<PAGE>
As filed with the Securities and Exchange Commission on March 8, 2000
Registration Statement No. 333-93881
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
AMENDMENT NO. 4
to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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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. [_]
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>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus front cover
pages and two underwriting sections: (a) one to be used in connection with an
offering in the United States and Canada and (b) one to be used in connection
with a concurrent offering outside of the United States and Canada. The U.S.
prospectus and the international prospectus are otherwise identical in all
respects. The international versions of the front cover page and the
underwriting section are included immediately before Part II of this
registration statement.
1
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 MARCH 8, 2000
[LOGO OF ORAPHARMA, INC.]
4,000,000 Shares
Common Stock
OraPharma is offering 4,000,000 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 $15.00 and $17.00 per
share.
--------------
Investing in our common stock involves a high degree of risk.
See "Risk Factors" beginning on page 5.
--------------
<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 600,000 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>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY................................................................... 1
RISK FACTORS.............................................................. 5
FORWARD-LOOKING STATEMENTS................................................ 13
USE OF PROCEEDS........................................................... 14
DIVIDEND POLICY........................................................... 14
CAPITALIZATION............................................................ 15
DILUTION.................................................................. 16
SELECTED FINANCIAL DATA................................................... 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.............................................................. 18
BUSINESS.................................................................. 23
MANAGEMENT................................................................ 38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 49
PRINCIPAL STOCKHOLDERS.................................................... 52
DESCRIPTION OF CAPITAL STOCK.............................................. 55
SHARES ELIGIBLE FOR FUTURE SALE........................................... 59
UNDERWRITING.............................................................. 60
LEGAL MATTERS............................................................. 62
EXPERTS................................................................... 62
ADDITIONAL ORAPHARMA INFORMATION.......................................... 62
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
i
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SUMMARY
This summary highlights information contained elsewhere in this
prospectus. We have included this information in the summary because we believe
this information is highly important in making a decision to invest in our
common stock. 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, for a more complete understanding of our business
and the offering.
OraPharma
Introduction
OraPharma is developing pharmaceutical products for the treatment of oral
diseases and disorders. We completed two Phase 3 clinical trials in October
1999 for our first product candidate, Minocycline Periodontal Therapeutic
System. We conducted these trials on 747 patients to establish drug safety and
efficacy in treating 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 submitted a New Drug Application, or NDA, to the
Food and Drug Administration, or FDA, on February 17, 2000. We developed MPTS
to be used together with the current standard of care, scaling and root
planing, which is a mechanical procedure involving the removal of bacteria-
containing plaque. We are directing our other research and development programs
at further establishing a presence in oral care pharmaceuticals and expanding
the use of our core technology, which is our manufacturing process and method
for administering the drug.
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. Published reports citing the American Dental
Association state that approximately 50 million Americans have periodontal
disease and only 7.5 million Americans are currently receiving treatment.
Industry sources indicate that 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 first product candidate, MPTS, uses our core technology--a patented
system that both allows precise drug placement at the desired site and enables
drug-release over several days or weeks--and a specially designed dispenser to
place the antibiotic minocycline at the site of periodontal infection. We
licensed MPTS and our core 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, scaling and root planing.
We believe MPTS offers significant advantages over existing pharmaceutical
treatments, particularly speed and convenience of administration. In addition,
our approach to deliver the drug precisely at the infection site results in
high drug concentration for an extended time period, with, we believe, reduced
risk of drug resistance. Finally, the oral care professional administers MPTS
chair-side, ensuring patient compliance.
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 relationships to market and sell MPTS rather than
establish our own sales force.
1
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We licensed patents and related methods in December 1998 for two
additional product programs that are currently in preclinical studies.
Preclinical studies are safety investigations that are conducted prior to drug
testing in humans. 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, 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
research programs with the University of North Carolina--Chapel Hill, that
focus on treating traumatic tooth injury and periodontitis. Both programs are
at an early development stage, where we are screening possible compounds for
potential use as a drug therapy.
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
relationships to complete early stages of research and conduct manufacturing
and distribution activities.
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 have applied for a federally registered trademark for "OraPharma." This
prospectus also includes trademarks and tradenames of other parties.
Recent Developments
On February 17, 2000 we submitted an NDA to the FDA for MPTS for the
treatment of periodontitis.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by OraPharma...... 4,000,000 shares
Common stock to be outstanding after
this offering........................ 12,596,735 shares
Use of proceeds........................ For further development of, obtaining
FDA approval for, and
commercialization of MPTS; payments
under licensing, sponsored research
and consulting agreements; general
corporate and working capital
purposes; ongoing research and
development; 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 31, 1999:
. 1,250,000 shares of common stock available for issuance under our 1999
equity compensation plan;
. 586,472 shares of common stock issuable upon exercise of outstanding
stock options under our 1996 stock option plan at a weighted average
exercise price of $0.35 per share;
. warrants to purchase 31,249 shares of series A preferred stock, which
will either be exercised prior to the completion of this offering or
become exercisable for 31,249 shares of common stock upon the
completion of this offering at an exercise price of $2.00 per share;
. warrants to purchase 27,500 shares of common stock at an exercise price
of $3.64 per share;
. warrants to purchase 110,617 shares of common stock at an exercise
price of $12.92 per share issued in connection with the sale of series
D preferred stock; and
. warrants to purchase 41,152 shares of common stock at an exercise price
of $4.86 per share.
--------------------
Generally, the information in this prospectus, unless otherwise noted:
. assumes that the over-allotment option is not exercised;
. reflects the automatic conversion, on a one-for-one basis, of all
outstanding shares of series A, B, C and D preferred stock into an
aggregate of 7,557,100 shares of common stock at the closing of this
offering; and
. reflects a one-for-two reverse stock split that was completed on
February 3, 2000.
3
<PAGE>
Summary Financial Data
The following table presents summary financial information for OraPharma.
The pro forma balance sheet data gives effect to the conversion of all of our
outstanding shares of preferred stock. The pro forma as adjusted balance sheet
data reflects the sale by OraPharma of 4,000,000 shares of common stock in the
offering at an assumed offering price of $16.00 per share. The summary
financial data for the period from inception (August 1, 1996) through December
31, 1996, the years ended December 31, 1997, 1998 and 1999, and the period from
inception through December 31, 1999 are derived from the audited financial
statements. You should read this data together with the financial statements
and related notes included in this prospectus.
<TABLE>
<CAPTION>
Period from Period from
Inception Inception
(August 1, (August 1,
1996) Year Ended 1996)
Through December 31, Through
December 31, -------------------------------------- December 31,
1996 1997 1998 1999 1999
------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Operating expenses:
Research and
development.......... $ 26,294 $ 1,706,393 $ 7,589,000 $ 9,693,413 $ 19,015,100
General and
administrative....... 408,295 939,469 1,604,579 2,189,577 5,141,920
--------- ----------- ----------- ------------ ------------
Operating loss........ (434,589) (2,645,862) (9,193,579) (11,882,990) (24,157,020)
Net interest income
(expense)............. (641) 504,123 424,488 636,957 1,564,927
--------- ----------- ----------- ------------ ------------
Net loss................ (435,230) (2,141,739) (8,769,091) (11,246,033) (22,592,093)
Non-cash preferred stock
charge................ -- -- -- 1,729,651 1,729,651
--------- ----------- ----------- ------------ ------------
Net loss to common
stockholders.......... $(435,230) $(2,141,739) $(8,769,091) $(12,975,684) $(24,321,744)
========= =========== =========== ============ ============
Basic and diluted net
loss per share........ $ (5.05) $ (13.72) $ (16.74)
=========== =========== ============
Shares used in computing
net loss per share.... 424,054 639,339 775,116
=========== =========== ============
Pro forma basic and
diluted net loss per
share................. $ (1.67)
============
Shares used in computing
pro forma basic and
diluted net loss per
share................. 7,792,759
============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ------------ ------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents........... $ 13,073,803 $ 13,073,803 $ 71,893,803
Total assets........................ 14,711,739 14,711,739 73,531,739
Long-term debt...................... 288,043 288,043 288,043
Redeemable convertible preferred
stock............................. 32,974,359 -- --
Deficit accumulated during the
development stage................. (22,592,093) (22,592,093) (22,592,093)
Total stockholders' equity
(deficit)......................... (20,616,829) 12,357,530 71,177,530
</TABLE>
4
<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
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. Positive results from preclinical studies and
early clinical trials do not ensure positive results in clinical trials
designed to permit application for regulatory approval. We may suffer
significant setbacks in 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.
If we obtain FDA approval for MPTS, our revenue for the forseeable future will
be solely derived from, and operating results will be substantially dependent
on, our ability to market MPTS.
Other than MPTS, all of our product candidates are at an early stage of
product development. The successful commercialization of our other product
candidates will require significant further research, development, testing,
regulatory approvals and investment. We may never successfully commercialize
any of our product candidates.
If we are unable to achieve product development milestones under our license
agreement with AHP, AHP would have the right to license MPTS and the core
technology to competitors.
We license MPTS and our core 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 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.
If our license agreement with AHP is terminated, we would be forced to cease
our efforts to commercialize MPTS and our other oral cavity products utilizing
our core technology.
AHP has the right to terminate the AHP license agreement if we materially
breach our payment or other obligations under this agreement.
Our losses will continue to increase as we expand our product development
efforts, and our operations may never be profitable.
As of December 31, 1999, we had a cumulative net loss of approximately
$22.6 million. Our 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.
5
<PAGE>
If the manufacturers that we rely on for the production and packaging of MPTS
do not provide us with sufficient quantities at an acceptable price, our
commercialization of MPTS will be halted, delayed or less profitable.
We depend on third parties for the manufacture, testing, filling and
packaging of our product candidates. We are solely dependent on one company for
the manufacture and testing of MPTS. 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 the sole-source suppliers that we depend on for the raw materials and
components for MPTS fail to provide a sufficient quantities, we may not be able
to obtain an alternate supply on a timely or acceptable basis and this could
delay or halt our commercialization of MPTS.
We currently rely on sole-source suppliers to provide to the parties that
produce and package MPTS each of the four separate raw materials and components
for MPTS:
. the polymer component, which is an inactive ingredient used in the
drug formulation;
. minocycline, the active drug ingredient;
. the plastic dispenser; and
. the stainless steel dispenser handle.
We have not entered into any agreements that provide us assurance of
continued supply of these components. 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. Before replacing any of these suppliers or
engaging second-source suppliers, we would need to satisfy various regulatory
requirements.
If we are unable to effectively develop adequate sales and marketing
capabilities, we may be unsuccessful in commercializing our product candidates.
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. 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. In addition, because
we intend to hire and train our sales and marketing force before we have
received FDA approval of our NDA for MPTS, if we fail to obtain FDA approval on
a timely basis, we will incur significant expense sooner than necessary for the
commercialization of MPTS.
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. This would delay or decrease our sales of this product.
Outside the U.S., we plan to enter into sales and marketing arrangements
with third parties. If we are unable to establish successful sales and
marketing relationships, we will not be successful in marketing MPTS outside of
the U.S.
6
<PAGE>
Even if we obtain FDA approval to market MPTS, it might not be accepted by oral
health care providers or patients.
MPTS will not be a commercially successful product unless accepted by
oral health care providers as clinically useful, cost-effective and safe. In
addition, because MPTS is designed to enhance the existing standard of care for
periodontitis, it increases the initial cost of treatment. Consequently,
patients may not accept MPTS if it is too expensive. Patient acceptance of MPTS
may be dependent on the availability of adequate reimbursement from
governmental 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.
If we cannot compete effectively, our sales will suffer.
Competition in the pharmaceutical industries, and the market for oral
care pharmaceuticals in particular, is intense. FDA-approved products currently
exist that will compete with most of the product candidates we are developing.
These products include:
.Atridox, a product developed by Atrix Laboratories and marketed by
Block Drug;
.Perio Chip, a product developed by Perio Products and marketed by
Astra; and
.Periostat, a drug developed and marketed by CollaGenex.
Many competitors have substantially greater research and development
capabilities and financial, scientific, manufacturing, marketing and sales
resources than we possess. Our competitors may succeed in developing products
earlier and obtaining regulatory approvals from the FDA more rapidly than us.
Our 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 our intellectual property rights are compromised, we may be unable to
compete effectively.
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 technology; and
. preserve our trade secrets.
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. Third parties may also 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 core
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
7
<PAGE>
relevant to our product candidates and technologies which are not known to us
and that block or compete with our product candidates or technologies.
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.
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.
If we infringe the intellectual property rights of others, or if we allege
others infringe our intellectual property rights, we may face significant
expense and liability.
If our technologies, product candidates, methods or processes infringe
the intellectual property rights of other parties, 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.
We are aware of an issued patent that relates to use of some antibiotics,
including minocycline, 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 our patent counsel, Arnall, Golden &
Gregory, LLP, 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 a
third-party makes a claim for infringement, we may have to defend ourselves in
court and this could result in substantial cost and diversion of management's
resources, and our defense may not be successful.
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. In addition, many of our
scientific and management personnel were previously employed by 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.
If we are not able to retain Michael D. Kishbauch, our President and Chief
Executive Officer, or J. Ronald Lawter, our Chief Scientific and Technical
Officer, our business will suffer.
The employment of Michael D. Kishbauch or J. Ronald Lawter, our Chief
Scientific and Technical Officer, could cease at any time. We believe that Mr.
