or qualify the Registrable Securities covered by such
registration statement under such securities or blue sky laws of such
jurisdictions as the holders of Registrable Securities for whom such Registrable
Securities are registered or are to be registered shall reasonably request, and
do any and all other reasonable acts and things which may be necessary or
advisable to enable such holders of Registrable Securities to consummate the
disposition in such jurisdictions of such Registrable Securities, provided,
--------
however, that the Company shall not be required in connection with this clause
- -------
(e) to qualify as a foreign corporation or execute a general consent to service
of process in any jurisdiction;
(f) furnish to the holders of Registrable Securities for whom such
Registrable Securities are registered or are to be registered at the closing of
the sale of such Registrable Securities by such holders of Registrable
Securities a signed copy of (i) an opinion or opinions of counsel for the
Company acceptable to such holders of Registrable Securities in form and
substance as is customarily given to underwriters in public offerings, and (ii)
a "cold comfort" letter from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, to the
extent that such "cold comfort" letters are then available to selling
stockholders;
(g) use its best efforts to cause all Registrable Securities covered
by such registration statement to be listed on the principal securities exchange
on which similar equity securities issued by the Company are then listed, if the
listing of such Registrable Securities is then permitted under the rules of such
exchange or, if similar equity securities are not listed, to include the
Registrable Securities on the Nasdaq National Market System if the inclusion is
then permitted under the rules thereof or, if similar equity securities are not
then included therein, to include the Registrable Securities on the National
Association of Securities Dealers Automated Quotation System;
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<PAGE>
(h) in connection with any underwritten offering, enter into an
underwriting agreement with the underwriter(s) of such offering in the form
customary for such underwriter(s) for similar offerings, including such
representations and warranties by the Company, provisions regarding the delivery
of opinions of counsel for the Company and accountants' letters, provisions
regarding indemnification and contribution, and such other terms and conditions
as are at the time customarily contained in such underwriter's underwriting
agreements for similar offerings;
(i) provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP number
of all such Registrable Securities in each case not later than the effective
date of such registration; and
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security holders,
as soon as reasonably practicable, an earnings statement covering the period of
at least twelve months, but not more than eighteen months, beginning with the
first month after the effective date of the Registration Statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
8.6 Payment of Registration Expenses. The costs and expenses of all
--------------------------------
registrations and qualifications under the Securities Act, and of all other
actions which the Company is required to take or effect pursuant to this Section
8, shall be paid by the Company or holders of Third Party Registrable Securities
or other securities of the Company other than Registrable Securities, if any
(including, without limitation, all registration and filing fees, printing
expenses, auditing costs and expenses, the fees and disbursements in connection
with issuance of a "cold comfort" letter from the independent certified
accountants of the Company and the reasonable fees and disbursements of counsel
for the Company and one special counsel for the holders of Registrable
Securities, which will be selected by the holders of sixty-six and two-thirds of
the Registrable Securities then being registered) and the holders of Registrable
Securities shall pay only the underwriting discounts and commissions and
transfer taxes, if any, relating to the Registrable Securities sold by them;
provided, that in the event more than two registrations of Registrable
- --------
Securities become effective under the Securities Act as a result of Requests for
Registration pursuant to Section 8.4 in any 12-month period, the holders of
Registrable Securities and other securities, if any, included in such
registrations shall reimburse the Company pro rata for all registration and
--- ----
filing fees, reasonable printing expenses, reasonable auditing costs and
expenses (excluding costs and expenses of the Company's annual audit) and the
reasonable fees and expenses of counsel for the Company and the selling
stockholders and such reimbursement shall be made to the Company at the earlier
of the initial closing date of the offering or 30 business days after the
effective date of such a registration statement.
8.7 Information from Holders of Registrable Securities. Notices and
--------------------------------------------------
requests delivered by holders of Registrable Securities to the Company pursuant
to this Section 8 shall contain such information regarding the Registrable
Securities to be so registered and the intended method of disposition thereof as
shall reasonably be required in connection with the action to be taken. Each
holder of Registrable Securities hereby agrees to provide the Company, or its
agents or designees, with all information reasonably required in connection with
the registration, qualification or compliance under the Securities Act or any
applicable state securities law of any Registrable Securities.
8.8 Indemnification. (a) In the event of any registration under the
---------------
Securities Act of any Registrable Securities pursuant to this Section 8, the
Company shall indemnify and hold harmless each
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holder of Registrable Securities disposing of such Registrable Securities, each
of its respective officers and directors, and each other person, if any, which
controls (within the meaning of the Securities Act) such holder of Registrable
Securities and each Stockholder, if any, which may be deemed to control (within
the meaning of the Securities Act) the Company and each other person (including
underwriters) who participates in the offering of such Registrable Securities,
against any losses, claims, damages or liabilities (or actions in respect
thereof), joint or several, including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, to the extent that such
losses, claims, damages or liabilities (or proceedings 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 registration
statement under which such Registrable Securities were registered under the
Securities Act, in any preliminary prospectus or final prospectus contained
therein, or in any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein (in the case of a prospectus, in the light of the
circumstances under which they were made) or necessary to make the statements
therein not misleading, and will reimburse each such holder of Registrable
Securities and each such controlling person or participating person for any
legal or any other expenses reasonably incurred by such holder of Registrable
Securities or such controlling person or participating person in connection with
investigating or defending any such loss, claim, damage, liability or
proceeding, provided, that the Company will not be liable in any such case to
--------
the extent that any such loss, claim, damage or liability is caused by or
contained in written information furnished by a holder of Registrable Securities
to the Company by an instrument duly executed by such holder of Registrable
Securities or such controlling or participating person, as the case may be,
expressly for inclusion therein.
Each such holder of Registrable Securities will, if requested by the
Company prior to the initial filing of any such registration statement, agree in
writing, severally but not jointly, to indemnify and hold harmless the Company
and each person which controls (within the meaning of the Securities Act) the
Company, each of its respective officers and directors, and each other person
(including underwriters) who participates in the offering of such Registrable
Securities, against all losses, claims, damages and liabilities (or actions in
respect thereof) including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, insofar as such losses, claims, damages or
liabilities (or proceedings in respect thereof) result from any untrue statement
or alleged untrue statement of any material fact contained, on the effective
date thereof, in any registration statement under which such Registrable
Securities were registered under the Securities Act, or in any preliminary
prospectus or final prospectus contained therein, or in any amendment or
supplement thereto, or result from the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein (in the case of a prospectus, in the light of the
circumstances under which they were made) not misleading, to the extent, but
only to the extent, that any such loss, claim, damage or liability result from
any such statement or omission contained in any written information furnished to
the Company by an instrument duly executed by such holder of Registrable
Securities and specifically stated to be for inclusion therein. Each
indemnified party shall cooperate with each indemnifying party in defending any
loss, claim, damage, liability or proceeding, but no failure or delay by the
indemnified party in notifying the indemnifying party of any claim, or
commencement of any action, suit or proceeding shall relieve the indemnifying
party of any liability that it may have to any indemnified party, except to the
extent that the indemnifying party demonstrates that the defense of such action
is prejudiced thereby. The indemnifying party shall have the rights, subject to
prior approval of the indemnified party (such approval not to be unreasonably
withheld), to select legal counsel and to compromise or settle any action, suit
or proceeding.
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<PAGE>
(b) Indemnification similar to that specified in the preceding clause
of this Section 8.8 (with appropriate modifications) shall be given by the
Company and, at the Company's request, each holder of Registrable Securities
with respect to any registration or other qualification of securities under any
state securities and "blue sky" laws.
(c) Each indemnified party shall notify the indemnifying party in
writing promptly after such indemnified party has actual knowledge of any claim
as to which indemnity may be sought. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party, the
indemnifying party will be entitled to participate in the defense with counsel
selected by such indemnified party. Each indemnified party shall cooperate with
each indemnifying party in defending any loss, claim, damage, liability or
proceeding.
(d) If the indemnification provided for in this Section 8.8 shall be
unavailable or insufficient to hold harmless an indemnified party in respect of
any loss, claim, damage or liability (or proceeding in respect thereof) referred
to herein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability (or proceeding in
respect thereof), in such proportion as shall be appropriate to reflect the
relative fault of the indemnifying party, on the one hand, and of the
indemnified party, on the other hand. The relative fault shall be determined by
equitable considerations including reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the indemnifying party on the
one hand or the indemnified party on the other, the intent of the parties and
their relative knowledge, and access to information and opportunity to correct
or prevent such statement omission, but not by reference to any indemnified
party's stock ownership in the Company. In no event, however, shall an
indemnifying party be required to contribute in excess of the amount of the net
proceeds received by such indemnifying party in connection with the sale of
Registrable Securities in the offering which is the subject of such loss, claim,
damage or liability (or proceeding in respect thereof). The amount paid or
payable by an indemnified party as a result of the loss, claim, damage or
liability (or proceeding in respect thereof) referred to above shall be deemed
to include, for purposes of this Section 8.8(d), any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such loss, claim, damage or liability. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(e) Notwithstanding any of the foregoing, if, in connection with an
underwritten public offering of Registrable Securities, the Company, the selling
stockholders and the underwriter(s) enter into an underwriting or purchase
agreement relating to such offering which contains provisions covering
indemnification and contribution among the parties, the indemnification and
contribution provisions of this Section 8.8 shall be deemed inoperative for
purposes of such offering with respect to any indemnification or contribution
obligations involving the Company, the selling stockholders and the
underwriter(s) of the offering, but shall remain applicable with respect to
obligations solely between the selling stockholders and the Company and
controlling persons as to indemnification and contribution.
8.9 Withdrawal from Registration. If any holder of Registrable Securities
----------------------------
disapproves of the terms of any underwriting pursuant to this Section 8, such
holder may elect to withdraw therefrom by written notice to the Company and the
underwriter(s) delivered at least five (5) days prior to the effective date of
the applicable registration statement. The Registrable Securities and/or other
securities so
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<PAGE>
withdrawn shall also be withdrawn from registration. If by the withdrawal of
such Registrable Securities or other securities, a greater number of Registrable
Securities held by other holders may be included in such registration (up to the
maximum of any limitation imposed by the underwriters), then the Company shall
offer to all holders who have included Registrable Securities in the
registration the right to include additional Registrable Securities in the same
proportion and manner used in determining the effect of underwriter limitations
in Section 8.2 and 8.3.
SECTION 9. Duration of Agreement. The rights and obligations of each
---------------------
Stockholder, except the rights and obligations contained in Sections 3.1(a), 3.2
and 8 hereof, shall terminate as to each Stockholder upon the closing of the
Initial Public Offering by the Company. The obligations contained in Sections
3.1(a), 3.2 and 8 shall survive indefinitely until, by their respective terms,
they are no longer applicable.
SECTION 10. Remedies. In case any one or more of the covenants and/or
--------
agreements set forth in this Agreement shall have been breached by any party
hereto, the party or parties entitled to the benefit of such covenants or
agreements may proceed to protect and enforce their rights either by suit in
equity and/or by action at law, including, but not limited to, an action for
damages as a result of any such breach and/or an action for specific performance
of any such covenant or agreement contained in this Agreement and/or a temporary
or permanent injunction, in any case without showing any actual damage. The
rights, powers and remedies of the parties under this Agreement are cumulative
and not exclusive of any other right, power or remedy which such parties may
have under any other agreement or law. No single or partial assertion or
exercise of any right, power or remedy of a party hereunder shall preclude any
other or further assertion or exercise thereof. Any purported Transfer in
violation of the provisions of this Agreement shall be null and void ab initio.
-- ------
SECTION 11. Successors and Assigns. Except as otherwise expressly
----------------------
provided herein, this Agreement shall bind and inure to the benefit of the
Company, each of the Stockholders and the respective successors or heirs and
personal representatives and permitted assigns of each of the Stockholders and
the successors of the Company. Each Stockholder agrees further that it shall
not sell any Shares to any Person not a party to this Agreement unless such
Person becomes a party to this Agreement contemporaneously with such sale by
executing and delivering to the Company an agreement to be bound hereby,
whereupon such Person shall be deemed a Stockholder and shall have the same
rights and obligations as other Stockholders.
SECTION 12. Additional Stockholders. The parties hereto acknowledge and
-----------------------
agree that the Company may issue and sell shares of Common Stock to Persons not
presently a party to this Agreement, provided, however, that (i) all such sales
-------- -------
are not made in violation of this Agreement, and (ii) no shares of Common Stock
shall be issued and sold to a Person not presently a party to this Agreement
unless and until such Person (A) becomes a party to this Agreement
contemporaneously with such issuance and sale by executing and delivering to the
Company an agreement to be bound hereby, whereupon such Person shall be deemed a
Stockholder and shall have the same rights and obligations as other Stockholders
and (B) agrees to be bound by and to comply with the provisions of Sections 3, 4
and 5 hereof.
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<PAGE>
SECTION 13. Entire Agreement. This Agreement, the Stock Purchase
----------------
Agreement and the Restricted Stock Agreements of the Company contain the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior stockholders agreements and all other prior and
contemporaneous arrangements or understandings with respect thereto. It is
understood and agreed among the parties hereto that this Agreement and the
representations, warranties, and covenants made herein are made expressly and
solely for the benefit of the other party or parties hereto (or their respective
successors or permitted assigns), and that no other person shall be entitled or
be deemed to be a third-party beneficiary of any party's rights under this
Agreement.
SECTION 14. Notices. All notices, requests, consents and other
-------
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered (a) by hand, (b) sent by telex or
telecopier (with receipt confirmed); provided, that a copy is mailed by
--------
registered mail, return receipt requested, or (c) one (1) day after sent by the
sender, if sent by Express Mail, Federal Express or other express delivery
service (receipt requested), in each case to the appropriate addresses, telex
numbers and telecopier numbers set forth below (or to such other addresses,
telex numbers and telecopier numbers as a party may designate as to itself by
notice to the other parties); provided, however, that if the Stockholder is
-------- -------
foreign, notice shall be sent by air courier, and telecopied or telexed to such
Stockholder:
(a) If to Oak Investment Partners VI, Limited Partnership and/or Oak
VI Affiliates Fund, Limited Partnership:
Oak Investment Partners
One Gorham Island
Westport, Connecticut 06880
Telecopier No.: (203) 227-0372
Attention: Eileen M. More
(b) If to Canaan S.B.I.C., L.P., Canaan Capital Limited Partnership
or Canaan Capital Offshore Limited Partnership C.V. or Canaan
Equity, L.P.:
Canaan Equity Partners LLC
105 Rowayton Avenue
Rowayton, Connecticut 06853
Telecopier No.: (203) 854-9117
Attention: Member/Manager
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<PAGE>
(c) If to Frazier Healthcare II, L.P.
Frazier & Company
2 Union Square
601 Union Street, Suite 2110
Seattle, Washington 98101
Telecopier No.: (206) 621-1848
Attention: Jon N. Gilbert
(d) If to TL Ventures III L.P., TL Ventures Offshore L.P. or TL
Ventures III Interfund L.P.:
TL Ventures
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
Telecopier No.: (610) 975-9330
Attention: Christopher Moller, Ph.D.
with a copy to:
TL Ventures
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
Telecopier No.: (610) 975-9330
Attention: Chief Financial Officer
(e) If to Domain Partners IV, L.P., DP IV Associates, L.P. or
Biotechnology Investments Limited:
Domain Associates
One Palmer Square
Princeton, New Jersey 08542
Telephone No.: (609) 683-5656
Telecopier No.: (609) 683-9789
Attention: Jesse I. Treu, General Partner
and Kathleen K. Schoemaker, General
Partner
(f) If to Healthcap KB or Healthcap CoInvest KB:
Struregatan 34
S-11436 Stockholm
Sweden
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<PAGE>
with a copy to:
Simpson Thacher & Barlett
425 Lexington Avenue
New York, New York 10017
Telecopier copy: (212) 455-2502
Attention: Richard A. Miller, Esq.
(g) If to Sentron Medical, Inc.:
Sentron Medical, Inc.
4445 Lake Forest Drive
Suite 600
Cincinnati, OH 45242
Telephone No.: (513) 563-3240
Telecopier No.: (513) 563-3261
Attention: Ms. Karen Morgan
(h) If to Jon N. Gilbert, Nader I. Naini or Fred E. Silverstein:
Frazier & Company
2 Union Square
601 Union Street, Suite 2110
Seattle, Washington 98101
Telecopier No.: (206) 621-1848
Attention: [Applicable Purchaser]
(i) If to Glenn R. Stewart:
3265 67/th/ Ave., S.E.
Mercer Island, WA 98040
Telecopier No.:_____________
(j) If to Charles H. Blanchard
615 Lighthouse Way
Sanibel, Florida 33957
Telecopier No.: ______________
(k) If to Scheer Investment Holdings I, L.L.C.:
Scheer & Company, Inc.
250 West Main Street
Branford, CT 06405
Attention: David I. Scheer
In the case of any notice pursuant to Section 14(a) through (k), with a copy to:
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<PAGE>
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, NY 10111
Telephone No.: (212) 841-5711
Telecopier No.: (212) 841-5725
Attention: John MacMurray, Esq.
(l) If to the Company:
OraPharma, Inc.
732 Louis Drive
Warminster, Pennsylvania 18974
Telecopier No.: 215-443-9531
Attention: Michael Kischbauch
with a copy to:
Sills Cummis Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102
Telecopier No.: (973) 643-6500
Attention: Ira A. Rosenberg, Esq.
All such notices, requests, consents and communications shall be
deemed to have been given (a) in the case of personal delivery, on the date of
such delivery, (b) in the case of telex or telecopier transmission, on the date
on which the sender receives machine confirmation of such transmission, and (c)
in the case of mailing, on the fifth business day following the date of such
mailing.
SECTION 16. Changes. The terms and provisions of this Agreement may not
-------
be modified or amended, or any of the provisions hereof waived, temporarily or
permanently, except pursuant to a written instrument signed by (i) the Company,
and (ii) the holders of at least 66-2/3% of the voting power of the Shares,
voting together as a class.
SECTION 17. Counterparts. This Agreement may be executed in any number
------------
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 18. Headings. The headings of the various sections of this
--------
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
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<PAGE>
SECTION 19. Nouns and Pronouns. Whenever the context may require, any
------------------
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
SECTION 20. Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability. Such
prohibition or unenforceability in any one jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 21. Governing Law; Jurisdiction. This Agreement and (unless
---------------------------
otherwise provided) all amendments hereof and waivers and consents hereunder
shall be governed in all respects by the law of the State of New Jersey without
regard to the conflicts of law principles thereof.
-27-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second Amended
and Restated Stockholders Agreement on the date and year first written above.
ORAPHARMA, INC.
By:_____________________________
Michael Kishbauch, President
OAK INVESTMENT PARTNERS VI,
LIMITED PARTNERSHIP
By: Oak Associates VI, L.L.C.
By:_____________________________
Eileen M. More,
Managing Member
OAK VI AFFILIATES FUND, LIMITED
PARTNERSHIP
By: Oak VI Affiliates, L.L.C.
By:_____________________________
Eileen M. More,
Managing Member
CANAAN S.B.I.C., L.P.
By: Canaan S.B.I.C. Partners, L.P., General
Partner
By:_____________________________
Harry T. Rein,
General Partner
-28-
<PAGE>
CANAAN CAPITAL LIMITED PARTNERSHIP
By: Canaan Capital Management, L.P., General
Partner
By: Canaan Capital Partners L.P., General
Partner
By:_____________________________
Harry T. Rein,
General Partner
CANAAN CAPITAL OFFSHORE LIMITED PARTNERSHIP C.V.
By: Canaan Capital Management L.P., General
Partner
By: Canaan Capital Partners L.P., General
Partner
By:_____________________________
Harry T. Rein,
General Partner
CANAAN EQUITY, L.P.
By: Canaan Equity Partners LLC,
Member/Manager
By:_____________________________
Member/Manager
FRAZIER HEALTHCARE II, L.P.
By: FHM, L.L.C., General Partner
By: Frazier Management, L.L.C., Member
By:______________________________
Jon Gilbert, Member
-29-
<PAGE>
TL VENTURES III L.P.
By: TL Ventures III Management
L.P., General Partner
By: TL Ventures III LLC, General
Partner
By:_____________________________
Managing Director
TL VENTURES III OFFSHORE L.P.
By: TL Ventures III Offshore
Partners L.P., General Partner
By: TL Ventures III Offshore Ltd.,
General Partner
By:_____________________________
Name:
Title:
TL VENTURES III INTERFUND L.P.
By: TL Ventures III LLC, General
Partner
By:_____________________________
Managing Director
DOMAIN PARTNERS IV, L.P.
By: One Palmer Square Associates
IV, L.L.C., General Partner
By:_____________________________
Managing Member
-30-
<PAGE>
DP IV ASSOCIATES, L.P.
By: One Palmer Square Associates
IV, L.P., General Partner
By:_____________________________
Managing Member
BIOTECHNOLOGY INVESTMENTS LIMITED
By: Old Court Limited
By:_____________________________
Attorney-in-Fact
SENTRON MEDICAL, INC.
By:_____________________________
Vincent Paglino
Vice President
HEALTHCAP KB
By: Healthcap AB, General Partner
By:_____________________________
Director
HEALTHCAP COINVEST KB
By: Healthcap AB, General Partner
By:_____________________________
Director
-31-
<PAGE>
SCHEER INVESTMENT HOLDINGS I, L.L.C.
By:_____________________________
David I. Scheer,
Managing Member
________________________________
Charles H. Blanchard
________________________________
Jon N. Gilbert
________________________________
Nader J. Naini
________________________________
Fred Silverstein, M.D.
________________________________
Glenn R. Stewart, M.D.
________________________________
Michael Kishbauch
-32-
<PAGE>
Exhibit 4.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR
STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR STATE
SECURITIES LAWS.
No. W-1 Right to Purchase 12,125 Shares of Series A
Preferred Stock of OraPharma, Inc.
ORAPHARMA, INC.
Series A Preferred Stock Purchase Warrant
This is to certify that, FOR VALUE RECEIVED, CANAAN VENTURES II LIMITED
PARTNERSHIP (the "Holder"), is entitled to purchase, subject to the provisions
------
of this Warrant, from OraPharma, Inc., a Delaware corporation (the "Company"),
-------
12,125 fully paid, validly issued and nonassessable shares of Series A
Preferred Stock, par value $.001 per share, of the Company (the "Preferred
---------
Stock") at an exercise price of $1.00 per share. The number of shares of
- -----
Preferred Stock to be received upon the exercise of this Warrant and the price
to be paid for each share of Preferred Stock may be adjusted from time to time
as hereinafter set forth. The shares of Preferred Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares" and the exercise price of a share of Preferred Stock in
--------------
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price".
--------------
1. EXERCISE OF WARRANT.
-------------------
a. Exercise for Cash. This Warrant may be exercised in whole or in
-----------------
part at any time or from time to time until 5:00 p.m. Eastern Standard Time on
December 3, 2003 (the "Exercise Period"). This Warrant may be exercised by
---------------
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price for the
number of Warrant Shares specified in such form. The Exercise Price may be paid
by bank check, wire transfer or cancellation of indebtedness. As soon as
practicable after each such exercise of this Warrant, but not later than seven
(7) days from the date of such exercise, the Company shall issue and deliver to
the Holder a certificate for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
<PAGE>
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt
by the Company of this Warrant at its office, or by the stock transfer agent of
the Company at its office, in proper form for exercise, the Holder shall be
deemed to be the holder of record of the shares of Preferred Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Preferred
Stock shall not then be physically delivered to the Holder.
b. Warrant Exchange. At any time during the Exercise Period, the Holder
----------------
may, at its option, exchange this Warrant, in whole or in part (a "Warrant
-------
Exchange"), into the number of Warrant Shares determined in accordance with this
- --------
Section 1(b), by surrendering this Warrant at the principal office of the
Company or at the office of its stock transfer agent, accompanied by a notice
stating the Holder's intent to effect such exchange, the number of Warrant
Shares to be exchanged and the date on which the Holder requests that such
Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall
------------------
take place on the date specified in the Notice of Exchange or, if later, the
date the Notice of Exchange is received by the Company (the "Exchange Date").
-------------
Certificates for the shares issuable upon such Warrant Exchange and, if
applicable, a new warrant of like tenor evidencing the balance of the shares
remaining subject to this Warrant, shall be issued as of the Exchange Date and
delivered to the Holder within seven (7) days following the Exchange Date. In
connection with any Warrant Exchange, this Warrant shall represent the right to
subscribe for an acquire the number of Warrant Shares equal to (i) the number of
Warrant Shares specified by the Holder in its Notice of Exchange (the "Total
-----
Number") less (ii) the number of Warrant Shares equal to the quotient obtained
- ------
by dividing (A) the product of the Total Number and the existing Exercise Price
by (B) the Fair Market Value. "Fair Market Value" shall be determined as
-----------------
follows: (1) if the Preferred Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq Stock Market, the Fair Market Value shall be the average
of the last reported sale prices of the Preferred Stock on such exchange or
system for the twenty (20) business days ending on the last business day prior
to the date for which the determination is being made; or (2) if the Preferred
Stock is not so listed or admitted to unlisted trading privileges, the Fair
Market Value shall be the average of the last reported bid and asked prices
reported by the National Quotation Bureau, Inc. for the twenty (20) business
days ending on the last business day prior to the date for which the
determination is being made; or (3) if the Preferred Stock is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the Fair Market Value shall be
2
<PAGE>
an amount, not less than book value thereof as at the end of the most recent
fiscal quarter of the Company ending prior to the Exchange Date, determined in
such reasonable manner as may be prescribed by the Board of Directors of the
Company.
2. RESERVATION OF SHARES. The Company shall at all times reserve for
---------------------
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Preferred Stock as shall be required for issuance and delivery upon exercise
of this Warrant.
3. FRACTIONAL SHARES. No fractional shares of Preferred Stock shall be
-----------------
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon any exercise hereof, the Company shall pay to the Holder
an amount in cash equal to such fraction multiplied by the Fair Market Value of
a share of Preferred Stock.
4. ANTIDILUTION PROVISIONS.
-----------------------
a. Adjustments for Stock Splits, etc. In the event the Preferred
----------------------------------
Stock is changed by reason of a stock split, reverse stock split, stock dividend
or recapitalization or is converted into or exchanged for other securities as a
result of a merger, consolidation or reorganization in which the Company is the
surviving corporation, appropriate adjustments shall be made in the terms of
this Warrant, or additional warrants shall be granted to the Holder as shall be
equitable and appropriate, or an adjustment in the number and class of shares
allocated to, and the Exercise Price of, this Warrant shall likewise be made.
b. Adjustments for Certain Issuances or Sales at Less than the
-----------------------------------------------------------
Exercise Price in Effect.
- ------------------------
i. General. If the Company shall, at any time from time to time,
-------
issue any shares of Preferred Stock without consideration or for a Net
Consideration Per Share less than the Exercise Price in effect immediately prior
to such issuance, then, and in each such case, the Exercise Price in effect
thereafter shall be reduced, concurrently with such issue, to a price equal to
the Net Consideration Per Share received by the Company for each such share of
Preferred Stock.
ii. Other Dilutive Issuances of Options, Warrants or Convertible
------------------------------------------------------------
Securities.
- ----------
(A) The issuance of any warrants, options or other
subscription or purchase rights with respect to shares of Preferred Stock and
the issuance of any securities convertible into or exchangeable for shares of
Preferred Stock (or the issuance of any warrants, options or any rights with
respect to such convertible or exchangeable securities) shall be deemed an
3
<PAGE>
issuance at such time of such Preferred Stock if the Net Consideration Per Share
which may be received by the Company for such Preferred Stock (as hereinafter
determined) shall be less than the Exercise Price at the time of such issuance
and, except as hereinafter provided, an adjustment in the Exercise Price and the
number of shares of Preferred Stock issuable upon exercise of this Warrant shall
be made upon each such issuance in the manner provided in Section 4(b)(i) above.
Any obligation, agreement or undertaking to issue warrants, options, or other
subscription or purchase rights at any time in the future shall be deemed to be
an issuance at the time such obligation, agreement or undertaking vests. No
adjustment of the Exercise Price and the number of shares of Preferred Stock
issuable upon exercise of this Warrant shall be made upon the issuance of any
shares of Preferred Stock which are issued pursuant to the exercise of any
warrants, options or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any convertible securities if
any adjustment shall previously have been made upon the issuance of any such
warrants, options or other rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any rights
therefor) as above provided.
(B) Expiration or Cancellation of Options, Warrants or
--------------------------------------------------
Convertible Securities. Any adjustment of the Exercise Price and the number of
- ----------------------
shares of Preferred Stock issuable upon exercise of this Warrant with respect to
this Section 4(b)(ii) which relates to warrants, options or other subscription
or purchase rights with respect to shares of Preferred Stock shall be
disregarded if, as, and when all of such warrants, options or other subscription
or purchase rights expire or are cancelled without being exercised, so that the
Exercise Price effective immediately upon such cancellation or expiration shall
be equal to the Exercise Price in effect at the time of the issuance of the
expired or cancelled warrants, options or other subscriptions or purchase
rights, with such additional adjustments as would have been made to that
Exercise Price had the expired or cancelled warrants, options or other
subscriptions or purchase rights not been issued.
iii. Definition of Net Consideration Per Share. For
-----------------------------------------
purposes of this Section 4(b), the "Net Consideration Per Share" which may be
---------------------------
received by the Company shall be determined as follows:
(A) If the consideration received by the Company in
connection with the issuance of shares of the Preferred Stock or the issuance of
any of the securities described in this Section 4 consists of cash, such
consideration shall be deemed to be the amount of such cash (provide that in no
case shall any deduction be made for any commissions,
4
<PAGE>
discounts or other expenses incurred by the Company in connection therewith). If
a part or all of the consideration received by the Company in connection with
the issuance of shares of the Preferred Stock or the issuance of any of the
securities described in this Section 4, consists of property other than cash,
such consideration shall be deemed to have the same value as shall be determined
in good faith by the Board of Directors of the Company.
(B) For purposes of Section 4(b)(ii) above, the "Net Consideration
-----------------
Per Share" shall mean the amount equal to the total amount of consideration, if
- ---------
any,
received by the Company for the issuance of such warrants, options,
subscriptions, or other purchase rights or convertible or exchangeable
securities, plus the minimum amount of consideration, if any, payable to the
Company upon exercise or conversion thereof, divided by the aggregate number of
shares of Preferred Stock that would be issued if all such warrants, options,
subscriptions, or other purchase rights or convertible or exchangeable
securities were exercised, exchanged or converted.
(C) For purposes of Section 4(b)(ii) above, the "Net Consideration
-----------------
Per Share" which may be received by the Company shall be determined in each
- ---------
instance as of the date of vesting of warrants, options, subscriptions or other
purchase rights, or convertible or exchangeable securities without giving effect
to any possible future price adjustments or rate adjustments which may be
applicable with respect to such warrants, options, subscriptions or other
purchase rights or convertible securities.
c. Miscellaneous.
-------------
i. No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least 5% in such Exercise
Price; provided, however, that any adjustments which by reason of this Section
-------- -------
4(c) are not required to be made shall be carried forward and taken into account
in any subsequent adjustment required to be made hereunder.
ii. Notwithstanding anything contained herein to the contrary, Section
4(b) above shall not apply under any of the circumstances described in Section
4(a) above or with respect to Excluded Stock (as defined in the Company's
Certificate of Designation with respect to its Preferred Stock filed with the
Secretary of State of the State of Delaware on December 2, 1996).
5
<PAGE>
5. CERTAIN EXTRAORDINARY TRANSACTIONS. In the event the Preferred Stock is
----------------------------------
exchanged for securities, cash or other property of any other corporation or
entity as the result of a reorganization, merger or consolidation in which the
Company is not the surviving corporation, the dissolution or liquidation of the
Company, or the sale of all or substantially all the assets of the Company, the
Board of Directors of the Company or the board of directors of any successor
corporation or entity may, in its discretion, as to the unexercised portion of
this Warrant, (a) provide for payment of an amount equal to the excess of the
fair market value of the Warrant Shares, as determined by the Board of Directors
of the Company or such board, over the Exercise Price of such Warrant Shares as
of the date of the transaction, in exchange for the surrender of the right to
exercise this Warrant, or (b) provide for the assumption of this Warrant, or the
substitution therefor of new warrants, by the successor corporation or entity.
6. LOSS OF WARRANT. Upon receipt by the Company of evidence satisfactory
---------------
to it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) or reasonably satisfactory indemnification,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new warrant of like tenor and date.
7. NO RIGHTS AS STOCKHOLDER. The Holder shall not, as holder of this
------------------------
Warrant, be entitled to vote, if applicable, or to receive dividends or to be
deemed the holder of Preferred Stock that may at any time be issuable upon
exercise of this Warrant for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or, if applicable, any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issue or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such holder shall have exercised the Warrant and been
issued the Warrant Shares in accordance with the provisions hereof.
8. NON-TRANSFERABILITY. Neither this Warrant nor any Warrant Shares shall
-------------------
be registered under the Securities Act of 1933, as amended, and applicable state
securities laws. Therefore, the Company shall require, as a condition of
allowing the transfer or exchange of this Warrant or such Warrant Shares, that
the Holder of this Warrant or such Warrant Shares, as the case may be, furnish
to the Company an opinion of counsel reasonably acceptable to the Company to the
effect that such
6
<PAGE>
transfer or exchange will be exempt from the registration and prospectus
delivery requirements under the Securities Act of 1933, as amended, and
applicable state securities laws. The certificates evidencing the Warrant
Shares shall bear a legend to the effect that the Warrant Shares evidenced by
such certificate have not been registered under the Securities Act of 1933, as
amended, and applicable state securities laws and are, therefore, subject to
restrictions on transfer.
9. INVESTMENT REPRESENTATIONS AND WARRANTIES. The Holder hereby
-----------------------------------------
represents and warrants to the Company that (a) it has knowledge and experience
in financial and business matters sufficient to enable it to evaluate the merits
and risks of an investment in the Company; (b) it has assets sufficient to
enable it to bear the economic risk of its investment in this Warrant and the
Warrant Shares and is an "accredited investor" as defined in Rule 501 under the
Securities Act of 1933, as amended; (c) it is acquiring this Warrant and, upon
exercise, will acquire the Warrant Shares, for its own account, and not with a
view to, or for sale in connection with, any distribution thereof; (d) it or its
representatives have received from the Company such information with respect to
the Company as it has deemed necessary and relevant in connection with this
Warrant and the Warrant Shares and it has the opportunity, directly or through
such representatives, to ask questions of and receive answers from persons
acting on behalf of the Company necessary to verify the information so
obtained; and (e) it and its officers, directors, employees and agents have not
employed any broker or finder or incurred any liability for any brokerage or
finder's fees or commissions or similar payments in connection with this Warrant
and the Warrant Shares.
10. GOVERNING LAW. This Agreement and all amendments, modifications,
-------------
alterations, or supplements hereto shall be construed under and governed by the
laws of the State of Delaware and the United States of America, without regard
to the principals of conflicts of law thereof.
11. MISCELLANEOUS. Except as provided in Sections 4 and 5 hereof, this
-------------
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought. The headings in this
Warrant are for purposes of reference only and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
12. EXPIRATION. The right to exercise this Warrant shall expire at 5:00
----------
P.M. Eastern Standard Time on December 3, 2003.
7
<PAGE>
This Warrant is executed as of the date and year first written above.
ORAPHARMA, INC.
By: /s/ Michael Kishbauch
------------------------------------
Michael Kishbauch, President
Witness:
[SIGNATURE ILLEGIBLE]
- -------------------------------
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: OraPharma, Inc.
The undersigned, the holder of the within Warrant, hereby irrevocably elects
to exercise this Warrant for, and to purchase thereunder ________ shares of
Series A Preferred Stock, $.001 par value per share, of OraPharma, Inc. and
herewith makes payment of $__________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to to the
undersigned at __________________________________.
Dated: __________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
__________________________________
(Address)
__________________________________
<PAGE>
Exhibit 4.3
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR
STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR STATE
SECURITIES LAWS.
No. W-2 Right to Purchase 19,125 Shares of Series A
Preferred Stock of OraPharma, Inc.
ORAPHARMA, INC.
Series A Preferred Stock Purchase Warrant
This is to certify that, FOR VALUE RECEIVED, CANAAN VENTURES II OFFSHORE
C.V. (the "Holder"), is entitled to purchase, subject to the provisions of this
------
Warrant, from OraPharma, Inc., a Delaware corporation (the "Company"), 19,125
-------
fully paid, validly issued and nonassessable shares of Series A Preferred Stock,
par value $.001 per share, of the Company (the "Preferred Stock") at an exercise
---------------
price of $1.00 per share. The number of shares of Preferred Stock to be received
upon the exercise of this Warrant and the price to be paid for each share of
Preferred Stock may be adjusted from time to time as hereinafter set forth. The
shares of Preferred Stock deliverable upon such exercise, and as adjusted from
time to time, are hereinafter sometimes referred to as "Warrant Shares" and the
--------------
exercise price of a share of Preferred Stock in effect at any time and as
adjusted from time to time is hereinafter sometimes referred to as the "Exercise
--------
Price".
- -----
1. EXERCISE OF WARRANT.
-------------------
a. Exercise for Cash. This Warrant may be exercised in whole or in
-----------------
part at any time or from time to time until 5:00 p.m. Eastern Standard Time on
December 3, 2003 (the "Exercise Period"). This Warrant may be exercised by
---------------
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price for the
number of Warrant Shares specified in such form. The Exercise Price may be paid
by bank check, wire transfer or cancellation of indebtedness. As soon as
practicable after each such exercise of this Warrant, but not later than seven
(7) days from the date of such exercise, the Company shall issue and deliver to
the Holder a certificate for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
<PAGE>
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt
by the Company of this Warrant at its office, or by the stock transfer agent of
the Company at its office, in proper form for exercise, the Holder shall be
deemed to be the holder of record of the shares of Preferred Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Preferred
Stock shall not then be physically delivered to the Holder.
b. Warrant Exchange. At any time during the Exercise Period, the Holder
----------------
may, at its option, exchange this Warrant, in whole or in part (a "Warrant
-------
Exchange"), into the number of Warrant Shares determined in accordance with this
- --------
Section 1(b), by surrendering this Warrant at the principal office of the
Company or at the office of its stock transfer agent, accompanied by a notice
stating the Holder's intent to effect such exchange, the number of Warrant
Shares to be exchanged and the date on which the Holder requests that such
Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall
------------------
take place on the date specified in the Notice of Exchange or, if later, the
date the Notice of Exchange is received by the Company (the "Exchange Date").
-------------
Certificates for the shares issuable upon such Warrant Exchange and, if
applicable, a new warrant of like tenor evidencing the balance of the shares
remaining subject to this Warrant, shall be issued as of the Exchange Date and
delivered to the Holder within seven (7) days following the Exchange Date. In
connection with any Warrant Exchange, this Warrant shall represent the right to
subscribe for an acquire the number of Warrant Shares equal to (i) the number of
Warrant Shares specified by the Holder in its Notice of Exchange (the "Total
-----
Number") less (ii) the number of Warrant Shares equal to the quotient obtained
- ------
by dividing (A) the product of the Total Number and the existing Exercise Price
by (B) the Fair Market Value. "Fair Market Value" shall be determined as
-----------------
follows: (1) if the Preferred Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq Stock Market, the Fair Market Value shall be the average
of the last reported sale prices of the Preferred Stock on such exchange or
system for the twenty (20) business days ending on the last business day prior
to the date for which the determination is being made; or (2) if the Preferred
Stock is not so listed or admitted to unlisted trading privileges, the Fair
Market Value shall be the average of the last reported bid and asked prices
reported by the National Quotation Bureau, Inc. for the twenty (20) business
days ending on the last business day prior to the date for which the
determination is being made; or (3) if the Preferred Stock is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the Fair Market Value shall be
2
<PAGE>
an amount, not less than book value thereof as at the end of the most recent
fiscal quarter of the Company ending prior to the Exchange Date, determined in
such reasonable manner as may be prescribed by the Board of Directors of the
Company.
2. RESERVATION OF SHARES. The Company shall at all times reserve for
---------------------
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Preferred Stock as shall be required for issuance and delivery upon exercise
of this Warrant.
3. FRACTIONAL SHARES. No fractional shares of Preferred Stock shall be
-----------------
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon any exercise hereof, the Company shall pay to the Holder
an amount in cash equal to such fraction multiplied by the Fair Market Value of
a share of Preferred Stock.
4. ANTIDILUTION PROVISIONS.
-----------------------
a. Adjustments for Stock Splits, etc. In the event the Preferred
----------------------------------
Stock is changed by reason of a stock split, reverse stock split, stock dividend
or recapitalization or is converted into or exchanged for other securities as a
result of a merger, consolidation or reorganization in which the Company is the
surviving corporation, appropriate adjustments shall be made in the terms of
this Warrant, or additional warrants shall be granted to the Holder as shall be
equitable and appropriate, or an adjustment in the number and class of shares
allocated to, and the Exercise Price of, this Warrant shall likewise be made.
b. Adjustments for Certain Issuances or Sales at Less than the
-----------------------------------------------------------
Exercise Price in Effect.
- ------------------------
i. General. If the Company shall, at any time from time to time,
-------
issue any shares of Preferred Stock without consideration or for a Net
Consideration Per Share less than the Exercise Price in effect immediately prior
to such issuance, then, and in each such case, the Exercise Price in effect
thereafter shall be reduced, concurrently with such issue, to a price equal to
the Net Consideration Per Share received by the Company for each such share of
Preferred Stock.
ii. Other Dilutive Issuances of Options, Warrants or Convertible
------------------------------------------------------------
Securities.
- ----------
(A) The issuance of any warrants, options or other
subscription or purchase rights with respect to shares of Preferred Stock and
the issuance of any securities convertible into or exchangeable for shares of
Preferred Stock (or the issuance of any warrants, options or any rights with
respect to such convertible or exchangeable securities) shall be deemed an
3
<PAGE>
issuance at such time of such Preferred Stock if the Net Consideration Per Share
which may be received by the Company for such Preferred Stock (as hereinafter
determined) shall be less than the Exercise Price at the time of such issuance
and, except as hereinafter provided, an adjustment in the Exercise Price and the
number of shares of Preferred Stock issuable upon exercise of this Warrant shall
be made upon each such issuance in the manner provided in Section 4(b)(i) above.
Any obligation, agreement or undertaking to issue warrants, options, or other
subscription or purchase rights at any time in the future shall be deemed to be
an issuance at the time such obligation, agreement or undertaking vests. No
adjustment of the Exercise Price and the number of shares of Preferred Stock
issuable upon exercise of this Warrant shall be made upon the issuance of any
shares of Preferred Stock which are issued pursuant to the exercise of any
warrants, options or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any convertible securities if
any adjustment shall previously have been made upon the issuance of any such
warrants, options or other rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any rights
therefor) as above provided.
(B) Expiration or Cancellation of Options, Warrants or
--------------------------------------------------
Convertible Securities. Any adjustment of the Exercise Price and the number of
- ----------------------
shares of Preferred Stock issuable upon exercise of this Warrant with respect to
this Section 4(b)(ii) which relates to warrants, options or other subscription
or purchase rights with respect to shares of Preferred Stock shall be
disregarded if, as, and when all of such warrants, options or other subscription
or purchase rights expire or are cancelled without being exercised, so that the
Exercise Price effective immediately upon such cancellation or expiration shall
be equal to the Exercise Price in effect at the time of the issuance of the
expired or cancelled warrants, options or other subscriptions or purchase
rights, with such additional adjustments as would have been made to that
Exercise Price had the expired or cancelled warrants, options or other
subscriptions or purchase rights not been issued.
iii. Definition of Net Consideration Per Share. For
-----------------------------------------
purposes of this Section 4(b), the "Net Consideration Per Share" which may be
---------------------------
received by the Company shall be determined as follows:
(A) If the consideration received by the Company in
connection with the issuance of shares of the Preferred Stock or the issuance of
any of the securities described in this Section 4 consists of cash, such
consideration shall be deemed to be the amount of such cash (provide that in no
case shall any deduction be made for any commissions,
4
<PAGE>
discounts or other expenses incurred by the Company in connection therewith). If
a part or all of the consideration received by the Company in connection with
the issuance of shares of the Preferred Stock or the issuance of any of the
securities described in this Section 4, consists of property other than cash,
such consideration shall be deemed to have the same value as shall be determined
in good faith by the Board of Directors of the Company.
(B) For purposes of Section 4(b)(ii) above, the "Net Consideration
-----------------
Per Share" shall mean the amount equal to the total amount of consideration, if
- ---------
any,
received by the Company for the issuance of such warrants, options,
subscriptions, or other purchase rights or convertible or exchangeable
securities, plus the minimum amount of consideration, if any, payable to the
Company upon exercise or conversion thereof, divided by the aggregate number of
shares of Preferred Stock that would be issued if all such warrants, options,
subscriptions, or other purchase rights or convertible or exchangeable
securities were exercised, exchanged or converted.
(C) For purposes of Section 4(b)(ii) above, the "Net Consideration
-----------------
Per Share" which may be received by the Company shall be determined in each
- ---------
instance as of the date of vesting of warrants, options, subscriptions or other
purchase rights, or convertible or exchangeable securities without giving effect
to any possible future price adjustments or rate adjustments which may be
applicable with respect to such warrants, options, subscriptions or other
purchase rights or convertible securities.
c. Miscellaneous.
-------------
i. No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least 5% in such Exercise
Price; provided, however, that any adjustments which by reason of this Section
-------- -------
4(c) are not required to be made shall be carried forward and taken into account
in any subsequent adjustment required to be made hereunder.
ii. Notwithstanding anything contained herein to the contrary, Section
4(b) above shall not apply under any of the circumstances described in Section
4(a) above or with respect to Excluded Stock (as defined in the Company's
Certificate of Designation with respect to its Preferred Stock filed with the
Secretary of State of the State of Delaware on December 2, 1996).
5
<PAGE>
5. CERTAIN EXTRAORDINARY TRANSACTIONS. In the event the Preferred Stock is
----------------------------------
exchanged for securities, cash or other property of any other corporation or
entity as the result of a reorganization, merger or consolidation in which the
Company is not the surviving corporation, the dissolution or liquidation of the
Company, or the sale of all or substantially all the assets of the Company, the
Board of Directors of the Company or the board of directors of any successor
corporation or entity may, in its discretion, as to the unexercised portion of
this Warrant, (a) provide for payment of an amount equal to the excess of the
fair market value of the Warrant Shares, as determined by the Board of Directors
of the Company or such board, over the Exercise Price of such Warrant Shares as
of the date of the transaction, in exchange for the surrender of the right to
exercise this Warrant, or (b) provide for the assumption of this Warrant, or the
substitution therefor of new warrants, by the successor corporation or entity.
6. LOSS OF WARRANT. Upon receipt by the Company of evidence satisfactory
---------------
to it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) or reasonably satisfactory indemnification,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new warrant of like tenor and date.
7. NO RIGHTS AS STOCKHOLDER. The Holder shall not, as holder of this
------------------------
Warrant, be entitled to vote, if applicable, or to receive dividends or to be
deemed the holder of Preferred Stock that may at any time be issuable upon
exercise of this Warrant for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or, if applicable, any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issue or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such holder shall have exercised the Warrant and been
issued the Warrant Shares in accordance with the provisions hereof.
8. NON-TRANSFERABILITY. Neither this Warrant nor any Warrant Shares shall
-------------------
be registered under the Securities Act of 1933, as amended, and applicable state
securities laws. Therefore, the Company shall require, as a condition of
allowing the transfer or exchange of this Warrant or such Warrant Shares, that
the Holder of this Warrant or such Warrant Shares, as the case may be, furnish
to the Company an opinion of counsel reasonably acceptable to the Company to the
effect that such
6
<PAGE>
transfer or exchange will be exempt from the registration and prospectus
delivery requirements under the Securities Act of 1933, as amended, and
applicable state securities laws. The certificates evidencing the Warrant
Shares shall bear a legend to the effect that the Warrant Shares evidenced by
such certificate have not been registered under the Securities Act of 1933, as
amended, and applicable state securities laws and are, therefore, subject to
restrictions on transfer.
9. INVESTMENT REPRESENTATIONS AND WARRANTIES. The Holder hereby
-----------------------------------------
represents and warrants to the Company that (a) it has knowledge and experience
in financial and business matters sufficient to enable it to evaluate the merits
and risks of an investment in the Company; (b) it has assets sufficient to
enable it to bear the economic risk of its investment in this Warrant and the
Warrant Shares and is an "accredited investor" as defined in Rule 501 under the
Securities Act of 1933, as amended; (c) it is acquiring this Warrant and, upon
exercise, will acquire the Warrant Shares, for its own account, and not with a
view to, or for sale in connection with, any distribution thereof; (d) it or its
representatives have received from the Company such information with respect to
the Company as it has deemed necessary and relevant in connection with this
Warrant and the Warrant Shares and it has the opportunity, directly or through
such representatives, to ask questions of and receive answers from persons
acting on behalf of the Company necessary to verify the information so
obtained; and (e) it and its officers, directors, employees and agents have not
employed any broker or finder or incurred any liability for any brokerage or
finder's fees or commissions or similar payments in connection with this Warrant
and the Warrant Shares.
10. GOVERNING LAW. This Agreement and all amendments, modifications,
-------------
alterations, or supplements hereto shall be construed under and governed by the
laws of the State of Delaware and the United States of America, without regard
to the principals of conflicts of law thereof.
11. MISCELLANEOUS. Except as provided in Sections 4 and 5 hereof, this
-------------
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought. The headings in this
Warrant are for purposes of reference only and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
12. EXPIRATION. The right to exercise this Warrant shall expire at 5:00
----------
P.M. Eastern Standard Time on December 3, 2003.
7
<PAGE>
This Warrant is executed as of the date and year first written above.
ORAPHARMA, INC.
By: /s/ Michael Kishbauch
------------------------------------
Michael Kishbauch, President
Witness:
[SIGNATURE ILLEGIBLE]
- -------------------------------
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: OraPharma, Inc.
The undersigned, the holder of the within Warrant, hereby irrevocably elects
to exercise this Warrant for, and to purchase thereunder ________ shares of
Series A Preferred Stock, $.001 par value per share, of OraPharma, Inc. and
herewith makes payment of $__________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to to the
undersigned at __________________________________.
Dated: __________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
__________________________________
(Address)
__________________________________
<PAGE>
Exhibit 4.4
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR
STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR STATE
SECURITIES LAWS.
No. W-8 Right to Purchase 28,125 Shares of Series A
Preferred Stock of OraPharma, Inc.
ORAPHARMA, INC.
Series A Preferred Stock Purchase Warrant
This is to certify that, FOR VALUE RECEIVED, CANAAN S.B.I.C., L.P.
(the "Holder"), is entitled to purchase, subject to the provisions of this
------
Warrant, from OraPharma, Inc., a Delaware corporation (the "Company"), 28,125
-------
fully paid, validly issued and nonassessable shares of Series A Preferred Stock,
par value $.001 per share, of the Company (the "Preferred Stock") at an exercise
---------------
price of $1.00 per share. The number of shares of Preferred Stock to be received
upon the exercise of this Warrant and the price to be paid for each share of
Preferred Stock may be adjusted from time to time as hereinafter set forth. The
shares of Preferred Stock deliverable upon such exercise, and as adjusted from
time to time, are hereinafter sometimes referred to as "Warrant Shares" and the
--------------
exercise price of a share of Preferred Stock in effect at any time and as
adjusted from time to time is hereinafter sometimes referred to as the "Exercise
--------
Price".
- -----
1. EXERCISE OF WARRANT.
-------------------
a. Exercise for Cash. This Warrant may be exercised in whole or in
-----------------
part at any time or from time to time until 5:00 p.m. Eastern Standard Time on
December 3, 2003 (the "Exercise Period"). This Warrant may be exercised by
---------------
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price for the
number of Warrant Shares specified in such form. The Exercise Price may be paid
by bank check, wire transfer or cancellation of indebtedness. As soon as
practicable after each such exercise of this Warrant, but not later than seven
(7) days from the date of such exercise, the Company shall issue and deliver to
the Holder a certificate for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
<PAGE>
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt
by the Company of this Warrant at its office, or by the stock transfer agent of
the Company at its office, in proper form for exercise, the Holder shall be
deemed to be the holder of record of the shares of Preferred Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Preferred
Stock shall not then be physically delivered to the Holder.
b. Warrant Exchange. At any time during the Exercise Period, the Holder
----------------
may, at its option, exchange this Warrant, in whole or in part (a "Warrant
-------
Exchange"), into the number of Warrant Shares determined in accordance with this
- --------
Section 1(b), by surrendering this Warrant at the principal office of the
Company or at the office of its stock transfer agent, accompanied by a notice
stating the Holder's intent to effect such exchange, the number of Warrant
Shares to be exchanged and the date on which the Holder requests that such
Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall
------------------
take place on the date specified in the Notice of Exchange or, if later, the
date the Notice of Exchange is received by the Company (the "Exchange Date").
-------------
Certificates for the shares issuable upon such Warrant Exchange and, if
applicable, a new warrant of like tenor evidencing the balance of the shares
remaining subject to this Warrant, shall be issued as of the Exchange Date and
delivered to the Holder within seven (7) days following the Exchange Date. In
connection with any Warrant Exchange, this Warrant shall represent the right to
subscribe for an acquire the number of Warrant Shares equal to (i) the number of
Warrant Shares specified by the Holder in its Notice of Exchange (the "Total
-----
Number") less (ii) the number of Warrant Shares equal to the quotient obtained
- ------
by dividing (A) the product of the Total Number and the existing Exercise Price
by (B) the Fair Market Value. "Fair Market Value" shall be determined as
-----------------
follows: (1) if the Preferred Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq Stock Market, the Fair Market Value shall be the average
of the last reported sale prices of the Preferred Stock on such exchange or
system for the twenty (20) business days ending on the last business day prior
to the date for which the determination is being made; or (2) if the Preferred
Stock is not so listed or admitted to unlisted trading privileges, the Fair
Market Value shall be the average of the last reported bid and asked prices
reported by the National Quotation Bureau, Inc. for the twenty (20) business
days ending on the last business day prior to the date for which the
determination is being made; or (3) if the Preferred Stock is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the Fair Market Value shall be
2
<PAGE>
an amount, not less than book value thereof as at the end of the most recent
fiscal quarter of the Company ending prior to the Exchange Date, determined in
such reasonable manner as may be prescribed by the Board of Directors of the
Company.
2. RESERVATION OF SHARES. The Company shall at all times reserve for
---------------------
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Preferred Stock as shall be required for issuance and delivery upon exercise
of this Warrant.
3. FRACTIONAL SHARES. No fractional shares of Preferred Stock shall be
-----------------
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon any exercise hereof, the Company shall pay to the Holder
an amount in cash equal to such fraction multiplied by the Fair Market Value of
a share of Preferred Stock.
4. ANTIDILUTION PROVISIONS.
-----------------------
a. Adjustments for Stock Splits, etc. In the event the Preferred
----------------------------------
Stock is changed by reason of a stock split, reverse stock split, stock dividend
or recapitalization or is converted into or exchanged for other securities as a
result of a merger, consolidation or reorganization in which the Company is the
surviving corporation, appropriate adjustments shall be made in the terms of
this Warrant, or additional warrants shall be granted to the Holder as shall be
equitable and appropriate, or an adjustment in the number and class of shares
allocated to, and the Exercise Price of, this Warrant shall likewise be made.
b. Adjustments for Certain Issuances or Sales at Less than the
-----------------------------------------------------------
Exercise Price in Effect.
- ------------------------
i. General. If the Company shall, at any time from time to time,
-------
issue any shares of Preferred Stock without consideration or for a Net
Consideration Per Share less than the Exercise Price in effect immediately prior
to such issuance, then, and in each such case, the Exercise Price in effect
thereafter shall be reduced, concurrently with such issue, to a price equal to
the Net Consideration Per Share received by the Company for each such share of
Preferred Stock.
ii. Other Dilutive Issuances of Options, Warrants or Convertible
------------------------------------------------------------
Securities.
- ----------
(A) The issuance of any warrants, options or other
subscription or purchase rights with respect to shares of Preferred Stock and
the issuance of any securities convertible into or exchangeable for shares of
Preferred Stock (or the issuance of any warrants, options or any rights with
respect to such convertible or exchangeable securities) shall be deemed an
3
<PAGE>
issuance at such time of such Preferred Stock if the Net Consideration Per Share
which may be received by the Company for such Preferred Stock (as hereinafter
determined) shall be less than the Exercise Price at the time of such issuance
and, except as hereinafter provided, an adjustment in the Exercise Price and the
number of shares of Preferred Stock issuable upon exercise of this Warrant shall
be made upon each such issuance in the manner provided in Section 4(b)(i) above.
Any obligation, agreement or undertaking to issue warrants, options, or other
subscription or purchase rights at any time in the future shall be deemed to be
an issuance at the time such obligation, agreement or undertaking vests. No
adjustment of the Exercise Price and the number of shares of Preferred Stock
issuable upon exercise of this Warrant shall be made upon the issuance of any
shares of Preferred Stock which are issued pursuant to the exercise of any
warrants, options or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any convertible securities if
any adjustment shall previously have been made upon the issuance of any such
warrants, options or other rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any rights
therefor) as above provided.
(B) Expiration or Cancellation of Options, Warrants or
--------------------------------------------------
Convertible Securities. Any adjustment of the Exercise Price and the number of
- ----------------------
shares of Preferred Stock issuable upon exercise of this Warrant with respect to
this Section 4(b)(ii) which relates to warrants, options or other subscription
or purchase rights with respect to shares of Preferred Stock shall be
disregarded if, as, and when all of such warrants, options or other subscription
or purchase rights expire or are cancelled without being exercised, so that the
Exercise Price effective immediately upon such cancellation or expiration shall
be equal to the Exercise Price in effect at the time of the issuance of the
expired or cancelled warrants, options or other subscriptions or purchase
rights, with such additional adjustments as would have been made to that
Exercise Price had the expired or cancelled warrants, options or other
subscriptions or purchase rights not been issued.
iii. Definition of Net Consideration Per Share. For
-----------------------------------------
purposes of this Section 4(b), the "Net Consideration Per Share" which may be
---------------------------
received by the Company shall be determined as follows:
(A) If the consideration received by the Company in
connection with the issuance of shares of the Preferred Stock or the issuance of
any of the securities described in this Section 4 consists of cash, such
consideration shall be deemed to be the amount of such cash (provide that in no
case shall any deduction be made for any commissions,
4
<PAGE>
discounts or other expenses incurred by the Company in connection therewith). If
a part or all of the consideration received by the Company in connection with
the issuance of shares of the Preferred Stock or the issuance of any of the
securities described in this Section 4, consists of property other than cash,
such consideration shall be deemed to have the same value as shall be determined
in good faith by the Board of Directors of the Company.
(B) For purposes of Section 4(b)(ii) above, the "Net Consideration
-----------------
Per Share" shall mean the amount equal to the total amount of consideration, if
- ---------
any,
received by the Company for the issuance of such warrants, options,
subscriptions, or other purchase rights or convertible or exchangeable
securities, plus the minimum amount of consideration, if any, payable to the
Company upon exercise or conversion thereof, divided by the aggregate number of
shares of Preferred Stock that would be issued if all such warrants, options,
subscriptions, or other purchase rights or convertible or exchangeable
securities were exercised, exchanged or converted.
(C) For purposes of Section 4(b)(ii) above, the "Net Consideration
-----------------
Per Share" which may be received by the Company shall be determined in each
- ---------
instance as of the date of vesting of warrants, options, subscriptions or other
purchase rights, or convertible or exchangeable securities without giving effect
to any possible future price adjustments or rate adjustments which may be
applicable with respect to such warrants, options, subscriptions or other
purchase rights or convertible securities.
c. Miscellaneous.
-------------
i. No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least 5% in such Exercise
Price; provided, however, that any adjustments which by reason of this Section
-------- -------
4(c) are not required to be made shall be carried forward and taken into account
in any subsequent adjustment required to be made hereunder.
ii. Notwithstanding anything contained herein to the contrary, Section
4(b) above shall not apply under any of the circumstances described in Section
4(a) above or with respect to Excluded Stock (as defined in the Company's
Certificate of Designation with respect to its Preferred Stock filed with the
Secretary of State of the State of Delaware on December 2, 1996).
5
<PAGE>
5. CERTAIN EXTRAORDINARY TRANSACTIONS. In the event the Preferred Stock is
----------------------------------
exchanged for securities, cash or other property of any other corporation or
entity as the result of a reorganization, merger or consolidation in which the
Company is not the surviving corporation, the dissolution or liquidation of the
Company, or the sale of all or substantially all the assets of the Company, the
Board of Directors of the Company or the board of directors of any successor
corporation or entity may, in its discretion, as to the unexercised portion of
this Warrant, (a) provide for payment of an amount equal to the excess of the
fair market value of the Warrant Shares, as determined by the Board of Directors
of the Company or such board, over the Exercise Price of such Warrant Shares as
of the date of the transaction, in exchange for the surrender of the right to
exercise this Warrant, or (b) provide for the assumption of this Warrant, or the
substitution therefor of new warrants, by the successor corporation or entity.
6. LOSS OF WARRANT. Upon receipt by the Company of evidence satisfactory
---------------
to it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) or reasonably satisfactory indemnification,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new warrant of like tenor and date.
7. NO RIGHTS AS STOCKHOLDER. The Holder shall not, as holder of this
------------------------
Warrant, be entitled to vote, if applicable, or to receive dividends or to be
deemed the holder of Preferred Stock that may at any time be issuable upon
exercise of this Warrant for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or, if applicable, any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issue or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such holder shall have exercised the Warrant and been
issued the Warrant Shares in accordance with the provisions hereof.
8. NON-TRANSFERABILITY. Neither this Warrant nor any Warrant Shares shall
-------------------
be registered under the Securities Act of 1933, as amended, and applicable state
securities laws. Therefore, the Company shall require, as a condition of
allowing the transfer or exchange of this Warrant or such Warrant Shares, that
the Holder of this Warrant or such Warrant Shares, as the case may be, furnish
to the Company an opinion of counsel reasonably acceptable to the Company to the
effect that such
6
<PAGE>
transfer or exchange will be exempt from the registration and prospectus
delivery requirements under the Securities Act of 1933, as amended, and
applicable state securities laws. The certificates evidencing the Warrant
Shares shall bear a legend to the effect that the Warrant Shares evidenced by
such certificate have not been registered under the Securities Act of 1933, as
amended, and applicable state securities laws and are, therefore, subject to
restrictions on transfer.
9. INVESTMENT REPRESENTATIONS AND WARRANTIES. The Holder hereby
-----------------------------------------
represents and warrants to the Company that (a) it has knowledge and experience
in financial and business matters sufficient to enable it to evaluate the merits
and risks of an investment in the Company; (b) it has assets sufficient to
enable it to bear the economic risk of its investment in this Warrant and the
Warrant Shares and is an "accredited investor" as defined in Rule 501 under the
Securities Act of 1933, as amended; (c) it is acquiring this Warrant and, upon
exercise, will acquire the Warrant Shares, for its own account, and not with a
view to, or for sale in connection with, any distribution thereof; (d) it or its
representatives have received from the Company such information with respect to
the Company as it has deemed necessary and relevant in connection with this
Warrant and the Warrant Shares and it has the opportunity, directly or through
such representatives, to ask questions of and receive answers from persons
acting on behalf of the Company necessary to verify the information so
obtained; and (e) it and its officers, directors, employees and agents have not
employed any broker or finder or incurred any liability for any brokerage or
finder's fees or commissions or similar payments in connection with this Warrant
and the Warrant Shares.
10. GOVERNING LAW. This Agreement and all amendments, modifications,
-------------
alterations, or supplements hereto shall be construed under and governed by the
laws of the State of Delaware and the United States of America, without regard
to the principals of conflicts of law thereof.
11. MISCELLANEOUS. Except as provided in Sections 4 and 5 hereof, this
-------------
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought. The headings in this
Warrant are for purposes of reference only and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
12. EXPIRATION. The right to exercise this Warrant shall expire at 5:00
----------
P.M. Eastern Standard Time on December 3, 2003.
7
<PAGE>
This Warrant is executed as of the date and year first written above.
ORAPHARMA, INC.
By: /s/ Michael Kishbauch
------------------------------------
Michael Kishbauch, President
Witness:
[SIGNATURE ILLEGIBLE]
- -------------------------------
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: OraPharma, Inc.
The undersigned, the holder of the within Warrant, hereby irrevocably elects
to exercise this Warrant for, and to purchase thereunder ________ shares of
Series A Preferred Stock, $.001 par value per share, of OraPharma, Inc. and
herewith makes payment of $__________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to to the
undersigned at __________________________________.
Dated: __________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
__________________________________
(Address)
__________________________________
<PAGE>
Exhibit 4.5
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR
STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR STATE
SECURITIES LAWS.
No. W-9 Right to Purchase 334 Shares of Series A
Preferred Stock of OraPharma, Inc.
ORAPHARMA, INC.
Series A Preferred Stock Purchase Warrant
This is to certify that, FOR VALUE RECEIVED, CANAAN CAPITAL LIMITED
PARTNERSHIP (the "Holder"), is entitled to purchase, subject to the provisions
------
of this Warrant, from OraPharma, Inc., a Delaware corporation (the "Company"),
-------
334 fully paid, validly issued and nonassessable shares of Series A Preferred
Stock, par value $.001 per share, of the Company (the "Preferred Stock") at an
---------------
exercise price of $1.00 per share. The number of shares of Preferred Stock to be
received upon the exercise of this Warrant and the price to be paid for each
share of Preferred Stock may be adjusted from time to time as hereinafter set
forth. The shares of Preferred Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
-------
Shares" and the exercise price of a share of Preferred Stock in effect at any
- ------
time and as adjusted from time to time is hereinafter sometimes referred to as
the "Exercise Price".
--------------
1. EXERCISE OF WARRANT.
-------------------
a. Exercise for Cash. This Warrant may be exercised in whole or in
-----------------
part at any time or from time to time until 5:00 p.m. Eastern Standard Time on
December 3, 2003 (the "Exercise Period"). This Warrant may be exercised by
---------------
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price for the
number of Warrant Shares specified in such form. The Exercise Price may be paid
by bank check, wire transfer or cancellation of indebtedness. As soon as
practicable after each such exercise of this Warrant, but not later than seven
(7) days from the date of such exercise, the Company shall issue and deliver to
the Holder a certificate for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
<PAGE>
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt
by the Company of this Warrant at its office, or by the stock transfer agent of
the Company at its office, in proper form for exercise, the Holder shall be
deemed to be the holder of record of the shares of Preferred Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Preferred
Stock shall not then be physically delivered to the Holder.
b. Warrant Exchange. At any time during the Exercise Period, the Holder
----------------
may, at its option, exchange this Warrant, in whole or in part (a "Warrant
-------
Exchange"), into the number of Warrant Shares determined in accordance with this
- --------
Section 1(b), by surrendering this Warrant at the principal office of the
Company or at the office of its stock transfer agent, accompanied by a notice
stating the Holder's intent to effect such exchange, the number of Warrant
Shares to be exchanged and the date on which the Holder requests that such
Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall
------------------
take place on the date specified in the Notice of Exchange or, if later, the
date the Notice of Exchange is received by the Company (the "Exchange Date").
-------------
Certificates for the shares issuable upon such Warrant Exchange and, if
applicable, a new warrant of like tenor evidencing the balance of the shares
remaining subject to this Warrant, shall be issued as of the Exchange Date and
delivered to the Holder within seven (7) days following the Exchange Date. In
connection with any Warrant Exchange, this Warrant shall represent the right to
subscribe for an acquire the number of Warrant Shares equal to (i) the number of
Warrant Shares specified by the Holder in its Notice of Exchange (the "Total
-----
Number") less (ii) the number of Warrant Shares equal to the quotient obtained
- ------
by dividing (A) the product of the Total Number and the existing Exercise Price
by (B) the Fair Market Value. "Fair Market Value" shall be determined as
-----------------
follows: (1) if the Preferred Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq Stock Market, the Fair Market Value shall be the average
of the last reported sale prices of the Preferred Stock on such exchange or
system for the twenty (20) business days ending on the last business day prior
to the date for which the determination is being made; or (2) if the Preferred
Stock is not so listed or admitted to unlisted trading privileges, the Fair
Market Value shall be the average of the last reported bid and asked prices
reported by the National Quotation Bureau, Inc. for the twenty (20) business
days ending on the last business day prior to the date for which the
determination is being made; or (3) if the Preferred Stock is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the Fair Market Value shall be
2
<PAGE>
an amount, not less than book value thereof as at the end of the most recent
fiscal quarter of the Company ending prior to the Exchange Date, determined in
such reasonable manner as may be prescribed by the Board of Directors of the
Company.
2. RESERVATION OF SHARES. The Company shall at all times reserve for
---------------------
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Preferred Stock as shall be required for issuance and delivery upon exercise
of this Warrant.
3. FRACTIONAL SHARES. No fractional shares of Preferred Stock shall be
-----------------
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon any exercise hereof, the Company shall pay to the Holder
an amount in cash equal to such fraction multiplied by the Fair Market Value of
a share of Preferred Stock.
4. ANTIDILUTION PROVISIONS.
-----------------------
a. Adjustments for Stock Splits, etc. In the event the Preferred
----------------------------------
Stock is changed by reason of a stock split, reverse stock split, stock dividend
or recapitalization or is converted into or exchanged for other securities as a
result of a merger, consolidation or reorganization in which the Company is the
surviving corporation, appropriate adjustments shall be made in the terms of
this Warrant, or additional warrants shall be granted to the Holder as shall be
equitable and appropriate, or an adjustment in the number and class of shares
allocated to, and the Exercise Price of, this Warrant shall likewise be made.
b. Adjustments for Certain Issuances or Sales at Less than the
-----------------------------------------------------------
Exercise Price in Effect.
- ------------------------
i. General. If the Company shall, at any time from time to time,
-------
issue any shares of Preferred Stock without consideration or for a Net
Consideration Per Share less than the Exercise Price in effect immediately prior
to such issuance, then, and in each such case, the Exercise Price in effect
thereafter shall be reduced, concurrently with such issue, to a price equal to
the Net Consideration Per Share received by the Company for each such share of
Preferred Stock.
ii. Other Dilutive Issuances of Options, Warrants or Convertible
------------------------------------------------------------
Securities.
- ----------
(A) The issuance of any warrants, options or other
subscription or purchase rights with respect to shares of Preferred Stock and
the issuance of any securities convertible into or exchangeable for shares of
Preferred Stock (or the issuance of any warrants, options or any rights with
respect to such convertible or exchangeable securities) shall be deemed an
3
<PAGE>
issuance at such time of such Preferred Stock if the Net Consideration Per Share
which may be received by the Company for such Preferred Stock (as hereinafter
determined) shall be less than the Exercise Price at the time of such issuance
and, except as hereinafter provided, an adjustment in the Exercise Price and the
number of shares of Preferred Stock issuable upon exercise of this Warrant shall
be made upon each such issuance in the manner provided in Section 4(b)(i) above.
Any obligation, agreement or undertaking to issue warrants, options, or other
subscription or purchase rights at any time in the future shall be deemed to be
an issuance at the time such obligation, agreement or undertaking vests. No
adjustment of the Exercise Price and the number of shares of Preferred Stock
issuable upon exercise of this Warrant shall be made upon the issuance of any
shares of Preferred Stock which are issued pursuant to the exercise of any
warrants, options or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any convertible securities if
any adjustment shall previously have been made upon the issuance of any such
warrants, options or other rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any rights
therefor) as above provided.
(B) Expiration or Cancellation of Options, Warrants or
--------------------------------------------------
Convertible Securities. Any adjustment of the Exercise Price and the number of
- ----------------------
shares of Preferred Stock issuable upon exercise of this Warrant with respect to
this Section 4(b)(ii) which relates to warrants, options or other subscription
or purchase rights with respect to shares of Preferred Stock shall be
disregarded if, as, and when all of such warrants, options or other subscription
or purchase rights expire or are cancelled without being exercised, so that the
Exercise Price effective immediately upon such cancellation or expiration shall
be equal to the Exercise Price in effect at the time of the issuance of the
expired or cancelled warrants, options or other subscriptions or purchase
rights, with such additional adjustments as would have been made to that
Exercise Price had the expired or cancelled warrants, options or other
subscriptions or purchase rights not been issued.
iii. Definition of Net Consideration Per Share. For
-----------------------------------------
purposes of this Section 4(b), the "Net Consideration Per Share" which may be
---------------------------
received by the Company shall be determined as follows:
(A) If the consideration received by the Company in
connection with the issuance of shares of the Preferred Stock or the issuance of
any of the securities described in this Section 4 consists of cash, such
consideration shall be deemed to be the amount of such cash (provide that in no
case shall any deduction be made for any commissions,
4
<PAGE>
discounts or other expenses incurred by the Company in connection therewith). If
a part or all of the consideration received by the Company in connection with
the issuance of shares of the Preferred Stock or the issuance of any of the
securities described in this Section 4, consists of property other than cash,
such consideration shall be deemed to have the same value as shall be determined
in good faith by the Board of Directors of the Company.
(B) For purposes of Section 4(b)(ii) above, the "Net Consideration
-----------------
Per Share" shall mean the amount equal to the total amount of consideration, if
- ---------
any,
received by the Company for the issuance of such warrants, options,
subscriptions, or other purchase rights or convertible or exchangeable
securities, plus the minimum amount of consideration, if any, payable to the
Company upon exercise or conversion thereof, divided by the aggregate number of
shares of Preferred Stock that would be issued if all such warrants, options,
subscriptions, or other purchase rights or convertible or exchangeable
securities were exercised, exchanged or converted.
(C) For purposes of Section 4(b)(ii) above, the "Net Consideration
-----------------
Per Share" which may be received by the Company shall be determined in each
- ---------
instance as of the date of vesting of warrants, options, subscriptions or other
purchase rights, or convertible or exchangeable securities without giving effect
to any possible future price adjustments or rate adjustments which may be
applicable with respect to such warrants, options, subscriptions or other
purchase rights or convertible securities.
c. Miscellaneous.
-------------
i. No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least 5% in such Exercise
Price; provided, however, that any adjustments which by reason of this Section
-------- -------
4(c) are not required to be made shall be carried forward and taken into account
in any subsequent adjustment required to be made hereunder.
ii. Notwithstanding anything contained herein to the contrary, Section
4(b) above shall not apply under any of the circumstances described in Section
4(a) above or with respect to Excluded Stock (as defined in the Company's
Certificate of Designation with respect to its Preferred Stock filed with the
Secretary of State of the State of Delaware on December 2, 1996).
5
<PAGE>
5. CERTAIN EXTRAORDINARY TRANSACTIONS. In the event the Preferred Stock is
----------------------------------
exchanged for securities, cash or other property of any other corporation or
entity as the result of a reorganization, merger or consolidation in which the
Company is not the surviving corporation, the dissolution or liquidation of the
Company, or the sale of all or substantially all the assets of the Company, the
Board of Directors of the Company or the board of directors of any successor
corporation or entity may, in its discretion, as to the unexercised portion of
this Warrant, (a) provide for payment of an amount equal to the excess of the
fair market value of the Warrant Shares, as determined by the Board of Directors
of the Company or such board, over the Exercise Price of such Warrant Shares as
of the date of the transaction, in exchange for the surrender of the right to
exercise this Warrant, or (b) provide for the assumption of this Warrant, or the
substitution therefor of new warrants, by the successor corporation or entity.
6. LOSS OF WARRANT. Upon receipt by the Company of evidence satisfactory
---------------
to it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) or reasonably satisfactory indemnification,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new warrant of like tenor and date.
7. NO RIGHTS AS STOCKHOLDER. The Holder shall not, as holder of this
------------------------
Warrant, be entitled to vote, if applicable, or to receive dividends or to be
deemed the holder of Preferred Stock that may at any time be issuable upon
exercise of this Warrant for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or, if applicable, any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issue or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such holder shall have exercised the Warrant and been
issued the Warrant Shares in accordance with the provisions hereof.
8. NON-TRANSFERABILITY. Neither this Warrant nor any Warrant Shares shall
-------------------
be registered under the Securities Act of 1933, as amended, and applicable state
securities laws. Therefore, the Company shall require, as a condition of
allowing the transfer or exchange of this Warrant or such Warrant Shares, that
the Holder of this Warrant or such Warrant Shares, as the case may be, furnish
to the Company an opinion of counsel reasonably acceptable to the Company to the
effect that such
6
<PAGE>
transfer or exchange will be exempt from the registration and prospectus
delivery requirements under the Securities Act of 1933, as amended, and
applicable state securities laws. The certificates evidencing the Warrant
Shares shall bear a legend to the effect that the Warrant Shares evidenced by
such certificate have not been registered under the Securities Act of 1933, as
amended, and applicable state securities laws and are, therefore, subject to
restrictions on transfer.
9. INVESTMENT REPRESENTATIONS AND WARRANTIES. The Holder hereby
-----------------------------------------
represents and warrants to the Company that (a) it has knowledge and experience
in financial and business matters sufficient to enable it to evaluate the merits
and risks of an investment in the Company; (b) it has assets sufficient to
enable it to bear the economic risk of its investment in this Warrant and the
Warrant Shares and is an "accredited investor" as defined in Rule 501 under the
Securities Act of 1933, as amended; (c) it is acquiring this Warrant and, upon
exercise, will acquire the Warrant Shares, for its own account, and not with a
view to, or for sale in connection with, any distribution thereof; (d) it or its
representatives have received from the Company such information with respect to
the Company as it has deemed necessary and relevant in connection with this
Warrant and the Warrant Shares and it has the opportunity, directly or through
such representatives, to ask questions of and receive answers from persons
acting on behalf of the Company necessary to verify the information so
obtained; and (e) it and its officers, directors, employees and agents have not
employed any broker or finder or incurred any liability for any brokerage or
finder's fees or commissions or similar payments in connection with this Warrant
and the Warrant Shares.
10. GOVERNING LAW. This Agreement and all amendments, modifications,
-------------
alterations, or supplements hereto shall be construed under and governed by the
laws of the State of Delaware and the United States of America, without regard
to the principals of conflicts of law thereof.
11. MISCELLANEOUS. Except as provided in Sections 4 and 5 hereof, this
-------------
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought. The headings in this
Warrant are for purposes of reference only and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
12. EXPIRATION. The right to exercise this Warrant shall expire at 5:00
----------
P.M. Eastern Standard Time on December 3, 2003.
7
<PAGE>
This Warrant is executed as of the date and year first written above.
ORAPHARMA, INC.
By: /s/ Michael Kishbauch
------------------------------------
Michael Kishbauch, President
Witness:
[SIGNATURE ILLEGIBLE]
- -------------------------------
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: OraPharma, Inc.
The undersigned, the holder of the within Warrant, hereby irrevocably elects
to exercise this Warrant for, and to purchase thereunder ________ shares of
Series A Preferred Stock, $.001 par value per share, of OraPharma, Inc. and
herewith makes payment of $__________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to to the
undersigned at __________________________________.
Dated: __________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
__________________________________
(Address)
__________________________________
<PAGE>
Exhibit 4.6
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR
STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR STATE
SECURITIES LAWS.
No. W-10 Right to Purchase 2,791 Shares of Series A
Preferred Stock of OraPharma, Inc.
ORAPHARMA, INC.
Series A Preferred Stock Purchase Warrant
This is to certify that, FOR VALUE RECEIVED, CANAAN CAPITAL OFFSHORE
LIMITED PARTNERSHIP C.V. (the "Holder"), is entitled to purchase, subject to the
------
provisions of this Warrant, from OraPharma, Inc., a Delaware corporation (the
"Company"), 2,791 fully paid, validly issued and nonassessable shares of Series
-------
A Preferred Stock, par value $.001 per share, of the Company (the "Preferred
---------
Stock") at an exercise price of $1.00 per share. The number of shares of
- -----
Preferred Stock to be received upon the exercise of this Warrant and the price
to be paid for each share of Preferred Stock may be adjusted from time to time
as hereinafter set forth. The shares of Preferred Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares" and the exercise price of a share of Preferred Stock in
--------------
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price".
--------------
1. EXERCISE OF WARRANT.
-------------------
a. Exercise for Cash. This Warrant may be exercised in whole or in
-----------------
part at any time or from time to time until 5:00 p.m. Eastern Standard Time on
December 3, 2003 (the "Exercise Period"). This Warrant may be exercised by
---------------
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price for the
number of Warrant Shares specified in such form. The Exercise Price may be paid
by bank check, wire transfer or cancellation of indebtedness. As soon as
practicable after each such exercise of this Warrant, but not later than seven
(7) days from the date of such exercise, the Company shall issue and deliver to
the Holder a certificate for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
<PAGE>
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt
by the Company of this Warrant at its office, or by the stock transfer agent of
the Company at its office, in proper form for exercise, the Holder shall be
deemed to be the holder of record of the shares of Preferred Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Preferred
Stock shall not then be physically delivered to the Holder.
b. Warrant Exchange. At any time during the Exercise Period, the Holder
----------------
may, at its option, exchange this Warrant, in whole or in part (a "Warrant
-------
Exchange"), into the number of Warrant Shares determined in accordance with this
- --------
Section 1(b), by surrendering this Warrant at the principal office of the
Company or at the office of its stock transfer agent, accompanied by a notice
stating the Holder's intent to effect such exchange, the number of Warrant
Shares to be exchanged and the date on which the Holder requests that such
Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall
------------------
take place on the date specified in the Notice of Exchange or, if later, the
date the Notice of Exchange is received by the Company (the "Exchange Date").
-------------
Certificates for the shares issuable upon such Warrant Exchange and, if
applicable, a new warrant of like tenor evidencing the balance of the shares
remaining subject to this Warrant, shall be issued as of the Exchange Date and
delivered to the Holder within seven (7) days following the Exchange Date. In
connection with any Warrant Exchange, this Warrant shall represent the right to
subscribe for an acquire the number of Warrant Shares equal to (i) the number of
Warrant Shares specified by the Holder in its Notice of Exchange (the "Total
-----
Number") less (ii) the number of Warrant Shares equal to the quotient obtained
- ------
by dividing (A) the product of the Total Number and the existing Exercise Price
by (B) the Fair Market Value. "Fair Market Value" shall be determined as
-----------------
follows: (1) if the Preferred Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed for
trading on the Nasdaq Stock Market, the Fair Market Value shall be the average
of the last reported sale prices of the Preferred Stock on such exchange or
system for the twenty (20) business days ending on the last business day prior
to the date for which the determination is being made; or (2) if the Preferred
Stock is not so listed or admitted to unlisted trading privileges, the Fair
Market Value shall be the average of the last reported bid and asked prices
reported by the National Quotation Bureau, Inc. for the twenty (20) business
days ending on the last business day prior to the date for which the
determination is being made; or (3) if the Preferred Stock is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the Fair Market Value shall be
2
<PAGE>
an amount, not less than book value thereof as at the end of the most recent
fiscal quarter of the Company ending prior to the Exchange Date, determined in
such reasonable manner as may be prescribed by the Board of Directors of the
Company.
2. RESERVATION OF SHARES. The Company shall at all times reserve for
---------------------
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Preferred Stock as shall be required for issuance and delivery upon exercise
of this Warrant.
3. FRACTIONAL SHARES. No fractional shares of Preferred Stock shall be
-----------------
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon any exercise hereof, the Company shall pay to the Holder
an amount in cash equal to such fraction multiplied by the Fair Market Value of
a share of Preferred Stock.
4. ANTIDILUTION PROVISIONS.
-----------------------
a. Adjustments for Stock Splits, etc. In the event the Preferred
----------------------------------
Stock is changed by reason of a stock split, reverse stock split, stock dividend
or recapitalization or is converted into or exchanged for other securities as a
result of a merger, consolidation or reorganization in which the Company is the
surviving corporation, appropriate adjustments shall be made in the terms of
this Warrant, or additional warrants shall be granted to the Holder as shall be
equitable and appropriate, or an adjustment in the number and class of shares
allocated to, and the Exercise Price of, this Warrant shall likewise be made.
b. Adjustments for Certain Issuances or Sales at Less than the
-----------------------------------------------------------
Exercise Price in Effect.
- ------------------------
i. General. If the Company shall, at any time from time to time,
-------
issue any shares of Preferred Stock without consideration or for a Net
Consideration Per Share less than the Exercise Price in effect immediately prior
to such issuance, then, and in each such case, the Exercise Price in effect
thereafter shall be reduced, concurrently with such issue, to a price equal to
the Net Consideration Per Share received by the Company for each such share of
Preferred Stock.
ii. Other Dilutive Issuances of Options, Warrants or Convertible
------------------------------------------------------------
Securities.
- ----------
(A) The issuance of any warrants, options or other
subscription or purchase rights with respect to shares of Preferred Stock and
the issuance of any securities convertible into or exchangeable for shares of
Preferred Stock (or the issuance of any warrants, options or any rights with
respect to such convertible or exchangeable securities) shall be deemed an
3
<PAGE>
issuance at such time of such Preferred Stock if the Net Consideration Per Share
which may be received by the Company for such Preferred Stock (as hereinafter
determined) shall be less than the Exercise Price at the time of such issuance
and, except as hereinafter provided, an adjustment in the Exercise Price and the
number of shares of Preferred Stock issuable upon exercise of this Warrant shall
be made upon each such issuance in the manner provided in Section 4(b)(i) above.
Any obligation, agreement or undertaking to issue warrants, options, or other
subscription or purchase rights at any time in the future shall be deemed to be
an issuance at the time such obligation, agreement or undertaking vests. No
adjustment of the Exercise Price and the number of shares of Preferred Stock
issuable upon exercise of this Warrant shall be made upon the issuance of any
shares of Preferred Stock which are issued pursuant to the exercise of any
warrants, options or other subscription or purchase rights or pursuant to the
exercise of any conversion or exchange rights in any convertible securities if
any adjustment shall previously have been made upon the issuance of any such
warrants, options or other rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any rights
therefor) as above provided.
(B) Expiration or Cancellation of Options, Warrants or
--------------------------------------------------
Convertible Securities. Any adjustment of the Exercise Price and the number of
- ----------------------
shares of Preferred Stock issuable upon exercise of this Warrant with respect to
this Section 4(b)(ii) which relates to warrants, options or other subscription
or purchase rights with respect to shares of Preferred Stock shall be
disregarded if, as, and when all of such warrants, options or other subscription
or purchase rights expire or are cancelled without being exercised, so that the
Exercise Price effective immediately upon such cancellation or expiration shall
be equal to the Exercise Price in effect at the time of the issuance of the
expired or cancelled warrants, options or other subscriptions or purchase
rights, with such additional adjustments as would have been made to that
Exercise Price had the expired or cancelled warrants, options or other
subscriptions or purchase rights not been issued.
iii. Definition of Net Consideration Per Share. For
-----------------------------------------
purposes of this Section 4(b), the "Net Consideration Per Share" which may be
---------------------------
received by the Company shall be determined as follows:
(A) If the consideration received by the Company in
connection with the issuance of shares of the Preferred Stock or the issuance of
any of the securities described in this Section 4 consists of cash, such
consideration shall be deemed to be the amount of such cash (provide that in no
case shall any deduction be made for any commissions,
4
<PAGE>
discounts or other expenses incurred by the Company in connection therewith). If
a part or all of the consideration received by the Company in connection with
the issuance of shares of the Preferred Stock or the issuance of any of the
securities described in this Section 4, consists of property other than cash,
such consideration shall be deemed to have the same value as shall be determined
in good faith by the Board of Directors of the Company.
(B) For purposes of Section 4(b)(ii) above, the "Net Consideration
-----------------
Per Share" shall mean the amount equal to the total amount of consideration, if
- ---------
any,
received by the Company for the issuance of such warrants, options,
subscriptions, or other purchase rights or convertible or exchangeable
securities, plus the minimum amount of consideration, if any, payable to the
Company upon exercise or conversion thereof, divided by the aggregate number of
shares of Preferred Stock that would be issued if all such warrants, options,
subscriptions, or other purchase rights or convertible or exchangeable
securities were exercised, exchanged or converted.
(C) For purposes of Section 4(b)(ii) above, the "Net Consideration
-----------------
Per Share" which may be received by the Company shall be determined in each
- ---------
instance as of the date of vesting of warrants, options, subscriptions or other
purchase rights, or convertible or exchangeable securities without giving effect
to any possible future price adjustments or rate adjustments which may be
applicable with respect to such warrants, options, subscriptions or other
purchase rights or convertible securities.
c. Miscellaneous.
-------------
i. No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least 5% in such Exercise
Price; provided, however, that any adjustments which by reason of this Section
-------- -------
4(c) are not required to be made shall be carried forward and taken into account
in any subsequent adjustment required to be made hereunder.
ii. Notwithstanding anything contained herein to the contrary, Section
4(b) above shall not apply under any of the circumstances described in Section
4(a) above or with respect to Excluded Stock (as defined in the Company's
Certificate of Designation with respect to its Preferred Stock filed with the
Secretary of State of the State of Delaware on December 2, 1996).
5
<PAGE>
5. CERTAIN EXTRAORDINARY TRANSACTIONS. In the event the Preferred Stock is
----------------------------------
exchanged for securities, cash or other property of any other corporation or
entity as the result of a reorganization, merger or consolidation in which the
Company is not the surviving corporation, the dissolution or liquidation of the
Company, or the sale of all or substantially all the assets of the Company, the
Board of Directors of the Company or the board of directors of any successor
corporation or entity may, in its discretion, as to the unexercised portion of
this Warrant, (a) provide for payment of an amount equal to the excess of the
fair market value of the Warrant Shares, as determined by the Board of Directors
of the Company or such board, over the Exercise Price of such Warrant Shares as
of the date of the transaction, in exchange for the surrender of the right to
exercise this Warrant, or (b) provide for the assumption of this Warrant, or the
substitution therefor of new warrants, by the successor corporation or entity.
6. LOSS OF WARRANT. Upon receipt by the Company of evidence satisfactory
---------------
to it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) or reasonably satisfactory indemnification,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new warrant of like tenor and date.
7. NO RIGHTS AS STOCKHOLDER. The Holder shall not, as holder of this
------------------------
Warrant, be entitled to vote, if applicable, or to receive dividends or to be
deemed the holder of Preferred Stock that may at any time be issuable upon
exercise of this Warrant for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a stockholder of the Company or, if applicable, any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issue or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such holder shall have exercised the Warrant and been
issued the Warrant Shares in accordance with the provisions hereof.
8. NON-TRANSFERABILITY. Neither this Warrant nor any Warrant Shares shall
-------------------
be registered under the Securities Act of 1933, as amended, and applicable state
securities laws. Therefore, the Company shall require, as a condition of
allowing the transfer or exchange of this Warrant or such Warrant Shares, that
the Holder of this Warrant or such Warrant Shares, as the case may be, furnish
to the Company an opinion of counsel reasonably acceptable to the Company to the
effect that such
6
<PAGE>
transfer or exchange will be exempt from the registration and prospectus
delivery requirements under the Securities Act of 1933, as amended, and
applicable state securities laws. The certificates evidencing the Warrant
Shares shall bear a legend to the effect that the Warrant Shares evidenced by
such certificate have not been registered under the Securities Act of 1933, as
amended, and applicable state securities laws and are, therefore, subject to
restrictions on transfer.
9. INVESTMENT REPRESENTATIONS AND WARRANTIES. The Holder hereby
-----------------------------------------
represents and warrants to the Company that (a) it has knowledge and experience
in financial and business matters sufficient to enable it to evaluate the merits
and risks of an investment in the Company; (b) it has assets sufficient to
enable it to bear the economic risk of its investment in this Warrant and the
Warrant Shares and is an "accredited investor" as defined in Rule 501 under the
Securities Act of 1933, as amended; (c) it is acquiring this Warrant and, upon
exercise, will acquire the Warrant Shares, for its own account, and not with a
view to, or for sale in connection with, any distribution thereof; (d) it or its
representatives have received from the Company such information with respect to
the Company as it has deemed necessary and relevant in connection with this
Warrant and the Warrant Shares and it has the opportunity, directly or through
such representatives, to ask questions of and receive answers from persons
acting on behalf of the Company necessary to verify the information so
obtained; and (e) it and its officers, directors, employees and agents have not
employed any broker or finder or incurred any liability for any brokerage or
finder's fees or commissions or similar payments in connection with this Warrant
and the Warrant Shares.
10. GOVERNING LAW. This Agreement and all amendments, modifications,
-------------
alterations, or supplements hereto shall be construed under and governed by the
laws of the State of Delaware and the United States of America, without regard
to the principals of conflicts of law thereof.
11. MISCELLANEOUS. Except as provided in Sections 4 and 5 hereof, this
-------------
Warrant and any term hereof may be changed, waived, discharged or terminated
only by an instrument in writing signed by the party against which enforcement
of such change, waiver, discharge or termination is sought. The headings in this
Warrant are for purposes of reference only and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
12. EXPIRATION. The right to exercise this Warrant shall expire at 5:00
----------
P.M. Eastern Standard Time on December 3, 2003.
7
<PAGE>
This Warrant is executed as of the date and year first written above.
ORAPHARMA, INC.
By: /s/ Michael Kishbauch
------------------------------------
Michael Kishbauch, President
Witness:
[SIGNATURE ILLEGIBLE]
- -------------------------------
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: OraPharma, Inc.
The undersigned, the holder of the within Warrant, hereby irrevocably elects
to exercise this Warrant for, and to purchase thereunder ________ shares of
Series A Preferred Stock, $.001 par value per share, of OraPharma, Inc. and
herewith makes payment of $__________ therefor, and requests that the
certificates for such shares be issued in the name of, and delivered to to the
undersigned at __________________________________.
Dated: __________________________________
(Signature must conform to name of
holder as specified on the face of
the Warrant)
__________________________________
(Address)
__________________________________
<PAGE>
Exhibit 4.9
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") dated as of the 23 day of
---------
December, 1999, by and among OraPharma, Inc., a Delaware corporation (the
"Company"), and the entities listed on Schedule 1 attached hereto (the
- --------
"Buyers").
------
The Company and the Buyers are desirous of providing for the issuance of
shares of Series D Preferred Stock (as defined herein), as more specifically set
forth herein.
The parties, intending to be legally bound hereby, agree as follows:
1. Definitions.
-----------
As used in this Agreement, the following terms have the meanings specified
or referred to in this Section 1.
"Applicable Environmental Law" shall mean CERCLA, RCRA, the Federal Waste
----------------------------
Pollution Control Act, 33 U.S.C. (S)(S) 1261 et. seq., the Clean Air Act, 42
--- ----
U.S.C. (S)(S) 7401 et seq., any similar provisions of state or local law in the
-- ----
jurisdictions where the properties of the Company are located and the
regulations thereunder and any other local, state and/or federal laws or
regulations, whether currently in existence or hereafter enacted, that govern:
(a) the existence, cleanup and/or remedy of contamination on property;
(b) the protection of the environment from spilled, deposited or
otherwise emplaced contamination;
(c) the control of hazardous wastes; or
(d) the use, generation, transport, treatment, storage, disposal,
removal or recovery of Hazardous Materials, including building materials.
"Budget" shall have the meaning set forth in Section 5.3(b).
------
"Business" shall have the meaning set forth in Section 3.17.
--------
"Business and Condition" shall mean the business, operations, financial
----------------------
condition, operating results, liabilities, or assets of the Company.
"Business Day" shall mean any day that is not a Saturday or Sunday or a day
------------
on which banks located in the Commonwealth of Pennsylvania or New York, New York
are authorized or required to be closed.
"Buyers" shall have the meaning set forth in the first paragraph of this
------
Agreement.
"By-Laws" shall mean the by-laws of the Company.
-------
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
------
and Liability Act, 42 U.S.C. (S)(S) 6901 et seq.
-- ----
<PAGE>
"Certificate of Incorporation" shall mean the Second Amended and Restated
----------------------------
Certificate of Incorporation of the Company, as amended from time to time.
"Closing" shall have the meaning set forth in Section 2.4.
-------
"Closing Date" shall mean the date and time of the Closing.
------------
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Commission" shall mean the Securities and Exchange Commission.
----------
"Commitment" shall mean all obligations of the Company and its
----------
Subsidiaries, contingent or otherwise, pursuant to long-term leases (other than
leases for real property) or similar agreements.
"Common Stock" shall mean the Common Stock, par value $.001 per share, of
------------
the Company.
"Company" shall have the meaning set forth in the first paragraph of this
-------
Agreement.
"Contemplated Transactions" shall have the meaning set forth in Section
-------------------------
4.3.
"Encumbrance" shall mean any security interest, mortgage, lien, charge,
-----------
adverse claim or restriction of any kind, including, but not limited to, any
restriction on the use, voting, transfer, receipt of income or other exercise of
any attributes of ownership.
"Equity Stock" shall have the meaning set forth in Rule
------------
3a11-1 under the Securities Exchange Act of 1934.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended.
"GAAP" shall mean generally accepted accounting principles applied within
----
the United States.
"Governmental Body" shall mean any domestic or foreign national, state or
-----------------
municipal or other local governmental, regulatory or administrative agency or
multi-national body (including, but not limited to, the European Economic
Community), any subdivision, agency, commission or authority thereof, or any
quasi-governmental or private body exercising any regulatory or taxing authority
thereunder.
"Hazardous Materials" shall mean any substance which as of the date of this
-------------------
Agreement shall be identified as "hazardous" or "toxic" or otherwise regulated
under CERCLA or RCRA or which has been or shall be determined at any time by any
agency or court to be a hazardous or toxic substance under Applicable
Environmental Law. The term "Hazardous Material" shall also include, without
limitation, raw materials, building components, the products of any
manufacturing or other activities on the properties, wastes, petroleum, and
source, special nuclear or by-product material as defined by the Atomic Energy
Act of 1954, as amended (42 U.S.C. (S)(S) 3011 et seq., as amended).
-- -
"Indebtedness" shall mean all liabilities for money borrowed by the Company
------------
and its Subsidiaries.
"Initial Public Offering" shall mean the Company's initial distribution of
-----------------------
New Securities in an underwritten public offering to the general public pursuant
to a registration statement filed with and declared effective by the Commission
pursuant to the Securities Act at a price per New Security of not
-2-
<PAGE>
less than $4.00 (as adjusted for stock splits, stock combinations or similar
recapitalizations) and resulting in gross proceeds (before underwriting
commissions and offering expenses) to the Company of not less than $15 million.
"Material Contracts" shall have the meaning set forth in Section 3.8.
------------------
"Net Worth" shall have the meaning set forth in Section 6.8.
---------
"New Securities" shall mean any Equity Stock, including, but not limited
--------------
to, shares of Common Stock of the Company, any security which is convertible
into or exercisable or exchangeable for Common Stock, or any right, option or
warrant to acquire any Common Stock of the Company.
"Permits" shall have the meaning set forth in Section 3.19.
-------
"Person" shall mean any individual, corporation, general or limited
------
partnership, limited liability company, firm, joint venture, joint stock
company, enterprise, trust, association, unincorporated organization, other
entity, or Governmental Body.
"Preferred Shares" shall mean the Series D Preferred Stock of the Company
----------------
to be issued to the Buyers hereunder.
"Proprietary Rights" shall mean all patents, patent applications, patent
------------------
licenses, trademarks, trademark applications, trade names, service marks,
service mark applications, brand marks, brand names, copyrights, trade secrets,
inventions, technologies, know-how, formulae, processes, names and likeness.
"Public Offering" shall mean a distribution of New Securities in an
---------------
underwritten public offering to the general public pursuant to a registration
statement filed with and declared effective by the Commission pursuant to the
Securities Act.
"RCRA" shall mean the Resource Conservation and Recovery Act, 42 U.S.C.
----
(S)(S) 6901 et seq.
-- ----
"Registrable Securities" shall mean any shares of Common Stock issued or to
----------------------
be issued pursuant to conversion of the Preferred Shares (including any shares
issued as a dividend or distribution with respect to, or in exchange for, the
Preferred Shares).
"Related Party" shall mean (a) any individual who is an employee,
-------------
stockholder, consultant, director or officer of the Company; (b) any person who
is an affiliate of the Company, as such term is defined in Rule 405 under the
Securities Act, (c) any Person that owns five percent or more of the outstanding
Equity Stock of any class of the Company; (d) any member of the family (as
defined in Section 267(c)(4) of the Code) of, or any individual who has the same
home as, any individual (or the spouse of any such individual) described in
clause (a), (b) or (c) of this Section; or (e) any trust, estate or partnership
of which an individual described in clause (a), (b), (c) or (d) of this Section
is a grantor, fiduciary, beneficiary or partner.
"SBIA" shall have the meaning set forth in Section 3.18.
----
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Series A Preferred Stock" shall mean the Series A Convertible Preferred
------------------------
Stock, par value $.001 per share, of the Company.
-3-
<PAGE>
"Series B Preferred Stock" shall mean the Series B Preferred Stock, par
------------------------
value $.001 per share, of the Company.
"Series C Preferred Stock" shall mean the Series C Convertible Preferred
------------------------
Stock, par value $.001 per share, of the Company.
"Series D Preferred Stock" shall mean the Series D Convertible Preferred
------------------------
Stock, par value $.001 per share, of the Company.
"Stockholders Agreement" shall mean the Amended and Restated Stockholders
----------------------
Agreement dated as of the date hereof between the Company and the stockholders
of the Company named therein.
"Subsidiary" shall mean with respect to any Person, any corporation of
----------
which securities having the power to elect a majority of that corporation's
Board of Directors (other than securities having that power only upon the
happening of a contingency that has not occurred) are held by such Person or one
or more of its Subsidiaries.
"Taxes" shall mean all taxes, duties, charges, fees, levies, interest,
-----
penalties, additions to tax or other assessments, including, but not limited to,
income, excise, employment, property, sales, use, value added and franchise
taxes and customs duties, imposed by any Governmental Body and any payments with
respect thereto required under any tax-sharing agreement.
"Warrants" shall mean the warrants to acquire upon exercise thereof, an
--------
aggregate of 221,239 shares of Common Stock at an exercise price of $6.46 per
share issued to the Buyers pursuant to the terms of this Agreement,
substantially in the form attached as Exhibit A hereto.
---------
2. The Acquisition.
---------------
2.1 Preferred Shares. The Preferred Shares shall have the voting powers,
----------------
liquidation rights, designations, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations and
restrictions thereof as set forth in the Certificate of Incorporation and the
Stockholders Agreement.
2.2 Purchase and Sale. Subject to the terms and conditions of this
-----------------
Agreement, at the Closing to be held as provided in Section 2.4 below, the
Company shall issue and sell to the Buyers an aggregate of 1,106,194 shares of
Series D Preferred Stock and the Warrants, which shall be issuable to each Buyer
in the amount set forth opposite the name of such Buyer listed on Schedule 2.2,
free and clear of all Encumbrances, and each of the Buyers agrees, severally and
not jointly, to purchase from the Company the shares of Series D Preferred Stock
and the Warrants listed next to such Buyer's name on Schedule 2.2.
2.3 Purchase Price. The aggregate purchase price for the shares of Series
--------------
D Preferred Stock and the Warrants to be issued at the Closing shall be
$5,000,000, and each Buyer shall pay the amount of the purchase price set forth
opposite the name of such Buyer listed on Schedule 2.2. The purchase price
shall be paid by each of the Buyers to the Company at the Closing in immediately
available funds by wire transfer.
2.4 Place and Time. The closing of the purchase of the Preferred Shares
--------------
and the Warrants (the "Closing") by the Buyers shall take place at the offices
-------
of Sills Cummis Radin Tischman Epstein & Gross, One Riverfront Plaza, Newark,
New Jersey 07102-5400 on December ____, 1999 or at such other place, date and
time as the parties may agree in writing.
-4-
<PAGE>
2.5 Deliveries by the Company. At the Closing, the Company shall deliver
-------------------------
the following to each of the Buyers purchasing Preferred Shares on such date:
(a) Certificates representing the Preferred Shares and the Warrants,
duly registered in the names of the Buyers.
(b) The documents contemplated by Section 8.
(c) The executed Stockholders Agreement.
(d) All other documents, instruments and writings required by this
Agreement to be delivered by the Company at the Closing.
2.6 Deliveries by the Buyers. At the Closing, each of the Buyers
------------------------
purchasing Preferred Shares on such date shall deliver the following to the
Company:
(a) A wire transfer in the amount of the purchase price determined in
accordance with Section 2.3.
(b) The executed Stockholders Agreement.
(c) All other documents, instruments and writings required by this
Agreement to be delivered by the Buyers at the Closing.
3. Representations and Warranties of the Company.
---------------------------------------------
The Company represents and warrants (both as of the date of this Agreement
and as of the Closing Date) to each of the Buyers as follows:
3.1 Organization of the Company; Authorization.
------------------------------------------
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, with full legal and
corporate power and authority to enter into this Agreement, the Warrants and the
Stockholders Agreement, to sell and issue the Preferred Shares, and to perform
all of its obligations hereunder and thereunder, and to own, lease and operate
its assets, properties and business and to engage in its business as presently
conducted or contemplated. The Company is duly qualified and in good standing
as a foreign corporation under the laws of the State of Pennsylvania and is not
required to qualify as a foreign corporation in any other jurisdiction except
where the failure to be so qualified would not have a material adverse affect on
the Business and Condition of the Company.
(b) The Company has never had, nor does it presently have, any direct
or indirect Subsidiaries, nor has it owned, nor does it presently own, any
capital stock or other proprietary interest, directly or indirectly, in any
corporation, association, trust, partnership, joint venture or other entity.
The Company is not a party to any joint venture or partnership agreement.
(c) The execution, delivery and performance of this Agreement, the
Warrants and the Stockholders Agreement by the Company have been authorized by
all necessary corporate action on the part of the Company and each constitutes a
valid and legally binding obligation of the Company, enforceable against it in
accordance with their terms, except as such enforceability may be limited by
-5-
<PAGE>
bankruptcy laws, moratorium laws and other laws from time to time in effect
affecting creditors' rights generally.
3.2 Capitalization. (a) The authorized Equity Stock of the Company
--------------
consist of (i) 17,500,000 shares of Common Stock, 1,644,275 of which are issued
and outstanding immediately prior to consummation of this Agreement, and (ii)
862,500 shares of Series A Preferred Stock, 6,623,658 shares of Series B
Preferred Stock, and 6,584,360 shares of Series C Preferred Stock and 1,106,194
shares of Series D Preferred Stock, of which 862,500, 6,623,658, 6,584,360 and
zero, respectively, are issued and outstanding immediately prior to the
consummation of the transactions contemplated by this Agreement. Of the
authorized shares of Common Stock, 862,500, 6,623,658, 6,584,360 and 1,106,194
shares are currently reserved for issuance upon conversion of the Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock, respectively, and 221,239 shares are currently reserved for
issuance upon exercise of the Warrants. All of the issued and outstanding
shares of capital stock of the Company are fully paid and non-assessable.
(b) A true and complete list of the holders of record of all issued
and outstanding Equity Stock of the Company, including all outstanding options,
warrants or other rights to purchase Equity Stock, as adjusted to reflect the
consummation of the transactions contemplated by this Agreement including the
number of securities owned by each such holder, is set forth on Schedule 3.2(b)
attached hereto.
(c) The issuance of the Preferred Shares and the Warrants hereunder
and the shares of Common Stock issuable upon conversion of the Preferred Shares
and the Warrants have been duly and validly authorized. No further approval or
authorization of the stockholders or the directors of the Company, of any
Governmental Body or of any other Person is required for the issuance and sale
of the Preferred Shares or the Warrants, or the shares of Common Stock issuable
on conversion of the Preferred Shares or exercise of the Warrants. When paid
for by, and issued to, the Buyers, the Preferred Shares and the Warrants will be
duly and validly issued, fully paid and non-assessable and will be free and
clear of any Encumbrances. Upon exercise of the Warrants, the shares of Common
Stock issuable upon exercise thereof will be fully paid and non-assessable and
will be free and clear of any Encumbrances. The Preferred Shares will have the
designations, preferences and relative, participating, optional and other
special rights as set forth in the Certificate of Incorporation, By-Laws and the
Stockholders Agreement. Subject to the accuracy of the Buyers' representations
and warranties contained in Section 4, the offer, sale and issuance of the
Preferred Shares and the Warrants (and any shares of Common Stock issuable upon
conversion of the Preferred Shares and exercise of the Warrants) are exempt from
the registration requirements of the Securities Act and state securities laws.
(d) Except as set forth in Schedule 3.2(b) or with respect to the
preemptive rights and conversion privileges of the Preferred Shares or the
rights relating to the Warrants, there are no options, warrants, conversion
privileges, or preemptive or other rights or agreements presently outstanding to
purchase or otherwise acquire any shares of the capital stock or other
securities of the Company. Except as set forth in Schedule 3.2(b), the Company
is not a party to or subject to any agreement or understanding, that affects or
relates to the voting or giving of written consents with respect to any
security, or the voting by a director, of the Company. To the best knowledge of
the Company, no stockholder has granted options or other rights to purchase any
shares of Common Stock or other equity securities of the Company from such
stockholder. The Company holds no shares of its capital stock in its treasury.
Except as contemplated by this Agreement or as set forth in the Stockholders
Agreement or Schedule 3.2(b), there are no rights outstanding which permit or
allow the holder thereof to cause the Company to file a registration statement
or which permit or allow the holder thereof to include securities of the Company
in a registration statement filed by the Company. Except as contemplated by
this
-6-
<PAGE>
Agreement, the Certificate of Incorporation and the Stockholders Agreement and
as set forth in Schedule 3.2(b), none of the outstanding Equity Stock of the
Company was issued in violation of the Securities Act or other federal or state
or other jurisdictions' securities laws except for the filing of certain notices
that may be required under applicable Federal or state securities laws which
filings shall be timely made. The offer, sale and issuance of the Preferred
Shares and the Warrants and the shares of Common Stock issuable upon conversion
of the Preferred Shares and exercise of the Warrants in conformity with the
terms of this Agreement constitute transactions exempt from the registration
requirements of Section 5 of the Securities Act. The Company is not an
"investment company" within the meaning of the Investment Company Act of 1940.
The Company has delivered to the Buyers true, correct and complete copies of the
Certificate of Incorporation and By-Laws (or other governing instrument) of the
Company, as currently in effect each as amended, and all minutes, memoranda,
actions, and resolutions of the Board of Directors and of the Company relating
to the transactions contemplated hereby, each as certified by the Secretary of
the Company as being true and correct copies of the originals.
3.3 No Conflict as to the Company. Except as set forth in Schedule 3.3,
-----------------------------
the Company is not in violation or breach of any term of its Certificate of
Incorporation or By-laws (each as amended through the date hereof), or any
judgment or decree, nor has it received or delivered notice concerning a breach
of any Material Contract (as defined below), and, to the best knowledge of the
Company, it is not in violation of any order, statute, rule, or regulation
applicable to the Company or properties except for those the violation of which
would not have a material adverse effect on the Business and Condition of the
Company. Neither the execution, delivery or performance of this Agreement or
the Stockholders Agreement, the issuance of the Preferred Shares or the Warrants
or the Common Stock issuable upon conversion of the Preferred Shares or exercise
of the Warrants, or the consummation of the transactions contemplated hereby and
thereby, will (a) violate nor conflict with any provision of the Certificate of
Incorporation or By-Laws of the Company, or (b) violate, or be in conflict with,
or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or excuse performance by any Person of
any of its obligations under, or cause the acceleration of the maturity of any
debt or obligation pursuant to, or result in the creation or imposition of any
Encumbrance upon any property or assets of the Company under, any material
agreement or commitment to which the Company is a party or by which any of its
property or assets is bound, or to which any of the property or assets of the
Company is subject, except where the foregoing would not have a material adverse
affect on the Business and Condition of the Company, or (c) violate any statute
or law or any judgment, decree, order, regulation or rule of any court or other
Governmental Body applicable to the Company, except where the foregoing would
not have a material adverse affect on the Business and Condition or (d) result
in the suspension, revocation, impairment, forfeiture, or non-renewal of any
Permit (as defined below) of the Company, except where the foregoing would not
have a material adverse affect on the Business and Condition.
3.4 Title to Properties; Encumbrances; Condition. (a) The Company owns no
--------------------------------------------
interests in real properties. The Company has good, valid and legal title to
all other properties (personal and mixed, tangible and intangible) that it
purports to own and a valid leasehold interest in all properties that it has
leased. With respect to property it leases, the Company is in compliance with
such leases in all material respects.
(b) Except as set forth on Schedule 3.4(b), all properties and assets
owned or leased by the Company are owned or leased free and clear of all
Encumbrances.
(c) The properties and assets of the Company include all rights,
properties and other assets necessary to permit the Company to conduct its
business in all material respects in the same manner as presently conducted or
contemplated and as it has been conducted prior to the date of this Agreement.
-7-
<PAGE>
The equipment of the Company is in good operating condition and repair, normal
wear and tear excepted, and is adequate for its present and contemplated uses to
which it is being, or is contemplated to be, used.
3.5 Litigation. (a) There is no action, suit, inquiry, proceeding or
----------
investigation by or before any court or Governmental Body pending or, to the
best of the Company's knowledge, threatened against the Company or any of its
properties, and (b) to the best of the Company's knowledge, there is no valid
basis for any such action, suit, inquiry, proceeding or investigation. The
Company is not a party to, or to the best knowledge of the Company, named in any
order, writ, injunction, judgment, or decree of any court, Governmental Body or
instrumentality. There is no action, suit or proceeding by the Company
currently pending or that the Company currently intends to initiate.
3.6 Proprietary Rights. The Company owns, or is licensed or otherwise has
------------------
the full and exclusive rights to use, sell and license, all Proprietary Rights
used in or necessary for the conduct of its business as heretofore conducted,
and as presently contemplated to be conducted, all of which are listed on
Schedule 3.6 hereto (the "Requisite Rights"). To the Company's knowledge, each
----------------
of the patents comprising the owned or licensed Requisite Rights is valid and
enforceable. Except as set forth on Schedule 3.6, no royalties, honoraria, fees
or other amounts are payable by the Company to any third party by reason of the
ownership, use, sale or license of the Requisite Rights. Except as set forth on
Schedule 3.6 hereto, to the best of the Company's knowledge, no product, service
or process currently or proposed to be manufactured, marketed, sold or used by
the Company violates any license or infringes any Proprietary Rights of any
third party. There is no pending or, to the best of the Company's knowledge,
threatened claim or litigation against the Company contesting the validity or
right to use any of the Requisite Rights, nor does there exist any basis
therefor.
3.7 Contracts and Commitments. Except as set forth on Schedule 3.7, the
-------------------------
Company does not have any contract, agreement, obligation, lease or commitment,
proposed or executed, written or oral, absolute or contingent, other than (i)
contracts for the purchase of supplies and services that were entered into in
the ordinary course of business and that do not involve more than $50,000, and
do not extend for more than one (1) year beyond the date hereof, (ii) sales
contracts entered into in the ordinary course of business, (iii) agreements that
are terminable at will by the Company on no more than thirty (30) days' notice
without cost or liability to the Company, and that are not material to the
Business and Condition of the Company. For the purpose of this paragraph,
employment and consulting contracts and contracts with labor unions, and license
agreements relating to the acquisition or disposition of the Company's
technology (other than standard end user license agreements) shall not be
considered to be contracts entered into in the ordinary course of business.
Schedule 3.7 contains a true, complete and accurate list of all such contracts,
agreements, leases, commitments, understandings or other obligations (whether
written or oral) (collectively the "Material Contracts"), true and correct
------------------
copies of which have been made available to the Buyers or their counsel.
3.8 Status of Agreements. All contracts, agreements, commitments,
--------------------
obligations, plans, leases, policies and licenses to which the Company is a
party are valid and binding agreements and are in full force and effect; there
are no existing defaults (or events which, with notice or lapse of time or both,
would constitute a default) by the Company or, to the best of the Company's
knowledge, any other party thereunder. The Company is not a party to any
contract, agreement, commitment or other obligation that has or may reasonably
be expected to have individually or in the aggregate with any other contracts,
agreements, commitments or other obligations a material adverse effect on the
Business and Condition of the Company.
3.9 Labor Relations. To the best knowledge of the Company, no officer,
---------------
key employee of or consultant to the Company is or will be in violation of any
judgment, decree, or order, or any term of any
-8-
<PAGE>
employment contract, consulting agreement, patent disclosure agreement, or other
contract or agreement relating to the relationship of any such officer or
consultant with the Company, as the case may be, or any other party because of
the nature of the business conducted or proposed to be conducted by the Company
or the use by the officer, key employee or consultant of his best efforts with
respect to such business. To the best knowledge of the Company, no officer, key
employee or consultant to the Company intends to terminate his or their
employment or other arrangement with the Company, nor does the Company have a
present intention to terminate the employment of or other arrangement with any
of the foregoing, including, but not limited to, the Chief Executive Officer of
the Company. Subject to general principles related to wrongful termination of
employees and to the terms of the agreements listed on Schedule 3.9, the
employment of each officer and employee of the Company is terminable at will of
the Company. Except as set forth in Schedule 3.9, the Company is not obligated
under any employment contract, nor is it a party to any union, collective
bargaining or similar agreement, any profit-sharing, deferred compensation,
bonus, stock option, stock ownership, stock purchase, pension, consulting,
retirement, welfare or incentive plan or agreement, or any plan providing for
"fringe benefits" to its employees, including, but not limited to, salary
continuation, service awards, severance pay, welfare, medical, hospitalization,
disability, life insurance and other insurance plans or related benefits with
respect thereto. The Company is in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and the Company is not nor has it
been engaged in any unfair labor practice which is likely to have a material
adverse affect on the Business and Condition of the Company; there is no unfair
labor practice complaint against the Company pending before the National Labor
Relations Board; there is no labor strike, dispute, slowdown or stoppage pending
or threatened against or affecting the Company or any attempt to organize
employees of the Company for union representation; no representation question
exists respecting the employees of the Company; and the Company's relations with
its employees are satisfactory.
3.10 Employee Benefit Plans. Except as set forth in Schedule 3.9, the
----------------------
Company does not have, none of its current or former employees are covered by,
and the Company has no obligation with respect to, any employee benefit plan (as
defined in Section 3(3) of ERISA), whether formal or informal.
3.11 Compliance with Law. The operations of the Company have been
-------------------
conducted in all material respects in accordance with all applicable laws,
regulations and other requirements of all Governmental Bodies having
jurisdiction over the Company. The Company has not received any notification of
any asserted present or past failure to comply with any such laws, rules or
regulations. The Company has all material licenses, Permits, orders or
approvals from Governmental Bodies material to the Business and Condition of the
Company and, to the best of the Company's knowledge, it is not in violation of
any such license, Permit, order or approval which violation is likely to have a
material adverse affect on the Business and Condition of the Company.
3.12 Governmental Consent. No consent, approval, or authorization of, or
--------------------
designation, declaration, notification, or filing with any Governmental Body on
the part of the Company is required in connection with the valid execution,
delivery and performance of this Agreement or the Stockholders Agreement, the
offer, sale, or issuance of the Preferred Shares and the Common Stock to be
issued upon the conversion thereof or the consummation of any other transaction
contemplated hereby or by the Stockholders Agreement except the qualification
(or the taking of such action as may be necessary to secure an exemption from
qualification, if available) of the offer and sale of the Preferred Shares or
the Common Stock to be issued upon the conversion thereof under applicable
securities laws, which filings and qualifications, if required, will be
accomplished in a timely manner.
3.13 Environmental Protection. (a) The Company is in compliance with all
------------------------
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables
-9-
<PAGE>
contained in any Applicable Environmental Laws, or in any plan, order, decree,
judgment, notice or demand letter issued, entered, promulgated or approved
thereunder. The Company is not aware of, nor has the Company received notice of,
any past, present or future events, conditions, circumstances, activities,
practices, incidents, actions or plans which may interfere with or prevent
continued compliance, or which may give rise to any common law or legal
liability, or otherwise form the basis of any claim, action, suit, proceeding,
hearing or investigation, based on or related to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge, release or threatened release into the environment, of any
pollutant, contaminant or hazardous or toxic material or waste.
(b) To the best of the Company's knowledge, no Hazardous Material has
been incorporated in, used on, stored on or under, released from, treated on,
transported to or from, or disposed of on or from any real property leased by
the Company such that, under Applicable Environmental Laws, (i) any such
Hazardous Material would be required to be removed, cleaned-up or remediated
before the property could be altered, renovated, demolished or transferred, or
(ii) the lessee of the property could be subjected to liability for the removal,
clean-up or remediation of such Hazardous Material; and the Company has not
received any notification from any Governmental Bodies or other third parties
relating to Hazardous Material on or affecting any property owned or leased by
the Company or relating to any potential or known liability under Applicable
Environmental Laws arising from the ownership or leasing of any property.
3.14 Related Party Transactions. (a) Except as set forth in Schedule 3.14
--------------------------
and except for the transactions contemplated to occur at the Closing, (i) there
have been no transactions between the Company and any Related Party or any
payment (however characterized) by the Company to any Related Party or by any
Related Party to the Company, and (ii) there is no lease, agreement or
commitment between the Company and any Related Party. As used in the preceding
sentence, the term "transaction" includes, but is not limited to, any sale or
other transfer of property of assets, the lease or other use of property or
assets, the provision of services and the furnishing of personnel, whether or
not for consideration.
(b) Except as set forth in Schedule 3.14, no Related Party has any
material direct or indirect interest (including financial or ownership) in any
Material Contract, or property of the Company, real or personal, tangible or
intangible, including, without limitation, any Proprietary Rights, used in or
pertaining to the business of the Company, and no Related Party is indebted to
the Company and the Company is not indebted to any Related Party whether
directly or indirectly (including commitments to make loans or extend or
guarantee credit).
3.15 No Brokers or Finders. Neither the Company, nor any of its officers,
---------------------
directors or employees, has employed or will employ any broker or finder or
incurred or will incur, directly or indirectly, any liability for any brokerage
or finder's fees or commissions or similar payments in connection with this
Agreement or the transactions contemplated hereby.
3.16 Insurance. The Company has obtained insurance for its benefit in
---------
such amounts and covering such risks as are customary for businesses comparable
to the business conducted by the Company under policies in effect and issued by
insurers of recognized responsibility.
3.17 Disclosure. No representations or warranties by the Company in this
----------
Agreement and no statement contained in any document (including, without
limitation, financial statements, certificates, projections, business plans or
other writings furnished or to be furnished to the Buyers or any of their
representatives pursuant to the provisions hereof or in connection with the
transactions contemplated
-10-
<PAGE>
hereby), contains any untrue statement of material fact or omits to state any
material fact necessary, in light of the circumstances under which it was made,
in order to make the statements herein or therein not misleading. Documents
delivered to the Buyers pursuant to this Agreement are true and complete copies
of what they purport to be.
3.18 Small Business Matters. (a) The Company, together with its
----------------------
"affiliates" (as that term is defined in Title 13, Code of Federal Regulations,
(S)121.103), is a "small business concern" within the meaning of the Small
Business Investment Act of 1958, as amended (the "SBIA"), and the regulations
----
thereunder, including Title 13, Code of Federal Regulations, (S)121.301(c). The
Company is a "qualified small business," as defined in Section 1202(d) of the
Code. The Company covenants and agrees to execute and deliver to the Buyers,
from time to time, such forms, documents, schedules and other instruments as may
be reasonably requested thereby to cause the Series D Preferred Stock to qualify
as "qualified small business stock," as defined in Section 1202(c) of the Code.
(b) The proceeds from the sale of the Preferred Shares will be used
by the Company to (i) finance working capital, research and development and
other general corporate needs, and (ii) pay expenses related to the transactions
contemplated by this Agreement, the Stockholders Agreement, and the other
transactions and documents related hereto and thereto. The Company will not
engage in any act or use the proceeds from the sale of the Shares hereunder,
directly or indirectly for any purpose in contravention of the SBIA and the
regulations thereunder. No portion of such proceeds (i) will be used to provide
capital to a corporation licensed under the SBIA, (ii) will be used to acquire
farm land, (iii) will be used to fund production of a single item or defined
limited number of items, generally over a defined production period, that
constitute the majority of the activities of the Company (examples include
motion pictures and electric generating plants), or (iv) will be used for any
purpose contrary to the public interest (including, but not limited to,
activities which are in violation of law or inconsistent with free competitive
enterprise), in each case, within the meaning of 13 C.F.R. (S)107.720.
(c) The primary business activity of the Company does not involve,
directly or indirectly, providing funds to others, purchasing or discounting
debt obligations or factoring or long-term leasing of equipment with no
provision for maintenance or repair. The Company is not classified under Major
Group 65 (Real Estate) of the SIC Manual. The assets of the business of the
Company (the "Business") will not be reduced or consumed, generally without
--------
replacement, as the life of the Business progresses, and the nature of the
Business does not require that a stream of cash payments be made to the
Company's financing sources on a basis associated with the continuing sale of
assets (examples include real estate development projects and oil and gas
wells). (See 13 C.F.R. (S)107.720.)
---
(d) The proceeds from the sale of the Preferred Shares will not be
used substantially for a foreign operation and at the Closing or within one year
thereafter no more than 49% of the employees or tangible assets of the Company
and its subsidiaries will be located outside the United States. This subsection
(d) does not prohibit such proceeds from being used to acquire foreign materials
and equipment or foreign property rights for use or sale in the United States
(unless such use or sale is for a specific domestic purpose).
3.19 Licenses; Authorizations; Permits. The Company owns, possesses, or
---------------------------------
will own, possess, and maintain throughout the term of this Agreement all
franchises, grants, licenses, permits, consents, approvals or authorizations
(the "Permits") of every kind and nature necessary in the conduct of its
-------
business as currently operated except for those Permits the failure of which to
so own, possess and maintain is not reasonably likely to have a material adverse
effect on the Business and Condition of the Company. The Company is not in
violation of, or in default under, any Permits, except where such
-11-
<PAGE>
violation or default is not reasonably likely to have a material adverse effect
on the Business and condition of the Company.
3.20 Liabilities; Indebtedness. Except as and to the extent disclosed or
-------------------------
reserved against the balance sheet of the Company as of November 30, 1999, a
copy of which has been previously delivered to the Buyers, to the best of the
Company's knowledge, it has no liabilities, absolute or contingent (other than
those incurred after the date thereof in the ordinary course of business), which
are, individually or in the aggregate, material to the Business and Condition of
the Company. Except as set forth in Schedule 6.3, the Company has no
indebtedness for borrowed money that the Company has directly or indirectly
created, incurred, assumed, or guaranteed, or with respect to which the Company
has otherwise become directly or indirectly liable.
3.21 Absence of Certain Changes or Events; Operations. Since November 30,
------------------------------------------------
1999 to the best knowledge of the Company there has not been any event,
occurrence or development or any change in the business, financial condition or
results of operations of the Company which, individually or in the aggregate,
has had, or is reasonably likely to have, a material adverse effect on the
Business and Condition of the Company or a material adverse effect on the
Company's ability to consummate the transactions contemplated hereby and by the
Stockholders Agreement.
4. Representations and Warranties of the Buyers.
--------------------------------------------
Each Buyer, severally and not jointly, represents and warrants (both as of
the date of this Agreement and as of the Closing Date to the Company as follows:
4.1 Authorization. Such Buyer has the full power and authority to enter
-------------
into this Agreement and the Stockholders Agreement and to perform all of its
obligations hereunder and thereunder. The execution, delivery and performance
of this Agreement and the Stockholders Agreement by it have been duly authorized
by all necessary action, and this Agreement and the Stockholders Agreement
constitute valid and binding obligations of such Buyer enforceable against such
Buyer in accordance with their respective terms, except, as such enforceability
may be limited by bankruptcy laws, moratorium laws and other laws from time to
time in effect affecting creditors' rights generally. The execution, delivery
and performance of this Agreement and the Stockholders Agreement by such Buyer
does not violate any provision of the governing instrument of Buyer, conflict
with or constitute a default under any material agreement, indenture or
instrument to which such Buyer is a party or by which it is bound or violate any
statute or order of any court or Governmental Body applicable to such Buyer,
except where the foregoing would not have a material adverse affect on the
business and condition of the Buyer.
4.2 Investment Representations. Such Buyer has knowledge and experience
--------------------------
in financial and business matters sufficient to enable it to evaluate the merits
and risks of an investment in the Company. Such Buyer has assets sufficient to
enable it to bear the economic risk of its investment in the Preferred Shares
and the Warrants and is an "accredited investor", as defined in Rule 501 under
the Securities Act. Such Buyer is acquiring the Preferred Shares and the
Warrants for its own account, and not with a present view to, or for sale in
connection with, any distribution thereof. Such Buyer understands that the
Preferred Shares and the Warrants and the Common Stock issuable upon conversion
of the Preferred Shares and exercise of the Warrants have not been registered
under the Securities Act by reason of their issuance in a transaction exempt
from the registration requirements of the Securities Act pursuant to the
exemption provided in Section 4(2) thereof, that the Preferred Shares and the
Warrants and the Common Stock issuable upon conversion of the Preferred Shares
or exercise of the Warrants have not been registered under applicable state
securities laws by reason of their issuance in a transaction exempt from such
registration requirements, and that the Preferred Shares and the Warrants and
the Common Stock
-12-
<PAGE>
issuable upon conversion of the Preferred Shares and exercise of the Warrants
may not be sold or otherwise disposed of unless registered under the Securities
Act and applicable state securities laws (the Company being under no obligation
so to register such Preferred Shares or the Warrants or the Common Stock
issuable on conversion of the Preferred Shares or exercise of the Warrants,
except as set forth in Section 8 of the Stockholders Agreement) or exempted from
registration. Such Buyer further understands that the exemption from
registration afforded by Rule 144 promulgated under the Securities Act is not
presently available with respect to the Preferred Shares or the Warrants or the
Common Stock issuable on conversion of the Preferred Shares or exercise of the
Warrants.
4.3 Buyers' Acknowledgment as to Information. Such Buyer or officers and
----------------------------------------
representatives of such Buyer have received from the Company such information
(including the Schedules and Exhibits to this Agreement and of such documents
referred to herein and therein as they have requested) with respect to the
Company as such Buyer has deemed necessary and relevant in connection with the
transactions contemplated by this Agreement (the "Contemplated Transactions"),
-------------------------
and such Buyer has had the opportunity, directly or through such officers and
representatives, to ask questions of and receive answers from persons acting on
behalf of the Company necessary to verify the information so obtained; provided,
--------
however, that such receipt of information and such opportunity shall not affect
- -------
or otherwise diminish or obviate the representations and warranties of the
Company set forth in this Agreement or such Buyer's reliance thereon.
4.4 No Brokers or Finders. No Buyer nor any of its officers, directors or
---------------------
employees has employed or will employ any broker or finder or incurred or will
incur, directly or indirectly, any liability for any brokerage or finder's fees
or commissions or similar payments in connection with any of the Contemplated
Transactions.
5. Affirmative Covenants of the Company.
------------------------------------
Subject to Section 12, the Company agrees that so long as any shares of
Series D Preferred Stock are outstanding:
5.1 Use of Proceeds. The proceeds of the sale of the Preferred Shares and
---------------
the Warrants shall be used by the Company for working capital, research and
development and other general corporate purposes.
5.2 Consent as to Issuance of Common Stock. The Company will obtain any
--------------------------------------
authorization, consent, approval or other action by or make any filing with any
court or Governmental Body that may be required under applicable federal or
state securities laws in connection with the issuance of any shares of Common
Stock upon conversion of the Preferred Shares.
5.3 Financial Information. Until the consummation of an Initial Public
---------------------
Offering, the Company will deliver to each Buyer: (a) as soon as practicable
and in any event within 90 days after the close of each fiscal year of the
Company, copies of (i) the audited balance sheet of the Company as of the end of
such fiscal year, (ii) audited statements of operations of the Company for such
fiscal year, (iii) audited statements of stockholders' equity for such fiscal
year, and (iv) audited statements of cash flow of the Company for such fiscal
year, setting forth in each case in comparative form the corresponding figures
of the previous annual period, all in reasonable detail, prepared in accordance
with GAAP consistently applied throughout the periods involved and together with
the report of a firm of independent certified public accountants of recognized
national standing;
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<PAGE>
(b) as soon as practicable, and in any event within 45 days after the
end of each of the first three fiscal quarters of the Company and within 90 days
after the end of the fourth fiscal quarter, a financial reporting package
including (i) an unaudited balance sheet of the Company as at the end of each
such fiscal quarter, and (ii) unaudited statements of operations, stockholders'
equity and cash flow for such fiscal quarter, setting forth in each case in
comparative form corresponding figures for the preceding year's respective
fiscal quarter and the most recent quarterly budget data included in the annual
operating budget for the Company. Each quarterly reporting package will also
contain an analysis of the current business and marketing plans of the Company
and its Subsidiaries, if any, for the period covered by such budget (the
"Budget"), all in reasonable detail, prepared in accordance with GAAP
------
consistently applied throughout the periods involved and certified as being
correct and complete and fairly presenting the results of operations of the
Company for the quarter indicated (subject to normal year-end audit adjustments
and the absence of footnotes), by the principal financial officer of the
Company;
(c) for each calendar month, as soon as practicable and in any event
within 25 days after the close of such month, copies of (i) the balance sheet of
the Company as of the end of such month, (ii) statements of operations of the
Company for such month, and (iii) statements of cash flow of the Company for
such month, all in reasonable detail, prepared in accordance with GAAP
consistently applied throughout the periods involved and certified as being
correct and complete and fairly presenting the results of operations of the
Company for the month indicated (subject to normal recurring year-end audit
adjustments and the absence of footnotes), by the principal financial officer of
the Company;
(d) as soon as practicable and in any event not less than 30 days
prior to the end of each fiscal year of the Company, a Budget, including an
analysis of the current business and marketing plans of the Company and its
Subsidiaries, if any, for the twelve month period covered by such budget,
including but not limited to, a cash flow budget, profit and loss budget and
budgeted balance sheet; and
(e) such other reports and financial and other information, including
but not limited to any letters furnished to the Company by its independent
public accountants which comment on the accounting practices of the Company, as
any Buyer shall reasonably request; and
(f) concurrently with the furnishing of the report pursuant to Section
5.3(a) and (b) hereof, an officer's certificate stating that the Company is not
in default under, and has not breached, any material agreements or obligations,
including, without limitation, this Agreement, or if any such default or breach
exists, specifying the nature thereof and what actions the Company has taken and
proposes to take with respect thereto. If for any period the Company shall have
any Subsidiary or Subsidiaries whose accounts are consolidated with those of the
Company, then the financial statements delivered for such period pursuant to the
foregoing clauses (a), (b) and (c) of this Section 5.3 shall be the consolidated
and consolidating financial statements of the Company and all such consolidated
Subsidiaries and, if such Subsidiary or Subsidiaries are not consolidated with
those of the Company, separate financial statements for such Subsidiary or
Subsidiaries shall be provided.
5.4 Other Reports and Inspection. (a) The Company will, upon reasonable
----------------------------
prior notice, make available to each Buyer or its representatives or designees
during normal business hours (a) all assets, properties and business records of
the Company for inspection and copying, and (b) the directors, officers,
employees and public accountants (and by this provision the Company hereby
authorizes and instructs said accountants to discuss with such holder and such
representatives and designees its affairs, finances and accounts and the
responses of attorneys representing the Company to inquiries made by the Company
on behalf of said accountants in connection with their audit of the financial
affairs of the Company), of the Company for interviews concerning the business,
affairs and finances of the Company.
-14-
<PAGE>
(b) Promptly (but in any event within ten (10) days) after the
discovery of any material adverse event or circumstance affecting the Company
which event or circumstance has, or with the passage of time is reasonably
likely to, have a material adverse effect on the Business and Condition of the
Company or result in the Company's breach of any material provision of this
Agreement, the Company shall deliver a notice to each Buyer specifying the
nature and period of existence thereof, and the actions of the Company has taken
and/or proposes to take with respect thereto. The Company shall furnish each
Buyer receiving such letter with monthly reports updating and describing any
developments relating to matters described under this Subsection 5.4(b) and will
promptly notify each Buyer of any material developments or changes relating
thereto.
(c) Promptly (but in any event within five days) after transmission
thereof, the Company shall deliver to each Buyer copies of any material
communication from the Company to its shareholders, directors or the financial
community at large, and any reports filed by the Company with any securities
exchange, the National Association of Securities Dealers, Inc., any state
official or agency charged with securities regulation, the Commission, any other
Governmental Body and any material correspondence between the Company and any of
the foregoing (including, without limitation, any correspondence from any of the
foregoing which contains information materially adverse to the Business and
Condition of the Company).
(d) Promptly following the preparation thereof, the Company shall
deliver to each Buyer copies of the minutes of proceedings (or consents) of the
Company's Board of Directors and/or its stockholders.
(e) With reasonable promptness, the Company shall deliver to each
Buyer such other information and data with respect to the Company and its
Subsidiaries (if any) as any Buyer may from time to time reasonably request.
(f) Each of Sentron and Healthcap shall have the right to send one
representative to attend, in a non-voting observer capacity, all meetings of the
Company's Board of Directors, and in this respect, the Company shall give such
representative copies of all notices, minutes, consents and other materials that
it provides to its Directors. Such representative shall have the right to
participate in discussions of matters brought before the Board of Directors.
The provisions of Section 5.3 hereof and this Section 5.4 shall not be
in limitation of any rights which any Buyers may have with respect to the books
and records of the Company and any Subsidiary of the Company, or to inspect
their properties or discuss their affairs, finances and accounts, under the laws
of the jurisdictions in which they are incorporated.
Each Buyer agrees that the information to be provided by the Company
pursuant to Section 5.3 and 5.4 is Confidential Material (as defined in Section
7(a) below).
5.5 Corporate Existence; Properties. The Company will, and will cause
-------------------------------
each of its Subsidiaries to, maintain, preserve and renew its corporate
existence in good standing and to comply with all applicable laws and
regulations of the United States or of any state or states thereof or of any
political subdivision thereof and of any Governmental Body where, in any such
case, the failure to so comply is reasonably likely to have a material adverse
effect on the Business and Condition of the Company. The Company will, and will
cause each of its Subsidiaries to, maintain, preserve and renew all of its
Permits and take all action reasonably necessary or material to obtain,
preserve, defend, renew and extend all Permits and Proprietary Rights
(including, without limitation, the Requisite Rights) which are necessary or
material to the conduct of the business.
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<PAGE>
5.6 Insurance. The Company will maintain policies of insurance,
---------
including, but not limited to, fire, casualty liability in full force and effect
and workmen's compensation, in such amounts and covering such risks as are
customarily carried by businesses comparable to the business conducted by the
Company, subject to availability at commercially reasonable cost.
5.7 Maintenance of Properties. The Company will, and will cause each of
-------------------------
its Subsidiaries to, maintain and keep its properties, real and personal, in
good repair, working order and condition, normal wear and tear excepted, and
from time to time make all necessary or desirable repairs, renewals and
replacements, so that its businesses may be properly and advantageously
conducted at all times.
5.8 Compliance with Obligations. The Company will, and will cause each of
---------------------------
its Subsidiaries to, comply with the terms and conditions of all Material
Contracts, the Certificate of Incorporation, By-laws, and the Stockholders
Agreement, and all documents and agreements executed or delivered in connection
with the Closing to the extent to which the failure to so comply could
reasonably be expected to have a material adverse effect upon the Business and
Condition of the Company and its Subsidiaries taken as a whole, unless and to
the extent that the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with GAAP
consistently applied) have been established on its books with respect thereto.
5.9 Taxes. The Company will, and will cause each of its Subsidiaries to,
-----
pay when due (a) all Taxes imposed upon it or any of its properties or income,
other than Taxes which are being contested in good faith and which Taxes in the
aggregate have been reserved against on the books of the Company, and (b) all
claims or demands of materialmen, mechanics, carriers, warehousemen, landlords
and other like persons which, if unpaid, might result in the creation of a lien
upon any of its properties, other than claims or demands which are being
contested in good faith.
5.10 Compliance with Law. The Company will, and will cause each of its
-------------------
Subsidiaries to, comply, with all applicable statutes, rules, regulations and
orders of all Governmental Bodies with respect to the conduct of its business
and the ownership of its properties; provided, that the Company shall not be
--------
deemed to be in violation of this Section 5.10 as a result of any failure to
comply with any provisions of such statutes, rules, regulations and orders, the
noncompliance with which would not result in fines, penalties, injunctive relief
or other civil or criminal liabilities which, in the aggregate, would materially
and adversely affect the Business and Condition of the Company and its
Subsidiaries taken as a whole.
5.11 Environmental Matters. The Company shall promptly advise each Buyer
---------------------
in writing of any pending or threatened claim, demand or action by any
Governmental Body or third party relating to any Hazardous Materials materially
affecting any properties owned or leased by the Company of which it has
knowledge. The Company shall not discharge, place, release, spill or dispose of
any Hazardous Materials or any other pollutants or effluents upon any properties
owned or leased by the Company or elsewhere (including, but not limited to,
underground injection of such substances) other than in compliance with
Applicable Environmental Laws and the Company shall not discharge into the air
any emission which would require a permit under the Clean Air Act or its state
counterparts or any other Environmental Laws without obtaining such permit. The
stockholders of the Company shall have no control over, or authority with
respect to, the waste disposal operations of the Company.
5.12 Accounting System. The Company will maintain a system of accounting
-----------------
and proper books of record and account, in accordance with GAAP, and will set
aside on its books reserves for depreciation, depletion, obsolescence,
amortization, pending and threatened litigation and otherwise as may be
appropriate in conformance with procedures and recommendations of the Company's
independent public accountants.
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<PAGE>
5.13 Reservation of Common Stock. The Company shall reserve and keep
---------------------------
available out of its authorized but unissued Common Stock the number of shares
of Common Stock required for issuance upon the conversion of all of the Series D
Preferred Stock and the exercise of the Warrants.
5.14 Proprietary Information and Confidentiality Agreements with Employees
---------------------------------------------------------------------
and Consultants. The Company will enter into proprietary information and
- ---------------
confidentiality agreements in a form approved by its Board of Directors with all
key employees and consultants of the Company. The Company will avail itself of
all rights and remedies under all existing and future proprietary information
and confidentiality agreements.
5.15 Board of Directors Meetings. The Company shall call, and use its
---------------------------
best efforts to have, regular meetings of the Board of Directors on at least a
quarterly basis. The Company shall pay all reasonable travel expenses and other
out-of-pocket expenses incurred by Directors in connection with attending
meetings of the Board or any committee thereof.
5.16 Material Changes and Litigation. The Company shall promptly notify
-------------------------------
the Buyers of any material adverse change in the Business and Condition of the
Company and its Subsidiaries, if any, taken as a whole, and of any litigation or
governmental proceeding or investigation brought or, to the best of the
Company's knowledge, threatened against the Company, or against any officer,
director, key employee, or principal stockholder of the Company materially
adversely affecting or which, if adversely determined, would materially
adversely effect the Business and Condition of the Company and its Subsidiaries,
if any, taken as a whole.
5.17 Patents, Trademarks and Copyrights. Except where the Company has
----------------------------------
affirmatively determined to the contrary in its reasonable business judgment:
(a) Patent Maintenance. The Company shall take such actions
------------------
(including the payment of all maintenance and other fees related thereto) as are
necessary to cause all Company patents to remain current and will not do any act
or omit to do any act whereby any Company patent will expire prematurely.
(b) Trademark Maintenance. The Company will not do any act or omit to
---------------------
do any act whereby any Company trademark or any trademark licensed by the
Company may become abandoned or rendered invalid and shall take all such actions
necessary to maintain the validity of all such trademarks. The Company will
maintain its trademarks in full force and effect and free from any claim of
abandonment for non-use.
(c) Copyright Maintenance. The Company will place appropriate notice
---------------------
of copyright on all copies embodying Company copyrighted works, if any, which
are publicly distributed and the Company will not do any act or omit to do any
act whereby any Company copyright may become invalidated or dedicated to the
public domain.
(d) Application and Registration Maintenance. The Company will take
----------------------------------------
all steps necessary in the reasonable business judgment of the Company in any
proceeding before the United States Patent and Trademark Office, United States
Register of Copyrights or similar office or agency of the United States or any
office of the Secretary of State (or equivalent) of any state thereof, to
maintain and prosecute each application and registration of Company's patents,
trademarks and copyrights, including, without limitation, filing of renewals,
extensions, affidavits of use and incontestability, and opposition, interference
and cancellation proceedings, which are material to the business of the Company.
-17-
<PAGE>
(e) Infringement. In the event that any Company patent, trademark,
------------
or copyright is infringed, misappropriated or diluted by a third party, the
Company shall, unless the Company shall determine in its reasonable business
judgment that such trademark, patent or copyright is of negligible economic
value to the business of the Company, promptly sue for infringement,
misappropriation and/or dilution and to obtain injunctive relief and recover
damages therefor, and shall take such other actions to protect such patent,
trademark, or copyright, all as the Company shall deem appropriate in its
reasonable business judgment under the circumstances.
5.18 Director & Officer Insurance; Indemnification Agreements. The
--------------------------------------------------------
Company shall maintain the directors and officers insurance policy currently in
effect in the amount of $1 million. The Company shall maintain such policy in
full force and effect, subject to availability at commercially reasonable cost.
The Company shall, as soon as reasonably practicable, enter into indemnification
agreements with each of its directors, which shall provide that the Company
shall indemnify each of its directors to the fullest extent permitted by the
Delaware General Corporation Law.
6. Negative Covenants of the Company.
---------------------------------
Subject to Section 12, the Company covenants and agrees with each of the
Buyers and its transferees that, without the affirmative approval of the holders
of at least a majority of the holders of the then outstanding Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock, voting together as a single class:
6.1 Related Party Transactions. Other than in the ordinary course of
--------------------------
business of the Company on an arms-length basis or in connection with
transactions involving obtaining additional financing for the Company, neither
the Company nor any Subsidiary will engage in any transaction with, nor enter
into any contract, agreement or other arrangement providing for the employment
of, furnishing of services by, rental of real or personal property from, or
otherwise requiring payments to, any Related Party without the affirmative vote
of a majority of the directors who are not affiliated (as defined by Rule 405
promulgated under the Securities Act) with such persons or entities.
6.2 Business. The Company will only engage in the business of the
--------
research, development, manufacturing, marketing and sale of medical products and
the performance of services related or incidental thereto, and any and all
activities related or incidental thereto.
6.3 Indebtedness; Commitments. Except as set forth on Schedule 6.3, the
-------------------------
Company will not, without the approval of the Board of Directors, incur, assume,
guarantee or otherwise become liable for (a) Indebtedness, or (b) commitments in
excess of $100,000 in the aggregate.
6.4 Guarantees. The Company will not incur any guarantee or similar
----------
contingent obligation in respect of the indebtedness of others, whether or not
classified on the Company's balance sheet as a liability (a "Guarantee"), except
---------
for Guarantees in respect of indebtedness of any wholly-owned Subsidiary of the
Company.
6.5 Liens. Except with respect to the items set forth on Schedule 6.3,
-----
the Company will not create, incur, assume or suffer to exist any Lien upon any
of its property, assets or revenues, whether now owned or hereafter acquired,
except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with respect
--------
thereto are maintained on the books of the Company in conformity with GAAP;
-18-
<PAGE>
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's,
landlord's or other like Liens arising in the ordinary course of business which
are not overdue for a period of more than sixty (60) days or which are being
contested in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case materially
detract from the value of the property subject thereto or materially interfere
with the ordinary conduct of the business of the Company;
(f) Liens securing indebtedness of the Company incurred to finance the
acquisition of fixed or capital assets, provided that (i) such Liens shall be
--------
created substantially simultaneously with the acquisition of such fixed or
capital assets, (ii) such Liens do not at any time encumber any property other
than the property financed by such indebtedness, (iii) the amount of
indebtedness secured thereby is not increased and (iv) the principal amount of
indebtedness secured by any such Lien shall at no time exceed 75% of the
original purchase price of such property at the time it was acquired; and
(g) Liens existing as of the date of this Agreement.
6.6 Capital Expenditures. The Company will not make or commit to make (by
--------------------
way of the acquisition of securities of a Person or otherwise) any expenditure
in respect of the purchase or other acquisition of fixed or capital assets
(excluding any such asset acquired in connection with normal replacement and
maintenance programs properly charged to current operations) except for
expenditures in the ordinary course of business not exceeding $100,000 in the
aggregate during any fiscal year of the Company other than those capital
expenditures included in the annual Budget approved by the Board of Directors.
6.7 Conflicting Agreements. The Company will not enter into any agreement
----------------------
or make any amendment to any agreement or take any other action which by its
terms might restrict or materially adversely affect the performance of the
Company's obligations pursuant to the terms of this Agreement, the Stockholders
Agreement or the provisions relating to the Preferred Shares included in the
Certificate of Incorporation, including, but not limited to, the redemption,
voting or conversion of the Series D Preferred Stock.
6.8 No Acquisitions. The Company shall not, nor shall it permit any of
---------------
its Subsidiaries to, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire or agree to acquire, or permit any of its Subsidiaries to
acquire or agree to acquire, any assets for a purchase price which is in excess
of 10% of the Company's net worth in accordance with GAAP, based on the
Company's most recent regularly prepared quarterly or annual financial
statements ("Net Worth").
---------
-19-
<PAGE>
6.9 No Dispositions. Other than in the ordinary course of business and
---------------
other than dispositions of obsolete assets, the Company will not, nor shall it
permit any of its Subsidiaries to, sell, lease, encumber or otherwise dispose of
or liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution) or agree to sell, lease, encumber or otherwise dispose of, or
liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution)
in any transaction or series or related transactions, assets having an aggregate
book value in excess of 5% of the Company's Net Worth.
6.10 Subsidiaries. The Company shall not create, own or otherwise acquire
------------
or hold any Subsidiary other than in the ordinary course of the Company's
business.
6.11 Subsequent Offerings. The Company shall not hereafter sell, offer
---------------------
for sale or solicit offers to buy any securities of the Company so as to
jeopardize compliance by the Company under the Securities Act or other
securities laws in respect of future offerings of securities. In connection
with future offerings of securities of the Company, the Company shall comply
with all federal and state securities laws.
7. Confidentiality.
---------------
(a) The Buyers agree to keep the information heretofore or hereafter
furnished to the Buyers by the Company or on the Company's behalf (the
"Confidential Material") confidential. Notwithstanding the foregoing, the term
---------------------
Confidential Material does not include information that (i) is or becomes
publicly available other than through breach of this Agreement by the Buyers;
(ii) is already known to the Buyers at the time of disclosure; (iii) is received
by the Buyers from a third party not under an obligation of confidentiality to
the Company; or (iv) is independently developed by the Buyers without reference
to the Confidential Material. The Buyers agree to take reasonable precautions
to safeguard the Confidential Material from disclosure to anyone other than
appropriate employees, officers, directors, partners and representatives,
including auditors and attorneys, of the Buyers, which persons shall agree to
treat such information as confidential. Any holder of Series D Preferred Stock
who is entitled to receive information concerning the Company pursuant to
Sections 5.3 and 5.4 shall, as a condition to receipt of such confidential
information, agree to be bound by this Section 7.
(b) A Buyer may provide to any member of its Group (as defined in the
Stockholders Agreement), and each of the Buyers which is acting as a general
partner of a venture capital limited partnership, a trustee, an investment
manager, an investment advisor or in any other similar fiduciary capacity may
furnish to any limited partner, plan sponsor, investment committee or investment
advisory board of or associated with such Buyer, only (i) information about the
Company which falls within the exceptions described in Section 7(a) above, and
(ii) information relating to summary, year-to-date, or annual financial and
other information necessary to describe the general condition of the Company if
concurrently therewith such Buyer informs such member of its Group, limited
partner, plan sponsor, investment committee or investment advisory board in
writing of the confidential nature of such information.
8. Conditions to the Buyers' Obligations.
-------------------------------------
The obligations of the Buyers to effect the Closing shall be subject to the
satisfaction at or prior to the Closing of the conditions contained in Sections
8.1 through 8.13 below, inclusive, any one or more of which may be waived by the
Buyers.
8.1 No Injunction. There shall not be in effect any injunction, order or
-------------
decree of a court of competent jurisdiction that prohibits or delays
consummation of any or all of the Contemplated
-20-
<PAGE>
Transactions, and the Buyers shall have received a certificate to that effect
signed by the President of the Company.
8.2 Representations, Warranties and Agreements. (a) The representations
------------------------------------------
and warranties of the Company set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of the
Closing Date, with the same force and effect as though made at such time (such
representations and warranties not being affected by any updating information
furnished pursuant to any provision of this Agreement), (b) the Company shall
have performed and complied in all material respects with the agreements
contained in this Agreement required to be performed and complied with by it at
or prior to the Closing Date, and (c) the Buyers shall have received a
certificate to that effect signed by the President of the Company.
8.3 Legal Opinion. The Buyers shall have received an opinion from Sills
-------------
Cummis Zuckerman Radin Tischman Epstein & Gross, P.A., counsel to the Company,
dated the Closing Date and in substantially the form of Exhibit 8.3.
8.4 Litigation. No action, suit or proceeding shall be pending or
----------
threatened by or before any Person, court or other Governmental Body seeking or
threatening to restrain or prohibit or to recover damages in respect of the
consummation of any or all of the Contemplated Transactions, nor shall there be
any other action or proceeding pending or threatened which action, or other
proceeding may, in the opinion of the Buyers, result in a decision, ruling or
finding that individually or in the aggregate has or may reasonably be expected
to have a material adverse effect on the validity or enforceability of this
Agreement, on the ability of the Company to perform its obligations under this
Agreement or on the Business and Condition of the Company.
8.5 Regulatory Approvals. All licenses, authorizations, consents, orders
--------------------
and regulatory approvals of Governmental Bodies necessary in the good faith
judgment of the Buyers for the consummation of any or all of the Contemplated
Transactions shall have been obtained on terms reasonably satisfactory to the
Buyers and shall be in full force and effect.
8.6 Other Consents. Consents or waivers from parties other than
--------------
Governmental Bodies that are required in connection with the consummation of any
or all of the Contemplated Transactions shall have been obtained on terms
satisfactory to the Buyers and shall be in full force and effect and signed
copies thereof shall have been delivered to the Buyers.
8.7 Secretary of State Certificates. The Buyers shall have received
-------------------------------
Certificates of the Secretaries of State of the States of Delaware and
Pennsylvania with respect to the Company, as of a recent date, showing the
Company to be validly existing or qualified as a foreign corporation, as the
case may be, and in good standing, and with respect to the Certificate of the
Secretary of State of the State of Delaware, listing all documents filed.
8.8 Secretary's Certificate of the Company. The Buyers shall have
--------------------------------------
received a Certificate of the Secretary of the Company stating that (i) no
document has been filed relating to or affecting the Certificate of
Incorporation of the Company after the date of the Certificate of the Secretary
of State of the State of Delaware furnished pursuant to Section 8.7, and (ii)
attached to the Certificate is a true and complete copy of the Certificate of
Incorporation and By-Laws of the Company, as in full force and effect at the
Closing Date, and an incumbency certificate identifying and showing the
signature of each officer of the Company executing the documents contemplated
hereby.
-21-
<PAGE>
8.9 Resolutions. The Buyers shall have received certified copies of
-----------
resolutions duly adopted by the Company's Board of Directors (and stockholders,
if necessary) authorizing the execution and delivery of this Agreement and the
Stockholders Agreement, the issuance and sale of the Preferred Shares and the
Warrants and the reservation, issuance and sale of the Common Stock issuable
upon conversion of the Preferred Shares or exercise of the Warrants, and the
performance of the transactions contemplated hereby and certifying that such
resolutions were duly adopted and have not been rescinded or amended as of the
Closing Date.
8.10 Stockholders Agreement. The Company, the Buyers and the holders of
----------------------
Shares (as defined therein) shall have executed the Stockholders Agreement.
8.11 Compliance Evidence. The Buyers shall have received such
-------------------
certificates, opinions, documents and information as it may reasonably request
in order to establish satisfaction of the conditions set forth in this Section
8.
8.12 Proceedings Satisfactory. All certificates, opinions and other
------------------------
documents to be delivered by the Company and all other matters to be
accomplished prior to or at the Closing Date, shall be satisfactory in the
reasonable judgment of the Buyers and their counsel.
8.13 No Material Adverse Change. There shall not have occurred after the
--------------------------
date of the execution of this Agreement any event or circumstance reasonably
likely to have a material adverse effect on the Business and Condition of the
Company.
9. Conditions to the Company's Obligations.
---------------------------------------
The obligations of the Company to effect the Closing shall be subject to
the satisfaction at or prior to the Closing Date of the conditions contained in
Sections 9.1 through 9.5 below, inclusive, any one or more of which may be
waived by the Company.
9.1 No Injunction. There shall not be in effect any injunction, order or
-------------
decree of a court of competent jurisdiction that prohibits or delays the sale of
the Preferred Shares or the Warrants to the Buyers.
9.2 Representations, Warranties and Agreements. (a) The representations
------------------------------------------
and warranties of the Buyers set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and as of the
Closing Date, as though made at such time, and (b) the Buyers shall have
performed and complied in all material respects with the agreements contained in
this Agreement required to be performed and complied with by them prior to the
Closing Date.
9.3 Stockholders Agreement. The Company, the Buyers and the holders of
----------------------
Shares (as defined therein) shall have executed the Stockholders Agreement.
9.4 Compliance Evidence. The Company shall have received such
-------------------
certificates, opinions, documents and information as it may reasonably request
in order to establish satisfaction of the conditions set forth in this Section
9.
9.5 Proceedings Satisfactory. All certificates, opinions and other
------------------------
documents to be delivered by the Buyers and all other matters to be accomplished
prior to or at the Closing shall be satisfactory in the reasonable judgment of
the Company and its counsel.
-22-
<PAGE>
10. Expenses. The Company agrees, in the event the transactions
--------
contemplated hereby are consummated, to pay, and save the Buyers harmless
against liability for the payment of legal fees incurred by and payable to
Reboul, MacMurray, Hewitt, Maynard & Kristol, counsel for the Buyers, arising in
connection with the negotiation, execution and consummation of this Agreement
and the transactions contemplated hereby, including, without limitation, the
Buyers' due diligence investigation with respect to the transactions
contemplated hereby. The Company shall not be responsible for any additional
legal fees or expenses of Buyers' counsel arising in connection with the
negotiation, execution and consummation of this Agreement and the transactions
contemplated hereby.
11. Survival of Representations. Except for the warranty contained in
---------------------------
Section 5.16 of this Agreement, all representations and warranties contained in
this Agreement or in any exhibit, schedule or certificate delivered in
connection herewith shall survive the execution, delivery and closing of this
Agreement and any investigation at any time made by the Buyers or on their
behalf for a period of five years from the date hereof.
12. Duration of Covenants. The Company's obligation to perform the
---------------------
covenants and agreements contained in Section 5 and Section 6 shall terminate
upon the consummation of an Initial Public Offering.
13. Miscellaneous.
-------------
13.1 Notices. All notices, consents and other communications under this
-------
Agreement shall be in writing and shall be deemed to have been duly given when
(a) delivered by hand, (b) sent by telex or telecopier (with receipt confirmed),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) one (1) day after sent by the sender, if sent by Express Mail, Federal
Express or other express delivery service (receipt requested), in each case to
the appropriate addresses, telex numbers and telecopier numbers set forth below
(or to such other addresses, telex numbers and telecopier numbers as a party may
designate as to itself by notice to the other parties):
(a) If to Oak Investment Partners VI, Limited Partnership and/or Oak
VI Affiliates Fund, Limited Partnership:
Oak Investment Partners
One Gorham Island
Westport, Connecticut 06880
Telecopier No.: (203) 227-0372
Attention: Eileen M. More
(b) If to Canaan Equity, L.P.:
Canaan Equity Partners LLC
105 Rowayton Avenue
Rowayton, Connecticut 06853
Telecopier No.: (203) 854-9117
Attention: Member/Manager
-23-
<PAGE>
(c) If to Frazier Healthcare II, L.P.
Frazier & Company
2 Union Square
601 Union Street, Suite 2110
Seattle, Washington 98101
Telecopier No.: (206) 621-1848
Attention: Jon N. Gilbert
(d) If to TL Ventures III L.P., TL Ventures III Offshore L.P. and/or
TL Ventures III Interfund L.P.:
TL Ventures
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
Telecopier No.: (610) 975-9330
Attention: Christopher Moller, Ph.D.
with a copy to:
TL Ventures
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087-1945
Telecopier No.: (610) 975-9330
Attention: Chief Financial Officer
(e) If to Domain Partners IV, L.P., DP IV Associates, L.P. or
Biotechnology Investments Limited:
Domain Associates
One Palmer Square
Princeton, New Jersey 08542
Telephone No.: (609) 683-5656
Telecopier No.: (609) 683-9789
Attention: Jesse I. Treu, General Partner
(f) If to HealthCap KB or HealthCap Coinvest KB:
HealthCap
Sturegatan 34
S-11436 Stockholm
Sweden
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
-24-
<PAGE>
Telecopier No.: (212) 455-2502
Attention: Richard A. Miller, Esq.