Kishbauch's prior industry experience and Dr. Lawter's expertise regarding our
core technology are critical to our ability to successfully commercialize MPTS.
Competition for senior executives among companies in the pharmaceutical
industry is intense. Our future success depends upon our ability to retain
these persons.
If our product candidates injure people, and we have no or limited product
liability insurance, we may incur significant expense and liability.
Our business exposes us to potential product liability risks. These types
of risks 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 expensive and may not be available in the future. 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.
8
<PAGE>
If we need additional financing, and this financing is unavailable, our ability
to develop and commercialize products and our operations will be adversely
affected.
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 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.
9
<PAGE>
Risks Related to Governmental Approvals
If we do not obtain regulatory approval, we will not be able to market our
product candidates.
We have not 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. Other
than an NDA submitted for MPTS, we have not submitted an NDA for any of our
product candidates. If any of our product candidates are determined to be
medical devices, we would be required to submit 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.
If the FDA determines that our MPTS clinical trials or our NDA are inadequate
or incomplete, the commercialization of MPTS will be delayed and become more
expensive.
We have completed two Phase 3 clinical trials with MPTS for the treatment
of adult periodontitis in conjunction with scaling and root planing, and on
February 17, 2000 submitted an NDA to the FDA based on the results of these
trials and the earlier Phase 1 and 2 trials. The FDA may, 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. In addition,
the FDA may not accept the NDA we submitted for MPTS as being complete. This
would require us to amend and resubmit the NDA.
If our manufacturers do not obtain or maintain current Good Manufacturing
Practices, we may not be able to obtain or maintain the governmental approvals
necessary 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 Practice regulations, or cGMPs, 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. 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.
If we fail to comply with extensive regulations after any FDA approval of a
product or the FDA withdraws its approval, we may be forced to suspend the sale
of this product.
Continued compliance with all FDA requirements and the conditions in an
approved NDA, including those concerning product specifications, manufacturing
process, validation, labeling, promotional material, record-keeping and
reporting, is required for all approved drug products. Failure to comply with
these
10
<PAGE>
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.
If future clinical trials take longer to complete than we expect, we would
incur additional costs and delays in commercialization.
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.
In some circumstances we rely on strategic relationships with 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.
Risks Related to the Offering
If the market price of our common stock after this offering is lower than the
price you paid, you may not be able to sell your shares without incurring a
loss.
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.
After this offering, an active trading market in our stock might not develop or
continue.
If our stock price is highly volatile, the value of your investment may
fluctuate significantly.
The market prices for securities of early-stage drug companies have been
particularly volatile. Some of the factors that may cause the market price of
our common stock to fluctuate include:
. results of preclinical studies and clinical trials conducted by us or
on our behalf, or by our competitors;
. announcements of technological innovations or new commercial products
by us, third parties with respect to strategic relationships
maintained with us 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;
11
<PAGE>
. 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 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 $10.36 per share based on the assumed offering price of
$16.00 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.
If a large number of shares of our common stock are sold after this offering,
or if there is the perception that such sales could occur, the market price of
our common stock may decline.
These factors 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. For example, 7,933,023 of our
shares will be available for sale after the completion of the offering. The
remaining 663,712 shares will become available for sale in December 2000. All
of our current stockholders have agreed under written "lock-up" agreements not
to sell any shares for 180 days after the date of this prospectus.
Because our certificate of incorporation and Delaware law contain provisions
that could discourage a takeover, our common stock may trade at a discount.
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.
Because our six largest stockholders will own approximately 58.4% of our
outstanding common stock, they could control our actions in a manner that
conflicts with our interests and the interests of our other stockholders.
Our controlling stockholders, if they chose to act together, may be able
to exert considerable influence over us, including in the election of directors
and the approval of actions submitted to our stockholders. In addition, without
the consent of these stockholders, we may be prevented from entering into
transactions that could be beneficial to us such as acquisition proposals from
third parties.
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<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements under the captions
"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;
. anticipated regulatory filing dates and clinical trial initiation
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, we intend the words "believe,"
"anticipate," "estimate," "expect," "seek," "intend," and "may" to identify
"forward-looking statements." Our forward-looking statements involve
uncertainties and other factors that may cause our actual results, performance
or achievements, to be far different from that suggested by our forward-looking
statements. We discuss these factors 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." 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 these forward-looking
statements.
The safe harbor for forward-looking statements contained in the
Securities Litigation Reform Act of 1995 protects companies from liability for
their forward-looking statements if they comply with the requirements of the
Act. The Act does not provide this protection for initial public offerings and
is not available for our forward-looking statements.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to OraPharma from the sale of the 4,000,000 shares of
common stock from this offering are estimated to be approximately $58.8
million, or $67.7 million if the underwriters' over-allotment option is
exercised in full. This is based upon an assumed offering price of $16.00 per
share after deducting underwriting discounts and commissions and estimated
offering expenses.
We expect to use these proceeds for the following purposes:
. approximately $30.0 million for the further development of, obtaining
FDA approval for, and commercialization of MPTS, including sales,
marketing and manufacturing scale-up related expenses, and
expenditures for inventories and capital equipment;
. approximately $4.3 million of payments under current licensing,
sponsored research and consulting agreements through 2001;
. general corporate and working capital purposes;
. ongoing research and development activities, including preclinical
studies and potential clinical trials; 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 we introduce;
. 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. We have determined that it is a prudent business
practice to offer 4,000,000 shares in this offering even though the net
proceeds from this offering will be greater than the specified uses outlined in
this prospectus. We believe this will provide us with total stockholders'
equity and current assets that are appropriate for our current state of
development, and the risks that we face. Pending the 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.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 1999:
. on an actual basis derived from our audited financial statements;
. on a pro forma basis to give effect to the automatic conversion of all
outstanding shares of preferred stock into an aggregate of 7,557,100
shares of common stock upon the completion of the offering; and
. on a pro forma as adjusted basis to give effect to the sale of
4,000,000 shares of common stock offered in the offering at an assumed
offering price of $16.00 per share, after deducting underwriting
discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
As of December 31, 1999
-------------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ------------ --------------
(in thousands, except share amounts)
<S> <C> <C> <C>
Long-term debt, less current
portion........................... $ 288 $ 288 $ 288
------------ ------------ ------------
Redeemable Convertible Preferred
Stock, $.001 par value:
Series A, 400,000 shares
authorized, issued and
outstanding actual, none issued
and outstanding pro forma and
pro forma as adjusted........... 800 -- --
Series B, 3,311,828 shares
authorized, issued and
outstanding actual, none issued
and outstanding pro forma and
pro forma as adjusted........... 12,023 -- --
Series C, 3,292,177 shares
authorized, issued and
outstanding actual, none issued
and outstanding pro forma and
pro forma as adjusted........... 15,949 -- --
Series D, 553,095 shares
authorized, issued and
outstanding actual, none issued
and outstanding pro forma and
pro forma as adjusted........... 4,202 -- --
------------ ------------ ------------
Total redeemable convertible
preferred stock.............. 32,974 -- --
------------ ------------ ------------
Stockholders' Equity (Deficit):
Preferred stock, $.001 par value,
5,000,000 shares authorized,
none issued and outstanding..... -- -- --
Common stock, $.001 par value,
50,000,000 shares authorized,
1,039,635 issued and
outstanding actual, 8,596,735
issued and outstanding pro
forma, 12,596,735 issued and
outstanding pro forma as
adjusted........................ 1 9 13
Additional paid-in capital........ 2,790 35,756 94,572
Deferred compensation............. (815) (815) (815)
Deficit accumulated during the
development stage............... (22,592) (22,592) (22,592)
------------ ------------ ------------
Total stockholders' equity
(deficit).................... (20,616) 12,358 71,178
------------ ------------ ------------
Total capitalization........... $ 12,646 $ 12,646 $ 71,466
============ ============ ============
</TABLE>
- --------
The number of shares of common stock to be outstanding after this
offering is based on the number of shares outstanding as of December 31, 1999
and does not include:
. 1,250,000 shares of common stock underlying stock options available
for future grants under our 1999 equity compensation plan, none of
which have been granted;
. 586,472 shares of common stock issuable upon the exercise of
outstanding options under our 1996 stock option plan at a weighted
average exercise price of $0.35 per share; and
. 210,518 shares of common stock issuable upon the exercise of
outstanding warrants at a weighted average exercise price of $8.51 per
share.
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<PAGE>
DILUTION
As of December 31, 1999, our pro forma net tangible book value was
$12,163,447, or $1.41 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 automatic conversion of all outstanding shares of
preferred stock into an aggregate of 7,557,100 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 December 31, 1999, and to give effect to the sale of the common
stock offered hereby at an assumed offering price of $16.00 per share and the
application of the net proceeds of the offering, the pro forma as adjusted net
tangible book value would have been $70,983,447, or $5.64 per share. This
represents an immediate increase in pro forma net tangible book value of $4.23
per share to existing stockholders and dilution in pro forma as adjusted net
tangible book value of $10.36 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................................ $16.00
Pro forma net tangible book value per share before the
offering.................................................... $1.41
Increase per share attributable to new investors.............. 4.23
-----
Pro forma as adjusted net tangible book value per share after
the offering.................................................. 5.64
------
Dilution in net tangible book value per share to new investors.. $10.36
======
</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 $6.06 per share, the increase in net tangible book value per share to
existing stockholders would be $4.65 per share and the dilution in net tangible
book value to new investors would be $9.94 per share.
The following table summarizes, on a pro forma as adjusted basis as of
December 31, 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 $16.00 per share:
<TABLE>
<CAPTION>
Shares Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 8,596,735 68.2% $33,858,749 34.6% $ 3.94
New investors.............. 4,000,000 31.8 64,000,000 65.4 $16.00
---------- ----- ----------- -----
Total.................... 12,596,735 100.0% $97,858,749 100.0%
========== ===== =========== =====
</TABLE>
These tables do not assume exercise of stock options and warrants
outstanding at December 31, 1999 and include 156,606 shares subject to
repurchase by us.
At December 31, 1999, there were 586,472 shares of common stock issuable
upon exercise of outstanding stock options at a weighted average exercise price
of $0.35 per share and 210,518 shares of common stock issuable upon exercise of
outstanding warrants at a weighted average exercise price of $8.51 per share.
16
<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 18 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, 1998 and 1999 and the period from inception through December 31, 1999
are derived from the audited financial statements.
<TABLE>
<CAPTION>
Period from Period from
Inception Inception
(August 1, (August 1,
1996) Year Ended 1996)
Through December 31, Through
December 31, -------------------------------------- December 31,
1996 1997 1998 1999 1999
------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Operating expenses:
Research and
development.......... $ 26,294 $ 1,706,393 $ 7,589,000 $ 9,693,413 $ 19,015,100
General and
administrative....... 408,295 939,469 1,604,579 2,189,577 5,141,920
--------- ----------- ----------- ------------ ------------
Operating loss........ (434,589) (2,645,862) (9,193,579) (11,882,990) (24,157,020)
Net interest income
(expense)............. (641) 504,123 424,488 636,957 1,564,927
--------- ----------- ----------- ------------ ------------
Net loss................ (435,230) (2,141,739) (8,769,091) (11,246,033) (22,592,093)
Non-cash preferred stock
charge................ -- -- -- 1,729,651 1,729,651
--------- ----------- ----------- ------------ ------------
Net loss to common
stockholders.......... $(435,230) $(2,141,739) $(8,769,091) $(12,975,684) $(24,321,744)
========= =========== =========== ============ ============
Basic and diluted net
loss per share........ $ (5.05) $ (13.72) $ (16.74)
=========== =========== ============
Shares used in computing
basic and diluted net
loss per share........ 424,054 639,339 775,116
=========== =========== ============
Pro forma basic and
diluted net loss per
share................. $ (1.67)
============
Shares used in computing
pro forma basic and
diluted net loss per
share................. 7,792,759
============
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1996 1997 1998 1999
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............. $ 37,704 $10,136,747 $ 19,236,084 $ 13,073,803
Total assets.............. 61,479 10,859,584 20,480,402 14,711,739
Long-term debt............ -- -- 480,978 288,043
Redeemable convertible
preferred stock......... -- 12,822,769 28,771,713 32,974,359
Deficit accumulated during
the development stage... (435,230) (2,576,969) (11,346,060) (22,592,093)
Total stockholders'
deficit................. (359,071) (2,446,806) (11,080,451) (20,616,829)
</TABLE>
17
<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
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 $22.6 million through December 31, 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 first
product candidate. We submitted an NDA for MPTS to the FDA on February 17,
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
relationships 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 31, 1999, we
have received total net proceeds of approximately $33.7 million from the
following sales of preferred stock:
. 400,000 shares of series A preferred stock were sold in February 1997
raising total net proceeds of approximately $800,000;
. 3,311,828 shares of series B preferred stock were sold in March 1997
raising total net proceeds of approximately $12.0 million;
. 3,292,177 shares of series C preferred stock were sold in December
1998 raising total net proceeds of approximately $15.9 million; and
. 553,095 shares of series D preferred stock were sold in December 1999
raising total net proceeds of approximately $5.0 million.
Milestone Payments, Royalties and License Fees
We paid AHP $250,000 and issued them 110,000 shares of our common stock
at the time we entered into our license agreement. 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
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 $5.0 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.