(g) If to Sentron Medical, Inc.:
Sentron Medical, Inc.
4445 Lake Forest Drive
Suite 600
Cincinnati, OH 45242
Telephone No.: (513) 563-3240
Telecopier No.: (513) 563-3261
Attention: Ms. Karen Morgan
In the case of any notice pursuant to Section 13.1(a) through (g),
with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, NY 10111
Telephone No.: (212) 841-5711
Telecopier No.: (212) 841-5725
Attention: John MacMurray, Esq.
(h) If to the Company:
OraPharma, Inc.
732 Louis Drive
Warminster, Pennsylvania 18974
Telecopier No.: (215)443-9531
Attention: Michael Kishbauch
with a copy to:
Sills Cummis Radin Tischman
Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102
Telecopier No.: (973) 643-6500
Attention: Ira A. Rosenberg, Esq.
13.2 Service of Process. Process in any action or proceeding seeking to
------------------
enforce any provision of, or based on any right arising out of, this Agreement
against any of the parties, may be served on any party anywhere in the world,
whether within or without the State of Pennsylvania, and may also be served upon
any party in the manner provided for giving of notices to it in Section 13.1.
13.3 Expenses. Except as set forth in Section 10, each party shall bear
--------
its own expenses incident to the preparation, negotiation, execution and
delivery of this Agreement and the performance of its obligations hereunder.
-25-
<PAGE>
13.4 Payment. A wire transfer of other than immediately available funds
-------
or delivery of a check shall not operate to discharge any obligation of payment
under this Agreement and is accepted subject to collection.
13.5 Captions. The captions in this Agreement are for convenience of
--------
reference only and shall not be given any effect in the interpretation of this
Agreement.
13.6 Attorneys' Fees. In any action or proceeding brought by a party to
---------------
enforce any provision of this Agreement, the prevailing party shall be entitled
to recover the reasonable costs and expenses incurred by it in connection with
that action or proceeding (including, but not limited to, attorneys' fees).
13.7 No Waiver. The failure of a party to insist upon strict adherence to
---------
any term of this Agreement on any occasion shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
The holders of a majority of the then outstanding Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock,
voting together as a single class, may waive in writing any right of all such
holders.
13.8 Exclusive Agreement; Amendment. This Agreement supersedes all prior
------------------------------
agreements among the parties with respect to its subject matter, is intended
(with the documents referred to herein) as a complete and exclusive statement of
the terms of the agreement among the parties with respect thereto and cannot be
changed, terminated or any of the provisions hereof waived, except by a written
instrument executed by a duly authorized representative of the Company and
holders in interest of not less than a majority of the aggregate of the
Preferred Shares (treated as if converted into Common Stock and including any
Common Stock then held by such holders into which the Preferred Shares have been
converted).
13.9 Parties in Interest; Limitation on Assignment. The terms,
---------------------------------------------
representations, warranties and covenants contained in Sections 5 and 6 hereof
shall be binding upon and shall inure to the benefit of and be enforceable by,
the Buyers and their respective successors, transferees and assignees; provided,
--------
that the rights granted to the Buyers by Sections 5.3 and 5.4 may not be
transferred or assigned to, and shall not inure to the benefit of, any such
successor, transferee or assignee of the Buyers that is engaged in any business
which directly competes with the Company in any line of business engaged in, or
planned to be engaged in, by the Company. It is understood and agreed among the
parties hereto that this Agreement and the representations, warranties, and
covenants made herein are made expressly and solely for the benefit of the other
party or parties hereto (or their respective successors or permitted assigns),
and that no other person shall be entitled or be deemed to be a third-party
beneficiary of any party's rights under this Agreement. Notwithstanding
anything contained herein to the contrary, the parties hereto hereby acknowledge
and agree that any of the Buyers may assign any or all of their right to
purchase Series D Preferred Stock hereunder to any of its members, partners or
stockholders, provided that such assignee agrees to purchase such Series D
--------
Preferred Stock having an aggregate purchase price of at least $50,000 and
further agrees to be bound by the provisions of this Agreement and the
Stockholders Agreement
13.10 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be considered an original, but all of which
together shall constitute the same instrument.
13.11 Governing Law. This Agreement and (unless otherwise provided) all
-------------
amendments hereof and waivers and consents hereunder shall be governed by the
internal law of the State of New Jersey, without regard to the conflicts of law
principles thereof.
-26-
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed this Stock Purchase
Agreement as of the day and year first written above.
ORAPHARMA, INC.
By:
-------------------------------
Michael Kishbauch, President
OAK INVESTMENT PARTNERS VI,
LIMITED PARTNERSHIP
By: Oak Associates VI, L.L.C.
By:
-------------------------------
Eileen M. More,
Managing Member
OAK VI AFFILIATES FUND, LIMITED
PARTNERSHIP
By: Oak VI Affiliates, L.L.C.
By:
-------------------------------
Eileen M. More,
Managing Member
CANAAN EQUITY, L.P.
By: Canaan Equity Partners L.L.C., Member/Manager
By:
-------------------------------
Member/Manager
FRAZIER HEALTHCARE II, L.P.
By: FHM, L.L.C., General Partner
By: Frazier Management, L.L.C., Member
By:
-------------------------------
Jon Gilbert, Member
-27-
<PAGE>
TL VENTURES III L.P.
By: TL Ventures III Management
L.P., General Partner
By: TL Ventures III LLC, General
Partner
By:
-------------------------------
Managing Director
TL VENTURES III OFFSHORE L.P.
By: TL Ventures III Offshore
Partners L.P., General Partner
By: TL Ventures III Offshore Ltd.,
General Partner
By:
-------------------------------
Name:
Title:
TL VENTURES III INTERFUND L.P.
By: TL Ventures III LLC, General
Partner
By:
-------------------------------
Managing Director
DOMAIN PARTNERS IV, L.P.
By: One Palmer Square Associates
IV, L.L.C., General Partner
By:
-------------------------------
Managing Member
DP IV ASSOCIATES, L.P.
By: One Palmer Square Associates
IV, L.L.C., General Partner
By:
-------------------------------
Managing Member
-28-
<PAGE>
BIOTECHNOLOGY INVESTMENTS LIMITED
By: Old Court Limited
By:
-------------------------------
Attorney-in-Fact
HEALTHCAP KB
By: Healthcap AB, General Partner
By:
-------------------------------
Director
HEALTHCAP COINVEST KB
By: Healthcap AB, General Partner
By:
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Director
SENTRON MEDICAL, INC.
By:
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Vincent Paglino
Vice President
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Exhibit 4.10
RESTRICTED STOCK AGREEMENT
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THIS RESTRICTED STOCK AGREEMENT (this "Agreement") is entered into on the
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29th day of January, 1999, effective as of December 31, 1998 by and between
OraPharma, Inc., a Delaware corporation (the "Corporation"), and BioMorphics
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Group, Inc. ("BioMorphics").
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W I T N E S S E T H:
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WHEREAS, pursuant to Article IV of the License Agreement effective as of
December 31, 1998 (the "License Agreement") between the Corporation and
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Children's Medical Center Corporation ("CMCC") and a letter agreement dated as
----
of December 31, 1998 (the "Letter Agreement") among the Corporation, CMCC and
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BioMorphics, the Corporation is to pay to BioMorphics 31,729 shares of the
Corporation's Common Stock, $.001 par value per share (the "Common Stock"), and
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may in the future pay to BioMorphics additional shares of Common Stock, subject
to the terms and provisions of the License Agreement, the Letter Agreement and
this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
SECTION 1. Definitions.
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As used in this Agreement, the following terms shall have the following
respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
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Federal agency administering the Securities Act at the applicable time.
"Common Shares" shall mean the issued and outstanding shares of the
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Corporation's Common Stock, at the applicable time.
"Equity Stock" shall have the meaning set forth in Rule 3a11-1 under the
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Securities Exchange Act of 1934, as amended, and any successor statute and the
rules and regulations thereunder, as shall be in effect from time to time.
"Family" shall include any spouse, lineal ancestor or descendant, or
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sibling, any trust for the exclusive benefit of any of the foregoing, or any
corporation, limited partnership, limited liability company or other entity
majority controlled by any of the foregoing individuals or trusts.
<PAGE>
"Group" shall mean as to (a) a partnership, any or all of its general or
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limited partners or any "affiliate" thereof (as defined by Rule 405 promulgated
under the Securities Act), (b) a trust, any of the beneficiaries, settlers or
grantors now existing or hereafter arising of, or any Person under common
control with, such trust, (c) a corporation, any of its stockholders, any
subsidiary of such corporation or any corporation which is under common control
with such corporation, or any directors, officers or employees of such
corporation, and (d) a limited liability company, any of its members.
"Initial Public Offering" or "IPO" shall mean the Corporation's initial
--------------------------------
distribution of New Securities in an underwritten Public Offering to the general
public pursuant to a registration statement filed with and declared effective by
the Commission pursuant to the Securities Act at a price per New Security of not
less than $4.00 (as adjusted for stock splits, stock dividends or similar
recapitalizations) and resulting in gross proceeds (before underwriting
commissions and offering expenses) to the Corporation of not less than $15
million.
"New Securities" shall mean any Equity Stock, including, but not limited
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to, shares of Common Stock, any security which is convertible into or
exercisable or exchangeable for Common Stock, or any right, option or warrant to
acquire any Common Stock of the Corporation.
"Person" shall mean and include a natural person, a corporation, a
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partnership, a limited liability company, a trust, an unincorporated
organization, an educational institution, a government or any department, agency
or political subdivision thereof, or any other entity.
"Preferred Shares" shall mean the issued and outstanding shares of the
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Corporation's Series A Preferred Stock, $.001 par value per share, Series B
Preferred Stock, $.001 par value per share, and Series C Preferred Stock, $.001
par value per share.
"Public Offering" shall mean a distribution of New Securities in a firm
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commitment underwritten public offering to the general public pursuant to a
registration statement filed with and declared effective by the Securities and
Exchange Commission pursuant to the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, and any
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successor statute and the rules and regulations of the Securities and Exchange
Commission thereunder, as shall be in effect at the applicable time.
"Shares" shall mean the __________ shares, and any additional shares, of
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Common Stock acquired by BioMorphics under the License Agreement and the Letter
Agreement.
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"Transfer" shall include any direct or indirect sale, assignment, transfer,
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pledge (but not including a pledge in favor of the Corporation), hypothecation
or other disposition of any Shares or of any legal or beneficial interest
therein.
SECTION 2. Payment to BioMorphics of Common Stock. Subject to the terms and
--------------------------------------
conditions contained herein and in the License Agreement and the Letter
Agreement, and in consideration for the rights, privileges and licenses granted
to the Corporation under the License Agreement, (a) the Corporation hereby pays,
transfers and assigns to BioMorphics, and BioMorphics hereby acquires from the
Corporation, __________ Shares and (b) if and to the extent required by Article
IV A1(b) and (c) of the License Agreement and by the Letter Agreement, the
Corporation may in the future pay, transfer and assign to BioMorphics, and
BioMorphics may acquire from the Corporation, additional Shares.
SECTION 3. Legend on Shares and Notice of Transfer.
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3.1 Restrictive Legends. (a) Each certificate evidencing Shares, and
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each certificate evidencing Shares held by subsequent transferees of any such
certificate, shall (unless otherwise permitted by the provisions of Section 3.2
hereof) be stamped or otherwise imprinted with a legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THESE SECURITIES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY
EXEMPTION THEREFROM UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAW.
(b) Each certificate evidencing Shares, and each certificate
evidencing Shares held by subsequent transferees of any such certificate, shall
also be stamped or otherwise imprinted with a legend in substantially the
following form:
ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE TERMS
AND CONDITIONS OF A RESTRICTED STOCK AGREEMENT EFFECTIVE AS OF
DECEMBER 31, 1998 BETWEEN ORAPHARMA, INC. AND THE HOLDER OF RECORD OF
THIS CERTIFICATE AND NO SALE, ASSIGNMENT, TRANSFER, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF SUCH SECURITIES SHALL BE VALID
OR EFFECTIVE EXCEPT IN ACCORDANCE WITH SUCH AGREEMENT AND UNTIL
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<PAGE>
SUCH TERMS AND CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF ORAPHARMA,
INC.
3.2 Notice of Transfer. (a) BioMorphics, and any other holder of any
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Shares by acceptance thereof, agrees that, prior to any Transfer of any Shares,
such holder will give written notice to the Corporation of such holder's
intention to effect such Transfer and to comply in all other respects with the
provisions of this Section 3.2. Each such notice shall contain (i) a statement
setting forth the intention of said holder's prospective transferee with respect
to its retention or disposition of said Shares; and (ii) unless waived by the
Corporation, an opinion of counsel for said holder (who may be the inside or
staff counsel employed by said holder), as to the necessity or non-necessity for
registration under the Securities Act and applicable state securities laws in
connection with such Transfer and stating the factual and statutory basis relied
upon by counsel. The following provisions shall then apply:
(i) If the proposed Transfer of Shares may be effected without
registration or qualification under the Securities Act and any applicable
state securities laws, then the registered holder of such Shares shall be
entitled to Transfer such Shares in accordance with Section 4 hereof and
the intended method of disposition specified in the statement delivered by
said holder to the Corporation.
(ii) If the proposed Transfer of such Shares may not be effected
without registration under the Securities Act or registration or
qualification under any applicable state securities laws, the registered
holder of such Shares shall not be entitled to Transfer such Shares
pursuant to Section 4 until the requisite registration or qualification is
effective.
(b) Notwithstanding the provisions of Section 3.2(a), in the case of a
Transfer by a holder to a member of such holder's Family or Group, no such
opinion of counsel shall be necessary; provided, that the transferee agrees in
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writing to be subject to Section 3 hereof to the same extent as if such
transferee were originally a signatory to this Agreement.
(c) Each certificate evidencing the Shares issued upon such Transfer
(and each certificate evidencing any untransferred balance of such Shares) shall
bear the legend set forth in Section 3.1(a) hereof unless (i) in the opinion of
counsel (acceptable to the Corporation) addressed to the Corporation the
registration of future Transfers is not required by the applicable provisions of
the Securities Act or applicable state securities laws; (ii) the Corporation
shall have waived the requirement of such legend; or (iii) in the reasonable
opinion of counsel to the Corporation, such Transfer shall have been made in
connection with
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<PAGE>
an effective registration statement filed pursuant to the Securities Act or in
compliance with the requirements of Rule 144 or Rule 144A (or any similar or
successor rule) promulgated under the Securities Act, and in compliance with
applicable state securities laws.
(d) Each certificate evidencing the Shares issued upon such
Transfer (and each certificate evidencing any untransferred balance of such
Shares) shall bear the legend set forth in Section 3.1(b) hereof, for so long as
this Agreement remains in effect. In the event of the termination of this
Agreement, the holder of Shares may request that the Corporation issue a new
certificate not bearing the legend set forth in Section 3.1(b) hereof.
SECTION 4. Covenants of BioMorphics and Corporation.
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4.1 Prohibited Transfers.
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(a) Notwithstanding anything to the contrary contained herein,
BioMorphics (and any permitted transferee of BioMorphics) may Transfer all of
its, his or her Shares: (i) if the stockholder is a limited partnership or a
trust, to any member of the Group of which BioMorphics (or such permitted
transferee) is a member; provided, that such transferee shall agree in writing
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with the Corporation, prior to and as a condition precedent to such Transfer, to
be bound by all of the provisions of this Agreement; (ii) if the stockholder is
a corporation, to any member of its Group; provided, that such transferee shall
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agree in writing with the Corporation, prior to and as a condition precedent to
such Transfer, to be bound by all of the provisions of this Agreement; (iii) if
the transferor is any such permitted transferee of BioMorphics, to any member
of the Family of such permitted transferee; provided, that such new transferee
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shall agree in writing with the Company, prior to and as a condition precedent
to such Transfer, to be bound by all of the provisions of this Agreement and,
provided, further, that the interests in any Family trusts shall be non-
- -------- -------
transferable; and (iv) if the transferor is any such permitted transferee of
BioMorphics, by will or the laws of descent and distribution, in which event
each such new transferee shall be bound by all of the provisions of this
Agreement to the same extent as if such transferee were sick (or permitted
transferee).
(b) If requested in writing by the managing underwriters, if any,
of any Public Offering, BioMorphics agrees not to offer, sell, contract to sell
or otherwise dispose of any Shares except as part of such Public Offering within
thirty (30) days before or one hundred and eighty (180) days after the effective
date of the registration statement filed with respect to said offering, and the
Corporation hereby also so agrees; provided, however, that this restriction will
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not apply to transfers permitted under Section 4.1(a) provided such transferee
agrees to be bound by the restriction contained in this Section 4.1(b).
Notwithstanding the foregoing, in the event that BioMorphics shall have accepted
an offer to purchase Offered Shares (as defined below) which have been offered
pursuant to Section 4.2(a), BioMorphics shall not be prohibited from
consummating such sale, provided, that the purchaser agrees to be bound by the
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restrictions contained in this Section 4.1(b).
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<PAGE>
4.2 Right of First Offer on Dispositions.
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(a) Without limiting BioMorphics's right to Transfer all or any part
of its Shares pursuant to any other provisions of this Agreement, if BioMorphics
desires to Transfer all or any part of its Shares pursuant to this Section 4.2
at any time prior to completion of the Corporation's Initial Public Offering,
BioMorphics shall submit a written offer (the "Offer") to sell such Shares (the
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"Offered Shares") to the Corporation, which Offer shall specify the number of
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Offered Shares proposed to be sold, the total number of Shares owned by
BioMorphics, and the terms and conditions, including price, at which the Shares
are being offered.
(b) The Corporation shall have the right to purchase all of the
Offered Shares, on the same terms and conditions specified in the Offer.
(c) If the Corporation desires to purchase all or any part of the
Offered Shares on the same terms and conditions specified in the Offer, the
Corporation shall deliver its Acceptance to BioMorphics, which Acceptance shall
state the number of Offered Shares the Corporation desires to purchase and shall
be delivered in person or mailed to BioMorphics at the address set forth in the
Offer, within 20 days of the date the Offer was made by BioMorphics pursuant to
Section 4.2(a).
(d) If the Corporation elects to purchase all of the Offered Shares,
sale of the Offered Shares pursuant to this Section 4.2 shall be made at the
offices of the Corporation on the 45th day following the expiration of the 20-
day period described above (or if such 45th day is not a business day, then on
the next succeeding business day). Such sale shall be effected by BioMorphics's
delivery to the Corporation of a certificate or certificates evidencing the
Offered Shares to be purchased by it, duly endorsed for transfer to the
Corporation, which Offered Shares shall be delivered free and clear of all
liens, charges, claims and encumbrances of any nature whatsoever, against
payment to BioMorphics of the purchase price therefor by the Corporation.
Payment for the Offered Shares shall be made as provided in the Offer or by wire
transfer or certified check.
(e) If the Corporation does not elect to purchase all of the Offered
Shares, then the Offered Shares may be sold by BioMorphics at any time within
150 days after the date the Offer was made by BioMorphics pursuant to Section
4.2(a). Any such sale shall be upon terms and conditions, including price, not
less favorable to BioMorphics than those specified in the Offer. Any Offered
Shares not sold within such 150-day period shall continue to be subject to the
requirements of a prior offer pursuant to this Section 4.2.
4.3 Drag Along. Subject to Section 4.2 above, anything in this
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Agreement to the contrary notwithstanding, in the event that (i) the Board of
Directors of the Corporation by unanimous vote or unanimous written consent
and/or the holders of sixty-six and two-thirds of the then outstanding Common
Shares by vote or written consent approves a transaction
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<PAGE>
pursuant to which any Person or Persons not affiliated with any of the
Stockholders will acquire 50% or more of the Common Shares of the Corporation
(by stock purchase, merger or otherwise) or all or substantially all of the
assets of the Corporation, upon the written request of the holders of sixty-six
and two-thirds of the Common Shares, BioMorphics agrees to offer to sell all of
its Shares, and to sell all of his Shares, to such Person or Persons or to vote
all of his Shares in favor of the sale of assets, as the case may be, in either
case upon the terms and conditions of the transaction approved by the Board of
Directors of the Corporation and/or the holders of sixty-six and two-thirds of
the Common Shares; provided, however, that BioMorphics's obligation to sell its
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Shares pursuant to this Section 4.3 shall only apply if all of the Shares are to
be sold on the same terms and conditions. For purposes of this Section 4.3, each
Preferred Share shall be deemed to be the number of shares of Common Stock into
which the Preferred Share is then convertible.
4.4 "Piggyback" Registrations. (a) If the Corporation at any time
------------------------
proposes to register any of its securities under the Securities Act on Form S-1,
S-2 or S-3 or on any other form upon which the Common Shares may be registered
for sale to the general public, other than on Form S-4 or S-8 or other similar
form, whether for its own account or for the account of others, the Corporation
will at each such time promptly give written notice to BioMorphics of such
proposal, which shall set forth information, to the extent then known, as to
offering price or range, the number of shares to be offered, the proposed manner
of distribution and the proposed managing underwriter(s) of the offering. Upon
the written request of BioMorphics given within 20 days after the Corporation
has given such notice, the Corporation will cause the Shares which the
Corporation has been requested to register by BioMorphics to be registered under
the Securities Act (and any related qualification under blue sky laws or other
compliance), all to the extent required to permit the sale or other disposition
by BioMorphics of the Shares so registered.
(b) If securities are to be registered for sale under a registration
and are to be distributed for the account of the Corporation by or through a
firm of underwriter(s), then any Shares which the Corporation has been requested
to register pursuant to clause (a) of this Section 4.4 shall also be included in
such underwriting on the same terms as other securities of the same class as the
Shares included in such underwriting; provided, that if, in the written opinion
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of the managing underwriter(s), the total amount of such securities to be so
registered, when added to the Shares, will exceed the maximum amount of the
Corporation's securities which can be marketed (i) at a price reasonably related
to their then current market value, or (ii) without otherwise materially and
adversely affecting the entire offering, then (subject to clause (d) of this
Section 4.4) the Corporation shall exclude from such underwriting, first, the
number of Shares being sold for the account of BioMorphics as is necessary, in
the opinion of the managing underwriter(s), to reduce the size of the offering.
(c) If securities are to be registered for sale under a registration
and are to be distributed for the account of holders of Common Shares held by
third parties or holders (other than the Corporation) of other securities of the
Corporation other than Common Shares
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<PAGE>
by or through a firm of underwriter(s) of recognized standing under underwriting
terms appropriate for such transaction, then any Shares which the Corporation
has been requested to register pursuant to clause (a) of this Section 4.4 shall
also be included in such underwriting on the same terms as other securities
included in such underwriting, provided, that if, in the written opinion of the
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managing underwriter(s), the total amount of such securities to be so
registered, when added to such Shares, will exceed the maximum amount of the
Corporation's securities which can be marketed (i) at a price reasonably related
to their then current market value, or (ii) without otherwise materially and
adversely affecting the entire offering, then the Corporation shall exclude from
such underwriting the number of Shares and other securities, pro rata to the
--- ----
extent practicable, on the basis of the number of securities requested to be
registered, as is necessary in the opinion of the managing underwriter(s) to
reduce the size of the offering.
(d) Notwithstanding Section 4.4(a), (b) and (c), the Corporation may
exclude all Shares from registration in connection with the Corporation's
Initial Public Offering if the inclusion of such Shares would, in the written
opinion of the managing underwriter(s) adversely affect the marketing of the New
Securities to be sold by the Corporation therein; provided that such exclusion
of Shares shall be made pro rata with all other Common Stock held by third
--- ----
parties which are not then and were not previously holders of Preferred Shares.
SECTION 5. Representations.
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5.1. Representations of BioMorphics. In connection with BioMorphics's
------------------------------
purchase of the Shares, BioMorphics hereby represents and warrants to the
Corporation as follows:
(a) Investment Intent; Capacity to Protect Interests. BioMorphics is
------------------------------------------------
purchasing the Shares solely for its own account for investment and not with a
view to or for sale in connection with any distribution of the Shares or any
portion thereof and not with any present intention of selling, offering to sell
or otherwise disposing of or distributing the Shares or any portion thereof in
any transaction other than a transaction exempt from registration under the
Securities Act. BioMorphics also represents that the entire legal and
beneficial interest of the Shares is being purchased, and will be held, for its
account only, and neither in whole or in part for any other person.
(b) Restricted Securities. BioMorphics understands and acknowledges
---------------------
that the sale of the Shares has not been registered under the Securities Act;
that the Shares must be held indefinitely unless subsequently registered under
the Securities Act or an exemption from such registration is available; and
that, except as provided in Section 4.4, the Corporation is under no obligation
to register the Shares.
(c) Disposition under Rule 144. BioMorphics understands that the
--------------------------
Shares are restricted securities within the meaning of Rule 144 promulgated
under the Securities Act;
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<PAGE>
that the exemption from registration under Rule 144 will not be available in any
event for at least two years from the date of purchase of any payment for the
Shares, and even then will not be available unless (i) a public trading market
then exists for the Shares, (ii) adequate information concerning the Corporation
is then available to the public, and (iii) other terms and conditions of Rule
144 are complied with; and that any sale of the Shares may be made only in
limited amounts in accordance with such terms and conditions.
(d) Accredited Investor. BioMorphics is an "accredited investor", as
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defined in Rule 501 under the Securities Act.
5.2. Representations of the Corporation. The Corporation represents to
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BioMorphics that:
(a) The execution, delivery and performance by the Corporation of
this Agreement and all transactions contemplated by this Agreement have been
duly authorized by all action required by law, its Certificate of Incorporation,
its Bylaws or otherwise.
(b) This Agreement has been duly executed and delivered by the
Corporation and constitutes the legal, valid and binding obligation of the
Corporation enforceable against it in accordance with its terms.
SECTION 6. Withholding. Upon the request of the Corporation, BioMorphics
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shall promptly pay to the Corporation, or make arrangements satisfactory to the
Corporation regarding payment of, any Federal, state or local taxes of any kind
required by law to be withheld with respect to the Shares (or any distributions
of other securities or property (including cash) thereon or issued in
replacement thereof).
SECTION 7. Remedies. In case any one or more of the covenants and/or
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agreements set forth in this Agreement shall have been breached by any party
hereto, the party entitled to the benefit of such covenants or agreements may
proceed to protect and enforce its rights either by suit in equity and/or by
action at law, including, but not limited to, (a) an action for damages as a
result of any such breach, (b) an action for specific performance of any such
covenant or agreement contained in this Agreement, and/or (c) a temporary or
permanent injunction, in any case without showing any actual damage. The
rights, power and remedies of the parties under this Agreement are cumulative
and not exclusive of any other agreement or law. No single or partial assertion
or exercise of any right, power or remedy of a party hereunder shall preclude
any other or further assertion or exercise thereof. Any purported Transfer in
violation of the provisions of this Agreement shall be null and void ab initio.
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SECTION 8. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, this Agreement shall bind and inure to the benefit of the Corporation,
BioMorphics, the respective successors or heirs, distributees and personal
representatives and permitted assigns of the Corporation and BioMorphics, and
each other person who shall properly become a
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<PAGE>
registered holder of any Shares that have not theretofore been sold to the
public pursuant to a registration statement under the Securities Act or Rule 144
or Rule 144A (or any similar or successor rule).
SECTION 9. Entire Agreement. This Agreement contains the entire agreement
----------------
among the parties with respect to the subject matter hereof and supersedes other
prior and contemporaneous arrangements or understandings with respect thereto.
SECTION 10. Notices. All notices, consents and other communications under
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this Agreement shall be in writing and shall be deemed to have been duly given
(a) when delivered by hand, (b) one (1) business day after the business day of
transmission, if sent by telex or telecopier (with receipt confirmed), provided
that a copy is mailed by registered mail, return receipt requested, or (c) one
(1) business day after the business day of deposit with the carrier, if sent by
Express Mail, Federal Express or other express delivery service (receipt
requested), in each case to the appropriate addresses, telex numbers and
telecopier numbers set forth below (or to such other addresses or telecopy
numbers as a party may designate as to itself by notice to the other parties):
(a) If to BioMorphics:
BioMorphics Group, Inc.
7 Goose Pond Road
Lincoln, MA 01773
Attention: President
Telecopier No.: (603) 645-9737
(b) If to the Corporation:
OraPharma, Inc.
732 Louis Drive
Warminster, Pennsylvania 18974
Attention: President
Telecopier No.: (215) 443-9531
with a copy to:
Sills Cummis Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102
Telecopier No.: (973) 643-6500
Attention: Ira A. Rosenberg, Esq.
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<PAGE>
SECTION 11. Changes. The terms and provisions of this Agreement may not
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be modified or amended, or any of the provisions hereof waived, temporarily or
permanently, without the prior written consent of each of the parties hereto.
SECTION 12. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 13. Headings. The benefits of the various sections of this
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Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
SECTION 14. Nouns and Pronouns. Whenever the context may require, any
------------------
pronouns used herein shall include the corresponding masculine feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
SECTION 15. Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability. Such
prohibition or unenforceability in any one jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 16. Governing Law; Jurisdiction. This Agreement and (unless
---------------------------
otherwise provided) all amendments hereof and waivers and consents hereunder
shall be governed by the internal law of the State of New Jersey, without regard
to the conflicts of law principles thereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first written above.
WITNESS ORAPHARMA, INC.
By:
- --------------- -------------------------------------
Michael Kishbauch, President
WITNESS BIOMORPHICS GROUP, INC.
By:
- --------------- -------------------------------------
Title:
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<PAGE>
Exhibit 4.11
RESTRICTED STOCK AGREEMENT
--------------------------
THIS RESTRICTED STOCK AGREEMENT (this "Agreement") is entered into on the
---------
29th day of January, 1999, effective as of December 31, 1998 by and between
OraPharma, Inc., a Delaware corporation (the "Corporation"), and Children's
-----------
Medical Center Corporation, a Massachusetts charitable corporation ("CMCC").
----
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, effective as of December 31, 1998, the Corporation and CMCC have
entered into an Exclusive License Agreement (the "License Agreement"); and
-----------------
WHEREAS, pursuant to Article IV of the License Agreement, the Corporation
is to pay to CMCC 133,271 shares of the Corporation's Common Stock, $.001 par
value per share (the "Common Stock"), and may in the future pay to CMCC
------------
additional shares of Common Stock, subject to the terms and provisions of the
License Agreement and this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
SECTION 1. Definitions.
-----------
As used in this Agreement, the following terms shall have the following
respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any other
----------
Federal agency administering the Securities Act at the applicable time.
"Common Shares" shall mean the issued and outstanding shares of the
-------------
Corporation's Common Stock, at the applicable time.
"Equity Stock" shall have the meaning set forth in Rule 3a11-1 under the
------------
Securities Exchange Act of 1934, as amended, and any successor statute and the
rules and regulations thereunder, as shall be in effect from time to time.
"Family" shall include any spouse, lineal ancestor or descendant, or
------
sibling, any trust for the exclusive benefit of any of the foregoing, or any
corporation, limited partnership, limited liability company or other entity
majority controlled by any of the foregoing individuals or trusts.
<PAGE>
"Group" shall mean as to (a) a partnership, any or all of its general or
-----
limited partners or any "affiliate" thereof (as defined by Rule 405 promulgated
under the Securities Act), (b) a trust, any of the beneficiaries, settlers or
grantors now existing or hereafter arising of, or any Person under common
control with, such trust, (c) a corporation, any of its stockholders, any
subsidiary of such corporation or any corporation which is under common control
with such corporation, or any directors, officers or employees of such
corporation, and (d) a limited liability company, any of its members.
"Initial Public Offering" or "IPO" shall mean the Corporation's initial
--------------------------------
distribution of New Securities in an underwritten Public Offering to the general
public pursuant to a registration statement filed with and declared effective by
the Commission pursuant to the Securities Act at a price per New Security of not
less than $4.00 (as adjusted for stock splits, stock dividends or similar
recapitalizations) and resulting in gross proceeds (before underwriting
commissions and offering expenses) to the Corporation of not less than $15
million.
"New Securities" shall mean any Equity Stock, including, but not limited
--------------
to, shares of Common Stock, any security which is convertible into or
exercisable or exchangeable for Common Stock, or any right, option or warrant to
acquire any Common Stock of the Corporation.
"Person" shall mean and include a natural person, a corporation, a
------
partnership, a limited liability company, a trust, an unincorporated
organization, an educational institution, a government or any department, agency
or political subdivision thereof, or any other entity.
"Preferred Shares" shall mean the issued and outstanding shares of the
----------------
Corporation's Series A Preferred Stock, $.001 par value per share, Series B
Preferred Stock, $.001 par value per share, and Series C Preferred Stock, $.001
par value per share.
"Public Offering" shall mean a distribution of New Securities in a firm
---------------
commitment underwritten public offering to the general public pursuant to a
registration statement filed with and declared effective by the Securities and
Exchange Commission pursuant to the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, and any
--------------
successor statute and the rules and regulations of the Securities and Exchange
Commission thereunder, as shall be in effect at the applicable time.
"Shares" shall mean the __________ shares, and any additional shares, of
------
Common Stock acquired by CMCC under the License Agreement.
-2-
<PAGE>
"Transfer" shall include any direct or indirect sale, assignment, transfer,
--------
pledge (but not including a pledge in favor of the Corporation), hypothecation
or other disposition of any Shares or of any legal or beneficial interest
therein.
SECTION 2. Payment to CMCC of Common Stock. Subject to the terms and
-------------------------------
conditions contained herein and in the License Agreement, and in consideration
for the rights, privileges and licenses granted by CMCC to the Corporation under
the License Agreement, (a) the Corporation hereby pays, transfers and assigns to
CMCC, and CMCC hereby acquires from the Corporation, __________ Shares and (b)
if and to the extent required by Article IV A1(b) and (c) of the License
Agreement, the Corporation may in the future pay, transfer and assign to CMCC,
and CMCC may acquire from the Corporation, additional Shares.
SECTION 3. Legend on Shares and Notice of Transfer.
---------------------------------------
3.1 Restrictive Legends. (a) Each certificate evidencing Shares,
-------------------
and each certificate evidencing Shares held by subsequent transferees of any
such certificate, shall (unless otherwise permitted by the provisions of Section
3.2 hereof) be stamped or otherwise imprinted with a legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THESE SECURITIES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY
EXEMPTION THEREFROM UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAW.
(b) Each certificate evidencing Shares, and each certificate
evidencing Shares held by subsequent transferees of any such certificate, shall
also be stamped or otherwise imprinted with a legend in substantially the
following form:
ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE TERMS
AND CONDITIONS OF A RESTRICTED STOCK AGREEMENT EFFECTIVE AS OF
DECEMBER 31, 1998 BETWEEN ORAPHARMA, INC. AND THE HOLDER OF RECORD OF
THIS CERTIFICATE AND NO SALE, ASSIGNMENT, TRANSFER, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF SUCH SECURITIES SHALL BE VALID
OR EFFECTIVE EXCEPT IN ACCORDANCE WITH SUCH AGREEMENT AND UNTIL SUCH
TERMS AND CONDITIONS HAVE BEEN
-3-
<PAGE>
FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO
THE SECRETARY OF ORAPHARMA, INC.
3.2 Notice of Transfer. (a) CMCC, and any other holder of any Shares
------------------
by acceptance thereof, agrees that, prior to any Transfer of any Shares, such
holder will give written notice to the Corporation of such holder's intention to
effect such Transfer and to comply in all other respects with the provisions of
this Section 3.2. Each such notice shall contain (i) a statement setting forth
the intention of said holder's prospective transferee with respect to its
retention or disposition of said Shares; and (ii) unless waived by the
Corporation, an opinion of counsel for said holder (who may be the inside or
staff counsel employed by said holder), as to the necessity or non-necessity for
registration under the Securities Act and applicable state securities laws in
connection with such Transfer and stating the factual and statutory basis relied
upon by counsel. The following provisions shall then apply:
(i) If the proposed Transfer of Shares may be effected without
registration or qualification under the Securities Act and any applicable
state securities laws, then the registered holder of such Shares shall be
entitled to Transfer such Shares in accordance with Section 4 hereof and
the intended method of disposition specified in the statement delivered by
said holder to the Corporation.
(ii) If the proposed Transfer of such Shares may not be effected
without registration under the Securities Act or registration or
qualification under any applicable state securities laws, the registered
holder of such Shares shall not be entitled to Transfer such Shares
pursuant to Section 4 until the requisite registration or qualification is
effective.
(b) Notwithstanding the provisions of Section 3.2(a), in the case of
a Transfer by a holder to a member of such holder's Family or Group, no such
opinion of counsel shall be necessary; provided, that the transferee agrees in
--------
writing to be subject to Section 3 hereof to the same extent as if such
transferee were originally a signatory to this Agreement.
(c) Each certificate evidencing the Shares issued upon such Transfer
(and each certificate evidencing any untransferred balance of such Shares) shall
bear the legend set forth in Section 3.1(a) hereof unless (i) in the opinion of
counsel (acceptable to the Corporation) addressed to the Corporation the
registration of future Transfers is not required by the applicable provisions of
the Securities Act or applicable state securities laws; (ii) the Corporation
shall have waived the requirement of such legend; or (iii) in the reasonable
opinion of counsel to the Corporation, such Transfer shall have been made in
connection with an effective registration statement filed pursuant to the
Securities Act or in compliance with
-4-
<PAGE>
the requirements of Rule 144 or Rule 144A (or any similar or successor rule)
promulgated under the Securities Act, and in compliance with applicable state
securities laws.
(d) Each certificate evidencing the Shares issued upon such Transfer
(and each certificate evidencing any untransferred balance of such Shares) shall
bear the legend set forth in Section 3.1(b) hereof, for so long as this
Agreement remains in effect. In the event of the termination of this Agreement,
the holder of Shares may request that the Corporation issue a new certificate
not bearing the legend set forth in Section 3.1(b) hereof.
SECTION 4. Covenants of CMCC and Corporation.
---------------------------------
4.1 Prohibited Transfers.
--------------------
(a) Notwithstanding anything to the contrary contained herein,
CMCC (and any permitted transferee of CMCC) may Transfer all of its, his or her
Shares: (i) if the stockholder is a limited partnership or a trust, to any
member of the Group of which CMCC (or such permitted transferee) is a member;
provided, that such transferee shall agree in writing with the Corporation,
- --------
prior to and as a condition precedent to such Transfer, to be bound by all of
the provisions of this Agreement; (ii) if the stockholder is a corporation, to
any member of its Group; provided, that such transferee shall agree in writing
--------
with the Corporation, prior to and as a condition precedent to such Transfer, to
be bound by all of the provisions of this Agreement; (iii) if the transferor is
any such permitted transferee of CMCC, to any member of the Family of such
permitted transferee; provided, that such new transferee shall agree in writing
--------
with the Company, prior to and as a condition precedent to such Transfer, to be
bound by all of the provisions of this Agreement and, provided, further, that
-------- -------
the interests in any Family trusts shall be non-transferable; and (iv) if the
transferor is any such permitted transferee of CMCC, by will or the laws of
descent and distribution, in which event each such new transferee shall be bound
by all of the provisions of this Agreement to the same extent as if such
transferee were sick (or permitted transferee).
(b) If requested in writing by the managing underwriters, if any, of
any Public Offering, CMCC agrees not to offer, sell, contract to sell or
otherwise dispose of any Shares except as part of such Public Offering within
thirty (30) days before or one hundred and eighty (180) days after the effective
date of the registration statement filed with respect to said offering, and the
Corporation hereby also so agrees; provided, however, that this restriction will
-------- -------
not apply to transfers permitted under Section 4.1(a) provided such transferee
agrees to be bound by the restriction contained in this Section 4.1(b).
Notwithstanding the foregoing, in the event that CMCC shall have accepted an
offer to purchase Offered Shares (as defined below) which have been offered
pursuant to Section 4.2(a), CMCC shall not be prohibited from consummating such
sale, provided, that the purchaser agrees to be bound by the restrictions
--------
contained in this Section 4.1(b).
4.2 Right of First Offer on Dispositions.
------------------------------------
-5-
<PAGE>
(a) Without limiting CMCC's right to Transfer all or any part of its
Shares pursuant to any other provisions of this Agreement, if CMCC desires to
Transfer all or any part of its Shares pursuant to this Section 4.2 at any time
prior to completion of the Corporation's Initial Public Offering, CMCC shall
submit a written offer (the "Offer") to sell such Shares (the "Offered Shares")
----- --------------
to the Corporation, which Offer shall specify the number of Offered Shares
proposed to be sold, the total number of Shares owned by CMCC, and the terms and
conditions, including price, at which the Shares are being offered.
(b) The Corporation shall have the right to purchase all of the
Offered Shares, on the same terms and conditions specified in the Offer.
(c) If the Corporation desires to purchase all or any part of the
Offered Shares on the same terms and conditions specified in the Offer, the
Corporation shall deliver its Acceptance to CMCC, which Acceptance shall state
the number of Offered Shares the Corporation desires to purchase and shall be
delivered in person or mailed to CMCC at the address set forth in the Offer,
within 20 days of the date the Offer was made by CMCC pursuant to Section
4.2(a).
(d) If the Corporation elects to purchase all of the Offered Shares,
sale of the Offered Shares pursuant to this Section 4.2 shall be made at the
offices of the Corporation on the 45th day following the expiration of the 20-
day period described above (or if such 45th day is not a business day, then on
the next succeeding business day). Such sale shall be effected by CMCC's
delivery to the Corporation of a certificate or certificates evidencing the
Offered Shares to be purchased by it, duly endorsed for transfer to the
Corporation, which Offered Shares shall be delivered free and clear of all
liens, charges, claims and encumbrances of any nature whatsoever, against
payment to CMCC of the purchase price therefor by the Corporation. Payment for
the Offered Shares shall be made as provided in the Offer or by wire transfer or
certified check.
(e) If the Corporation does not elect to purchase all of the Offered
Shares, then the Offered Shares may be sold by CMCC at any time within 150 days
after the date the Offer was made by CMCC pursuant to Section 4.2(a). Any such
sale shall be upon terms and conditions, including price, not less favorable to
CMCC than those specified in the Offer. Any Offered Shares not sold within such
150-day period shall continue to be subject to the requirements of a prior offer
pursuant to this Section 4.2.
4.3 Drag Along. Subject to Section 4.2 above, anything in this
----------
Agreement to the contrary notwithstanding, in the event that (i) the Board of
Directors of the Corporation by unanimous vote or unanimous written consent
and/or the holders of sixty-six and two-thirds of the then outstanding Common
Shares by vote or written consent approves a transaction pursuant to which any
Person or Persons not affiliated with any of the Stockholders will acquire 50%
or more of the Common Shares of the Corporation (by stock purchase, merger or
otherwise) or all or substantially all of the assets of the Corporation, upon
the written request
-6-
<PAGE>
of the holders of sixty-six and two-thirds of the Common Shares, CMCC agrees to
offer to sell all of its Shares, and to sell all of his Shares, to such Person
or Persons or to vote all of his Shares in favor of the sale of assets, as the
case may be, in either case upon the terms and conditions of the transaction
approved by the Board of Directors of the Corporation and/or the holders of
sixty-six and two-thirds of the Common Shares; provided, however, that CMCC's
--------- -------
obligation to sell its Shares pursuant to this Section 4.3 shall only apply if
all of the Shares are to be sold on the same terms and conditions. For purposes
of this Section 4.3, each Preferred Share shall be deemed to be the number of
shares of Common Stock into which the Preferred Share is then convertible.
4.4 "Piggyback" Registrations. (a) If the Corporation at any time
------------------------
proposes to register any of its securities under the Securities Act on Form S-1,
S-2 or S-3 or on any other form upon which the Common Shares may be registered
for sale to the general public, other than on Form S-4 or S-8 or other similar
form, whether for its own account or for the account of others, the Corporation
will at each such time promptly give written notice to CMCC of such proposal,
which shall set forth information, to the extent then known, as to offering
price or range, the number of shares to be offered, the proposed manner of
distribution and the proposed managing underwriter(s) of the offering. Upon the
written request of CMCC given within 20 days after the Corporation has given
such notice, the Corporation will cause the Shares which the Corporation has
been requested to register by CMCC to be registered under the Securities Act
(and any related qualification under blue sky laws or other compliance), all to
the extent required to permit the sale or other disposition by CMCC of the
Shares so registered.
(b) If securities are to be registered for sale under a registration
and are to be distributed for the account of the Corporation by or through a
firm of underwriter(s), then any Shares which the Corporation has been requested
to register pursuant to clause (a) of this Section 4.4 shall also be included in
such underwriting on the same terms as other securities of the same class as the
Shares included in such underwriting; provided, that if, in the written opinion
--------
of the managing underwriter(s), the total amount of such securities to be so
registered, when added to the Shares, will exceed the maximum amount of the
Corporation's securities which can be marketed (i) at a price reasonably related
to their then current market value, or (ii) without otherwise materially and
adversely affecting the entire offering, then (subject to clause (d) of this
Section 4.4) the Corporation shall exclude from such underwriting, first, the
number of Shares being sold for the account of CMCC as is necessary, in the
opinion of the managing underwriter(s), to reduce the size of the offering.
(c) If securities are to be registered for sale under a registration
and are to be distributed for the account of holders of Common Shares held by
third parties or holders (other than the Corporation) of other securities of the
Corporation other than Common Shares by or through a firm of underwriter(s) of
recognized standing under underwriting terms appropriate for such transaction,
then any Shares which the Corporation has been requested to register pursuant to
clause (a) of this Section 4.4 shall also be included in such underwriting
-7-
<PAGE>
on the same terms as other securities included in such underwriting, provided,
that if, in the written opinion of the managing underwriter(s), the total amount
of such securities to be so registered, when added to such Shares, will exceed
the maximum amount of the Corporation's securities which can be marketed (i) at
a price reasonably related to their then current market value, or (ii) without
otherwise materially and adversely affecting the entire offering, then the
Corporation shall exclude from such underwriting the number of Shares and other
securities, pro rata to the extent practicable, on the basis of the number of
--- ----
securities requested to be registered, as is necessary in the opinion of the
managing underwriter(s) to reduce the size of the offering.
(d) Notwithstanding Section 4.4(a), (b) and (c), the Corporation may
exclude all Shares from registration in connection with the Corporation's
Initial Public Offering if the inclusion of such Shares would, in the written
opinion of the managing underwriter(s) adversely affect the marketing of the New
Securities to be sold by the Corporation therein; provided that such exclusion
of Shares shall be made pro rata with all other Common Stock held by third
--- ----
parties which are not then and were not previously holders of Preferred Shares.
SECTION 5. Representations.
---------------
5.1. Representations of CMCC. In connection with CMCC's purchase of the
-----------------------
Shares, CMCC hereby represents and warrants to the Corporation as follows:
(a) Investment Intent; Capacity to Protect Interests. CMCC is
------------------------------------------------
purchasing the Shares solely for its own account for investment and not with a
view to or for sale in connection with any distribution of the Shares or any
portion thereof and not with any present intention of selling, offering to sell
or otherwise disposing of or distributing the Shares or any portion thereof in
any transaction other than a transaction exempt from registration under the
Securities Act. CMCC also represents that the entire legal and beneficial
interest of the Shares is being purchased, and will be held, for its account
only, and neither in whole or in part for any other person.
(b) Restricted Securities. CMCC understands and acknowledges that
---------------------
the sale of the Shares has not been registered under the Securities Act; that
the Shares must be held indefinitely unless subsequently registered under the
Securities Act or an exemption from such registration is available; and that,
except as provided in Section 4.4, the Corporation is under no obligation to
register the Shares.
(c) Disposition under Rule 144. CMCC understands that the Shares are
--------------------------
restricted securities within the meaning of Rule 144 promulgated under the
Securities Act; that the exemption from registration under Rule 144 will not be
available in any event for at least two years from the date of purchase of any
payment for the Shares, and even then will not be available unless (i) a public
trading market then exists for the Shares, (ii) adequate information
-8-
<PAGE>
concerning the Corporation is then available to the public, and (iii) other
terms and conditions of Rule 144 are complied with; and that any sale of the
Shares may be made only in limited amounts in accordance with such terms and
conditions.
(d) Accredited Investor. CMCC is an "accredited investor", as
-------------------
defined in Rule 501 under the Securities Act.
5.2. Representations of the Corporation. The Corporation represents to
----------------------------------
CMCC that:
(a) The execution, delivery and performance by the Corporation of
this Agreement and all transactions contemplated by this Agreement have been
duly authorized by all action required by law, its Certificate of Incorporation,
its Bylaws or otherwise.
(b) This Agreement has been duly executed and delivered by the
Corporation and constitutes the legal, valid and binding obligation of the
Corporation enforceable against it in accordance with its terms.
SECTION 6. Withholding. Upon the request of the Corporation, CMCC
-----------
shall promptly pay to the Corporation, or make arrangements satisfactory to the
Corporation regarding payment of, any Federal, state or local taxes of any kind
required by law to be withheld with respect to the Shares (or any distributions
of other securities or property (including cash) thereon or issued in
replacement thereof).
SECTION 7. Remedies. In case any one or more of the covenants and/or
--------
agreements set forth in this Agreement shall have been breached by any party
hereto, the party entitled to the benefit of such covenants or agreements may
proceed to protect and enforce its rights either by suit in equity and/or by
action at law, including, but not limited to, (a) an action for damages as a
result of any such breach, (b) an action for specific performance of any such
covenant or agreement contained in this Agreement, and/or (c) a temporary or
permanent injunction, in any case without showing any actual damage. The
rights, power and remedies of the parties under this Agreement are cumulative
and not exclusive of any other agreement or law. No single or partial assertion
or exercise of any right, power or remedy of a party hereunder shall preclude
any other or further assertion or exercise thereof. Any purported Transfer in
violation of the provisions of this Agreement shall be null and void ab initio.
-- ------
SECTION 8. Successors and Assigns. Except as otherwise expressly
----------------------
provided herein, this Agreement shall bind and inure to the benefit of the
Corporation, CMCC, the respective successors or heirs, distributees and personal
representatives and permitted assigns of the Corporation and CMCC, and each
other person who shall properly become a registered holder of any Shares that
have not theretofore been sold to the public pursuant to a registration
statement under the Securities Act or Rule 144 or Rule 144A (or any similar or
successor rule).
-9-
<PAGE>
SECTION 9. Entire Agreement. This Agreement contains the entire agreement
----------------
among the parties with respect to the subject matter hereof and supersedes other
prior and contemporaneous arrangements or understandings with respect thereto.
SECTION 10. Notices. All notices, consents and other communications under
-------
this Agreement shall be in writing and shall be deemed to have been duly given
(a) when delivered by hand, (b) one (1) business day after the business day of
transmission, if sent by telex or telecopier (with receipt confirmed), provided
that a copy is mailed by registered mail, return receipt requested, or (c) one
(1) business day after the business day of deposit with the carrier, if sent by
Express Mail, Federal Express or other express delivery service (receipt
requested), in each case to the appropriate addresses, telex numbers and
telecopier numbers set forth below (or to such other addresses or telecopy
numbers as a party may designate as to itself by notice to the other parties):
(a) If to CMCC:
Children's Hospital
300 Longwood Avenue
Boston, MA 02115
Attention: Managing Director, Technology Transfer
Telecopier No.: (617) 232-7485
(b) If to the Corporation:
OraPharma, Inc.
732 Louis Drive
Warminster, Pennsylvania 18974
Attention: President
Telecopier No.: (215) 443-9531
with a copy to:
Sills Cummis Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102
Telecopier No.: (973) 643-6500
Attention: Ira A. Rosenberg, Esq.
SECTION 11. Changes. The terms and provisions of this Agreement may not
-------
be modified or amended, or any of the provisions hereof waived, temporarily or
permanently, without the prior written consent of each of the parties hereto.
-10-
<PAGE>
SECTION 12. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 13. Headings. The benefits of the various sections of this
--------
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
SECTION 14. Nouns and Pronouns. Whenever the context may require, any
------------------
pronouns used herein shall include the corresponding masculine feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
SECTION 15. Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability. Such
prohibition or unenforceability in any one jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 16. Governing Law; Jurisdiction. This Agreement and (unless
---------------------------
otherwise provided) all amendments hereof and waivers and consents hereunder
shall be governed by the internal law of the State of New Jersey, without regard
to the conflicts of law principles thereof.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first written above.
WITNESS ORAPHARMA, INC.
By:
- -------------------- --------------------------------
Michael Kishbauch, President
WITNESS CHILDREN'S MEDICAL CENTER CORPORATION
By:
- -------------------- --------------------------------
Title:
-12-
<PAGE>
Exhibit 4.12
THIS WARRANT AND THE SECURITIES TO BE ISSUED UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS REGISTERED PURSUANT TO SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
ORAPHARMA, INC.
STOCK WARRANT AGREEMENT
-----------------------
GRANTEE: Mucosal Therapeutics LLC
DATE OF GRANT: February 1, 1999
NUMBER OF SHARES: 55,000
EXERCISE PRICE: $1.82 per share
EXPIRATION DATE: January 31, 2004
Pursuant to the License Agreement dated as of December 14, 1998 (the
"License Agreement") by and between Mucosal Therapeutics LLC ("Mucosal") and
- ------------------ -------
OraPharma, Inc. (the "Company"), the Company has agreed to grant to Mucosal, as
-------
of the Date of Grant set forth above, a warrant (the "Warrant") to purchase up
-------
to the aggregate number of shares of Common Stock, par value $.001 per share
(the "Common Stock"), of the Company set forth herein at the price per share set
------------
forth herein, all upon the terms and conditions hereof. This Stock Warrant
Agreement is hereinafter referred to as either the "Agreement" or this
"Warrant".
TERMS AND CONDITIONS
--------------------
1. Grant and Exercise of Warrant. (a) The Company hereby grants to
-----------------------------
Mucosal, and Mucosal is entitled, upon the terms and subject to the conditions
hereinafter set forth, to purchase, from the Company, 55,000 shares of the
Company's Common Stock (the "Warrant Shares") at a purchase price of $1.82 per
--------------
share (the "Exercise Price"). This Warrant shall be fully vested as of the date
--------------
hereof. This Warrant may not be exercised after the Expiration Date set forth
above.
(b) This Warrant may not be exercised at a time when the exercise
thereof or the issuance or transfer of shares upon such exercise would, in the
opinion of the Board of
<PAGE>
Directors of the Company, constitute a violation of any law, federal, state,
local or foreign, or any regulations thereunder, or the requirements of the New
York Stock Exchange or any other national securities exchange or market.
2. Procedure for Exercise. (a) This Warrant may be exercised, in whole
----------------------
or part, by Mucosal by delivering a written notice (the "Notice") to the
------
Secretary of the Company. This Warrant may not be exercised for any fractional
share. The Notice shall (i) state that Mucosal elects to exercise the Warrant;
(ii) state the number of Warrant Shares with respect to which the Warrant is
being exercised; and (iii) include the reaffirmation of the representations and
warranties of Mucosal set forth in Section 3 below. This Warrant may not be
exercised unless and until Mucosal shall have entered into a Restricted Stock
Agreement with the Company in substantially the form of Exhibit A hereto with
respect to the Warrant Shares as to which this Warrant is being exercised.
(b) Payment of the aggregate Exercise Price for such Warrant Shares
shall be made in cash or by certified check payable to the Company in an amount
equal to the aggregate Exercise Price of the Warrant Shares with respect to
which this Warrant is being exercised.
(c) The Company shall issue a stock certificate in the name of Mucosal
for such Warrant Shares as soon as practicable after receipt of the Notice and
payment of the aggregate Exercise Price for such Warrant Shares. Mucosal shall
not have any privileges as a stockholder of the Company with respect to any
Warrant Shares until such Warrant Shares shall be registered on the books of the
Company in the name of Mucosal.
3. Representations and Warranties. Mucosal acknowledges, represents and
------------------------------
warrants to the Company as follows:
(a) In connection with its exercise of the Warrant, it will consult
with such independent legal counsel or other advisors considered appropriate to
it to assist it in evaluating its proposed investment in the Company. Without
limiting the foregoing, Mucosal acknowledges that there may be certain adverse
tax consequences to it in connection with its exercise of the Warrant and the
Company has advised Mucosal to seek the advice of experts in such areas prior to
exercising the Warrant.
(b) Mucosal shall own the Warrant, and shall purchase the Warrant
Shares, for its own account for investment, and not with a view to or for resale
in connection with the distribution thereof, nor with any present intention of
selling or otherwise disposing of all or any part of the Warrant or Warrant
Shares. Mucosal agrees that it must bear the economic risk of its investment
for an indefinite period of time because, among other reasons, any Warrant
Shares purchased by it upon exercise of the Warrant may not be registered under
the Securities Act of 1933, as amended (the "Act") or under the securities laws
---
of certain states and, therefore, cannot be Transferred unless they are
subsequently registered under the Act
-2-
<PAGE>
and under applicable securities laws of such states or an exemption from such
registration is available. Mucosal understands that the Company is under no
obligation to register this Warrant and/or the Warrant Shares on Mucosal's
behalf or to assist it in complying with any exemption from such registration
under the Act or any state securities laws. Furthermore, Mucosal hereby
acknowledges and agrees that it will not Transfer, either publicly or privately,
the Warrant or the Warrant Shares without registration thereof under the Act or
an exemption therefrom. For purposes of this Agreement, the term "Transfer"
--------
means to directly or indirectly sell, assign, transfer, pledge (other than a
pledge to the Company), hypothecate or to otherwise encumber or dispose of any
record or beneficial ownership of the Warrant or Warrant Shares (or contract to
do any of the foregoing).
(c) Mucosal understands that the Warrant and the Warrant Shares are
speculative investments which involve a high degree of risk of loss of its
entire investment in the Company. Mucosal can afford (i) to hold unregistered
securities for an indefinite period of time; and (ii) to sustain a complete loss
of the entire amount of its investment in the Company and, at the same time,
bear any tax liability which may result if its investment in the Company is
lost. Mucosal has determined that the Warrant (and, upon exercise of the
Warrant, will determine with respect to the Warrant Shares) is a suitable
investment and it has the financial ability to bear the economic risk of its
investment in the Company (including its possible total loss), has adequate
means for providing for its current needs and personal contingencies and has no
need for liquidity with respect to its investment in the Company.
(d) Mucosal is an "accredited investor", as defined in Rule 501 under
the Act.
(e) Mucosal has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the Warrant and the Warrant Shares and making an informed and
reasoned investment decision, and has obtained, in its judgment, sufficient
information from the Company to evaluate the merits and risks of an investment
in the Company.
(f) Mucosal has been given the opportunity to ask questions of, and
receive answers from, the Company concerning the Company and other matters
pertaining to this investment, and to obtain any additional information
necessary to verify the accuracy of any information provided, and has not been
furnished any offering literature or prospectus and has not received any general
solicitation or general advertising regarding the purchase of any Common Stock.
Mucosal has been furnished with all additional documents and information
requested by it.
(g) Mucosal is aware that there is no assurance as to the future
performance of the Company. No representations or warranties of any kind have
been made to Mucosal by the Company or any officer, employee, agent or affiliate
of the Company.
-3-
<PAGE>
(h) Mucosal understands that the Warrant is, and the Warrant Shares
will be, issued pursuant to a specific exemption under the provisions of the Act
and exemptions under various state securities laws, which exemptions may depend,
among other things, upon Mucosal's investment intent. Mucosal understands that
the availability of such exemptions is in part dependent upon the truthfulness
and accuracy of the representations made by it herein and that the Company will
rely on such representations in issuing the Warrant and the Warrant Shares to
Mucosal.
Mucosal acknowledges and agrees that each time it exercises the Warrant and
purchases Warrant Shares, and as a condition to such purchase, it shall re-state
and reaffirm all of the representations and warranties set forth above, unless
the Warrant Shares shall then be subject to an effective registration statement
under the Act and applicable state securities laws. Notwithstanding the
foregoing, even if Mucosal does not so re-state and reaffirm as required, upon
each exercise of the Warrant it will automatically be deemed to have so re-
stated and reaffirmed.
4. Stock Dividends, Splits, Etc. In the event the Common Stock is
-----------------------------
changed by reason of a stock split, reverse stock split, stock dividend or
recapitalization (exclusive of any public or private sales of Capital Stock of
the Company), or is converted into or exchanged for other securities as a result
of a merger, consolidation or reorganization in which the Company is the
surviving corporation, appropriate adjustments shall be made in the terms of
this Warrant, or additional warrants shall be granted to Mucosal as shall be
equitable and appropriate, or an adjustment in the number and class of shares
allocated to, and the Exercise Price of, the Warrant shall be made.
5. Certain Extraordinary Transactions. In the event the Common Stock is
----------------------------------
exchanged for securities, cash or other property of any other corporation or
entity as the result of a reorganization, merger or consolidation in which the
Company is not the surviving corporation, the dissolution or liquidation of the
Company, or the sale of all or substantially all the assets of the Company, the
Board of Directors of the Company or the board of directors of any successor
corporation or entity shall, as to the unexercised portion of this Warrant, (a)
provide for payment of an amount equal to the excess of the fair market value of
the Warrant Shares, as determined by the Board of Directors of the Company or
such board, over the Exercise Price of such Warrant Shares as of the date of the
transaction, in exchange for the surrender of the right to exercise the Warrant,
or (b) provide for the assumption of the Warrant, or the substitution therefor
of new warrants, by the successor corporation or entity.
6. Restriction on Transfer of Warrant. The Warrant may not be
----------------------------------
Transferred in any way by Mucosal. The Warrant shall not be subject to
execution, attachment or similar process. Any attempted Transfer of the Warrant
contrary to the provisions hereof, and the levy of any execution, attachment or
similar process upon the Warrant, shall result in the immediate termination of
the Warrant. If requested in writing by the managing underwriters, if any, of
any public offering, Mucosal shall not offer, sell, contract to sell or
otherwise
-4-
<PAGE>
dispose of any of the Warrant Shares except as part of such public offering
within 30 days before or 180 days after the effective date of the registration
statement filed with respect to said offering.
7. Right of First Offer. (a) If, prior to the date of the initial public
--------------------
offering of shares of the Common Stock, Mucosal desires to Transfer to any
third-party all or any part of the Warrant Shares pursuant to the terms of a
bona fide offer received from a third party, Mucosal shall first submit a
written offer (the "Offer") to sell such Warrant Shares (the "Offered Shares")
----- --------------
to the Company on terms and conditions, including price, not less favorable to
the Company then those on which Mucosal proposes to sell such Warrant Shares to
such third party. The Offer shall disclose the identity of the proposed
purchaser, specify the number of Offered Shares proposed to be sold, the total
number of Offered Shares owned by Mucosal, and the agreed terms and conditions
of the sale and any other material facts relating to the sale.
(b) The Company shall have the right to purchase all or any portion of
the Offered Shares on the same terms and conditions specified in the Offer.
(c) If the Company desires to purchase all or any portion of the
Offered Shares, the Company shall communicate in writing its election to
purchase (an "Acceptance") to Mucosal, which Acceptance shall be delivered to
----------
Mucosal within 30 days of the Company's receipt of the Offer.
(d) If the Company elects to purchase all or any of the Offered
Shares, sale of the Offered Shares to be so purchased pursuant to this Section
shall be made at the offices of the Company on the 30th day following the
expiration of the 30-day period applicable pursuant to paragraph (c) of this
Section (or if such 30th day is not a business day, then on the next succeeding
business day). Such sales shall be effected by Mucosal's delivery to the
Company of a certificate or certificates evidencing the Offered Shares to be
purchased by it, duly endorsed for Transfer to the Company, which Offered Shares
shall be delivered free and clear of all liens, charges, claims and encumbrances
of any nature whatsoever, against payment to Mucosal of the purchase price
therefor by the Company. Payment for the Offered Shares shall be made as
provided in the Offer or by wire transfer or certified check.
(e) If the Company does not elect to purchase all of the Offered
Shares, then the Offered Shares not so purchased may be sold by Mucosal at any
time within 150 days after the Company's receipt of the Offer. Any such sale
shall be upon terms and conditions, including price, not less favorable to
Mucosal than those specified in the Offer, and the purchaser or transferee (and
all subsequent purchasers or transferees) shall be subject to all the terms of
this Agreement. Any Offered Shares not sold within such 150-day period shall
continue to be subject to the requirements of a first offer by the Company
pursuant to this Section.
-5-
<PAGE>
8. Restrictive Legends. Stock certificates representing the Warrant
-------------------
Shares shall bear such legend or legends as the Board of Directors of the
Company shall deem appropriate.
9. Miscellaneous.
-------------
(a) Jurisdiction. Each party hereby submits itself for the sole
------------
purpose of this Agreement and any controversy arising hereunder to the exclusive
jurisdiction of the courts located in the State of New York, and any courts of
appeal therefrom, and waives any objection (on the grounds of lack of
jurisdiction, or forum non conveniens or otherwise) to the exercise of such
jurisdiction over it by any such courts.
(b) Governing Law. This Agreement and all amendments, modifications,
-------------
alterations, or supplements hereto, and the rights of the parties hereunder,
shall be construed under and governed by the laws of the State of New York and
the United States of America, without regard to the principles of conflicts of
law thereof.
(c) Notices. All notices, consents and other communications required
-------
or which may be given under this Agreement shall be deemed to have been duly
given (i) when delivered by hand, (ii) three (3) days after being mailed by
registered or certified mail, return receipt requested, or (iii) when received
by the addressee, if sent by facsimile transmission (with acknowledgment of
complete transmission) or by Express Mail, Federal Express or other express
delivery service (receipt requested), in each case addressed to the Company at
its principal place of business and to Mucosal its address as listed on the
books and records of the Company (or in either case to such other address as
such party may hereafter designate as to itself by notice to the other party
hereto).
(d) Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective legal
representatives, successors and permitted assigns.
(e) Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the Company and Mucosal with respect to the subject matter hereof and
shall not be modified, amended or terminated except as herein provided or except
by another agreement in writing executed by the parties hereto.
(f) Headings. The Section headings are for convenience only and are
--------
not a part of this Agreement.
(g) Severability. All rights and restrictions contained herein may be
------------
exercised and shall be applicable and binding only to the extent that they do
not violate any applicable laws and are intended to be limited to the extent
necessary so that they will not render this Agreement illegal, invalid or
unenforceable. If any provision or portion of any provision of this Agreement
not essential to the commercial purpose of this Agreement shall be
-6-
<PAGE>
held to be illegal, invalid or unenforceable by a court of competent
jurisdiction, it is the intention of the parties that the remaining provisions
or portions thereof shall constitute their agreement with respect to the subject
matter hereof, and all such remaining provisions or portions thereof shall
remain in full force and effect. To the extent legally permissible, any illegal,
invalid or unenforceable provision of this Agreement shall be replaced by a
valid provision agreeable to the parties hereto which will implement the
commercial purpose of the illegal, invalid or unenforceable provision. In the
event that any provision essential to the commercial purpose of this Agreement
is held to be illegal, invalid or unenforceable and is not replaced by a valid
provision which will implement the commercial purpose of this Agreement and
which is agreed to the parties hereto in writing within 30 days following such
holding, this Agreement and the rights granted herein shall terminate.
(h) Waiver; Remedies. The failure of any party hereto to require
----------------
performance hereunder, or the written waiver by any party hereto of any breach
of this Agreement, shall not prevent the subsequent enforcement thereof nor be
deemed a waiver of any subsequent breach.
(i) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original and both of which together shall
constitute one instrument.
(j) Expenses; Further Assurances. Unless otherwise provided herein,
----------------------------
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party which shall have
incurred the same, and the other party shall have no liability relating thereto.
Without limiting the generality of any provision of this Agreement, each party
agrees that upon request of any other party, it shall, from time to time, do any
and all other acts and things as may reasonably be required to carry out its
obligations hereunder, to consummate the transactions contemplated hereby, and
to effectuate the purposes hereof.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Stock Warrant Agreement
as of the 1st day of February, 1999.
MUCOSAL THERAPEUTICS LLC
By:
-----------------------------------
Name:
Title:
ORAPHARMA, INC.
By:
-----------------------------------
Name:
Title:
-8-
<PAGE>
Exhibit 4.13
RESTRICTED STOCK PURCHASE AGREEMENT
-----------------------------------
THIS RESTRICTED STOCK PURCHASE AGREEMENT (this "Agreement") is dated as of
---------
the 26th day of February, 1997, by and between OraPharma, Inc., a Delaware
corporation (the "Company") and American Cyanamid Company, a Maine corporation
-------
("Stockholder").
-----------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and Stockholder are parties to an agreement dated as
of the date hereof relating to, among other things, the transfer to the Company
of certain technologies and other assets related to Minocin Periodontal and
Stockholder's related drug delivery technologies and the grant by Stockholder to
the Company of a license to make Minocin Periodontal (the "Minocin Agreement");
-----------------
and
WHEREAS, pursuant to the terms of the Minocin Agreement, the Company has
agreed to issue to Stockholder 220,000 shares of the Company's Common Stock,
$.001 par value per share (the "Common Stock"), on the terms and conditions
------------
contained herein and in the Minocin Agreement; and
WHEREAS, pursuant to the terms of the Minocin Agreement, the Company may
elect to grant Stockholder one or more warrants to purchase shares of Common
Stock of the Company.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties do hereby agree as
follows:
SECTION 1. Definitions.
-----------
As used in this Agreement, the following terms shall have the following
respective meanings:
"Blue Sky Application" shall have the meaning set forth in Section 13.3(a).
--------------------
"Closing" and "Closing Date" shall have the meanings set forth in
------- ------------
Section 2.
"Common Shares" shall mean the issued and outstanding shares of the
-------------
Company's Common Stock, at the applicable time.
"Equity Stock" shall have the meaning set forth in Rule 3a11-1 under the
------------
Securities Exchange Act of 1934, as amended, and any successor statute and the
rules and regulations thereunder, as shall be in effect from time to time.
<PAGE>
"Exchange Act" shall have the meaning set forth in Section 12.2(d).
------------
"Founders" shall mean Oak Investment Partners VI, Limited Partnership, Oak
--------
VI Affiliates Fund, Limited Partnership and Scheer Investment Holdings I, L.L.C.
"Maximum Number" shall have the meaning set forth in Section 13.2.
--------------
"New Securities" shall mean any Equity Stock, including, but not limited
--------------
to, shares of Common Stock, any security which is convertible into or
exercisable or exchangeable for Common Stock, or any right, option or warrant to
acquire any Common Stock of the Company.
"Preferred Shares" shall mean the issued and outstanding shares of the
----------------
Company's Series A Preferred Stock, $.001 par value per share, and Series B
Preferred Stock, $.001 par value per share.
"Prospectus" shall have the meaning set forth in Section 13.3.
----------
"Public Offering" shall mean a distribution of New Securities in an
---------------
underwritten public offering to the general public pursuant to a registration
statement filed with and declared effective by the Securities and Exchange
Commission pursuant to the Securities Act.
"Purchasers" shall mean the owners of the Company's Preferred Shares
----------
originally issued pursuant to the Stock Purchase Agreement dated as of even date
herewith.
"Registrable Securities" shall have the meaning set forth in Section
----------------------
13.1(b).
"Registration Statement" shall have the meaning set forth in Section
----------------------
13.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended, and any
--------------
successor statute and the rules and regulations of the Securities and Exchange
Commission thereunder, as shall be in effect at the applicable time.
"Shares" shall mean the 220,000 shares of Common Stock issued to
------
Stockholder hereunder.
"Shares, Warrant and/or Warrant Shares" shall mean the Shares, any Warrant
-------------------------------------
Shares available for exercise under the Warrant and any Warrant Shares exercised
pursuant to the Warrant.
"Transfer" shall include any direct or indirect sale, assignment, transfer,
--------
pledge (but not including a pledge in favor of the Company), hypothecation or
other disposition of any Shares or
<PAGE>
of any legal or beneficial interest therein.
"Warrant" shall have the meaning set forth in Section 3.
-------
"Warrant Shares" shall have the meaning set forth in Section 3.
--------------
SECTION 2. Sale to Stockholder of the Shares.
---------------------------------
2.1 General. Subject to the terms and conditions contained herein
-------
and in consideration of the agreements between the Company and Stockholder
contained in the Minocin Agreement, the Company hereby agrees to sell, transfer
and assign to Stockholder at the Closing, and Stockholder hereby agrees to
purchase from the Company at the Closing, the Shares.
2.2 Closing. The closing of the sale and purchase of the Shares (the
-------
"Closing") shall take place at the offices of the Company, 1200 Route 22 East,
-------
Suite 220, Bridgewater, New Jersey on the third business day after the date on
which the last to be fulfilled or waived of the conditions set forth in Sections
10 and 11 (other than those contemplated to be satisfied at Closing) shall be
fulfilled or waived in accordance with this Agreement or at such other time,
date or place as the parties may mutually agree upon (the "Closing Date"). At
------------
the Closing, the parties to this Agreement will exchange funds, certificates and
other documents specified in this Agreement.
SECTION 3. Grant of Warrant. The Company may at its option, in accordance
----------------
with the terms of the Minocin Agreement, grant to Stockholder one or more
warrants to purchase from the Company, on the terms and conditions set forth
herein, in the Minocin Agreement and in the stock purchase warrant in the form
attached hereto as Exhibit A (the "Warrant"), shares of Common Stock of the
-------
Company (the "Warrant Shares"). Pursuant to the Minocin Agreement, the Warrant,
--------------
if issued, shall be (i) either Option 1 Warrants (as defined in the Minocin
Agreement) to purchase up to $125,000 of Warrant Shares or Option 2 Warrants (as
defined in the Minocin Agreement) to purchase up to $1,000,000 of Warrant
Shares, and/or (ii) Approval Warrants (as defined in the Minocin Agreement) to
purchase up to $5,000,000 of Warrant Shares.
SECTION 4. Legend on Shares and Notice of Transfer.
---------------------------------------
4.1 Restrictive Legends. (a) Each Warrant and each certificate
-------------------
evidencing Shares or Warrant Shares, and each Warrant and each certificate
evidencing Shares or Warrant Shares held by subsequent transferees of any such
Warrant or certificate, shall (unless otherwise permitted by the provisions of
Section 4.2 hereof) be stamped or otherwise imprinted with a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES AND HAVE NOT BEEN
<PAGE>
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR ANY EXEMPTION THEREFROM UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAW.
(b) Each Warrant and each certificate evidencing Shares or Warrant
Shares, and each Warrant and each certificate evidencing Shares or Warrant
Shares held by subsequent transferees of any such Warrant or certificate, shall
also be stamped or otherwise imprinted with a legend in substantially the
following form:
ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE TERMS AND
CONDITIONS OF A RESTRICTED STOCK PURCHASE AGREEMENT DATED AS OF FEBRUARY
26, 1997 AMONG ORAPHARMA, INC. AND THE HOLDER OF RECORD OF THIS CERTIFICATE
AND NO SALE, ASSIGNMENT, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER
DISPOSITION OF SUCH SECURITIES SHALL BE VALID OR EFFECTIVE EXCEPT IN
ACCORDANCE WITH SUCH AGREEMENT AND UNTIL SUCH TERMS AND CONDITIONS HAVE
BEEN FULFILLED. COPIES OF SUCH AGREEMENT(S) MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF ORAPHARMA, INC.
4.2 Restrictions on Transfer. (a) Each Warrant and each certificate
------------------------
evidencing Shares or Warrant Shares issued upon any Transfer (and each Warrant
or certificate evidencing any untransferred balance of such Warrant, Shares or
Warrant Shares, as the case may be) shall bear the legend set forth in Section
4.1(a) hereof and any Transfer may not be effectuated unless (i) in the opinion
of counsel (acceptable to the Company) addressed to the Company the registration
of future Transfers is not required or is exempted by the applicable provisions
of the Securities Act or applicable state securities laws; (ii) the Company
shall have waived the requirement of such legend; (iii) such Transfer shall have
been made in connection with an effective registration statement filed pursuant
to the Securities Act or in compliance with the requirements of Rule 144 or Rule
144A (or any similar or successor rule) promulgated under the Securities Act,
and in compliance with applicable state securities laws; or (iv) the Company
consummates a Public Offering. Upon the happening of any of the foregoing, at
the request of Stockholder or its permitted transferee, the Company shall then
issue a new Warrant or certificate not bearing such legends.
(b) Each Warrant and each certificate evidencing Shares or Warrant
Shares issued upon such Transfer (and each Warrant or certificate evidencing any
untransferred balance of such Warrant, Shares and/or Warrant Shares, as the case
may be) shall bear the legend set forth in Section 4.1(b) hereof, for so long as
this Agreement remains in effect. In the event of the
<PAGE>
termination of this Agreement, the holder of Shares, Warrant and/or Warrant
Shares may request that the Company issue a new Warrant or certificate not
bearing the legend set forth in Section 4.1(b) hereof.
(c) All restrictions imposed by this Section 4 upon the
transferability of the Shares, Warrant and/or Warrant Shares shall cease and
terminate as to any particular Shares, Warrant and/or Warrant Shares (a) when
such securities shall have been effectively registered under the Securities Act
or lawfully disposed of in a private or public transaction, or (b) when, in the
opinion of counsel for the holder thereof and reasonably acceptable in form and
substance to counsel for the Company, such restrictions are no longer required
in order to ensure compliance with the Securities Act. Whenever such
restrictions shall terminate as to any of the Shares, Warrant and/or of Warrant
Shares, Stockholder shall be entitled to receive from the Company without
expense a new Warrant(s) or certificate(s) representing such Shares, Warrant or
Warrant Shares not bearing the legends set forth in this Section 4.
SECTION 5. Covenants of Stockholder and Company.
------------------------------------
5.1 Prohibited Transfers. (a) Stockholder agrees that it shall not
--------------------
Transfer the Shares, Warrant and/or Warrant Shares without the prior written
consent of the holders of a majority of the outstanding Common Shares other than
the Shares or Warrant Shares held by Stockholder, except as provided for in
Section 5.2. Notwithstanding the foregoing or anything else contained in this
Agreement, the Minocin Agreement or the Warrant, there shall be no restrictions
by the Company upon any Transfer of the Shares, Warrant and/or Warrant Shares
(i) by Stockholder to any affiliate (controlled by or under common control with
Stockholder) of Stockholder, or (ii) upon the earlier of consummation by the
Company of a Public Offering or six (6) years from the date hereof.
(b) If requested in writing by the managing underwriters, if any, of
any Public Offering, Stockholder agrees not to offer, sell, contract to sell or
otherwise dispose of any Shares or Warrant Shares except as part of such Public
Offering within thirty (30) days before or one hundred and eighty (180) days
after the effective date of the registration statement filed with respect to
said offering, and the Company hereby also so agrees; provided, however, that
--------
this restriction will not apply to transfers permitted under Section 5.1(a)
provided such transferee agrees to be bound by the restriction contained in this
Section 5.1(b). Notwithstanding the foregoing, in the event that Stockholder
shall have accepted an offer to purchase Offered Shares (as defined below) which
have been offered pursuant to Section 5.2, Stockholder shall not be prohibited
from consummating such sale, provided, that the purchaser agrees to be bound by
--------
the restrictions contained in this Section 5.1(b).
5.2 Right of First Offer on Dispositions. (a) Without limiting
------------------------------------
Stockholder's right to Transfer all or any part of its Shares or Warrant Shares
pursuant to any other provisions of this Agreement, if Stockholder desires to
Transfer all or any part of its Shares or Warrant Shares pursuant to this
Section 5.2, Stockholder shall submit a written offer (the "Offer") to sell
-----
<PAGE>
such Shares and/or Warrant Shares (the "Offered Shares") to the Company, which
--------------
Offer shall specify the number and type of Offered Shares proposed to be sold,
the total number of Shares, Warrant and/or Warrant Shares owned by Stockholder,
and the terms and conditions, including price, at which the Offered Shares are
being offered. Within ten (10) days of its receipt of the Offer from
Stockholder, the Company shall forward a copy of such Offer to each of the
Founders and Purchasers.
(b) Each of the Founders shall have the right to purchase that
number of Offered Shares, on the same terms and conditions specified in the
Offer, as shall be equal to the number of Offered Shares multiplied by a
fraction, the numerator of which shall be the number of Common Shares then owned
by such Founder and the denominator of which shall be the aggregate number of
Common Shares then owned by all of the Founders (the "Founders Pro Rata
-----------------
Fraction"). For the purpose of calculating the Founders Pro Rata Fraction, each
- --------
Preferred Share shall be deemed to represent the number of Common Shares into
which the Preferred Share is then convertible.