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<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. In
addition, we are required to pay Dr. Jernberg a milestone payment of $50,000 if
and when the FDA accepts submission of our NDA for MPTS. A second milestone
payment of $100,000 is due to Dr. Jernberg if and when we receive FDA approval
of MPTS for the treatment of periodontitis.
We paid Mucosal Therapeutics LLC $200,000 and issued Mucosal Therapeutics
a warrant to purchase 27,500 shares of our common stock in December 1998. In
December 1999, we completed our first milestone and paid Mucosal Therapeutics
$100,000 and issued them a warrant to purchase 41,152 shares of our common
stock. During 1999, we recorded the $100,000 payment and the $346,108 fair
value of the warrant, as research and development expense. We are required to
make payments totalling $2.0 million 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
Biomodels LLC, an affiliate of Mucosal Therapeutics, 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. At
December 31, 1999, the remaining payments due to this third party are expected
to total $720,000 through 2002.
We issued 82,500 shares of common stock to Children's Medical Center
Corporation in December 1998. We are also required to make milestone payments
totalling $1.0 million to CMCC, payable in the form of cash or 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. At December 31, 1999, the
remaining payments due under the sponsored-research agreement are expected to
total $695,000 through 2002.
Results of Operations
Years Ended December 31, 1999 and 1998.
Research and Development Expenses. Research and development expenses
increased to approximately $9.7 million for the year ended December 31, 1999
compared to approximately $7.6 million in the same period in 1998, an increase
of 27.7%. This increase of approximately $2.1 million was primarily due to
costs associated with Phase 3 clinical trials of MPTS, and to a lesser extent,
expansion of efforts to develop new product candidates.
General and Administrative Expenses. General and administrative expenses
increased to approximately $2.2 million for the year ended December 31, 1999
compared to approximately $1.6 million in the same period in 1998, an increase
of 36.5%. This increase of $585,000 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 year ended
December 31, 1999 and 1998 was $689,000 and $463,000, respectively. The
increase of $226,000 is attributable to higher levels of cash and cash
equivalents available for investment in 1999 from the proceeds of the sale of
our series C and series D preferred stock. Interest expense for the same
periods was $52,000 and $38,000 and represents interest incurred on an
equipment financing facility.
Net Loss. The net loss was approximately $11.2 million for the year ended
December 31, 1999 compared to approximately $8.8 million in the same period in
1998, an increase of 28.2%. This increase of
19
<PAGE>
approximately $2.4 million reflects increases in research and development and
general and administrative expenses, offset by the increase in interest income.
Net loss to common stockholders
Included in the net loss to common stockholders is a non-cash preferred
stock charge of approximately $1.7 million. See Note 8 to Notes to Financial
Statements.
Years Ended December 31, 1998 and 1997.
Research and Development Expenses. Research and development expenses
increased to approximately $7.6 million for the year ended December 31, 1998
compared to approximately $1.7 million in the same period in 1997, an increase
of 344.7%. This increase of approximately $5.9 million 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 70.8%. This
increase of $665,000 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 $8.8 million for the year ended
December 31, 1998 compared to approximately $2.1 million in the same period of
1997, an increase of 309.4%. The increase of approximately $6.7 million
reflects costs associated with the initiation of Phase 3 clinical trials of
MPTS together with higher personnel related costs.
Liquidity and Capital Resources
As of December 31, 1999, we had cash and cash equivalents of
approximately $13.1 million, a decrease of approximately $6.2 million from
December 31, 1998. On December 23, 1999, we issued 553,095 shares of series D
preferred stock, raising total net proceeds of approximately $5.0 million.
During the years ended December 31, 1999, 1998 and 1997, net cash used in
operating activities was approximately $10.9 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.
Net cash used in investing activities for the years ended December 31,
1999, 1998 and 1997 was $237,000, $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, although we have no firm commitments to spend this amount.
Approximately $1.8 million of this amount represents laboratory and production
equipment. The balance is represented by planned expenditures for computer
equipment and furniture.
Net cash proceeds from financing activities for the years ended December
31, 1999, 1998 and 1997 was approximately $5.0 million, $16.6 million and $12.7
million, respectively. The net cash proceeds from financing activities during
the years ended December 31, 1999, 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. As of
December 31, 1999, there was $481,000 outstanding under this facility, and $1.0
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million available for future borrowings. Outstanding borrowings bear interest
at the bank's prime rate plus 1%. Future borrowings will bear interest at the
bank's prime rate plus 0.75%.
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 60 months. Current total minimum annual payments under these
leases are $189,538, $191,422, $187,233 and $143,018 in 2000, 2001, 2002 and
2003, respectively.
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 the 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 the 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 cash
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 through at least the year 2001.
Income Taxes
As of December 31, 1999, we had approximately $20.5 million of net
operating loss carryforwards and $670,000 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, 1999, we had capitalized approximately $1.2 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. Based on the valuation of the Company and
applicable Internal Revenue Code regulations, we believe the offering will not
have a material effect on our ability to use those carryforwards.
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.
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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.
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BUSINESS
Introduction
OraPharma is developing pharmaceutical products for the treatment of oral
diseases and disorders. We completed two Phase 3 clinical trials in October
1999 for our first product candidate, MPTS, which we designed to treat adult
periodontitis when used together with scaling and root planing. We submitted an
NDA to the FDA on February 17, 2000 for this indication. We are directing our
other research and development programs at further establishing a presence in
oral care pharmaceuticals and expanding the use of our core 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.
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. 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. Outside of the United
States, and for product candidates targeted at markets with larger practitioner
populations, we intend to pursue strategic relationships to market and sell our
product candidates.
Identifying and capitalizing on promising product candidate
categories. We select pharmaceutical product categories that 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 focus 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, in contrast 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 our core technology. Our initial focus is to identify product
opportunities and product candidates directed at oral care that can leverage
our core technology. Our core technology is compatible with a wide variety of
drug types, from simple compounds to proteins. We believe that our core
technology has broad application both inside and outside the oral cavity.
Leveraging product 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.
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Product Candidates Summary
The following chart contains information regarding our product
candidates.
<TABLE>
<CAPTION>
Product
Therapeutic Indication Candidate Development Status Licensors/Research Institutions
- ---------------------- --------- ------------------- -------------------------------
<S> <C> <C> <C>
Periodontitis/Pocket- MPTS Phase 3 clinical American Home Products
depth Reduction trials completed;
NDA submitted
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
periodontal 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.
The following illustration depicts, on the left side, an infected gum
with a periodontal pocket, and, on the right side, a healthy gum.
[Illustration of tooth surrounded by an infected gum with an identified
periodontal pocket on the left side, and a healthy gum on the right side.]
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Periodontitis has no known cure and is the most common cause of adult
tooth loss. According to published reports citing the ADA, approximately 50
million Americans have periodontal disease and only 7.5 million Americans are
currently receiving treatment. Along with this widespread prevalence, the ADA
estimated that in 1990, oral care professionals completed approximately 14
million treatment procedures for periodontitis. According to industry sources,
the U.S. population spends more than $6.0 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, used to remove accumulated plaque above and below the gumline,
and may require the oral care professional to anesthetize the gums. 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 returns 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 have been approved by the FDA for the treatment of periodontitis.
The following three therapeutics were introduced in the U.S. in 1998:
. Atridox, a biodegradable gel that 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 seven 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 core 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 we refer to as MPTS
microspheres. Microspheres are small particles consisting of the active drug
ingredient, minocycline, that is distributed in an inactive polymer. 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.
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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.
The following illustrates the preparation of MPTS for administration to
the patient:
Illustration of dispenser and product candidate in trays
Illustration of tip being loaded into handle
Illustration of tip on handle, in hand ready for administration
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. We designed the sustained release
profile 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.
We developed MPTS to be administered immediately following scaling and
root planing, with periodically repeated application of MPTS 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 permits 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;
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. 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.
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 periodontal
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.
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. 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.
We submitted an NDA for MPTS on February 17, 2000. The NDA consists of
five main sections:
. a summary of our trials from an efficacy standpoint;
. 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.
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. We developed and own the equipment
used by PCI to fill the microspheres. We are currently negotiating, but have
not finalized any long-term agreement with this manufacturer.
Raw Material Suppliers
The polymer used in 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.
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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 handle
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 whom we believe to be "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 market and sell MPTS through
arrangments with other parties, rather than establish our own sales force. We
are currently holding preliminary discussions with a number of companies.
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
technology, while additional programs are based on other technology licensed to
us. In connection with these product candidates, we have formed relationships
to capitalize on our core technology and exploit our expertise in formulation
and development. We believe these relationships 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 be fed. 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 states 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 and begin clinical trials 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 are directing our program at two oral health
applications--dental
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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 to be applied prior to
installation. Dental implants are used to replace teeth that are lost due to
injury, or 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.
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 and begin clinical trials 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 second treatment approach for
periodontitis as a follow-up to MPTS. This effort is aimed at identifying new
compounds to be administered via our 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.
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Technology, Licenses and Patents
MPTS and Our Core Technology
In February 1997, we licensed our first product candidate, MPTS, and our
core 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 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 some of the rights to our core 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. 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 FDA acceptance of our
NDA submission 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
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applications claim methods for treating or preventing mucositis by
administering various combinations of 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 both
U.S. patent applications 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.
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.
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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 cGMPs.
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 first 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
relationships to market and sell MPTS rather than establishing our own sales
force. We will also need to establish distribution capabilities to successfully
commercialize any of our product candidates. We may also promote our product
candidates through marketing 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 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;
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. 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.
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 cGMPs 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 companies
that manufacture product candidates for distribution in the United States also
must list their product candidates with the FDA and comply with cGMPs. They are
also subject to periodic inspection by the FDA or by local authorities under
agreement with the FDA.
Any product candidates that we manufacture or distribute 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 cGMPs. In complying with the FDA's regulations on cGMPs,
manufacturers must continue to spend time, money and effort in production,
recordkeeping, quality control, and auditing to ensure that the marketed
product candidate meets
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applicable specifications and other requirements. The FDA periodically inspects
manufacturing facilities to ensure compliance with cGMPs. 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 cGMPs.
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 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 its 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
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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, is 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;
. 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. Because our product candidates have not been approved by the
FDA and are still under development, our relative competitive position in the
future is difficult to predict.
Employees
As of December 31, 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. The 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.
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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.................. 57 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
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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 an 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 Perceptron, 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.
in finance and accounting from LaSalle University, Philadelphia, Pennsylvania
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 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
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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 or managing member 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 Therapeutics, Inc., 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 boards 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 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, as well as 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 AHP), 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 of health care experience at General Electric and Technicon
Corporation in a number of research, marketing management and corporate staff
positions. Dr. Treu
40
<PAGE>
received his B.S. from Rensselaer Polytechnic Institute, and from Princeton
University his M.A. and Ph.D. in physics.
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.
Mr. Mauzey and Dr. Rudnick are our Class 1 directors, Dr. Moller, Mr.
Scheer and Dr. Treu are our Class 2 directors, and Mr. Kishbauch, Ms. More and
Mr. Rein 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.
41
<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.
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<PAGE>
Executive Compensation
The following table presents information concerning the compensation we
paid for the years ended December 31, 1999 and 1998 to our chief executive
officer and to each of our other five 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 Year Salary Bonus Awards Options Compensation (1)
- --------------------------- ---- ---------- --------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Michael D. Kishbauch.... 1999 $ 233,650 $ 67,095 (5) 16,823 $ 6,974
President, Chief 1998 212,458 63,900 (5) -- 13,960
Executive Officer and
Director
James A. Ratigan........ 1999 151,125 30,000 -- 3,750 307
Vice President, Chief 1998 122,875 36,000 -- -- 514
Financial Officer and
Secretary
James R. Lawter,
Ph.D. ................ 1999 133,087 33,270 (6) 10,000 154
Vice President, Chief 1998 126,469 25,350 (6) -- 5,535
Scientific and
Technical Officer
Jan N. Lessem, M.D.,
Ph.D.(2).............. 1999 195,542 58,663 -- 9,022 20,307
Vice President, Chief
Medical Officer 1998 102,917 22,167 -- 52,500 300
Joseph E. Zack(3)....... 1999 166,000 33,200 -- 3,000 25,307
Vice President, Sales
and Marketing 1998 117,222 24,000 -- 62,500 38,691
Mark B. Carbeau(4) ..... 1999 116,846 23,333 -- 100,000 179
Vice President,
Corporate Development 1998 -- -- -- -- --
</TABLE>
- --------
(1) Includes in 1999 $6,667, $20,000 and $25,000 forgiveness of loans to Mr.
Kishbauch, Dr. Lessem and Mr. Zack, respectively, and term life insurance
premiums in the amounts of $307, $307, $154, $307, $307 and $179 paid by us
for Mr. Kishbauch, Mr. Ratigan, Dr. Lawter, Dr. Lessem, Mr. Zack and Mr.
Carbeau, respectively, during 1999. 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, during 1998.
(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, and the table above reflects
only compensation paid since this date.
(5) No restricted stock grants were made to Mr. Kishbauch during 1999 or 1998.
As of December 31, 1999, Mr. Kishbauch held 336,462 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 $5,383,056
as of the last day of the year, based on the assumed offering price of
$16.00 per share less the $.001 price per share paid for those shares. As
of December 31, 1999, 218,700 of these shares had vested and the remaining
35% 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 1999 or 1998. As
of December 31, 1999, Dr. Lawter held 89,375 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 $1,429,911 as
of the last day of the year, based on the assumed offering price of $16.00
per share less the $.001 per share paid for those shares. As of December
31, 1999, 67,031 of these shares had vested and the remaining 25% of the
restricted shares will vest at the rate of 5% per calendar quarter over Dr.
Lawter's period of continued service with us.
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<PAGE>
Stock Option Grants
The following table contains information concerning stock options to
purchase common stock that we granted in 1999 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 172,270 shares of common stock in 1999.
Option Grants in 1999
<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 1999 Share Date 5% 10%
- ---- ---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael D. Kishbauch.... 16,823 9.8% $.60 1-1-09 $ 6,348 $ 16,087
James A. Ratigan........ 3,750 2.2 .60 1-1-09 1,415 3,586
James R. Lawter, Ph.D... 10,000 5.8 .60 1-1-09 3,773 9,562
Jan N. Lessem, M.D.,
Ph.D. ................ 9,022 5.2 .60 1-1-09 3,404 8,627
Joseph E. Zack.......... 3,000 1.7 .60 1-1-09 1,132 2,869
Mark B. Carbeau......... 100,000 58.0 .60 5-1-09 37,734 95,625
</TABLE>
The following table contains information concerning stock options to
purchase common stock held as of December 31, 1999 by each of the officers
named in the summary compensation table that have stock options.
1999 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>
Michael D. Kishbauch...... -- 16,823 -- $ 259,074
James A. Ratigan.......... 37,500 41,250 $586,500 644,250
James R. Lawter, Ph. D.... -- 10,000 -- 154,000
Jan N. Lessem, M.D.,
Ph.D. .................. 15,750 45,772 246,330 713,709
Joseph E. Zack............ 21,875 43,625 324,125 681,575
Mark B. Carbeau........... -- 100,000 -- 1,540,000
</TABLE>
- --------
(1) There was no public trading market for the common stock as of December 31,
1999. Accordingly, these values have been calculated on the basis of the
assumed offering price of $16.00 per share minus the applicable per share
exercise price.
Employment 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 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.
44
<PAGE>
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 are our employees may receive grants of incentive
stock options. The 1996 plan authorizes up to 634,412 shares of common stock
for issuance under the terms of the plan. As of December 31, 1999, 586,472
options were outstanding under the 1996 plan. We will not make any additional
grants under the 1996 plan.
1999 Equity Compensation Plan
We also maintain the 1999 Equity Compensation Plan which has been
approved by our board of directors and stockholders. 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 1,250,000 shares of our common
stock for issuance under the terms of the plan. No more than 500,000 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. No options have been granted under the 1999 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 or any
of our subsidiaries 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
45
<PAGE>
underlying an option will be determined by the compensation committee, and may
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;
. 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.
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. The compensation committee will
determine the term of each option, up to a maximum ten-year term. The term of
an incentive stock option granted to an employee who owns more than 10% of our
stock may not exceed five years from the date of grant.
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, the
minimum performance goals required before payment will be made, and any other
conditions the compensation committee deems appropriate and consistent with the
plan and Section 162(m) of the Internal Revenue Code.
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.
46
<PAGE>
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 kind of shares issued under the plan; and
. the price per share or the applicable market value of such grants.
Change of Control. Upon a change of control where we are not the
surviving entity or where we survive only as a subsidiary of another entity,
unless the compensation committee determines otherwise, all outstanding grants
will be assumed by or replaced with comparable options or other grants by the
surviving corporation. In addition, upon a change of control, the compensation
committee may:
. 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 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 options exceeding the exercise price of those
options;
. after giving grantees an opportunity to exercise their outstanding
options terminate any or all unexercised options.
A "change of control" is defined to occur if:
. any person becomes a beneficial owner, directly or indirectly, of
stock representing more than 50% of the voting power of the then-
outstanding shares of our stock;
. the stockholders or the directors, as appropriate, approve:
. any merger or consolidation with another corporation where our
stockholders, immediately before such transaction, will not
beneficially own, immediately after the transaction, 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;
. a sale or other disposition of all or substantially all our assets;
or
. a liquidation or dissolution.
. any person commences a tender offer or exchange offer for 30% or more
of the voting power of our then outstanding shares; or
. after any election of our directors, our board of directors consists
of a majority of directors who have been members of our board for less
than two years, unless at least two-thirds of the directors who were
in office prior to the election or nomination of the new director vote
for the new director.
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."
47
<PAGE>
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, 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 or goals relating to
acquisitions, or 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. At the end of each performance period, the compensation committee will
certify that the performance goals have been met. The compensation committee
may provide for payment of grants in the event of the death or disability of a
participant, or change of control during a 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.
48
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Previous Capital Stock Financings
Preferred Stock
We sold 400,000 shares of series A preferred stock in February 1997 and
3,311,828 shares of series B preferred stock in March 1997. In December 1998 we
sold 3,292,177 shares of series C preferred stock. In December 1999 we sold
553,095 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
52. Each outstanding share of our preferred stock will automatically convert
into one share of common stock upon the completion of this offering.
Series A Preferred Stock. We sold 400,000 shares of series A preferred
stock in February 1997 at a purchase price per share of $2.00 for a total of
$800,000. In these transactions, we sold 100,000 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 15,625 and 15,624 shares of common stock at
an exercise price of $2.00 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 3,311,828 shares of series B preferred
stock in March 1997 at a purchase price per share of $3.64 for a total of
approximately $12 million. In these transactions, we sold 824,176 shares of
series B preferred stock to each of Oak Investment Partners and TL Ventures
III; 824,175 to Canaan Partners and 839,301 shares to Frazier Healthcare.
Series C Preferred Stock. We sold 3,292,177 shares of series C preferred
stock in December 1998 at a purchase price per share of $4.86 for a total of
approximately $15.9 million. In these transactions, we sold:
. 545,267 shares to Oak Investment Partners,
. 370,370 shares to Canaan Partners,
. 370,369 shares to TL Ventures III,
. 164,609 shares to Frazier Healthcare,
. 1,037,037 shares to Domain Partners IV, L.P.,
. 259,259 shares to Biotechnology Investments,
. 360,081 shares to HealthCap KB, and
. 185,185 shares to Sentron Medical, Inc.
Series D Preferred Stock. We sold 553,095 shares of series D preferred
stock in December 1999 at a purchase price per share of $9.04 for a total of
approximately $5 million. In these transactions, we sold:
. 132,743 shares to Oak Investment Partners,
. 103,003 shares to Canaan Partners,
. 55,309 shares to TL Ventures III,
. 22,124 shares to Frazier Healthcare,
. 17,699 shares to Domain Partners IV, L.P.,
. 4,425 shares to Biotechnology Investments,
. 151,421 shares to HealthCap KB, and
. 66,371 shares to Sentron Medical, Inc.
49
<PAGE>
We also issued warrants to these investors exercisable for the following
number of shares of our common stock at an exercise price of $12.92 per share.
These warrants expire in December 2006 and are not exercisable until December
2000. These warrants were issued as follows:
. 26,548 to Oak Investment Partners,
. 20,600 to Canaan Partners,
. 11,061 to TL Ventures III,
. 4,425 to Frazier & Company,
. 3,540 to Domain Partners IV, L.P.,
. 885 to Biotechnology Investments,
. 30,284 to HealthCap KB, and
. 13,274 to Sentron Medical, Inc.
Transactions with Directors
Scheer & 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 & Company, Inc. was paid $21,190 in 1997, $82,009 in 1998 and
$77,345 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 $22,124 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 $48,664 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 $36,000 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 $4,622 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.
50
<PAGE>
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 C. Williams 61,767
Dr. Stephen Offenbacher 37,060
Dr. David Cochran 10,000
Dr. Niklaus Lang 6,875
Dr. Roy Page 6,875
Dr. James Sciubba 6,875
Dr. Thomas Van Dyke 6,875
Dr. George McDonald 6,875
</TABLE>
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides information regarding the beneficial
ownership of our common stock as of December 31, 1999, and as adjusted to
reflect the sale of the 4,000,000 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)....................... 1,804,810 21.4% 14.5%
Canaan Partners (2)......... 1,413,172 16.7 11.4
TL Ventures III (3)......... 1,349,854 16.0 10.9
Frazier & Company (4)....... 1,120,534 13.3 9.0
Domain Partners IV, L.P.
(5)....................... 1,054,736 12.5 8.5
Healthcap KB (6)............ 511,502 6.0 4.1
<CAPTION>
Directors and Executive
Officers
- -----------------------
<S> <C> <C> <C>
Eileen M. More (1).......... 1,804,810 21.4% 14.5%
Harry T. Rein (2)........... 1,413,172 16.7 11.4
Christopher Moller (3)...... 1,349,854 16.0 10.9
Jesse I. Treu (5)........... 1,054,736 12.5 8.5
Michael D. Kishbauch (7).... 222,065 2.6 1.8
David I. Scheer (8)......... 167,750 2.0 1.4
J. Ronald Lawter (9)........ 69,031 * *
James A. Ratigan (10)....... 42,000 * *
Joseph E. Zack (11)......... 25,600 * *
Jan N. Lessem (12).......... 20,179 * *
James J. Mauzey (13)........ 12,500 * *
Seth A. Rudnick (13)........ 12,500 * *
Mark B. Carbeau (14)........ -- * *
All directors and executive
officers as a group (15).. 6,194,197 72.11% 49.2%
</TABLE>
- --------
* less than one percent
52
<PAGE>
(1) Includes 1,748,393 shares owned by Oak Investment Partners VI, Limited
Partnership and 40,792 shares owned by Oak VI Affiliates Fund Limited
Partnership. Also includes 15,625 shares of series A preferred stock
obtainable upon exercise of warrants. Ms. More is the managing member 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 831,758 shares owned by Canaan S.B.I.C., L.P., 9,888 shares owned
by Canaan Capital Limited Partnership, 82,529 shares owned by Canaan
Capital Offshore Limited Partnership C.V. and 473,373 shares owned by
Canaan Equity L.P. Also includes 15,624 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 1,086,863 shares owned by TL Ventures III L.P., 227,504 shares
owned by TL Ventures III Offshore L.P. and 35,487 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 1,110,909 shares owned by Frazier Healthcare II, L.P., 2,750
shares owned by Frazier & Company, Inc., 1,375 shares owned by Jon Gilbert,
2,750 shares owned by Nader Naini and 2,750 shares owned by Fred
Silverstein. Excludes 2,750 shares held by Charles Blanchard and Glenn
Stewart, former members of Frazier Management, L.L.C. The address for
Frazier Healthcare II L.P., Frazier & Company, Inc., Jon Gilbert, Nader
Naini, 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. Jon Gilbert, Nader Naini, and Fred Silverstein are members
of Frazier Management, L.L.C., the managing member of the member of FHMII,
LLC and each individually disclaims beneficial ownership of shares in which
he does not have a pecuniary interest.
(5) Includes 1,030,053 shares beneficially owned by Domain Partners IV, L.P.
and 24,683 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 263,684 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.
53
<PAGE>
(6) Includes 214,831 shares owned by HealthCap KB and 296,671 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) Includes 3,365 shares of common stock obtainable upon the exercise of
vested stock options. Excludes 117,762 shares of restricted common stock
and 13,458 shares of common stock obtainable upon the exercise of non-
vested stock options.
(8) Includes 167,750 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 2,000 shares of common stock obtainable upon the exercise of
vested stock options. Excludes 22,344 shares of restricted common stock and
8,000 shares of common stock obtainable upon the exercise of non-vested
stock options.
(10) Includes 42,000 shares of common stock obtainable upon exercise of vested
stock options. Excludes 36,750 shares of common stock obtainable upon
exercise of non-vested stock options.
(11) Includes 25,600 shares of common stock obtainable upon the exercise of
vested stock options. Excludes 39,900 shares of common stock obtainable
upon exercise of non-vested stock options.
(12) Includes 20,379 shares of common stock obtainable upon exercise of vested
stock options. Excludes 41,143 shares of common stock obtainable upon
exercise of non-vested stock options.
(13) Includes 12,500 shares of common stock obtainable upon exercise of vested
stock options. Excludes 12,500 shares of common stock obtainable upon
exercise of non-vested stock options.
(14) Excludes 100,000 shares of common stock obtainable upon exercise of non-
vested stock options.
(15) Includes 31,249 shares of common stock obtainable upon exercise of
warrants and 118,144 shares of common stock obtainable upon exercise of
stock options.
54
<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 12,596,735 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 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 400,000 shares of series A preferred
stock, 3,311,828 shares of series B preferred stock, 3,292,177 shares of series
C preferred stock and 553,095 shares of series D preferred stock issued and
outstanding. Upon the completion of this offering, all of our outstanding
shares of preferred stock will automatically convert into a total of 7,557,100
shares of common stock.
55
<PAGE>
Warrants
On completion of this offering we will have outstanding warrants to
purchase:
. 31,249 shares of common stock exercisable at a price of $2.00 per
share which expire in December 2003;
. 27,500 shares of common stock exercisable at a price of $3.64 per
share, which expire in January 2004;
. 110,617 shares of common stock exercisable at $12.92 per share which
expire in December 2006; and
. 41,152 shares of common stock exercisable at $4.86 per share which
expire in December 2004.