(c) The Company shall have the right to purchase all of the
remaining Offered Shares, on the same terms and conditions specified in the
Offer, in excess of the Offered Shares accepted by the Founders.
(d) If the Company and the Founders do not accept the Offer in
accordance with Section 5.2(b) and 5.2(c), respectively, as to any or all of the
Offered Shares, each Purchaser shall have the right to purchase, on the same
terms and conditions specified in the Offer, that number of Offered Shares as
shall be equal to the remaining number of Offered Shares multiplied by a
fraction, the numerator of which shall be the number of Common Shares then owned
by such Purchaser and the denominator of which shall be the aggregate number of
Common Shares then owned by all of the Purchasers (the "Pro Rata Fraction"). For
-----------------
the purpose of calculating the Pro Rata Fraction, each Preferred Share shall be
deemed to represent the number of Common Shares into which the Preferred Share
is then convertible.
(e) The Founders and Purchasers shall have a right of
oversubscription such that, if any Founders and Purchasers fail to accept the
Offer as to its, full Founders Pro Rata Fraction or Pro Rata Fraction, as the
case may be, the Founders and Purchasers shall, among them, have the right to
purchase up to the balance of the Offered Shares not so purchased. Such right of
oversubscription may be exercised by a Founder or Purchaser by accepting the
offer as to more than its, Founders Pro Rata Fraction or Pro Rata Fraction, as
the case may be. If, as a result thereof, such oversubscriptions exceed the
total number of Offered Shares available in respect of such oversubscription
privilege, the oversubscribing Founders and Purchasers shall be cut back with
respect to their oversubscriptions so as to purchase the Offered Shares as
nearly as possible in accordance with their respective Founders Pro Rata
Fraction or Pro Rata Fraction, as the case may be, or as they may otherwise
agree among themselves. In all instances, the Purchasers shall have the right to
purchase only such Offered Shares as are not purchased by the Company and the
Founders.
<PAGE>
(f) If a Founder or Purchaser desires to purchase all or any part of
the Offered Shares on the same terms and conditions specified in the Offer, such
Founder or Purchaser (a "Purchasing Stockholder") shall communicate in writing
----------------------
its election to purchase (an "Acceptance") to the Company, which Acceptance
----------
shall state the number of Offered Shares the Purchasing Stockholder desires to
purchase and shall be delivered in person or mailed to the Company and the other
Founders and Purchasers, within 25 days of the date the Offer was forwarded to
such Purchasing Stockholder by the Company pursuant to Section 5.2(a). Within
three (3) days of its receipt of such Acceptance from a Founder or Purchaser,
the Company shall forward such Acceptance to Stockholder.
(g) If the Company desires to purchase all or any portion of the
Offered Shares not accepted by the Founders, on the same terms and conditions
specified in the Offer, the Company shall communicate in writing its Acceptance
to Stockholder, the Founders and the Purchasers, which Acceptance shall be
delivered in person or mailed to Stockholder, the Founders and the Purchasers
within 30 days the Offer was made to the Company by Stockholder pursuant to
Section 5.2(a).
(h) If the Company and/or the Purchasing Stockholders elect to
purchase all of the Offered Shares, sale of the Offered Shares pursuant to this
Section 5.2 shall be made at the offices of the Company on the 30th day
following the expiration of the period applicable pursuant to Section 5.2 (f)
and (g) after the Offer is made (or if such 30th day is not a business day, then
on the next succeeding business day). Such sales shall be effected by
Stockholder's delivery to each Purchasing Stockholder or the Company, as the
case may be, of a certificate or certificates or warrant evidencing the Offered
Shares to be purchased by it duly endorsed for transfer to the Purchasing
Stockholder or the Company, as the case may be, which Offered Shares shall be
delivered free and clear of all liens, charges, claims and encumbrances of any
nature whatsoever, against payment to Stockholder of the purchase price therefor
by the Company or such Purchasing Stockholder, as the case may be. Payment for
the Offered Shares shall be made as provided in the Offer or by wire transfer or
certified check.
(i) If the Purchasing Stockholders and the Company do not elect to
purchase all of the Offered Shares, then the Offered Shares may be sold by
Stockholder at any time within 150 days after the date the Offer was made. Any
such sale shall be upon terms and conditions, including price, not less
favorable to Stockholder than those specified in the Offer. Any Offered Shares
not sold within such 150-day period shall continue to be subject to the
requirements of a prior offer pursuant to this Section 5.2.
SECTION 6. Representations and Warranties of Stockholder. In connection
---------------------------------------------
with the transactions contemplated by this Agreement and the Minocin Agreement,
Stockholder hereby represents and warrants to the Company as follows:
6.1 Investment Intent; Capacity to Protect Interests. Stockholder is
------------------------------------------------
purchasing
<PAGE>
the Shares (and, if the Warrant is granted, the Warrant and the Warrant Shares),
solely for its own account for investment and not with a view to or for sale in
connection with any distribution thereof or any portion thereof and not with any
present intention of selling, offering to sell or otherwise disposing of or
distributing the Shares (and the Warrant and Warrant Shares, if applicable), or
any portion thereof in any transaction other than a transaction exempt from
registration under the Securities Act.
6.2 Restricted Securities. Stockholder understands and acknowledges
---------------------
that the sale of the Shares have not been (and, if the Warrant is granted, the
sale of the Warrant and Warrant Shares will not be) registered under the
Securities Act and that the Shares (and the Warrant and Warrant Shares, if
applicable) may be resold without registration under the Securities Act only in
certain limited circumstances. In this connection, Stockholder represents that
it is familiar with Rule 144 promulgated under the Securities Act and
understands the resale limitations imposed thereby and by the Securities Act.
6.3 Accredited Investor. Stockholder is an "accredited investor", as
-------------------
defined in Rule 501 under the Securities Act.
6.4 Organization, Good Standing and Qualification. Stockholder is a
---------------------------------------------
corporation validly existing and in good standing under the laws of the State of
Maine and has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. Stockholder is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure so to qualify would be reasonably expected to have a material
adverse effect on the business, operations, properties, assets, prospects or
condition (financial or otherwise) of Stockholder.
6.5 Authorization. Stockholder has all requisite corporate power and
-------------
authority (a) to execute, deliver and perform its obligations under this
Agreement and the Minocin Agreement; and (b) to execute, deliver and perform its
obligations under all other agreements and instruments executed and delivered by
it pursuant to or in connection with this Agreement and the Minocin Agreement.
All corporate action on the part of Stockholder, its officers, directors and
shareholders necessary for the authorization, execution and delivery of this
Agreement and the Minocin Agreement, the performance of all obligations of
Stockholder hereunder and thereunder has been taken or will be taken prior to
the Closing, and this Agreement and the Minocin Agreement constitute valid and
legally binding obligations of Stockholder, enforceable in accordance with their
respective terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, and other laws of general application affecting
enforcement of creditors' rights generally, and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
6.6 Compliance with Other Instruments. The execution, delivery and
---------------------------------
performance of this Agreement and of the transactions contemplated hereby will
not result in any violation of or constitute, with or without the passage of
time and the giving of notice, either a
<PAGE>
default under any provision of its Certificate of Incorporation or By-laws of
Stockholder or any material provision of any material indenture, agreement or
other instrument by which Stockholder or any of its properties or assets is
bound, or result in the creation or imposition of any lien, or encumbrance upon
any of the material properties or assets of Stockholder or result in the
acceleration or termination of, or the creation in any party of, the right to
accelerate, terminate, modify or cancel, any indenture, lease, sublease, loan
agreement, note or other obligation or liability to which Stockholder is a party
or is bound, except where the foregoing would not reasonably be expected to have
a material adverse effect on the business, operations, properties, assets,
prospects or condition (financial or otherwise) of Stockholder.
6.7 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority is required on
the part of Stockholder in connection with Stockholder's valid execution,
delivery and performance of this Agreement and the Minocin Agreement.
SECTION 7. Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants to Stockholder that:
7.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. The Company is duly
qualified to transact business and is in good standing in each jurisdiction in
which the failure so to qualify would be reasonably expected to have a material
adverse effect on the business, operations, properties, assets, prospects or
condition (financial or otherwise) of the Company.
7.2 Authorization. The Company has all requisite corporate power and
-------------
authority (a) to execute, deliver and perform its obligations under this
Agreement and the Minocin Agreement; (b) to issue the Shares in the manner and
for the purpose contemplated by this Agreement; and (c) to execute, deliver and
perform its obligations under all other agreements and instruments executed and
delivered by it pursuant to or in connection with this Agreement and the Minocin
Agreement. All corporate action on the part of the Company, its officers,
directors and shareholders necessary for the authorization, execution and
delivery of this Agreement and the Minocin Agreement, the performance of all
obligations of the Company hereunder and thereunder, and the authorization,
issuance and delivery of the Shares being sold has been taken or will be taken
prior to the Closing, and this Agreement and the Minocin Agreement constitute
valid and legally binding obligations of the Company, enforceable in accordance
with their respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, and (ii) as limited by
laws relating to the availability of specific performance, injunctive relief or
other equitable remedies.
7.3 Valid Issuance of Shares. The Shares sold and delivered in
------------------------
accordance
<PAGE>
with the terms hereof for the consideration expressed herein will be duly and
validly issued, fully paid and nonassessable and, based in part upon the
representations of Stockholder in this Agreement, will be issued in compliance
with all applicable federal and state securities laws.
7.4 Capitalization. The authorized capital stock the Company
--------------
consists of (a) 10,143,408 shares of Common Stock, par value $.001 per share, of
which, as of February 24, 1997, 335,500 were issued and outstanding, and (b)
7,393,408 shares of Preferred Stock, par value $.001 per share, of which, as of
December 31, 1996, none were issued and outstanding and, except for the
transactions contemplated hereby, since September 30, 1996, the Company has not
issued any shares of Common Stock or Preferred Shares, granted any option
(except for stock options granted under the Company's employee, consultant and
director stock option plans), warrants (other than warrants to purchase shares
of Preferred Stock issued to the certain of the Purchasers in connection with
bridge loans made by such Purchasers to the Company), rights (including
conversion or preemptive rights, except for stock purchased under the Company's
stock purchase plans), or similar rights to any person or entity to purchase or
acquire any rights with respect to any shares of capital stock of the Company.
7.5 Compliance with Other Instruments. The execution, delivery and
---------------------------------
performance of this Agreement and of the transactions contemplated hereby will
not result in any violation of or constitute, with or without the passage of
time and the giving of notice, either a default under any provision of its
Certificate of Incorporation or By-laws of the Company or any material provision
of any material indenture, agreement or other instrument by which the Company or
any of its properties or assets is bound, or result in the creation or
imposition of any lien, or encumbrance upon any of the material properties or
assets of the Company or result in the acceleration or termination of, or the
creation in any party of, the right to accelerate, terminate, modify or cancel,
any indenture, lease, sublease, loan agreement, note or other obligation or
liability to which the Company is a party or is bound, except where the
foregoing would not reasonably be expected to have a material adverse effect on
the business, operations, properties, assets, prospects or condition (financial
or otherwise) of the Company.
7.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority is required on
the part of the Company in connection with the Company's valid execution,
delivery and performance of this Agreement and the Minocin Agreement. The
filings under state securities laws related to the issuance of the Shares and
the Warrant Shares, if any, will be effected by the Company at its cost within
the applicable stipulated statutory period.
SECTION 8. Filings and Authorizations. The Company and Stockholder, as
--------------------------
promptly as practicable, (a) will make, or cause to be made, all such other
filings and submissions under laws, rules and regulations applicable to them as
may be required for them to consummate the transactions contemplated hereby in
accordance with the terms of this Agreement, and (b) will use reasonable efforts
to obtain, or cause to be obtained, all authorizations, approvals, consents and
waivers from all governmental authorities necessary to be obtained by them in
order for
<PAGE>
them to consummate such transactions.
SECTION 9. Conditions to Obligation of Each Party to Effect the
----------------------------------------------------
Transactions Contemplated by this Agreement. The obligation of each party to
- -------------------------------------------
effect the transactions contemplated by this Agreement shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) all governmental and other consents and approvals, if any,
necessary to permit the consummation of the transactions contemplated by this
Agreement shall have been obtained; and
(b) no stop order or other order enjoining the sale of the Shares to
be purchased and sold at the Closing shall have been issued and no proceedings
for such purpose shall be pending or, to the knowledge of the Company,
threatened by the Commission or any commissioner of corporations or similar
officer of any state having jurisdiction over this transaction and no
preliminary or permanent injunction or other order, decree or ruling issued by a
court of competent jurisdiction or by a governmental, regulatory or
administrative agency or commission nor any statute, rule, regulation or
executive order promulgated or enacted by any governmental authority shall be in
effect that would restrain or otherwise prevent the consummation of the
transactions contemplated by the Agreement.
SECTION 10. Conditions of Stockholder's Obligations at the Closing. The
------------------------------------------------------
obligations of Stockholder under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions, the waiver of
which shall not be effective without the consent of Stockholder thereto:
10.1 Representations and Warranties. The representations and
------------------------------
warranties of the Company contained in Section 7 shall be true and correct on
and as of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing Date.
10.2 Performance. The Company shall have performed and complied with
-----------
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing, and
all corporate or other proceedings in connection with the transactions
contemplated at the Closing and all documents incident thereto shall be
reasonably satisfactory in form and in substance to Stockholder.
10.3 Compliance Certificate. An officer of the Company shall have
----------------------
delivered to Stockholder a certificate certifying that the conditions specified
in Sections 10.1 and 10.2 have been fulfilled.
10.4 Proceedings and Documents. All corporate and other proceedings
-------------------------
in connection with the transactions contemplated at the Closing and all
documents incident thereto
<PAGE>
shall be reasonably satisfactory in form and substance to Stockholder and they
shall have received all such counterpart original and certified or other copies
of such documents as they may reasonably request.
10.5 The Minocin Agreement. The Company and Stockholder shall have entered
---------------------
into the Minocin Agreement of even date herewith.
10.7 Certificate. The Company shall have furnished to Stockholder a
-----------
certificate, signed by an authorized officer of the Company, certifying: (a) the
due organization and good standing of the Company; (b) the corporate resolutions
of the Company authorizing the transactions contemplated by this Agreement and
the Minocin Agreement; and (c) the incumbency of officers of the Company
executing this Agreement and the other instruments or certificates delivered
upon the Closing.
10.8 Share Certificate. The Company shall have furnished to Stockholder a
-----------------
certificate or certificates representing the Shares (free and clear of all
liens, claims and other encumbrances except as otherwise provided herein) to be
purchased and sold at the Closing, accompanied by the requisite stock transfer
tax stamps or funds for the purchase thereof.
10.9 Other Documentation. The Company shall have furnished to Stockholder
-------------------
such other instruments and documents, in form and substance reasonably
acceptable to Stockholder, as may be necessary to effect the Closing.
11. Conditions of the Company's Obligations at the Closing. The obligations
------------------------------------------------------
of the Company to Stockholder under this Agreement are subject to the
fulfillment on or before each Closing of each of the following conditions by
Stockholder:
11.1 Representations and Warranties. The representations and warranties of
------------------------------
Stockholder contained in Section 6 shall be true on and as of the Closing with
the same effect as though such representations and warranties had been made on
and as of the Closing.
11.2 Performance. Stockholder shall have performed and complied with all
-----------
agreements, obligations and conditions contained in this agreement that are
required to be performed or complied with by it on or before the Closing, and
all corporate or other proceedings in connection with the transactions
contemplated at the Closing and all documents incident thereto shall be
reasonably satisfactory in form and in substance to the Company.
11.3 Compliance Certificate. An officer of Stockholder shall have delivered
----------------------
to the Company a certificate certifying that the conditions specified in
Sections 11.1 and 11.2 have been fulfilled.
11.4 Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated at the Closing and all documents
incident thereto
<PAGE>
shall be reasonably satisfactory in form and substance to the Company and they
shall have received all such counterpart original and certified or other copies
of such documents as they may reasonably request.
11.6 Minocin Agreement. The Company and Stockholder shall have entered
-----------------
into the Minocin Agreement of even date herewith.
11.7 Certificate. The Stockholder shall have furnished to the Company a
-----------
certificate, signed by an authorized officer of the Company, certifying: (a) the
due organization and good standing of the Stockholder; (b) the corporate
resolutions of the Stockholder authorizing the transactions contemplated by this
Agreement and the Minocin Agreement; and (c) the incumbency of officers of
Stockholder executing this Agreement and the other instruments or certificates
delivered upon the Closing.
11.8 Other Documentation. Stockholder shall have furnished to the
-------------------
Company such other instruments and documents, in form and substance reasonably
acceptable to the Company as may be necessary to effect the Closing.
SECTION 12. Covenants. The Company covenants and agrees that, so long as
---------
Stockholder shall own any Shares, the Warrant and/or Warrant Shares, it will
perform and observe the following covenants and provisions and will cause each
subsidiary of the Company, if and when such subsidiary exists, to perform and
observe such of the following covenants and provisions as are applicable to such
subsidiary:
12.1 Corporate Existence. Do or cause to be done all things necessary
-------------------
to preserve, renew and keep in full force and effect its legal existence.
12.2 Reporting Requirements. Furnish to Stockholder:
----------------------
(a) Monthly Reports: as soon as available and in any event within 45
---------------
days after the end of each calendar month, balance sheets, statements of income
and retained earnings and a summary statement of monthly cash flow and expenses
of the Company and its subsidiaries for such month and for the period commencing
at the end of the previous fiscal year and ending with the end of such month,
setting forth in each case in comparative form the corresponding figures for the
corresponding period of the preceding fiscal year, and including comparisons to
the monthly budget or business plan and an analysis of the variances from the
budget or plan, prepared in accordance with generally accepted accounting
principles consistently applied.
(b) Annual Reports: as soon as available and in any event within 120
--------------
days after the end of each fiscal year of the Company, a copy of the annual
audit report for such year for the Company and its subsidiaries, including
therein consolidated and consolidating balance sheets of the Company and its
subsidiaries as of the end of such fiscal year and consolidated and
<PAGE>
consolidating statements of income and retained earnings and of changes in
financial position of the Company and its subsidiaries for such fiscal year,
setting forth in each case in comparative form the corresponding figures for the
preceding fiscal year, all such consolidated statements to be duly certified by
the chief financial officer of the Company and an independent public accountant
of recognized national standing approved by the Board of Directors.
(c) Notice of Adverse Changes: promptly after the occurrence thereof
-------------------------
and in any event within five (5) business days after it becomes aware of each
occurrence, notice of any material adverse change in the business, assets,
management, licensing activities, operations or financial condition of the
Company.
(d) Rule 144A Information. At all times during which the Company is
---------------------
neither subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act (the "Exchange Act") nor exempt from reporting pursuant
------------
to Rule 12g3-2(b) under the Exchange Act, the Company will provide as promptly
as practicable (in any event not later than twenty (20) days after initial
request) in written form, upon the written request of any purchaser or
prospective buyer of Shares from any purchaser, all information required by Rule
144A(d)(4)(i) under the Securities Act.
SECTION 13. Registration Rights.
-------------------
13.1 Incidental Registration.
-----------------------
(a) If at any time or times after consummation of the Company's
initial Public Offering, the Company intends to file a registration statement on
Form S-1, S-2, S-3 or other appropriate form (a "Registration Statement") for
----------------------
the registration with the Commission of an underwritten offering of the Common
Stock for the account of the Company or other holder of Common Stock (or any
derivative security related thereto), the Company shall notify each of the
holders of record of Registrable Securities (as defined below) at least 30 days
prior to each such filing of the Company's intention to file such a Registration
Statement. Such notice shall state the number of shares of Common Stock proposed
to be registered thereby. If any holder of Registrable Securities notifies the
Company within fifteen (15) days after receipt of such notice from the Company
of its desire to have included in such Registration Statement any of its
Registrable Securities, then the Company shall cause the Company to include such
shares in such Registration Statement.
(b) For purposes of this Agreement, "Registrable Securities" shall
----------------------
mean, collectively (i) the Shares (and the Warrant Shares, if issued and
outstanding), and (ii) securities issued as a dividend on or other distribution
with respect to or in exchange or replacement or in subdivision of any Shares
(or Warrant Shares, if issued and outstanding). Registrable Securities will
cease to be such when (x) a registration statement covering such Registrable
Securities has been declared effective and they have been disposed of pursuant
to such effective Registration Statement, (y) they are sold, transferred or
distributed pursuant to Rule 144 (or any similar
<PAGE>
provision then in force) under the Securities Act, or (z) they have been
otherwise transferred and the Company has delivered new certificates or other
evidences of ownership for them not subject to any stock transfer order or other
restriction on transfer and not bearing a legend restricting transfer in the
absence of an effective registration or an exemption from the registration
requirements of the Securities Act.
(c) The Company may in its discretion withdraw any Registration Statement
filed pursuant to this Section 13.1(a) subsequent to its filing without
liability to the holders of Registrable Securities.
13.2. Allocations. In the event that the managing underwriter for any such
-----------
offering described in Section 13.1(a) notifies the Company that, in good faith,
it is able to proceed with the proposed offering only with respect to a smaller
number (the "Maximum Number") of securities and Registrable Securities than the
--------------
total number of Registrable Securities proposed to be offered by such holders
and securities proposed to be offered by the Company and all others entitled to
registration rights in connection with such Registration Statement, then the
aggregate number of shares of Registrable Securities proposed to be offered by
the holders thereof and the total number of securities proposed to be offered by
all other holders (other than the Company and the Purchasers) desiring to
include shares in such Registration Statement shall equal the Maximum Number
less the number of shares proposed to be offered by the Company and the
Purchasers, such difference to be allocated pro rata in accordance with the
--- ----
number of shares proposed to be offered by each such party other than the
Company and the Purchasers. Notwithstanding the foregoing, the registration
rights of Stockholder shall always be subject to the registration rights of the
Purchasers.
13.3 Indemnity. (a) In connection with a Registration Statement filed with
---------
the Commission pursuant to this Section 13, the Company will indemnify and hold
harmless each holder of Registrable Securities and each person, if any, who
controls any holder of Registrable Securities within the meaning of the
Securities Act against any loss, claim, damage or liability, joint or several,
to which such holder or such controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage or liability
(or action in respect thereof) arises out of or is based upon (i) any untrue
statement or alleged untrue statement of a material fact contained (x) in the
Registration Statement (including any preliminary prospectus and the prospectus
as a part thereof (the "Prospectus") or any amendment or supplement thereof, or
----------
(y) in any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by the
Company filed in any state or other jurisdiction in order to qualify any or all
of the Shares under the securities laws thereof (any such application, document
or information being hereinafter called a "Blue Sky Application"), or (ii) the
--------------------
omission or alleged omission to state in the Registration Statement (including
any preliminary prospectus and the Prospectus as a part thereof) or any
amendment or supplement thereof or in any Blue Sky Application, a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; and will
reimburse each holder of Registrable Securities and each such
<PAGE>
controlling person for any actual, out-of-pocket legal or other expenses
reasonably incurred by such holder of Registrable Securities or such controlling
person in connection with investigating or defending against or appearing as a
third party witness in connection with any such loss, claim, damage, liability
or action; provided, however, that the Company will not be liable in any such
-------- -------
case to the extent, but only to the extent, that any such 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 reliance upon and in
conformity with written information furnished to the Company by the holder of
Registrable Securities or a controlling person of such holder specifically for
use in the preparation of the Registration Statement or any such amendment or
supplement thereof or any such Blue Sky Application or any such preliminary
prospectus or the Prospectus or any such amendment thereof or supplement
thereto; and provided, further, that the Company shall not be liable in any such
-------- -------
case to the extent that any such loss, claim, damage, liability or action arises
out of or is based upon an untrue or alleged untrue statement or omission or
alleged omission contained in a preliminary prospectus, which statement or
omission was corrected in a final prospectus filed pursuant to the Securities
Act if the holder failed to provide a copy of such final prospectus to a
purchaser who alleges to have been damaged by such statement or omission.
(b) Each holder of Registrable Securities severally, but no jointly, will
indemnify and hold harmless the Company, each of the Company's directors,
officers and agents and each person, if any, who controls the Company within the
meaning of the Securities Act, as well as any underwriter who participates in
the distribution of securities covered by such Registration Statement, against
any loss, claim, damage or liability to which the Company, or any such director,
officer, agent, controlling person or underwriter may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage or liability
(or action in respect thereof) arises out of or is based upon (A) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including each preliminary prospectus and the Prospectus
as a part thereof) or any amendment or supplement thereof or in any Blue Sky
application, or (B) an omission or alleged omission to state in the Registration
Statement (including any preliminary prospectus and the Prospectus as a part
thereof) or any amendment or supplement thereof or in any Blue Sky Application,
a material fact required to be stated therein or necessary to make the statement
therein, in light of the circumstances under which they were made, not
misleading, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made, in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
such holder of Registrable Securities specifically for use in the preparation of
the Registration Statement or any such amendment or supplement thereof or any
such Blue Sky Application or any such preliminary prospectus or the Prospectus
or any such amendment thereof or supplement thereto; and will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, agent or controlling person in connection with investigating or
defending against or appearing as a third party witness in connection with any
such loss, claim, damage, liability or action.
<PAGE>
(c) Promptly after receipt by an indemnified party under this Section
13 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 13, notify in writing the indemnifying party of the commencement
thereof within a reasonable time thereafter. The omission to so notify the
indemnifying party will not relieve it from any liability under this Section 13
as to the particular item for which indemnification is then being sought (except
to the extent prejudiced by such failure to timely notify the indemnifying
party). In case any such action, suit or proceeding is brought against any
indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof with the power (with the consent of the
indemnified party) to enter into a settlement or compromise, with counsel who
shall be reasonably satisfactory to such indemnified party. After notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 13 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that if
-------- -------
it is necessary for the indemnified parties to be represented by separate
counsel, the indemnified parties shall have the right to employ a single counsel
to represent the indemnified parties, in which event the reasonable fees and
expenses of such separate counsel shall be borne by the indemnifying party.
13.4 Certain Procedures. The Company shall (a) provide each holder of
------------------
Registrable Securities included in any registration with a "cold comfort" letter
from the Company's independent public accounts, in customary form covering those
matters customarily covered by a "cold comfort" letter with respect to any such
Registration Statement and addressed to such holder; and (b) use its best
efforts to execute and deliver with underwriters for the offering covered by any
such Registration Statement, an underwriting agreement in form and substance
customarily executed for public offerings of common stock. In addition, Company
management shall, at the request of the managing underwriter, make themselves
available to participate in reasonable marketing (e.g., Road Shows) in
---
conjunction with any Registration Statement pursuant to this Section 13.
13.5 Expenses. The Company shall bear all expenses, but not including
--------
underwriting discounts and commissions, in connection with a registration of
Common Stock pursuant to this Section 13. As used in this Section 13, "expenses"
of a registration shall mean the expenses disclosed in Item 13 of Part II of the
Form S-1 registration statement, or in a comparable section of any similar form
permitting an underwritten public offering, as well as expenses of underwriters
customarily reimbursed by issuers or selling stockholders, excluding transfer
taxes.
SECTION 14. Remedies. In case any one or more of the covenants,
--------
representations and/or agreements set forth in this Agreement shall have been
breached by any party hereto, the party entitled to the benefit of such
covenants or agreements may proceed to protect and enforce
<PAGE>
its rights either by suit in equity and/or by action at law, including, but not
limited to, (a) an action for damages as a result of any such breach, (b) an
action for specific performance of any such covenant or agreement contained in
this Agreement, and/or (c) a temporary or permanent injunction, in any case
without showing any actual damage. The rights, power and remedies of the parties
under this Agreement are cumulative and not exclusive of any other agreement or
law. No single or partial assertion or exercise of any right, power or remedy of
a party hereunder shall preclude any other or further assertion or exercise
thereof. Any purported Transfer in violation of the provisions of this Agreement
shall be null and void ab initio.
-- ------
SECTION 15. Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, this Agreement shall bind and inure to the benefit of the Company,
Stockholder, the respective successors or heirs, distributees and personal
representatives and permitted assigns of the Company and Stockholder, and each
other person who shall properly become a registered holder of any Shares or
Warrant Shares that have not theretofore been sold to the public pursuant to a
registration statement under the Securities Act or Rule 144 or Rule 144A (or any
similar or successor rule).
SECTION 16. Entire Agreement. This Agreement (including the Schedules and
----------------
Exhibits hereto) and the Minocin Agreement (including the Schedules and Exhibits
thereto) contain the entire agreement among the parties with respect to the
subject matter hereof and supersede other prior and contemporaneous arrangements
or understandings with respect thereto.
SECTION 17. Notices. All notices, consents and other communications under
-------
this Agreement shall be in writing and shall be deemed to have been duly given
(a) when delivered by hand, (b) one (1) business day after the business day of
transmission, if sent by telex or telecopier (with receipt confirmed), provided
that a copy is mailed by registered mail, return receipt requested, or (c) one
(1) business day after the business day of deposit with the carrier, if sent by
Express Mail, Federal Express or other express delivery service (receipt
requested), in each case to the appropriate addresses, telex numbers and
telecopier numbers set forth below (or to such other addresses or telecopy
numbers as a party may designate as to itself by notice to the other parties):
(a) If to Stockholder:
American Cyanamid Company
c/o Wyeth-Ayerst Laboratories Division of
American Home Products Corporation
555 E. Lancaster Avenue
St. Davids, Pennsylvania 19087
Attn: President
Telecopier No.: 610-995-3390
with a copy to:
<PAGE>
American Home Products Corporation
Five Giralda Farms
Madison, New Jersey 07940
Attention: Senior Vice President and General Counsel
Telecopier No.: 201-660-7155
(b) If to the Company:
OraPharma, Inc.
1200 Route 22 East
Suite 2000
Bridgewater, New Jersey 08807
Attention: Chief Executive Officer
Telecopier No.: 908-806-6199
with a copy to:
Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Ira A. Rosenberg, Esq.
Telecopier No.: (201) 643-6500
SECTION 18. Changes. The terms and provisions of this Agreement may not be
-------
modified or amended, or any of the provisions hereof waived, temporarily or
permanently, without the prior written consent of each of the parties hereto.
SECTION 19. Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 20. Headings. The benefits of the various sections of this
--------
Agreements have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
SECTION 21. Nouns and Pronouns. Whenever the context may require, any
------------------
pronouns used herein shall include the corresponding masculine feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
SECTION 22. Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability. Such
prohibition or unenforceability in any one jurisdiction shall
<PAGE>
not invalidate or render unenforceable such provision in any other jurisdiction.
SECTION 23. Governing Law; Jurisdiction. This Agreement and (unless
---------------------------
otherwise provided) all amendments hereof and waivers and consents hereunder
shall be governed by the internal law of the State of New Jersey, without regard
to the conflicts of law principles thereof.
SECTION 24. Survival of Warranties. The warranties, representations of the
----------------------
Company and Stockholder contained in or made pursuant to this Agreement shall
survive the execution and delivery of this Agreement and the Closing and shall
in no way be affected by any investigation of the subject matter thereof made by
or on behalf of Stockholder or the Company.
SECTION 25. Finder's Fees. Each party represents that it neither is nor
-------------
will be obligated for any finder's fee or commission in connection with this
transaction. Each party agrees to indemnify and hold harmless the other from any
liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability) for which the
indemnifying party or any of its officers, partners, employees or
representatives is responsible.
SECTION 26. Expenses. Each party shall pay all costs and expenses that it
--------
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement. Notwithstanding the foregoing, the Company shall pay any and all
stamp, transfer and other similar taxes payable or determined to be payable in
connection with the execution and delivery of this Agreement or any securities
purchased hereunder, and shall save and hold Stockholder harmless from and
against any and all liabilities with respect to or resulting from any delay in
paying, or omission to pay, such taxes.
SECTION 26. Further Assurances. Each party agrees that upon request of any
------------------
other party, it shall, from time to time, do any and all other acts and things
as may reasonably be required to carry out its obligations hereunder, to
consummate the transactions contemplated hereby, and to effectuate the purposes
hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first written above.
WITNESS: ORAPHARMA, INC.
[signature illegible] By: /s/ Michael Kishbauch
- ------------------------------- -----------------------------
Michael Kishbauch, President
WITNESS: AMERICAN CYANAMID COMPANY
[signature illegible] By: [signature illegible]
- ------------------------------- ---------------------------
<PAGE>
Exhibit 10.1
ORAPHARMA, INC.
1996 STOCK OPTION PLAN
----------------------
1. PURPOSE.
-------
The purpose of the OpraPharma, Inc. 1996 Stock Option Plan (the "Plan") is
----
to further the growth and success of OpraPharma, Inc. (the "Company")
-------
by attracting and retaining the services of directors, officers, selected
employees, consultants and advisors by enabling them to acquire shares of the
Company's Common Stock, par value $.001 per share (the "Common Stock").
------------
Except where the context otherwise requires, the term "Company" shall include
the parent corporation and all subsidiary corporations, if any, of the Company
as defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986,
as amended (the "Code").
----
2. TYPES OF OPTIONS.
----------------
Options granted under the Plan may be either "incentive stock options"
("ISOs"), intended to qualify as such under the provisions of Section 422 of the
----
Code, or "non-qualified stock options" ("NSOs"), not intended to qualify as ISOs
----
under Section 422 of the Code.
3. ADMINISTRATION.
--------------
(a) Board of Directors/Committee.
----------------------------
Options under the Plan shall be granted, and the Plan shall be initially
administered, by the Board of Directors of the Company (the "Board") and, upon
------
designation by the Board, by a committee (the "Committee") consisting of two or
---------
more members of the Board. The members of the Committee shall be appointed, and
may be removed at any time with or without cause, by resolution adopted by the
Board. Any vacancy on the Committee, whether due to action of the Board or any
other cause, shall be filled by resolution adopted by the Board. Any reference
hereinafter to the "Committee" shall be deemed to be a reference to the Board
---------
until the Committee shall have been designated by the Board.
(b) Procedures.
----------
The Committee shall select from among its members a Chairman and may adopt
such rules and regulations as it shall deem appropriate concerning the holding
of meetings and the administration of the Plan. A majority of the entire
Committee shall constitute a quorum and the action of a majority of the members
of the Committee present at the meeting at which a quorum is present, or an
action approved in writing by all of the members of the Committee, shall be the
act of the Committee.
<PAGE>
(c) Interpretation.
--------------
The Committee shall have full power and authority to interpret
the provisions of the Plan and any Option Agreement (as defined in Section 6(c)
below), to prescribe, amend and rescind rules and regulations relating to the
Plan, and to resolve all questions arising under the Plan. All decisions of the
Committee shall be conclusive and binding on all participants in the Plan.
4. SHARES OF STOCK SUBJECT TO THE PLAN.
-----------------------------------
(a) Number of Shares.
----------------
Subject to the provisions of Section 11 below (relating to
adjustments upon changes in capital structure), the number of shares of Common
Stock available for sale upon exercise of options granted under the Plan shall
not exceed 833,825 shares. If and to the extent that the options granted under
the Plan terminate, expire or are cancelled without having been fully exercised,
new options may be granted under the Plan with respect to the shares of Common
Stock covered by the unexercised portion of such terminated, expired or
cancelled options, all of which may be granted as ISOs.
(b) Character of Shares.
-------------------
The shares of Common Stock issuable upon exercise of an option
granted under the Plan may be (i) authorized but unissued shares of Common
Stock, (ii) shares of Common Stock held in the Company's treasury, or (iii) a
combination of both.
(c) Reservation of Shares.
---------------------
The number of shares of Common Stock reserved by the Company for
issuance under the Plan shall at no time be less than the maximum number of
shares which may be purchased at any time pursuant to outstanding options.
5. ELIGIBILITY.
-----------
Options may be granted under the Plan only to persons who are
directors, officers, employees or advisors to the Company at the time of grant.
Options granted to officers and employees of the Company shall be, in the
discretion of the Committee, either ISOs or NOSs, and options granted to
directors who are not employees of the Company and to consultants and advisors
shall be NSOs. Notwithstanding anything herein to the contrary, ISOs shall only
be granted to those persons who qualify as an employee under Section 3401(c) of
the Code.
-2-
<PAGE>
6. GRANT OF OPTIONS.
----------------
(a) General.
-------
Options may be granted under the Plan at any time and from time to time
on or prior to the Expiration Date (as defined in Section 15 below). Subject to
the provisions of the Plan, the Committee may, in its discretion, determine:
(i) the persons (from among the class of persons eligible under
Section 5 above to receive options under the Plan) to whom options
shall be granted (the "Optionees");
(ii) the time or times at which options shall be granted;
(iii) the number of shares subject to each option;
(iv) the Option Price (as defined in Section 7 below) of the
shares subject to each option, which price, in the case of ISOs, shall
be not less than the minimum specified in Section 7 below;
(v) the time or times when each option shall become exercisable
and the duration of the exercise period; and
(vi) any restrictions on the sale of, and any repurchase rights
with respect to, shares purchased upon exercise of an option, as
contemplated by Section 13 below.
(b) Date of Grant.
-------------
The date of grant of an option under the Plan shall be the date on
which the Committee approves the grant.
(c) Option Agreements.
-----------------
Each option granted under the Plan shall be designated as an ISO or an
NSO and shall be subject to the terms and conditions applicable to ISOs or NSOs
(as the case may be) set forth in the Plan, and each option shall be evidenced
by a written agreement (an "Option Agreement"), containing such terms and
----------------
conditions, not inconsistent with the Plan, as the Committee may, in its
discretion, determine. Each Option Agreement shall be executed by the Company
and the Optionee. Option Agreements may differ among Optionees.
-3-
<PAGE>
(d) No Evidence of Employment.
-------------------------
Neither the grant of an option nor any provision of the Plan or any
Option Agreement shall confer upon any Optionee any right with respect to the
continuation of his or her employment by, or his or her consulting or advisory
relationship to, the Company or interfere in any way with the right of the
Company at any time to terminate such employment or relationship or, in the case
of employees (including officers), to increase or decrease the compensation of
the Optionee form the rate in existence at the time of the grant of an option.
7. OPTION PRICE.
------------
The price (the "Option Price") at which each share of Common Stock
------------
subject to an option granted under the Plan may be purchased shall be determined
by the Committee at the time the option is granted; provided, however, that in
-------- -------
the case of an ISO, such Option Price shall in no event be less than one hundred
percent (100%) of the fair market value of such share of Common Stock at the
time of grant, as determined by the Committee and, in the case of a ten percent
(10%) owner (see Section 8(c) below), such Option Price shall be at least one
hundred ten percent (110%) of the fair market value of the stock subject to such
options.
8. EXERCISE OF OPTIONS.
-------------------
(a) General.
-------
Each option shall be exercisable, in whole or in part, at such time or
times, or within such period or periods, or upon the occurrence of such event or
events, as shall be determined by the Committee and set forth in the Option
Agreement evidencing such option. If an option is not at the time of grant
immediately exercisable in full, the Committee may (i) in the Option Agreement
evidencing such option provide for the acceleration of the exercise date or
dates of such option, in whole or in part, upon the occurrence of specified
events, or (ii) at any time prior to the complete expiration of an option,
accelerate, in whole or in part, the exercise date or dates of such option.
(b) Restrictions on Exercise.
------------------------
(i) No option by its terms shall be exercisable after the
expiration of ten years from the date such option is granted.
(ii) No option may be exercised at a
-4-
<PAGE>
time when the exercise thereof or the issuance or transfer of shares
upon such exercise would, in the opinion of the Committee, constitute a
violation of any law, federal, state, local or foreign, or any
regulations thereunder, or the requirements of the New York Stock
Exchange or any other national securities exchange or market.
(iii) The Committee, in its discretion, may require an Optionee
to (A) represent in writing that the shares of Common Stock to be
received upon exercise of an option are being acquired for his or her
own account for investment and not with a view to distribution thereof,
nor with any present intention of distributing the same, and (B) make
such other representations and warranties as are deemed necessary by
counsel to the Company. Stock certificates representing shares of Common
Stock not registered under the Securities Act of 1933, as amended (the
"1933 Act"), acquire upon the exercise of options shall bear the
--------
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THESE SECURITIES MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY
EXEMPTION THEREFROM UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW."
(iv) No option may be exercised for any fractional share.
(c) Limitation on Exercise of ISOs.
------------------------------
To the extent that the aggregate fair market value (as determined by the
Committee as of the time the options with respect to such stock were granted) of
stock with respect to which options intended to be ISOs are exercisable for the
first time by an Optionee during any calendar year (under all plans of the
Company) exceeds $100,000, such options shall be treated as NSOs. An ISO may not
be granted to an individual who, at the time an option is granted, owns stock
that has more than ten percent (10%) of the voting power of all classes of stock
of the Company ("ten percent (10%) owner"). An individual is considered
-----------------------
-5-
<PAGE>
as owning stock, for purposes of the previous sentence, owned directly or
indirectly by or for his brothers, sisters, spouse, ancestors and lineal
descendants. An individual is also deemed to own stock held by a foreign or
domestic corporation, partnership, trust or estate for which the individual is a
shareholder, partner or beneficiary proportionately to his interest in the
corporation, partnership, trust or estate as a shareholder, partner or
beneficiary. In the case of a ten percent (10%) owner, the option must state
that it is not exercisable after the expiration of five years from the date of
its grant.
9. PROCEDURE FOR EXERCISE.
----------------------
(a) Payment.
-------
At the time an option is granted, the Committee shall, in its
discretion, specify one or more of the following forms of payment which may be
used by an Optionee upon exercise of his or her option:
(i) cash or personal or certified check payable
to the Company in an amount equal to the aggregate Option
Price of the shares with respect to which the option is
being exercised;
(ii) stock certificates (in negotiable form)
representing shares of Common Stock having a fair market
value (as determined by the Committee) equal to the
aggregate Option Price of the shares with respect to
which the option is being exercised; provided, however,
-------- -------
that this method of payment may only be implemented if
the optionee has owned such shares of Common Stock,
beneficially and of record, for a period of at least
six (6) consecutive months immediately prior to exercise
of his or her Option;
(iii) cash proceeds equal to the aggregate Option
Price of the shares with respect to which the option is
being exercised derived from the simultaneous exercise of
the option and sale of the underlying shares; or
(iv) a combination of any of such methods.
-6-
<PAGE>
(b) Notice.
------
An Optionee (or other person, as provided in Section 13(a) below) may
exercise an option, in whole or in part as provided in the Option Agreement
evidencing such option, by delivering a written notice (the "Notice") to the
------
Secretary of the Company. The Notice shall:
(i) state that the Optionee elects to exercise
the option and whether the option being exercised is an ISO
or an NSO;
(ii) state the number of shares with respect to
which the option is being exercised (the "Optioned Shares");
-------- ------
(iii) state the method of payment for the Optioned
Shares (which method must be available to the Optionee under
the terms of his or her Option Agreement) and, if applicable,
that cash, a check and stock certificates (as the case may be)
are enclosed representing all or part of the aggregate Option
Price of such Optioned Shares;
(iv) state the date upon which the Optionee desires to
consummate the purchase of the Optioned Shares (which date must
be prior to termination of such option under Section 10 below);
(v) include any representation of the Optionee required
pursuant to Section 8(b) (iii) above;
(vi) in the event the option is exercised pursuant to
Section 13(a) below by any person other than the Optionee,
include evidence to the satisfaction of the Committee of the
right of such person to exercise the option; and
(vii) include such further provisions consistent with
the Plan as the Committee may from time to time require.
Within 30 days from the exercise date of any option, the Optionee shall deliver
to the Company a copy of any election filed by the Optionee with the Internal
Revenue Service under Section 83(b) of the Code.
-7-
<PAGE>
(c) Issuance of Certificates.
------------------------
The Company shall issue a stock certificate in the name of the Optionee
(or such other person exercising the Option in accordance with the provisions of
Section 13(a) below) for the Optioned Shares as soon as practicable after
receipt of the notice and payment of the aggregate Option Price for such shares.
All such certificates, if so provided in the Option Agreement of such Optionee,
shall bear a legend in substantially the form set forth in Section 13(b) below,
and all certificates representing shares of Common Stock not registered under
the 1933 Act shall bear the legend set forth in Section 8(b)(iii) above. Neither
the Optionee nor any person exercising an option in accordance with the
provisions of Section 13(a) below shall have any privileges as a stockholder of
the Company with respect to any shares of stock subject to an option until such
shares shall be registered on the books of the Company in the name of such
person.
10. TERMINATION OF EMPLOYMENT; DISABILITY AND DEATH.
-----------------------------------------------
(a) General.
-------
Subject to the provisions of Section 8(b) above, the Committee may
determine the period or periods of time during which an Optionee may exercise an
option following (i) the termination by the Company, with or without cause, of
the Optionee's employment or other relationship with the Company, (ii) the
termination by the Optionee of any such relationship with the Company, or (iii)
the death or permanent and total disability of the Optionee (within the meaning
of Section 22(e)(3) of the Code). Such period or periods shall be set forth in
the Option Agreement evidencing each such option.
(b) Incentive Stock Options.
-----------------------
No ISO may be exercised unless, at the time of exercise, the Optionee
is, and has continuously since the date of the grant of such ISO been, employed
by the Company, and, subject to the provisions of Section 8(b) above, the right
to exercise the unexercised portion of any ISO shall forthwith terminate upon
the first to occur of the following:
(i) the expiration of not more than three months from the
date of termination of the Optionee's employment (other than a
termination described in subparagraph (ii) or (iii) below); provided,
--------
however, that if the Optionee shall die or become permanently and
-------
totally disabled
-8-
<PAGE>
(within the meaning of Section 22(e)(3) of the Code) during such three-
month period, the time of termination of the unexercised portion of such
option shall be determined in accordance with subparagraph (ii) below;
(ii) the expiration of not more than 12 months from the date
of termination of the Optionee's employment if such termination is due
to such Optionee's death or permanent and total disability (within the
meaning of Section 22(e)(3) of the Code);
(iii) immediately upon the termination by the Company of the
Optionee's employment if such termination is for cause, as determined by
the Committee, or is otherwise attributable to a breach, as determined
by the Committee, by the Optionee of an employment agreement with the
Company; or
(iv) the expiration of such period of time or the occurrence
of such event as the Committee in its discretion may provide in the
Option Agreement evidencing such option.
11. ANTIDILUTION.
------------
In the event the Common Stock is changed by reason of a stock split,
reverse stock split, stock dividend or recapitalization (exclusive of any future
public or private sales of Common Stock), or is converted into or exchanged for
other securities as a result of a merger, consolidation or reorganization in
which the Company is the surviving corporation, appropriate adjustments shall be
made, as determined by the Committee, in the terms of the outstanding options,
or additional options may be granted under the Plan as shall be equitable and
appropriate, in order to make such outstanding options, as nearly as may be
practicable, equivalent to such options immediately prior to such change. A
corresponding adjustment changing the number and class of shares allocated to,
and the Option Price of, each option or portion thereof outstanding at the time
shall likewise be made. In the case of ISOs, no such adjustment shall be made
which would constitute a modification, extension or renewal of such ISOs within
the meaning of Section 424 of the Code.
12. CORPORATE TRANSACTIONS.
----------------------
-9-
<PAGE>
In the event the Common Stock is exchanged for securities, cash or
other property of any other corporation or entity as the result of a
reorganization, merger or consolidation in which the Company is not the
surviving corporation, the dissolution or liquidation of the Company, or the
sale of all or substantially all the assets of the Company, the Committee or the
Board of Directors of the Company may, in its discretion, as to outstanding
options (a) accelerate the exercise date or dates of such options pursuant to
Section 8(a) above, (b) upon written notice to the holders thereof, provided the
options have been accelerated pursuant to clause (a) above, terminate all such
options prior to the consummation of the transaction unless exercised within a
prescribed period, (c) provide for payment of an amount equal to the excess of
the fair market value, as determined by the Committee or such board, over the
Option Price of such shares as of the date of the transaction, in exchange for
the surrender of the right to exercise such options, or (d) provide for the
assumption of such options, or the substitution therefor of new options, by the
successor corporation or entity; provided, however, that with respect to ISOs
-------- -------
the requirements of Section 424 of the Code shall be met.
13. RESTRICTIONS ON OPTIONS AND OPTIONED SHARES.
--------------------------------------------
(a) Nonassignability of Option Rights.
---------------------------------
No option granted under this Plan shall be assignable or otherwise
transferable by the Optionee otherwise than by will or the laws of descent and
distribution, and shall be exercisable during the lifetime of the Optionee only
by him or her. In the event of the death of an Optionee, any option held by
such Optionee may thereafter be exercised by his or her representatives,
executors or administrators to the full extent to which such option was
exercisable by the Optionee at the time of his or her death.
(b) Right of First Refusal; Right of First Offer.
--------------------------------------------
The Committee, in its discretion, may provide in any Option Agreement
that the Company or its designee shall have a right of first refusal or right of
first offer on the sale or transfer of any shares of Common Stock issued upon
exercise of the option subject to such Option Agreement, in the manner provided
therein, such right of first refusal or right of first offer to expire upon the
consummation of the initial public offering of the Common Stock pursuant to the
1933 Act. Any certificate representing shares of Common Stock issued pursuant
to an Option Agreement containing a right of first refusal or right of first
offer shall bear a legend in substantially the following form:
-10-
<PAGE>
"THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE TERMS AND CONDITIONS
OF A STOCK OPTION AGREEMENT DATED AS OF ______________________ AMONG
ORAPHARMA, INC., AND THE HOLDER OF RECORD OF THIS CERTIFICATE, AND NO
SALE, ASSIGNMENT, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION
OF SUCH SECURITIES SHALL BE VALID OR EFFECTIVE EXCEPT IN ACCORDANCE WITH
SUCH AGREEMENT AND UNTIL SUCH TERMS AND CONDITIONS HAVE BEEN FULFILLED.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF
ORAPHARMA, INC."
14. EFFECTIVE DATE.
--------------
The Plan shall become effective on the date (the "Effective Date") of
--------------
its adoption by the Board; provided, however, that no option intended to be an
-------- -------
ISO shall be exercisable by an Optionee unless and until the Plan shall have
been approved by the stockholders of the Company within 12 months before or
after the date of adoption of the Plan by the Board.
15. EXPIRATION AND TERMINATION.
--------------------------
Except with respect to options then outstanding, the Plan shall expire
on the earliest to occur of (a) the tenth anniversary of the date on which the
Plan was adopted by the Board, (b) the tenth anniversary of the date on which
the Plan is approved by the stockholders of the Company, or (c) the date as of
which the Board, in its sole discretion, determines to terminate the Plan (the
"Expiration Date"). Any options outstanding as of the Expiration Date shall
---------------
remain in effect until they have been exercised or have terminated or expired by
their respective terms.
16. AMENDMENT.
---------
The Board may at any time terminate, modify or amend the Plan; provided,
--------
however, that if the approval of the stockholders of the Company shall be
- -------
required for any modification or amendment under Section 422 of the Code, with
respect to ISOs, or under Rule 16b-3 under the Securities Exchange Act of 1934,
as amended, with respect to shares of Common Stock registered under such Act,
such approval shall be obtained before such modification or amendment shall
become effective. No termination, modification or amendment of the Plan may,
without the consent of an Optionee, adversely affect his or her rights under an
option previously granted to such Optionee.
-11-
<PAGE>
17. DISQUALIFYING DISPOSITIONS.
--------------------------
If stock acquired upon exercise of an ISO granted under the Plan is
disposed of by the Optionee within two years from the date of grant of the ISO
or within one year after the transfer of the Optioned Shares to such Optionee (a
"disqualifying disposition"), such Optionee shall, immediately prior to such
------------- -----------
disqualifying disposition, notify the Company in writing of the date and terms
of such disposition and provide such other information regarding the disposition
as the Company may reasonably require.
18. TAXES.
-----
The Company may deduct from any cash payments due to an Optionee upon
exercise of an option any federal, state or local withholding taxes and
employment taxes relating thereto or, as a condition of delivery of any Optioned
Shares due upon such exercise, require the Optionee to remit, or, in appropriate
cases, agree to remit when due, an amount sufficient to satisfy such taxes;
provided, however, that, subject to the prior approval of the Committee, the
- -------- -------
Optionee may, in whole or in part, satisfy such obligations (a) by permitting
the Company to withhold some or all of such Optioned Shares, or (b) by
delivering shares of Common Stock already owned by him or her. Shares so
withheld or delivered shall have a fair market value, as determined by the
Committee, equal to such obligations as of the date or dates the amounts of such
taxes are required to be determined. At the time of any disqualifying
disposition, the Optionee shall remit to the Company in cash the amount of any
such taxes relating to such disposition.
19. CAPTIONS.
--------
The use of captions in the Plan or any Option Agreement is for the
convenience of reference only and shall not affect the meaning of any provision
of the Plan or such Option Agreement.
20. GOVERNING LAW.
-------------
The validity and construction of the Plan and the Option Agreements
shall be construed in accordance with and governed by the law of the State of
New Jersey.
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<PAGE>
EXHIBIT 10.2
ORAPHARMA, INC.
1999 EQUITY COMPENSATION PLAN
-----------------------------
The purpose of the OraPharma, Inc. 1999 Equity Compensation Plan (the
"Plan") is to provide (i) designated employees of OraPharma, Inc. (the
"Company") and its subsidiaries, (ii) certain consultants and advisors who
perform services for the Company or its subsidiaries and (iii) non-employee
members of the Board of Directors of the Company (the "Board") with the
opportunity to receive grants of incentive stock options, nonqualified stock
options, stock awards and performance units. The Company believes that the Plan
will encourage the participants to contribute materially to the growth of the
Company, thereby benefitting the Company's stockholders, and will align the
economic interests of the participants with those of the stockholders.
1. Administration
--------------
(a) Committee. The Plan shall be administered by a committee appointed by
---------
the Board (the "Committee"), which may consist of two or more persons who are
"outside directors" as defined under section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), and related Treasury regulations and "non-
employee directors" as defined under Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). However, the Board may ratify or
approve any grants as it deems appropriate.
(b) Committee Authority. The Committee shall have the sole authority to (i)
-------------------
determine the individuals to whom grants shall be made under the Plan, (ii)
determine the type, size and terms of the grants to be made to each such
individual, (iii) determine the time when the grants will be made and the
duration of any applicable exercise or restriction period, including the
criteria for exercisability and the acceleration of exercisability, (iv) amend
the terms of any previously issued grant, and (v) deal with any other matters
arising under the Plan.
(c) Committee Determinations. The Committee shall have full power and
------------------------
authority to administer and interpret the Plan, to make factual determinations
and to adopt or amend such rules, regulations, agreements and instruments for
implementing the Plan and for the conduct of its business as it deems necessary
or advisable, in its sole discretion. The Committee's interpretations of the
Plan and all determinations made by the Committee pursuant to the powers vested
in it hereunder shall be conclusive and binding on all persons having any
interest in the Plan or in any awards granted hereunder. All powers of the
Committee shall be executed in its sole discretion, in the best interest of the
Company, not as a fiduciary, and in keeping with the objectives of the Plan and
need not be uniform as to similarly situated individuals.
<PAGE>
2. Grants
------
Awards under the Plan may consist of grants of incentive stock options as
described in Section 5 ("Incentive Stock Options"), nonqualified stock options
as described in Section 5 "Nonqualified Stock Options") (Incentive Stock Options
and Nonqualified Stock Options are collectively referred to as "Options"), stock
awards as described in Section 6 ("Stock Awards"), and performance units as
described in Section 7 ("Performance Units") (hereinafter collectively referred
to as "Grants"). All Grants shall be subject to the terms and conditions set
forth herein and to such other terms and conditions consistent with this Plan as
the Committee deems appropriate and as are specified in writing by the Committee
to the individual in a grant instrument or an amendment to the grant instrument
(the "Grant Instrument"). The Committee shall approve the form and provisions of
each Grant Instrument. Grants under a particular Section of the Plan need not be
uniform as among the grantees.
3. Shares Subject to the Plan
--------------------------
(a) Shares Authorized. Subject to adjustment as described below, the
-----------------
aggregate number of shares of common stock of the Company ("Company Stock") that
may be issued or transferred under the Plan is shares. The maximum
----------
aggregate number of shares of Company Stock that shall be subject to Grants made
under the Plan to any individual during any calendar year shall be
---------
shares, subject to adjustment as described below. The shares may be authorized
but unissued shares of Company Stock or reacquired shares of Company Stock,
including shares purchased by the Company on the open market for purposes of the
Plan. If and to the extent Options granted under the Plan terminate, expire, or
are canceled, forfeited, exchanged or surrendered without having been exercised
or if any Stock Awards or Performance Units are forfeited, the shares subject to
such Grants shall again be available for purposes of the Plan. If shares of
Company Stock are used to pay the Exercise Price (as defined in Section 5(b)) of
an Option, only the net number of shares received by the Grantee (as defined in
Section 4(b)) pursuant to such exercise shall be considered to have been issued
or transferred under the Plan with respect to such Option, and the remaining
number of shares subject to the Option shall again be available for purposes of
the Plan.
(b) Adjustments. If there is any change in the number or kind of shares of
-----------
Company Stock outstanding (i) by reason of a stock dividend, spinoff,
recapitalization, stock split, or combination or exchange of shares, (ii) by
reason of a merger, reorganization or consolidation in which the Company is the
surviving corporation, (iii) by reason of a reclassification or change in par
value, or (iv) by reason of any other extraordinary or unusual event affecting
the outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spinoff or the Company's payment of an
extraordinary dividend or distribution, the maximum number of shares of Company
Stock available for Grants, the maximum number of shares of Company Stock that
any individual participating in the Plan may be granted in any year, the number
of shares covered by outstanding Grants, the kind of shares issued under the
Plan, and the price per share or the
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<PAGE>
applicable market value of such Grants may be appropriately adjusted by the
Committee to reflect any increase or decrease in the number of, or change in the
kind or value of, issued shares of Company Stock to preclude, to the extent
practicable, the enlargement or dilution of rights and benefits under such
Grants; provided, however, that any fractional shares resulting from such
adjustment shall be eliminated. Any adjustments determined by the Committee
shall be final, binding and conclusive.
4. Eligibility for Participation
-----------------------------
(a) Eligible Persons. All employees of the Company and its subsidiaries
----------------
("Employees"), including Employees who are officers or members of the Board, and
members of the Board who are not Employees ("Non-Employee Directors") shall be
eligible to participate in the Plan. Consultants and advisors who perform
services for the Company or any of its subsidiaries ("Key Advisors") shall be
eligible to participate in the Plan if the Key Advisors render bona fide
services to the Company or its subsidiaries, the services are not in connection
with the offer and sale of securities in a capital-raising transaction and the
Key Advisors do not directly or indirectly promote or maintain a market for the
Company's securities.
(b) Selection of Grantees. The Committee shall select the Employees, Non-
---------------------
Employee Directors and Key Advisors to receive Grants and shall determine the
number of shares of Company Stock subject to a particular Grant in such manner
as the Committee determines. Employees, Key Advisors and Non-Employee Directors
who receive Grants under this Plan shall hereinafter be referred to as
"Grantees".
5. Granting of Options
-------------------
(a) Number of Shares. The Committee shall determine the number of shares of
----------------
Company Stock that will be subject to each Grant of Options to Employees,
Non-Employee Directors and Key Advisors.
(b) Type of Option and Price.
------------------------
(i) The Committee may grant Incentive Stock Options that are intended
to qualify as "incentive stock options" within the meaning of section 422
of the Code or Nonqualified Stock Options that are not intended so to
qualify or any combination of Incentive Stock Options and Nonqualified
Stock Options, all in accordance with the terms and conditions set forth
herein. Incentive Stock Options may be granted only to Employees.
Nonqualified Stock Options may be granted to Employees, Non-Employee
Directors and Key Advisors.
(ii) The purchase price (the "Exercise Price") of Company Stock
subject to an Option shall be determined by the Committee and may be equal
to or greater than the Fair Market Value (as defined below) of a share of
Company Stock on the date the Option is granted; provided, however, that an
Incentive Stock Option may not be granted to an Employee who, at
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<PAGE>
the time of grant, owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or any parent
or subsidiary of the Company, unless the Exercise Price per share is not
less than 110% of the Fair Market Value of Company Stock on the date of
grant.
(iii) If the Company Stock is publicly traded, then the Fair Market
Value per share shall be determined as follows: (x) if the principal
trading market for the Company Stock is a national securities exchange or
the Nasdaq National Market, the last reported sale price thereof on the
relevant date or (if there were no trades on that date) the latest
preceding date upon which a sale was reported, or (y) if the Company Stock
is not principally traded on such exchange or market, the mean between the
last reported "bid" and "asked" prices of Company Stock on the relevant
date, as reported on Nasdaq or, if not so reported, as reported by the
National Daily Quotation Bureau, Inc. or as reported in a customary
financial reporting service, as applicable and as the Committee determines.
If the Company Stock is not publicly traded or, if publicly traded, is not
subject to reported transactions or "bid" or "asked" quotations as set
forth above, the Fair Market Value per share shall be as determined by the
Committee.
(c) Option Term. The Committee shall determine the term of each Option.
-----------
The term of any Option shall not exceed ten years from the date of grant.
However, an Incentive Stock Option that is granted to an Employee who, at the
time of grant, owns stock possessing more than 10 percent of the total combined
voting power of all classes of stock of the Company, or any parent or subsidiary
of the Company, may not have a term that exceeds five years from the date of
grant.
(d) Exercisability of Options. Options shall become exercisable in
-------------------------
accordance with such terms and conditions, consistent with the Plan, as may be
determined by the Committee and specified in the Grant Instrument. The Committee
may accelerate the exercisability of any or all outstanding Options at any time
for any reason.
(e) Termination of Employment, Disability or Death.
----------------------------------------------
(i) Except as provided below, an Option may only be exercised while
the Grantee is employed by, or providing service to, the Company as an
Employee, Key Advisor or member of the Board. In the event that a Grantee
ceases to be employed by, or provide service to, the Company for any reason
other than Disability, death, or termination for Cause (as defined below),
any Option which is otherwise exercisable by the Grantee shall terminate
unless exercised within 90 days after the date on which the Grantee ceases
to be employed by, or provide service to, the Company (or within such other
period of time as may be specified by the Committee), but in any event no
later than the date of expiration of the Option term. Except as otherwise
provided by the Committee, any of the Grantee's Options that are not
otherwise exercisable as of the date on which the Grantee ceases to be
employed by, or provide service to, the Company shall terminate as of such
date.
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<PAGE>
(ii) In the event the Grantee ceases to be employed by, or provide
service to, the Company on account of a termination for Cause by the
Company, any Option held by the Grantee shall terminate as of the date the
Grantee ceases to be employed by, or provide service to, the Company. In
addition, notwithstanding any other provisions of this Section 5, if the
Committee determines that the Grantee has engaged in conduct that
constitutes Cause at any time while the Grantee is employed by, or
providing service to, the Company or after the Grantee's termination of
employment or service, any Option held by the Grantee shall immediately
terminate and the Grantee shall automatically forfeit all shares underlying
any exercised portion of an Option for which the Company has not yet
delivered the share certificates, upon refund by the Company of the
Exercise Price paid by the Grantee for such shares. Upon any exercise of an
Option, the Company may withhold delivery of share certificates pending
resolution of an inquiry that could lead to a finding resulting in a
forfeiture.
(iii) In the event the Grantee ceases to be employed by, or provide
service to, the Company because the Grantee is Disabled, any Option which
is otherwise exercisable by the Grantee shall terminate unless exercised
within one year after the date on which the Grantee ceases to be employed
by, or provide service to, the Company (or within such other period of time
as may be specified by the Committee), but in any event no later than the
date of expiration of the Option term. Except as otherwise provided by the
Committee, any of the Grantee's Options which are not otherwise exercisable
as of the date on which the Grantee ceases to be employed by, or provide
service to, the Company shall terminate as of such date.
(iv) If the Grantee dies while employed by, or providing service to,
the Company or within 90 days after the date on which the Grantee ceases to
be employed or provide service on account of a termination specified in
Section 5(e)(i) above (or within such other period of time as may be
specified by the Committee), any Option that is otherwise exercisable by
the Grantee shall terminate unless exercised within one year after the date
on which the Grantee ceases to be employed by, or provide service to, the
Company (or within such other period of time as may be specified by the
Committee), but in any event no later than the date of expiration of the
Option term. Except as otherwise provided by the Committee, any of the
Grantee's Options that are not otherwise exercisable as of the date on
which the Grantee ceases to be employed by, or provide service to, the
Company shall terminate as of such date.
(v) For purposes of this Section 5(e), and Sections 6 and 7:
(A) The term "Company" shall mean the Company and its parent and
subsidiary corporations or other entities, as determined by the
Committee.
(B) "Employed by, or provide service to, the Company" shall mean
employment or service as an Employee, Key Advisor or member of the
Board (so that, for purposes of exercising Options and satisfying
conditions with respect to Stock Awards and Performance Units, a
Grantee shall not be considered to have terminated employment
-5-
<PAGE>
or service until the Grantee ceases to be an Employee, Key Advisor and
member of the Board), unless the Committee determines otherwise.
(C) "Disability" shall mean a Grantee's becoming disabled within
the meaning of section 22(e)(3) of the Code or the Grantee becomes
entitled to receive long-term disability benefits under the Company's
long-term disability plan.
(D) "Cause" shall mean, except to the extent specified otherwise
by the Committee, a finding by the Committee that the Grantee (i) has
breached his or her employment or service contract with the Company,
(ii) has engaged in disloyalty to the Company, including, without
limitation, fraud, embezzlement, theft, commission of a felony or
proven dishonesty in the course of his or her employment or service,
(iii) has disclosed trade secrets or confidential information of the
Company to persons not entitled to receive such information or (iv)
has engaged in such other behavior detrimental to the interests of the
Company as the Committee determines.
(f) Exercise of Options. A Grantee may exercise an Option that has
-------------------
become exercisable, in whole or in part, by delivering a notice of exercise to
the Company with payment of the Exercise Price. The Grantee shall pay the
Exercise Price for an Option as specified by the Committee (w) in cash, (x) with
the approval of the Committee, by delivering shares of Company Stock owned by
the Grantee (including Company Stock acquired in connection with the exercise of
an Option, subject to such restrictions as the Committee deems appropriate) and
having a Fair Market Value on the date of exercise equal to the Exercise Price
or by attestation (on a form prescribed by the Committee) to ownership of shares
of Company Stock having a Fair Market Value on the date of exercise equal to the
Exercise Price, (y) payment through a broker in accordance with procedures
permitted by Regulation T of the Federal Reserve Board, or (z) by such other
method as the Committee may approve. The Committee may authorize loans by the
Company to Grantees in connection with the exercise of an Option, upon such
terms and conditions as the Committee, in its sole discretion, deems
appropriate. Shares of Company Stock used to exercise an Option shall have been
held by the Grantee for the requisite period of time to avoid adverse accounting
consequences to the Company with respect to the Option. The Grantee shall pay
the Exercise Price and the amount of any withholding tax due at the time of
exercise.
(g) Limits on Incentive Stock Options. Each Incentive Stock Option
---------------------------------
shall provide that, if the aggregate Fair Market Value of the stock on the date
of the grant with respect to which Incentive Stock Options are exercisable for
the first time by a Grantee during any calendar year, under the Plan or any
other stock option plan of the Company or a parent or subsidiary, exceeds
$100,000, then the Option, as to the excess, shall be treated as a Nonqualified
Stock Option. An Incentive Stock Option shall not be granted to any person who
is not an Employee of the Company or a parent or subsidiary (within the meaning
of section 424(f) of the Code).
-6-
<PAGE>
6. Stock Awards
------------
The Committee may issue or transfer shares of Company Stock to an
Employee, Non-Employee Director or Key Advisor under a Stock Award, upon such
terms as the Committee deems appropriate. The following provisions are
applicable to Stock Awards:
(a) General Requirements. Shares of Company Stock issued or transferred
--------------------
pursuant to Stock Awards may be issued or transferred for consideration or for
no consideration, and subject to restrictions or no restrictions, as determined
by the Committee. The Committee may, but shall not be required to, establish
conditions under which restrictions on Stock Awards shall lapse over a period of
time or according to such other criteria as the Committee deems appropriate,
including, without limitation, restrictions based upon the achievement of
specific performance goals. The period of time during which the Stock Awards
will remain subject to restrictions will be designated in the Grant Instrument
as the "Restriction Period."
(b) Number of Shares. The Committee shall determine the number of shares of
----------------
Company Stock to be issued or transferred pursuant to a Stock Award and the
restrictions applicable to such shares.
(c) Requirement of Employment or Service. If the Grantee ceases to be
------------------------------------
employed by, or provide service to, the Company (as defined in Section 5(e))
during a period designated in the Grant Instrument as the Restriction Period, or
if other specified conditions are not met, the Stock Award shall terminate as to
all shares covered by the Grant as to which the restrictions have not lapsed,
and those shares of Company Stock must be immediately returned to the Company.
The Committee may, however, provide for complete or partial exceptions to this
requirement as it deems appropriate.
(d) Restrictions on Transfer and Legend on Stock Certificate. During the
--------------------------------------------------------
Restriction Period, a Grantee may not sell, assign, transfer, pledge or
otherwise dispose of the shares of a Stock Award except to a Successor Grantee
under Section 11(a). Each certificate for a share of a Stock Award shall contain
a legend giving appropriate notice of the restrictions in the Grant. The Grantee
shall be entitled to have the legend removed from the stock certificate covering
the shares subject to restrictions when all restrictions on such shares have
lapsed. The Committee may determine that the Company will not issue certificates
for Stock Awards until all restrictions on such shares have lapsed, or that the
Company will retain possession of certificates for shares of Stock Awards until
all restrictions on such shares have lapsed.
(e) Right to Vote and to Receive Dividends. Unless the Committee determines
--------------------------------------
otherwise, during the Restriction Period, the Grantee shall have the right to
vote shares of Stock Awards and to receive any dividends or other distributions
paid on such shares, subject to any restrictions deemed appropriate by the
Committee, including, without limitation, the achievement of specific
performance goals.
-7-
<PAGE>
(f) Lapse of Restrictions. All restrictions imposed on Stock Awards shall
---------------------
lapse upon the expiration of the applicable Restriction Period and the
satisfaction of all conditions imposed by the Committee. The Committee may
determine, as to any or all Stock Awards, that the restrictions shall lapse
without regard to any Restriction Period.
7. Performance Units
-----------------
(a) General Requirements. The Committee may grant performance units
--------------------
("Performance Units") to an Employee or Key Advisor. Each Performance Unit shall
represent the right of the Grantee to receive an amount based on the value of
the Performance Unit, if performance goals established by the Committee are met.
The value of a Performance Unit shall equal the Fair Market Value of a share of
Company Stock. The Committee shall determine the number of Performance Units to
be granted and the requirements applicable to such Units.
(b) Performance Period and Performance Goals. When Performance Units are
----------------------------------------
granted, the Committee shall establish the performance period during which
performance shall be measured (the "Performance Period"), performance goals
applicable to the Units ("Performance Goals") and such other conditions of the
Grant as the Committee deems appropriate. Performance Goals may relate to the
financial performance of the Company or its operating units, the performance of
Company Stock, individual performance, or such other criteria as the Committee
deems appropriate.
(c) Payment with respect to Performance Units. At the end of each
-----------------------------------------
Performance Period, the Committee shall determine to what extent the Performance
Goals and other conditions of the Performance Units are met, the value of the
Performance Units (if applicable), and the amount, if any, to be paid with
respect to the Performance Units. Payments with respect to Performance Units
shall be made partly in cash, in Company Stock, or in a combination of the two,
as determined by the Committee, provided that the cash portion does not exceed
50% of the amount to be distributed.
(d) Requirement of Employment or Service. If the Grantee ceases to be
------------------------------------
employed by, or provide service to, the Company (as defined in Section 5(e))
during a Performance Period, or if other conditions established by the Committee
are not met, the Grantee's Performance Units shall be forfeited. The Committee
may, however, provide for complete or partial exceptions to this requirement as
it deems appropriate.
8. Qualified Performance-Based Compensation.
----------------------------------------
(a) Designation as Qualified Performance-Based Compensation. The Committee
-------------------------------------------------------
may determine that Performance Units or Stock Awards granted to an Employee
shall be considered "qualified performance-based compensation" under Section
162(m) of the Code. The provisions of this Section 8 shall apply to Grants of
Performance Units and Stock Awards that are to be considered "qualified
performance-based compensation" under section 162(m) of the Code.
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<PAGE>
(b) Performance Goals. When Performance Units or Stock Awards that are to
-----------------
be considered "qualified performance-based compensation" are granted, the
Committee shall establish in writing (i) the objective performance goals that
must be met in order for restrictions on the Stock Awards to lapse or amounts to
be paid under the Performance Units, (ii) the Performance Period during which
the performance goals must be met, (iii) the threshold, target and maximum
amounts that may be paid if the performance goals are met, and (iv) any other
conditions that the Committee deems appropriate and consistent with the Plan and
section 162(m) of the Code. The performance goals may relate to the Employee's
business unit or the performance of the Company and its subsidiaries as a whole,
or any combination of the foregoing. The Committee shall use objectively
determinable performance goals based on one or more of the following criteria:
stock price, earnings per share, net earnings, operating earnings, return on
assets, stockholder return, return on equity, growth in assets, unit volume,
sales, market share, scientific goals, pre-clinical or clinical goals,
regulatory approvals, or strategic business criteria consisting of one or more
objectives based on meeting specified revenue goals, market penetration goals,
geographic business expansion goals, cost targets, goals relating to
acquisitions or divestitures, or strategic partnerships.
(c) Establishment of Goals. The Committee shall establish the performance
----------------------
goals in writing either before the beginning of the Performance Period or during
a period ending no later than the earlier of (i) 90 days after the beginning of
the Performance Period or (ii) the date on which 25% of the Performance Period
has been completed, or such other date as may be required or permitted under
applicable regulations under section 162(m) of the Code. The performance goals
shall satisfy the requirements for "qualified performance-based compensation,"
including the requirement that the achievement of the goals be substantially
uncertain at the time they are established and that the goals be established in
such a way that a third party with knowledge of the relevant facts could
determine whether and to what extent the performance goals have been met. The
Committee shall not have discretion to increase the amount of compensation that
is payable upon achievement of the designated performance goals.
(d) Maximum Payment. With respect to Grants made under this Section 8, not
---------------
more than 1,000,000 shares of Company Stock may be granted to an Employee under
the Performance Units or Stock Awards for any Performance Period.
(e) Announcement of Grants. The Committee shall certify and announce the
----------------------
results for each Performance Period to all Grantees immediately following the
announcement of the Company's financial results for the Performance Period. If
and to the extent that the Committee does not certify that the performance goals
have been met, the grants of Stock Awards or Performance Units for the
Performance Period shall be forfeited.
(f) Death, Disability or Change of Control. The Committee may provide that
--------------------------------------
Performance Units shall be payable or restrictions on Stock Awards shall lapse,
in whole or in part, in the event of the Grantee's death or Disability (as
defined in Section 5(e) above) during
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<PAGE>
the Performance Period, and the provisions of Section 13 shall apply in the
event of a Change of Control.
9. Deferrals
---------
The Committee may permit or require a Grantee to defer receipt of the
payment of cash or the delivery of shares that would otherwise be due to such
Grantee in connection with any Option, the lapse or waiver of restrictions
applicable to Stock Awards, or the satisfaction of any requirements or
objectives with respect to Performance Units. If any such deferral election is
permitted or required, the Committee shall, in its sole discretion, establish
rules and procedures for such deferrals.
10. Withholding of Taxes
--------------------
(a) Required Withholding. All Grants under the Plan shall be subject to
--------------------
applicable federal (including FICA), state and local tax withholding
requirements. The Company shall have the right to deduct from all Grants paid in
cash, or from other wages paid to the Grantee, any federal, state or local taxes
required by law to be withheld with respect to such Grants. In the case of
Options, Stock Awards and other Grants paid in Company Stock, the Company may
require that the Grantee or other person receiving or exercising Grants pay to
the Company the amount of any federal, state or local taxes that the Company is
required to withhold with respect to such Grants, or the Company may deduct from
other wages paid by the Company the amount of any withholding taxes due with
respect to such Grants.
(b) Election to Withhold Shares. If the Committee so permits, a Grantee may
---------------------------
elect to satisfy the Company's income tax withholding obligation with respect to
Options, Stock Awards or Performance Units paid in Company Stock by having
shares withheld up to an amount that does not exceed the Grantee's minimum
applicable withholding tax rate for federal (including FICA), state and local
tax liabilities. The election must be in a form and manner prescribed by the
Committee and may be subject to the prior approval of the Committee.
11. Transferability of Grants
-------------------------
(a) Nontransferability of Grants. Except as provided below, only the
----------------------------
Grantee may exercise rights under a Grant during the Grantee's lifetime. A
Grantee may not transfer those rights except by will or by the laws of descent
and distribution or, with respect to Grants other than Incentive Stock Options,
if permitted in any specific case by the Committee, pursuant to a domestic
relations order. When a Grantee dies, the personal representative or other
person entitled to succeed to the rights of the Grantee ("Successor Grantee")
may exercise such rights. A Successor Grantee must furnish proof satisfactory to
the Company of his or her right to receive the Grant under the Grantee's will or
under the applicable laws of descent and distribution.
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<PAGE>
(b) Transfer of Nonqualified Stock Options. Notwithstanding the foregoing,
--------------------------------------
the Committee may provide, in a Grant Instrument, that a Grantee may transfer
Nonqualified Stock Options to family members, or one or more trusts or other
entities for the benefit of or owned by family members, consistent with the
applicable securities laws, according to such terms as the Committee may
determine; provided that the Grantee receives no consideration for the transfer
of an Option and the transferred Option shall continue to be subject to the same
terms and conditions as were applicable to the Option immediately before the
transfer.
12. Change of Control of the Company
--------------------------------
As used herein, a "Change of Control" shall be deemed to have occurred if:
(a) Any "person" (as such term is used in sections 13(d) and 14(d) of the
Exchange Act) becomes a "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
more than 50% of the voting power of the then outstanding securities of the
Company; provided that a Change of Control shall not be deemed to occur as a
result of a transaction in which the Company becomes a subsidiary of another
corporation and in which the stockholders of the Company, immediately prior to
the transaction, will beneficially own, immediately after the transaction,
shares entitling such stockholders to more than 50% of all votes to which all
stockholders of the parent corporation would be entitled in the election of
directors (without consideration of the rights of any class of stock to elect
directors by a separate class vote);
(b) The stockholders of the Company approve (or, if stockholder approval is
not required, the Board approves) an agreement providing for (i) the merger or
consolidation of the Company with another corporation where the stockholders of
the Company, immediately prior to the merger or consolidation, will not
beneficially own, immediately after the merger or consolidation, shares
entitling such stockholders to more than 50% of all votes to which all
stockholders of the surviving corporation would be entitled in the election of
directors (without consideration of the rights of any class of stock to elect
directors by a separate class vote), (ii) the sale or other disposition of all
or substantially all of the assets of the Company, or (iii) a liquidation or
dissolution of the Company;
(c) Any person has commenced a tender offer or exchange offer for 30% or
more of the voting power of the then outstanding shares of the Company; or
(d) After the date this Plan is approved by the stockholders of the
Company, directors are elected such that a majority of the members of the Board
shall have been members of the Board for less than two years, unless the
election or nomination for election of each new director who was not a director
at the beginning of such two-year period was approved by a vote of at least two-
thirds of the directors then still in office who were directors at the beginning
of such period.
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<PAGE>
13. Consequences of a Change of Control
-----------------------------------
(a) Assumption of Grants. Upon a Change of Control where the Company is not
--------------------
the surviving corporation (or survives only as a subsidiary of another
corporation), unless the Committee determines otherwise, all outstanding Options
that are not exercised shall be assumed by, or replaced with comparable options
or rights by the surviving corporation (or a parent of the surviving
corporation), and other outstanding Grants shall be converted to similar grants
of the surviving corporation (or a parent of the surviving corporation).