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 7,918,966 shares of
common stock, including holders of warrants to purchase 169,366 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 7,698,966 shares of common stock, including
holders of warrants to purchase 141,866 shares of common stock, with the right
to file a registration statement on their behalf. In addition, pursuant to
these agreements, the holders of 7,918,966 shares of common stock, including
holders of warrants to purchase 169,366 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.
56
<PAGE>
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, 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."
57
<PAGE>
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.
58
<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 12,596,735 shares to be outstanding after this offering (assuming
that the underwriters do not exercise their over-allotment option), the
4,000,000 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 December 31, 1999 there were options to purchase
586,472 shares of common stock, of which 194,402 options were fully
exercisable. An additional 1,250,000 shares were reserved for issuance under
our stock option plan, of which no 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 7,918,966 shares of
common stock, including holders of warrants to purchase 169,366 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
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.
59
<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........................................................... 4,000,000
=========
</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 600,000 additional shares of common stock at the same price per
share as we will receive for the 4,000,000 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 4,000,000 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 4,000,000 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 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 acquire the power of disposition, without the
prior written consent of FleetBoston Robertson Stephens Inc. FleetBoston
Robertson
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<PAGE>
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.
Reserved Shares and Directed Share Program. At our request, the
underwriters have reserved up to 200,000 shares of the common stock to be
issued by us and offered for sale in this offering, at the initial offering
price, to Amarfour L.L.C. Certain trusts for the benefit of various members of
the Pritzker family are the members of Amarfour. The trustees and substantially
the same beneficiaries of these trusts are also the trustees and beneficiaries
of other trusts that are the partners of R. A. Investment Group. R. A.
Investment Group.is a limited partner in Frazier Healthcare II, L.P., one of
our initial stockholders. Amarfour has not committed to purchase these shares.
At our request, the underwriters have reserved up to 200,000 shares 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.
61
<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.
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
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.
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.
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.
62
<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 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, 1998 and
1999, and the related statements of operations, stockholders' deficit and cash
flows for each of the three years in the period ended December 31, 1999 and for
the period from inception (August 1, 1996) to December 31, 1999. 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, 1998 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 and for
the period from inception (August 1, 1996) to December 31, 1999 in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
January 26, 2000 (except for the
recapitalization discussed in
Note 2, as to which the date
is February 3, 2000)
F-2
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
Equity (Note
December 31, 8)
-------------------------- December 31,
1998 1999 1999
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $ 19,236,084 $ 13,073,803
Prepaid expenses and other......... 46,441 263,944
Deferred offering costs............ -- 222,012
------------ ------------
Total current assets.............. 19,282,525 13,559,759
Fixed assets, net................... 971,413 957,897
Intangible assets, net.............. 226,464 194,083
------------ ------------
$ 20,480,402 $ 14,711,739
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Current portion of long-term debt.. $ 192,935 $ 192,935
Accounts payable................... 821,931 452,763
Accrued expenses................... 1,293,296 1,420,468
------------ ------------
Total current liabilities......... 2,308,162 2,066,166
------------ ------------
Long-term debt...................... 480,978 288,043
------------ ------------
Redeemable convertible preferred
stock (liquidation preference of
$33,855,013 at December 31,
1999)............................. 28,771,713 32,974,359 $ --
------------ ------------ ------------
Commitments (Note 7)
Stockholders' equity (deficit):
Common stock, par value $.001 per
share, 50,000,000 shares
authorized, 957,038 and 1,039,635
issued and outstanding, actual,
8,596,735 issued and outstanding,
pro forma........................ 957 1,040 $ 8,597
Additional paid-in capital......... 485,915 2,789,617 35,756,419
Deferred compensation.............. (221,263) (815,393) (815,393)
Deficit accumulated during the
development stage................ (11,346,060) (22,592,093) (22,592,093)
------------ ------------ ------------
Total stockholders' equity
(deficit)....................... (11,080,451) (20,616,829) $ 12,357,530
------------ ------------ ============
$ 20,480,402 $ 14,711,739
============ ============
</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
Inception
(August 1,
Year Ended 1996)
December 31, Through
-------------------------------------- December 31,
1997 1998 1999 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Operating expenses:
Research and
development.......... $ 1,706,393 $ 7,589,000 $ 9,693,413 $ 19,015,100
General and
administrative....... 939,469 1,604,579 2,189,577 5,141,920
----------- ----------- ------------ ------------
Operating loss...... (2,645,862) (9,193,579) (11,882,990) (24,157,020)
Interest income.......... 505,529 462,506 689,453 1,657,740
Interest expense......... (1,406) (38,018) (52,496) (92,813)
----------- ----------- ------------ ------------
Net loss................. (2,141,739) (8,769,091) (11,246,033) (22,592,093)
Non-cash preferred stock
charge................. -- -- 1,729,651 1,729,651
----------- ----------- ------------ ------------
Net loss to common
stockholders........... $(2,141,739) $(8,769,091) $(12,975,684) $(24,321,744)
=========== =========== ============ ============
Basic and diluted net
loss per share......... $ (5.05) $ (13.72) $ (16.74)
=========== =========== ============
Shares used in computing
basic and diluted net
loss per share......... 424,054 639,339 775,116
=========== =========== ============
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (1.67)
============
Shares used in computing
pro forma basic and
diluted net loss per
share (unaudited)...... 7,792,759
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
STATEMENTS STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
----------------- Paid-in Deferred Development
Shares Amount Capital Compensation Stage Total
--------- ------ ---------- ------------ ------------ ------------
<S> <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..... 823,088 823 913 -- -- 1,736
Issuance of common
stock and warrant as
partial payment for
intangible assets..... 110,000 110 23,890 -- -- 24,000
Exercise of warrant to
purchase common
stock................. 20,000 20 1,980 -- -- 2,000
Amortization of
deferred stock-based
compensation.......... -- -- -- 26,268 -- 26,268
Net loss............... -- -- -- -- (2,141,739) (2,141,739)
--------- ------ ---------- --------- ------------ ------------
Balance, December 31,
1997................... 953,088 953 215,993 (86,783) (2,576,969) (2,446,806)
Sale of restricted
common stock to a
founder and exercise
of employee stock
options............... 3,950 4 43 -- -- 47
Deferred compensation
related to stock
options............... -- -- 181,040 (181,040) -- --
Issuance of warrant to
purchase common stock
in connection with
acquisition of
technology............ -- -- 88,839 -- -- 88,839
Amortization of
deferred stock-based
compensation.......... -- -- -- 46,560 -- 46,560
Net loss............... -- -- -- -- (8,769,091) (8,769,091)
--------- ------ ---------- --------- ------------ ------------
Balance, December 31,
1998................... 957,038 957 485,915 (221,263) (11,346,060) (11,080,451)
Issuance of common
stock in connection
with acquisition of
technology ........... 82,500 83 400,867 -- -- 400,950
Issuance of warrant to
purchase common stock
in connection with
acquisition of
technology............ -- -- 346,108 -- -- 346,108
Exercise of employee
stock options......... 100 -- 36 -- -- 36
Deferred compensation
related to stock
options .............. -- -- 800,519 (766,542) -- 33,977
Amortization of
deferred stock-based
compensation ......... -- -- -- 172,412 -- 172,412
Issuance of warrant to
purchase common stock
in connection with
sale of Series D
preferred stock....... -- -- 756,204 -- -- 756,204
Adjustment related to
stock split........... (3) -- (32) -- -- (32)
Net loss .............. -- -- -- -- (11,246,033) (11,246,033)
--------- ------ ---------- --------- ------------ ------------
Balance, December 31,
1999................... 1,039,635 $1,040 $2,789,617 $(815,393) $(22,592,093) $(20,616,829)
========= ====== ========== ========= ============ ============
</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
Inception
(August 1,
Year Ended 1996)
December 31, Through
-------------------------------------- December 31,
1997 1998 1999 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net loss................ $(2,141,739) $(8,769,091) $(11,246,033) $(22,592,093)
Adjustments to reconcile
net loss to net cash
used in operating
activities--
Depreciation and
amortization......... 61,251 188,956 282,842 533,987
Stock based
compensation
expense.............. 26,268 46,560 206,389 355,376
Common stock and
warrants issued in
connection with
acquisition of
technology........... -- 489,789 346,108 835,897
Changes in operating
assets and
liabilities--
Prepaid expenses and
other................ (25,813) (10,382) (217,503) (263,944)
Accounts payable....... 16,920 583,043 (369,168) 452,763
Accrued expenses....... 171,151 647,613 106,078 998,424
----------- ----------- ------------ ------------
Net cash used in
operating
activities........ (1,891,962) (6,823,512) (10,891,287) (19,679,590)
----------- ----------- ------------ ------------
Cash Flows Used in
Investing Activities:
Capital expenditures.... (460,500) (700,055) (236,945) (1,402,328)
Expenditures for
intangible assets..... (250,000) -- -- (259,639)
----------- ----------- ------------ ------------
Net cash used in
investing
activities........ (710,500) (700,055) (236,945) (1,661,967)
----------- ----------- ------------ ------------
Cash Flows Provided by
Financing Activities:
Proceeds from issuance
of notes payable...... 40,000 750,000 -- 915,000
Proceeds from the sale
of preferred stock,
net of expenses....... 12,822,769 15,948,944 4,958,850 33,730,563
Proceeds from the sale
of common stock and
exercise of stock
options and warrant... 3,736 47 36 3,819
Proceeds from PA
Opportunity Grant..... -- -- 200,000 200,000
Repayment of notes
payable............... (165,000) (76,087) (192,935) (434,022)
----------- ----------- ------------ ------------
Net cash provided by
financing
activities........ 12,701,505 16,622,904 4,965,951 34,415,360
----------- ----------- ------------ ------------
Net Increase (decrease)
in Cash and Cash
Equivalents............ 10,099,043 9,099,337 (6,162,281) 13,073,803
Cash and Cash
Equivalents, Beginning
of Period.............. 37,704 10,136,747 19,236,084 --
----------- ----------- ------------ ------------
Cash and Cash
Equivalents, End of
Period................. $10,136,747 $19,236,084 $ 13,073,803 $ 13,073,803
=========== =========== ============ ============
Supplemental Disclosure
of Cash Flow
Information:
Cash paid for interest.. $ 1,406 $ 37,631 $ 48,039 $ 87,076
=========== =========== ============ ============
Noncash financing
activities--
Issuance of common stock
and warrants for
acquisition of
intangible assets..... $ 24,000 $ -- $ -- $ 24,000
=========== =========== ============ ============
</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 relationships, 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.
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.
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.
F-7
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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, 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.
Impairment of Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of," if indicators of
impairment exist, the Company assesses the recoverability of the affected long-
lived assets by determining whether the carrying value of such assets can be
recovered through undiscounted future operating cash flows. If impairment is
indicated, the Company measures the amount of such impairment by comparing the
carrying value of the assets to the present value of the expected future cash
flows associated with the use of the asset. While the Company's current and
historical operating and cash flow losses are indicators of impairment, the
Company believes the future cash flows to be received from the long-lived
assets will exceed the assets' carrying value, and accordingly the Company has
not recognized any impairment losses through December 31, 1999.
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
December 31,
--------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Net loss to common stockholders... $(2,141,739) $(8,769,091) $(12,975,684)
=========== =========== ============
Basic and diluted:
Weighted-average shares of common
stock outstanding.............. 835,037 956,719 999,089
Less: weighted-average shares
subject to repurchase.......... (410,983) (317,380) (223,973)
----------- ----------- ------------
Weighted-average shares used in
computing basic and diluted net
loss per share................. 424,054 639,339 775,116
=========== =========== ============
Basic and diluted net loss per
share........................... $ (5.05) $ (13.72) $ (16.74)
=========== =========== ============
Pro forma:
Net loss to common stockholders.. $(12,975,684)
============
Shares used above................ 775,116
Pro forma adjustment to reflect
the weighted-average effect of
assumed conversion of
convertible preferred stock
(unaudited).................... 7,017,643
------------
Shares used in computing pro
forma basic and diluted net
loss per share (unaudited)..... 7,792,759
============
Pro forma basic and diluted net
loss per share (unaudited)..... $ (1.67)
============
</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.
Recapitalization
In February 2000, the Company effected a 1-for-2 reverse stock split of
all outstanding Common and Preferred stock and increased the number of
authorized shares of common stock to 50,000,000. All references in the
accompanying financial statements to the number of shares and per share amounts
have been retroactively restated to reflect the reverse stock split.
3. Fixed Assets:
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
Laboratory and production equipment.................. $ 652,848 $ 811,995
Leasehold improvements............................... 293,776 293,776
Furniture and fixtures and office equipment.......... 218,759 296,557
--------- ---------
1,165,383 1,402,328
Less--Accumulated depreciation and amortization...... (193,970) (444,431)
--------- ---------
$ 971,413 $ 957,897
========= =========
</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
110,000 shares of common stock and a five-year warrant to purchase 20,000
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. Such intangible asset was recorded as the related technology has
alternative future uses since it represents the Company's core technology. The
shares of common stock had a fair value of $22,000 and the warrants had a fair
value of $2,000 based on using the Black-Scholes option pricing model. 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,
---------------------
1998 1999
---------- ----------
<S> <C> <C>
Accrued compensation..................................... $ 208,273 $ 351,898
Accrued research and development......................... 986,255 537,625
Accrued offering costs................................... -- 150,000
Accrued other............................................ 98,768 180,945
Deferred revenue......................................... -- 200,000
---------- ----------
$1,293,296 $1,420,468
========== ==========
</TABLE>
During 1999, the Company received $200,000 under a Commonwealth of
Pennsylvania Opportunity Grant. Under the terms of the grant, amounts received
are subject to certain performance criteria. The Company has deferred the
$200,000, and will recognize this amount upon attaining the performance
criteria.