(b) Other Alternatives. Notwithstanding the foregoing, in the event of a
------------------
Change of Control, the Committee may, but shall not be obligated to, take any of
the following actions with respect to any or all outstanding Grants: the
Committee may (i) determine that outstanding Options shall automatically
accelerate and become fully exercisable and that the restrictions and conditions
on outstanding Stock Awards shall immediately lapse, (ii) determine that
Grantees holding Performance Units shall receive a payment in settlement of such
Performance Units in an amount determined by the Committee, (iii) require that
Grantees surrender their outstanding Options in exchange for a payment by the
Company, in cash or Company Stock as determined by the Committee, in an amount
equal to the amount by which the then Fair Market Value of the shares of Company
Stock subject to the Grantee's unexercised Options exceeds the Exercise Price of
the Options or (iv) after giving Grantees an opportunity to exercise their
outstanding Options, terminate any or all unexercised Options at such time as
the Committee deems appropriate. Such surrender, termination or settlement shall
take place as of the date of the Change of Control or such other date as the
Committee may specify. The Committee shall have no obligation to take any of the
foregoing actions, and, in the absence of any such actions, outstanding Grants
shall continue in effect according to their terms (subject to any assumption
pursuant to Subsection (a)).
14. Requirements for Issuance or Transfer of Shares
-----------------------------------------------
(a) Limitations on Issuance or Transfer of Shares. No Company Stock shall
---------------------------------------------
be issued or transferred in connection with any Grant hereunder unless and until
all legal requirements applicable to the issuance or transfer of such Company
Stock have been complied with to the satisfaction of the Committee. The
Committee shall have the right to condition any Grant made to any Grantee
hereunder on such Grantee's undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such shares of Company
Stock as the Committee shall deem necessary or advisable, and certificates
representing such shares may be legended to reflect any such restrictions.
Certificates representing shares of Company Stock issued or transferred under
the Plan will be subject to such stop-transfer orders and other restrictions as
may be required by applicable laws, regulations and interpretations, including
any requirement that a legend be placed thereon.
(b) Lock-Up Period. If so requested by the Company or any representative of
--------------
the underwriters (the "Managing Underwriter") in connection with any
underwritten offering of
-12-
<PAGE>
securities of the Company under the Securities Act of 1933, as amended (the
"Securities Act"), a Grantee (including any successors or assigns) shall not
sell or otherwise transfer any shares or other securities of the Company during
the 30-day period preceding and the 120-day period following the effective date
of a registration statement of the Company filed under the Securities Act for
such underwriting (or such shorter period as may be requested by the Managing
Underwriter and agreed to by the Company) (the "Market Standoff Period"). The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
15. Amendment and Termination of the Plan
-------------------------------------
(a) Amendment. The Board may amend or terminate the Plan at any time;
---------
provided, however, that the Board shall not amend the Plan without stockholder
approval if (i) such approval is required in order for Incentive Stock Options
granted or to be granted under the Plan to meet the requirements of section 422
of the Code, (ii) such approval is required in order to exempt compensation
under the Plan from the deduction limit under section 162(m) of the Code, or
(iii) such approval is required by applicable stock exchange requirements.
(b) Stockholder Approval for "Qualified Performance-Based Compensation." If
------------------------------------------------------------------
Performance Units or Stock Awards are granted as "qualified performance-based
compensation" under Section 8 above, the Plan must be reapproved by the
stockholders no later than the first stockholders meeting that occurs in the
fifth year following the year in which the stockholders previously approved the
provisions of Section 8, if required by section 162(m) of the Code or the
regulations thereunder.
(c) Termination of Plan. The Plan shall terminate on the day immediately
-------------------
preceding the tenth anniversary of its effective date, unless the Plan is
terminated earlier by the Board or is extended by the Board with the approval of
the stockholders.
(d) Termination and Amendment of Outstanding Grants. A termination or
-----------------------------------------------
amendment of the Plan that occurs after a Grant is made shall not materially
impair the rights of a Grantee unless the Grantee consents or unless the
Committee acts under Section 21(b). The termination of the Plan shall not impair
the power and authority of the Committee with respect to an outstanding Grant.
Whether or not the Plan has terminated, an outstanding Grant may be terminated
or amended under Section 21(b) or may be amended by agreement of the Company and
the Grantee consistent with the Plan.
(e) Governing Document. The Plan shall be the controlling document. No
------------------
other statements, representations, explanatory materials or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company and its successors and assigns.
-13-
<PAGE>
16. Funding of the Plan
-------------------
This Plan shall be unfunded. The Company shall not be required to establish
any special or separate fund or to make any other segregation of assets to
assure the payment of any Grants under this Plan. In no event shall interest be
paid or accrued on any Grant, including unpaid installments of Grants.
17. Rights of Participants
----------------------
Nothing in this Plan shall entitle any Employee, Key Advisor, Non-Employee
Director or other person to any claim or right to be granted a Grant under this
Plan. Neither this Plan nor any action taken hereunder shall be construed as
giving any individual any rights to be retained by or in the employ of the
Company or any other employment rights.
18. No Fractional Shares
--------------------
No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Grant. The Committee shall determine whether cash, other
awards or other property shall be issued or paid in lieu of such fractional
shares or whether such fractional shares or any rights thereto shall be
forfeited or otherwise eliminated.
19. Headings
--------
Section headings are for reference only. In the event of a conflict between
a title and the content of a Section, the content of the Section shall control.
20. Effective Date of the Plan.
--------------------------
Subject to approval by the Company's stockholders, the Plan shall be
effective on December 30, 1999.
21. Miscellaneous
-------------
(a) Grants in Connection with Corporate Transactions and Otherwise.
--------------------------------------------------------------
Nothing contained in this Plan shall be construed to (i) limit the right of the
Committee to make Grants under this Plan in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of the business or assets
of any corporation, firm or association, including Grants to employees thereof
who become Employees of the Company, or for other proper corporate purposes, or
(ii) limit the right of the Company to grant stock options or make other awards
outside of this Plan. Without limiting the foregoing, the Committee may make a
Grant to an employee of another corporation who becomes an Employee by reason of
a corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the
-14-
<PAGE>
Company or any of its subsidiaries in substitution for a stock option or stock
awards grant made by such corporation. The terms and conditions of the
substitute grants may vary from the terms and conditions required by the Plan
and from those of the substituted stock incentives. The Committee shall
prescribe the provisions of the substitute grants.
(b) Compliance with Law. The Plan, the exercise of Options and the
-------------------
obligations of the Company to issue or transfer shares of Company Stock under
Grants shall be subject to all applicable laws and to approvals by any
governmental or regulatory agency as may be required. With respect to persons
subject to section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. In addition,
it is the intent of the Company that the Plan and applicable Grants under the
Plan comply with the applicable provisions of section 162(m) of the Code and
section 422 of the Code. To the extent that any legal requirement of section 16
of the Exchange Act or section 162(m) or 422 of the Code as set forth in the
Plan ceases to be required under section 16 of the Exchange Act or section
162(m) or 422 of the Code, that Plan provision shall cease to apply. The
Committee may revoke any Grant if it is contrary to law or modify a Grant to
bring it into compliance with any valid and mandatory government regulation. The
Committee may also adopt rules regarding the withholding of taxes on payments to
Grantees. The Committee may, in its sole discretion, agree to limit its
authority under this Section.
(c) Governing Law. The validity, construction, interpretation and effect of
-------------
the Plan and Grant Instruments issued under the Plan shall be governed and
construed by and determined in accordance with the laws of Delaware, without
giving effect to the conflict of laws provisions thereof.
-15-
<PAGE>
Exhibit 10.5
CHILDREN'S HOSPITAL SPONSORED RESEARCH AGREEMENT
THIS AGREEMENT is entered into effective the 31st day of December, 1998
(the "Effective Date") by and between CHILDREN'S HOSPITAL, a charitable
corporation duly organized and existing under the laws of the Commonwealth of
Massachusetts and having a principal place of business located at 300 Longwood
Avenue, Boston, Massachusetts ("Hospital") and ORAPHARMA, INC., a business
corporation duly organized and existing under the laws of the State of Delaware
and having a principal place of business located at 732 Louis Drive, Warminster,
Pennsylvania ("Sponsor").
WHEREAS, Sponsor has entered into a license agreement of even date (the
"License Agreement") with Children's Medical Center Corporation ("CMCC"), an
affiliate of Children's Hospital, pertaining to the commercial development of
"Licensed Products" (as that term is defined in the License Agreement).
WHEREAS, the research program contemplated by this Agreement is of mutual
interest and benefit to Hospital and to Sponsor and may further the practice of
medicine and the research mission of Hospital in a manner consistent with its
status as a non-profit, tax-exempt, teaching hospital;
WHEREAS, Sponsor desires to provide to Hospital funding to support said
research program on the terms and conditions of this Agreement;
WHEREAS, Hospital desires to accept such funding on the terms and
conditions of this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Scope of Work/Period of Performance
(a) Subject to the terms and conditions of this Agreement, Hospital
agrees to use reasonable efforts to cause the Principal Investigators to conduct
the research program entitled "Mechanisms of Wound Healing in Oral Tissue," and,
additionally, Samy Ashkar, Ph.D. to conduct the research programs entitled
"Expression of OPN in Human Embryonic Cells" and "Biomimetic Peptides in Bone
Reconstruction" as further described in Appendix A attached hereto and
incorporated herein by reference (as the same hereafter may be amended,
supplemented or otherwise modified from time to time with the prior written
consent of the parties the "Program"). The parties acknowledge that the Program
will be conducted during the period commencing on the date funding is initiated
September 1, 1998 (the "Initiation Date"),
<PAGE>
and ending four (4) years and one (1) month thereafter, unless sooner terminated
as provided hereafter or unless extended by mutual written agreement of the
parties.
(b) The Program shall be conducted at Hospital by the Principal
Investigators and by such additional research staff working under the Principal
Investigators' supervision as the Principal Investigators shall reasonably
determine in consultation with Hospital.
(c) Any material alteration in or significant amendment to the Program
must be approved in writing by both Hospital and Sponsor prior to such
alteration or amendment becoming effective.
(d) Sponsor acknowledges that the Principal Investigators are engaged in
certain other sponsored research projects as listed on Appendix B attached
hereto and that such projects, as well as any projects unrelated to the subject
matter hereof, are not subject to this Agreement and are explicitly excluded
from the scope of the Program.
(e) Sponsor and Principal Investigators agree that all animal protocols
are subject to review and approval by the Hospital's Animal Care and Use
Committee, and that no work on any such protocol shall begin until the approval
is granted.
2. Principal Investigators
(a) The Principal Investigators for the Program will be Samy Ashkar,
Ph.D. and Anthony Atala, MD. In the event either Principal Investigator becomes
unable to complete the Program for any reason, the remaining Principal
Investigator will complete the program. If both Principal Investigators are
unable to complete the program, Hospital will, to the extent possible, propose a
substitute principal investigator with qualifications reasonably similar to
either Principal Investigator for Sponsor's approval, which approval shall not
be unreasonably withheld. In the event Sponsor and Hospital agree upon a
substitute Principal Investigator, this Agreement shall continue in full force
and effect. If Sponsor and Hospital are unable to agree on a substitute
Principal Investigator, this Agreement may be terminated in accordance with the
provisions of Paragraph 8(a) of this Agreement.
(b) Throughout the Program, Hospital agrees (i) to use its reasonable
efforts to cause the Principal Investigators diligently and faithfully to
perform their obligations hereunder and to carry out and complete the Program
and (ii) not to unreasonably interfere with or restrict the ability of the
Principal Investigators to perform such obligations or to carry out and complete
the Program.
2
<PAGE>
3. Payment
(a) On the Effective Date, Sponsor shall pay [The confidential material
contained herein has been omitted and has been separately filed with the
commission.] to Hospital, that Hospital may use at its discretion for
reimbursement of expenses incurred prior to July 31, 1998 for research related
to the development of technologies licensed to Sponsor in the License Agreement
dated as of December 31, 1998
(b) In consideration of Hospital undertaking to perform the Program,
Sponsor shall, subject to the terms and conditions of this Agreement, pay to
Hospital [The confidential material contained herein has been omitted and has
been separately filed with the commission.] to be paid according to the
following schedule:
Sponsored Research Agreement
----------------------------
Payment Schedule
----------------
Timing Amount to Children's Hospital
[The confidential material contained herein has been omitted and has been
separately filed with the commission.]
(c) The Principal Investigators shall be free to reallocate funds from
one line item to another within the limit for any year as necessary to meet the
objectives of the Program without prior approval of Sponsor, so long as the
total budget for that year shall not be exceeded. If funding for any year is not
completely expended during that year, the balance remaining shall be rolled
forward and added to the next year's total funded amount, and in the event funds
remain unspent at the end of the four year period, the Agreement and Program
shall be automatically extended so that research conducted utilizing the balance
shall be subject to this Agreement.
(d) Any equipment purchased as part of the Program shall be owned by
Hospital, shall be physically located at Hospital and shall remain the property
of Hospital following completion of the Program.
(e) Payment of all sums due hereunder shall be made by check payable as
follows:
Children's Hospital
Research Finance Office
300 Longwood Avenue
Boston, MA 02115
Ref: Agreement No. 2568
3
<PAGE>
(f) Sponsor shall have the right, exercisable ninety (90) days following
the conclusion of any given project year and upon reasonable prior written
notice to and at a mutually convenient time, to audit the expenditure by
Hospital and the Principal Investigator of the funding provided by Sponsor
hereunder for performance of the Program in said project year; provided that
such right may not be exercised by Sponsor more than one time during any
calendar year. Sponsor shall maintain the confidentiality of all information
disclosed or observed in connection with such audits.
(g) Nothing contained herein shall be construed as requiring Hospital or
the Principal Investigator or any Hospital research staff to work on any project
or process which is prohibited by law or by any international treaty to which
the United States of America is a party, or which may be harmful or detrimental
to public health, patient safety or good clinical care or which may be
considered to be immoral.
4. Publications
Sponsor acknowledges that Hospital is an academic medical center and that,
subject to compliance with their respective obligations and the obligations of
Hospital hereunder in this paragraph 4, the Principal Investigator and his/her
collaborators shall be free to publish the results of their research without
restraint. Sponsor further acknowledges that (i) adequate protection of
intellectual property rights which may arise under the Program requires
effective communication between Sponsor and the Principal Investigator
throughout the course of the Program; and (ii) Sponsor has the right,
opportunity and obligation to follow the Program to determine as promptly as
practicable the potential for protecting a patentable invention(s) arising under
the Program. Notwithstanding the above, in order to permit Sponsor an
opportunity to determine if a patentable invention(s) or Sponsor Confidential
Information (as defined in this Agreement) is therein disclosed, Hospital agrees
to use reasonable efforts to cause the Principal Investigators, and other
Program personnel and by acknowledging this Agreement the Principal
Investigators accept their obligations, to (i) submit to Sponsor a substantially
complete draft of any manuscript or abstract reporting on the Program and
submitted for consideration for publication or to a conference, as applicable,
no later than thirty (30) days prior to the day such manuscript or abstract is
so submitted; and (ii) notify Sponsor of any conference at which the results of
the Program will be presented without abstract, but in any event at least thirty
(30) days prior to presentation at such conference. Sponsor agrees to hold all
such submissions and information in confidence. Sponsor agrees to promptly
notify Hospital and the Principal Investigators if any action is necessary to
delete Sponsor Confidential Information or to secure patent protection for a
patentable invention(s) disclosed in any such material. If requested by Sponsor,
Hospital agrees to include in any publication of the results of the Program
acknowledgment of Sponsor's financial support of the Program.
5. Sponsor Confidential Information
4
<PAGE>
(a) The parties acknowledge that as part of the scientific collaboration
between Sponsor and Hospital in connection with the Program, Sponsor may find it
necessary or desirable to the conduct of the Program to disclose to Hospital's
Office of Research Administration, Finance, Public Affairs or General Counsel
certain confidential and proprietary information and trade secrets of Sponsor.
Such information may take the form of, among other things: data concerning
scientific discoveries made by Sponsor; Sponsor's manufacturing strategies and
processes; Sponsor's marketing plans; data from Sponsor's evaluations in animals
and humans; Sponsor's budget information; Sponsor's strategy for or status of
regulatory approval; or Sponsor's forecasts of sales and sales data, and other
proprietary or confidential information (hereafter referred to collectively as
"Sponsor Confidential Information").
(b) Notwithstanding the above, Sponsor acknowledges and agrees that none
of the information described in subparagraph (a) above will be considered
Sponsor Confidential Information for purposes of this Agreement, unless said
information is disclosed by Sponsor in writing and is clearly marked as
confidential, or, where verbally disclosed by Sponsor, is followed within thirty
(30) days of such verbal disclosure by a writing from Sponsor confirming such
disclosure and indicating that such disclosure is confidential.
(c) Notwithstanding anything herein to the contrary and consistent with
Hospital's policies, Sponsor further acknowledges and agrees that Sponsor
Confidential Information shall not include data generated by Hospital or the
Principal Investigator or his/her associates, coworkers or staff in connection
with the Program. Sponsor and Hospital acknowledge that such data is subject to
the disclosure limitation included in Section 4 of this Agreement.
(d) Subject to the terms and conditions of this Agreement, Hospital
hereby agrees that during the term of the Research Agreement and for a period of
five (5) years thereafter, Hospital shall (i) cause Hospital staff assigned to
any of the Office of Research Administration, Finance, Public Affairs or General
Counsel not to publicly divulge, disseminate, publish or otherwise disclose any
Sponsor Confidential Information without Sponsor's prior written consent; (ii)
limit access to Sponsor Confidential Information to those members of Hospital
staff in the above-mentioned Offices who have a need for such Sponsor
Confidential Information in connection with the administration of this
Agreement; and (iii) cause Hospital staff in the above-mentioned Offices to
return to Sponsor any documents, drawings, sketches, designs, products or
samples containing Sponsor Confidential Information, together with any copies
thereof, promptly upon termination of this Agreement or upon Sponsor's request
therefor; provided that Hospital may retain for its business records a copy of
the following: (aa) the Program protocol; (bb) Program budget information; (cc)
Program payment records; and (dd) such other documents and information as
Hospital shall reasonably determine are necessary for Hospital to conduct the
Program in compliance with Hospital policies and procedures and applicable law.
5
<PAGE>
(e) Sponsor and Hospital acknowledge and agree that the obligations set
out in this Section 5 shall not apply to any portion of the Sponsor Confidential
Information which Hospital can demonstrate:
(i) was at the time of disclosure to Hospital, or thereafter became
(prior to its publication, divulgence or use) through no fault of Hospital,
a part of the public domain by publication or otherwise; or
(ii) was already properly and lawfully in Hospital's possession at the
time it was received from Sponsor; or
(iii) was lawfully received by Hospital from a third party who was under no
obligation of confidentiality with respect thereto; or
(iv) Hospital independently developed without reference to the Sponsor
Confidential Information; or
(v) is required by law or judicial process (including patent
applications) to be disclosed (but only to the extent of such required
disclosure and only after prompt notification in writing to Sponsor prior
to disclosure in order to provide Sponsor a reasonable opportunity to avoid
and/or to obtain confidential treatment for such information); or
(vi) would jeopardize patient safety or the provision of high quality
health care to patients of the Hospital if not disclosed.
(f) Notwithstanding anything herein to the contrary, Sponsor agrees that
it shall not disclose to Hospital staff in any of the above-mentioned Offices
any information which is Sponsor Confidential Information: (i) except to the
extent reasonably necessary for Sponsor to fulfill its obligations under this
Agreement; or (ii) unless the Principal Investigator has requested such
information and Hospital has agreed in writing to accept such disclosure. All
other information and communications between Sponsor and Hospital shall be
deemed to be provided to Hospital by Sponsor on a non-confidential basis.
(g) Sponsor agrees that Hospital shall not be liable to Sponsor or to any
third party claiming by or through Sponsor for any unauthorized disclosure or
use of Sponsor Confidential Information which occurs despite Hospital's
compliance with its obligations under this Agreement.
(h) If Sponsor requires the Principal Investigators to execute a
confidentiality agreement in connection with the Program, such executed
agreement, in the form of the Hospital's Confidential Disclosure Agreement,
shall he attached hereto for reference only as Appendix A.
6
<PAGE>
6. Intellectual Property
(a) Hospital represents that the Hospital's principal investigators and
staff are required to assign inventions and rights to intellectual property to
Children's Medical Center Corporation.
(b) It is anticipated that one or more inventions will be conceived and
at least partially reduced to practice in the performance of the program during
the term of this Agreement. Any patentable invention conceived or first reduced
to practice by Hospital, Principal Investigators, and/or other Hospital
personnel in the performance of the Program shall be owned by Hospital and
Hospital shall have the first right to determine whether to file patent
applications thereon or to add such inventions to any existing Patent Rights (as
defined in the License Agreement) and to determine disposition of any patents or
other rights resulting therefrom (subject to Sponsor's licenses, options and
other rights under the terms of this Agreement and the License Agreement).
Hospital shall promptly notify Sponsor of the disclosure to Hospital of any such
invention (but in any event within thirty (30) days of such disclosure to
Hospital), and shall advise Sponsor whether such invention falls under Section
6(c) or 6(d) below. Hospital shall provide to Sponsor at Sponsor's request and
at Sponsor's expense copies of documents relevant to the preparation, filing,
prosecution and maintenance of any such patent application. Subject to the terms
of this Agreement, any such information shall be held in confidence by Sponsor.
Sponsor shall have the right to comment and render advice, concerns and opinions
thereon, and Hospital shall use its reasonable efforts to incorporate said
comments, advice and opinions as appropriate, in any such patent application.
Sponsor shall reimburse Hospital for any out-of-pocket expenses Hospital incurs
in evaluating, or consulting with Sponsor with regard to any patent application
described herein. In the event Hospital elects not to file a patent application
relating to an invention, it shall so notify Sponsor no later than sixty (60)
days after Hospital's receipt of disclosure of an invention. In the event
Hospital elects not to prosecute or maintain any patent or patent application
described herein, Hospital shall so notify Sponsor at least thirty (30) days
prior to taking, or not taking, any action which would result in abandonment,
withdrawal or lapse of such patent or patent application. In any such event,
Sponsor shall then have the right to file, prosecute or maintain the patent or
patent application in Hospital's name at Sponsor's expense.
(c) If an invention as contemplated under 6(b) is a composition, process
or 2method of use, the practice or use of which would infringe an issued or
pending claim of the Patent Rights (as defined in the License Agreement)
covering the Licensed Products and/or Licensed Processes in the Field of Use, or
if the invention is an improvement of, or enabling to the commercial
exploitation in the Field of Use of Licensed Products and/or Licensed Processes
in the Field of Use already licensed under the License Agreement, that invention
will be incorporated into the Patent Rights under the License Agreement by
amendment of Appendix I of the License Agreement. Any such invention shall be
deemed automatically to be added to Appendix I to the
7
<PAGE>
License Agreement at the time of notification to Sponsor, and the parties agree
to execute and deliver such documents and otherwise cooperate with each other in
order to add such invention to Appendix I to the License Agreement and grant to
Sponsor the appropriate rights and licenses with respect thereto. Sponsor shall
reimburse Hospital for patent expenses for such inventions in accordance with
the provisions of the License Agreement.
(d) If an invention is not subject to subparagraph (c) above, Hospital
hereby grants to Sponsor the exclusive option, exercisable as provided in
subparagraph (e) below, to negotiate and enter into an exclusive, world-wide
license to make, have made, use, offer for sale, sell, have sold, import and
export products under any patent application and resulting patent rights
resulting from inventions conceived and reduced to practice by Hospital or
Hospital personnel in the performance of the Program, on terms and conditions to
be negotiated by the parties hereto, but including the following:
(i) Rights of the United States government, if any, reserved under Public
Laws 96-517, 97-256, and 98-620, codified at 35 U.S.C. 200-212, and any
regulations promulgated thereunder.
(ii) Licensee will accomplish certain milestones negotiated by the parties
to commercialize products.
(iii) Any license granted pursuant to an agreement between Hospital and
Sponsor shall be subject to a reservation of the unrestricted right of
Hospital to use subject matter claimed in the licensed patent(s) for
research purposes at no cost to Hospital and to license to other nonprofit
institutions the right to use such subject matter solely for research
purposes; provided that no commercial third party shall gain any rights in
conflict with those granted to Sponsor hereunder.
(iv) Any license granted pursuant to an agreement between Hospital and
Sponsor shall include the CRICO Uniform Indemnification and Insurance
provisions then in effect.
(v) Licensee shall be granted a non-exclusive license to Know-How as
defined in the License Agreement.
(vi) Royalties shall be reasonable and consistent with industry standards.
If the parties shall be unable to agree on financial terms within two (2)
months ("Arbitration Date") of Sponsor's exercising its option under
subparagraph (f) below, each shall promptly submit to the other names of
one or more neutral experts as royalty arbitrator. If a mutual expert
cannot be agreed on within two (2) weeks after the Arbitration Date, each
party shall appoint an expert and the two experts shall select the royalty
arbitrator within three (3) weeks after the Arbitration Date. The parties
shall meet with the royalty arbitrator to determine the financial terms of
such license within five (5) weeks after the Arbitration Date and the
royalty arbitrator shall render binding financial terms within six (6)
weeks of
8
<PAGE>
the Arbitration Date. The parties shall execute a license agreement based
on such terms within four (4) months of the option exercise date or the
default provisions of subparagraph (f) shall apply, unless such delay is
beyond the control of Licensee.
(e) Hospital shall notify each Principal Investigator that he shall not,
and by acknowledging this Agreement such Principal Investigator agrees that he
shall not, seek or accept funding from a third party commercial sponsor within
the scope of the Program which confers rights on such third party commercial
sponsor or obligations on Hospital and/or the Principal Investigator, without
express written consent of Sponsor. The Principal Investigator may seek and
accept funding from a non-commercial sponsor within the Scope of the Program
during the period in which Sponsor is funding research hereunder. The Principal
Investigator shall notify Sponsor in writing concerning the research to be
performed and his acceptance of the funding and Hospital shall disclose to
Sponsor in writing on a confidential basis any invention or discovery within the
scope of the Program disclosed by Principal Investigator to Hospital and arising
from such research, whether or not funded by Sponsor. Hospital shall make good
faith efforts to determine whether funding or support (including money,
personnel, equipment, information or other resources) provided by Sponsor was
used in connection with such research. Hospital agrees to notify the Principal
Investigators and obtain their agreement to disclose to Sponsor any United
States government funding that has been obtained, used or applied for by or on
behalf of Hospital in the name of the Principal Investigators within the scope
of the Research Program or based upon the subject matter of any Patent Rights.
(f) Sponsor must exercise its option under subparagraph (d) above by
providing to Hospital written notice of its desire to negotiate and execute a
mutually acceptable license agreement and payment for costs incurred by Hospital
in connection with the patent. Such notice and payment must be received within
the three (3) month period immediately following the date of filing (and receipt
of notice of such filing by Sponsor) the applicable patent application. In the
event such a mutually acceptable license agreement is not executed within four
(4) months following the date Sponsor exercises its option hereunder, Hospital
shall have no further obligation to Sponsor with respect thereto.
(g) Title to and the right to determine the disposition of any copyrights
or copyrightable material first produced or composed by Hospital in the
performance of the Program shall remain with Hospital provided, however, that
Hospital hereby grants to Sponsor an irrevocable, royalty-free, non-exclusive
right to make and use copies of such material as may be reasonably necessary for
internal use in the conduct of its business, subject to any patent rights
retained by Hospital, provided however, that with respect to computer software
and its programming documentation, such right is applicable only to computer
software and its programming documentation specifically delivered under the
Scope of Work described in Section 1 above.
(h) The Transfer of Materials resulting from the Program and/or Licensed
to Sponsor. The parties agree that Hospital has a responsibility to the
nonprofit academic community to
9
<PAGE>
transfer materials that have resulted from the Program and/or have been licensed
to Sponsor and that have been described in a publication. The parties agree that
distribution of materials provides important benefits to both parties by
allowing wider use and development of the materials. The parties agree that the
goals of such transfers are to permit the advancement of knowledge and to ensure
that the Hospital's ownership rights to the materials and any potential rights
in any patent or patent applications, and consequently any rights obligated to
Sponsor, are respected.
For the purposes of this Agreement, the materials are defined as follows:
-Research Materials are tangible research property created in the
performance of the Program solely by Hospital personnel without
information or materials provided by Sponsor;
-The parties agree to the following procedure will be applied when
request for materials are received by the Principal Investigators:
(i) In keeping with Hospital policy, no Research Materials will be
distributed prior to the execution of a Materials Transfer Agreement
similar to that appended as Appendix D.
(ii) Sponsor has the responsibility for distribution of Research Materials
requested by for-profit organizations for use within the Field of Use (as
defined in the License Agreement) at its sole discretion.
(iii) Hospital has the responsibility for distribution of Research
Materials to not-for-profit entities, and to for-profit organizations for
use outside the Field of Use. Hospital will inform Sponsor of all requests
for Licensed and Research Materials. The transfer will be at Hospital's
sole discretion after full consideration of Sponsor's concerns. Hospital
will send Sponsor copies of each agreement.
(iv) In the event Hospital is notified of an invention or pending patent
application under Section 4(c) of the Material Transfer Agreement, Hospital
will seek to assert its ownership rights and to obtain exclusive
responsibility for licensing any rights held jointly with the recipient
institution. Any resulting Hospital rights will be subject to this Section
6 of this Agreement.
7. Limitation of Liabilities and Indemnification
(a) Sponsor shall indemnify, defend and hold harmless Hospital, its board
members, officers, agents, servants, employees and medical and professional
staff (the "Sponsor's Indemnitees") from and against any and all liability,
loss, damage, claims, costs, actions, and suits, including costs, expenses, and
attorneys fees, arising out of, resulting from, or directly or
10
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indirectly relating to, any third party claims, suits, actions, demands or
judgments arising out of Sponsor's performance under this Agreement, to the
extent such liability, loss, damage or expense is not attributable to the
negligent act or omission or reckless conduct or willful misconduct of Sponsor's
Indemnitees.
(b) Hospital shall indemnify, defend and hold harmless Sponsor, its board
members, officers, agents, servants and employees (the "Hospital's Indemnitees")
from and against any and all liability, loss, damage, claims, costs, actions and
suits, including costs, expenses, and attorneys fees, arising out of, resulting
from, or directly or indirectly relating to, any third party claims, suits,
actions, demands or judgments arising out of Hospital's performance under this
Agreement, to the extent such liability, loss, damage or expense is not
attributable to the negligent act or omission or reckless conduct or willful
misconduct of Hospital's Indemnitees.
8. Termination
This Agreement may be terminated upon the occurrence of any of the following
events:
(a) In the event Sponsor and Hospital cannot agree on a substitute
Principal Investigator after a substitute Principal Investigator meeting the
requirements of Section 2(a), if any, has been proposed, performance under this
Agreement may be terminated by either party upon thirty (30) days prior written
notice to the other party. In this event, any license agreement then in effect
shall remain unchanged.
(b) Hospital may terminate this Agreement immediately upon the
bankruptcy, liquidation, dissolution or cessation of operations of Sponsor; or
the filing of any voluntary petition for bankruptcy, dissolution, liquidation or
winding-up of the affairs of Sponsor; or any assignment by Sponsor for the
benefit of creditors; or the filing of any involuntary petition for bankruptcy,
dissolution, liquidation or winding-up of the affairs of Sponsor which is not
dismissed within ninety (90) days of the date on which it is filed or commenced.
(c) Hospital may terminate this Agreement upon thirty (30) days prior
written notice in the event Sponsor fails to make any payment required of
Sponsor hereunder in a timely manner; provided such breach is not cured within
said thirty (30) day notice period.
(d) Either party may terminate this Agreement immediately in the event
the other party engages in criminal, unprofessional or fraudulent conduct, or if
either party engages in any other improper or illegal conduct that materially
and adversely discredits or is detrimental to the reputation or standing of the
other party.
(e) Except as otherwise provided above in subparagraph (c), Hospital may
terminate this Agreement upon sixty (60) days prior written notice in the event
of any material breach by
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Sponsor of any material term or condition hereof, provided such breach is not
cured within said sixty (60) day notice period.
(f) Sponsor may terminate this Agreement upon sixty (60) days prior
written notice in the event the Program is suspended by Hospital or the
Principal Investigator and a substitute Principal Investigator cannot be agreed
upon, or if circumstances reasonably beyond Hospital's control preclude Hospital
from continuing the Program, and such suspension of the Program exceeds sixty
(60) consecutive days or ninety (90) days in the aggregate in any year during
the term (or renewal) of this Agreement.
(g) Sponsor shall have the right to terminate this Agreement at any time
upon three (3) months prior written notice to Hospital, and upon payment by
Licensee of all amounts due Hospital through the effective date of termination,
including any "noncancellable obligations" incurred by Hospital prior to notice
of termination. "Noncancellable obligations" shall include, but not be limited
to salaries and benefits for Program personnel for the remainder of the contract
year in which the effective date of termination falls, but excluding overhead on
such salaries. Hospital shall make reasonable efforts to mitigate such salary
expense obligation by redeploying such personnel to other funded projects.
(h) Sponsor may terminate this Agreement upon sixty (60) days prior
written notice for cause (which, as used herein, means the material breach by
the Hospital of any material term of this Agreement); provided such breach is
not cured within said sixty (60) day period.
9. Effect of Termination
Except as otherwise provided herein, termination of this Agreement shall not be
construed to release either party from any obligation hereunder which has
matured prior to the date of said termination. Notwithstanding anything herein
to the contrary, during the term of this Agreement, in the event Sponsor
terminates the Agreement without cause or in the event Hospital terminates this
Agreement in accordance with any of subparagraphs (b), (c), (d), or (e) of
Section 8 above, Hospital shall be under no further obligation to grant to
Sponsor any further options or licenses hereunder and Hospital may terminate any
licenses or options granted to Sponsor prior to the date of any such
termination. During any subsequent renewal period, in the event Sponsor
terminates the Agreement without cause or in the event Hospital terminates this
Agreement in accordance with any of subparagraphs (b), (c), (d), or (e) of
Section 8 above, Hospital shall be under no further obligation to grant to
Sponsor any further options or licenses hereunder and Hospital may terminate any
licenses or options granted to Sponsor during the renewal period prior to the
date of any such termination.
10. Communications.
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(a) Hospital agrees that Sponsor shall be advised of the progress of the
Program by verbal reports as reasonably requested by Sponsor and by written
reports reviewing such progress prepared under the supervision of the Principal
Investigator and submitted to Sponsor following the written request of Sponsor,
but no more frequently than quarterly during the Period of Performance specified
in Paragraph 1 above. A Final Written Report relating to the Program shall be
submitted to Sponsor no later than sixty (60) days after the expiration of the
period of performance specified in Paragraph 1 above.
(b) Upon termination of this Agreement prior to expiration of the Period of
Performance specified in Paragraph 1 above, the Principal Investigator shall
submit to Sponsor an Investigator's Final Report in a form mutually agreed upon
by Hospital and Sponsor.
(c) All medical/scientific and other communications, reports and notices
shall be delivered by hand, by facsimile or sent by first class mail postage
prepaid and addressed as follows:
If to Sponsor:
President
OraPharma, Inc.
732 Louis Drive
Warminster, Pennsylvania 18974
If to Hospital:
Samy Ashkar, Ph.D. and Anthony Atala, MD
Children's Hospital
300 Longwood Avenue
Boston, MA 02115
With a copy to:
Director, Technology Transfer
Children's Hospital
300 Longwood Avenue
Boston, MA 02115
(d) All reports submitted to Sponsor under this Paragraph 10, whether
verbal or in writing, shall be held in confidence by Sponsor, unless otherwise
agreed in writing by Hospital and Sponsor.
11. Use of Names
Sponsor shall not use the name of Children's Medical Center Corporation or
Children's Hospital nor the name of any of its corporate affiliates or
employees, nor any adaptation thereof,
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in any advertising, promotional or sales literature without prior written
consent obtained from CMCC in each case, except that Sponsor may state that it
is licensed by CMCC under one or more of the patents and/or applications
comprising the Patent Rights, and Sponsor may comply with disclosure
requirements of all applicable laws relating to its business, including United
States and state security laws. To seek CMCC's consent for a given use of the
name of CMCC (or its affiliates or employees), Sponsor may telefax the proposed
statement to the Children's Hospital Public Affairs Office. The Public Affairs
Office shall make reasonable efforts to respond promptly. The parties may create
an Appendix to this Agreement setting forth statements approved by CMCC that
Sponsor may make, which Appendix may be amended from time to time by mutual
consent.
12. Assignment
(a) Except as otherwise provided herein, this Agreement is not assignable
in whole or in part, and any attempt to do so shall be void.
(b) Either party may assign this Agreement at any time to any affiliate of
such party without the prior consent of the other party.
(c) Except as otherwise provided in subparagraph (b) above and (d) below,
Sponsor may assign this Agreement to another entity only with the prior written
consent of Hospital, which consent shall not be unreasonably withheld or
delayed.
(d) Notwithstanding anything herein to the contrary, in the event Sponsor
merges with another entity, is acquired by another entity, or sells all or
substantially all of its assets to another entity, Sponsor may assign its rights
and obligations hereunder to, in the event of a merger or acquisition, the
surviving entity, and in the event of a sale, the acquiring entity, without
Hospital's consent so long as: (i) Sponsor is not then in breach of this
Agreement; (ii) the proposed assignee has a net worth at least equivalent to the
net worth Sponsor had as of the date of this Agreement; (iii) the proposed
assignee has available resources and sufficient scientific, business and other
expertise to satisfy Sponsors obligations hereunder; (iv) Sponsor provides
written notice of the assignment to Hospital, together with documentation
sufficient to demonstrate the requirements set forth in subparagraphs (i)
through (iii) above, at least twenty (20) days prior to the effective date of
the proposed assignment; and (v) Hospital receives from the proposed assignee,
in writing, at least twenty (20) days prior to the effective date of the
assignment: (aa) reaffirmation of the terms of this Agreement; (bb) an agreement
to be bound by the terms of this Agreement; and (cc) an agreement to perform the
obligations of Sponsor under this Agreement.
(e) Any assignment in violation of this Paragraph 12 shall be null and void
and of no force or effect.
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13. General Provisions
(a) All rights and remedies hereunder will be cumulative and not
alternative, and this Agreement shall be construed and governed by the laws of
the Commonwealth of Massachusetts.
(b) This Agreement may be amended only by written agreement signed by both
parties.
(c) Sponsor and Hospital agree to conduct the Program in accordance with
all applicable Federal, State and local laws and regulations, as well as with
applicable regulations of Hospital. Hospital agrees to obtain all necessary
Committee on Clinical Investigation approvals.
(d) It is expressly agreed by the parties hereto that Hospital and Sponsor
are independent contractors and nothing in this Agreement is intended to create
an employer relationship, joint venture, or partnership between the parties.
Neither party has the authority to bind the other.
(e) This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all proposals,
negotiations and other communications between the parties, whether written or
oral, with respect to the subject matter hereof.
(f) If any provisions of this Agreement shall be held to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be impaired thereby.
(g) NEITHER PARTY MAKES ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR ANY IMPLIED
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY PATENT,
TRADEMARK, SOFTWARE, TRADE SECRET, TANGIBLE RESEARCH PROPERTY, INFORMATION OR
DATA LICENSED OR OTHERWISE PROVIDED TO THE OTHER PARTY HEREUNDER AND HEREBY
DISCLAIMS THE SAME. HOSPITAL SHALL NOT BE LIABLE FOR ANY DIRECT, CONSEQUENTIAL
OR OTHER DAMAGES SUFFERED BY SPONSOR OR ANY LICENSEE OR OTHERS RESULTING FROM
USE OF THE RESEARCH OR ANY SUCH INVENTION OR PRODUCT, EXCEPT AS PROVIDED IN
SUBPARAGRAPH 7(b) ABOVE.
(h) This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original as against the party whose signature appears
thereon, but all of which taken together shall constitute but one and the same
instrument.
(i) Each party hereto agrees to execute, acknowledge and deliver such
further instruments and do all such further acts as may be necessary or
appropriate in order to carry out the purposes and intent of this Agreement.
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(j) The paragraph headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
CHILDREN'S MEDICAL CENTER CORPORATION ORAPHARMA, INC.
By: /s/ William New By: /s/ Michael Kishbauch
----------------------------------- ---------------------------
William New Name: Michael Kishbauch
-------------------------
Vice President, Research Administration Title: President and CEO
------------------------
Date: 1/20/99 Date: 1/22/99
--------------------------------- -------------------------
ACKNOWLEDGED BY:
/s/ Samy Ashkar /s/ Anthony Atala
- ------------------------- ---------------------------
Samy Ashkar, Ph.D. Anthony Atala, M.D.
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APPENDIX A-1
Part 1
[The confidential material contained herein has been omitted and has been
separately filed with the commission.]
Part 2.
[The confidential material contained herein has been omitted and has been
separately filed with the commission.]
Part 3.
[The confidential material contained herein has been omitted and has been
separately filed with the commission.]
Part 4:
[The confidential material contained herein has been omitted and has been
separately filed with the commission.]
Part 5
[The confidential material contained herein has been omitted and has been
separately filed with the commission.]
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APPENDIX A-2
[The confidential material contained herein has been omitted and has been
separately filed with the commission.]
19
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APPENDIX B
[The confidential material contained herein has been omitted and has been
separately filed with the commission.]
20
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APPENDIX C
Anthony Atala, M.D.
Laboratory for Tissue Engineering and Cellular Therapeutics
Current Projects
[The confidential material contained herein has been omitted and has been
separately filed with the commission.]
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APPENDIX D
BIOLOGICAL MATERIAL TRANSFER AGREEMENT
For Materials Resulting from
Research Sponsored or Licensed to OraPharma, Inc.
Children's Hospital to Nonprofit Institution
[The confidential material contained herein has been omitted and has been
separately filed with the commission.]
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Exhibit 10.6
EXCLUSIVE LICENSE AGREEMENT
This Agreement is made and entered into as of December 31, 1998 (the
Effective Date), by and between CHILDREN'S MEDICAL CENTER CORPORATION, a
charitable corporation duly organized and existing under the laws of the
Commonwealth of Massachusetts and having its principal office at 300 Longwood
Avenue, Boston, Massachusetts, 02115, U.S.A. (hereinafter referred to as
"CMCC"), and ORAPHARMA, INC., a business corporation duly organized and existing
under the laws of Delaware and having a principal place of business located at
732 Louis Drive, Warminster, Pennsylvania 18974 (hereinafter referred to as
"Licensee").
WHEREAS, CMCC has developed certain Licensed Products (as that term shall
be defined hereafter) under this Agreement;
WHEREAS, CMCC is the owner of certain Patent Rights (as that term shall be
defined hereafter) that are related to the Licensed Products and CMCC has the
right to grant licenses under said Licensed Products and Patent Rights, subject
to a royalty-free, nonexclusive license heretofore granted to the United States
Government for those patents, if any, developed with U.S. Government funding;
WHEREAS, CMCC desires to have the Licensed Products and Patent Rights
utilized in the public interest and is willing to grant a license thereunder on
the terms and conditions described herein;
WHEREAS, Licensee has represented to CMCC that Licensee desires to engage
in the commercial development, production, manufacture, marketing and sale of
Licensed Products, either directly or through the activities of affiliates
and/or Sublicensees, and that it shall commit itself to a thorough, vigorous and
diligent program of exploiting the Patent Rights in accordance with the terms
and conditions described herein so that public utilization shall result
therefrom; and
WHEREAS, Licensee desires to obtain an exclusive license to the Licensed
Products and a license to the Patent Rights on the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
<PAGE>
ARTICLE I. DEFINITIONS
For the purpose of this Agreement, the following words and phrases shall
have the meanings set forth below:
A. "Affiliate" shall mean any company or other legal entity controlling,
controlled by or under common control with Licensee. For purposes of the
definition of "Affiliate" the term "control" shall mean: (i) in the case of a
corporate entity, the direct or indirect ownership of at least a majority of the
stock or participating shares entitled to vote for the election of directors of
that entity; (ii) in the case of a partnership, the power customarily held by a
general partner to direct the management and policies of such partnership; or
(iii) in the case of a joint venture in a form other than a corporation or
partnership, the power to direct the joint venture with respect to the rights
licensed hereunder.
B. "Combination Product(s) or Process(es)" shall mean a product or process
that includes a Licensed Product sold in combination with another component(s)
whose manufacture, use or sale by an unlicensed party would not constitute an
infringement of the Patent Rights.
C. "Field of Use" shall mean, for each Licensed Product (as this term shall
be defined below), the field of use for that Licensed Product shown in Column 3
of Appendix 2.
D. "First Commercial Sale" shall mean with respect to each country: (i) the
first sale of any Licensed Product by Licensee, following approval of such
Licensed Product's marketing by the appropriate governmental agency, if any such
approval is necessary, for the country in which the sale is to be made; or (ii)
when governmental approval is not required, the first sale in that country of
the Licensed Product.
E. "Know-how" shall mean any and all manufacturing information, technical
information, testing and analytic methods and specifications which CMCC owns or
has sufficient rights to include in the license grant in Article II hereof,
deriving from the activities of the Principal Investigator and/or any other
Research Program personnel in the performance of the Sponsored Research
Agreement prior to, on or after the Effective Date necessary and/or enabling
and/or useful for research, development, manufacture or marketing of any
Licensed Product in the Field of Use.
F. "Licensed Product" shall mean any product and/or Licensed Process:
1) the manufacture, development, use, lease, sale or import of which
would infringe any one of the issued, unexpired claim(s) or any one of
the pending claim(s) contained in the Patent Rights in any country,
and/or the manufacture of which uses a "Licensed Process" as defined
below, and
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2) which is listed in Appendix 2, or which is added to Appendix 2 by
amendment in accordance with the terms of the Sponsored Research
Agreement as defined below.
G. "Licensed Process" shall mean any process that would infringe any one of
the issued, unexpired claim(s) or any one of the pending claim(s) contained in
the Patent Rights in any country.
H. "Licensee" shall mean Licensee and/or its permitted successor(s) or
assignee(s) and/or its Affiliates.
I. "Net Sales" shall mean gross receipts received by Licensee and/or
Licensee's Affiliates in connection with the sale, lease or use of the Licensed
Products, less the sum of the following:
1. discounts and rebates allowed in amounts customary in the trade;
2. sales taxes, customs and tariff duties and/or use taxes directly
imposed and with reference to particular sales;
3. outbound transportation and delivery charges (including insurance
premiums related to transportation and delivery) prepaid or allowed;
and
4. amounts allowed or credited on returns.
No deductions shall be made for commissions paid to individuals whether
they are with independent sales agencies or are regularly employed by Licensee
and on its payroll or for the cost of collections. Notwithstanding anything
herein to the contrary, the following shall not be considered a sale of a
Licensed Product under this Agreement: (i) the transfer of a Licensed Product to
an Affiliate for sale by the Affiliate in a transaction that will be royalty
bearing, regardless of whether there is an internal transfer price associated
with the transfer; (ii) the transfer of a Licensed Product to a third party
without consideration to Licensee in connection with the development or testing
of a Licensed Product; or (iii) the transfer of a Licensed Product to a third
party without consideration in connection with the marketing or promotion of the
Licensed Product.
J. "Patent Rights" shall mean all of the following intellectual property
which CMCC owns or has sufficient rights to include in the license grant in
Article II hereof, during the term of this Agreement:
1. the United States and foreign patents and/or patent applications
listed in Appendix 1 attached hereto and incorporated herein by
reference, and any divisionals and continuations thereof.
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2. United States and foreign patents and/or patent applications
resulting from the Research Program and added in accordance with the
Sponsored Research Agreement by amendment to Appendix 1 attached
hereto and incorporated herein by reference and any divisionals and
continuations thereof.
3. United States and foreign patents issued from the applications
listed in Appendix 1 and from all divisionals and continuations of
those applications.
4. Claims of United States and foreign continuation-in-part
applications, and patents issued therefrom, which relate to subject
matter specifically described in the United States and foreign patent
applications described in Appendix 1.
5. Claims of all later filed foreign patent applications, and patents
issued therefrom, which relate to subject matter specifically
described in the United States patent and/or patent applications
described in subparagraphs 1, 2, 3, or 4 of this Article I, Paragraph
J.
6. Any reissues, reexaminations, divisions, amendments or extensions
of the United States or foreign patents described in subparagraphs 1,
2, 3, 4, or 5 of this Article I, Paragraph J.
K. "Research Program" shall mean the sponsored research program conducted
at Children's Hospital and funded by Licensee in accordance with the Sponsored
Research Agreement.
L. "Restricted Stock Agreement" shall mean a securities purchase agreement
reasonably satisfactory to CMCC and Licensee and substantially in the form set
in Appendix 4 hereof.
M. "Sponsored Research Agreement" shall mean the Sponsored Research
Agreement with the effective date of December 31, 1998 between CMCC and
Licensee, as the same may be amended, supplemented or otherwise modified from
time to time.
N. "Sublicensee" shall mean a person or entity other than an Affiliate to
whom Licensee has granted an arm's length sublicense under this Agreement.
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<PAGE>
ARTICLE II. GRANT
A. Subject to the terms and conditions of this Agreement, CMCC hereby
grants to Licensee the worldwide right and exclusive license under the Patent
Rights, and the worldwide rights and non-exclusive license under any and all
Know-How but only, to make, have made, use, lease, offer for sale, sell, have
sold, and import the Licensed Products in the Field of Use, to the end of the
term for which the Patent Rights are granted, unless sooner terminated as
provided in this Agreement.
B. Notwithstanding anything above to the contrary, CMCC shall retain a
royalty-free, nonexclusive, irrevocable license to practice, and to sublicense
other non-profit research organizations to practice (but without the right to
grant sublicenses), the Patent Rights covering the Licensed Products in the
Field of Use for noncommercial research purposes only; provided that such other
non-profit research organizations shall be permitted to use Licensed Products in
the Field of Use only for their own noncommercial research purposes and shall be
prohibited from assigning or sublicensing any rights to use the Licensed
Products without the prior written consent of CMCC and Licensee. In the event
CMCC enters into a written sublicense, the form and substance of the sublicense
would be subject to Licensee's consent, which consent shall not be unreasonably
withheld. If such sublicense to another non-profit research organization
involves the transfer of tangible research property that is subject to this
Agreement or if a researcher at another organization requests the transfer of
such property, said transfer will be subject to the terms of Section 6(h) of the
Sponsored Research Agreement.
C. Notwithstanding anything above to the contrary, the license granted
hereunder shall be subject to a nonexclusive, nontransferable, irrevocable,
paid-up license to practice or have practiced for or on behalf of the United
States for governmental purposes under Public Laws 96-517, 97-226, and 98-620,
codified at 35 U.S.C. sec. 200-212 and any regulations promulgated thereunder,
and the rights of the United States government, if any, under such laws and
regulations. CMCC agrees to disclose to Licensee any United States government
funding that pertain to the Patent Rights, and has provided to Licensee as of
the Effective Date information regarding such funding prior to the Effective
Date.
D. For Licensed Products that fall within claims of a patent in which the
US Government has rights, if any, and if and to the extent required by
applicable law, Licensee agrees that Licensed Products leased or sold in the
United States shall be manufactured substantially in the United States including
Puerto Rico.
E. In order to establish exclusivity for Licensee, CMCC hereby agrees that
it shall not, during the time in which this Agreement is in effect (except as
provided in Article II.F.), grant to any other commercial party a license to
make, have made, use, lease and/or sell Licensed Products, in the Field of Use
except as required by law to grant rights to the United States Government.
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<PAGE>
F. Licensee shall have the right to enter into sublicensing agreements with
respect to any of the rights, privileges, and licenses granted hereunder,
subject to the terms and conditions hereof. Such sublicenses will terminate upon
the termination of Licensee's rights granted herein, subject to Article II.J
below.
G. Licensee agrees that any sublicense granted by it shall provide that the
obligations to CMCC of Articles II (Grant), V (Reports and Records), VII
(Infringement), VIII (Insurance and Indemnification), IX (Export Controls), X
(Non-Use of Names), XI (Assignment), XII (Dispute Resolution), XIII (Term and
Termination) and XV (Miscellaneous Provisions) of this Agreement shall be
binding upon the Sublicensee as if it were a party to this Agreement. Licensee
further agrees to attach a copy of this Agreement to all sublicense agreements,
deleting economic terms when and as appropriate.
H. Licensee agrees to provide to CMCC notice of any sublicense granted
hereunder and to forward to CMCC a copy of any and all fully executed sublicense
agreements. At CMCC's request, Licensee further agrees to forward to CMCC
annually a copy of such reports received by Licensee from its Sublicensees
during the preceding twelve (12) month period, but shall in any event, provide
CMCC with any information from such reports, as shall be pertinent to a royalty
accounting under the applicable sublicense. Licensee may delete from said copies
of sublicense agreements and reports proprietary information that is not
pertinent to royalty accounting or to Licensee's Due Diligence obligations under
Article III; at CMCC's request, such deleted information shall be presented to
an independent third party acceptable to Licensee and CMCC to confirm that the
information is not pertinent.
I. Licensee shall advise CMCC in writing of any consideration received from
Sublicensees. Licensee shall not accept from any Sublicensee anything of value
in lieu of cash payments to discharge Sublicensee's payment obligations under
any sublicense granted under this Agreement, without the express written
permission of CMCC, which permission shall not be unreasonably withheld.
J. CMCC agrees that if Licensee has provided to CMCC notice that Licensee
has granted a sublicense to a Sublicensee under this Agreement, then in the
event CMCC terminates this Agreement for any reason provided hereafter, CMCC
shall provide to such Sublicensee an initial notice at the same time as CMCC
shall send notices to Licensee under Article XIII.B., C. or D. and also written
notice of said termination, or notice of cure by Licensee, as applicable, at the
address specified by Licensee to CMCC in Licensee's notice to CMCC under
Paragraph H of this Article II. CMCC agrees that upon the Sublicensee's notice
as described below and provided the Sublicensee is not in material breach of its
sublicense, CMCC shall grant to such Sublicensee license rights and terms
substantially equivalent to the sublicense rights and terms which the Licensee
shall have granted to said Sublicensee; provided that the Sublicensee shall
remain a Sublicensee under this Agreement for a period of at least sixty (60)
days following receipt of such initial notice from CMCC. Sublicensee shall
during said sixty (60) day period provide to CMCC notice wherein the
Sublicensee: (i) reaffirms the terms and conditions of this
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<PAGE>
Agreement as it relates to the rights the Sublicensee has been granted under the
sublicense; (ii) agrees to abide by all of the terms and conditions of this
Agreement applicable to Sublicensees and to discharge directly all obligations
that are pertinent to the Sublicensee's field of use which Licensee is obligated
hereunder to discharge; and (iii) acknowledges that CMCC shall have no
obligations to the Sublicensee other than its obligations set forth in this
Agreement with regard to Licensee.
K. Nothing in this Agreement shall be construed to confer any rights upon
Licensee by implication, estoppel or otherwise as to any technology, product or
field of use other than Know-How and the Patent Rights covering the Licensed
Products in the Field of Use.
L. CMCC agrees to provide to Licensee any Know-How, subject to the terms
and conditions of this Agreement and the Sponsored Research Agreement necessary
to enable Licensee to commercialize the Licensed Products in accordance with
Appendix 3 attached hereto.
M. CMCC represents and warrants that it: (i) has the right and ability to
grant the license set forth in Paragraph A. above and, to the best knowledge of
the Children's Hospital Technology Transfer Office, has all right, title and
interest in the Patent Rights, and (ii) has no knowledge that the Patent Rights
are subject to a pending claim of infringement by a third party. CMCC further
represents and warrants that the grant of the license to Licensee hereunder does
not conflict with the rights of any third party under any other agreement to
which CMCC is a party or by which it is bound.
ARTICLE III. DUE DILIGENCE
A. Licensee shall use its good faith and diligent efforts to bring each
Licensed Product to market as soon as reasonably practicable, consistent with
sound and reasonable business practices and judgment, through a diligent program
for commercialization of the Licensed Products as detailed in the Development
Plans for each Licensed Product and Field of Use cited in Article III. C and
attached as Appendix 3. Such diligence may, at Licensee's election, be
accomplished through research, development, marketing and/or sublicensing
activities, either alone or in collaboration with third parties. Thereafter,
Licensee agrees that until expiration or termination of this Agreement, Licensee
shall continue active and diligent efforts, consistent with sound and reasonable
business practices and judgment, to keep Licensed Products reasonably available
to the public. In the event Licensee decides not to exploit a Licensed Product,
a licensed Patent Right, or a Field of Use, it shall promptly inform CMCC in
writing and shall surrender to CMCC its license to that Licensed Product, Patent
Right, and/or Field of Use.
B. The parties acknowledge that Licensee has provided to CMCC prior to the
date of execution of this Agreement a written commercialization development plan
("Development
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Plan") setting forth the initially targeted markets for each Licensed Product
listed in Appendix 2, and will provide a Development Plan for each Licensed
Product added thereto in accord with the terms of this Agreement or the
Sponsored Research Agreement, including to the extent practicable: (i)
time-delimited targets for pre-clinical development, clinical trials, regulatory
approval, manufacturing and marketing that represent reasonable efforts,
consistent with industry norms for similar technology and applications, to bring
Licensed Products to the marketplace; and (ii) actual or projected financial
resources and/or strategic alliances that will be required to implement the
Development Plan. The initial Development Plan is attached hereto as Appendix 3
and is hereby incorporated herein by reference. The Development Plan will be
updated to include a commercialization development plan for each additional
Licensed Product and Field of Use. Development Plans for use of OsteoMorphin in
orthopedics in humans and for therapeutic use in animals shall be negotiated in
good faith by the parties and shall be added to this Agreement by Amendment
within six (6) months of the Effective Date.
C. Licensee shall use good faith and diligent efforts to accomplish the
milestones set forth in the Development Plan and to manufacture and distribute
Licensed Products directly or through an Affiliate or Sublicensee.
D. Notwithstanding anything above to the contrary, CMCC shall not
unreasonably withhold its assent to any reasonable revision of the objective(s)
set forth in the Development Plan when requested in writing by Licensee and
supported by evidence reasonably acceptable to CMCC: (i) of technical
difficulties or delays in the clinical studies or regulatory process that
Licensee could not have reasonably avoided; or (ii) that Licensee, its
Affiliates and/or Sublicensees have expended good faith and diligent efforts and
adequate resources to meet said objective.
E. In the event that Licensee is not diligently seeking to achieve the
objectives set forth in the Development Plan with regard to any particular
Licensed Product in a timely manner, CMCC shall so notify Licensee in writing.
Licensee shall have the option, exercisable by written notice to CMCC provided
within thirty (30) days after receipt of any such notice, to either: (i) receive
a six (6) months grace period to establish to CMCC's reasonable satisfaction
that Licensee is expending its good faith and diligent efforts and adequate
resources to achieve said objectives; or (ii) agree to CMCC's termination of
this Agreement with regard to such Licensed Product as provided hereafter. In
the event Licensee agrees to termination of this Agreement with regard to such
Licensed Product, CMCC shall immediately terminate the license granted to
Licensee with regard to that Licensed Product under this Agreement. In the event
Licensee fails to establish its diligence as provided above prior to expiration
of the six (6) months grace period, CMCC shall have the right to terminate the
license granted to Licensee with regard to such Licensed Product under this
Agreement.
F. In the event Licensee fails to meet the objective(s) set forth in the
Development Plan with regard to any particular Licensed Product in a timely
manner, CMCC shall notify Licensee thereof in writing, and Licensee shall have
forty-five (45) days following such
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notification to establish that (i) it has met such objective(s); or (ii) a
revision to the Development Plan is necessary and appropriate as contemplated
above. In the event Licensee fails to establish the same, CMCC shall have the
right to terminate the license granted to Licensee under this Agreement with
regard to such Licensed Product or to convert the license granted to Licensee
hereunder to a non-exclusive license with regard to such Licensed Product on
financial terms and conditions mutually agreed to by CMCC and Licensee.
G. Licensee shall fund research at Children's Hospital in accordance with
the terms of the Sponsored Research Agreement. In the event Licensee terminates
the Sponsored Research Agreement within four (4) years of its "Initiation Date"
(as defined in that agreement) without cause or Hospital terminates said
agreement under Paragraphs 8 (b), (c), (d), or (e) of that agreement, this
License Agreement shall terminate at the same time. In the event Licensee
terminates the Sponsored Research Agreement for cause as defined in Article 8
(d), 8 (f), or 8 (h), licenses or options granted pursuant to the Sponsored
Research Agreement may not be terminated by CMCC. Licensee shall, to the extent
commercially reasonable and mutually agreed upon by the parties, provide CMCC
and its collaborators the opportunity to conduct additional studies that are to
be funded by Licensee and that are within their field(s) of competency.
H. In the event Licensee desires to sponsor further research at an academic
institution on products and/or technology licensed to Licensee hereunder,
Licensee shall give the Hospital the first opportunity to bid on the project, to
the extent that Children's Hospital has investigators with appropriate
qualifications.
ARTICLE IV. ROYALTIES AND OTHER PAYMENTS
A. For the rights, privileges and licenses granted hereunder, Licensee
shall pay to CMCC the following amounts in the manner hereinafter provided until
the end of the term of the last to expire Patent Right, unless this Agreement
shall be sooner terminated as hereinafter provided:
1. 165,000 shares of Licensee Common Stock to be delivered to CMCC
within thirty (30) days after the Effective Date subject to CMCC
executing the Restricted Stock Agreement, (b) Common Stock at then
fair market value of Two Hundred Fifty Thousand Dollars ($250,000)
delivered at the first NDA submission, and (c) Common Stock at then
fair market value of Seven Hundred Fifty Thousand Dollars ($750,000)
delivered at the first NDA approval.
As used herein, "fair market value" of Common Stock means, with
respect to the date of determination thereof, the value of a share of
the common stock of Licensee, determined for the purposes of this
Agreement as follows:
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(i) If the common stock of Licensee is traded publicly on any stock
exchange or over-the-counter market on the date of determination, then
the fair market value thereof shall be the closing sale price, or if
the closing sale price is not reported, the closing ask price at which
a share of such common stock may be purchased by a person on the
principal stock exchange or over-the-counter market on which such
common stock may be purchased on such date.
(ii) If the common stock of Licensee is not traded publicly on any
stock exchange or over-the-counter market on the date of
determination, then the fair market value thereof shall be equal to
the fair market value of a share of the last series of preferred stock
issued by Licensee and shall be determined as follows:
(a) If Licensee consummates an equity financing during the period
commencing on the date that is ninety (90) days prior to, and ending
on the date that is ninety (90) days following, the date of
determination, then the fair market value of a share of common stock
of Licensee shall be the purchase price of a share of preferred stock
of Licensee, (determined on a common-equivalent basis) issued in the
last equity financing, if any, consummated during such period.
(b) If no equity financing is consummated by Licensee during the
period described in clause (a) above, then the fair market value of a
share of common stock of Licensee shall be determined by Licensee's
Board of Directors and CMCC shall be notified thereof in writing. CMCC
may, upon written notice to Licensee, appoint an independent certified
public accountant or investment banking firm ( an "Independent
-----------
Appraiser" ) reasonably acceptable to Licensee and the cost and
---------
expense of the Independent Appraiser shall be shared equally by CMCC
and Licensee, unless the ultimate fair market value is within five
percent (5%) of the fair market value determined by Licensee's Board
of Directors in which case the cost shall be borne by CMCC. If CMCC
fails to notify Licensee of its election to exercise its valuation
right within thirty (30) days after its receipt of the initial
determination by Licensee's Board of Directors, then the fair market
value thereof shall be the amount as determined by Licensee's Board of
Directors. If CMCC exercises its valuation right, CMCC shall cause the
Independent Appraiser appointed by CMCC to provide its determination
of the fair market value of a share of common stock of Licensee in
writing to Licensee and CMCC. Following receipt of such determination,
the parties shall, in good faith, attempt to mutually agree upon the
fair market value of a share of common stock of Licensee. If the
parties are unable to so agree within thirty (30) days following their
receipt of such determination, the parties shall appoint a mutually
acceptable Independent Appraiser to determine the fair market value of
a share of common stock of Licensee. In such case, the determinations
made by Licensee's Board of Directors, the Independent Appraiser
appointed by CMCC and the Independent Appraiser jointly appointed by
the parties shall be compared, and the fair market
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value shall be the middle determination (and not an average thereof).
Any Independent Appraiser appointed by CMCC or appointed jointly by
CMCC and Licensee shall be subject to an obligation of confidentiality
in favor of Licensee and shall disclose to CMCC only its determination
of the fair market value of a share of common stock of Licensee.
At Licensee's discretion, stock payments (b) and (c) above may be in
cash rather than stock. Also [The confidential material contained
herein has been omitted and has been separately filed with the
commission.].
2. Except for Net Sales to the United States government pursuant to
any paid-up license under Article II.C. for which Licensee shall
reduce its price by an amount corresponding to the royalty otherwise
payable to CMCC, Royalties in an amount equal to:
(i) [The confidential material contained herein has been omitted and
has been separately filed with the commission.];
(ii) [The confidential material contained herein has been omitted and
has been separately filed with the commission.]
(iii) [The confidential material contained herein has been omitted and
has been separately filed with the commission.]
3. (a) In the event Licensee has granted sublicenses under this
Agreement, [The confidential material contained herein has been
omitted and has been separately filed with the commission.] of any
royalties received by Licensee from any Sublicensee in consideration
of permitting the Sublicensee to sell Licensed Products; and [The
confidential material contained herein has been omitted and has been
separately filed with the commission.] of "up-front" sublicensing
payments from a third party, if sublicense occurs prior to completing
a Phase II trial completion, or [The confidential material contained
herein has been omitted and has been separately filed with the
commission.] of up-front sublicensing payments from a third party, if
sublicense occurs after completing a Phase II trial and before
completing a Phase III trial, or [The confidential material contained
herein has been omitted and has been separately filed with the
commission.] of up-front sublicensing payments from a third party, if
sublicense occurs after completing a Phase III trial. "Up-front" shall
include sublicense fees paid in installments or as milestone payments.
(b) Investments by Sublicensees in equity of Licensee or
financing of research and development at Licensee will not be treated
as royalties or sublicense fees subject to sharing by CMCC, provided
that such equity or research and
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development financing is at fair value, as may be determined by
independent appraisal at CMCC's election. If the Licensee's securities
are publicly traded and an equity purchase by a Sublicensee as part of
a sublicense involves a premium over the current market price, the
premium shall be considered a license fee and subject to the payment
obligations of paragraph 3 (a) above.
B. No multiple royalties shall be payable because any Licensed Product,
its manufacture, use, lease or sale are or shall be covered by more than one
Patent Rights patent application or Patent Rights patent licensed under this
Agreement. In the event that in any country a Licensed Product does not include
any component covered by a valid claim of a Patent Right and if Licensee can
demonstrate that a third party is selling a competing product substantially
similar to a Licensed Product in that jurisdiction, then the royalties payable
hereunder with respect to the Net Sales of such Licensed Product in such country
shall be reduced by [The confidential material contained herein has been omitted
and has been separately filed with the commission.].
C. To the extent that Licensee obtains subsequent to the date of this
Agreement licenses to third party patents or other intellectual property that
are necessary to produce or sell Licensed Products in the Field of Use, Licensee
may deduct from the royalty due to CMCC [The confidential material contained
herein has been omitted and has been separately filed with the commission.] of
the royalties due on such third party patents or intellectual property up to an
amount equal to [The confidential material contained herein has been omitted and
has been separately filed with the commission.] of royalties due hereunder.
D. For purposes of calculating royalties, in the event that a Licensed
Product includes both component(s) covered by a claim of a Patent Right
("Patented Component") and a component which is diagnostically useable or
therapeutically active alone or in a combination which does not require the
Patented Component, and such component is not covered by a claim of a Patent
Right ("Unpatented Component"), then Net Sales of the Combination Product or
Combination Process shall be calculated using one of the following methods;
1. By multiplying the Net Sales of the Combination Product or
Combination Process during the applicable royalty accounting period
("accounting period") by a fraction, the numerator of which is the
gross selling price in a relevant market of the Patented Component(s)
contained in the Combination Product or Combination Process if sold
separately, and the denominator of which is the sum of the gross
selling price in relevant markets of both the Patented Component(s)
and the Unpatented Component(s) contained in the Combination Product
or Combination Process if sold separately; or
2. In the event that no such separate sales are made of the Patented
Component(s) or the Unpatented Components in relevant markets during
the applicable accounting period, Net Sales for purposes of
determining royalties
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payable hereunder shall be calculated by multiplying the Net Sales of
the Combination Product or Combination Process by a fraction, the
numerator of which is the fully allocated production cost of the
Patented Component(s) and the denominator of which is the sum of the
fully allocated production costs of the Patented Component(s) and the
Unpatented Component(s) contained in the Combination Product or
Combination Process. Such fully allocated costs shall be determined by
using Licensee's standard accounting procedures, which procedures must
conform to standard cost accounting procedures.
E. Royalty payments shall be paid in United States dollars in Boston,
Massachusetts, or at such other place as CMCC may reasonably designate
consistent with the laws and regulations controlling in any foreign country. If
the currency conversion shall be required in connection with the payments of
royalties or other amounts hereunder, the conversion shall be made by using the
exchange rate prevailing at BankBoston on the last business day of the calendar
quarterly reporting period to which such royalty payments relate.
F. The royalty payments set forth in this Agreement shall, if overdue,
bear interest until payment at a per annum rate of [The confidential material
contained herein has been omitted and has been separately filed with the
commission.] above the prime rate in effect at BankBoston on the due date. The
payment of such interest shall not foreclose CMCC from exercising any other
rights it may have as a consequence of the lateness of any payment.
ARTICLE V. REPORTS AND RECORDS
A. Licensee shall keep, and shall require its Affiliates and Sublicensees
to keep, full, true and accurate books of account in accordance with generally
accepted accounting principles and containing sufficient detail to enable CMCC
to determine the royalty and other amounts payable to CMCC under this Agreement.
Said books of account shall be kept at Licensee's principal place of business or
the principal place of business of the appropriate division of Licensee to which
this Agreement relates. Said books and the supporting data shall be retained for
at least three (3) years following the end of the calendar year to which they
pertain.
B. CMCC shall have the rights: (i) commencing after the First Commercial
Sale or Licensee entering into the first sublicense hereunder (whichever shall
first occur), to audit the books of account described above from time to time to
the extent necessary to verify the reports provided for herein, and (ii) at any
time during the term of the Agreement, to audit compliance in other respects
with this Agreement; provided that such rights in (i) and (ii)above may not be
exercised by CMCC more than one time during each calendar year, commencing after
the First Commercial Sale or Licensee entering into the first sublicense
hereunder (whichever shall first occur).CMCC or its agents shall perform these
audits at CMCC's expense upon reasonable prior notice and during Licensee's
regular business hours. Any such agents (including any independent accounting
firm performing such audit) shall agree as a condition to such audit to
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maintain the confidentiality of all information of Licensee disclosed or
observed in connection with such audit and to disclose to CMCC only whether
Licensee shall have complied with its payment or other obligations under this
Agreement. However, if Licensee shall not have complied with its obligations,
such agents may disclose to CMCC the subject of noncompliance or payment due and
basis of calculation thereof.
C. Licensee shall deliver to CMCC true and accurate reports by March
31st, for the period July 1 through December 31 of the previous year, and on
September 30th, for the period January 1st through June 30th of the current
year, giving such particulars of the business conducted by Licensee, its
Affiliates and its Sublicensees under this Agreement as shall be pertinent to a
royalty accounting hereunder and to verify Licensee's activities with respect to
achieving the objectives of the Development Plan described in Article III above.
These reports shall include at least the following:
1. Number of each of the Licensed Products leased and/or sold.
2. Aggregate gross receipts for each of the Licensed Products.
3. Applicable deductions.
4. Accounting for all Net Sales of each Licensed Product.
5. Total royalties due.
6. Names and addresses of all Sublicensees of Licensee.
7. Payments received by Licensee from Affiliates and Sublicensees.
8. Licensed Products manufactured and sold to the U.S. Government.
No royalty obligations shall arise from sales or use by, for or
on behalf of the U.S. Government in view of a royalty-free,
nonexclusive license that may heretofore have been granted to the
U.S. Government.
9. Royalties and Fees received from Sublicensees.
D. Until the First Commercial Sale of a Licensed Product, Licensee shall
provide to CMCC at least annually by March 31 of each year, reasonable detail
regarding the activities of Licensee and Licensee's Affiliates and Sublicensees
relative to achieving the objectives set forth in the Development Plan in a
timely manner, including but not limited to, reports of financial expenditures
to achieve said objectives, research and development activities, regulatory
approvals, strategic alliances and manufacturing, sublicensing and marketing
efforts.
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E. With each such report submitted, Licensee shall pay to CMCC the
royalties due and payable under this Agreement. If no royalties shall be due,
Licensee shall so report.
F. On or before the ninetieth (90th) day following the close of Licensee's
fiscal year, Licensee shall provide CMCC with Licensee's audited financial
statements for the preceding fiscal year.
ARTICLE VI. PATENT PROSECUTION
A. CMCC shall have primary responsibility for applying for, prosecuting
and maintaining the Patent Rights during the term of this Agreement, including
patent protection for inventions made pursuant to the Sponsored Research
Agreement. CMCC shall at its discretion be responsible for the preparation,
filing, prosecution and maintenance of any such patent applications which it
elects to file pursuant to this Article through patent counsel of its choosing
and acceptable to Licensee. Licensee and CMCC agree to cooperate in the
preparation and execution of all documents necessary or desirable to perfect
filing of, advance prosecution of, or effect issue of such patents or
applications in the United States and foreign countries. Licensee shall have the
right to review and comment upon all patent applications, amendments and
responses, claims and other documents material to the prosecution of the U.S.
and foreign patent applications. CMCC agrees to cooperate in incorporating such
comments into the relevant documents.
B. If CMCC elects not to (i) file a U.S. patent application on an
invention made pursuant to the Sponsored Research Agreement, (ii) file foreign
or PCT applications claiming priority to a pending U.S. patent application
within the one-year statutory period, (iii) continue prosecution of a patent
application or (iv) maintain any U.S. or foreign patent, CMCC shall so notify
Licensee in sufficient time for Licensee to assume the filing, prosecution
and/or maintenance of such application or patent in CMCC's name at Licensee's
expense. Licensee shall have the option, at its expense and discretion, to file,
foreign file, prosecute or maintain any such applications or patents. CMCC
agrees to execute, and agrees to use reasonable efforts to ensure that its
employees shall execute, all documents necessary to perfect filing of, advance
prosecution of, or effect issue of such applications. Licensee shall have no
further royalty obligations under Article IV A.2. with respect to such patents
or applications.
In the event Licensee elects not to pay the cost of filing, prosecuting or
maintaining a particular Patent Right licensed to Licensee hereunder, Licensee
shall have no license under this Agreement to any such Patent Right.
C. Licensee shall reimburse to CMCC the amount of all fees and costs
relating to the filing, prosecution and maintenance of the Patent Rights
incurred after the Effective Date. CMCC shall provide to Licensee an itemized
invoice of all such fees and Licensee shall pay to CMCC all amounts due under
said invoice within thirty (30) days of the date of said invoice. In
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the event CMCC licenses rights under any of the Patent Rights to one or more
commercial third parties outside the Field of Use, Licensee's reimbursement of
costs for the shared Patent Rights shall be [The confidential material contained
herein has been omitted and has been separately filed with the commission.].
In the event Licensee elects not pay the cost of filing, prosecuting or
maintaining a particular Patent Right licensed to Licensee hereunder, Licensee
shall have no license under this Agreement to any such Patent Right. Failure to
pay an invoice by the above due date, shall be deemed an election not to pay
such costs, and Licensee's license shall terminate as to such Patent Right only,
after notice from CMCC and Licensee's failure to cure within thirty days;
provided, however, should Licensee's failure to pay the invoice within the
thirty (30) day cure period after such notice of termination be inadvertent
("inadvertent" shall mean one such failure to pay in any calendar year) and
provided that such failure to pay by the invoice date or during the notice and
cure period shall not result in a patent bar date in the relevant U.S. or
foreign patent office, Licensee shall have the right to pay the invoice within
an additional thirty (30) day cure period and re-instate its license to such
terminated Patent Rights.
ARTICLE VII. INFRINGEMENT
A. Licensee and CMCC shall each inform the other promptly in writing of
any alleged infringement by a third party of the Patent Rights covering the
Licensed Products in the Field of Use which comes to their attention and of any
available evidence thereof.
B. During the term of this Agreement, CMCC shall have the right, but shall
not be obligated, to prosecute at its own expense any infringement of the Patent
Rights by a third party and, in furtherance of such right, Licensee hereby
agrees that CMCC may include Licensee as a party plaintiff in any such suit,
without expense to Licensee. In such event, the total cost of any such
infringement action commenced solely by CMCC shall be borne by CMCC, (and CMCC
shall keep any recovery or damages for past infringement derived therefrom). In
the event such infringement relates to use of the Patent Rights in the Field of
Use only, no settlement, consent judgment or other voluntary disposition of any
such suit may be entered into without the consent of Licensee, which consent
shall not be unreasonably withheld or delayed. Licensee shall have ten (10) days
from CMCC's notice to consent or to object in writing, stating in reasonable
detail the reasons for withholding consent. No response within such period shall
be deemed to constitute Licensee's consent. CMCC shall indemnify Licensee
against any order for costs that may be made against Licensee in such
proceedings.
Notwithstanding the foregoing, Licensee may elect at its option to participate
in the prosecution of any such infringement action where the alleged
infringement is of Licensed Products within the Licensee's Field of Use. If
Licensee shall be the only licensee participating in the infringement action,
Licensee shall, reimburse [The confidential material contained herein has been
omitted and has been separately filed with the commission.] of CMCC's attorneys'
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fees and expenses. If more than one licensee shall be participating, Licensee
shall reimburse [The confidential material contained herein has been omitted and
has been separately filed with the commission.] of CMCC's attorneys' fees and
expenses, where [The confidential material contained herein has been omitted and
has been separately filed with the commission.]. In the event of such
participation: (i) no settlement, consent judgment or other voluntary
disposition of any such suit may be entered into without the consent of
Licensee, which consent shall not be unreasonably withheld or delayed. Licensee
shall have ten (10) days from CMCC's notice to consent or to object in writing,
stating in reasonable detail the reasons for withholding consent, and no
response within such period shall be deemed to constitute Licensee's consent;
and (ii) any recovery of damages by CMCC for such suit shall be applied first in
satisfaction of any expenses of CMCC and Licensee hereunder, and the balance
remaining from any such recovery shall be divided equally between CMCC and
Licensee.
C. If within three (3) months after having been notified of any alleged
infringement of the Patent Rights by a third party, CMCC shall have been
unsuccessful in persuading the third party to cease and desist or shall not have
brought and shall not be diligently prosecuting an infringement action, or if
CMCC notifies Licensee any time prior thereto of its intention not to bring suit
against any alleged third party infringer then, and in those events only,
Licensee shall have the right, but shall not be obligated, to prosecute at its
own expense any infringement of the Patent Rights covering the Licensed Products
in the Field of Use, and Licensee may, for such purposes, use the name of CMCC
as party plaintiff; provided, however, that such right to bring such an
infringement action shall remain in effect only for so long as the license
granted hereunder remains exclusive. No settlement, consent judgment or other
voluntary final disposition of the suit may be entered into without the consent
of CMCC, which consent shall not be unreasonably withheld or delayed. Licensee
shall indemnify CMCC against any order for costs that may be made against CMCC
in such proceedings.
D. In the event Licensee shall undertake the enforcement of the Patent
Rights covering the Licensed Products in the Field of Use by litigation, or in
the event that Licensee is required to defend an infringement action instituted
against Licensee by a third party, Licensee may withhold up to [The confidential
material contained herein has been omitted and has been separately filed with
the commission.] of the payments otherwise thereafter due to CMCC under Article
IV above and apply the same toward reimbursement of up to [The confidential
material contained herein has been omitted and has been separately filed with
the commission.] of Licensee's expenses, including reasonable attorneys' fees,
in connection therewith. Any recovery of damages by Licensee for such suit shall
be applied first in satisfaction of any unreimbursed expenses and legal fees of
Licensee relating to such suit and next toward reimbursement of CMCC for any
payments under Article IV past due or withheld and applied pursuant to this
Article VII. The balance remaining from any such recovery shall be divided
equally between Licensee and CMCC.
E. In the event that a declaratory judgment action alleging invalidity or
noninfringement of any of the Patent Rights shall be brought against Licensee,
CMCC, at its
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option, shall have the right, within thirty (30) days after commencement of such
action, to intervene and participate in the defense of the action at its own
expense.
F. In any infringement suit which either party may institute to enforce
the Patent Rights pursuant to this Agreement, or in a suit for patent
infringement which is brought by a third party against CMCC or Licensee, which
either party or both parties are required to defend, the other party hereto
shall at the request and the expense of the party initiating or defending such
suit, cooperate in all reasonable respects and, to the extent reasonably
possible, have its employees testify when requested and make available relevant
records, papers, information, samples, specimens, and the like.
G. Licensee shall, for so long as its license rights to any Licensed
Product or Licensed Processes are exclusive hereunder, have the sole right
subject to the terms and conditions hereof to sublicense any alleged infringer
for future use of the Patent Rights for the Licensed Products in the Field of
Use. Any upfront payment (e.g., fees, royalties on past sales, or other
payments) paid to Licensee as part of a sublicense agreement made in settlement
of the infringement action shall be shared equally between Licensee and CMCC.
Any royalties for future sales in such an agreement shall be treated as set
forth in Article IV.A., Paragraph 3.
ARTICLE VIII. UNIFORM INDEMNIFICATION
AND INSURANCE PROVISIONS
A. Licensee shall indemnify, defend and hold harmless CMCC, its corporate
affiliates, current or future directors, trustees, officers, faculty, medical
and professional staff, employees, students and agents and their respective
successors, heirs and assigns (the "Indemnitees"), against any liability,
damage, loss or expense (including reasonable attorney's fees and expenses of
litigation) (i) reasonably incurred by or (ii) imposed upon, the Indemnitees or
any one of them in connection with any third party claims, suits, actions,
demands or judgments arising out of any theory of product liability (including,
but not limited to, actions in the form of tort, warranty, or strict liability)
concerning any product, process or service made, used or sold pursuant to any
right or license granted under this Agreement.
B. Licensee's indemnification under Article VIII Paragraph A above shall
not apply to any liability, damage, loss or expense to the extent that it is
directly attributable to the negligent activities, reckless misconduct or
intentional misconduct of the Indemnitees.
C. Licensee agrees, at its own expense, to provide attorneys (which may be
the same as Licensee's attorneys) reasonably acceptable to CMCC to defend
against any 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.
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D. Beginning at the time as any such product, process or service is being
commercially distributed or sold (other than for the purpose of obtaining
regulatory approvals) by Licensee or by a Sublicensee, Affiliate or agent of
Licensee, Licensee shall, at its sole cost and expense, procure and maintain
commercial general liability insurance in amounts not less than $2,000,000 per
incident and $2,000,000 annual aggregate and naming CMCC and the other
Indemnitees, (if and to the extent acceptable to Licensee's insurance carrier)
as additional insureds. Such commercial general liability insurance shall
provide (i) product liability coverage and (ii) contractual liability coverage
for Licensee's indemnification under Article VIII, Paragraphs A through C of
this Agreement. If Licensee elects to self-insure all or part of the limits
described above (including deductibles or retentions which are in excess of
$250,000 annual aggregate), such self-insurance program must be acceptable to
CMCC and the Risk Management Foundation of the Harvard Medical Institutions,
Inc. The minimum amount of insurance coverage required under this Article VIII,
Paragraph D. shall not be construed to create a limit of Licensee's liability
with respect to its indemnification under Article VIII, Paragraphs A through C
of this Agreement.
E. Licensee shall provide CMCC with written evidence of such insurance
upon request of CMCC. Licensee shall provide CMCC with written notice at least
fifteen (15) days prior to the cancellation, non-renewal or material adverse
change in such insurance. If Licensee does not obtain replacement insurance
providing comparable coverage within such fifteen (15) day period, CMCC shall
have the right to terminate this Agreement effective at the end of such fifteen
(15) day period without notice of any additional waiting period.
F. Licensee shall maintain such commercial general liability insurance
during (i) the period that any such product, process or service is being
commercially distributed or sold (other than for the purpose of obtaining
regulatory approvals) by Licensee or by a Sublicensee, Affiliate or agent of
Licensee and (ii) a reasonable period after the period referred to above, which
in no event shall be less than fifteen (15) years.
G. Article VIII, Paragraphs A through F shall survive expiration or
termination of this Agreement.
H. OTHER THAN WARRANTIES SET FORTH HEREIN, NEITHER PARTY MAKES ANY
WARRANTY TO THE OTHER, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR ANY IMPLIED WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO ANY PATENT, TRADEMARK, SOFTWARE, TRADE
SECRET, TANGIBLE RESEARCH PROPERTY, INFORMATION OR DATA LICENSED OR OTHERWISE
PROVIDED TO LICENSEE HEREUNDER AND HEREBY DISCLAIMS THE SAME.
ARTICLE IX. EXPORT CONTROLS
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<PAGE>
It is understood that CMCC is subject to United States laws and regulations
controlling the export of technical data, computer software, laboratory
prototypes and other commodities (including the Arms Export Control Act, as
amended and the Export Administration Act of 1979), and that its obligations
hereunder are contingent on compliance with applicable United States export laws
and regulations. The transfer of certain technical data and commodities may
require a license from the cognizant agency of the United States Government
and/or written assurances by Licensee that Licensee shall not export data or
commodities to certain foreign countries without prior approval of such agency.
CMCC neither represents that a license shall not be required, nor that if
required, it shall be issued.
ARTICLE X. NON-USE OF NAMES
Licensee shall not use the name of Children's Medical Center Corporation
nor the name of any of its corporate affiliates or employees, nor any adaptation
thereof, in any advertising, promotional or sales literature without prior
written consent obtained from CMCC in each case, except that Licensee may state
that it is licensed by CMCC under one or more of the patents and/or applications
comprising the Patent Rights, and Licensee may comply with disclosure
requirements of all applicable laws relating to its business, including United
States and state security laws. To seek CMCC's consent for a given use of the
name of CMCC (or its affiliates or employees), Licensee may telefax the proposed
statement to the Children's Hospital Public Affairs Office. The Public Affairs
Office shall make reasonable efforts to respond promptly. CMCC hereby grants
approval for Licensee to make the statement(s) attached hereto as Appendix 4,
which Appendix may be amended from time to time by mutual consent.
ARTICLE XI. ASSIGNMENT
A. Except as otherwise provided herein, this Agreement is not assignable
by Licensee in whole or in part, and any attempt to do so shall be void and of
no effect.
B. CMCC may assign this Agreement at any time to any Affiliate of CMCC
without the prior consent of the Licensee.
C. Except as provided in Article XI, Paragraph B above and D below,
Licensee may assign this Agreement to another entity only with the prior written
consent of CMCC, which consent shall not be unreasonably withheld or delayed.
D. Notwithstanding anything herein to the contrary, in the event Licensee
merges with another entity, is acquired by another entity, or sells all or
substantially all of its assets to another entity, Licensee may assign its
rights and obligations hereunder to, in the event of a merger or acquisition,
the surviving entity, and in the event of a sale, the acquiring entity, without
CMCC's consent so long as: (i) Licensee is not then in breach of this Agreement;
(ii)
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the proposed assignee has a net worth at least equivalent to the net worth
Licensee had as of the date of this Agreement; (iii) the proposed assignee has
available resources and sufficient scientific, business and other expertise
comparable to Licensee in order to satisfy its obligations hereunder; (iv)
Licensee provides written notice of the intended assignment to CMCC at least
twenty (20) days in advance of the effective date of the assignment, and
provides documentation sufficient to demonstrate the requirements set forth in
subparagraphs (i) through (iii) above, at least ten (10) days prior to the
effective date of the assignment; and (v) CMCC receives from the assignee, in
writing, at least ten (10) days prior to the effective date of the assignment:
(a) reaffirmation of the terms of this Agreement; (b) an agreement to be bound
by the terms of this Agreement; and (c) an agreement to perform the obligations
of Licensee under this Agreement.
ARTICLE XII. DISPUTE RESOLUTION AND ARBITRATION
A. Except for the right of either party to apply to a court of competent
jurisdiction for a temporary restraining order, a preliminary injunction, or
other equitable relief to preserve the status quo or prevent irreparable harm,
any and all claims, disputes or controversies arising under, out of, or in
connection with the Agreement, including any dispute relating to patent validity
or infringement, which the parties shall be unable to resolve within sixty (60)
days shall be mediated in good faith. The party raising such dispute shall
promptly advise the other of such claim, dispute or controversy in writing,
describing the dispute in reasonable detail. By no later than five (5) business
says after the recipient has received such notice of dispute, each party shall
have selected a representative who shall have the authority to bind such party
and shall have advised the other party in writing of the name and title of such
representative.
B. Within fifteen (15) days of receipt of a request for mediation as
described above, the parties agree to commence mediation in the City of Boston,
Commonwealth of Massachusetts in accordance with the policies and procedures of
Endispute, Inc. ("Endispute"), or in the event that Endispute is no longer in
operation, in accordance with the policies and procedures of the American
Arbitration Association. The parties shall select a mediator acceptable to both
of them from a list provided by Endispute. The parties agree to cooperate in
good faith in said mediator's efforts to assist the parties to resolve the
dispute. Each party agrees to pay fifty percent (50%) of the costs of said
mediation. If the matter has not been resolved by mutual agreement of the
parties within thirty (30) days of the commencement of mediation, either party
may request in writing that the matter be submitted to arbitration in accordance
with the following subparagraph.
C. Any and all claims, disputes or controversies arising under, out of, or
in connection with this Agreement, which have not been resolved by good faith
negotiations between the parties or by mediation shall be resolved by final and
binding arbitration in Boston, Massachusetts if such claim, dispute or
controversy was initiated by Licensee and in Newark, New Jersey if such claim,
dispute or controversy was initiated by CMCC, in accordance with the rules of
the American Arbitration Association ("AAA") then obtaining and all expenses, in
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connection therewith, will be shared equally, except for the expense of the
parties' respective legal counsels. A single arbitrator shall be mutually agreed
upon and if the parties are unable to agree on a mutually acceptable arbitrator,
an arbitrator shall be chosen in accordance with AAA rules. Any award rendered
in such arbitration shall be final and may be enforced by either party.
D. Notwithstanding the foregoing, nothing in this Article shall be
construed to waive any rights or timely performance of any obligations existing
under this Agreement; provided that neither party shall be deemed to be in
default of the performance of any obligation for which dispute resolution
hereunder is triggered under Article XII. A. until such dispute is finally
resolved and the party has failed thereafter to perform such obligation (after
the expiration of any applicable grace and/or cure period).
ARTICLE XIII. TERM AND TERMINATION
A. The term of this Agreement shall commence on the Effective Date and
terminate on the date of expiration of the last expiring Patent Right.
B. CMCC may terminate this Agreement immediately upon the bankruptcy,
insolvency, liquidation, dissolution or cessation of operations of Licensee; or
the filing of any voluntary petition for bankruptcy, dissolution, liquidation or
winding-up of the affairs of Licensee; or any assignment by Licensee for the
benefit of creditors; or the filing of any involuntary petition for bankruptcy,
dissolution, liquidation or winding-up of the affairs of Licensee which is not
dismissed within ninety (90) days of the date on which it is filed or commenced.
C. CMCC may terminate this Agreement upon thirty (30) days prior written
notice in the event of Licensee's failure to pay to CMCC royalties or other
payments due and payable hereunder in a timely manner, unless Licensee shall
make all such payments to CMCC within said thirty (30) day period. Upon the
expiration of the thirty (30) day period, if Licensee shall not have made all
such payments to CMCC, the rights, privileges and licenses granted hereunder
shall terminate.
D. Except as otherwise provided in Paragraph C above, either party may
terminate this Agreement upon sixty (60) days prior written notice in the event
of breach or default by the other party of any material term or condition or
warranty contained in this Agreement, unless the other party shall cure such
breach within said sixty (60) day period. Upon the expiration of the sixty (60)
day period, if the other party shall not have cured said breach, the rights,
privileges and license granted hereunder may be terminated by such non-breaching
party.
E. Licensee shall have the right to terminate this Agreement at any time
upon three (3) months' prior written notice to CMCC, and upon payment by
Licensee of all amounts due CMCC through the effective date of termination.
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<PAGE>
F. Upon termination of this Agreement for any reason, nothing herein shall
be construed to release either party from any obligation that matured prior to
the effective date of such termination. Licensee and any Sublicensee thereof
may, however, after the effective date of such termination, sell all Licensed
Products and complete Licensed Products in the process of manufacture at the
time of such termination and sell the same, provided that Licensee shall pay to
CMCC the royalties thereon as required under this Agreement and shall submit the
reports required under this Agreement on the sales of Licensed Products.
G. Articles I, V. A. and B., VIII, XII, XII.F. and G., XIV and XV shall
survive expiration or termination of this Agreement.
ARTICLE XIV. PAYMENTS, NOTICES, AND OTHER COMMUNICATIONS
A. All payments, notices, reports and/or other communications made in
accordance with this Agreement, shall be sufficiently made or given (i) upon
delivery, if delivered personally against written receipt, (ii) three (3) days
after posting by certified mail, postage prepaid, return receipt requested,
(iii) upon confirmed receipt, if delivered by telecopier, or (iv) the next day
if delivered by a recognized overnight commercial courier, addressed in each
instance to the parties at the following addresses:
In the case of CMCC:
Director, Technology Transfer
Children's Hospital
300 Longwood Avenue
Boston, MA 02115
FAX (617) 232-7485
In the case of Licensee:
President
OraPharma, Inc.
732 Louis Drive
Warminster, PA 18974
FAX (215) 443-9531
with a copy to:
Sills Cummis Radin
Tischman Epstein & Gross, P.A.
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<PAGE>
One Riverfront Plaza
Newark, NJ 07102
Attention: Ira A. Rosenberg, Esq.
FAX (973) 643-6500
or such other address as either party shall notify the other in writing.
ARTICLE XV. GENERAL PROVISIONS
A. All rights and remedies hereunder will be cumulative and not
alternative, and this Agreement shall be construed and governed by the laws of
the Commonwealth of Massachusetts.
B. This Agreement may be amended only by written agreement signed by the
parties.
C. It is expressly agreed by the parties hereto that CMCC and Licensee are
independent contractors and nothing in this Agreement is intended to create an
employer relationship, joint venture, or partnership between the parties. No
party has the authority to bind the other.
D. This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all proposals,
negotiations and other communications between the parties, whether written or
oral, with respect to the subject matter hereof.
E. If any provisions of this Agreement shall be held to be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be impaired thereby.
F. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original as against the party whose signature appears
thereon, but all of which taken together shall constitute but one and the same
instrument.
G. The failure of either party to assert a right to which it is entitled
or to insist upon compliance with any term or condition of this Agreement shall
not constitute a waiver of that right or excuse a similar subsequent failure to
perform any such term or condition by the other party.
H. Licensee agrees to mark any Licensed Products sold in the United States
with all applicable United States patent numbers. All Licensed Products shipped
to or sold in other countries shall be marked in such a manner as to conform
with the patent laws and practices of the country of manufacture or sale.
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<PAGE>
I. Each party hereto agrees to execute, acknowledge and deliver such
further instruments and do all such further acts as may be necessary or
appropriate to carry out the purposes and intent of this Agreement.
J. The paragraph headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
last written below.
CHILDREN'S MEDICAL CENTER CORPORATION ORAPHARMA, INC.
By: /s/ William New By: /s/ Michael Kishbauch
---------------------------------- ---------------------------------
William New Name: Michael D. Kishbauch
-------------------------------
Vice President, Research Administration Title: President and CEO
------------------------------
Date: 1/20/99 Date: 1/22/99
------------------------------- ------------------------------
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<PAGE>
Appendix 1
[The confidential material contained herein has been omitted and has been
separately filed with the commission.]
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<PAGE>
Appendix 2
Licensed Products and Licensed Fields of Use
PRODUCT NAME DESCRIPTION FIELD(S) OF USE
- ------------ --------------------------------------------------
[The confidential material contained herein has been omitted and has been
separately filed with the commission.]
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<PAGE>
Appendix 3
[The confidential material contained herein has been omitted and has been
separately filed with the commission.]
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<PAGE>
Appendix 4
Filed as Item 4.11 of a Registration Statement on Form S-1, file number 333- ,
filed by OraPharma on December 30, 1999.
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<PAGE>
Exhibit 10.7
LICENSE AGREEMENT
LICENSE AGREEMENT (this "Agreement") dated as of the 14th day of December,
---------
1998 (the "Effective Date"), by and between Mucosal Therapeutics LLC, a
--------------
Massachusetts limited liability company with a principal place of business at
277 Linden Street, Suite 201, Wellesley, Massachusetts 02482 ("Mucosal"), and
-------
OraPharma, Inc., a Delaware corporation with a principal place of business at
732 Louis Drive, Warminster, Pennsylvania 18974 (the "Company").
-------
WITNESSETH:
----------
WHEREAS, Mucosal has been engaged in the development of technology relating
to methods and compositions for treating and/or preventing oral mucositis, and
owns certain patent rights and know-how with respect thereto; and
WHEREAS, the Company has as its principal business objective the
development of therapies in oral health care, and has an interest in acquiring
exclusive rights to the Mucosal Technology (as defined below); and
WHEREAS, the parties desire to enter into an agreement pursuant to which
Mucosal shall license to the Company the Mucosal Technology.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
For the purpose of this Agreement, the following words and phrases shall
have the meanings set forth below:
1.1 "Affiliate" means, with respect to any Person, any other Person that
---------
directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with such Person. For purposes hereof,
the term "control" (including, with its correlative meanings, the terms
-------
"controlled by" and "under common control with"), with respect to any Person,
------------- -------------------------
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person (whether through the
ownership of voting securities, by contract or otherwise); provided , that in
--------
each event in which any Person owns directly or indirectly more than 50% of the
securities having ordinary voting power for the election of directors or other
governing body of a corporation or more than 50% of the ownership interest of
any other Person, such Person shall be deemed to control such corporation or
other Person.
<PAGE>
1.2 "Biomodels Research Agreement" shall mean the Research and Consulting
----------------------------
Agreement dated as of the date hereof between Biomodels LLC and the Company.
1.3 "Common Stock FMV" means, with respect to the date of determination
----------------
thereof, the value of a share of the common stock of the Company, determined for
the purposes of this Agreement as follows:
(i) If the common stock of the Company is traded publicly on any
stock exchange or over-the-counter market on the date a milestone is
completed as provided in Section 3.2 hereof or a Royalty Credit Amount is
to be determined, then the Common Stock FMV shall be the last ask price at
which a share of such common stock may be purchased by a Person on the
principal stock exchange or over-the-counter market on which such common
stock may be purchased on such date.
(ii) If the common stock of the Company is not traded publicly on
any stock exchange or over-the-counter market on the date a milestone is
completed as provided in Section 3.2 hereof or a Royalty Credit Amount is
to be determined, then the Common Stock FMV shall be equal to the fair
market value of a share of the last series of preferred stock issued by the
Company and shall be determined as follows:
(a) If the Company consummates an equity financing during the
period commencing on the date that is ninety (90) days prior to, and ending
on the date that is ninety (90) days following, the completion of the
applicable milestone or determination of a Royalty Credit Amount, then the
Common Stock FMV shall be the purchase price of a share of preferred stock
of the Company issued in the last equity financing, if any, consummated
during such period.
(b) If no equity financing is consummated by the Company during
the period described in clause (a) above, then the Common Stock FMV shall
be determined by the Company's Board of Directors and Mucosal shall be
notified thereof in writing. Mucosal may, upon written notice to the
Company, appoint an independent certified public accountant or investment
banking firm (an "Independent Appraiser") reasonably acceptable to the
---------------------
Company to determine the Common Stock FMV (and the cost and expense of the
Independent Appraiser shall be shared equally by Mucosal and the Company).
If Mucosal fails to notify the Company of its election to exercise its
valuation right within thirty (30) days after its receipt of the initial
determination by the Company's Board of Directors, then the Common Stock
FMV shall be the amount as determined by the Company's Board of Directors.
If Mucosal exercises its valuation right, Mucosal shall cause the
Independent Appraiser appointed by Mucosal to provide its determination of
the Common Stock FMV in writing to the Company and Mucosal. Following
receipt of such determination, the parties shall, in good faith, attempt to
mutually agree upon the Common Stock FMV. If the parties are unable to so
agree within thirty (30) days following their receipt of such
determination, the parties shall appoint a mutually
2
<PAGE>
acceptable Independent Appraiser to determine the Common Stock FMV. In such
case, the determinations made by the Company's Board of Directors, the
Independent Appraiser appointed by Mucosal and the Independent Appraiser
jointly appointed by the parties shall be compared, and the Common Stock
FMV shall be the middle determination (and not an average thereof). Any
Independent Appraiser appointed by Mucosal or appointed jointly by Mucosal
and the Company shall be subject to an obligation of confidentiality in
favor of the Company and shall disclose to Mucosal only its determination
of the Common Stock FMV.
1.4 "Common Stock Warrant" means a common stock warrant to acquire common
--------------------
stock of the Company, to be issued by the Company as provided herein,
substantially in the form set forth in Appendix A hereto.
1.5 "Confidential Information" means any and all information (in any and
------------------------
every form and media) not generally known in the relevant trade or industry,
which was obtained from any party or any Affiliate thereof in connection with
this Agreement or the respective rights and obligations of the parties
hereunder, including, without limitation, (a) information relating to trade
secrets of such party or any Affiliate thereof, (b) information relating to
existing or contemplated products, services, technology, designs, processes,
formulae, research and development (in any and all stages) of such party or any
Affiliate thereof, (c) information consisting of or relating to the Mucosal
Technology or the Licensed Products, and (d) information relating to business
plans, methods of doing business, sales or marketing methods, customer lists,
customer usages and/or requirements and supplier information of such party or
any Affiliate thereof, except that "Confidential Information" shall not include
------ ------------------------
any information which (i) at the time of disclosure, is generally known in the
relevant trade or industry, (ii) after disclosure, becomes part of the public
knowledge (by publication or otherwise) in the relevant trade or industry other
than by breach of this Agreement by the receiving party, (iii) the receiving
party can verify by written documentation was in its possession at the time of
disclosure and which was not obtained, directly or indirectly, from the other
party or any Affiliate thereof, (iv) the receiving party can verify by written
documentation results from research and development by the receiving party or
any Affiliate thereof independent of disclosures by the other party or any
Affiliate thereof or (v) the receiving party can prove was obtained from any
Person who had the legal right to disclose such information, provided that such
--------
information was not obtained to the knowledge of the receiving party or any
Affiliate thereof by such Person, directly or indirectly, from the other party
or any Affiliate thereof on a confidential basis.
1.6 "Control" means, with respect to any Mucosal Patent Rights or Mucosal
-------
Know-How, the possession of the ability to grant a license or sublicense with
respect thereto as provided for herein.
1.7 "FDA" means the United States Food and Drug Administration or any
---
successor agency thereof.
3
<PAGE>
1.8 "Governmental Approval" means any and all approvals, licences,
---------------------
registrations or authorizations, including pricing approval, of any Federal,
State or local agency, department, bureau or other governmental entity, foreign
or domestic, necessary for the manufacture, use, storage, import, transport and
sale of the Licensed Products in any regulatory jurisdiction.
1.9 "Licensed Product" means any pharmaceutical product, or part thereof,
----------------
the manufacture, use, import, offer for sale or sale of which (i) would infringe
one of the issued, valid unexpired claims or one of the pending claims contained
in the Mucosal Patent Rights in any country or (ii) involves use of the Mucosal
Know-How.
1.10 "Mucosal Know-How" means any and all technology, manufacturing and
----------------
other know-how, technical information, inventions, discoveries, methods,
specifications and trade secrets owned at any time or Controlled by Mucosal
relating to the Mucosal Patent Rights or any research development, manufacture
or use of any Licensed Products, or any invention, discovery or development with
respect thereto (excluding any and all technology, manufacturing and other know-
how, technical information, inventions, discoveries, methods, specifications and
trade secrets owned or Controlled by any Person which becomes a successor or
permitted assignee of Mucosal hereunder and which are owned or Controlled by
such Person immediately prior to its becoming such successor or permitted
assignee).
1.11 "Mucosal Patent Rights" means all Patents (i) which have issued as of
---------------------
the date of this Agreement or which issue at any time from applications pending
as of the date of this Agreement, and which are listed in Appendix B hereto, or
(ii) which have issued or issue at any time in any foreign country and provide
corresponding or equivalent patent protection to the Patents described in the
foregoing clause (i), except for any such Patents which are not subject to this
Agreement pursuant to Section 5.1.6 hereof, (iii) which are improvements
containing one or more claims dominated by existing Patents described in the
foregoing clause (i) or (ii) which are owned or Controlled after the Effective
Date by Mucosal during the term of this Agreement, (iv) which are owned or
Controlled after the Effective Date by Mucosal during the term of this Agreement
claiming inventions necessary or useful to the development, manufacture, use or
sale of the Licensed Products (excluding all Patents owned or Controlled by any
Person which becomes a successor or permitted assignee of Mucosal hereunder and
which are owned or Controlled by such Person immediately prior to its becoming
such successor or permitted assignee), or (v) which are conceived or reduced to
practice in the course of the Biomodels Research Agreement.
1.12 "Mucosal Technology" means the Mucosal Know-How and Mucosal Patent
------------------
Rights.
1.13 "NDA" means a complete New Drug Application and all supplements
---
thereto filed with the FDA, including all documents, data and other information
concerning a Licensed Product which are necessary for, or included in, FDA
approval to market such Licensed Product as more fully defined in 21 C.F.R.
(S)314.5 et seq., as amended from time to time.
------
4
<PAGE>
1.14 "Net Sales" means gross receipts received by the Company and/or the
---------
Company's Affiliates or sublicensees for sale of the Licensed Products, less the
sum of the following (collectively, "Permitted Deductions"):
--------------------
(i) discounts and rebates allowed in amounts customary in the
trade;
(ii) sales taxes, customs and tariff duties and/or use taxes
directly imposed and with reference to particular sales;
(iii) transportation and delivery charges (including insurance
premiums related to transportation and delivery) prepaid or allowed;
(iv) amounts repaid, allowed or credited on returns;
(v) reasonable and customary commissions paid or allowed to
brokers, distributors, dealers, sales representatives and agents which are
not employees or Affiliates of the Company; and
(vi) license and sublicense fees payable to other Persons which are
not Affiliates of the Company, as described in Article III hereof.
In the event of any sale of the Licensed Products by the Company to any
Affiliate thereof for resale to its customers, "Net Sales" shall be based on the
---------
greater of the amount actually received by the Company from its Affiliate or the
amount actually received by such Affiliate from its customers for the sale of
the Licensed Products, less (in either such case) the Permitted Deductions.
----
If the Company or any of its Affiliates or sublicensees sells any Licensed
Products in combination with other items which are not Licensed Products ("Other
-----
Items") at a single invoice price, "Net Sales" for purposes of computing royalty
- ----- ---------
payments on the combination shall be determined as follows (where "selling
price" shall mean the list price of the selling entity):
(a) if all Licensed Products and Other Items contained in the
combination are available separately, "Net Sales" for purposes of
---------
computing royalty payments shall be determined by multiplying Net
Sales of the combination of the fraction A/A+B, where A is the selling
price of all Licensed Products in the combination and B is the selling
price of all Other Items in the combination;
(b) if the combination includes Other Items which are not sold
separately (but all Licensed Products contained in the combination are
available
5
<PAGE>
separately), "Net Sales" for purposes of computing royalty payments
---------
shall be determined by multiplying Net Sales of the combination by
A/C, where A is as defined above and C is the selling price of the
combination;
(c) if the combination includes Licensed Products which are
not sold separately (but all Other Items contained in the combination
are available separately), "Net Sales" for purposes of computing
---------
royalty payments shall be determined by multiplying Net Sales of the
combination by the fraction (C-B)/C, where B and C are as defined
above; and
(d) if neither the Licensed Products nor the Other Items
contained in the combination are sold separately, "Net Sales" for Purposes
---------
of computing royalty payments shall be determined by multiplying Net Sales
of the combination by the fraction D/D+E, where D is the selling entity's
cost of manufacture of all Licensed Products in the combination and E is
the selling entity's cost of manufacture of all Other Items in the
combination, all as reasonably determined by the Company using United
States generally accepted accounting principles.
1.15 "Oral Mucositis" means a condition involving the destruction of the
--------------
oral mucosa due to, among other things, the administration of cancer
chemotherapy and/or radiation therapy.
1.16 "Patent" means (i) unexpired letters patent (including inventor's
------
certificates) which have not been held invalid or unenforceable by a court of
competent jurisdiction from which no appeal can be taken or has been taken
within the required time period, including, without limitation, any
substitution, extension, registration, confirmation, reissued, re-examination,
renewal or any like filing thereof, and (ii) pending applications for letters
patent, including without limitation any continuation, division or continuation-
in-part thereof and any provisional applications, and any foreign counterparts
and all patents that issue therefrom.
1.17 "Person" means any individual, estate, trust, partnership, joint
------
venture, association, firm, corporation or company, or governmental body, agency
or official, or any other entity.
1.18 "Royalty Credit Amounts" means [the confidential material contained
------------------------
herein has been omitted and has been separately filed with the Commission] of
each of the following amounts:
(i) [the confidential material contained herein has been omitted and
has been separately filed with the Commission]
6
<PAGE>
(ii) [the confidential material contained herein has been omitted and
has been separately filed with the Commission]
For the purpose of determining Royalty Credit Amounts hereunder [the
confidential material contained herein has been omitted and has been separately
filed with the Commission]
1.19 "U.S. Dollars" and the sign "$" each means lawful currency of the
------------ -
United States of America.
SECTION 2. GRANT
2.1 Grant of License. Upon the terms and subject to the conditions herein
----------------
stated, Mucosal hereby grants the Company an exclusive, worldwide license under
the Mucosal Patent Rights and Mucosal Know-How to develop, make, use, import,
offer for sale and sell, and to have developed, made, used, imported, exported,
offered for sale and sold, the Licensed Products, with the right to grant
sublicenses, subject to Section 2.3 hereof.
2.2 Delivery of Mucosal Know-How. Mucosal shall promptly deliver to the
-----------------------------
Company originals or copies of all its records, data and documentation relating
to the Mucosal Know-How, including, without limitation, scientific data and
regulatory submissions and documentation, manufacturing processes, reagents,
expression systems, formulations and other relevant information.
2.3 Sublicenses. The Company agrees to include terms and conditions in
-----------
each sublicense agreement sufficient to enable the Company to comply with this
Agreement. The Company may select sublicensees on a commercially reasonable
basis based on the Company's good faith analysis of such sublicensee's ability
to perform and financial capability. The Company shall promptly forward to
Mucosal a copy of each executed sublicense agreement. The Company may not grant
any such sublicenses during the first one (1) year period of the term of this
Agreement without the prior written consent of Mucosal, which shall not be
unreasonably withheld. Mucosal hereby consents to the license to Biomodels
contained in Section 7.3 of the Biomodels Research Agreement.
7
<PAGE>
SECTION 3. ROYALTIES AND OTHER PAYMENTS
For the rights, privileges and licenses granted hereunder, the Company
shall pay the following amounts to Mucosal in the manner hereinafter provided
during the term of this Agreement:
3.1 Initial License Fee. The Company shall pay to Mucosal an initial
-------------------
license fee consisting of (a) $200,000 in cash, which shall be paid on the
Effective Date, and (b) Common Stock Warrants to purchase 55,000 shares of
common stock of the Company, at a price of $1.82 per share, which shall be
delivered to Mucosal within thirty (30) days following the Effective Date.
3.2 Milestone and Royalty Obligations.
---------------------------------
3.2.1 Upon completion of preclinical studies establishing, by
statistically significant data, the efficacy of Licensed Product in animals, the
Company shall pay to Mucosal $100,000 in cash and deliver Common Stock Warrants
for the purchase of 82,305 shares of the common stock of the Company at a price
of $2.43 per share.
3.2.2 Upon the completion of the Phase III clinical trials for the
initial Licensed Product, the Company shall pay to Mucosal a milestone payment,
a portion of which shall be as determined by the Company and a portion of which
shall be as determined by Mucosal, as follows:
(i) the entire portion of the milestone to be determined by the
Company shall be, at the option of the Company, either (a) $250,000 in cash
or (b) Common Stock Warrants to purchase common stock of the Company having
a Common Stock FMV at the time of completion of such milestone of $312,500,
at a price per share equal to the Common Stock FMV per share at the time of
completion of such milestone; and
(ii) the entire portion of the milestone to be determined by
Mucosal shall be, at the option of Mucosal, either (a) $250,000 in cash or
(b) Common Stock Warrants to purchase common stock of the Company having a
Common Stock FMV at the time of completion of such milestone of $250,000,
at a price per share equal to the Common Stock FMV per share at the time of
completion of such milestone.
3.2.3 Upon the final approval by the FDA of the first NDA for the
initial Licensed Product, the Company shall pay to Mucosal a milestone payment,
a portion of which shall be as determined by the Company and a portion of which
shall be as determined by Mucosal, as follows:
(i) the entire portion of the milestone to be determined by the
Company shall be, at the option of the Company, either (a) $750,000 in cash
or (b) Common Stock
8
<PAGE>
Warrants to purchase common stock of the Company having a Common Stock FMV
at the time of completion of such milestone of $937,500, at a price per
share equal to the Common Stock FMV per share at the time of completion of
such milestone; and
(ii) the entire portion of the milestone to be determined by
Mucosal shall be, at the option of Mucosal, either (a) $750,000 in cash or
(b) Common Stock Warrants to purchase common stock of the Company having a
Common Stock FMV at the time of completion of such milestone of $750,000,
at a price per share equal to the Common Stock FMV per share at the time of
completion of such milestone.
3.2.4 The Company shall pay to Mucosal royalties in the amount of [the
confidential material contained herein has been omitted and has been separately
filed with the Commission], except that the Company shall pay Mucosal the
greater of: (a) [the confidential material contained herein has been omitted and
has been separately filed with the Commission] or (b) [the confidential material
contained herein has been omitted and has been separately filed with the
Commission]. The Company shall be entitled to a credit against future royalties
otherwise payable by the Company to Mucosal hereunder in an amount equal to (x)
[the confidential material contained herein has been omitted and has been
separately filed with the Commission], and (y) the [the confidential material
contained herein has been omitted and has been separately filed with the
Commission] for the Common Stock Warrants and Preferred Stock Warrants delivered
by the Company, in each case pursuant Section 3.2 hereof; provided that such
--------
credit shall in no event reduce the royalties payable hereunder with respect to
any quarterly period below [the confidential material contained herein has been
omitted and has been separately filed with the Commission].
3.3 Limitation on Royalties. Notwithstanding anything to the contrary
-----------------------
contained herein, (a) no royalties shall be payable by the Company hereunder
with respect to [the confidential material contained herein has been omitted and
has been separately filed with the Commission] and (b) no multiple royalties
shall be payable in the event that [the confidential material contained herein
has been omitted and has been separately filed with the Commission].
3.4 Royalties to Third Persons. If the Company obtains a license under
--------------------------
any patent or other rights with a third Person in order for the Company to
develop, make, use, import, offer for sale or sell, or to have developed, made,
used, imported, offered for sale or sold, the Licensed Products, then the
Company shall be entitled to a credit against the royalty payments otherwise due
to Mucosal hereunder in an amount equal to the royalty payments and/or other
amounts payable by the Company to such third Person, provided that (a) all such
--------
credits shall not exceed
9
<PAGE>
in the aggregate [the confidential material contained herein has been omitted
and has been separately filed with the Commission] of the royalty payments
otherwise due to Mucosal hereunder and (b) the royalties payable hereunder with
respect to any quarterly period shall in no event be reduced by reason of such
credits to an amount which is less than [the confidential material contained
herein has been omitted and has been separately filed with the Commission] of
the Net Sales of the Licensed Products by the Company and its sublicensees
(other than Mucosal, its Affiliates and sublicensees) for such quarterly period.
3.5 Withholding Taxes. The parties acknowledge and agree that there may
-----------------
be deducted from any payments or royalties otherwise due and payable hereunder
any taxes or other payments required to be withheld under applicable law with
respect to such payments or royalties or otherwise relating to the Licensed
Products. The Company shall promptly submit to Mucosal any official receipt
received by the Company for such tax or other payments.
SECTION 4. PAYMENT OF ROYALTIES, ACCOUNTING FOR
ROYALTIES, RECORDS, ETC.
4.1 Payment. Royalties payable hereunder shall be paid within 30 days
-------
after the end of each calendar quarter, based on the Net Sales of the Licensed
Products by the Company and its Affiliates during the preceding calendar
quarter. Such payments shall be accompanied by a statement in reasonable detail
setting forth the number, description and calculation of Net Sales, Permitted
Deductions, royalties and applicable exchange rates of the Licensed Products.
Except as otherwise provided in Section 4.3 hereof, late payments shall be
subject to an interest charge of one and one-half percent (1 1/2%) per month
from the day such amounts were first due until paid.
4.2 Accounting; Foreign Currency. Net Sales of the Licensed Products
----------------------------
used for computing the royalties payable hereunder shall be computed in U.S.
Dollars, and all payments of such royalties shall be made in U.S. Dollars. For
purposes of determining the amount of royalties due, the amount of the Net Sales
of the Licensed Products and sublicensing revenue, if any, in any foreign
currency shall be computed by converting such amounts into U.S. Dollars at the
prevailing commercial rate of exchange for purchasing U.S. Dollars, as quoted
in The Wall Street Journal, on the last business day of the calender quarter
------------------------
with respect to which such royalty payment is payable hereunder.
4.3 Records. The Company shall keep, and shall require its Affiliates
-------
and sublicensees to keep, for five (5) years complete and accurate records of
the Net Sales of the Licensed Products sold by the Company and its Affiliates
and sublicensees in sufficient detail to allow the royalties payable by the
Company hereunder to be accurately determined. Mucosal shall have the right for
a period of five (5) years after receiving any report or statement with respect
to royalties due and payable hereunder by the Company to appoint an independent
accounting firm to inspect and audit the relevant records of the Company and its
Affiliates to verify such report or statement. The Company and its Affiliates
shall make their records available for inspection and audit by such independent
accounting firm during regular business hours at such place or places where such
records are customarily kept, upon reasonable notice to
10
<PAGE>
the Company, to the extent reasonably necessary to verify the accuracy of the
reports and payments required hereunder. The Company shall promptly pay any
shortfall, plus interest at the prime rate, as quoted in The Wall Street
---------------
Journal, from the original due date(s) to the date of payment; provided that if
- -------
it shall be determined that the Company intentionally underpaid any such
amounts, the Company shall pay interest on the portion of the shortfall which
was intentionally underpaid from the original due date(s) to the date of payment
at the rate provided in the last sentence of Section 4.1 hereof. The cost of any
such inspection and audit shall be paid by Mucosal, unless such inspection and
audit discloses for any calendar quarter examined that there shall have been a
discrepancy of greater than five percent (5%) between the royalties payable
hereunder by the relevant party and the royalties actually paid by the Company
with respect to such calendar quarter, in which case the Company shall be
responsible for the payment of the entire cost of such inspection and audit.
SECTION 5. PATENT PROSECUTION; DEVELOPMENT
5.1 Patent Prosecution and Maintenance.
----------------------------------
5.1.1 Mucosal shall diligently prosecute and maintain the Mucosal
Patent Rights listed on Appendix B in the United States using counsel of its own
choice, provided that the Company shall have no reasonable objection to such
counsel.
5.1.2 For the United States patent application listed on Appendix
B, after the Effective Date, Mucosal shall be responsible for attorneys' fees
and the Company shall be responsible for United States Patent Office fees and
other reasonable out-of-pocket expenses. After the Effective Date, the
reasonable cost of preparing, filing, prosecuting and maintaining all other
Mucosal Patent Rights including reasonable attorney's fees and out of pocket
expenses shall be borne by the Company, who shall reimburse Mucosal within
thirty (30) days of Mucosal's invoice. Mucosal shall provide the Company with
copies of all relevant documentation so that the Company may be informed and
appraised of the continuing prosecution, and the Company agrees to keep this
documentation confidential.
5.1.3 The Company shall have the right to obtain corresponding
patent protection on the U.S. Mucosal Patent Rights in foreign countries if
available and if it so desires. The Company must notify Mucosal within ten (10)
months of the filing date of the corresponding United States application of
those countries in which it desires to obtain foreign patents. The absence of
instructions in writing from the Company to Mucosal shall be considered an
election by the Company not to secure foreign patent rights.
5.1.4 The preparation, filing and prosecuting of all foreign
patent applications filed in accordance with Section 5.1.3 and the maintenance
of all resulting patents shall be at the sole expense of the Company, as
provided in Section 5.1.2. Such patents shall be held in the name of Mucosal
and shall be obtained using counsel of Mucosal's choice, provided that the
Company shall have no reasonable objection to such counsel.
11
<PAGE>
5.1.5 The Company's obligation to pay such costs and expenses for
foreign patent rights filed at its request shall continue for so long as this
Agreement remains in effect; provided, however, that the Company may terminate
its obligations with respect to any foreign patent application or patent upon
three (3) months' written notice to Mucosal. Mucosal may continue prosecution
and/or maintenance of such application(s) or patent(s) at its sole discretion
and expense; provided, however, that the Company shall have no further right or
licenses thereunder.
5.1.6 Mucosal shall have the right to file patent applications at
its own expense in any country in which the Company has not elected to secure
such rights, and such application and resultant patents shall not be subject to
this Agreement.
5.2 Development.
-----------
The Company shall have full control and authority over research,
development, registration and commercialization of the Licensed Product and all
such activity shall be undertaken at the Company's expense. The Company shall
exercise its reasonable efforts and diligence in developing and commercializing
Licensed Product and in undertaking investigations and actions required to
obtain appropriate governmental approvals to market Licensed Product, and the
Company represents and warrants that it intends to promptly develop Licensed
Product, and thereafter to seek approval to sell and market a Licensed Product.
In addition: (i) the Company shall enter into the Biomodels Research Agreement
and shall remain in compliance with the Biomodels Research Agreement and make
all payments thereunder; (ii) should the Company fail to complete preclinical
trials, in a manner sufficient to trigger the milestone payment in Section
3.2.1, on or before December 31, 2000 due to the Company's failure to exercise
commercially reasonable efforts to accomplish such milestone by such date; or
(iii) should there fail to be an NDA approval of a Licensed Product in a manner
sufficient to trigger the milestone payment in Section 3.2.3 on or before
December 31, 2007 due to the Company's failure to exercise commercially
reasonable efforts to accomplish such milestone by such date; then Mucosal shall
have the right to terminate this Agreement under Section 12.2.
The Company shall keep Mucosal informed of progress of the Company's
efforts to develop and commercialize Licensed Product. Mucosal shall have the
right to contact a representative of the Company periodically by telephone to
discuss the Company's progress with the development of a Licensed Product and
sales of such Licensed Product once launched. The Company shall designate an
appropriate employee as a contact person for Mucosal, and such employee shall be
familiar with the details and progress of the Company's development and
marketing program relating to Licensed Product, and shall be instructed to
respond to reasonable inquiries made by Mucosal. In addition, on or before
March 1 of each year after the Effective Date until the Company launches a
Licensed Product, the Company shall make a written annual summary report to
Mucosal covering the preceding year ending December 31, regarding the progress
of the Company toward commercial use of Licensed Products. Such report shall
include, as a minimum, information sufficient to enable Mucosal to ascertain
progress by the
12
<PAGE>
Company towards the development and commercial sale of Licensed Products. All
information disclosed by the Company to Mucosal under this provision shall be
deemed the Confidential Information of the Company.
SECTION 6. REPRESENTATIONS AND WARRANTIES
6.1 By the Company. The Company hereby represents and warrants to
--------------
Mucosal that, as of the Effective Date: (a) the Company has full legal right,
power and authority to execute, deliver and perform its obligations under this
Agreement, (b) the execution, delivery and performance by the Company of this
Agreement do not contravene or constitute a default under any provision of
applicable law or its certificate of incorporation or by-laws (or equivalent
documents) or of any agreement, judgment, injunction, order, decree or other
instrument binding upon the Company, except that as of the Effective Date the
Company has not authorized any shares of common stock of the Company which may
be covered by Common Stock Warrants which may be issued pursuant to Section
3.2.2 or 3.2.3 hereof, (c) all licenses, consents, authorizations and approvals,
if any, required for the execution, delivery and performance by the Company of
this Agreement have been obtained and are in full force and effect and all
conditions thereof have been complied with, and no other action by or with
respect to, or filing with, any governmental authority or any other Person is
required in connection with the execution, delivery and performance by the
Company of this Agreement, except that as of the Effective Date the Company has
not authorized any shares of common stock of the Company which may be covered by
Common Stock Warrants which may be issued pursuant to Section 3.2.2 or 3.2.3
hereof, and (d) this Agreement constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms. The
Company agrees that, if and when Common Stock Warrants are to be issued as a
part of a milestone payment pursuant to Section 3.2.2 or 3.2.3 hereof, the
Company will duly authorize the shares of common stock to be covered by such
Common Stock Warrants.
6.2 By Mucosal. Mucosal hereby represents and warrants to the Company
----------
that, as of the Effective Date: (a) Mucosal has full legal right, power and
authority to execute, deliver and perform its obligations under this Agreement,
(b) the execution, delivery and performance by Mucosal of this Agreement do not
contravene or constitute a default under any provision of applicable law or of
its articles of incorporation or by-laws (or equivalent documents) or of any
agreement, judgment, injunction, order, decree or other instrument binding upon
Mucosal, (c) all licenses, consents, authorizations and approvals, if any,
required for the execution, delivery and performance by Mucosal of this
Agreement have been obtained and are in full force and effect and all conditions
thereof have been complied with, and no other action by or with respect to, or
filing with, any governmental authority or any other Person is required in
connection with the execution, delivery and performance by Mucosal of this
Agreement, (d) Mucosal is the exclusive owner of all legal and beneficial right,
title and interest in and to the Mucosal Patent Rights and the Mucosal Know-How,
free and clear of any lien, claim or encumbrance or rights of any other Person,
(e) to the best knowledge of Mucosal, the practice of the Mucosal Patent Rights
and/or the Mucosal Know-How as contemplated by Section 2.1 hereof does not
infringe or violate any
13
<PAGE>
United States patent or other right of any Person, and Mucosal has no actual
knowledge that such practice infringes or violates any foreign patent or other
foreign right of any other Person, and (f) this Agreement constitutes a valid
and binding agreement of Mucosal, enforceable against Mucosal in accordance with
its terms.
6.3 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties contained herein shall survive the execution, delivery and
performance of this Agreement by the parties, notwithstanding any investigation
at any time made by or on behalf of any party or parties.
SECTION 7. INFRINGEMENT AND INDEMNIFICATION
7.1 Infringement Claims.
-------------------
(a) In the event that Mucosal or the Company becomes aware of actual
or threatened infringement of a Mucosal Patent Right, that party shall promptly
notify the other party in writing. The Company shall have the first right, but
not the obligation, to bring, at its own expense, an infringement action against
any third Person infringing the Mucosal Patent Rights and to use Mucosal's name
in connection therewith and to name Mucosal as a party thereto, without expense
to Mucosal. In the event that the Company has exercised its right to bring an
action, the Company shall be responsible for defending against any counterclaims
alleging invalidity or unenforceability of a Mucosal Patent Right, and for
prosecuting the action through to settlement or other final disposition. If the
Company does not commence a particular infringement action within ninety (90)
days of receipt of the notice of infringement, then Mucosal, after notifying the
Company in writing, shall have the right, but not the obligation, to bring such
infringement action at its own expense, and at its option to join the Company as
a party plaintiff without expense to the Company, and Mucosal shall be
responsible for defending against any counterclaims alleging invalidity or
unenforceability of a Mucosal Patent Right. The party conducting such action
shall have full control over its conduct, including settlement thereof subject
to Section 7.1(d). In any event, Mucosal and the Company shall provide
reasonable assistance to one another and shall reasonably cooperate in any such
litigation at the expense of the requesting party. The Company shall reimburse
Mucosal for any out-of-pocket costs it incurs at the Company's request as part
of an action brought by the Company irrespective of whether Mucosal shall become
a co-party, excluding fees of independent counsel, if any, retained by Mucosal.
Mucosal shall reimburse the Company for any out-of-pocket costs it incurs at
Mucosal's request as part of an action brought by Mucosal irrespective of
whether the Company shall become a co-party, excluding fees of independent
counsel, if any, retained by the Company. Mucosal and the Company shall recover
their respective actual out-of-pocket expenses, or equitable proportions
thereof, associated with any litigation or settlement thereof from any recovery
made by any party. Any excess amount shall be shared [equally] between the
Company and Mucosal, provided if the Company brings such action at its own
expense, Mucosal's share of the excess amount shall not exceed the royalties
which would otherwise be due Mucosal for the
14
<PAGE>
sales of Licensed Products that were the subject of the litigation had such
sales been made by the Company or its Affiliates under this Agreement.
(b) In the event of the institution of any suit by a third Person,
against Mucosal, the Company or their Affiliates or sublicensees for patent
infringement involving the Mucosal Patent Rights in the field of Oral Mucositis,
the party sued shall promptly notify the other party in writing. The Company
shall have the right, but not the obligation, to defend such suit at its own
expense. Mucosal shall provide reasonable assistance to the Company and
reasonably cooperate in any such litigation at the Company's request, and the
Company shall reimburse Mucosal for its reasonable out-of-pocket expenses
incurred with respect to the provision of such assistance, excluding fees of
independent counsel, if any, retained by Mucosal.
(c) In the event that any third Person (other than an Affiliate or
sublicensee) initiates any legal or administrative proceeding in any country
challenging the validity, scope or enforceability of a Mucosal Patent Right
which, if successful, would result in a loss of one or more claims of existing
Mucosal Patent Rights with respect to any Licensed Product in the field of Oral
Mucositis and, as a result of such loss, the Mucosal Patent Rights would no
longer offer substantial protection to such Licensed Products in such country,
and the Company exercises its rights pursuant to Section 7.1(a) or (b) to defend
or enforce the Mucosal Patent Rights, then [the confidential material contained
herein has been omitted and has been separately filed with the Commission] of
the Company's royalty obligation in Section 3.2.4 that shall be based on such
Patent during the pendency of defense or enforcement in the proceeding shall be
held in an interest bearing escrow account by the Company until a final decision
shall be rendered by a court or administrative tribunal of competent
jurisdiction from which no appeal can be or is taken, provided that:
(i) If the enforceability of all material claims in such Patent
claiming the Licensed Product is upheld by a court or other legal or
administrative tribunal from which no appeal is or can be taken, then the amount
of royalties owed under Section 3.2.4 but withheld during the period of escrow,
plus all accrued interest, shall be promptly paid to Mucosal; or
(ii) If one or more claims in such Patent covering Licensed
Product are held to be invalid or otherwise unenforceable by a court or other
legal or administrative tribunal in any country from which no appeal is or can
be taken or the scope thereof is modified and, as a result, such Patent no
longer offers substantial protection to Licensed Product in such country, then
the amount of royalties which would have been withheld during the period of
escrow shall not be owed to Mucosal; the Company shall be entitled to all
payments and accrued interest in the escrow account; and the royalties otherwise
payable to Mucosal hereunder shall be abated in their entirety with respect to
Net Sales of Licensed Product in the country in which such claims were so held
invalid or unenforceable or so modified.
15
<PAGE>
(d) The parties shall keep one another informed of the status of and
of their respective activities regarding any litigation or settlement thereof
concerning the Mucosal Patent Rights or Licensed Product, provided however that
no settlement or consent judgment or other voluntary final disposition of any
suit defended or action brought by a party pursuant to this Section 7.1 may be
entered into without the consent of the other party, if such settlement would
require the other party to be subject to an injunction or to make a monetary
payment or would materially affect the scope of coverage of the claims of, or
the enforceability or validity of a Mucosal Patent Right, or would otherwise
adversely affect the other party's rights under this Agreement, such consent not
to be unreasonably withheld.
7.2 Indemnification.
---------------
7.2.1 Indemnification by the Company.
------------------------------
(a) The Company hereby agrees that it shall be responsible for,
indemnify, hold harmless and defend Mucosal and Mucosal's Affiliates, Brigham
and Women's Hospital Inc. and their respective directors, officers, managing
members, shareholders, partners, attorneys, accountants, agents, employees and
consultants, and their respective heirs, successors and assigns (collectively,
the "Mucosal Indemnitees"), from and against any and all claims, demands,
-------------------
losses, liabilities, damages, costs and expenses (including the cost of
settlement, reasonable legal and accounting fees and any other expenses for
investigating or defending any actions or threatened actions) (collectively,
"Losses") suffered or incurred by any Mucosal Indemnitee arising out of,
- -------
relating to, resulting from or in connection with (a) the breach of any
representation or warranty made by the Company herein, (b) the default by the
Company in the performance or observance of any of its obligations to be
performed or observed hereunder, and (c) any action, suit or other proceeding,
or compromise, settlement or judgment, relating to any of the foregoing matters
with respect to which the Mucosal Indemnitees are entitled to indemnification
hereunder. The foregoing shall not apply to the extent that such Losses are due
to the willful misconduct or negligence of any Mucosal Indemnitee as finally
determined by a court of competent jurisdiction.
(b) The Company shall indemnify, defend and hold harmless the Mucosal
Indemnitees from and against any and all Losses suffered or incurred by any
Mucosal Indemnitee, arising out of, relating to, resulting from or in connection
with any claims, suits, actions, demands or judgments arising out of any theory
of product liability (including, but not limited to, actions in form of tort,
warranty, or strict liability) concerning any Licensed Product made, used or
sold pursuant to any right or license granted under this Agreement. The
Company's indemnification obligation under the preceding sentence shall not
apply to any Losses to the extent attributable to the negligence or willful
misconduct of the Indemnitees as finally determined by a court of competent
jurisdiction. The Company's liability for indemnification with respect to
Losses under this Section 7.2.1(b) shall in no event exceed the amount of
insurance coverage required to be maintained by the Company with respect
thereto. Beginning at the time any Licensed Product is being commercially
distributed or sold (other than
16
<PAGE>
for the purpose of obtaining regulatory approvals) by the Company or by an
Affiliate, sublicensee or agent of the Company, the Company shall, at its sole
cost and expense, obtain and/or maintain, at its sole cost and expense, product
liability insurance and contractual liability coverage, in amounts,
respectively, which are reasonable and customary in the U.S. pharmaceutical
industry for companies of comparable size and activities, with a minimum of ten
million U.S. dollars (U.S. $10,000,000) per occurrence (or claim) and annual
aggregate limit of liability. Such product liability insurance shall insure
against personal injury, physical injury, or property damage arising out of the
manufacture, sale, distribution, or marketing of Licensed Product and shall name
Mucosal as an additional named insured. During clinical trials of any Licensed
Product, the Company, at its sole cost and expense, shall procure and maintain
product liability insurance in such equal or lesser amount as Mucosal shall
require, naming Mucosal as an additional insured.
(c) The Company shall provide Mucosal with written evidence of such
insurance or such self insurance program upon request of Mucosal. The Company
shall provide Mucosal with written notice at least fifteen (15) days prior to
the cancellation, non-renewal or material change in such insurance; if the
Company does not obtain replacement insurance providing reasonably comparable
coverage within such fifteen (15) day period, Mucosal shall have the right to
terminate this Agreement effective at the end of such fifteen (15) day period
without notice or any additional waiting periods.
(d) The Company shall maintain such comprehensive general liability
and product liability insurance, either through a commercial provider or a
comparable self insurance program, beyond the expiration or termination of this
Agreement during (i) the period that any product, process, or service, relating
to, or developed pursuant to, this Agreement is being commercially distributed
or sold by the Company or by the sublicensee, Affiliate or agent of the Company
and (ii) a reasonable period after the period referred to in (d)(i) above which
in no event shall be less than five (5) years.
7.2.2 Indemnification by Mucosal. Mucosal hereby agrees that it
--------------------------
shall be responsible for, indemnify, hold harmless and defend the Company and
the Company's Affiliates, and their respective directors, officers, managing
members, shareholders, partners, attorneys, accountants, agents, employees and
consultants, and their respective heirs, successors and assigns (collectively,
the "Company Indemnitees"), from and against any and all Losses suffered or
-------------------
incurred by any Company Indemnitee arising out of, relating to, resulting from
or in connection with (a) the breach of any representation or warranty made by
Mucosal herein, (b) the default by Mucosal in the performance or observance of
any of its obligations to be performed or observed hereunder, and (c) any
action, suit or other proceeding, or compromise, settlement or judgment,
relating to any of the foregoing matters with respect to which the Company
Indemnitees are entitled to indemnification hereunder. The foregoing shall not
apply to the extent that such Losses are due to the willful misconduct or
negligence of any Company Indemnitee as finally determined by a court of
competent jurisdiction.
7.2.3 Notice of Claims. In the event that a claim is made
----------------
pursuant to
17
<PAGE>
Section 7.2.1 or 7.2.2 above against any party which seeks indemnification
hereunder (the "Indemnitee"), the Indemnitee agrees to promptly notify the other
----------
party (the "Indemnitor") of such claim or action and, in the case of any claim
----------
by a third Person against the Indemnitee, the Indemnitor may, at its option,
elect to assume control of the defense of such claim or action; provided,
however, that (a) the Indemnitee shall be entitled to participate therein
(through counsel of its own choosing) at the Indemnitee's sole cost and expense,
(b) the Indemnitor shall not settle or compromise any such claim or action
without the prior written consent of the Indemnitee, unless such settlement or
compromise includes a general release of the Indemnitee and all of the other
Mucosal Indemnitees or Company Indemnitees, as the case may be, from any and all
liability with respect thereto and (c) the Indemnitee shall cooperate with the
Indemnitor in the defense of such claim or action.
SECTION 8. CONFIDENTIALITY
8.1 The parties each recognize that the Confidential Information of the
party and any and all Affiliates thereof constitutes valuable confidential and
proprietary information. Accordingly, the parties each agree that they and their
respective Affiliates shall, during the term of this Agreement and for a period
of fifteen (15) years after the termination hereof for any reason, hold in
confidence all Confidential Information of the other party (including this
Agreement and the terms hereof) and not use the same for any purpose other than
as set forth in this Agreement nor disclose the same to any other Person except
------
to the extent that it is necessary for such party to enforce its rights under
this Agreement or if required by law or any governmental authority (including,
without limitation, any stock exchange upon which such party's shares or other
equity securities may be traded); provided, however, if any party shall be
-------- -------
required by law to disclose any such Confidential Information to any other
Person, such party shall give prompt written notice thereof to the other party
and shall minimize such disclosure to the amount required. Notwithstanding the
foregoing, either party may disclose Confidential Information of the other (a)
to such party's attorneys, accountants and other professional advisors under an
obligation of confidentiality to such party, (b) to such party's banks or other
financial institutions or venture capital sources for the purpose of raising
capital or borrowing money or maintaining compliance with agreements,
arrangements and understandings relating thereto, and (c) to any Person who
proposes to purchase or otherwise succeed (by merger, operation of law or
otherwise) to all of such party's right, title and interest in, to and under
this Agreement, if such Person agrees to maintain the confidentiality of such
Confidential Information pursuant to a written agreement in form and substance
reasonably satisfactory to the parties. The standard of care required to be
observed hereunder shall be not less than the degree of care which each party or
Affiliate thereof uses to protect its own information of a confidential nature.
SECTION 9. INTELLECTUAL PROPERTY; IMPROVEMENTS
9.1 Rights to Proprietary Technology. Neither party shall through this
--------------------------------
Agreement obtain any rights to the other party's proprietary technology except
for such rights as are expressly granted or allocated under this Agreement.
18
<PAGE>
9.2 Improvements. Any improvement to the Mucosal Technology discovered
------------
or developed by any party during the term of this Agreement shall be owned
solely by Mucosal and shall be automatically included within the Mucosal
Technology licensed to the Company hereunder; provided that, in the event that
--------
the Company does not elect to practice or use such improvement by written notice
to Mucosal within [six (6)] months after receipt of notice of such improvement
from Mucosal, the Company shall have no further right or license to such
improvement hereunder. Mucosal agrees to give the Company prompt written notice
of any improvement to the Mucosal Technology discovered or developed by Mucosal
during the term of this Agreement.
SECTION 10. LIMITATIONS ON LIABILITY
10.1 No Warranties. Except as expressly set forth in Section 6 hereof,
-------------
neither party makes any representations or warranties as to any matter
whatsoever. EACH PARTY HEREBY DISCLAIMS ANY AND ALL OTHER REPRESENTATIONS AND
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE MUCOSAL TECHNOLOGY AND THE
LICENSED PRODUCTS, INCLUDING , WITHOUT LIMITATION, ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
10.2 Limitations of Liability. EXCEPT FOR BREACH OF SECTION 8 HEREOF,
------------------------
UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY
OTHER PERSON FOR ANY LOSS OF PROFITS OR SPECIAL, CONSEQUENTIAL OR INDIRECT
DAMAGES OF ANY KIND WHATSOEVER.
10.3 Force Majeure. No party shall be liable for failure or delay in
-------------
performing any of its obligations hereunder if such failure or delay is
occasioned by compliance with any governmental regulation, request or order, or
by circumstances beyond the reasonable control of the party so failing or
delaying, including, without limitation, Acts of God, war, insurrection, fire,
flood, accident, labor strikes, work stoppage or slowdown (whether or not such
labor event is within the reasonable control of the parties), or inability to
obtain raw materials, supplies, power or equipment necessary to enable such
party to perform its obligations hereunder. Each party shall (a) promptly
notify the other party in writing of any such event of force majeure, the
expected duration thereof and its anticipated effect on the ability of such
party to perform its obligations hereunder, and (b) make reasonable efforts to
remedy any such event of force majeure.
19
<PAGE>
SECTION 11. NON -USE OF NAMES
Neither party shall use the name of the other party nor the name of any
Affiliates, managers, directors, officers, partners, shareholders, members,
consultants or employees of such other party, nor any adaptation thereof, in any
advertising, promotional or sales literature without prior written consent
obtained from such other party in each case (which consent shall not be
unreasonably withheld or delayed).
SECTION 12. TERM AND TERMINATION
12.1 Term. This Agreement shall be effective from the Effective Date
----
and, unless sooner terminated in accordance with the provisions of this Section
12, shall continue until the later to occur of (i) 20 years from the date of
this Agreement or (ii) the last to expire of any Patent included within the
Mucosal Patent Rights.
12.2 Events of Default. Each party shall have the right to terminate
-----------------
this Agreement upon the occurrence of any of the following events (each, an
"Event of Default") with respect to the other party (the "Defaulting Party"):
- ----------------- ----------------
(a) a decree or order shall have been entered by a court of competent
jurisdiction adjudging the Defaulting Party bankrupt or insolvent, or approving
as properly filed a petition seeking reorganization, readjustment, arrangement,
composition or similar relief for the Defaulting Party under any bankruptcy law
or any other similar applicable statute, law or regulation, or a decree or order
of a court of competent jurisdiction shall have been entered for the appointment
of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency
of the Defaulting Party or a substantial part of its property, or for the
winding up or liquidation of its affairs; or (b) the Defaulting Party shall
institute proceedings to be adjudicated a voluntary bankrupt, or shall consent
to the filing of a bankruptcy petition against it, or shall file a petition or
answer or consent seeking reorganization, readjustment, arrangement,
composition, liquidation or similar relief under any bankruptcy law or any other
similar applicable statute, law or regulation, or shall consent to the
appointment of a receiver or liquidator or trustee or assignee in bankruptcy or
insolvency of it or of a substantial part of its property, or shall make an
assignment for the benefit of creditors, or shall be unable to pay its debts
generally as they become due; or (c) the Defaulting Party shall commit a
material breach of the terms of this Agreement and the same and all of its
effects shall not be remedied within ninety (90) days after written notice
thereof is given by the other party to the Defaulting Party, except that the
remedial period shall be thirty (30) days for any monetary default. The failure
by the Company to pay Mucosal any royalties or other payments when due and
payable in accordance with the provisions of Section 3 hereof shall be deemed a
material breach of this Agreement.
12.3 Termination. Each party may terminate this Agreement upon the
-----------
occurrence of any Event of Default by giving written notice thereof to the other
party, which notice shall specifically identify the reason(s) for such
termination. If the Company shall terminate this Agreement by notice based on
an Event of Default by Mucosal, the Biomodels Research
20
<PAGE>
Agreement will automatically terminate in accordance with the provisions
thereof, termination of both Agreements to be effective immediately on such
notice. In addition, (i) the Company may terminate this Agreement at any time by
giving at least ninety (90) days' prior written notice to Mucosal, (ii) if the
Company shall exercise its rights under the Biomodels Research Agreement to
terminate because of an event of default thereunder by Biomodels, the Company
shall also have the right to terminate this Agreement by notice to Mucosal at
the same time, and, if such notice is given, termination of both Agreements
shall be effective immediately on such notice; (iii) if the Company shall
exercise its rights under the Biomodels Research Agreement to terminate
unilaterally on ninety (90) days' notice, this Agreement shall automatically
terminate, termination of both Agreements to be effective as of ninety (90) days
after such notice by the Company; and (iv) if Biomodels shall exercise its
rights under the Biomodels Research Agreement to terminate because of an event
of default thereunder by the Company, this Agreement shall automatically
terminate as of the effective date of termination of the Biomodels Research
Agreement.
12.4 Consequences of Termination. Upon the termination of this Agreement
---------------------------
for any reason other than (a) an Event of Default with respect to Mucosal, or
(b) termination of one or both of the Other Agreements by reason of a default
by Biomodels LLC thereunder, all rights, privileges and licenses granted by
Mucosal to the Company hereunder, including the Mucosal Patent Rights, shall
revert to Mucosal. The termination of this Agreement for any reason shall be
without prejudice to (i) the right of each party to receive all amounts accrued
under Section 3 hereof prior to the effective date of such termination, (ii) the
rights and obligations of the parties pursuant to Sections 1, 4.3, 7.2, 8, 10,
12.4 and 13 hereof, and (iii) any other remedies as may now or hereafter be
available to any party, whether under this Agreement or otherwise. Upon the
termination of this Agreement (a) the Company and its Affiliates and
sublicensees shall immediately discontinue the manufacture, use and sale of the
Licensed Products, and (b) each party and its Affiliates shall immediately cease
the use of all Confidential Information obtained from the other party or any
Affiliate thereof.
SECTION 13. MISCELLANEOUS
13.1 Notices. All payments in the form of Warrants, notices, reports
-------
and/or other communications made in accordance with this Agreement, shall be
deemed to be duly made or given (i) when delivered by hand, (ii) three days
after being mailed by registered or certified mail (air mail if mailed
overseas), return receipt requested, or (iii) when received by the addressee, if
sent by facsimile transmission or by Express Mail, Federal Express or other
express delivery service (receipt requested), in each case addressed to such
party at its address set forth below (or to such other address as such party may
hereafter designate as to itself by notice to the other party hereto):
21
<PAGE>
In the case of the Company:
OraPharma, Inc.
732 Louis Drive
Warminster, Pennsylvania 18974
Attention: President
Telecopier: (215) 443-9531
With a copy to:
Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Ira A. Rosenberg, Esq.
Telecopier: (973) 643-6500
In the case of Mucosal:
Mucosal Therapeutics LLC
227 Linden Street, Suite 201
Wellesley, Massachusetts 02482
Attention: Manager
Telecopier: (781) 235-3811
With a copy to:
Testa, Hurwitz & Thibault LLP
High Street Tower
125 High Street
Boston, Massachusetts 02110
Attention: B. Jean Weidemier, Esq.
Telecopier: (617) 248-7100
13.2 Amendments, etc.. This Agreement may not be amended or modified,
----------------
nor may any right or remedy of any party be waived, unless the same is in
writing and signed by such party or a duly authorized representative of such
party. The waiver by any party of the breach of any term or provision hereof by
any other party shall not be construed as a waiver of any other subsequent
breach.
13.3 No Waiver; Remedies. No failure or delay by any party in
-------------------
exercising any of its rights or remedies hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or remedy
preclude any other or further exercise thereof or the exercise
22
<PAGE>
of any other right or remedy. The rights and remedies of the parties provided in
this Agreement are cumulative and not exclusive of any rights or remedies
provided by law.
13.4 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their respective heirs, legal
representatives, successors and permitted assigns; provided that, except as
--------
expressly provided herein, neither party may assign or otherwise transfer this
Agreement or any of its rights, duties or obligations hereunder without the
prior written consent of the other party.
13.5 Relationship of Parties. The Company and Mucosal are not (and
-----------------------
nothing in this Agreement shall be construed to constitute them) partners, joint
venturers, agents, representatives or employees of the other party, nor to
create any relationships between them other than that of an independent
contractor. Neither party shall have any responsibility or liability for the
actions of the other party except as specifically provided herein. Neither
party shall have any right or authority to bind or obligate the other party in
any manner or make any representation or warranty on behalf of the other party.
13.6 Expenses. Unless otherwise provided herein, all costs and expenses
--------
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party which shall have incurred the same and the
other party shall have no liability relating thereto.
13.7 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties and supersedes all prior proposals, communications,
representations and agreements, whether oral or written, with respect to the
subject matter hereof.
13.8 Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions hereof in any other jurisdiction.
13.9 Counterparts. This Agreement may be signed in any number of
------------
counterparts, each of which shall be deemed an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
13.10 Headings. The headings used in this Agreement are for convenience
--------
of reference only and shall not affect the meaning or construction of this
Agreement.
13.11 Governing Law. This Agreement, including the performance and
-------------
enforceability hereof, shall be governed by and construed in accordance with the
laws of the State of New York, without reference to choice of law doctrine.
Each party hereby submits itself for the sole purpose of this Agreement and any
controversy arising hereunder to the jurisdiction of the courts
23
<PAGE>
located in the State of New York and any courts of appeal therefrom, and waives
any objection (on the grounds of lack of jurisdiction, or forum non conveniens
----- --- ----------
or otherwise) to the exercise of such jurisdiction over it by any such courts.
13.12 Arbitration. Except as expressly provided herein, any dispute,
-----------
controversy or claim arising out of or relating to this Agreement, its validity,
construction or enforceability or the breach of any of the terms or provisions
hereof shall be settled by arbitration under the American Arbitration
Association by a panel of three arbitrators, one selected by each party and the
third selected by the other two arbitrators. Any arbitration proceeding
commenced by either party shall be held in the New York City, New York
metropolitan area (including northern New Jersey). The decision of the
arbitrators shall be final and binding upon the parties and judgment upon the
decision by the arbitrators may be entered in any court of competent
jurisdiction, and execution may be had thereon. The expense of such
arbitration, including attorneys' fees, shall be allocated between the parties
as the arbitrators may decide and as the claims and interests of each party may
prevail. Notwithstanding anything to the contrary contained in this Section
13.12, any dispute, controversy or claim relating to actual or threatened
unauthorized use or disclosure of any Confidential Information, or the validity,
applicability, enforceability or infringement of any patent rights, shall not be
required to be submitted to arbitration hereunder and shall be resolved by a
court of competent jurisdiction and, in addition, each party shall retain the
right to seek injunctive or other temporary relief from a court of competent
jurisdiction.
13.13 Patent Marking. The Company agrees that all packaging containing
----- --------------
Licensed Product in the form sold by the Company, any Affiliate, or a
sublicensee shall be marked with the number of the applicable Mucosal Patent
Rights licensed hereunder in accordance with 35 U.S.C.(S)287.
13.14 Export Control. The Company acknowledges that it is subject to
--------------
United States laws and regulations controlling the export of technical data,
computer software and other commodities and agrees not to export or allow the
export or re-export of such data, software or other commodities in violation of
such laws and regulations.
13.15 Compliance with Laws. In performing this Agreement each party
--------------------
hereto agrees to comply with all applicable laws, rules, regulations and
policies and to obtain any governmental approvals, permits or licenses required
to perform its obligations under this Agreement.
24
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
MUCOSAL THERAPEUTICS LLC
By: [signature illegible]
-------------------------------
Manager
ORAPHARMA, INC.
By: /s/ Michael Kishbauch
-------------------------------
President/CEO
25
<PAGE>
Appendix A
----------
THIS WARRANT AND THE SECURITIES TO BE ISSUED UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS
OF ANY STATE AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS REGISTERED PURSUANT TO SUCH ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
ORAPHARMA, INC.
STOCK WARRANT AGREEMENT
-----------------------
GRANTEE: Mucosal Therapeutics LLC
DATE OF GRANT:
NUMBER OF SHARES:
EXERCISE PRICE: $___ per share
EXPIRATION DATE: [____ years from issuance]
----------------- --------------------------
Pursuant to the License Agreement dated as of _________, 1998 (the "License
-------
Agreement") by and between Mucosal Therapeutics LLC ("Mucosal") and OraPharma,
- --------- -------
Inc. (the "Company"), the Company has agreed to grant to Mucosal, as of the Date
-------
of Grant set forth above, a warrant (the "Warrant") to purchase up to the
-------
aggregate number of shares of Common Stock, par value $.001 per share (the
"Common Stock"), of the Company set forth herein at the price per share set
- -------------
forth herein, all upon the terms and conditions hereof. This Stock Warrant
Agreement is hereinafter referred to as either the "Agreement" or this
"Warrant".
TERMS AND CONDITIONS
--------------------
1. Grant and Exercise of Warrant. (a) The Company hereby grants to
-----------------------------
Mucosal, and Mucosal is entitled, upon the terms and subject to the conditions
hereinafter set forth, to purchase, from the Company, _____ shares of the
Company's Common Stock (the "Warrant Shares") at a purchase price of $______ per
--------------
share (the "Exercise Price"). This Warrant shall be fully vested as of the date
--------------
hereof. This Warrant may not be exercised after the Expiration Date set forth
above.
26
<PAGE>
(b) This Warrant may not be exercised at a time when the exercise
thereof or the issuance or transfer of shares upon such exercise would, in the
opinion of the Board of Directors of the Company, constitute a violation of any
law, federal, state, local or foreign, or any regulations thereunder, or the
requirements of the New York Stock Exchange or any other national securities
exchange or market.
2. Procedure for Exercise. (a) This Warrant may be exercised, in whole
----------------------
or part, by Mucosal by delivering a written notice (the "Notice") to the
------
Secretary of the Company. This Warrant may not be exercised for any fractional
share. The Notice shall (i) state that Mucosal elects to exercise the Warrant;
(ii) state the number of Warrant Shares with respect to which the Warrant is
being exercised; and (iii) include the reaffirmation of the representations and
warranties of Mucosal set forth in Section 3 below.
(b) Payment of the aggregate Exercise Price for such Warrant Shares
shall be made in cash or by certified check payable to the Company in an amount
equal to the aggregate Exercise Price of the Warrant Shares with respect to
which this Warrant is being exercised.
(c) The Company shall issue a stock certificate in the name of Mucosal
for such Warrant Shares as soon as practicable after receipt of the Notice and
payment of the aggregate Exercise Price for such Warrant Shares. Mucosal shall
not have any privileges as a stockholder of the Company with respect to any
Warrant Shares until such Warrant Shares shall be registered on the books of the
Company in the name of Mucosal.
3. Representations and Warranties. Mucosal acknowledges, represents and
------------------------------
warrants to the Company as follows:
(a) In connection with its exercise of the Warrant, it will consult
with such independent legal counsel or other advisors considered appropriate to
it to assist it in evaluating its proposed investment in the Company. Without
limiting the foregoing, Mucosal acknowledges that there may be certain adverse
tax consequences to it in connection with its exercise of the Warrant and the
Company has advised Mucosal to seek the advice of experts in such areas prior to
exercising the Warrant.
(b) Mucosal shall own the Warrant, and shall purchase the Warrant
Shares, for its own account for investment, and not with a view to or for resale
in connection with the distribution thereof, nor with any present intention of
selling or otherwise disposing of all or any part of the Warrant or Warrant
Shares. Mucosal agrees that it must bear the economic risk of its investment
for an indefinite period of time because, among other reasons, any Warrant
Shares purchased by it upon exercise of the Warrant may not be registered under
the Securities Act of 1933, as amended (the "Act") or under the securities laws
---
of certain states and, therefore, cannot be Transferred unless they are
subsequently registered under the Act and under applicable securities laws of
such states or an exemption from such registration is
27
<PAGE>
available. Mucosal understands that the Company is under no obligation to
register this Warrant and/or the Warrant Shares on Mucosal's behalf or to assist
it in complying with any exemption from such registration under the Act or any
state securities laws. Furthermore, Mucosal hereby acknowledges and agrees that
it will not Transfer, either publicly or privately, the Warrant or the Warrant
Shares without registration thereof under the Act or an exemption therefrom. For
purposes of this Agreement, the term "Transfer" means to directly or indirectly
--------
sell, assign, transfer, pledge (other than a pledge to the Company), hypothecate
or to otherwise encumber or dispose of any record or beneficial ownership of the
Warrant or Warrant Shares (or contract to do any of the foregoing).
(c) Mucosal understands that the Warrant and the Warrant Shares are
speculative investments which involve a high degree of risk of loss of its
entire investment in the Company. Mucosal can afford (i) to hold unregistered
securities for an indefinite period of time; and (ii) to sustain a complete loss
of the entire amount of its investment in the Company and, at the same time,
bear any tax liability which may result if its investment in the Company is
lost. Mucosal has determined that the Warrant (and, upon exercise of the
Warrant, will determine with respect to the Warrant Shares) is a suitable
investment and it has the financial ability to bear the economic risk of its
investment in the Company (including its possible total loss), has adequate
means for providing for its current needs and personal contingencies and has no
need for liquidity with respect to its investment in the Company.
(d) Mucosal is an "accredited investor", as defined in Rule 501 under
the Act.
(e) Mucosal has such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the Warrant and the Warrant Shares and making an informed and
reasoned investment decision, and has obtained, in its judgment, sufficient
information from the Company to evaluate the merits and risks of an investment
in the Company.
(f) Mucosal has been given the opportunity to ask questions of, and
receive answers from, the Company concerning the Company and other matters
pertaining to this investment, and to obtain any additional information
necessary to verify the accuracy of any information provided, and has not been
furnished any offering literature or prospectus and has not received any general
solicitation or general advertising regarding the purchase of any Common Stock.
Mucosal has been furnished with all additional documents and information
requested by it.
(g) Mucosal is aware that there is no assurance as to the future
performance of the Company. No representations or warranties of any kind have
been made to Mucosal by the Company or any officer, employee, agent or affiliate
of the Company.
(h) Mucosal understands that the Warrant is, and the Warrant Shares
will be, issued pursuant to a specific exemption under the provisions of the Act
and exemptions under
28
<PAGE>
various state securities laws, which exemptions may depend, among other things,
upon Mucosal's investment intent. Mucosal understands that the availability of
such exemptions is in part dependent upon the truthfulness and accuracy of the
representations made by it herein and that the Company will rely on such
representations in issuing the Warrant and the Warrant Shares to Mucosal.
Mucosal acknowledges and agrees that each time it exercises the Warrant and
purchases Warrant Shares, and as a condition to such purchase, it shall re-state
and reaffirm all of the representations and warranties set forth above, unless
the Warrant Shares shall then be subject to an effective registration statement
under the Act and applicable state securities laws. Notwithstanding the
foregoing, even if Mucosal does not so re-state and reaffirm as required, upon
each exercise of the Warrant it will automatically be deemed to have so re-
stated and reaffirmed.
4. Stock Dividends, Splits, Etc. In the event the Common Stock is
-----------------------------
changed by reason of a stock split, reverse stock split, stock dividend or
recapitalization (exclusive of any public or private sales of Capital Stock of
the Company), or is converted into or exchanged for other securities as a result
of a merger, consolidation or reorganization in which the Company is the
surviving corporation, appropriate adjustments shall be made in the terms of
this Warrant, or additional warrants shall be granted to Mucosal as shall be
equitable and appropriate, or an adjustment in the number and class of shares
allocated to, and the Exercise Price of, the Warrant shall be made.
5. Certain Extraordinary Transactions. In the event the Common Stock is
----------------------------------
exchanged for securities, cash or other property of any other corporation or
entity as the result of a reorganization, merger or consolidation in which the
Company is not the surviving corporation, the dissolution or liquidation of the
Company, or the sale of all or substantially all the assets of the Company, the
Board of Directors of the Company or the board of directors of any successor
corporation or entity shall, as to the unexercised portion of this Warrant, (a)
provide for payment of an amount equal to the excess of the fair market value of
the Warrant Shares, as determined by the Board of Directors of the Company or
such board, over the Exercise Price of such Warrant Shares as of the date of the
transaction, in exchange for the surrender of the right to exercise the Warrant,
or (b) provide for the assumption of the Warrant, or the substitution therefor
of new warrants, by the successor corporation or entity.