F-10
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
6. Long-Term Debt:
As of December 31, 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, 1999, the remaining principal payments were as
follows:
<TABLE>
<S> <C>
2000............................................................ $ 192,935
2001............................................................ 192,935
2002............................................................ 95,108
---------
480,978
Less--Current portion........................................... (192,935)
---------
$ 288,043
=========
</TABLE>
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, 1999, of the future minimum annual lease payments required under
this lease:
<TABLE>
<S> <C>
2000............................................................. $170,912
2001............................................................. 176,562
2002............................................................. 182,213
2003............................................................. 139,838
--------
Total minimum lease payments.................................... $669,525
========
</TABLE>
The Company has also entered into operating lease agreements for various
office equipment. The term of these lease agreements range from 18 to 60
months. Current minimum annual payments under these leases aggregate $18,626
per year.
Rental expense for all operating leases in 1997, 1998 and 1999 was
$24,089, $176,170 and $183,881, 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 preclinical 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.
F-11
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
In connection with these agreements, during 1998 the Company incurred a
charge of $689,789, inclusive of $200,000 paid in cash and 82,500 shares of
the Company's common stock valued at $400,950 and a five-year warrant to
purchase 27,500 shares of common stock at an exercise price of $3.64 per share
valued at $88,839. The Company issued the common stock during 1999 and
accordingly, were not included in shares outstanding as of December 31, 1998.
The Company charged the $689,789 amount as research and development expense
given the preclinical development-stage nature of the technology.
During 1999, upon the completion of a milestone achievement, the Company
paid $100,000 in cash and issued a five-year warrant to purchase 41,152 shares
of common stock at an exercise price of $4.86 per share. The Company recorded
$346,108 of expense in connection with the issuance of this warrant. Together
with the $100,000 cash payment and the warrant value, the Company recorded a
$446,108 charged to research and development expense given the preclinical
development stage nature of the technology. The Company has, contingent on
achievement of milestones, future license payment obligations in the aggregate
amount of $3,000,000. These milestone payments are due upon NDA submission and
NDA approval.
During 1998 and 1999, the Company also incurred sponsored research and
consulting expenses in connection with these agreements of $625,600 and
$869,956, respectively. As of December 31, 1999, future sponsored research and
consulting payments are scheduled to be an aggregate of $1,414,444, payable as
follows:
<TABLE>
<S> <C>
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:
Sales of Preferred Stock
As of December 31, 1999, 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 400,000 400,000 $ 800,000 $2.00
B 3,311,828 3,311,828 12,022,754 3.64
C 3,292,177 3,292,177 15,948,904 4.86
D 553,095 553,095 4,202,701 9.04
--------- --------- -----------
7,557,100 7,557,100 $32,974,359
========= ========= ===========
</TABLE>
The Company sold 400,000 shares of Series "A" Convertible Preferred
stock ("Series A"), 3,311,828 shares of Series "B" Convertible Preferred stock
("Series B"), 3,292,177 shares of Series "C" Convertible Preferred stock
("Series C") and 553,095 shares of Series "D" Convertible Preferred stock
("Series D") in February 1997, March 1997, December 1998 and December 1999, at
$2.00, $3.64, $4.86 and $9.04 per share,
F-12
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
respectively. All of these convertible preferred shares were sold to accredited
investors, and Series A, Series B, Series C and Series D shares have the same
preferences, other than the liquidation value where Series D shares have full
preference. In connection with the Series D sale, warrants to purchase common
stock were issued. (See Note 9).
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. Since the redemption of the
preferred stock is outside the control of the Company, preferred stock is
classified outside stockholders' deficit. The redemption price shall be $2.00
per share for Series A, $3.64 for Series B, $4.86 for Series C and $9.04 for
Series D Convertible Preferred shares plus any unpaid cumulative or other
dividends thereon. The preferred stockholders are also entitled to certain
anti-dilution and registration rights.
Non-Cash Preferred Stock Charge
In accordance with EITF 98-5, the Company has recorded a deemed dividend
on the Series D which represents the excess of the fair market value of the
underlying common stock issued to the Series D holders over the adjusted price
of the Series D after deducting the fair value ascribed to the warrants issued
(see Note 9). Such charge was recorded in 1999 since the Series D were
immediately convertible on the date of issuance on December 23, 1999.
Unaudited Pro Forma Stockholders' Equity
Upon completion of the proposed initial public offering of the Company's
common stock, all of the outstanding shares of Series A, B, C and D will
convert into common stock. The unaudited pro forma stockholders' equity at
December 31, 1999 reflects the assumed conversion of the Series A, B, C and D
into 7,557,100 shares of common stock.
9. Stockholders' Deficit:
1996 Stock Option Plan
The Company has adopted the 1996 Stock Option Plan (the "Plan"), which
provides for the granting of options to purchase a maximum of 634,412 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, 1998 and 1999 is estimated at $.12, $.12 and
$1.98 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,
5.81% in 1998 and 5.22% in 1999
F-13
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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, 1998 and 1999 would have been as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
Net loss to common stockholders--
as reported.................... $(2,141,739) $(8,769,091) $(12,975,684)
=========== =========== ============
Net loss to common stockholders--
pro forma...................... $(2,145,157) $(8,774,181) $(12,985,654)
=========== =========== ============
Basic and diluted net loss per
share--as reported............. $ (5.05) $ (13.72) $ (16.74)
=========== =========== ============
Basic and diluted net loss per
share--
pro forma...................... $ (5.06) $ (13.72) $ (16.75)
=========== =========== ============
</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...................................... 136,827 .02-.20 2,827
------- --------
Outstanding, December 31, 1996................ 136,827 .02-.20 2,827
Granted...................................... 147,500 .36 53,100
------- --------
Outstanding, December 31, 1997................ 284,327 .02-.36 55,927
Granted...................................... 130,875 .36 47,115
Exercised.................................... (200) .20 (40)
Forfeited.................................... (300) .20 (60)
------- --------
Outstanding, December 31, 1998................ 414,702 .02-.36 102,942
Granted...................................... 172,270 .60 103,362
Exercised.................................... (100) .36 (36)
Forfeited.................................... (400) .36 (144)
------- --------
Outstanding, December 31, 1999................ 586,472 $.02-.60 $206,124
======= ========
</TABLE>
The following table summarizes information about stock options at
December 31, 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>
$.02 136,327 6.9 years 81,796 $ .02
.36 277,875 7.9 years 112,606 .36
.60 172,270 9.2 years -- .60
</TABLE>
At December 31, 1999, options to purchase 587,472 shares had been
granted, of which 194,402 were exercisable. Options to purchase 47,640 shares
remaining available under the plan were cancelled in December 1999. The
weighted average remaining exercise period relating to the outstanding options
was approximately 8.1 years.
F-14
<PAGE>
ORAPHARMA, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
During the years ended December 31, 1999 and 1998, in connection with the
grant of options to employees, the Company recorded deferred stock compensation
of $766,542 and $181,040, respectively, representing the difference between the
exercise price and the fair value of the Company's common stock 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.
During 1999, the Company recorded $33,977 of expense in connection with
the vesting of a stock option granted to a consultant based on the fair value
of the option.
1999 Equity Compensation Plan
In December 1999, the Company's Board of Directors adopted the 1999
Equity Compensation Plan, subject to stockholder approval, which was obtained
in January 2000. 1,250,000 shares were reserved to be granted in the future
under this plan. As of December 31, 1999, no shares had been granted.
Warrants
In November 1996, the Company issued warrants to purchase 31,249 shares
of Series A Preferred stock at an exercise price of $2.00 per share in
connection with the issuance of convertible notes. On the date of issuance,
these warrants were deemed to have nominal fair value. None of these warrants,
which expire in December 2003, have been exercised.
In connection with the acquisition of certain technology, in December
1998, the Company issued a warrant to purchase 27,500 shares of common stock at
$3.64 per share and in December 1999, issued a warrant to purchase 41,152
shares of common stock at $4.86 per share. The fair value of these warrants,
using the Black-Scholes option pricing model, were $88,839 and $346,108,
respectively, and have been recorded as research and development expense. These
warrants expire in January 2004 and December 2004, respectively. (see Note 7).
In December 1999, the Company issued warrants to purchase 110,617 shares
of common stock at $12.92 per share. These warrants, which were issued to the
purchasers of the Company's Series D, expire in December 2006 and are not
exercisable until December 2000. The fair value of these warrants, using the
Black-Scholes option pricing model, of $756,204 has been recorded as a credit
to additional paid-in capital and will be accreted to preferred stock over the
remaining Series D redemption period. (See Note 8).
Common Stock Subject to Repurchase
During 1997, the Company sold 467,087 shares of common stock to certain
members of management at $.002 per share. These shares are subject to
repurchase by the Company, at $.002 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 December 31, 1999,
156,606 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.
F-15
<PAGE>
As of December 31, 1999, the Company had federal net operating loss
carryforwards of $20,490,000. The Company also had federal research and
development tax credit carryforwards of $670,000.
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
as it is more likely than not that the deferred tax assets will not be
realized:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............... $ 3,144,000 $ 6,971,000
Capitalized research and development expenses.. 464,000 406,000
Research and development credit carryforwards.. 296,000 670,000
Capitalized patent rights...................... 148,000 140,000
----------- -----------
Total deferred tax assets..................... 4,052,000 8,187,000
Valuation allowance for deferred tax assets..... (4,052,000) (8,187,000)
----------- -----------
Net deferred tax assets....................... $ -- $ --
=========== ===========
</TABLE>
F-16
<PAGE>
Orapharma Logo
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.
<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 MARCH 8, 2000
[LOGO OF ORAPHARMA, INC.]
4,000,000 Shares
Common Stock
OraPharma is offering 4,000,000 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 $15.00 and $17.00 per
share.
--------------
Investing in our common stock involves a high degree of risk.
See "Risk Factors" beginning on page 5.
--------------
<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 600,000 shares of common stock to cover over-allotments. FleetBoston
Robertson Stephens International Limited expects to deliver the shares to
purchasers on , 2000.
--------------
Robertson Stephens International
U.S. Bancorp Piper Jaffray
Gerard Klauer Mattison & Co., Inc.
The date of this Prospectus is , 2000
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens International Limited, 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
International Underwriter of Shares
------------------------- ---------
<S> <C>
FleetBoston Robertson Stephens International Limited...............
U.S. Bancorp Piper Jaffray Inc.....................................
Gerard Klauer Mattison & Co., Inc..................................
---------
Total............................................................ 4,000,000
=========
</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 600,000 additional shares of common stock at the same price per
share as we will receive for the 4,000,000 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 4,000,000 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 4,000,000 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
60
<PAGE>
acquire the power of disposition, without the prior written consent of
FleetBoston Robertson Stephens International Limited. FleetBoston Robertson
Stephens International Limited 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 International
Limited (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.
Reserved Shares and Directed Share Program. At our request, the
underwriters have reserved up to 200,000 shares of the common stock to be
issued by us and offered for sale in this offering, at the initial offering
price to Amarfour L.L.C. Certain trusts for the benefit of various members of
the Pritzker family are the members of Amarfour. The trustees and substantially
the same beneficiaries of these trusts are also the trustees and beneficiaries
of other trusts that are the partners of R. A. Investment Group. R. A.
Investment Group is a limited partner in Frazier Healthcare II, L.P., one of
our initial stockholders. Amarfour has not committed to purchase these shares.
At our request, the underwriters have reserved up to 200,000 shares 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.
61
<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............. $20,645
NASD filing fee................................................. 8,320
Nasdaq filing fee............................................... 100,000
Printing and engraving expenses................................. 150,000
Legal fees and expenses......................................... 250,000
Accounting fees and expenses.................................... 100,000
Blue Sky fees and expenses (including legal fees)............... 10,000
Transfer agent and rights agent and registrar fees and
expenses...................................................... 25,000
Miscellaneous................................................... 36,035
--------
Total......................................................... $700,000
========
</TABLE>
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 1,039,635
shares of common stock, par value $0.001 per share. These shares include (i)
186,999 shares issued in February 1997 at a purchase price per share of $0.002
for a total of $374; (ii) 167,750 shares issued in March 1997 at a purchase
price of $0.002 for a total of $336; (iii) 110,000 shares issued in February
1997 at a purchase price per share of $0.20 for a total of $22,000; (iv) 20,000
shares issued in April 1997 at a purchase price per share of $.10 for a total
of $2,000; (v) 2,500 shares issued in October 1997 at a purchase price per
share of $0.02 for a total of $50; (vi) 2,500 shares issued in November 1997 at
a purchase price of $0.02 for a total of $50; (vii) 82,500 shares issued in
December 1998 at a purchase price per share of $2.42 for a total of $199,650;
(viii) 300 shares issued in connection with the exercise of stock options for a
total of $46 and (ix) 467,087 shares of restricted stock issued to certain
employees and other persons, consisting of 336,462 shares issued in March 1997
at a purchase price per share of $0.002 for a total of $673; 89,375 shares
issued in October 1997 at a purchase price per share of $0.002 for a total of
$179; 37,500 shares issued in October 1997 at a purchase price per share of
$0.002 for a total of $75; and 3,750 shares issued in February 1998 at a
purchase price per share of $0.002 for a total of $8.