6. Restriction on Transfer of Warrant. The Warrant may not be
----------------------------------
Transferred in any way by Mucosal. The Warrant shall not be subject to
execution, attachment or similar process. Any attempted Transfer of the Warrant
contrary to the provisions hereof, and the levy of any execution, attachment or
similar process upon the Warrant, shall result in the immediate termination of
the Warrant. If requested in writing by the managing underwriters, if any, of
any public offering, Mucosal shall not offer, sell, contract to sell or
otherwise dispose of any of the Warrant Shares except as part of such public
offering within 30 days before or 180 days after the effective date of the
registration statement filed with respect to
29
<PAGE>
said offering.
7. Right of First Offer. (a) If, prior to the date of the initial public
--------------------
offering of shares of the Common Stock, Mucosal desires to Transfer to any
third-party all or any part of the Warrant Shares pursuant to the terms of a
bona fide offer received from a third party, Mucosal shall first submit a
written offer (the "Offer") to sell such Warrant Shares (the "Offered Shares")
----- --------------
to the Company on terms and conditions, including price, not less favorable to
the Company then those on which Mucosal proposes to sell such Warrant Shares to
such third party. The Offer shall disclose the identity of the proposed
purchaser, specify the number of Offered Shares proposed to be sold, the total
number of Offered Shares owned by Mucosal, and the agreed terms and conditions
of the sale and any other material facts relating to the sale.
(b) The Company shall have the right to purchase all or any portion of
the Offered Shares on the same terms and conditions specified in the Offer.
(c) If the Company desires to purchase all or any portion of the
Offered Shares, the Company shall communicate in writing its election to
purchase (an "Acceptance") to Mucosal, which Acceptance shall be delivered to
----------
Mucosal within 30 days of the Company's receipt of the Offer.
(d) If the Company elects to purchase all or any of the Offered
Shares, sale of the Offered Shares to be so purchased pursuant to this Section
shall be made at the offices of the Company on the 30th day following the
expiration of the 30-day period applicable pursuant to paragraph (c) of this
Section (or if such 30th day is not a business day, then on the next succeeding
business day). Such sales shall be effected by Mucosal's delivery to the
Company of a certificate or certificates evidencing the Offered Shares to be
purchased by it, duly endorsed for Transfer to the Company, which Offered Shares
shall be delivered free and clear of all liens, charges, claims and encumbrances
of any nature whatsoever, against payment to Mucosal of the purchase price
therefor by the Company. Payment for the Offered Shares shall be made as
provided in the Offer or by wire transfer or certified check.
(e) If the Company does not elect to purchase all of the Offered
Shares, then the Offered Shares not so purchased may be sold by Mucosal at any
time within 150 days after the Company's receipt of the Offer. Any such sale
shall be upon terms and conditions, including price, not less favorable to
Mucosal than those specified in the Offer, and the purchaser or transferee (and
all subsequent purchasers or transferees) shall be subject to all the terms of
this Agreement. Any Offered Shares not sold within such 150-day period shall
continue to be subject to the requirements of a first offer by the Company
pursuant to this Section.
8. Restrictive Legends. Stock certificates representing the Warrant
-------------------
Shares shall bear such legend or legends as the Board of Directors of the
Company shall deem appropriate.
30
<PAGE>
9 Miscellaneous.
-------------
(a) Jurisdiction. Each party hereby submits itself for the sole
------------
purpose of this Agreement and any controversy arising hereunder to the exclusive
jurisdiction of the courts located in the State of New York, and any courts of
appeal therefrom, and waives any objection (on the grounds of lack of
jurisdiction, or forum non conveniens or otherwise) to the exercise of such
jurisdiction over it by any such courts.
(b) Governing Law. This Agreement and all amendments, modifications,
-------------
alterations, or supplements hereto, and the rights of the parties hereunder,
shall be construed under and governed by the laws of the State of New York and
the United States of America, without regard to the principles of conflicts of
law thereof.
(c) Notices. All notices, consents and other communications required
-------
or which may be given under this Agreement shall be deemed to have been duly
given (i) when delivered by hand, (ii) three (3) days after being mailed by
registered or certified mail, return receipt requested, or (iii) when received
by the addressee, if sent by facsimile transmission (with acknowledgment of
complete transmission) or by Express Mail, Federal Express or other express
delivery service (receipt requested), in each case addressed to the Company at
its principal place of business and to Mucosal its address as listed on the
books and records of the Company (or in either case to such other address as
such party may hereafter designate as to itself by notice to the other party
hereto).
(d) Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective legal
representatives, successors and permitted assigns.
(e) Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the Company and Mucosal with respect to the subject matter hereof and
shall not be modified, amended or terminated except as herein provided or except
by another agreement in writing executed by the parties hereto.
(f) Headings. The Section headings are for convenience only and are
--------
not a part of this Agreement.
(g) Severability. All rights and restrictions contained herein may be
------------
exercised and shall be applicable and binding only to the extent that they do
not violate any applicable laws and are intended to be limited to the extent
necessary so that they will not render this Agreement illegal, invalid or
unenforceable. If any provision or portion of any provision of this Agreement
not essential to the commercial purpose of this Agreement shall be held to be
illegal, invalid or unenforceable by a court of competent jurisdiction, it is
the intention of the parties that the remaining provisions or portions thereof
shall constitute their agreement with respect to the subject matter hereof, and
all such remaining provisions or portions thereof shall
31
<PAGE>
remain in full force and effect. To the extent legally permissible, any illegal,
invalid or unenforceable provision of this Agreement shall be replaced by a
valid provision agreeable to the parties hereto which will implement the
commercial purpose of the illegal, invalid or unenforceable provision. In the
event that any provision essential to the commercial purpose of this Agreement
is held to be illegal, invalid or unenforceable and is not replaced by a valid
provision which will implement the commercial purpose of this Agreement and
which is agreed to the parties hereto in writing within 30 days following such
holding, this Agreement and the rights granted herein shall terminate.
(h) Waiver; Remedies. The failure of any party hereto to require
----------------
performance hereunder, or the written waiver by any party hereto of any breach
of this Agreement, shall not prevent the subsequent enforcement thereof nor be
deemed a waiver of any subsequent breach.
(i) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original and both of which together shall
constitute one instrument.
(j) Expenses; Further Assurances. Unless otherwise provided herein,
----------------------------
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party which shall have
incurred the same, and the other party shall have no liability relating thereto.
Without limiting the generality of any provision of this Agreement, each party
agrees that upon request of any other party, it shall, from time to time, do any
and all other acts and things as may reasonably be required to carry out its
obligations hereunder, to consummate the transactions contemplated hereby, and
to effectuate the purposes hereof.
IN WITNESS WHEREOF, the parties have executed this Stock Warrant Agreement
as of the ___ day of ________, ____.
MUCOSAL THERAPEUTICS LLC
By:
-----------------------------------
Name:
Title:
ORAPHARMA, INC.
By:
-----------------------------------
Name:
Title:
32
<PAGE>
Exhibit 10.8
RESEARCH AND CONSULTING AGREEMENT
RESEARCH AND CONSULTING AGREEMENT (this "Agreement") dated as of the
---------
14th day of December, 1998 (the "Effective Date"), by and between Biomodels LLC,
--------------
a Massachusetts limited liability company with a principal place of business at
277 Linden Street, Suite 201, Wellesley, Massachusetts 02482 ("Biomodels"), and
---------
OraPharma, Inc., a Delaware corporation with a principal place of business at
732 Louis Drive, Warminster, Pennsylvania 18974 (the "Company").
-------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Biomodels has been engaged in the development of pharmaceutical
products relating to the treatment and/or prevention of oral mucositis; and
WHEREAS, the Company has as its principal business objective the
development of therapies in oral health care, and has an interest in developing
pharmaceutical products for the treatment and/or prevention of oral mucositis,
utilizing the Mucosal Technology (as defined below); and
WHEREAS, the parties desire to enter into an agreement pursuant to which
Biomodels shall perform certain research and consulting services in connection
with the development of such pharmaceutical products.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto agree as follows:
SEC DEFINITIONS
For the purpose of this Agreement, the following words and phrases shall
have the meanings set forth below:
1.1 "Affiliate" means, with respect to any Person, any other Person that
---------
directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with such Person. For purposes hereof,
the term "control" (including, with its correlative meanings, the terms
-------
"controlled by" and "under common control with"), with respect to any Person,
- -------------- -------------------------
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person (whether through the
ownership of voting securities, by contract or otherwise); provided , that in
--------
each event in which any Person owns directly or indirectly more than 50% of the
securities having ordinary voting power for the election of directors or other
governing body of a corporation or more than 50% of the ownership interest of
any other Person, such Person shall be deemed to control such corporation or
other Person.
<PAGE>
1.2 "Confidential Information" means any and all information (in any and
------------------------
every form and media) not generally known in the relevant trade or industry,
which was obtained from any party or any Affiliate thereof in connection with
this Agreement or the respective rights and obligations of the parties
hereunder, including, without limitation, (a) information relating to trade
secrets of such party or any Affiliate thereof, (b) information relating to
existing or contemplated products, services, technology, designs, processes,
formulae, research and development (in any and all stages) of such party or any
Affiliate thereof, (c) information consisting of or relating to the Mucosal
Technology or the Products, and (d) information relating to business plans,
methods of doing business, sales or marketing methods, customer lists, customer
usages and/or requirements and supplier information of such party or any
Affiliate thereof, except that "Confidential Information" shall not include any
------ ------------------------
information which (i) at the time of disclosure, is generally known in the
relevant trade or industry, (ii) after disclosure, becomes part of the public
knowledge (by publication or otherwise) in the relevant trade or industry other
than by breach of this Agreement by the receiving party, (iii) the receiving
party can verify by written documentation was in its possession at the time of
disclosure and which was not obtained, directly or indirectly, from the other
party or any Affiliate thereof, (iv) the receiving party can verify by written
documentation results from research and development by the receiving party or
any Affiliate thereof independent of disclosures by the other party or any
Affiliate thereof or (v) the receiving party can prove was obtained from any
Person who had the legal right to disclose such information, provided that such
--------
information was not obtained to the knowledge of the receiving party or any
Affiliate thereof by such Person, directly or indirectly, from the other party
or any Affiliate thereof on a confidential basis.
1.3 "Control" means, with respect to any Patent or know-how, the
-------
possession of the ability to grant a license or sublicense with respect thereto
as provided for herein.
1.4 "FDA" means the United States Food and Drug Administration or any
---
successor agency thereof.
1.5 "Mucosal" means Mucosal Therapeutics LLC, a Massachusetts limited
-------
liability company and an Affiliate of Biomodels.
1.6 "Mucosal License Agreement" means the License Agreement dated as of
-------------------------
the date hereof between Mucosal and the Company.
1.7 "Mucosal Technology" has the meaning provided in the Mucosal License
------------------
Agreement.
1.8 "NDA" means a complete New Drug Application and all supplements
---
thereto filed with the FDA, including all documents, data and other information
concerning a Product which are necessary for, or included in, FDA approval to
market such Product as more fully defined in 21 C.F.R. (S)314.5 et seq., as
------
amended from time to time.
2
<PAGE>
1.9 "Oral Mucositis" has the meaning provided in the Mucosal License
--------------
Agreement.
1.10 "Person" means any individual, estate, trust, partnership, joint
------
venture, association, firm, corporation or company, or governmental body, agency
or official, or any other entity.
1.11 "Product" means a pharmaceutical product for the treatment and/or
-------
prevention of oral mucositis which utilizes Mucosal Technology.
1.12 "Program" means the program of activities and time schedule set forth
-------
in Appendix A hereto and subject to amendment as provided in Section 2.5 below.
1.13 "U.S. Dollars" and the sign "$" each means lawful currency of the
------------ -
United States of America.
SEC PROGRAM AND SERVICES
2.1 Program. The Company hereby retains Biomodels exclusively to
-------
perform, and Biomodels hereby agrees to perform, research services and
consulting services in accordance with the Program and the time schedule set
forth therein. Such services shall include Research Services, Clinical
Consulting Services and General Consulting Services (as such terms are defined
below). The parties acknowledge that time is of the essence in completing the
Program.
2.2 Research Services. Biomodels shall perform all preclinical animal
-----------------
studies necessary for the development of a Product and the submission of an NDA
to the FDA with respect thereto , as more fully described in the Program (the
"Research Services"). The Research Services shall include early choice of
-----------------
compound and delivery vehicle studies, parallel efficacy studies for
chemotherapy and radiation therapy induced mucositis and repeat efficacy
studies.
2.3 Clinical Consulting Services. Biomodels shall perform consulting
----------------------------
services in connection with all clinical studies necessary for the development
of a Product and the submission of an NDA to the FDA with respect thereto,
including general support, analysis and clinical management, as more fully
described in the Program (the "Clinical Consulting Services").
----------------------------
2.4 General Consulting Services. Biomodels shall perform general
---------------------------
consulting services in connection with the development , formulation, dosing,
testing and analysis of one or more compounds for the treatment and/or
prevention of Oral Mucositis, as more fully described in the Program, as
requested by the Company (the "General Consulting Services"). Biomodels
---------------------------
personnel shall devote an average of 20 hours per week during each month for the
first three (3) years of the term of this Agreement, subject to extension for a
fourth year at the request of the Company. Travel by Biomodels personnel shall
be limited to an aggregate of twelve (12) days per year for all personnel.
3
<PAGE>
2.5 Revisions to Program. The Company may, after review and
--------------------
consultation with Biomodels, revise the Program as may be necessary or desirable
to accomplish the purposes and objectives thereof, upon thirty (30) days prior
written notice to Biomodels. Notwithstanding the foregoing, such revisions to
the Program shall not change the compensation payable to Biomodels pursuant to
Section 3 hereof unless Biomodels shall have agreed in writing to such change in
compensation.
SECTION 3. PAYMENTS
3.1 Program Charges. All costs incurred by Biomodels in the Program,
---------------
including, without limitation, payments for preclinical animal and other
studies, tests and all reporting, filings, applications and other actions
necessary for the performance of the research and consulting services hereunder,
shall be the sole responsibility of Biomodels. Biomodels will pay when due all
invoices received from providers of goods and/or services incurred in connection
with this Agreement.
3.2 Research Services. The Company shall pay Biomodels for the Research
-----------------
Services in accordance with the budget and payment schedule set forth in
Appendix B hereto, which budget is inclusive of overhead, personnel, supplies,
animals, outside services and reporting. Biomodels shall not be entitled to
receive any payments or reimbursements of any amounts in connection with the
Research Services in excess of the applicable maximum amounts budgeted for such
Research Services, as set forth in Appendix B hereto. [the confidential material
contained herein has been omitted and has been separately filed with the
Commission].
3.3 Consulting Services. The Company shall pay Biomodels on a monthly
-------------------
basis for General Consulting Services and Clinical Consulting Services in
accordance with the budget and payment schedule set forth in Appendix C hereto.
SECTION 4. REPRESENTATIONS AND WARRANTIES
4.1 By the Company. The Company hereby represents and warrants to
--------------
Biomodels that, as of the Effective Date: (a) the Company has full legal right,
power and authority to execute, deliver and perform its obligations under this
Agreement, (b) the execution, delivery and performance by the Company of this
Agreement do not contravene or constitute a default under any provision of
applicable law or its certificate of incorporation or by-laws (or equivalent
documents) or of any agreement, judgment, injunction, order, decree or other
instrument binding upon the Company, (c) all licenses, consents, authorizations
and approvals, if any, required for the execution, delivery and performance by
the Company of this Agreement have been obtained and are in full force and
effect and all conditions thereof have been complied with, and no other action
by or with respect to, or filing with, any governmental authority or any other
Person is required in connection with the execution, delivery and performance by
the Company of this
4
<PAGE>
Agreement, and (d) this Agreement constitutes a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms.
4.2 By Biomodels. Biomodels hereby represents and warrants to the
------------
Company that, as of the Effective Date: (a) Biomodels has full legal right,
power and authority to execute, deliver and perform its obligations under this
Agreement, (b) the execution, delivery and performance by Biomodels of this
Agreement do not contravene or constitute a default under any provision of
applicable law or of its articles of incorporation or by-laws (or equivalent
documents) or of any agreement, judgment, injunction, order, decree or other
instrument binding upon Biomodels, (c) all licenses, consents, authorizations
and approvals, if any, required for the execution, delivery and performance by
Biomodels of this Agreement have been obtained and are in full force and effect
and all conditions thereof have been complied with, and no other action by or
with respect to, or filing with, any governmental authority or any other Person
is required in connection with the execution, delivery and performance by
Biomodels of this Agreement, and (d) this Agreement constitutes a valid and
binding agreement of Biomodels, enforceable against Biomodels in accordance with
its terms.
4.3 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties contained herein shall survive the execution, delivery and
performance of this Agreement by the parties, notwithstanding any investigation
at any time made by or on behalf of any party or parties.
SECTION 5. INDEMNIFICATION
5.1 Indemnification.
---------------
5.1.1 Indemnification by the Company. The Company hereby agrees
------------------------------
that it shall be responsible for, indemnify, hold harmless and defend Biomodels
and Biomodels' Affiliates, and their respective directors, officers, managing
members, shareholders, partners, attorneys, accountants, agents, employees and
consultants, and their respective heirs, successors and assigns (collectively,
the "Biomodels Indemnitees"), from and against any and all claims, demands,
---------------------
losses, liabilities, damages, costs and expenses (including the cost of
settlement, reasonable legal and accounting fees and any other expenses for
investigating or defending any actions or threatened actions) (collectively,
"Losses") suffered or incurred by any Biomodels Indemnitee arising out of,
------
relating to, resulting from or in connection with (a) the breach of any
representation or warranty made by the Company herein, (b) the default by the
Company in the performance or observance of any of its obligations to be
performed or observed hereunder, and (c) any action, suit or other proceeding,
or compromise, settlement or judgment, relating to any of the foregoing matters
with respect to which the Biomodels Indemnitees are entitled to indemnification
hereunder. The foregoing shall not apply to the extent that such Losses are due
to the willful misconduct or negligence of any Biomodels Indemnitee as finally
determined by a court of competent jurisdiction.
5
<PAGE>
5.1.2 Indemnification by Biomodels. Biomodels hereby agrees that
----------------------------
it shall be responsible for, indemnify, hold harmless and defend the Company and
the Company's Affiliates, and their respective directors, officers, managing
members, shareholders, partners, attorneys, accountants, agents, employees and
consultants, and their respective heirs, successors and assigns (collectively,
the "Company Indemnitees"), from and against any and all Losses suffered or
-------------------
incurred by any Company Indemnitee arising out of, relating to, resulting from
or in connection with (a) the breach of any representation or warranty made by
Biomodels herein, (b) the default by Biomodels in the performance or observance
of any of its obligations to be performed or observed hereunder, and (c) any
action, suit or other proceeding, or compromise, settlement or judgment,
relating to any of the foregoing matters with respect to which the Company
Indemnitees are entitled to indemnification hereunder. The foregoing shall not
apply to the extent that such Losses are due to the willful misconduct or
negligence of any Company Indemnitee as finally determined by a court of
competent jurisdiction.
5.1.3 Notice of Claims. In the event that a claim is made
----------------
pursuant to Section 5.1.1 or 5.1.2 above against any party which seeks
indemnification hereunder (the "Indemnitee"), the Indemnitee agrees to promptly
----------
notify the other party (the "Indemnitor") of such claim or action and, in the
----------
case of any claim by a third Person against the Indemnitee, the Indemnitor may,
at its option, elect to assume control of the defense of such claim or action;
provided, however, that (a) the Indemnitee shall be entitled to participate
- -------- -------
therein (through counsel of its own choosing) at the Indemnitee's sole cost and
expense, (b) the Indemnitor shall not settle or compromise any such claim or
action without the prior written consent of the Indemnitee, unless such
settlement or compromise includes a general release of the Indemnitee and all of
the other Biomodels Indemnitees or Company Indemnitees, as the case may be, from
any and all liability with respect thereto and (c) the Indemnitee shall
cooperate with the Indemnitor in the defense of such claim or action.
SECTION 6. CONFIDENTIALITY
6.1 The parties each recognize that the Confidential Information of the
party and any and all Affiliates thereof constitutes valuable confidential and
proprietary information. Accordingly, the parties each agree that they and their
respective Affiliates shall, during the term of this Agreement and for a period
of fifteen (15) years after the termination hereof for any reason, hold in
confidence all Confidential Information of the other party (including this
Agreement and the terms hereof) and not use the same for any purpose other than
as set forth in this Agreement nor disclose the same to any other Person except
------
to the extent that it is necessary for such party to enforce its rights under
this Agreement or if required by law or any governmental authority (including,
without limitation, any stock exchange upon which such party's shares or other
equity securities may be traded); provided, however, if any party shall be
-------- -------
required by law to disclose any such Confidential Information to any other
Person, such party shall give prompt written notice thereof to the other party
and shall minimize such disclosure to the amount required. Notwithstanding the
foregoing, either party may disclose Confidential Information of the other (a)
to such party's attorneys, accountants and other professional advisors
6
<PAGE>
under an obligation of confidentiality to such party, (b) to such party's banks
or other financial institutions or venture capital sources for the purpose of
raising capital or borrowing money or maintaining compliance with agreements,
arrangements and understandings relating thereto, and (c) to any Person who
proposes to purchase or otherwise succeed (by merger, operation of law or
otherwise) to all of such party's right, title and interest in, to and under
this Agreement, if such Person agrees to maintain the confidentiality of such
Confidential Information pursuant to a written agreement in form and substance
reasonably satisfactory to the parties. The standard of care required to be
observed hereunder shall be not less than the degree of care which each party or
Affiliate thereof uses to protect its own information of a confidential nature.
SECTION 7. INTELLECTUAL PROPERTY; INVENTIONS
7.1 Rights to Proprietary Technology. Neither party shall through this
--------------------------------
Agreement obtain any rights to the other party's proprietary technology except
for such rights as are expressly granted or allocated under this Agreement.
7.2 Inventions and Filing, Prosecution and Maintenance of Patents. Any
-------------------------------------------------------------
inventions, discovery or development (including, without limitation, data,
formulas or research results) generated in the course of the Program shall be
owned solely by Mucosal. Any such inventions, discovery or development shall be
deemed Mucosal Technology and shall be licensed exclusively to the Company by
Mucosal in accordance with and subject to the provisions of the Mucosal License
Agreement.
7.3 License Grant. Under the terms and conditions herein stated,
-------------
the Company hereby grants Biomodels a nonexclusive, worldwide license under the
Mucosal Technology sufficient to enable Biomodels to perform its obligations and
exercise its rights hereunder and for no other purpose.
SECTION 8. LIMITATIONS ON LIABILITY
8.1 No Warranties. Except as expressly set forth in Section 4 hereof,
-------------
neither party makes any representations or warranties as to any matter
whatsoever. EACH PARTY HEREBY DISCLAIMS ANY AND ALL OTHER REPRESENTATIONS AND
WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCTS AND RESEARCH,
CLINICAL AND GENERAL CONSULTING SERVICES, INCLUDING , WITHOUT LIMITATION, ANY
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE.
8.2 Limitations of Liability. EXCEPT FOR BREACH OF SECTION 6 HEREOF,
------------------------
UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR ANY
OTHER PERSON FOR ANY LOSS OF PROFITS OR SPECIAL, CONSEQUENTIAL OR INDIRECT
DAMAGES OF ANY KIND WHATSOEVER.
7
<PAGE>
8.3 Force Majeure. No party shall be liable for failure or delay in
-------------
performing any of its obligations hereunder (other than the payment of money) if
such failure or delay is occasioned by compliance with any governmental
regulation, request or order, or by circumstances beyond the reasonable control
of the party so failing or delaying, including, without limitation, Acts of God,
war, insurrection, fire, flood, accident, labor strikes, work stoppage or
slowdown (whether or not such labor event is within the reasonable control of
the parties), or inability to obtain raw materials, supplies, power or equipment
necessary to enable such party to perform its obligations hereunder. Each party
shall (a) promptly notify the other party in writing of any such event of force
majeure, the expected duration thereof and its anticipated effect on the ability
of such party to perform its obligations hereunder, and (b) make reasonable
efforts to remedy any such event of force majeure.
SECTION 9. NON-USE OF NAMES
Neither party shall use the name of the other party nor the name of any
Affiliates, directors, officers, managers, members, partners, shareholders,
consultants or employees of such other party, nor any adaptation thereof, in any
advertising, promotional or sales literature without prior written consent
obtained from such other party in each case (which consent shall not be
unreasonably withheld or delayed).
SECTION 10. TERM AND TERMINATION
10.1 Term. This Agreement shall commence on the Effective Date and,
----
unless sooner terminated in accordance with the provisions of this Section 10,
shall continue until December 31, 2002.
10.2 Events of Default. Each party shall have the right to terminate this
-----------------
Agreement upon the occurrence of any of the following events (each, an "Event of
--------
Default") with respect to the other party (the "Defaulting Party"): (a) a decree
- ------- ----------------
or order shall have been entered by a court of competent jurisdiction adjudging
the Defaulting Party bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, readjustment, arrangement, composition or
similar relief for the Defaulting Party under any bankruptcy law or any other
similar applicable statute, law or regulation, or a decree or order of a court
of competent jurisdiction shall have been entered for the appointment of a
receiver or liquidator or trustee or assignee in bankruptcy or insolvency of the
Defaulting Party or a substantial part of its property, or for the winding up or
liquidation of its affairs; or (b) the Defaulting Party shall institute
proceedings to be adjudicated a voluntary bankrupt, or shall consent to the
filing of a bankruptcy petition against it, or shall file a petition or answer
or consent seeking reorganization, readjustment, arrangement, composition,
liquidation or similar relief under any bankruptcy law or any other similar
applicable statute, law or regulation, or shall consent to the appointment of a
receiver or liquidator or trustee or assignee in bankruptcy or insolvency of it
or of a substantial part of its property, or shall make an assignment for the
benefit of creditors, or shall be unable to pay its debts generally as they
become due; or (c) the Defaulting Party shall commit a material breach of the
terms of this
8
<PAGE>
Agreement and the same and all of its effects shall not be remedied within
ninety (90) days after written notice thereof is given by the other party to the
Defaulting Party, except that the remedial period shall be thirty (30) days for
any monetary default. The failure by the Company to pay Biomodels any payments
when due and payable in accordance with the provisions of Section 3 hereof shall
be deemed a material breach of this Agreement.
10.3 Termination. Each party may terminate this Agreement upon the
-----------
occurrence of any Event of Default by giving written notice thereof to the other
party, which notice shall specifically identify the reason(s) for such
termination. If the Company shall terminate this Agreement by notice based on
an Event of Default by Biomodels, the Company also has the right to terminate
the Mucosal License Agreement by notice to Mucosal at the same time, and if such
notice is given, termination of both Agreements shall be effective immediately
on such notice. If Biomodels shall terminate this Agreement by notice based on
an Event of Default by the Company, Mucosal also has the right to terminate the
Mucosal License Agreement by notice to the Company at the same time, and, if
such notice is given, termination of both Agreements shall be effective
immediately on such notice. In addition, (i) the Company may terminate this
Agreement at any time by giving at least ninety (90) days' prior written notice
to Biomodels, in which event the Mucosal License Agreement will automatically
terminate, termination of both Agreements to be effective as of ninety (90) days
after such notice by the Company; (ii) if the Company shall exercise its rights
under the Mucosal License Agreement to terminate either because of an event of
default thereunder by Mucosal or unilaterally on ninety (90) days' notice, this
Agreement shall automatically terminate as of the effective date of termination
of the Mucosal License Agreement; and (iii) if Mucosal shall exercise its rights
under the Mucosal License Agreement to terminate because of an event of default
thereunder by the Company, this Agreement shall automatically terminate as of
the effective date of termination of the Mucosal License Agreement.
10.4 Consequences of Termination. The termination of this Agreement for
---------------------------
any reason shall be without prejudice to (i) the right of each party to receive
all amounts accrued under Section 3 hereof prior to the effective date of such
termination, (ii) the rights and obligations of the parties pursuant to Sections
1, 5, 6, 7, 8, 10.4 and 11 hereof, and (iii) any other remedies as may now or
hereafter be available to any party, whether under this Agreement or otherwise.
Upon the termination of this Agreement each party and its Affiliates shall
immediately cease the use, and return all originals and copies, of all
Confidential Information obtained from the other party or any Affiliate thereof.
SECTION 11. MISCELLANEOUS
11.1 Notices. All notices, reports and/or other communications made in
-------
accordance with this Agreement, shall be deemed to be duly made or given (i)
when delivered by hand, (ii) three days after being mailed by registered or
certified mail (air mail if mailed overseas), return receipt requested, or (iii)
when received by the addressee, if sent by facsimile transmission or by Express
Mail, Federal Express or other express delivery service (receipt requested), in
each case
9
<PAGE>
addressed to such party at its address set forth below (or to such other address
as such party may hereafter designate as to itself by notice to the other party
hereto):
In the case of the Company:
OraPharma, Inc.
732 Louis Drive
Warminster, Pennsylvania 18974
Attention: President
Telecopier: (215) 443-9531
With a copy to:
Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Ira A. Rosenberg, Esq.
Telecopier: (973) 643-6500
In the case of Biomodels:
Biomodels LLC
277 Linden Street, Suite 201
Wellesley, Massachusetts 02482
Attention: Manager
Telecopier: (781) 235-3811
With a copy to:
Testa, Hurwitz & Thibault LLP
High Street Tower
125 High Street
Boston, Massachusetts 02110
Attention: B. Jean Weidemier, Esq.
Telecopier: (617) 248-7100
11.2 Amendments, etc.. This Agreement may not be amended or modified,
----------------
nor may any right or remedy of any party be waived, unless the same is in
writing and signed by such party or a duly authorized representative of such
party. The waiver by any party of the breach of any term or provision hereof by
any other party shall not be construed as a waiver of any other subsequent
breach.
10
<PAGE>
11.3 No Waiver; Remedies. No failure or delay by any party in
-------------------
exercising any of its rights or remedies hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or remedy
preclude any other or further exercise thereof or the exercise of any other
right or remedy. The rights and remedies of the parties provided in this
Agreement are cumulative and not exclusive of any rights or remedies provided by
law.
11.4 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their respective heirs, legal
representatives, successors and permitted assigns; provided that, except as
--------
expressly provided herein, neither party may assign or otherwise transfer this
Agreement or any of its rights, duties or obligations hereunder without the
prior written consent of the other party.
11.5 Relationship of Parties. The Company and Biomodels are not (and
-----------------------
nothing in this Agreement shall be construed to constitute them) partners, joint
venturers, agents, representatives or employees of the other party, nor to
create any relationships between them other than that of an independent
contractor. Neither party shall have any responsibility or liability for the
actions of the other party except as specifically provided herein. Neither
party shall have any right or authority to bind or obligate the other party in
any manner or make any representation or warranty on behalf of the other party.
11.6 Expenses. Unless otherwise provided herein, all costs and expenses
--------
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party which shall have incurred the same and the
other party shall have no liability relating thereto.
11.7 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties and supersedes all prior proposals, communications,
representations and agreements, whether oral or written, with respect to the
subject matter hereof.
11.8 Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions hereof in any other jurisdiction.
11.9 Counterparts. This Agreement may be signed in any number of
------------
counterparts, each of which shall be deemed an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
11.10 Headings. The headings used in this Agreement are for
--------
convenience of reference only and shall not affect the meaning or construction
of this Agreement.
11
<PAGE>
11.11 Governing Law. This Agreement, including the performance and
-------------
enforceability hereof, shall be governed by and construed in accordance with the
laws of the State of New York, without reference to choice of law doctrine.
Each party hereby submits itself for the sole purpose of this Agreement and any
controversy arising hereunder to the jurisdiction of the courts located in the
State of New York and any courts of appeal therefrom, and waives any objection
(on the grounds of lack of jurisdiction, or forum non conveniens or otherwise)
----- --- ----------
to the exercise of such jurisdiction over it by any such courts.
11.12 Arbitration. Except as expressly provided herein, any dispute,
-----------
controversy or claim arising out of or relating to this Agreement, its validity,
construction or enforceability or the breach of any of the terms or provisions
hereof shall be settled by arbitration under the American Arbitration
Association by a panel of three arbitrators, one selected by each party and the
third selected by the other two arbitrators. Any arbitration proceeding
commenced by either party shall be held in the New York City, New York
metropolitan area (including northern New Jersey). The decision of the
arbitrators shall be final and binding upon the parties and judgment upon the
decision by the arbitrators may be entered in any court of competent
jurisdiction, and execution may be had thereon. The expense of such
arbitration, including attorneys' fees, shall be allocated between the parties
as the arbitrators may decide and as the claims and interests of each party may
prevail. Notwithstanding anything to the contrary contained in this Section
11.12, any dispute, controversy or claim relating to actual or threatened
unauthorized use or disclosure of any Confidential Information, or the validity,
applicability, enforceability or infringement of any patent rights, shall not be
required to be submitted to arbitration hereunder and shall be resolved by a
court of competent jurisdiction, and, in addition, each party shall retain the
right to seek injunctive or other temporary relief from a court of competent
jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
BIOMODELS LLC
By: /s/ [signature illegible]
-------------------------------
Manager
ORAPHARMA, INC.
By: /s/ Michael Kishbauch
-------------------------------
President/CEO
12
<PAGE>
Appendix A
Program
[the confidential material contained herein has been omitted and has been
separately filed with the Commission]
13
<PAGE>
Appendix B
Budget and Payment Schedule for Research Services
The Budget for the research services is the sum [the confidential material
contained herein has been omitted and has been separately filed with the
Commission]
14
<PAGE>
Appendix C
Budget and Payment Schedule for General Consulting Services
and Clinical Consulting Service
A. General Consulting Services
[the confidential material contained herein has been omitted and has been
separately filed with the Commission]
B. Clinical Consulting Services
[the confidential material contained herein has been omitted and has been
separately filed with the Commission]
15
<PAGE>
Exhibit 10.9
AGREEMENT
THIS AGREEMENT (this "Agreement") dated as of February 26, 1997 is made by
---------
and between AMERICAN CYANAMID COMPANY, a Maine corporation ("ACY"), and
---
ORAPHARMA, INC., a Delaware corporation ("OraPharma").
---------
RECITALS:
--------
A. OraPharma is engaged, among other things, in the business of developing
and commercializing pharmaceutical products for the treatment of diseases of the
oral cavity, including dental and periodontal applications.
B. ACY owns and has developed certain technologies relating to a
pharmaceutical product known as Minocin Periodontal, which product and
technologies may be used in the treatment of diseases of the oral cavity. ACY's
technologies include certain drug delivery technologies that may be used in
connection with other pharmaceutical products for the treatment of diseases both
within and outside of the oral cavity.
C. ACY is the owner of certain patent rights having claims covering
inventions and improvements relating to Minocin Periodontal and ACY's related
drug delivery technologies.
D. ACY and OraPharma desire to enter into an agreement pursuant to which
(i) ACY shall transfer to OraPharma certain technologies and other assets
related to Minocin Periodontal and ACY's related drug delivery technologies and
(ii) OraPharma shall obtain from ACY, upon the terms and subject to the
conditions set forth below, (a) certain exclusive license rights to make, have
made, use, sell, have sold and otherwise commercialize Minocin Periodontal and
other products for use in the oral cavity and (b) certain non-exclusive license
rights to make, have made, use, sell, have sold and otherwise commercialize
products for use outside of the oral cavity.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties hereby agree as
follows:
1. DEFINITIONS. Whenever used in this Agreement, the following terms
shall have the following respective meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
1.1 "ACY Patent Rights" means (i) the patents listed on Schedule 1
----------------- ----------
hereto, (ii) the patent applications listed on Schedule 1 hereto and any
----------
and all United States and
<PAGE>
foreign patents based on any such patent application, (iii) any and all
United States and foreign patents and patent applications owned or
controlled by ACY that have one or more claims which cover any improvement
or other enhancement to any of the inventions or subject matter claimed in
the patents and patent applications described in clauses (i) and (ii) above
and which is dependent upon or derivative of any such patent or patent
application, and (iv) any and all divisions, continuations,
continuations-in-part, renewals, reissues and extensions of any of the
items described in clauses (i) - (iii) above.
1.2 "ACY Product" means any product or component thereof for use
-----------
outside of the oral cavity and made, used or sold by ACY or any Affiliate
or permitted sublicensee of ACY that incorporates or otherwise utilizes an
Improvement or is otherwise subject to an Improvement License.
1.3 "ACY Technology" means (i) any and all technology, manufacturing
--------------
and other know-how, technical information, inventions, discoveries,
methods, specifications and trade secrets in the possession of ACY and/or
its Affiliates as of the Effective Date and relating to the development,
use and/or manufacture of MP, including, without limitation, the MP
formulation, microencapsulation and/or polymer technology related to MP,
the MP dispenser technology, the MP manufacturing process and the controls
for MP, and (ii) any and all ACY improvements or other enhancements to any
of the foregoing that are conceived or first reduced to practice by ACY at
any time following the Effective Date and which are covered by any claim
included within the ACY Patent Rights, but only to the extent such
improvements or enhancements are intended for use in the oral cavity.
1.4 "Affiliate" means, with respect to any Entity, any other Entity
---------
that directly, or indirectly through one or more intermediaries, controls
or is controlled by or is under common control with such Entity. For
purposes hereof, the term "control" (including, with its correlative
-------
meanings, the terms "controlled by" and "under common control with") with
------------- -------------------------
respect to any Entity, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of
such Entity (whether through the ownership of voting securities, by
contract or otherwise); provided, that in each event in which any Entity
--------
owns directly or indirectly more than 50% of the securities having ordinary
voting power for the election of directors or other governing body of a
corporation or more than 50% of the ownership interest of any other Entity,
such Entity shall be deemed to control such corporation or other Entity.
However, "Affiliates" do not include subsidiaries of an Entity in which
----------
such Entity owns a majority of the ordinary voting power to elect a
majority of the board of directors but is restricted from electing such
majority or from otherwise having control over such subsidiary pursuant to
a written agreement, until such time as such restrictions are no longer in
effect.
1.5 "Applicable Indication" means either (i) any indication in the
---------------------
oral cavity or (ii) any indication outside of the oral cavity for which
OraPharma has commenced
2
<PAGE>
research or development efforts or the manufacture, marketing and/or sale
of one or more products.
1.6 "Cash Reserves" means all cash and cash equivalents of OraPharma
-------------
as of an NDA Submission Achievement Date.
1.7 "Confidential Information" means any and all information (in any
------------------------
and every form and media) not generally known in the relevant trade or
industry, which was obtained from either Party or any Affiliate thereof in
connection with this Agreement or the respective rights and obligations of
the Parties hereunder, including, without limitation, (i) information
relating to trade secrets of such Party or any Affiliate thereof, (ii)
information relating to existing or contemplated products, services,
technology, designs, processes, formulae, regulatory filings relating to
minocycline, research and development (in any and all stages) of such Party
or any Affiliate thereof, (iii) information relating to the ACY Technology,
the ACY Patent Rights, any Product or any Improvement, and (iv) information
relating to business plans, methods of doing business, sales or marketing
methods, customer lists, customer usages and/or requirements and supplier
information of such Party or any Affiliate thereof, except that
------
"Confidential Information" shall not include any information which (a) at
the time of disclosure, is generally known to the public, (b) after
disclosure, becomes part of the public knowledge (by publication or
otherwise) other than by breach of this Agreement by the receiving Party,
(c) the receiving Party can verify by written documentation was in its
possession at the time of disclosure and which was not obtained, directly
or indirectly, from the other Party or any Affiliate thereof, (d) the
receiving Party can verify by written documentation results from research
and development by the receiving Party or any Affiliate thereof independent
of disclosures by the other Party or any Affiliate thereof or (e) the
receiving Party can prove was obtained from any Entity who had the legal
right to disclose such information; provided, that such information was not
--------
obtained to the knowledge of the receiving Party or any Affiliate thereof
by such Entity, directly or indirectly, from the other Party or any
Affiliate thereof on a confidential basis.
1.8 "Effective Date" means the date of this Agreement.
--------------
1.9 "Entity" means any individual, estate, trust, partnership, joint
------
venture, association, limited liability company, firm, corporation or
company, or any governmental body, agency or official, or any other entity.
1.10 "FDA" means the United States Food and Drug Administration, and
---
any successor thereto.
1.11 "First Commercial Sale" means the first commercial sale of a
---------------------
Product anywhere in the world.
3
<PAGE>
1.12 "Improvement" means an improvement or other enhancement to any
-----------
of the inventions or subject matter claimed in any of the ACY Patent Rights
that is (i) dependent on or derivative of such ACY Patent Right, (ii)
patentable, and (iii) conceived or first reduced to practice by OraPharma
or any of its Affiliates after the Effective Date.
1.13 "Improvement License" has the meaning given to such term under
-------------------
subsection 7.1.
1.14 "Milestone Event" means either (i) an NDA Submission Milestone
---------------
or (ii) an NDA Approval Milestone.
1.15 "MP" means the poly-glycolide-lactide micro capsules containing
--
minocycline, as more particularly described on Schedule 2 hereto.
----------
1.16 "MP IND" means the documents filed by ACY with the FDA on May 6,
------
1988 and identified by the Number 31,597, including any amendments thereto.
1.17 "NDA" means a New Drug Application for approval to market MP and
---
all supplements thereto filed with the FDA in accordance with 21 C.F.R.
314.101, and that has been determined by the FDA as being sufficient to
commence review thereof.
1.18 "NDA Approval Achievement Date" means the date upon which an NDA
-----------------------------
Approval Milestone is achieved.
1.19 "NDA Approval Milestone" means the date upon which the FDA
----------------------
approves and authorizes OraPharma or its Affiliates to market MP for any
indication in the oral cavity pursuant to 21 C.F.R. 314.105.
1.20 "NDA Approval Milestone Payment" has the meaning given to such
------------------------------
term under subsection 5.4.2.
1.21 "NDA Submission Achievement Date" means the date upon which an
-------------------------------
NDA Submission Milestone is achieved.
1.22 "NDA Submission Milestone" means the date upon which the FDA
------------------------
accepts the submission of an NDA for the marketing of MP by OraPharma or
its Affiliates for any indication in the oral cavity in accordance with 21
C.F.R. 314.105.
1.23 "Net Sales" means, with respect to the sale of Products by
---------
OraPharma, its Affiliates or its sublicensees, the amount invoiced by
OraPharma, its Affiliates and its sublicensees for the commercial sale of
Products, less the following deductions (at the time such deductions are
accrued or arise and to the extent not recovered or recoverable from any
Entity): (i) trade and/or quantity discounts actually allowed and taken in
4
<PAGE>
amounts as are customary in the trade, (ii) sales and other excise taxes
and customs duties paid, absorbed or allowed, (iii) transportation, postage
and insurance costs that are invoiced separately or are separately stated
in any invoice for Products, (iv) amounts repaid, credited or allowed by
reason of rejections, defects or returns or because of retroactive price
reductions, (v) commissions paid or allowed to brokers, distributors,
dealers, sales representatives and agents, and (vi) invoiced amounts that
are not paid and are written off such Entity's books as uncollectible
(collectively, "Permitted Deductions"). In the event of any sale or other
--------------------
disposition of any Product by OraPharma to any Affiliate thereof for resale
to its customers, "Net Sales" shall be based on the greater of the amount
---------
actually received by OraPharma from its Affiliates or the amount actually
received by such Affiliate from its customers for the sale of such
Products, less (in either such case) the Permitted Deductions. Any amounts
----
deducted pursuant to clause (vi) above which are subsequently collected
shall be included in Net Sales for the period in which such amounts are
collected.
If OraPharma or any of its Affiliates or sublicensees sells any
Product in combination with other items which are not Products ("Other
-----
Items") at a single invoice price, "Net Sales" for purposes of computing
----- ---------
royalty payments on the combination shall be determined as follows:
(i) if all Products and Other Items contained in the combination
are available separately, "Net Sales" for purposes of computing
---------
royalty payments shall be determined by multiplying Net Sales of the
combination by the fraction A/A+B, where A is the selling price of all
Products in the combination and B is the selling price of all Other
Items in the combination;
(ii) if the combination includes Other Items which are not sold
separately (but all Products contained in the combination are
available separately), "Net Sales" for purposes of computing royalty
---------
payments shall be determined by multiplying Net Sales of the
combination by A/C, where A is as defined in clause (i) above and C is
the selling price of the combination; and
(iii) if neither the Products nor the Other Items contained in
the combination are sold separately, the Parties agree to negotiate in
good faith an appropriate allocation and "Net Sales" for purposes of
---------
computing royalty payments shall be determined by mutual agreement of
the Parties.
1.24 "Non-Exclusive Product" means any Non-Oral Cavity Product and
---------------------
any Oral Cavity Product for which OraPharma's license hereunder has become
non-exclusive in accordance with the provisions of subsection 4.1 or
subsection 4.2 hereof.
1.25 "Non-Oral Cavity Product" means any product or component thereof
-----------------------
for use outside of the oral cavity made, used or sold by OraPharma, its
Affiliates or its
5
<PAGE>
sublicensees using any of the ACY Technology or which is covered by any
claim included within the ACY Patent Rights.
1.26 "Oral Cavity Product" means any product or component thereof for
-------------------
use in the oral cavity made, used or sold by OraPharma, its Affiliates or
its sublicensees using any of the ACY Technology or which is covered by any
claim included within the ACY Patent Rights.
1.27 "OraPharma Stock" means the voting common stock of OraPharma.
---------------
1.28 "OraPharma Stock FMV" means, with respect to the date of
-------------------
determination thereof, the value of a share of OraPharma Stock, determined
for the purposes of this Agreement as follows:
(i) If OraPharma Stock is traded publicly on any stock exchange
or over-the-counter market on the date a Milestone Event is achieved
or a Royalty Credit is to be determined, then the OraPharma Stock FMV
shall be the last ask price at which a share of OraPharma Stock may be
purchased by an Entity on the principal stock exchange or over-the-
counter market on which the OraPharma Stock may be purchased on such
date.
(ii) If OraPharma Stock is not traded publicly on any stock
exchange or over-the-counter market on the date a Milestone Event is
achieved or a Royalty Credit is to be determined, then the OraPharma
Stock FMV shall be equal to the fair market value of a share of the
last series of preferred stock issued by OraPharma and shall be
determined as follows:
(a) If OraPharma consummates an equity financing during the
period commencing on the date that is ninety (90) days prior to, and
ending on the date that is ninety (90) days following, the achievement
of the applicable Milestone Event or a Royalty Credit, then the
OraPharma Stock FMV shall be the purchase price of a share of
OraPharma preferred stock issued in the last equity financing, if any,
consummated during such period.
(b) If no equity financing is consummated by OraPharma
during the period described in clause (a) above, then the OraPharma
Stock FMV shall be determined by OraPharma's Board of Directors and
ACY shall be notified thereof in writing. ACY may, upon written
notice to OraPharma, appoint an independent certified public
accountant or investment banking firm (an "Independent Appraiser")
---------------------
reasonably acceptable to OraPharma to determine the OraPharma Stock
FMV. If ACY fails to notify OraPharma of its election to exercise its
valuation right within thirty (30) days after its receipt of the
initial determination by OraPharma's Board of Directors, then the
OraPharma Stock
6
<PAGE>
FMV shall be the amount as determined by OraPharma's Board of
Directors. If ACY exercises its valuation right, ACY shall cause the
Independent Appraiser appointed by ACY to provide its determination of
the OraPharma Stock FMV in writing to OraPharma and ACY. Following
receipt of such determination, the Parties shall, in good faith,
attempt to mutually agree upon the OraPharma Stock FMV. If the Parties
are unable to so agree within thirty (30) days following their receipt
of such determination, the Parties shall appoint a mutually acceptable
Independent Appraiser to determine the OraPharma Stock FMV. In such
case, the determinations made by OraPharma's Board of Directors, the
Independent Appraiser appointed by ACY and the Independent Appraiser
jointly appointed by the Parties shall be compared, and the OraPharma
Stock FMV shall be the middle determination (and not an average
thereof). Any Independent Appraiser appointed by ACY or appointed
jointly by ACY and OraPharma shall be subject to an obligation of
confidentiality in favor of OraPharma and shall disclose to ACY only
its determination of the OraPharma Stock FMV. The costs and expenses
of the Independent Appraisers appointed by ACY and mutually selected
by the parties shall be paid as follows: (I) if the OraPharma Stock
FMV as determined by reference to the appraisals shall be less than
eighty percent (80%) than the OraPharma Stock FMV as determined by
OraPharma's Board of Directors, then the costs and expenses of such
Independent Appraisers shall be shared equally by ACY and OraPharma,
and (ii) except as provided in clause (I) of this sentence, such costs
and expenses shall be paid solely by ACY.
1.29 "Party" means either OraPharma and/or ACY (individually and
-----
collectively).
1.30 "Product" means any Oral Cavity Product or Non-Oral Cavity
-------
Product.
1.31 "Royalty Credits" means
---------------
[the confidential material contained herein has been omitted and has been
separately filed with the commission.]
1.32 "Royalty Period" means, with respect to Net Sales resulting from
--------------
the commercial sale of each Product in each country, a period equal to the
longer of (i) [the confidential material contained herein has been omitted
and has been separately filed with the commission.] or (ii) the period
beginning on [the confidential material contained herein has been omitted
and has been separately filed with the commission.] Royalty Periods shall
be determined for each Product on a country-by-country basis.
1.33 "U.S. Dollars" and the sign "$" each means the lawful currency
------------ -
of the United States of America.
7
<PAGE>
2. LICENSES.
2.1 Oral Cavity Products. ACY hereby grants to OraPharma an
--------------------
exclusive worldwide license under the ACY Patent Rights and the ACY Technology
to make, have made, use, sell, have sold and otherwise commercialize Oral Cavity
Products, which exclusive license shall be exclusive as to all other Entities
including, without limitation, ACY. OraPharma shall have the right to grant
sublicenses to other Entities under the license granted to OraPharma pursuant to
this subsection 2.1; provided, that each sublicense granted by OraPharma shall
--------
be limited to one or more particular existing or proposed products or projects
of OraPharma that will be pursued in collaboration with the sublicensee.
Without limiting the foregoing, any sublicense granted by OraPharma may apply to
all of OraPharma's rights hereunder with respect to a particular existing or
proposed product or project or may be limited to one or more specific purposes
related thereto (such as, for example, development and/or manufacturing and/or
marketing).
2.2 Non-Oral Cavity Products. ACY hereby grants to OraPharma a non-
------------------------
exclusive worldwide license under the ACY Patent Rights and the ACY Technology
to make, have made, use, sell, have sold and otherwise commercialize Non-Oral
Cavity Products. OraPharma shall have the right to grant sublicenses to other
Entities under the license granted to OraPharma pursuant to this subsection 2.2;
provided, that each sublicense granted by OraPharma shall be limited to one or
- --------
more particular existing or proposed products or projects of OraPharma that will
be pursued in collaboration with the sublicensee in any field that OraPharma has
identified for the research, development, manufacture, marketing and/or sale of
products (whether or not OraPharma has then commenced any such activities in
such field). Without limiting the foregoing, any sublicense granted by
OraPharma may apply to all of OraPharma's rights hereunder with respect to a
particular existing or proposed product or project or may be limited to one or
more specific purposes related thereto (such as, for example, development and/or
manufacturing and/or marketing).
3. TRANSFER OF TECHNOLOGY AND OTHER ASSETS.
3.1 Technology Transfer. Within forty-five (45) days following the
-------------------
Effective Date, ACY shall disclose, convey, sell, assign and transfer to
OraPharma all ACY Technology in existence on the Effective Date. Thereafter,
ACY shall, upon the request of OraPharma, use reasonable efforts to disclose,
convey, sell, assign and transfer to OraPharma all ACY Technology conceived or
first reduced to practice by ACY, or otherwise discovered or developed by ACY,
following the Effective Date. Upon the reasonable request of OraPharma and for
a reasonable period of time, ACY shall cause certain of its personnel (such as
regulatory, patent, legal and research and development personnel) involved with
MP and any other ACY Technology to consult and otherwise cooperate with
OraPharma regarding the MP program and any technology related thereto. ACY
acknowledges that such consultation and cooperation is
8
<PAGE>
necessary to successfully transfer technology to OraPharma and to otherwise
enable OraPharma to perform its obligations hereunder.
3.2 Purchase and Sale of Equipment. ACY shall sell and transfer to
------------------------------
OraPharma, and OraPharma shall purchase, the equipment described on Schedule 3
----------
hereto (the "Equipment"), together with all drawings, manuals, operating
---------
instructions and operating logs related thereto, for a purchase price of $12,500
payable within thirty (30) days after the delivery date thereof. ACY shall
deliver the Equipment and all related items to OraPharma upon such date as shall
be mutually agreed to by the Parties, but in no event sooner than thirty (30)
days following the Effective Date or later than one hundred eighty (180) days
following the Effective Date. The Equipment shall be sold on an "AS-IS, WHERE-
IS" basis. On the Effective Date, ACY shall execute and deliver to OraPharma a
Bill of Sale in the form of Exhibit A hereto, pursuant to which ACY shall convey
---------
to OraPharma good title to the Equipment, free and clear of all liens, claims,
security interests, other encumbrances and other rights of other Entities
(except that the foregoing shall not apply to claims for patent infringement).
ACY shall also assign to OraPharma all warranties of manufacturers, if any,
respecting the Equipment by an assignment in form and content reasonably
satisfactory to OraPharma. ACY makes no representations or warranties with
respect to the Equipment, including, but not necessarily limited to, any and all
representations or warranties with regard to merchantability and/or fitness for
a particular purpose.
3.3 Regulatory Approvals, Reports and Records. Within thirty (30)
-----------------------------------------
days following the Effective Date, ACY shall transfer and deliver the following
items to OraPharma:
(i) true and complete copies of all correspondence to the FDA or
received from the FDA relating to MP;
(ii) true and complete copies of any and all of the following
reports and records relating to MP: toxicity study reports, clinical study
reports, case record forms, stability reports, relevant passages from
laboratory notebooks, and product and raw material specifications;
(iii) the MP IND, by assignment in a form reasonably acceptable
to OraPharma, together with a true and complete copy of the written notice
of such transfer to OraPharma sent by ACY to the FDA;
(iv) samples of polymer and product from ACY's retention files
for MP as they currently exist;
(v) true and complete copies of any and all batch records from
clinical and toxicology batches of MP; and
9
<PAGE>
(vi) any and all data and other information (in all media and
forms) related to the commercialization of MP or any of the ACY Technology.
During any period that ACY is providing OraPharma with minocycline pursuant to
Section 6 hereof, ACY shall provide OraPharma with cross-referencing rights to
the New Drug Application filed with the FDA for minocycline and any other
regulatory approvals, licenses or other authorizations of, or applications or
registrations filed with, any governmental authority in any country relating to
minocycline. ACY shall maintain some of its retention samples of all clinical
samples of MP provided by ACY. ACY shall, upon the request of OraPharma, make
available to OraPharma or any governmental authority any samples, records,
reports or other items relating to MP which are retained by ACY.
3.4 Use of Certain Assets. The parties agree that ACY owns
---------------------
trademarks, copyrights, trade dress, product shapes, packaging, label, product
and other designs and indicia of ownership associated with minocycline and the
cartons and containers therefor used for advertising and other materials
associated therewith as well as various registrations thereof, all as more fully
described in Schedule 4 hereto (hereinafter collectively, "Indicia"). OraPharma
---------- -------
hereby acknowledges the validity and ownership by ACY of any and all such
indicia and any and all registrations thereof and hereby agrees that except as
expressly provided for in this Agreement, OraPharma shall not directly or
indirectly associate, register, use, or apply or permit the association,
registration, use or application of any of such Indicia or registrations or
anything imitative of or which resembles or is confusingly similar to or with
any of such Indicia or registrations in connection with any business of or
associated with OraPharma or is sublicensees or to or with any products
manufactured, permitted, or distributed by or for OraPharma or its sublicensees.
4. DEVELOPMENT.
4.1 Minocin Periodontal. OraPharma shall use reasonable commercial
-------------------
efforts to develop MP in accordance with the following milestone schedule:
(i) commencement of Phase III studies not later than eighteen
(18) months following the Effective Date;
(ii) submission to the FDA of an NDA not later than four (4)
years following the Effective Date; and
(iii) the First Commercial Sale of MP not later than six (6)
years following the Effective Date.
The level of effort required to be expended hereunder by OraPharma to develop MP
shall be determined by OraPharma's Board of Directors in good faith after taking
into account the costs
10
<PAGE>
and complexity of development, the potential profitability to OraPharma of MP,
the existence of competing products (if any) and other relevant factors. The
final dates for achievement of the milestones set forth above shall be extended
to the extent of any unreasonable delay by ACY in performing its obligations
under Section 3. If OraPharma fails to meet a milestone set forth above,
representatives of the Parties shall meet and consider the status of OraPharma's
development efforts and the circumstances underlying OraPharma's inability to
meet the applicable milestone. The Parties shall then negotiate in good faith an
extension of the applicable milestone and any remaining milestones. Any
extension shall be memorialized in an amendment to this Agreement. If the
Parties are unable to agree to an extension within six (6) months following the
final date set forth above for the achievement of the applicable milestone, and
OraPharma has not achieved the applicable milestone within such six (6) month
period, then as ACY's sole remedy therefor, the exclusive license granted to
OraPharma under subsection 2.1 shall convert automatically to a non-exclusive
license, unless ACY waives conversion under this subsection 4.1 by giving
written notice thereof to OraPharma within fifteen (15) days following the end
of such six (6) month period.
4.2 Additional Products. OraPharma shall use reasonable commercial
-------------------
efforts to develop an Oral Cavity Product in addition to MP. The level of
effort required to be expended hereunder by OraPharma to develop an additional
Oral Cavity Product shall be determined by OraPharma's Board of Directors in
good faith after taking into account the costs and complexity of development,
the stage of development, the potential profitability to OraPharma of the
particular Oral Cavity Product, the existence of competing products (if any) and
other relevant factors. Notwithstanding the foregoing, OraPharma may satisfy
its obligations under this Section 4.2 by developing a Non-Oral Cavity Product
(which it shall have no obligation to do). If the First Commercial Sale of an
Oral Cavity Product (other than MP) or a Non-Oral Cavity Product (which
OraPharma shall have no obligation to develop) does not occur within ten (10)
years following the Effective Date, then as ACY's sole remedy therefor, the
exclusive license granted to OraPharma under subsection 2.1 shall convert
automatically to a non-exclusive license in the case of all Oral Cavity Products
other than MP (as to which the license granted to OraPharma under subsection 2.1
shall remain exclusive), unless ACY waives conversion under this subsection 4.2
by giving written notice thereof to OraPharma within thirty (30) days
following the end of such ten (10) year period.
4.3 Notification of Milestones. Within thirty (30) days following
--------------------------
OraPharma's achievement of any milestone described in subsections 4.1 or 4.2,
OraPharma shall notify ACY thereof in writing.
5. PAYMENTS. In consideration of the transfers by ACY to OraPharma
hereunder and the grant by ACY to OraPharma of the licenses and other rights
hereunder, OraPharma shall make the following payments to ACY:
11
<PAGE>
5.1 Initial Payment. Simultaneously with the execution and delivery
---------------
of this Agreement by the Parties, OraPharma shall pay to ACY Two Hundred Fifty
Thousand Dollars ($250,000) by wire transfer of immediately available funds to
an account designated by ACY.
5.2 Equity. ACY shall receive an equity position in OraPharma
------
pursuant to the terms and conditions of a Stock Purchase Agreement dated as of
the Effective Date among the Parties and certain other Entities party thereto.
5.3 Equipment. OraPharma shall purchase the Equipment and all items
---------
related thereto for a purchase price of $12,500. The purchase price for the
Equipment shall be paid to ACY by wire transfer of immediately available funds
within thirty (30) days following the delivery of the Equipment to OraPharma.
5.4 Milestone Payments.
------------------
5.4.1 NDA Submission for Periodontal Indication. Subject to
-----------------------------------------
subsection 5.4.3 hereof, ACY shall be entitled to receive a milestone payment in
the amount of Five Hundred Thousand Dollars ($500,000) upon the first
achievement of an NDA Submission Milestone for the marketing of MP for a
periodontal disease therapy; provided, that if OraPharma's Cash Reserves are
--------
less than Five Million Dollars ($5,000,000) on the NDA Submission Achievement
Date for such Milestone Event, OraPharma may elect, in its sole discretion, to
make such payment in either of the following forms, in lieu of the cash payment
described above:
(i) ACY shall be entitled to receive an interest-bearing
promissory note in the amount of Five Hundred Thousand Dollars ($500,000)
and substantially in the form of Exhibit B hereto (the "NDA Submission
--------- --------------
Note"). The principal amount of the NDA Submission Note shall be due and
payable on the earlier to occur of either (a) five (5) business days
following the consummation of a public offering by OraPharma of equity
securities registered under the Securities Act of 1933 (as amended), if
any, after the date of the NDA Submission Note, or (b) the date that is
three (3) years following the date of the NDA Submission Note. Such
principal amount may be prepaid, in whole or in part, at any time without
premium or penalty. Interest shall accrue thereon at a fluctuating rate
per annum equal to the prime rate of CitiBank, N.A. (or any successor
thereto) in effect on the first business day of each calendar quarter, and
shall be due and payable in arrears on the last business day of each
calendar quarter during the term of the NDA Submission Note, with a final
interest payment due and payable on the maturity date. ACY shall also be
entitled to receive warrants to purchase One Hundred Twenty Five Thousand
Dollars ($125,000) of OraPharma Stock based upon the OraPharma Stock FMV as
of such NDA Submission Achievement Date (the "Option 1 Warrants"). The
-----------------
Option 1 Warrants shall be non-transferrable and may be exercised at any
time during a period of five (5) years following the date of issuance
thereof at a price equal to the OraPharma Stock FMV on such NDA Submission
Achievement Date. The number of
12
<PAGE>
shares of OraPharma Stock that ACY may purchase upon the exercise of the
Option 1 Warrants shall be equal to the result of $125,000 divided by the
----------
OraPharma Stock FMV on such NDA Submission Achievement Date. For example,
if the OraPharma Stock FMV is Five Dollars ($5.00) on such NDA Submission
Achievement Date, ACY would receive Option 1 Warrants to purchase 25,000
shares of OraPharma Stock at Five Dollars ($5.00) per share; or
(ii) ACY shall be entitled to receive warrants to purchase One
Million Dollars ($1,000,000) of OraPharma Stock based upon the OraPharma
Stock FMV as of such NDA Submission Achievement Date (the "Option 2
--------
Warrants"). The Option 2 Warrants shall be non-transferrable and may be
--------
exercised at any time during a period of five (5) years following the date
of issuance thereof at a price equal to the OraPharma Stock FMV on such NDA
Submission Achievement Date. The number of shares of OraPharma Stock that
ACY may purchase upon the exercise of the Option 2 Warrants shall be equal
to the result of $1,000,000 divided by the OraPharma Stock FMV on such NDA
----------
Submission Achievement Date. For example, if the OraPharma Stock FMV is
Five Dollars ($5.00) on such NDA Submission Achievement Date, ACY would
receive Option 2 Warrants to purchase 200,000 shares of OraPharma Stock at
Five Dollars ($5.00) per share.
The Parties acknowledge and agree that only one milestone payment shall be
required to be made to ACY under this subsection 5.4.1 (regardless of whether
OraPharma achieves additional NDA Submission Milestones).
5.4.2 NDA Approval for Periodontal Indication. Subject to subsection
---------------------------------------
5.4.3 hereof, ACY shall be entitled to receive a milestone payment upon the
first achievement of an NDA Approval Milestone for the marketing of MP for a
periodontal disease therapy (the "NDA Approval Milestone Payment"), in either of
------------------------------
the following forms, as selected by OraPharma in its sole discretion:
(i) Two Million Five Hundred Thousand Dollars ($2,500,000) by
wire transfer of immediately available funds; or
(ii) ACY shall be entitled to receive warrants to purchase Five
Million Dollars ($5,000,000) of OraPharma Stock based upon the OraPharma
Stock FMV as of the NDA Approval Achievement Date for such Milestone Event
(the "Approval Warrants"). The Approval Warrants shall be non-
-----------------
transferrable and may be exercised at any time during a period of five (5)
years following the date of issuance thereof at a price equal to the
OraPharma Stock FMV on such NDA Approval Achievement Date. The number of
shares of OraPharma Stock that ACY may purchase upon the exercise of the
Approval Warrants shall be equal to the result of $5,000,000 divided by the
----------
OraPharma Stock FMV on such NDA Approval Achievement Date. For example, if
the OraPharma Stock FMV is Ten Dollars ($10.00) on such NDA Approval
Achievement Date, then
13
<PAGE>
ACY would receive Approval Warrants to purchase 500,000 shares of OraPharma
Stock at Ten Dollars ($10.00) per share.
The Parties acknowledge and agree that only one milestone payment shall be
required to be made to ACY under this subsection 5.4.2 (regardless of whether
OraPharma achieves additional NDA Approval Milestones).
5.4.3 Milestone Events for Other Indications. If OraPharma achieves
--------------------------------------
a particular Milestone Event for the marketing of MP for a non-periodontal
disease therapy indication prior to achieving the same Milestone Event for a
periodontal disease therapy indication, then ACY shall be entitled to receive a
milestone payment (a "Non-Periodontal Milestone Payment") upon the first
---------------------------------
achievement thereof. Any Non-Periodontal Milestone Payment shall be made in
accordance with the provisions of subsection 5.4.1 (in the case of an NDA
Submission Milestone) or subsection 5.4.2 (in the case of an NDA Approval
Milestone) as if the provisions thereof were applicable to a non-periodontal
disease therapy indication; provided, that the amount of any payment (including
--------
the principal amount of any promissory note or the U.S. Dollar amount of
OraPharma Stock, but excluding the amount of Cash Reserves) shall be fifty
percent (50%) of the applicable amount(s) set forth for periodontal disease
therapy under subsection 5.4.1 or 5.4.2, as the case may be. If OraPharma
achieves a Milestone Event for the use of MP for a periodontal disease therapy
and, thereafter, achieves the same Milestone Event for the use of MP for any
other indication, OraPharma shall not be obligated to make additional milestone
payments under this subsection 5.4.3. If OraPharma makes any Non-Periodontal
Milestone Payment, the amount thereof shall be credited to the amount of any
milestone payment required to be made by OraPharma for the corresponding
Milestone Event for the use of MP for a periodontal disease therapy. The
Parties acknowledge and agree that only one Non-Periodontal Milestone Payment,
if applicable, shall be made under this subsection 5.4.3 with respect to each
Milestone Event (regardless of whether OraPharma achieves additional non-
periodontal disease therapy Milestone Events).
5.4.4 Payment. Each milestone payment required to be made by
-------
OraPharma pursuant to subsections 5.4.1, 5.4.2 or 5.4.3 shall be made not later
than (i) in the case of any payment made in cash, thirty (30) days following the
achievement of the applicable Milestone Event, or (ii) in the case of any
payment made in a form other than cash, the later of ninety (90) days following
the achievement of the applicable Milestone Event or ten (10) days following the
determination of the OraPharma Stock FMV in accordance with clause (ii) of
subsection 5.4.5. Any milestone payment made in the form of cash shall be paid
by wire transfer of immediately available funds.
5.4.5 Warrants. Any warrants issued to ACY by OraPharma pursuant to
--------
this subsection 5.4 shall be in the form of Exhibit C hereto with appropriate
---------
insertions therein.
5.5 Royalties.
---------
14
<PAGE>
5.5.1 Minocin Periodontal. Subject to subsection 5.7, OraPharma
-------------------
shall pay to ACY a royalty on Net Sales resulting from the sale of MP during the
Royalty Period applicable to sales of MP in each country, as follows:
(i) Except as otherwise provided in clause (iii) below, if
the NDA Approval Milestone Payment (for the use of MP for a
periodontal disease therapy) is made by OraPharma pursuant to clause
(i) of subsection 5.4.2 (i.e., $2,500,000 in cash), OraPharma shall
----
pay to ACY a royalty in the amount of [the confidential material
contained herein has been omitted and has been separately filed with
the commission.] Thereafter, OraPharma shall pay to ACY a royalty in
the amount of [the confidential material contained herein has been
omitted and has been separately filed with the commission.]
(ii) Except as otherwise provided in clause (iii) below, if
the NDA Approval Milestone Payment (for the use of MP for a
periodontal disease therapy) is made by OraPharma pursuant to clause
(ii) of subsection 5.4.2 (i.e., by the issuance of the Approval
----
Warrants) , OraPharma shall pay to ACY a royalty in the amount of [the
confidential material contained herein has been omitted and has been
separately filed with the commission.]
(iii) If the exclusive license granted to OraPharma under
subsection 2.1 is converted to a non-exclusive license in accordance
with subsection 4.1 hereof, then in lieu of the royalty amounts set
forth in clauses (i) and (ii) above, OraPharma shall pay to ACY a
royalty in the amount of [the confidential material contained herein
has been omitted and has been separately filed with the commission.]
5.5.2 Other Products. Subject to subsection 5.7, OraPharma shall
--------------
pay to ACY a royalty in the amount of [the confidential material contained
herein has been omitted and has been separately filed with the commission.]
5.6 Capital Gains\Appreciation Credit. OraPharma shall be entitled
---------------------------------
to a credit against any royalties payable hereunder on Net Sales resulting from
the sale of any Product by OraPharma or its Affiliates or sublicensees in an
amount equal to the aggregate Royalty Credits; provided, that the aggregate
--------
amount of all credits pursuant to this subsection 5.6 shall not exceed [the
confidential material contained herein has been omitted and has been separately
filed with the commission.] The Royalty Credits may be applied against all of
the royalties payable by OraPharma hereunder following the realization of any
capital gain or the determination of any unrealized appreciation constituting a
Royalty Credit, and until such time as the full amount of each Royalty Credit is
applied in full.
5.7 Royalty Provisions.
------------------
15
<PAGE>
5.7.1 Sales to Affiliates. Notwithstanding anything to the contrary
-------------------
contained herein, no royalties shall be payable by OraPharma hereunder with
respect to sales of any Product to any of its Affiliates or by any of
OraPharma's Affiliates to any other Affiliate thereof. ACY shall be entitled to
royalties on any Product sold by OraPharma or its Affiliates to third parties as
provided in Section 5.5.
5.7.2 No Patents. The royalties payable under subsection 5.5 on
----------
sales of any Product to a third party located in a country or countries in which
ACY has not obtained an issued patent then having one or more valid current
claims covering such Product shall be reduced, on a country-by-country basis, to
(i) [the confidential material contained herein has been omitted and has been
separately filed with the commission.] and (ii) [the confidential material
contained herein has been omitted and has been separately filed with the
commission.] provided that the reduction shall apply only during the period in
--------
which such patent is not issued or does not have one or more valid current
claims covering such Product.
5.7.3 No Multiple Royalties. If a Product, or the manufacture, use
---------------------
or sale thereof, is covered by more than one ACY Patent Right or by more than
one license granted hereunder, OraPharma shall be responsible for payment of
only one royalty based on the Net Sales thereof, such royalty to be equal to the
highest applicable royalty rate on a Product-by-Product and country-by-country
basis. If OraPharma has paid a royalty to ACY with respect to any component of
a Product that is incorporated into a finished Product that is manufactured and
sold by a sublicensee, OraPharma shall be entitled to a credit against any
royalty payable to ACY on Net Sales of the finished Product by OraPharma's
sublicensee in the amount of the total royalty paid by OraPharma with respect to
such component.
5.7.4 Third Party Patents. If OraPharma shall be required by a third
-------------------
party or an Affiliate in an arms-length transaction to obtain a license under
any patent or other rights or to make other arrangements in order for OraPharma
to make, have made, use, sell, have sold or otherwise commercialize any Product
in any geographical area in which such Entity has an issued patent then existing
having one or more valid current claims covering the manufacture, use or sale of
such Product, then OraPharma shall be entitled to a credit against the royalty
payments due hereunder in an amount equal to the royalty payments or other
amounts payable to such other Entity, provided, that such offset shall not
--------
exceed [the confidential treatment contained herein has been omitted and has
been separately filed with the commission.] It is the intention of the parties
that the credit defined in this Section 5.7.4 shall apply to royalty payments
payable to the Debiopharm Companies pursuant to an agreement dated February 13,
1997 (a copy of which is attached as Exhibit E hereto) and to Gary R. Jernberg,
D.D.S., M.S.D. pursuant to an agreement dated December 19, 1996 (a copy of
which is attached as Exhibit F hereto).
5.7.5 Most Favored Licensee. Except for the Agreement referred to in
---------------------
Section 10.2 (iv) hereof, it is the intention of the Parties that OraPharma
receive most favored licensee status and treatment under this Agreement with
respect to Non-Exclusive Products.
16
<PAGE>
Accordingly, if any non-exclusive license granted by ACY to another Entity
(other than an Affiliate of ACY) under the ACY Patent Rights or the ACY
Technology to make, use or sell any product that is ultimately sold to consumers
by prescription, on the one hand, or over-the- counter, on the other, provides
for payments and/or rates of royalties applicable to the sale of any such
product(s) in any country or countries which (calculated on an equivalent basis
with respect to the ACY Patent Rights) are lower than those provided in this
Agreement, ACY shall (i) promptly notify OraPharma in writing of such license,
and (ii) extend to OraPharma such lower payments and/or rates of royalty with
respect to Net Sales by OraPharma and its Affiliates and sublicensees of
Non-Exclusive Products that are ultimately sold to consumers by prescription or
over-the-counter, as the case may be, in the same country or countries effective
as of the date or dates on which such payments and/or rates of royalty shall
become effective with respect to such products pursuant to such license.
5.8 Payment of Royalties. Royalties payable by OraPharma hereunder
--------------------
shall be paid within sixty (60) days after the end of each calendar quarter
based on the Net Sales resulting from sales of Products by OraPharma, its
Affiliates and sublicensees during the preceding calendar quarter. Such
payments shall be accompanied by a statement setting forth the Net Sales of
Products by OraPharma, its Affiliates and sublicensees.
5.9 Accounting; Foreign Currency. The aggregate amount of the Net
----------------------------
Sales used for computing the royalties payable by OraPharma hereunder shall be
computed in U.S. Dollars, and all payments of such royalties shall be made in
U.S. Dollars. For purposes of determining the amount of royalties due, the
amount of Net Sales in any foreign currency (the "Other Currency") shall be
--------------
computed generally by converting such amount into U.S. Dollars at the prevailing
commercial rate of exchange for purchasing U.S. Dollars as quoted in The Wall
Street Journal (International Edition) on the last business day of the calendar
quarter with respect to which such royalty payment is payable by OraPharma. In
the event that any Other Currency shall, at the time that a royalty payment in
respect of Net Sales in such Other Currency is due, not be convertible into
Dollars and freely transferable by reason of any governmental regulation or any
moratorium, embargo, banking restriction or other restriction, the obligation of
OraPharma to make payment of such royalties shall, upon notice thereof given by
OraPharma to ACY, be suspended until such time as such Other Currency shall be
convertible into Dollars and freely transferable to the United States; provided,
--------
further, that, in such event, ACY may, by written notice to OraPharma, request
- -------
that such royalties be paid by OraPharma in such Other Currency (calculated on
the basis of Net Sales in such Other Currency) and deposited in a local bank
account in the relevant country specified by ACY, in the name of ACY. During
any period of non-payment of royalties hereunder, the amount of Net Sales on
which royalties are due and payable by OraPharma shall accrue in the Other
Currency in which they were paid. OraPharma shall pay to ACY the amount of
accrued royalties in respect of any such Net Sales, plus any interest actually
accrued thereon, within a reasonable period of time after the date on which the
relevant Other Currency shall become convertible into U.S. Dollars and freely
transferable to the United States.
17
<PAGE>
5.10 Withholding Taxes. The Parties acknowledge and agree that there
-----------------
may be deducted from any payments or royalties otherwise due and payable
hereunder any taxes or other payments required to be withheld under applicable
law with respect to such payments or royalties or otherwise relating to
Products. OraPharma shall promptly submit to ACY any official receipt received
by OraPharma for such tax or other payments.
5.11 Records. OraPharma shall keep for three (3) years complete and
-------
accurate records of Net Sales from sales of Products by OraPharma and its
Affiliates in sufficient detail to allow the royalties payable by OraPharma
hereunder to be accurately determined. Each sublicense agreement entered into
by OraPharma shall expressly require OraPharma's sublicensee also to maintain
such records. ACY shall have the right for a period of three (3) years after
receiving any report or statement with respect to royalties due and payable
hereunder to appoint an independent accounting firm reasonably acceptable to
OraPharma to inspect and audit the relevant records of OraPharma, its Affiliates
or sublicensees to verify such report or statement. OraPharma, its Affiliates
and their sublicensees shall make their records available for inspection and
audit by such independent accounting firm during regular business hours at such
place or places where such records are customarily kept, upon reasonable notice
to OraPharma, its Affiliate or its sublicensee to the extent reasonably
necessary to verify the accuracy of the reports and payments required hereunder;
provided, that such inspection and audit right shall not be exercised more than
- --------
once in any calendar year. ACY shall be responsible for the cost of any such
inspection and audit by an independent accounting firm, unless such inspection
and audit discloses for any calendar quarter examined that there shall have been
a discrepancy in favor of OraPharma of greater than 10% between the royalties
payable by OraPharma hereunder and the royalties actually paid to ACY with
respect to such calendar quarter, in which case OraPharma shall be responsible
for the payment of the reasonable cost of such inspection and audit.
60 SUPPLY OF MINOCYCLINE. OraPharma shall have the right, but not the
obligation, to purchase from ACY minocycline in micronized bulk form or milled
bulk form, at OraPharma's option, so long as ACY continues to manufacture
minocycline; provided, that nothing contained herein shall obligate ACY to
--------
continue the manufacture of minocycline. ACY shall provide OraPharma with at
least twelve (12) months prior written notice if ACY intends to cease the
manufacture of minocycline. The purchase price for any minocycline sold to
OraPharma by ACY shall be the lowest amount that ACY charges any Entity, other
than an Affiliate, for minocycline in the form purchased by OraPharma, and shall
be payable upon such terms as shall be agreed to by the Parties in a separate
Supply Agreement. Upon request, ACY agrees to manufacture and sell to OraPharma
such quantities of minocycline as OraPharma may from time to time require and in
such form as OraPharma shall request. ACY shall use reasonable commercial
efforts to deliver to OraPharma all minocycline reasonably requested by
OraPharma in the form, in the quantity, at the time or times and at the
destination specified by OraPharma. If any shipment of minocycline may be
delayed for any reason, ACY agrees to promptly notify OraPharma of the delay and
the expected duration. ACY shall perform a final quality control test on
minocycline before shipment to OraPharma and shall furnish to
18
<PAGE>
OraPharma a certificate of analysis with each shipment of minocycline.
OraPharma's right to purchase minocycline pursuant to this Section 6 shall
extend to all Affiliates and sublicensees of OraPharma, but only for the use of
minocycline in the manufacture of MP.
70 IMPROVEMENTS.
7.1 Option. OraPharma hereby grants to ACY a non-exclusive option to
------
acquire a worldwide non-exclusive royalty bearing license with respect to each
Improvement solely for use in fields outside of the oral cavity (an "Improvement
-----------
License"), exercisable as provided below in subsection 7.2. OraPharma shall
- -------
promptly notify ACY of each Improvement after OraPharma has filed or caused to
be filed a patent application with respect thereto. Each notice of an
Improvement shall describe the Improvement in reasonable detail. ACY shall have
a period of ninety (90) days after receipt of each such notice (the "Option
------
Period") to evaluate the applicable Improvement and to exercise its option.
- ------
7.2 Exercise of Option. If ACY desires to exercise its option to
------------------
obtain an Improvement License with respect to any Improvement, ACY shall notify
OraPharma thereof in writing not later than the last day of the applicable
Option Period. If ACY exercises its option, the Parties agree to negotiate in
good faith the terms and conditions of the Improvement License providing for ACY
to make, have made, use, sell, have sold and otherwise commercialize ACY
Products. Each Improvement License shall provide (i) that ACY shall pay to
OraPharma a royalty of [the confidential material contained herein has been
omitted and has been separately filed with the commission.] and (ii) such other
terms and conditions as shall be mutually agreed to by the Parties.
80 TERM.
8.1 Term. This Agreement shall be effective from the Effective Date
----
and, unless sooner terminated in accordance with the provisions of this Section
8, shall continue until the expiration date of the last to expire of any issued
patent included within the ACY Patent Rights having claims covering the
manufacture, use or sale of any Product, at which time OraPharma shall have a
fully paid-up non-cancellable license under all ACY Patent Rights and ACY
Technology.
8.2 Events of Default. Each Party shall have the right to terminate
-----------------
this Agreement upon the occurrence of any of the following events (each, an
"Event of Default") with respect to the other (the "Defaulting Party"): (i) a
- ----------------- ----------------
decree or order shall have been entered by a court of competent jurisdiction
adjudging the Defaulting Party bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, readjustment, arrangement, composition
or similar relief for the Defaulting Party under any bankruptcy law or any other
similar applicable statute, law or regulation, or a decree or order of a court
of competent jurisdiction shall have been entered for the appointment of a
receiver or liquidator or trustee or
19
<PAGE>
assignee in bankruptcy or insolvency of the Defaulting Party or a substantial
part of its property, or for the winding up or liquidation of its affairs; or
(ii) the Defaulting Party shall institute proceedings to be adjudicated a
voluntary bankrupt, or shall consent to the filing of a bankruptcy petition
against it, or shall file a petition or answer or consent seeking
reorganization, readjustment, arrangement, composition, liquidation or similar
relief under any bankruptcy law or any other similar applicable statute, law or
regulation, or shall consent to the appointment of a receiver or liquidator or
trustee or assignee in bankruptcy or insolvency of it or of a substantial part
of its property, or shall make an assignment for the benefit of creditors, or
shall be unable to pay its debts generally as they become due; or (iii) any
representation or warranty made by the Defaulting Party in this Agreement shall
be incorrect or untrue in any material respect; or (iv) the Defaulting Party
dissolves or ceases to exist (without a successor or assign) as a going concern;
or (v) the Defaulting Party shall commit a material breach of the terms of this
Agreement and such material breach is not cured within thirty (30) days after
written notice thereof is given by the other Party to the Defaulting Party. The
failure by OraPharma to pay ACY any royalties or other payments when due and
payable in accordance with the provisions of Section 5 hereof shall be deemed a
material breach of this Agreement.
8.3 Termination. Each Party may terminate this Agreement upon the
-----------
occurrence of any Event of Default by or with respect to the other Party by
giving written notice thereof to the other Party, which notice shall
specifically identify the reason(s) for such termination. OraPharma shall have
the right to terminate this Agreement for any reason, with or without cause,
upon not less than sixty (60) days' prior written notice to ACY. In addition,
either Party may terminate this Agreement, by giving written notice to the other
party, in the event that the other Party shall (i) commence or participate in
any action or proceeding (including, without limitation, any patent opposition
or re-examination proceeding), or otherwise assert in writing any claim,
challenging or denying the validity of any patent right of such Party or any
claim thereof or (ii) solicit or encourage any other Entity to commence any
action or proceeding (including, without limitation, any patent opposition or
re-examination proceeding) challenging or denying the validity of, or in any
manner infringe, any patent right of such Party or any claim thereof. This
Agreement shall terminate effective immediately upon the giving of such notice,
or such later time as the notice of termination may specify.
8.4 Consequences of Termination. The termination of this Agreement
---------------------------
for any reason shall be without prejudice to (i) the right of ACY to receive all
amounts accrued under Section 5 hereof prior to the effective date of such
termination, (ii) the rights and obligations of the Parties pursuant to Sections
5 and 11 hereof (which shall survive the termination of this Agreement), (iii)
the confidentiality and nondisclosure obligations of the Parties pursuant to
Section 9 hereof (which shall survive the termination of this Agreement), and
(iv) any other remedies as may now or hereafter be available to any Party,
whether under this Agreement, at law, in equity or otherwise. If this Agreement
is terminated by either Party pursuant to this Section 8, (a) OraPharma, its
Affiliates and its sublicensees shall discontinue the development, manufacture,
use and sale of Products as provided herein and (b) OraPharma, its Affiliates
and its sublicensees shall (1) cease the use of all Confidential Information of
ACY and (2) return to
20
<PAGE>
ACY all documents and materials containing any Confidential Information of ACY;
provided, however, that OraPharma, its Affiliates and its sublicensees may
- ------------------
complete the manufacture of any work-in- process and retain and sell their
inventory of all Products then on hand or in production, subject to the
obligation of OraPharma to pay to ACY all royalties with respect to Net Sales
resulting from the sale of such Products as though this Agreement had not been
terminated.
90 CONFIDENTIAL INFORMATION. The Parties each recognize that the
Confidential Information of the other Party and any and all Affiliates thereof
constitutes valuable confidential and proprietary information. Accordingly, the
Parties each agree that they and their respective Affiliates shall, during the
term of this Agreement and for a period of five (5) years after the termination
thereof for any reason, hold in confidence all Confidential Information of the
other Party (including the terms hereof) and not use the same for any purpose
other than as set forth in this Agreement nor disclose the same to any other
Entity except to the extent that it is necessary for such Party to enforce its
------
rights under this Agreement or if required by law or any governmental authority
(including, without limitation, any stock exchange upon which such Party's
shares or other equity securities may be traded); provided, however, if any
-------- -------
Party shall be required by law to disclose any such Confidential Information to
any other Entity, such Party shall give prompt written notice thereof to the
other Party and impose upon any Entity entitled to obtain such Confidential
Information such obligations of confidentiality as may be lawfully available;
and provided, further, that the Parties shall each be permitted to disclose such
-------- -------
Confidential Information to the extent reasonably necessary (i) to such Party's
attorneys, accountants, consultants and other professional advisors under an
obligation of confidentiality to such Party, (ii) to such Party's banks,
financial institutions or other Entities for the purpose of raising capital or
borrowing money or maintaining compliance with agreements, arrangements and
understandings relating thereto, (iii) to regulatory authorities, (iv) to
Affiliates and sublicensees of such Party, if such Entity agrees to maintain the
confidentiality of such Confidential Information pursuant to a written
agreement, and (v) to any Entity who proposes to purchase or otherwise succeed
(by merger, operation of law or otherwise) to all of such Party's right, title
and interest in, to and under this Agreement, if such Entity agrees to maintain
the confidentiality of such Confidential Information pursuant to a written
agreement in form and substance reasonably satisfactory to the Parties. The
standard of care required to be observed hereunder shall be not less than the
degree of care which each Party or Affiliate thereof uses to protect its own
information of a confidential nature.
100 REPRESENTATIONS AND WARRANTIES.
10.1 By OraPharma. OraPharma hereby represents and warrants to ACY
------------
that (i) OraPharma has full legal right, power and authority to execute, deliver
and perform its obligations under this Agreement, (ii) the execution, delivery
and performance by OraPharma of this Agreement do not contravene or constitute a
default under any provision of applicable law or
21
<PAGE>
of its certificate of incorporation or by-laws (or equivalent governing
documents) or of any agreement, judgment, injunction, order, decree or other
instrument binding upon OraPharma, (iii) all licenses, consents, authorizations
and approvals, if any, required for the execution, delivery and performance by
OraPharma of this Agreement have been obtained and are in full force and effect
and all conditions thereof have been complied with, and no other action by or
with respect to, or filing with, any governmental authority or any other Entity
is required in connection with the execution, delivery and performance by
OraPharma of this Agreement, except for licenses, consents, authorizations and
approvals of any regulatory or other governmental or quasi-governmental
authority necessary to manufacture, use, sell, market, import, export or
otherwise commercialize any Product, and (iv) this Agreement constitutes a valid
and binding agreement of OraPharma, enforceable against OraPharma in accordance
with its terms.
10.2 By ACY. ACY hereby represents and warrants to OraPharma that
------
(i) ACY has full legal right, power and authority to execute, deliver and
perform its obligations under this Agreement, (ii) the execution, delivery and
performance by ACY of this Agreement do not contravene or constitute a default
under any provision of applicable law or of its certificate of incorporation or
by-laws (or equivalent governing documents) or of any agreement, judgment,
injunction, order, decree or other instrument binding upon ACY or relating to
the ACY Patent Rights, (iii) all licenses, consents, authorizations and
approvals, if any, required for the execution, delivery and performance by ACY
of this Agreement have been obtained and are in full force and effect and all
conditions thereof have been complied with, and no other action by or with
respect to, or filing with, any governmental authority or any other Entity is
required in connection with the execution, delivery and performance by ACY of
this Agreement, (iv) ACY is the exclusive owner of all legal and beneficial
right, title and interest in and to the ACY Patent Rights, the ACY Technology
and the Equipment, free and clear of any lien, claim or encumbrance or other
rights of any other Entity, except that (A) ACY makes no representation or
warranty regarding patent infringement, and (B) with respect to the ACY Patent
Rights, ACY has granted to Technical Developments and Investments, Est. ("TD")
--
certain non-exclusive license rights to its microencapsulation delivery system
pursuant to an Agreement dated as of June 26, 1986 between ACY and TD (a copy of
which Agreement is attached as Exhibit D hereto), (v) this Agreement constitutes
---------
a valid and binding agreement of ACY, enforceable against ACY in accordance with
its terms, and (vi) to the best of ACY's knowledge, after diligent inquiry, none
of the information or documentation furnished to OraPharma in connection with or
otherwise relating to the ACY Patent Rights contains any untrue statement of a
material fact or omits to state a material fact necessary to make such
information or documentation not misleading.
10.3 Survival of Representations and Warranties. The representations
------------------------------------------
and warranties contained herein shall survive the execution, delivery and
performance of this Agreement by the Parties for a period of two (2) years
following the Effective Date, notwithstanding any investigation at any time made
by or on behalf of either Party.
110 PATENTS; INFRINGEMENT OF ACY PATENT RIGHTS.
22
<PAGE>
11.1 Patents. ACY shall file, prosecute and maintain all ACY Patents
-------
throughout the world at its sole cost and expense. ACY shall promptly furnish
to OraPharma copies of all patent applications, documents and correspondence
relating to all patent office actions and responses thereto and other material
correspondence from or to ACY relating to any of the ACY Patent Rights.
11.2 Infringement Claims.
-------------------
11.2.1 Legal Proceedings. Each Party will promptly advise the other
-----------------
of any infringements or suspected infringements of any ACY Patent Rights of
which OraPharma or ACY, as the case may be, becomes aware. Subject to
subsection 11.2.2 below, ACY shall retain the right to elect, in its sole
discretion, which remedies to adopt with respect to any infringement or
suspected infringement of the ACY Patent Rights; and should ACY elect not to
take such action as may be reasonably requested by OraPharma to protect its
rights with respect to the Products, OraPharma may take such action as it may
desire to protect its licenses and other rights granted hereunder and otherwise
with respect to the Products, including, without limitation, the commencement or
participation in legal and patent office proceedings at OraPharma's cost and
expense. Any proceedings commenced by OraPharma may be brought in the name of
OraPharma. All damages and other amounts recovered by ACY as a result of legal
proceedings commenced by ACY relating to any Applicable Indication (whether
pursuant to a final judgment, by settlement or otherwise) shall be applied first
to all of the expenses paid by ACY to prosecute such proceedings, and the
remaining balance of any such recovery shall be divided equally between the
Parties. If OraPharma elects to commence any legal proceedings with respect to
any infringement or suspected infringement of any ACY Patent Rights, OraPharma
shall be entitled to retain all damages and other amounts recovered by OraPharma
as a result of such proceedings (whether pursuant to a final judgment, by
settlement or otherwise). ACY may, at its sole expense, participate in any
proceedings commenced by OraPharma. If either ACY or OraPharma initiates any
action for the prosecution of infringement of any ACY Patent Rights, the other
Party shall, at the initiating Party's cost and expense, join in any legal
proceedings commenced by the other if required by law. If ACY initiates any
action for the prosecution of infringement of any ACY Patent Rights, OraPharma
shall, at ACY's cost and expense, fully cooperate with and assist ACY in
connection therewith (including, to the extent reasonably possible, having its
employees testify and make available relevant records, papers, information,
samples and the like). If OraPharma initiates any action for the prosecution of
infringement of any ACY Patent Rights, ACY shall provide reasonable cooperation
to OraPharma in connection therewith (including, to the extent reasonably
possible, having its employees testify and make available relevant records,
papers, information, samples and the like).
11.2.2 ACY Obligations. ACY shall use its diligent efforts in good
---------------
faith to cause the termination of any suspected infringement by any Entity (a
"Competitor") making, using or selling a Competitive Product (as defined below)
- -----------
or a process for the manufacture of a Competitive Product after becoming aware
of such infringement. For the purpose of this subsection 11.2.2, a "Competitive
-----------
Product" shall mean any product for use in connection with
- -------
23
<PAGE>
any Applicable Indication and the manufacture, use or sale of which infringes
one or more valid current claims included within the ACY Patent Rights. In the
case of suspected infringements affecting a Non-Exclusive Product only, ACY may
cause an infringement to terminate by entering into a license agreement with the
Competitor (subject to subsection 5.7.5). OraPharma shall promptly notify ACY,
in writing, of any suspected infringement by any Competitor of which it becomes
aware. If ACY has not caused a suspected infringement to cease within three (3)
months following ACY's receipt of actual knowledge thereof (the "Waiting
-------
Period"), then the following shall apply:
- ------
(i) If ACY fails to commence legal proceedings against the
Competitor on or before the expiration of the Waiting Period and,
thereafter, to diligently prosecute the legal proceedings to completion,
then until such infringement is terminated, the royalties payable under
subsection 5.5 in respect of sales of Products manufactured, used or sold
in the country or countries in which such infringement has occurred shall
be reduced to (a) in the case of MP [the confidential material contained
herein has been omitted and has been separately filed with the commission.]
and (b) in the case of all Products other than MP [the confidential
material contained herein has been omitted and has been separately filed
with the commission.]
(ii) If ACY commences and diligently prosecutes legal proceedings
against the Competitor, but the infringement by the Competitor shall not
have terminated within two (2) years following ACY's receipt of actual
knowledge thereof, then all royalties otherwise payable by OraPharma
hereunder in respect of sales of Products manufactured, used or sold in the
country or countries in which such infringement has occurred shall be
deposited by OraPharma into an interest-bearing escrow account established
for such purpose until the matter is finally resolved by settlement or a
final non-appealable judgment of a court of competent jurisdiction. If ACY
prevails and causes the suspected infringement by a Competitor to terminate
or if any patent in the ACY Patent Rights is held valid but is not
infringed, then the amounts paid into escrow shall be released and paid to
ACY. If any of the ACY Patent Rights that provide substantial protection
for any Product are determined to be invalid, then the amounts paid into
escrow shall be released and paid to OraPharma.
If ACY is unable to commence legal proceedings in any country or jurisdiction
due to procedural requirements which require ACY to take certain actions prior
to the commencement of legal proceedings, then ACY shall be deemed to have
commenced legal proceedings for the purpose of this subsection 11.2.2 if ACY has
commenced and diligently pursues all actions necessary or desirable to commence
legal proceedings as soon as possible thereafter. The Waiting Period may be
extended for a period not to exceed an additional three (3) months if ACY
represents to OraPharma, in writing, that it is preparing to commence legal
proceedings, or that it is negotiating in good faith with the Competitor, to
cause such suspected infringement to cease and that ACY reasonably believes that
it can cause the suspected infringement to cease within the extended period.
24
<PAGE>
120 INDEMNIFICATION.
12.1 Indemnification by OraPharma. OraPharma agrees to indemnify,
----------------------------
defend and hold harmless ACY and its Affiliates, and their respective directors,
officers, employees and agents (collectively, "Related Parties"), from and
---------------
against any and all claims, demands, losses, liabilities, damages, costs and
expenses (including the cost of settlement, reasonable legal and accounting fees
and any other expense for investigating or defending any actions or threatened
actions) arising out of, relating to, resulting from or otherwise in connection
with (i) any actual or alleged injury or death of any Entity or damage to any
property caused or claimed to be caused by any Product developed, manufactured
or sold by OraPharma, except to the extent that such injury, death or damage is
------
caused by the negligence or willful conduct of the ACY or any of its Affiliates,
or any of their respective Related Parties, (ii) any actual or alleged injury or
death of any person or physical damage to any property caused or claimed to be
caused by the Equipment, (iii) the breach of any representation or warranty made
by OraPharma herein, (iv) the default by OraPharma in the performance or
observance of any of its obligations to be performed or observed hereunder, and
(v) any action, suit or other proceeding, or compromise, settlement or judgment,
relating to any of the foregoing matters with respect to which ACY or any of its
Affiliates, or any of their respective Related Parties, is entitled to
indemnification hereunder. In the event such claim is made or such an action is
commenced by a third party against any such Entity entitled to seek
indemnification pursuant to this subsection 12.1, such Entity shall promptly
notify OraPharma of such claim or action and OraPharma may, at its option, elect
to assume control of the defense of such claim or action; provided, however,
-------- -------
that (a) such Entity shall be entitled to participate therein (through counsel
of its or his own choosing) at such Entity's sole cost and expense, and (b)
OraPharma shall not settle or compromise any such claim or action without the
prior written consent of such Entity (which consent shall not be unreasonably
withheld or delayed), unless such settlement or compromise includes a general
release of such Entity from any and all liability with respect thereto.
12.2 Indemnification by ACY. ACY agrees to indemnify, defend and
----------------------
hold harmless OraPharma, its Affiliates and its sublicensees, and their
respective Related Parties, from and against any and all claims, demands,
losses, liabilities, damages, costs and expenses (including the cost of
settlement, reasonable legal and accounting fees and any other expense for
investigating or defending any actions or threatened actions) arising out of,
relating to, resulting from or otherwise in connection with (i) the breach of
any representation or warranty made by ACY herein, (ii) the default by ACY in
the performance or observance of any of its obligations to be performed or
observed hereunder, and (iii) any action, suit or other proceeding, or
compromise, settlement or judgment, relating to any of the foregoing matters
with respect to which OraPharma, any of its Affiliates or any of its
sublicensees, or any of their respective Related Parties, is entitled to
indemnification hereunder. In the event such claim is made or such an action is
commenced by a third party against any such Entity entitled to seek
indemnification pursuant to this subsection 12.2, such Entity shall promptly
notify ACY of such claim or action and ACY may, at its option, elect to assume
control of the defense of such claim or action;
25
<PAGE>
provided, however, that (a) such Entity shall be entitled to participate therein
- --------- --------
(through counsel of its or his own choosing) at such Entity's sole cost and
expense, and (b) ACY shall not settle or compromise any such claim or action
without the prior written consent of such Entity (which consent shall not be
unreasonably withheld or delayed), unless such settlement or compromise includes
a general release of such Entity from any and all liability with respect
thereto.
130 LIMITATIONS ON LIABILITY.
13.1 No Warranties. Except as expressly set forth in Section 10 of
-------------
this Agreement, neither Party makes any representations or warranties as to any
matter whatsoever.
13.2 Limitations of Liability. UNDER NO CIRCUMSTANCES SHALL EITHER
------------------------
PARTY BE LIABLE TO THE OTHER PARTY OR ANY OTHER ENTITY FOR ANY LOSS OF PROFITS
OR SPECIAL, CONSEQUENTIAL OR INDIRECT DAMAGES OF ANY KIND WHATSOEVER.
13.3 Force Majeure. No Party shall be liable for failure or delay in
-------------
performing any of its obligations hereunder if such failure or delay is
occasioned by compliance with any governmental regulation, request or order, or
by circumstances beyond the reasonable control of the Party so failing or
delaying, including, without limitation, Acts of God, war, insurrection, fire,
flood, accident, labor strikes, work stoppage or slowdown (whether or not such
labor event is within the reasonable control of the Parties), or inability to
obtain raw materials, supplies, power or equipment necessary to enable such
Party to perform its obligations hereunder. Each Party shall (i) promptly
notify the other Party in writing of any such event of force majeure, the
expected duration thereof and its anticipated effect on the ability of such
Party to perform its obligations hereunder, and (ii) make reasonable efforts to
remedy any such event of force majeure.
140 MISCELLANEOUS.
14.1 All notices, consents and other communications required or which
may be given under this Agreement shall be deemed to have been duly given (i)
when delivered by hand, (ii) three (3) days after being mailed by registered or
certified mail, return receipt requested, or (iii) when received by the
addressee, if sent by facsimile transmission or by Express Mail, Federal Express
or other express delivery service (receipt requested), in each case addressed to
a Party at its address set forth below (or to such other address as such Party
may hereafter designate as to itself by notice to the other Party hereto) :
If to OraPharma: OraPharma, Inc.
1200 Route 22 East
26
<PAGE>
Suite 2000
Bridgewater, NJ 08807
Attn: Chief Executive Officer
Telecopy: 908-806-6199
with a copy to: Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102
Attn: Ira A. Rosenberg
Telecopy: 201-643-6500
If to ACY: American Cyanamid Company
555 E. Lancaster Avenue
St. Davids, PA 19087
Attn: President
Telecopy: 610-995-3390
with a copy to: American Cyanamid Company
P.O. box 8299
Philadelphia, PA 19101
Attn: Director, Legal Division
Telecopy: 610-964-3811
14.2 Amendments, etc. This Agreement may not be amended or modified,
----------------
nor may any right or remedy of any Party be waived, unless the same is in
writing and signed by such Party or a duly authorized representative of such
Party. The waiver by any Party of the breach of any term or provision hereof by
any other Party will not be construed as a waiver of any other or subsequent
breach.
14.3 No Waiver; Remedies. No failure or delay by any Party in
-------------------
exercising any of its rights or remedies hereunder will operate as a waiver
thereof, nor will any single or partial exercise of any such right or remedy
preclude any other or further exercise thereof or the exercise of any other
right or remedy. The rights and remedies of the Parties provided in this
Agreement are cumulative and not exclusive of any rights or remedies provided by
law, in equity or otherwise.
14.4 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the Parties and their respective legal
representatives, successors and permitted assigns; provided, that, subject to
--------
OraPharma's rights to grant sublicenses hereunder, neither Party may assign or
otherwise transfer any of its rights, duties or obligations under this Agreement
without the prior written consent of the other Party. Notwithstanding the
foregoing, either Party, upon prior written notice to the other Party (but
without any obligation to obtain the
27
<PAGE>
consent of such other Party), may assign this Agreement or any of its rights
hereunder (i) to any Affiliate of such Party, or (ii) to any Entity who succeeds
(by purchase, merger, operation of law or otherwise) to all or substantially all
of the capital stock, assets or business of such Party, if such Entity agrees in
writing to assume and be bound by all of the obligations of such Party under
this Agreement.
14.5 Relationship of Parties. OraPharma and ACY are not (and nothing
-----------------------
in this Agreement shall be construed to constitute them) partners, joint
venturers, agents, representatives or employees of the other Party, nor to
create any relationship between them other than that of an independent
contractor. Neither Party shall have any responsibility or liability for the
actions of the other Party except as specifically provided herein. Neither
------
Party shall have any right or authority to bind or obligate the other Party in
any manner or make any representation or warranty on behalf of the other Party.
14.6 Expenses; Further Assurances. Unless otherwise provided herein,
----------------------------
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the Party which shall have
incurred the same, and the other Party shall have no liability relating thereto.
Without limiting the generality of any provision of this Agreement, each Party
agrees that upon request of any other Party, it shall, from time to time, do any
and all other acts and things as may reasonably be required to carry out its
obligations hereunder, to consummate the transactions contemplated hereby, and
to effectuate the purposes hereof.
14.7 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the Parties and supersedes all prior proposals,
communications, representations and agreements, whether oral or written, with
respect to the subject matter hereof.
14.8 Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions hereof in any other jurisdiction.
14.9 Counterparts. This Agreement may be signed in any number of
------------
counterparts, each of which shall be deemed an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument.
14.10 Headings. The headings used in this Agreement are for
--------
convenience of reference only and shall not affect the meaning or construction
of this Agreement.
14.11 Governing Law. This Agreement, including the performance and
-------------
enforceability hereof, shall be governed by and construed in accordance with the
laws of the State of New Jersey, without reference to the principles of
conflicts of law. Each Party hereby
28
<PAGE>
submits itself for the sole purpose of this Agreement and any controversy
arising hereunder to the exclusive jurisdiction of the courts located in the
State of New Jersey, and any courts of appeal therefrom, and waives any
objection (on the grounds of lack of jurisdiction, or forum non conveniens or
otherwise) to the exercise of such jurisdiction over it by any such courts.
IN WITNESS WHEREOF, the Parties hereto have executed or caused their
authorized representatives to execute this Agreement as of the date first above
written.
ATTEST: AMERICAN CYANAMID COMPANY
By: /s/ Robert Dougan By: /s/ Robert Essner
------------------------------------- ---------------------------------
Robert Dougan Name: Robert Essner
Title: Vice President
ATTEST: ORAPHARMA, INC.
By: /s/ Signature illegible By: /s/ Michael Kishbauch
---------------------------------------- ---------------------------
Name:
Title:
29
<PAGE>
EXHIBIT 10.10
LICENSE AGREEMENT
-----------------
This License Agreement ("Agreement"), is effective as of December 19, 1996,
by and between Gary R. Jernberg, D.D.S., M.S.D., an individual having a
principal place of business at 99 Navaho Avenue, Suite 102, Mankato, Minnesota
56001 (hereinafter referred to as "LICENSOR"), and OraPharma, Inc., a
corporation organized and existing under the laws of the State of Delaware,
having a principal place of business at 1200 Route 22 East, Suite 2000,
Bridgewater, New Jersey, 08807, (hereinafter referred to as "LICENSEE").
RECITALS
--------
WHEREAS, LICENSOR is the owner of the entire right, title and interest in
the Licensed Patent (as defined below) and the Option Patents (as defined
below); and
WHEREAS, LICENSOR represents and warrants that he has the sole right to
grant for the United States, its territories and possessions and any foreign
jurisdictions in which corresponding patents have been issued and patent
applications have been filed (collectively, the "Territory"), (i) licenses under
the Licensed Patent of the scope hereinafter granted and options and licenses
under the Option Patents of the scope hereinafter granted, and (ii) releases for
past infringement, if any, under the Licensed Patent and the Option Patents; and
WHEREAS, LICENSEE desires to (i) develop, manufacture, use and sell
product(s) used in method(s) for local delivery of chemotherapeutic agents in
the treatment of periodontal diseases, which method(s) are covered by one or
more of the claims of the Licensed Patent, and to authorize others to do so, and
(ii) evaluate the Option Patents; and
WHEREAS, LICENSEE desires to acquire, and LICENSOR is willing to grant, an
exclusive license under the Licensed Patent to practice and authorize others to
practice method(s) covered by one or more of the claims of the Licensed Patent
(hereinafter the "Delivery Licensed Method"); and
WHEREAS, LICENSEE desires to obtain an option to acquire an exclusive
license under the Option Patents to develop, make, use and sell product(s) used
in methods for aiding periodontal tissue regeneration and methods for delivery
of tissue regeneration agents (the "Barrier Licensed Method") and to permit
others to do so, and the LICENSOR is willing to grant such option and exclusive
license; and
WHEREAS, a condition precedent to the granting of any licenses herein is
the execution of a related agreement between LICENSEE and American Cyanamid
("Cyanamid Agreement").
<PAGE>
NOW, THEREFORE, in consideration of the promises and conditions hereinafter
set forth, the parties agree as follows:
I. DEFINITIONS
---------------
1.1 "Net invoice price" shall mean the total invoices billed, less the
following items, to the extent to which they are paid and included in the
total invoices billed:
(a) sales taxes;
(b) excise taxes and custom duties and other governmental charges;
(c) transportation and insurance on shipments to customers;
(d) trade, quantity and cash discounts; and
(e) amounts repaid, credited or otherwise allowed by reason of rebates,
recalls, rejections of defective goods or returned goods.
If LICENSEE or any of its Affiliates or sublicensees sells any Licensed
Product in combination with other items which are not Licensed Products
("Other Items") at a single invoice price, "Net Invoice Price" for purposes
of computing royalty payments due hereunder on the combination shall be
determined on a country-by-country basis as follows:
(i) if all Licensed Products and Other Items contained in the combination
are available separately, "Net Invoice Price" for purposes of
computing royalty payments shall be determined by multiplying Net
Invoice Price from sales of the combination by the fraction A/A+B,
where A is the selling price of all Licensed Products in the
combination and B is the selling price of all Other Items in the
combination;
(ii) if the combination includes Other Items which are not sold separately
(but all Licensed Products contained in the combination are available
separately), "Net Invoice Price" for purposes of computing royalty
payments shall be determined by multiplying Net Invoice Price from
sales of the combination by the fraction A/C, where A is the selling
price of all Licensed Products in the combination and C is the
selling price of the combination, provided that if the fraction A/C
is less than 50%, Net Invoice Price shall be multiplied by 50% so
that in no event shall the Net Invoice Price of Licensed Products for
purposes of computing royalty payments be less than 50% of the Net
Invoice Price of Other Items; and
(iii) if neither the Licensed Products nor the Other Items contained in the
combination are sold separately, "Net Invoice Price" for purposes of
computing royalty payments shall be determined by multiplying Net
Invoice Price from sales of the combination by the fraction D/D+E,
where D is the cost of manufacture of all Licensed Products in the
combination and E is the cost of manufacture of all
2
<PAGE>
Other Items in the combination, all as reasonably determined by
LICENSEE, its Affiliate or sublicensee (as applicable), provided that
if the fraction D/D+E is less than 50%, Net Invoice Price shall be
multiplied by 50% so that in no event shall the Net Invoice Price of
Licensed Products for purposes of computing royalty payments be less
than 50% of the Net Invoice Price of Other Items.
For purposes of determining what constitutes "Other Items", a delivery
device such as a syringe shall be included in the Net Invoice Price of the
Licensed Product such that the Net Invoice Price of a delivery device and
Licensed Product combination shall be deemed as Net Invoice Price of
Licensed Product and sections i, ii, and iii shall not be utilized unless
there are Other Items present in the combination.
1.2 "Affiliate" shall mean any corporation; e.g., subsidiary, division, etc.,
firm, partnership, individual or other form of business organization as to
which the control of the business shall be exercised by LICENSEE, any
corporation in which LICENSEE owns at least fifty percent (50%) of the
stock entitled to vote for directors, any corporation which owns fifty
percent (50%) or more of the stock of LICENSEE, and any legal entity under
common control with LICENSEE.
1.3 "Licensed Patent" shall mean U.S. Patent No. 4,685,883, entitled "Local
Delivery of Chemotherapeutic Agents for the Treatment of Periodontal
Disease" and granted on August 11, 1987, and any and all divisions,
continuations, continuations-in-part, renewals, reissues and extensions
thereof.
1.4 "Option Patents" shall mean (i) U.S. Patent No. 5,059,123, entitled
"Periodontal Barrier and Method for Aiding Periodontal Tissue Regeneration"
and granted on October 22, 1991, and any corresponding foreign patents and
patent applications, (ii) U.S. Patent No. 5,197,882, entitled "Periodontal
Barrier and Method for Aiding Periodontal Tissue and Regeneration Agents"
and granted on March 30, 1993, and any corresponding foreign patents and
patent applications, and (iii) any and all divisions, continuations,
continuations-in-part, renewals, reissues and extensions of the patents and
patent applications described in clauses (i) and (ii) above.
1.5 "Patents" shall mean (i) the Licensed Patent, and (ii) upon the exercise by
LICENSEE of the option granted to it pursuant to paragraph 2.2 hereof, any
of the Option Patents that LICENSEE elects to license hereunder pursuant to
such option.
II. GRANT
----------
Subject to the terms and conditions of this Agreement, LICENSOR hereby grants to
LICENSEE:
2.1 Patent License: The exclusive right and license to practice under the
Licensed Patent and authorize others to practice the Delivery Licensed
Method throughout the United
3
<PAGE>
States, its territories and possessions and under the Licensed Patent to
make, have made, use, sell, have sold and otherwise commercialize Licensed
Products throughout the United States, its territories and possessions
(which exclusive right and license shall be exclusive even as to LICENSOR).
2.2 Option: An exclusive option to be exercised no later than January 10, 1997
------
to acquire a worldwide exclusive license under the Option Patents. LICENSEE
may exercise the option at any time prior to January 10, 1997 by giving
written notice to LICENSOR of its election to exercise the option. Upon
exercise of the option by LICENSEE, LICENSOR shall be deemed
contemporaneously to have granted to LICENSEE a worldwide exclusive right
and license to practice under the Option Patents and authorize others to
practice under the Option Patents for which the option has been exercised
to make, have made, use, sell, have sold and otherwise commercialize
Licensed Products (which exclusive right and licensee shall be exclusive
even as to LICENSOR.) If LICENSEE exercises the option as herein provided,
the right and license granted by LICENSOR to LICENSEE with respect to the
Option Patents shall automatically be valid, effective and binding upon
LICENSEE and LICENSOR, without the necessity for any signatures or further
action on the part of either of the parties hereto.
2.3 Improvement Inventions: LICENSOR's inventions in the field of oral care
which may be invented by LICENSOR during the term of this Agreement and
which infringe or would have infringed (if the applicable Patent was valid,
enforceable, and unexpired) one or more claims of the Patents ("Improvement
Inventions") shall be incorporated into this Agreement and the right and
license granted by LICENSOR to LICENSEE with respect to such Improvement
Inventions shall automatically be valid, effective and binding upon
LICENSEE and LICENSOR, without the necessity for any signatures or further
action on the part of either of the parties hereto. LICENSOR shall promptly
disclose to LICENSEE any Improvement Inventions in the field of oral care
during the term of this Agreement either before or after filing a patent
application on the invention. If LICENSOR discloses such Improvement
Inventions to LICENSEE and LICENSEE fails to file a patent application
within sixty (60) days of such disclosure, LICENSOR has the right, at
LICENSOR's expense, to file such application in such Improvement Invention
and LICENSOR will be the owner of such patent rights, subject to LICENSEE's
right and license thereunder and the other terms of this Agreement.
2.4 Right of First Refusal: A right of first refusal in accordance with the
----------------------
procedures set forth below on certain of the LICENSOR's inventions in the
field of oral care which may be invented by LICENSOR during the term of
this Agreement. LICENSOR shall promptly disclose to LICENSEE any inventions
in the field of oral care during the term of this Agreement either before
or after filing a patent application on the invention. If such inventions
qualify as Improvement Inventions then section 2.3 above shall control.
Inventions in the field of oral care which are not Improvement Inventions,
which utilize LICENSEE Confidential Information, or, the manufacture, use,
or sale thereof infringe
4
<PAGE>
one or more claims of LICENSEE's patents or patents licensed from other
third parties, whether already issued or issued in the future, shall belong
to LICENSEE and LICENSOR hereby agrees to assign any and all such rights of
LICENSOR in such inventions to LICENSEE. For purposes of this Section 2.4,
"utilize" means the use by LICENSOR of Confidential Information that is or
would have been necessary for LICENSOR to include in any patent application
disclosure for such invention(s). Any dispute as to whether an invention by
LICENSOR is covered by this Section 2.4 shall be resolved by arbitration in
accordance with paragraph XXIII. For purposes of this section, LICENSEE
Confidential Information is written information obtained from LICENSEE that
is clearly marked and labeled as such and that would be deemed trade
secrets as defined by the Uniform Trade Secrets Act. LICENSEE Confidential
Information shall not include any information which LICENSOR can
demonstrate was 1) known to LICENSOR prior to receipt from LICENSEE; 2)
otherwise lawfully available to LICENSOR or to the public; 3) through no
act on the part of LICENSOR becomes lawfully available to LICENSOR or the
public; 4) corresponds in substance to any information received in good
faith by LICENSOR from any third party with no obligation of
confidentiality to LICENSEE; 5) communicated by LICENSEE to any third party
without restriction as to confidentiality; or 6) independently developed by
LICENSOR. Inventions by LICENSOR in the field of oral care which do not
utilize LICENSEE Confidential Information and the manufacture, sale, or use
thereof does not infringe one or more claims of LICENSEE's patents or
patents licensed from other third parties in the field of oral care,
whether already issued or issued in the future, shall belong to LICENSOR.
LICENSEE shall have a period of ninety (90) days following receipt to
evaluate any such patent application and/or invention disclosure. Upon
written notice from LICENSEE prior to the end of such period, the parties
shall negotiate in good faith the terms and conditions of a license
arrangement. Should an agreement not be entered into at the end of 180
days, LICENSOR shall be free to approach other third parties regarding
possible interest in a license. However, LICENSOR shall disclose to
LICENSEE the consideration offered by any third party and shall give
LICENSEE a period of sixty (60) days to match any such offer. LICENSOR
shall not be obligated to disclose the identity of the third party or other
terms and conditions of the third party offer other than the consideration
offered; namely, royalty rate, minimum guarantees, number of shares and
price, etc.
2.5 Sublicensees: A right to sublicense any or all of the inventions and/or
Patents licensed under this Agreement.
III. LICENSE ROYALTIES AND OTHER CONSIDERATION
-----------------------------------------------
3.1 Royalty: Subject to any advance or credit provided for under this
-------
Agreement, LICENSEE shall pay to LICENSOR, on a quarterly basis, as set
forth in paragraph 4.1 below, a royalty which shall be based upon products
sold by LICENSEE or its Affiliates or sublicensees for use in the practice
of the Delivery Licensed Method and, if
5
<PAGE>
LICENSEE exercises its option under paragraph 2.2, the Barrier Licensed
Method, and the manufacture, sale or use of which shall be covered by a
valid, enforceable and unexpired claim of an issued Patent of the
jurisdiction where sold (hereinafter, the "Licensed Product"). The royalty
payable with respect to each Licensed Product sold within jurisdictions
where a valid, enforceable and unexpired claim of an issued Patent
continues to exist shall be [the confidential material contained herein has
been omitted and has been separately filed with the Commission.] Upon
expiration of the Licensed Patent, LICENSEE shall pay for a period of [the
confidential material contained herein has been omitted and has been
separately filed with the Commission] from the expiration of the Licensed
Patent a royalty of [the confidential material contained herein has been
omitted and has been separately filed with the Commission.] This reduced
royalty is in consideration for the ongoing contributions of LICENSOR to
LICENSEE as further provided in this Agreement. Royalties will be based on
the Net Invoice Price resulting from any sale of Licensed Products to third
parties by LICENSEE or any of its Affiliates or sublicensees (and not sales
among LICENSEE, its Affiliates or sublicensees, except as otherwise
provided in the following sentence). LICENSEE shall pay a royalty of [the
confidential material contained herein has been omitted and has been
separately filed with the Commission.] In those countries where the
LICENSOR has a patent, the royalty will be [the confidential material
contained herein has been omitted and has been separately filed with the
Commission.] Notwithstanding anything to the contrary contained herein if a
Licensed Product or the manufacture, sale or use thereof is covered by more
than one Patent or claim within the Patents, LICENSEE shall be responsible
for the payment of only one royalty.
3.2 Warrants: LICENSEE shall provide LICENSOR five (5) year warrants to
--------
purchase Forty Thousand (40,000) shares of LICENSEE's Common Stock, par
value $0.01 per share, at an exercise price of five cents ($.05) per share.
The warrants will vest according to the following schedule: Fifty percent
(50%) of the shares (20,000) upon signing this Agreement, and the remaining
fifty percent (50%) of the shares (20,000 shares) upon the election of
LICENSEE to exercise its option to license exclusively one or both of the
Option Patents. The warrants shall be substantially in the form attached as
Exhibit A.
3.3 Milestone Payments: For any product which relies upon one of the Patents,
------------------
milestone payments will be made according to the following schedule:
A. NDA Submission - If LICENSEE elects to submit an NDA to the U.S.
F.D.A. for a product which requires a license on one or more of the
Patents, then within thirty (30) days following the U.S. F.D.A.'s
acceptance of such NDA as a complete submission (i.e., not receipt or
final approval), LICENSEE will provide LICENSOR a payment of Fifty
Thousand U.S. Dollars ($50,000) in either cash or an equivalent value
in warrants to purchase LICENSEE's equity securities, calculated on
the basis of conversion at the then fair market value for
6
<PAGE>
LICENSEE's equity securities, as of the date the NDA submission is
accepted as a complete submission exercisable for five (5) years at
the fair market value used for conversion. The dollar value of the
milestone payment (i.e., $50,000 in the case of cash or warrants) will
be treated as an advance on royalties due to LICENSOR under this
Agreement. The election of a cash or warrant form of payment will be
at the exclusive option of LICENSEE. LICENSOR will be notified in
writing within five (5) days following receipt by LICENSEE of any
notification of acceptance by the U.S. F.D.A. of an NDA Submission as
complete and of LICENSEE's election of cash or warrants. A submission
of an NDA relating to the same product for a new indication will not
result in another milestone payment under this Section 3.3A.
B. NDA Approval - Within thirty (30) days following receipt of the
approval and authorization of the U.S. F.D.A. to market any Licensed
Products, LICENSEE will provide to LICENSOR a payment of One Hundred
Thousand U.S. Dollars ($100,000) in either cash or an equivalent value
in warrants to purchase LICENSEE's equity securities, calculated on
the basis of conversion at the fair market value for LICENSEE's equity
securities as of the date of such approval, exercisable for five (5)
years at the fair market value used for conversion. The dollar value
of the milestone payment (i.e. $100,000 in the case of cash or
warrants) will be treated as an advance on royalties due to LICENSOR
under this Agreement. The election of a cash or warrant form of
payment will be at the exclusive option of LICENSEE. LICENSOR will be
notified in writing within five (5) days following receipt by LICENSEE
of any approvals and authorizations by the U.S. F.D.A. and of
LICENSEE's election of cash or warrants. Approval of an NDA relating
to the same product for a new indication will not result in another
milestone payment under this Section 3.3B.
3.4 Special Advisor: LICENSEE will retain LICENSOR for the term of this
---------------
Agreement as a Special Advisor to LICENSEE, for an annual retainer of [the
confidential material contained herein has been omitted and has been
separately filed with the Commission] paid quarterly on the first day of
the second month of each quarter. The first quarter payment shall be
payable on a pro-rata basis. LICENSEE and LICENSOR will execute a
confidentiality agreement, attached as Exhibit B, as a part of this
arrangement. It is expected that LICENSEE will have regular meetings with
LICENSOR at which time progress on the development of products, etc.
relating to LICENSOR's technology will be presented to LICENSOR. Reasonable
expenses relating to LICENSOR's travel in connection with meetings that
LICENSEE requests LICENSOR attend, will be reimbursed upon submission of a
written invoice and copies of all receipts therefor. In addition, new ideas
or suggestions that LICENSOR may have regarding LICENSEE's existing or
proposed projects may be discussed at these meetings. [the confidential
material contained herein has been omitted and has been separately filed
with the Commission]. However, such LICENSOR's consulting services shall be
7
<PAGE>
limited to a maximum of [the confidential material contained herein has
been omitted and has been separately filed with the Commission] days per
year. Consulting services requiring travel by LICENSOR shall be limited to
no more than [the confidential material contained herein has been omitted
and has been separately filed with the Commission] trips per year with a
maximum of [the confidential material contained herein has been omitted and
has been separately filed with the Commission] per month and no more than
[the confidential material contained herein has been omitted and has been
separately filed with the Commission] days per trip. Additional consulting
services shall be provided by LICENSOR only upon LICENSOR's approval.
3.5 Sublicenses: In the event that LICENSEE enters into corporate relationships
involving product(s) which require a sublicense of one or more of the
Patents, LICENSEE will provide LICENSOR the same consideration set forth in
paragraphs 3.1 through 3.4 as if the product(s) were developed and
commercialized by LICENSEE itself.
IV. PAYMENTS, REPORTS, BOOKS AND RECORDS
-----------------------------------------
4.1 Payments and Reports: Within sixty (60) days after the end of each calendar
--------------------
quarter (e.g., the quarters ending on March 31, June 30, September 30 and
December 31) during which LICENSEE is obligated to pay royalties to
LICENSOR, LICENSEE shall provide a written report to LICENSOR setting forth
the sale of Licensed Products broken down by drug type or product class
within the Territory during such calendar quarter, provided that if
LICENSEE shall not have received from its Affiliates or any sublicensee a
report of sales of Licensed Products, then such sales may be included in
the next quarterly report. If no Licensed Products have been sold during
any calendar quarter, a statement to that effect shall be made by LICENSEE
to LICENSOR within said sixty (60) day period. At the time each report is
made, LICENSEE shall pay to LICENSOR the royalties shown by such report to
be payable thereunder. Interest shall accrue at the rate of [the
confidential material contained herein has been omitted and has been
separately filed with the Commission] with respect to any payment which is
not received when it is due and payable.
4.2 Books and Records: LICENSEE shall keep books and records in such reasonable
-----------------
detail as will permit the reports provided for in paragraph 4.1 above to be
made and the royalties payable hereunder to be determined. LICENSEE further
agrees to permit the books and records related to any such report to be
inspected or audited, not more than once per year, at the expense of
LICENSOR upon reasonable advance notice during reasonable business hours by
a certified public accountant acceptable to LICENSEE to verify such
reports. LICENSEE shall not unreasonably refuse acceptance of a certified
public accountant selected by LICENSOR to perform such an audit. The
expense of any such inspection or audit shall be borne by LICENSOR, except
that if as a result of such inspection or audit, it is determined that
LICENSEE has underpaid the royalties due
8
<PAGE>
LICENSOR by [the confidential material contained herein has been omitted
and has been separately filed with the Commission], the expense of such
inspection or audit shall be paid by LICENSEE, or if already paid, LICENSEE
shall reimburse LICENSOR for the cost thereof. The accountant shall
transmit to LICENSOR only that information necessary to verify the sales
figures and LICENSOR shall require the accountant to maintain all other
information in strict confidence. LICENSOR may perform the audits set forth
above to cover a period of three (3) years from the date a report is due
LICENSEE. However, if a material shortfall in payment of royalties is
discovered during an audit, LICENSOR may perform the audits set forth above
to cover a period of five (5) years from the date a report is due LICENSEE.
4.3 Periodic Status Reports: LICENSOR shall be provided on a semi-annual basis
-----------------------
(every six (6) months) with an overall status review of all research and
development and marketing efforts to develop and market products covered by
the invention.
4.4 Payment of Royalties: Payment shall be made by delivery of a check to the
--------------------
LICENSOR's address noted above or such other address as designated in
writing by LICENSOR. Payment shall be deemed made upon date of deposition
in the mail if mailed, or personal delivery if personally delivered.
4.5 Accounting; Foreign Currency: Royalty payments shall be paid in United
----------------------------
States dollars. If a currency conversion shall be required in connection
with the payment of royalties hereunder, the conversion shall be made by
using the exchange rate quoted in The Wall Street Journal (eastern edition)
on the last business day of the calendar quarter reporting period to which
such royalty payments relate. Where royalties are due from sales in a
country where by reason of currency regulations of any kind or otherwise it
is impossible to make royalty payments for such sales in accordance with
this Agreement, such royalties shall be deposited in whatever currency is
allowable for the benefit or credit of LICENSOR in any bank in that country
as shall be acceptable to LICENSOR.
4.6 Withholding Taxes: LICENSOR acknowledges and agrees that there may be
-----------------
deducted from any payments or royalties otherwise due and payable hereunder
any taxes or other payments required to be withheld under applicable law
with respect to such payments or royalties or otherwise relating to
Licensed Products.
V. TERM AND TERMINATION
-----------------------
5.1 Term: Excepted as provided in Section 3.1 relative to certain ongoing
----
royalties for [the confidential material contained herein has been omitted
and has been separately filed with the Commission] following expiration of
the Licensed Patent, the term of this Agreement shall commence on the
effective date of the Agreement and continue for the entire remaining term
of the Patents (including as the term of any Patent that may be
9
<PAGE>
extended pursuant to the Patent Term Restoration Act or foreign
equivalent), unless earlier terminated, pursuant to the provisions of
paragraphs 5.2 or 5.3 below.
5.2 Termination by LICENSOR:
-----------------------
(a) Default by LICENSEE: LICENSOR at his option may terminate this
-------------------
Agreement by written notice to LICENSEE if LICENSEE shall:
i. default in the payment of any royalties or any other amount
required to be paid by LICENSEE to LICENSOR hereunder and such
default shall continue for a period of sixty (60) days after
LICENSOR shall have given to LICENSEE written notice of such
default; or
ii. default in the making of any reports required to be made by
LICENSEE to LICENSOR hereunder and such default shall continue
for a period of sixty (60) days after LICENSOR shall have given
LICENSEE written notice of such default; or
iii. default in the performance of any other material provision
contained in this Agreement to be performed and such default
shall continue for a period of sixty (60) days after LICENSOR
shall have given LICENSEE written notice of such default.
(b) Effect of Failure to Terminate: Failure or delay by LICENSOR to
------------------------------
exercise its right of termination by reason of any default of LICENSEE
in carrying out any obligation imposed upon it by this Agreement shall
not operate to prejudice LICENSOR's right of termination for any other
or subsequent default by LICENSEE.
(c) Cyanamid Agreement: LICENSOR at his option may terminate this
------------------
Agreement by giving at least ten (10) days' prior written notice to
LICENSEE in the event LICENSEE does not enter into the Cyanamid
Agreement within thirty (30) days after the effective date of this
Agreement (unless LICENSEE enters into the Cyanamid Agreement during
such ten (10) day period.)
5.3 Termination by LICENSEE:
-----------------------
(a) Patent Validity: LICENSEE shall have the right to terminate this
---------------
Agreement with respect to any Patent in the event that all of the claims of
such Patent are held invalid by a court of last resort or by a lower
tribunal from whose action no appeal has been taken within the period
allowed therefor. In the event that LICENSEE exercises its right under
this paragraph to terminate, said termination shall affect
10
<PAGE>
only payment of any future royalties due, and there shall be no
obligation by LICENSOR to refund past royalties paid or due to
LICENSOR.
(b) Termination by LICENSEE: LICENSEE shall have the right to terminate
-----------------------
this Agreement, with or without cause, as of the end of any calendar
month by giving actual notice to LICENSOR at least sixty (60) days
prior to the date of which LICENSEE shall elect to have such
termination become effective. Such termination shall discharge
LICENSEE from any and all obligations not yet due as of the effective
date of such termination, but shall not release LICENSEE from the
payment of any and all royalties earned and unpaid as of the effective
date of such termination.
5.4 Termination by Either Party: Termination of this Agreement by either party
---------------------------
shall be a remedy in addition to any other rights and/or remedies which a
party may have against the other as of the occurrence which brought about
such termination. Termination shall not relieve LICENSEE of any of its
obligations to pay royalties which accrued prior to the effective date of
termination, or to comply with any other of its obligations to perform
which arose prior to the effective date of termination. In the event this
Agreement is terminated prior to the expiration hereof, LICENSEE, its
Affiliates and its sublicensees may continue the manufacture of any work-
in-progress and retain and continue to sell all inventory of Licensed
Products then on hand or in production for a period of one hundred and
eighty (180) days from the effective date of termination provided that
royalties are paid to LICENSOR in the amounts and in the manner provided in
this Agreement as if this Agreement had not been terminated.
5.5 Patent Term Restoration Act: LICENSEE has the duty and right to seek
---------------------------
extension of the patent term under the Patent Term Restoration Act and
shall endeavor to obtain the maximum extension possible. LICENSEE will keep
LICENSOR informed as to any opportunities for such extensions and will
promptly forward to LICENSOR copies of all correspondence by and between
LICENSEE and the Patent Office. LICENSOR shall cooperate with LICENSEE in
providing whatever information and assistance is required including signing
any necessary documents without any charge to LICENSEE. LICENSEE shall
notify LICENSOR when extension under the Patent Term Restoration Act and
applicable foreign equivalents is possible. LICENSOR shall have the right
to seek extension of the patent term, if available, under the Patent Term
Restoration Act and applicable foreign equivalents if LICENSEE chooses not
to do so. LICENSEE shall pay all expenses for such process.
VI. TITLE
---------
Title to the Licensed Patent and the Option Patents and all rights therein
shall remain with LICENSOR, except for the rights and licenses granted to
LICENSEE under this Agreement.
11
<PAGE>
VII. TRANSFERABILITY OF LICENSE
--------------------------------
The rights granted by this Agreement to LICENSEE shall not be assigned,
transferred or sold by LICENSEE without the prior written consent of LICENSOR
(which consent shall not be unreasonably withheld or delayed), except that
LICENSEE may, without obtaining the consent of LICENSOR, (i) grant sublicenses
hereunder, and (ii) assign its rights hereunder to any Affiliate of LICENSEE or
to the successor of LICENSEE's business or all or substantially all of its
assets related to the licenses granted hereunder or capital stock (by purchase,
merger, operation of law or otherwise), provided that such successor agrees to
assume all of the obligations provided herein.
VIII. DOCUMENTATION AND SUPPLEMENTAL ASSISTANCE
-----------------------------------------------
LICENSOR shall have no on-going obligation to provide additional
documentation, technology, or assistance to LICENSEE beyond the disclosure in
the Patents, except for duties as Special Advisor as described in Paragraph 3.4
of this Agreement and LICENSEE's rights under paragraphs 2.3 and 2.4.
IX. TRADEMARKS AND ADVERTISEMENTS
---------------------------------
9.1 Except as otherwise provided in this Agreement, LICENSEE and LICENSOR each
agree that it shall not use, make reference to, or display any trademarks,
service marks, trade names, symbols or logos owned or used by the other,
including the use of the other's name, and further agrees that no
advertisement in any form, whether by publication, television, radio, data
sheet or by any other mode or medium, shall make any use of the names,
trademarks, trade names, logos or service marks of the other, unless prior
written permission is obtained from the other, except that LICENSEE may
state that it is licensed by LICENSOR under one or more of the Patents and
LICENSEE may comply with disclosure requirements under any applicable law.
9.2 LICENSEE shall endeavor to acknowledge Gary R. Jernberg, D.D.S., M.S.D., as
the inventor of the Patents on all LICENSEE materials identifying advisors
of the Company.
X. ENFORCEMENT OF PATENT RIGHTS
-------------------------------
10.1 Notice of Infringement: Each party hereto shall promptly notify the other
----------------------
of any alleged infringement by a third party of the Patents and of any
available evidence of such infringement.
10.2 Suit by LICENSEE: LICENSEE shall have the right, but not the obligation, to
----------------
take any action, including, without limitation, to commence a suit or other
legal proceedings, against third parties to prosecute any infringement of
any of the Patents in its own name or in the name of LICENSOR as party
plaintiff. LICENSOR shall join as a party to any
12
<PAGE>
such suit or other legal proceedings if required by law or procedure, and
otherwise cooperate and assist LICENSEE in any action undertaken by
LICENSEE. All damages and other amounts recovered by LICENSEE as a result
of any suit or other legal proceedings commenced by LICENSEE (whether
pursuant to a final judgment, by settlement or otherwise) shall be applied
first to all of the out of pocket expenses of LICENSEE and LICENSOR, if
LICENSOR is required by law or procedure to join in such suit or other
legal proceedings, to prosecute and/or settle such suit or other legal
proceedings (including, without limitation, attorneys fees and the fees of
consultants and experts), and the remaining balance of any such recovery or
payment shall be distributed [the confidential material contained herein
has been omitted and has been separately filed with the Commission] to
LICENSEE and [the confidential material contained herein has been omitted
and has been separately filed with the Commission] to LICENSOR. LICENSOR
may, at its sole expense, participate in any suit or other legal
proceedings commenced by LICENSEE if not otherwise required by law or
procedure to join in such suit or other legal proceedings.
10.3 Suit by LICENSOR: If, within ninety (90) days after notice by either party
----------------
of any alleged infringement, LICENSEE has been unsuccessful in persuading
the alleged infringer to desist and has not commenced a suit or other legal
proceedings, or if LICENSEE notifies LICENSOR at any time of its intention
not to bring suit or other legal proceedings against an alleged infringer,
the LICENSOR shall have the right, but not the obligation, to commence suit
or other legal proceedings for such infringement. The total cost of any
such infringement action commenced solely by LICENSOR shall be borne by
LICENSOR, and LICENSOR shall retain any recovery of damages awarded in such
action, except that [the confidential material contained herein has been
omitted and has been separately filed with the Commission] of any such
recovery or damages, after deducting all costs and expenses to prosecute
and/or settle such suits or other legal proceedings (including, without
limitation, attorneys fees and the fees of consultants and experts) shall
be credited against all royalties payable hereunder. LICENSEE may, at its
sole expense, participate in any suit or other legal proceedings commenced
by LICENSOR.
XI. PATENT PROSECUTION AND MAINTENANCE
--------------------------------------
LICENSEE shall, during the term of this Agreement, prosecute all patent
applications included within the Patents, and maintain all issued patents
included within the Patents in force by duly filing all necessary papers and
paying any fees required by the patent laws of the particular country in which
such Patents were issued provided that LICENSEE shall be entitled to credit the
following amounts against any future royalties: [the confidential material
contained herein has been omitted and has been separately filed with the
Commission] for each application filed in the United States and a total of [the
confidential material contained herein has been omitted and has been separately
filed with the Commission] to cover all foreign filings. Upon request LICENSOR
shall promptly provide to LICENSEE copies of all
13
<PAGE>
applications and correspondence and other documents related to the Patents that
are reasonably necessary to allow LICENSEE to prosecute and maintain such
Patents provided LICENSOR is reimbursed for all costs reasonably related to
providing such assistance.
XII. DISCLAIMERS
-----------------
Nothing contained in this Agreement shall be construed as:
(a) conferring any license or other right, by implication, estoppel or
otherwise, under any patent application, patent or patent right,
except as herein expressly granted under this Agreement; or
(b) except as otherwise set forth in paragraph XIV, a warranty or
representation by LICENSOR that any manufacture, use, sale or other
disposition of Licensed Products under the license granted in this
Agreement is fit for use or will be free from claims of infringement
of any patent, other than the Licensed Patent or the Option Patents,
as the case may be; or
(c) imposing on either party any obligation to file any patent application
or to secure any patent or maintain any patent in force, except the
Patents.
XIII. INDEMNIFICATION; PRODUCTS LIABILITY
-----------------------------------------
LICENSEE agrees to defend, indemnify and hold LICENSOR harmless from any
and all claims, demands, loss, liability, expense or damage (including
investigative costs, court costs and reasonable attorneys' fees) arising out of
or otherwise related to (i) any claim of injury or damage by any third party
arising out of any theory of product liability based upon usage of any Licensed
Product or based upon any claim that any Licensed Product is defective in
material, design or workmanship, or that the use or sale of such Licensed
Product constituted a breach of warranty, either express or implied, (ii) the
breach of any representation or warranty made by LICENSEE herein or (iii) the
default by LICENSEE in the performance or observance of any of its obligations
to be performed or observed hereunder. LICENSEE will assume control of the
defense of any such claim or action; provided, however, that (i) LICENSOR shall
be entitled to participate therein (through counsel of his own choosing) at
LICENSOR's sole cost and expense, and (ii) LICENSEE shall not settle or
compromise any such claim or action without the prior written consent of
LICENSOR (which consent shall not be unreasonably withheld or delayed) unless
such settlement or compromise includes a general release of LICENSOR from any
and all liability with respect thereto.
XIV. REPRESENTATIONS AND WARRANTIES
-----------------------------------
14.1 By LICENSEE. LICENSEE hereby represents and warrants to LICENSOR that (i)
-----------
LICENSEE has full legal right, power and authority to execute, deliver and
perform its
14
<PAGE>
obligations under this Agreement, and (ii) the execution, delivery and
performance by LICENSEE of this Agreement does not contravene or constitute
a default under any provision of applicable law or of its certificate of
incorporation or by-laws (or equivalent governing documents) or of any
agreement, judgment, injunction, order, decree or other instrument binding
upon it.
14.2 By LICENSOR. LICENSOR hereby represents and warrants to LICENSEE that (i)
-----------
LICENSOR has full legal right, power and authority to execute, deliver and
perform his obligations under this Agreement, (ii) the execution, delivery
and performance by LICENSOR of this Agreement do not contravene or
constitute a default under any provision of applicable law or any
agreement, judgment, injunction, order, decree or other instrument binding
upon LICENSOR or otherwise relating to the Licensed Patent or the Option
Patents, (iii) LICENSOR is the exclusive owner of all legal and beneficial
right, title and interest in and to the Licensed Patent and the Option
Patents, free and clear of any lien, claim or encumbrance or other rights
of any other person or entity, and he has the right to license and grant
rights under the Licensed Patent and the Option Patents to LICENSEE, (iv)
LICENSOR has not granted to any other person or entity any license or other
rights with respect to the Licensed Patent or the Option Patents that are
currently in effect, and (v) to the best knowledge of LICENSOR, neither the
practice of the Patents as contemplated hereby, nor the development,
manufacture, use, sale or commercialization of any Licensed Product shall
infringe or violate any patent or other right of any person or entity.
XV. GOVERNING LAW
-----------------
This Agreement is deemed entered into in Minnesota for purposes of
jurisdiction and venue and shall be governed by, and construed in accordance
with, the laws of the State of Minnesota and the United States.
XVI. MARKING
------------
LICENSEE agrees to have all Licensed Products and the product literature
and advertisements for the Licensed Products made, used or sold under this
Agreement herein granted marked with the appropriate patent notice; e.g.:
LICENSED UNDER U.S. PATENT NO. 4,685,883 or
LICENSED UNDER U.S. PAT. 4,685,883
XVII. DILIGENCE
---------------
LICENSEE agrees to use commercially reasonable efforts to develop
(including NDA submission within four (4) years), and bring to market, within
six (6) years from the date hereof, a Licensed Product the manufacture, sale or
use of which is subject to any claim contained in the
15
<PAGE>
Licensed Patent. If LICENSEE exercises the option pursuant to paragraph 2.2,
LICENSEE shall use commercially reasonable efforts to develop (including NDA
submission within eight (8) years), and bring to market, within ten (10) years
from the date hereof, a Licensed Product the manufacture, use or sale of which
is subject to any claim contained in any of the Option Patents. Licensee may,
but shall have no obligation, to develop additional Licensed Products. If the
Licensed Patent or Option Patents are not commercialized and brought to market
within the periods provided for above, then the parties shall meet and consider
the status of LICENSEE's development efforts and agree upon the reasonable
efforts LICENSEE shall utilize to develop and bring such Licensed Products to
market. If the parties are unable to agree upon such efforts within forty-five
(45) days, the matter shall be resolved by arbitration in accordance with
paragraph XXIII hereof. If LICENSEE thereafter fails to use efforts agreed to by
the parties or determined by arbitration, the license granted herein with
respect to the Licensed Patent or Option Patents, as the case may be shall be
converted to a nonexclusive license. For the purposes of this paragraph, the
efforts of an Affiliate, sublicensee or collaborator of LICENSEE shall
constitute the efforts of LICENSEE hereunder.
XVIII. ENTIRE AGREEMENT
-----------------------
This Agreement shall constitute the entire Agreement between the parties,
and there will be no other representations, warranties, undertakings, or
conditions, express or implied, except as set forth in this Agreement. This
Agreement supersedes all prior agreements, understandings or negotiations,
written or otherwise.
XIX. LIMITATION OF LIABILITY
----------------------------
UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY OR
ANY OTHER PERSON OR ENTITY FOR ANY LOSS OF PROFITS OR SPECIAL, CONSEQUENTIAL OR
INDIRECT DAMAGES OF ANY KIND WHATSOEVER.
No party shall be liable for failure or delay in performing any of its
obligations hereunder if such failure or delay is occasioned by circumstances
beyond the reasonable control of the party so failing or delaying, including
without limitation, Acts of God, war, insurrection, fire, flood, etc.
XX. MODIFICATIONS
-----------------
This Agreement may not be modified, amended or supplemented except by an
instrument in writing signed by both parties.
XXI. WAIVER
-----------
16
<PAGE>
The failure of either party to require the performance of any term of this
Agreement, or the waiver by either party of any breach under this Agreement,
shall not prevent any subsequent enforcement of such term, nor be deemed a
waiver of any subsequent breach.
XXII. SUCCESSORS
----------------
All of the terms, provisions and conditions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, and permitted successors, transferees and assigns.
XXIII. ARBITRATION
------------------
Any controversy or dispute arising out of or in connection with this
Agreement, its interpretation, performance, or termination including any
questions of fraud or questions concerning the validity or enforceability of the
Agreement, but not the validity of the claims of the Patents, which the parties
are unable to resolve within forty-five (45) days after written notice by one
party to the other of the existence of such controversy or dispute, may be
submitted to arbitration by either party, and if so submitted by either party,
shall be finally settled by arbitration conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association in effect
on the date hereof. Any such arbitration shall take place in Minneapolis,
Minnesota. The law applicable to the subject matter of the dispute shall be the
laws of the State of Minnesota.
The institution of any arbitration proceeding hereunder shall not relieve
LICENSEE of its obligation to make payments accrued hereunder to LICENSOR during
the continuance of such proceeding. The decision by the arbitrators shall be
binding and conclusive upon the parties, their successors, and assigns and they
shall comply with such decision in good faith, and each party hereby submits
itself to the jurisdiction of the courts of the place where the arbitration is
held but only for the entry of judgment with respect to the decision of the
arbitrators hereunder. Notwithstanding the foregoing, judgment upon the award
may be entered in any court where the arbitration takes place, or any court
having jurisdiction. Notwithstanding anything to the contrary contained herein,
either party shall have the right to apply to a court of competent jurisdiction
for a temporary restraining order, a preliminary injunction or other equitable
relief to prevent irreparable harm or to preserve the status quo.
XXIV. COUNTERPARTS
------------------
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which shall constitute one instrument,
and, in making proof hereof, it shall not be necessary to produce or account for
more than one such counterpart.
XXV. NOTICE
------------
17
<PAGE>
Any notice and reports with respect to this Agreement shall be given in
writing, by mail, postage prepaid, or by prepaid telegram, by reputable
overnight courier (receipt requested) or personally delivered to the principal
place of business of the parties, as set forth above, or such other address as
shall be designated in writing by either party. Unless otherwise expressly
provided in this Agreement, any notice to be given shall be deemed to have been
given and shall be effective, three days after the date of deposit in the mail
if mailed or upon receipt if sent by overnight courier or personally delivered.
Copies of all notices sent to LICENSEE shall be addressed to the attention of
the President of LICENSEE.
XXVI. RELATIONSHIP OF PARTIES
-----------------------------
It is expressly agreed by the parties hereto that LICENSOR and LICENSEE are
independent contractors and nothing in this Agreement is intended to create an
employer relationship, joint venture, or partnership between the parties. No
party has the authority to bind the other.
XXVII. FURTHER ASSURANCES
-------------------------
Without limiting the generality of any provision of this Agreement, each
party agrees that upon request of any other party, it shall, from time to time,
do any and all other acts and things as may reasonably be required to carry out
its obligations hereunder, to consummate the transactions contemplated hereby,
and to effectuate the purposes hereof. For any consulting services provided by
LICENSOR above and beyond the ten (10) days required under Section 3.4, LICENSEE
agrees to reimburse LICENSOR for any travel and subsistence expenses reasonably
incurred to provide any assistance requested by LICENSEE and to compensate
LICENSEE at a rate of [the confidential material contained herein has been
omitted and has been separately filed with the Commission.]
XXVIII. SEVERABILITY
--------------------
Any term or provision of this Agreement which is invalid or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement or affecting
the validity or enforceability of any of the terms or provisions hereof in any
other jurisdiction.
XXIX. HEADINGS
--------------
The headings used in this Agreement are for convenience of reference only
and shall not affect the meaning or construction of this Agreement.
XXX. RESERVATION OF RIGHTS
--------------------------
18
<PAGE>
LICENSOR retains any and all rights to applications of LICENSOR inventions
outside the field of oral care and LICENSOR shall be free to license or exploit
any such inventions for use outside the field of oral care as LICENSOR chooses.
19
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement:
LICENSOR
Gary R. Jernberg, D.D.S., M.S.D.
--------------------------------
Date: 12/19/96 By:
------------------- -----------------------------
Name: /s/ Gary R. Jernberg
---------------------------
Title:
--------------------------
LICENSEE
OraPharma, Inc.
---------------
Date: 12/24/96 By: MICHAEL D. KISHBAUCH
-------------------- -----------------------------
Name: /s/ Michael Kishbauch
---------------------------
Title: PRESIDENT/CEO
--------------------------
20
<PAGE>
IN TESTIMONY WHEREOF, I have hereunto set my had this 19 day of
----
December , 1996.
- ---------- --
Dawn Renner
--------------------------------------------
Name:
STATE OF Minnesota )
)ss.
COUNTY OF Hennepin )
On this 19 day of December, 1996 before me personally appeared
-- -------- --
Gary R. Jernberg , to me known to be the person described in and who
- ------------------
acknowledged to me that he executed the same for the uses and purposes therein
set forth.
/s/ Dawn Renner [seal]
- -----------------------------------
Notary Public
IN TESTIMONY WHEREOF, I have hereunto set my hand this 24 day of
----
December ,1996.
- ---------- --
Richard A. Charlton
--------------------------------------------
Name:
STATE OF New Jersey )
)ss.
COUNTY OF )
On this 24 day of December , 1996 before me personally appeared
---- ---------- --
Michael Kishbauch , to me known to be the person described in and who
- -------------------
acknowledged to me that he executed the same for the uses and purposes therein
set forth.
/s/ Richard Charlton [seal]
- -----------------------------------
21
<PAGE>
EXHIBIT 10-11
ORAPHARMA, INC.
Dr. Gerald Cajuste
Technical Developments and Investments, Est.
C/O Debiopharm S.A.
Rue des Terreaux 17
1000 Lausanne 9, Switzerland
Re: OraPharma, Inc.
Dear Dr. Cajuste,
Reference is made to the Agreement dated June 26, 1986 (the "Agreement") by and
---------
between American Cyanamid Company, a Maine corporation ("ACY") and Technical
---
Developments and Investments Est., a Liechtenstein corporation ("TDI").
---
Pursuant to the terms of the Agreement, ACY has granted to TDI and TDI's
associated companies, Debiopharm and Cytotech (collectively with TDI, the
"Debiopharm Companies"), a worldwide non-exclusive license (the "License") to
- --------------------- -------
use certain technology and patents (together, the "Technology") for certain
----------
purposes.
The Debiopharm Companies hereby grant to OraPharma, Inc., a Delaware corporation
("OraPharma"), an exclusive, world-wide sublicense to use the Technology
---------
(including the right to grant sublicenses to third-parties) in the oral cavity.
By the term "exclusive" in this context, both parties mean that the Debiopharm
Companies will not grant a license to use the Technology in the oral cavity to
third parties nor use it in the field of the oral cavity. The Debiopharm
Companies hereby jointly and severally represent and warrant to OraPharma that
they have not exercised any of their rights with respect to the Technology in
the oral cavity and that they have not granted any rights related to the
Technology to any third-party, that they will not grant such rights to third
parties and that they are hereby in a position to grant such rights to
OraPharma. The Debiopharm Companies further covenant and agree that they will
not exercise or grant such rights and will not take any action to conflict with
or interfere with the rights to be granted to OraPharma by ACY pursuant to that
certain license agreement relating to the Technology to be entered into between
OraPharma and ACY. The Debiopharm Companies do not warrant that the American
Cyanamid Company has not granted any right to the Technology in the oral cavity
to any third party.
<PAGE>
In consideration of the foregoing, OraPharma agrees to pay to the Debiopharm
Companies a royalty in U.S. Dollars (the "Royalty") equal to [the confidential
-------
material contained herein has
ORAPHARMA, INC.
been omitted and has been separately filed with the Commission] products which
use the Technology in the oral cavity (the "Products"). For purposes of this
--------
letter agreement, "Revenues" means all gross revenues actually received by
--------
OraPharma from its sale of Products, less any taxes, insurances, transportation
costs, duties and similar costs and expenses and less any credits,
disallowances, deductions and returns actually allowed by OraPharma to its
customers; provided, however, that with respect to sales made by OraPharma to
-----------------
any affiliate of OraPharma, or sales made by any subsidiaries of OraPharma,
Revenues shall be the higher of (a) the amount calculated in accordance with the
foregoing, or (b) Revenues received by such affiliate or by such sub-licensee in
connection with its sale of the Product to its customer.
Royalty payments shall be paid by OraPharma to the Debiopharm Companies within
sixty (60) days after the end of each of OraPharma's fiscal quarters and shall
be based on the Revenues of such previous fiscal quarter. All Royalty payments
shall be made by check mailed to the Debiopharm Companies or by wire transfer to
a bank as specified from time to time by the Debiopharm companies. Beginning
with OraPharma's fiscal quarter following its first commercial sale of Products,
OraPharma shall deliver to the Debiopharm Companies a Royalty report within
sixty (60) days after the end of each fiscal quarter. Such report shall set
forth the total Royalty payments for the fiscal quarter most recently ended,
with explanation of how such Royalty payments were calculated and any
adjustments made. The Debiopharm Companies, through its representatives, shall
have the right, at the Debiopharm Companies' cost and expense and upon
reasonable notice, to inspect, during normal business hours, the accounting
books and records of OraPharma solely for the purpose of verifying the amount of
Royalty payments due to the Debiopharm Companies pursuant to this letter
agreement. Such representatives shall be subject to a confidentiality agreement
that provides, among other things, a limitation on the amount and type of
information which he or it may reveal to any third-parties, including the
Debiopharm Companies.
This letter agreement will be governed by the laws of the State of New Jersey.
Please confirm your agreement to this letter agreement by executing the enclosed
extra copy in the space provided below and returning it to me.
Sincerely,
/s/Michael Kishbauch
Michael Kishbachu[sic]
President & CEO
OraPharma, Inc.
<PAGE>
Agreed to and accepted by DEBIOPHARM
By: [signature illegible]
-----------------------------------------
Date: February 13, 1997
---------------------------------------
Agreed to and accepted by DEBIO R.P.
By: [signature illegible]
-----------------------------------------
Date: February 13, 1997
---------------------------------------
<PAGE>
AGREEMENT
---------
THIS AGREEMENT effective as of the 26th day of June, 1986, by and between
the AMERICAN CYANAMID COMPANY, a corporation organized under the laws of the
State of Maine, having executive offices at One Cyanamid Plaza, Wayne, New
Jersey, 07470 (hereinafter referred to as "CYNAMID") and TECHNICAL DEVELOPMENTS
AND INVESTMENTS EST., a corporation organized under the laws of Liechtenstein,
having offices at Rue du Petit-Chene 38 in Lausanne, Switzerland (hereinafter
referred to as "T.D.I.") represented by Rolland-Yves Mauvernay, Scientific
Manager.
WITNESSETH
----------
WHEREAS, T.D.I. and CYANAMID entered a Licensing Agreement dated June 29th,
1983, as amended on September 27th, 1983 (hereinafter "The Agreements") and have
reached mutually agreed conditions for the termination thereof;
NOW, THEREFORE, in consideration of the following terms and undertakings of
each party hereto, the parties agree to terminate The Agreements:
1) CYANAMID hereby agrees to file an Investigational New Drug
Application (hereinafter "I.N.D.") for [the confidential material
contained herein has been omitted and has been separately filed
with the Commission] or as soon thereafter as CYANAMID can
accomplish such filing. A list of the documents to be included in
the I.N.D. package have been provided to T.D.I.
<PAGE>
CYANAMID agrees to promptly supply a free copy of the I.N.D.
documents to T.D.I. and to give T.D.I. the exclusive rights to
assign such an I.N.D. to another party which T.D.I. will identify
and designate to CYANAMID in the near future. CYANAMID further
agrees to answer any questions that the F.D.A. may raise on such
an I.N.D. in the normal course of F.D.A. practice and to
facilitate the orderly transfer of information and development
activities for [the confidential material contained herein has
been omitted and has been separately filed with the Commission]
to another party designated by T.D.I. Upon such transfer, the
party designated by T.D.I. shall be responsible for the I.N.D.
2) CYANAMID agrees to continue to supply the polymer needed for the
microencapsulation of [the confidential material contained herein
has been omitted and has been separately filed with the
Commission] to T.D.I., its associated companies DEBIOPHARM and
CYTOTECH and their licensees for a reasonable period of time in
order not to disrupt the current development of [the confidential
material contained herein has been omitted and has been
separately filed with the Commission] at a price and under
specifications similar to those prevailing at the time of
termination.
3) CYANAMID agrees to sell to T.D.I. or its designated party the
amount of certified [the confidential material contained herein
has been omitted and has been separately filed with the
Commission] in its possession
<PAGE>
at the cost price paid by CYANAMID, on request.
4) CYANAMID agrees to maintain all records and data in its
possession related to the toxicology studies included in the
I.N.D., according to accepted Good Laboratory Practices for the
Statutory period needed, and to allow T.D.I. or its designated
party free access to such data as needed.
5) CYANAMID further agrees to carry to completion the current
stability studies on [the confidential material contained herein
has been omitted and has been separately filed with the
Commission] and likewise to transfer such stability data to
T.D.I. or its designated party on request.
6) CYANAMID is in possession of a delivery system which is of
interest to T.D.I. in preparing [the confidential material
contained herein has been omitted and has been separately filed
within the Commission.] CYANAMID shall provide information
related to such technology to T.D.I. in writing and will include
CYANAMID Know-How and CYANAMID proprietary and patent
information, if any, and hereby grants to T.D.I. (and associated
companies DEBIOPHARM and CYTOTECH) a royalty-free worldwide non-
exclusive license to use such technology and any CYANAMID patents
thereon for the manufacture of and delivery of [the confidential
material contained herein has been omitted and has been
separately filed with the Commission] and other products which
DEBIOPHARM independently develops or is manufacturing under a
third-party license, with sublicensing privileges and with
CYANAMID
<PAGE>
retaining title to such information, patents and Know-How,
including the right to practice such patented inventions, for
products other than [the Confidential material contained herein
has been omitted and has been separately filed with the
Commission.], but CYANAMID specifically agrees not to use such
delivery system or license third parties (other than T.D.I.) to
use such delivery system for products which are [the confidential
material contained herein has been omitted and has been
separately filed with the Commission] (as defined by Chemical
Abstracts as being [the confidential material contained herein
has been omitted and has been separately filed with the
Commission]) for a period of seven years from the effective date
of this Agreement.
7) In consideration of the above covenants, The Agreements are
hereby discharged and terminated.
AMERICAN CYANAMID COMPANY TECHNICAL DEVELOPMENT AND INVESTMENTS EST.
By: /s/Jack Bowman By: [signature illegible]
------------------------------ ---------------------------------
Name:Jack Bowman Name:
Executive
Vice President Date:
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our Firm included in or made a part of this S-1
Registration Statement.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
December 29, 1999
<PAGE>
Exhibit 23.3
ARNALL GOLDEN & GROCERY, LLP
2800 ONE ATLANTIC CENTER
1201 WEST PEACHTREE STREET - ATLANTA, GEORGIA 30309-3450
TELEPHONE (404) 873-8500 - FASCIMILE (404) 873-8501
FIRST LIBERTY BANK TOWER WRITER'S DIRECT DIAL NUMBER
SUITE 1000 (404) 873-8794
201 SECOND STREET
MACON, GEORGIA 31201 WRITER'S DIRECT DIAL FACSIMILE
(912) 746-3344 (404) 873-8795
WRITER'S EMAIL ADDRESS
[email protected]
CONSENT OF ARNALL, GOLDEN & GREGORY, LLP
Whereby consent to the reference to this firm under the caption "Experts"
in the prospectus included as part of this Form S-1 Reistration Statement.
Arnall, Golden & Gregory, LLP
/s/ Patrea Pabst
December 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ORAPHARMA,
INC.'S DECEMBER 31, 1998 AND SEPTEMBER 30, 1999 FINANCIAL STATEMENT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 19,236,084 11,025,319
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 19,282,525 11,188,072
<PP&E> 1,165,383 1,335,172
<DEPRECIATION> 193,970 378,728
<TOTAL-ASSETS> 20,480,402 12,345,449
<CURRENT-LIABILITIES> 2,106,862 589,428
<BONDS> 480,978 336,277
28,771,713 28,771,713
0 0
<COMMON> 1,914 2,079
<OTHER-SE> (10,881,065) (17,354,048)
<TOTAL-LIABILITY-AND-EQUITY> 20,480,402 12,345,449
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 8,915,350 7,245,231
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 38,018 40,317
<INCOME-PRETAX> (8,490,862) (6,732,060)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (8,490,862) (6,732,060)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (8,490,862) (6,732,060)
<EPS-BASIC> (6.21) (4.30)
<EPS-DILUTED> (6.21) (4.30)
</TABLE>