Since its inception, the Company has also issued an aggregate of
7,557,100 shares of preferred stock: consisting of (i) 400,000 shares of series
A preferred stock issued in February 1997 at a purchase price of $2.00 for a
total of $800,000; (ii) 3,311,828 shares of series B preferred stock issued in
March 1997 at a purchase price per share of $3.64 for a total of approximately
$12 million; (iv) 3,292,177 shares of series C preferred stock issued in
December 1998 at a purchase price per share of $4.86 for a total of
approximately $15.9 million; and (v) 553,095 shares of series D preferred stock
issued on December 23, 1999 at a purchase price per share of $9.04 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)
31,249 shares of series A preferred stock in February 1997, which will become
exercisable for 31,249 shares of common stock upon the completion of this
offering at an exercise price of $2.00 per share, which expire in December
2003; (ii) 27,500 shares of common stock on February 1, 1999 at an exercise
price of $3.64 per share, which expire in January 2004; (iii) 110,617 shares of
common stock on December 23, 1999, at an exercise price of $12.92 per share,
which expire in December 2006; and (iv) 41,152 shares of common stock on
December 28, 1999, at an exercise price of $4.86 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 587,472 shares of common
stock at a weighted average exercise price of $.35 per share, of which options
for 300 shares have been exercised and options for 700 shares have been
forfeited.
II-2
<PAGE>
For a more detailed description of the Company's 1996 Stock Option Plan, see
"Management--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 Fourth 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 Oak Investment Partners VI, Limited Partnership.*
4.3 Warrant issued to Oak V Affiliates Fund, Limited Partnership.*
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>
4.19 Warrant issued to Canaan Equity L.P.*
4.20 Warrant issued to Domain Partners IV, L.P.*
4.21 Warrant issued to DP IV Associates, L.P.*
4.22 Warrant issued to Old Court Limited*
4.23 Warrant issued to Frazier Healthcare II, L.P.*
4.24 Warrant issued to HealthCap KB.*
4.25 Warrant issued to HealthCap CoInvest KB.*
4.26 Warrant issued to Oak Investment Partners VI, Limited Partnership.*
4.27 Warrant issued to Oak VI Affiliates Fund, Limited Partnership.*
4.28 Warrant issued to Sentron Medical, Inc.*
4.29 Warrant issued to TL Ventures III L.P.*
4.30 Warrant issued to TL Ventures III Interfund L.P.*
4.31 Warrant issued to TL Ventures III Offshore L.P.*
4.32 Warrant issued to Mucosal Therapeutics LLC.*
4.33 First Amendment to Warrant issued to Oak Investment Partners VI, Limited Partnership.!
4.34 First Amendment to Warrant issued to Oak Affiliates Fund, Limited Partnership.!
4.35 First Amendment to Warrant issued to Canaan S.B.I.C., L.P.!
4.36 First Amendment to Warrant issued to Canaan Capital Limited Partnership.!
4.37 First Amendment to Warrant issued to Canaan Capital Offshore Limited Partnership C.V.!
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.*@
10.12 Amendment to the OraPharma, Inc. 1996 Stock Option Plan.*
23.1 Consent of Arthur Andersen LLP.!
23.2 Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit 5.1).!
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
23.3 Consent of Arnall, Golden & Gregory, LLP.*
24.1 Power of Attorney.*
27.1 Financial Data Schedule.!
</TABLE>
- -------
*Previously filed.
!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) 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
II-5
<PAGE>
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-6
<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
Amendment No. 4 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Warminster, Pennsylvania, on March
8, 2000.
OraPharma Inc.
/s/ Michael D. Kishbauch
By: _________________________________
Michael D. Kishbauch
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 4 to 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 March 8, 2000
______________________________________ Officer and Director
Michael D. Kishbauch (Principal Executive
Officer)
/s/ James A. Ratigan Vice President, Chief March 8, 2000
______________________________________ Financial Officer and
James A. Ratigan Secretary (Principal
Financial Officer)
/s/ Robert D. Haddow Controller (Principal March 8, 2000
______________________________________ Accounting Officer)
Robert D. Haddow
/s/ * Director March 8, 2000
______________________________________
James J. Mauzey
/s/ * Director March 8, 2000
______________________________________
Christopher Moller
/s/ * Director March 8, 2000
______________________________________
Eileen M. More
/s/ * Director March 8, 2000
______________________________________
Harry T. Rein
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director March 8, 2000
______________________________________
Seth A. Rudnick
* Director March 8, 2000
______________________________________
David I. Scheer
* Director March 8, 2000
______________________________________
Jesse I. Treu
</TABLE>
/s/ James A. Ratigan
*By: ____________________________
James A. Ratigan, Attorney-in-
fact
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Fourth 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 Oak Investment Partners VI, Limited Partnership.*
4.3 Warrant issued to Oak V Affiliates Fund, Limited Partnership.*
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.*
4.19 Warrant issued to Canaan Equity L.P.*
4.20 Warrant issued to Domain Partners IV, L.P.*
4.21 Warrant issued to DP IV Associates, L.P.*
4.22 Warrant issued to Old Court Limited*
</TABLE>
II-9
<PAGE>
<TABLE>
<S> <C>
4.23 Warrant issued to Frazier Healthcare II, L.P.*
4.24 Warrant issued to HealthCap KB.*
4.25 Warrant issued to HealthCap CoInvest KB.*
4.26 Warrant issued to Oak Investment Partners VI, Limited Partnership.*
4.27 Warrant issued to Oak VI Affiliates Fund, Limited Partnership.*
4.28 Warrant issued to Sentron Medical, Inc.*
4.29 Warrant issued to TL Ventures III L.P.*
4.30 Warrant issued to TL Ventures III Interfund L.P.*
4.31 Warrant issued to TL Ventures III Offshore L.P.*
4.32 Warrant issued to Mucosal Therapeutics LLC.*
4.33 First Amendment to Warrant issued to Oak Investment Partners VI, Limited Partnership.!
4.34 First Amendment to Warrant issued to Oak Affiliates Fund, Limited Partnership.!
4.35 First Amendment to Warrant issued to Canaan S.B.I.C., L.P.!
4.36 First Amendment to Warrant issued to Canaan Capital Limited Partnership.!
4.37 First Amendment to Warrant issued to Canaan Capital Offshore Limited Partnership C.V.!
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.*@
10.12 Amendment to the the OraPharma, Inc. 1996 Stock Option Plan.*
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.*
27.1 Financial Data Schedule.!
</TABLE>
- --------
*Previously filed.
!Filed herewith.
#To be filed by amendment.
@Confidential Treatment Requested.
II-10
<PAGE>
THE SECURITIES REPRESENTED BY THE WARRANT DATED DECEMBER 3, 1996 AMENDED HEREBY
AND THIS AMENDMENT 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.
____________________________________________________
FIRST AMENDMENT TO WARRANT
THIS FIRST AMENDMENT TO WARRANT dated as of February 11, 2000, by and between
ORAPHARMA, INC., a Delaware corporation (the "Company") and OAK INVESTMENT
PARTNERS VI, LIMITED PARTNERSHIP ("Holder").
RECITALS
A. The Company and Holder entered into that certain warrant dated December
3, 1996 entitling the Holder, subject to the provisions of such warrant, to
purchase 30,538 fully paid, validly issued and nonassessable shares of Series A
Preferred Stock, par value $.001 per share, of the Company, at an exercise price
of $1.00 per share (the "Warrant").
B. The Company and Holder desire to make certain amendments to the
Warrant.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree that the initial paragraph of
the Warrant shall hereby be amended and restated as follows:
Series A Preferred Stock or Common Stock Purchase Warrant
This is to certify that, FOR VALUE RECEIVED, OAK INVESTMENT PARTNERS VI,
LIMITED PARTNERSHIP (the "Holder"), is entitled to purchase, subject to the
------
provisions of this Warrant, from OraPharma, Inc. a Delaware corporation (the
"Company"), 30,538 fully paid, validly issued and nonassessable shares of either
- --------
Series A Preferred Stock, par value $.001 per share, of the Company (the
"Preferred Stock") or Common Stock, par value, $.001 per share, of the Company
---------------
(the "Common 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 number of shares of Common Stock to be
received upon the exercise of this Warrant and the price to be paid for each
share of Common Stock may be adjusted from time to time on terms identical to
those applicable to the Preferred Stock. The shares of Preferred Stock and/or
Common 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 or Common Stock in effect at any time and as
adjusted from time to time is hereinafter referred to as the "Exercise Price".
--------------
In the event the outstanding shares of Preferred Stock are automatically
converted into shares of the Company's Common Stock in accordance with the terms
of the Preferred Stock as set forth in the Company's
<PAGE>
Fourth Restated Certificate of Incorporation, this Warrant shall immediately
become exercisable for shares of the Company's Common Stock on terms identical
to those applicable to the Preferred Stock. In no event shall both the
provisions of Section 4 of the Warrant and the provisions of the Company's
Fourth Restated Certificate of Incorporation be applied concurrently to effect
an increase in the relative equity interest in the Company of the Holder of this
Warrant over the amount of increase which would have occurred if the Holder had
acquired shares of Preferred Stock rather than the Warrant on December 3, 1996.
This Agreement may be executed in any number of separate counterparts, each
of which shall, collectively, constitute one agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first written above.
OAK INVESTMENT PARTNERS VI,
LIMITED PARTNERSHIP
By: Oak Associates VI, L.L.C.
By:/s/ Edward F. Glassmeyer
----------------------------
Name: Edward F. Glassmeyer
Title: General Partner
Accepted and Agreed:
ORAPHARMA, INC.
By: /s/Michael Kishbauch
------------------------------------
Michael Kishbauch, President and CEO
<PAGE>
THE SECURITIES REPRESENTED BY THE WARRANT DATED DECEMBER 3, 1996 AMENDED HEREBY
AND THIS AMENDMENT 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.
____________________________________________________
FIRST AMENDMENT TO WARRANT
THIS FIRST AMENDMENT TO WARRANT dated as of February 11, 2000, by and
between ORAPHARMA, INC., a Delaware corporation (the "Company") and OAK VI
AFFILIATES FUND, LIMITED PARTNERSHIP ("Holder").
RECITALS
A. The Company and Holder entered into that certain warrant dated December
3, 1996 entitling the Holder, subject to the provisions of such warrant, to
purchase 712 fully paid, validly issued and nonassessable shares of Series A
Preferred Stock, par value $.001 per share, of the Company, at an exercise price
of $1.00 per share (the "Warrant").
B. The Company and Holder desire to make certain amendments to the
Warrant.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree that the initial paragraph of
the Warrant shall hereby be amended and restated as follows:
Series A Preferred Stock or Common Stock Purchase Warrant
This is to certify that, FOR VALUE RECEIVED, OAK VI AFFILIATES FUND,
LIMITED PARTNERSHIP (the "Holder"), is entitled to purchase, subject to the
------
provisions of this Warrant, from OraPharma, Inc. a Delaware corporation (the
"Company"), 712 fully paid, validly issued and nonassessable shares of either
-------
Series A Preferred Stock, par value $.001 per share, of the Company (the
"Preferred Stock") or Common Stock, par value, $.001 per share, of the Company
---------------
(the "Common 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 number of shares of Common Stock to be
received upon the exercise of this Warrant and the price to be paid for each
share of Common Stock may be adjusted from time to time on terms identical to
those applicable to the Preferred Stock. The shares of Preferred Stock and/or
Common 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 or Common Stock in effect at any time and as
adjusted from time to time is hereinafter referred to as the "Exercise Price".
--------------
In the event the outstanding shares of Preferred Stock are automatically
converted into shares of the Company's Common Stock in accordance with the terms
of the Preferred Stock as set forth in the Company's
<PAGE>
Fourth Restated Certificate of Incorporation, this Warrant shall immediately
become exercisable for shares of the Company's Common Stock on terms identical
to those applicable to the Preferred Stock. In no event shall both the
provisions of Section 4 of the Warrant and the provisions of the Company's
Fourth Restated Certificate of Incorporation be applied concurrently to effect
an increase in the relative equity interest in the Company of the Holder of this
Warrant over the amount of increase which would have occurred if the Holder had
acquired shares of Preferred Stock rather than the Warrant on December 3, 1996.
This Agreement may be executed in any number of separate counterparts, each
of which shall, collectively, constitute one agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first written above.
OAK VI AFFILIATES FUND,
LIMITED PARTNERSHIP
By: Oak VI Affiliates, L.L.C.
By: /s/ Edward F. Glassmeyer
-------------------------------------
Name: Edward F. Glassmeyer
Title: General Partner
Accepted and Agreed:
ORAPHARMA, INC.
By: /s/ Michael Kishbauch
--------------------------------------
Michael Kishbauch, President and CEO
<PAGE>
THE SECURITIES REPRESENTED BY THE WARRANT DATED DECEMBER 3, 1996 AMENDED HEREBY
AND THIS AMENDMENT 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.
____________________________________________________
FIRST AMENDMENT TO WARRANT
THIS FIRST AMENDMENT TO WARRANT is dated as of February 11, 2000, by and
between ORAPHARMA, INC., a Delaware corporation (the "Company") and CANAAN
S.B.I.C., L.P. ("Holder").
RECITALS
A. The Company and Holder entered into that certain warrant dated December
3, 1996 entitling the Holder, subject to the provisions of such warrant, to
purchase 28,125 fully paid, validly issued and nonassessable shares of Series A
Preferred Stock, par value $.001 per share, of the Company, at an exercise price
of $1.00 per share (the "Warrant").
B. The Company and Holder desire to make certain amendments to the
Warrant.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree that the initial paragraph of
the Warrant shall hereby be amended and restated as follows:
Series A Preferred Stock or Common 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 either Series A Preferred Stock, par
value $.001 per share, of the Company (the "Preferred Stock") or Common Stock,
---------------
par value, $.001 per share, of the Company (the "Common 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 number of shares of Common Stock to be received upon the exercise
of this Warrant and the price to be paid for each share of Common Stock may be
adjusted from time to time on terms identical to those applicable to the
Preferred Stock. The shares of Preferred Stock and/or Common 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 or Common Stock in effect at any time and as adjusted from time to time is
hereinafter referred to as the "Exercise Price". In the event the outstanding
--------------
shares of Preferred Stock are automatically converted into shares of the
Company's Common Stock in accordance with the terms of the Preferred Stock as
set forth in the Company's Fourth Restated Certificate of
<PAGE>
Incorporation, this Warrant shall immediately become exercisable for shares of
the Company's Common Stock on terms identical to those applicable to the
Preferred Stock. In no event shall both the provisions of Section 4 of the
Warrant and the provisions of the Company's Fourth Restated Certificate of
Incorporation be applied concurrently to effect an increase in the relative
equity interest in the Company of the Holder of this Warrant over the amount of
increase which would have occurred if the Holder had acquired shares of
Preferred Stock rather than the Warrant on December 3, 1996.
This Agreement may be executed in any number of separate counterparts, each
of which shall, collectively, constitute one agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first written above.
CANAAN S.B.I.C., L.P.
By: Canaan S.B.I.C. Partners, L.P.,
General Partner
By: /s/ [ILLEGIBLE]
-------------------------------
Name:
Title:
Accepted and Agreed:
ORAPHARMA, INC.
By: /s/ Michael Kishbauch
-------------------------------------
Michael Kishbauch, President and CEO
<PAGE>
THE SECURITIES REPRESENTED BY THE WARRANT DATED DECEMBER 3, 1996 AMENDED HEREBY
AND THIS AMENDMENT 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.
____________________________________________________
FIRST AMENDMENT TO WARRANT
THIS FIRST AMENDMENT TO WARRANT is dated as of February 11, 2000, by and
between ORAPHARMA, INC., a Delaware corporation (the "Company") and CANAAN
CAPITAL OFFSHORE LIMITED PARTNERSHIP C.V. ("Holder").
RECITALS
A. The Company and Holder entered into that certain warrant dated December
3, 1996 entitling the Holder, subject to the provisions of such warrant, to
purchase 2,791 fully paid, validly issued and nonassessable shares of Series A
Preferred Stock, par value $.001 per share, of the Company, at an exercise price
of $1.00 per share (the "Warrant").
B. The Company and Holder desire to make certain amendments to the
Warrant.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree that the initial paragraph of
the Warrant shall hereby be amended and restated as follows:
Series A Preferred Stock or Common Stock Purchase Warrant
This is to certify that, FOR VALUE RECEIVED, CANAAN CAPITAL LIMITED
OFFSHORE 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 either
-------
Series A Preferred Stock, par value $.001 per share, of the Company (the
"Preferred Stock") or Common Stock, par value, $.001 per share, of the Company
---------------
(the "Common 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 number of shares of Common Stock to be
received upon the exercise of this Warrant and the price to be paid for each
share of Common Stock may be adjusted from time to time on terms identical to
those applicable to the Preferred Stock. The shares of Preferred Stock and/or
Common 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 or Common Stock in effect at any time and as
adjusted from time to time is hereinafter referred to as the "Exercise Price".
--------------
In the event the outstanding shares of Preferred Stock are automatically
converted into shares of the Company's Common Stock in accordance with the terms
of the Preferred Stock as set forth in the
<PAGE>
Company's Fourth Restated Certificate of Incorporation, this Warrant shall
immediately become exercisable for shares of the Company's Common Stock on terms
identical to those applicable to the Preferred Stock. In no event shall both the
provisions of Section 4 of the Warrant and the provisions of the Company's
Fourth Restated Certificate of Incorporation be applied concurrently to effect
an increase in the relative equity interest in the Company of the Holder of this
Warrant over the amount of increase which would have occurred if the Holder had
acquired shares of Preferred Stock rather than the Warrant on December 3, 1996.
This Agreement may be executed in any number of separate counterparts, each
of which shall, collectively, constitute one agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first written above.
CANAAN CAPITAL OFFSHORE LIMITED
PARTNERSHIP C.V.
By: Canaan Capital Management,
L.P., General Partner
By: Canaan Capital Partners L.P.,
General Partner
By: /s/ [ILLEGIBLE]
--------------------------------
Name:
Title:
Accepted and Agreed:
ORAPHARMA, INC.
By: /s/ Michael Kishbauch
--------------------------------------
Michael Kishbauch, President and CEO
<PAGE>
THE SECURITIES REPRESENTED BY THE WARRANT DATED DECEMBER 3, 1996 AMENDED HEREBY
AND THIS AMENDMENT 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.
____________________________________________________
FIRST AMENDMENT TO WARRANT
THIS FIRST AMENDMENT TO WARRANT dated as of February 11, 2000, by and between
ORAPHARMA, INC., a Delaware corporation (the "Company") and CANAAN CAPITAL
LIMITED PARTNERSHIP ("Holder").
RECITALS
A. The Company and Holder entered into that certain warrant dated December
3, 1996 entitling the Holder, subject to the provisions of such warrant, to
purchase 334 fully paid, validly issued and nonassessable shares of Series A
Preferred Stock, par value $.001 per share, of the Company, at an exercise price
of $1.00 per share (the "Warrant").
B. The Company and Holder desire to make certain amendments to the
Warrant.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto agree that the initial paragraph of
the Warrant shall hereby be amended and restated as follows:
Series A Preferred Stock or Common 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 either Series A
Preferred Stock, par value $.001 per share, of the Company (the "Preferred
---------
Stock") or Common Stock, par value, $.001 per share, of the Company (the "Common
- -----
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 number of shares of Common Stock to be received
upon the exercise of this Warrant and the price to be paid for each share of
Common Stock may be adjusted from time to time on terms identical to those
applicable to the Preferred Stock. The shares of Preferred Stock and/or Common
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 or Common Stock in effect at any time and as adjusted
from time to time is hereinafter referred to as the "Exercise Price". In the
--------------
event the outstanding shares of Preferred Stock are automatically converted into
shares of the Company's Common Stock in accordance with the terms of the
Preferred Stock as set forth in the Company's
<PAGE>
Fourth Restated Certificate of Incorporation, this Warrant shall immediately
become exercisable for shares of the Company's Common Stock on terms identical
to those applicable to the Preferred Stock. In no event shall both the
provisions of Section 4 of the Warrant and the provisions of the Company's
Fourth Restated Certificate of Incorporation be applied concurrently to effect
an increase in the relative equity interest in the Company of the Holder of this
Warrant over the amount of increase which would have occurred if the Holder had
acquired shares of Preferred Stock rather than the Warrant on December 3, 1996.
This Agreement may be executed in any number of separate counterparts, each
of which shall, collectively, constitute one agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first written above.
CANAAN CAPITAL LIMITED PARTNERSHIP
By: Canaan Capital Management
L.P., General Partner
By: Canaan Capital Partners L.P.,
General Partner
By: /s/ [ILLEGIBLE]
---------------------------
Name:
Title:
Accepted and Agreed:
ORAPHARMA, INC.
By: /s/ Michael Kishbauch
-------------------------------------
Michael Kishbauch, President and CEO
<PAGE>
March 7, 2000
OraPharma, Inc.
732 Louis Drive
Warminster, Pennsylvania 18974
Re: Public Offering of 4,600,000 Shares of Common Stock,
$0.001 Par Value Per Share, of OraPharma, Inc.
----------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to OraPharma, Inc., a Delaware corporation (the
"Company"), in connection with the preparation of the subject Registration
Statement on Form S-1 (the "Registration Statement"), filed with the Securities
and Exchange Commission pursuant to the Securities Act of 1933, as amended (the
"Act"), to register up to 4,600,000 shares (the "Shares") of Common Stock, par
value $0.001 per share (the "Common Stock") to be sold in a public offering (the
"Offering"), including 600,000 shares of Common Stock subject to an
overallotment option, all of which shares are authorized but heretofore
unissued.
In rendering the opinion set forth below, we have reviewed (a) the Registration
Statement; (b) the Company's Fourth Amended and Restated Certificate of
Incorporation; (c) the Company's By-Laws, as amended; (d) certain records of the
Company's corporate proceedings as reflected in its minute and stock books; (e)
the Form of Underwriting Agreement filed as Exhibit 1.1 to the Registration
Statement (the "Underwriting Agreement"), to be executed by the Company and
FleetBoston Robertson Stephens Inc., U.S. Bancorp Piper Jaffray Inc. and Gerard
Klauer Mattison & Co., Inc. as representatives of the underwriters for the
Offering (the "Underwriters"); and (f) such records, documents, statutes and
decisions as we have deemed relevant. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the conformity with the original of all documents submitted to
us as copies thereof.
<PAGE>
Based upon the foregoing, we are of the opinion that the Shares to be sold by
the Company as described in the Registration Statement, when and to the extent
purchased by the Underwriters in accordance with the Underwriting Agreement,
will be validly issued, fully paid and nonassessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the Registration
Statement and to the reference to this firm under the caption "Legal Matters."
In giving such opinion, we do not thereby admit that we are acting within the
category of persons whose consent is required under Section 7 of the Act or the
rules or regulations of the Securities and Exchange Commission promulgated
thereunder.
Very truly yours,
/s/ Morgan, Lewis & Bockius LLP
<PAGE>
EXHIBIT 10.3
Office Space Lease
for
730 LOUIS DRIVE, WARMINSTER, PENNSYLVANIA
by and between
EQUIVEST MANAGEMENT CORPORATION,
(as Agent for Landlord)
and
ORAPHARMA, INC.
(as Tenant)
Date: June ___, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
--------- ----
<S> <C>
1. Definitions.................................................. 1
2. Premises..................................................... 1
3. Completion of Premises....................................... 1
4. Term......................................................... 3
5. Use of Premises.............................................. 3
6. Rent......................................................... 3
7. Insurance.................................................... 7
8. Repairs and Maintenance...................................... 8
9. Utilities and Services....................................... 9
10. Governmental Regulations..................................... 10
11. Signs........................................................ 10
12. Alterations, Additions and Fixtures.......................... 10
13. Mechanic's Liens............................................. 11
14. Landlord's Right of Entry.................................... 12
15. Damage by Fire or Other Casualty............................. 13
16. Non-Abatement of Rent........................................ 14
17. Indemnification.............................................. 14
18. Condemnation................................................. 15
19. Quiet Enjoyment.............................................. 16
20. Rules and Regulations........................................ 16
21. Assignment and Sublease...................................... 16
22. Tenant's Relocation.......................................... 19
23. Subordination................................................ 19
24. Curing Tenant's Defaults..................................... 20
25. Surrender.................................................... 20
26. Defaults-Remedies............................................ 21
27. Condition of Premises........................................ 23
28. Hazardous Substances......................................... 24
29. Recording.................................................... 25
30. Brokers' Commission.......................................... 25
31. Notices...................................................... 25
32. Irrevocable Offer: No Option................................. 26
33. Inability to Perform......................................... 26
34. Survival..................................................... 26
35. Corporate Tenants............................................ 26
36. Waiver of Invalidity of Lease................................ 26
37. Security Deposit............................................. 26
38. Tenant Estoppel Certificate.................................. 27
39. Rights Reserved by Landlord.................................. 28
40. Miscellaneous................................................ 29
41. Additional Definitions....................................... 31
</TABLE>
<PAGE>
THIS LEASE (the "Lease") is made the ___ day of June, 1998 between EQUIVEST
MANAGEMENT CORPORATION, AGENT (herein referred to as "Landlord") or the
successors in title to the below described Building whose address is 215 South
Broad Street, Suite 600, Philadelphia, Pennsylvania 19107 and ORAPHARMA, INC.
(herein referred to as "Tenant") whose address is 1200 Route 22 East, Suite 200,
Bridgewater, New Jersey 08807.
PREAMBLE
--------
BASIC LEASE PROVISIONS AND DEFINITIONS
In addition to other terms elsewhere defined in this Lease, the following
terms whenever used in this Lease shall have only the meanings set forth in this
section, unless such meanings are expressly modified, limited or expanded
elsewhere herein.
1. ADDITIONAL RENT shall mean all sums in addition to Fixed Basic Rent payable
---------------
by Tenant to Landlord or to third parties pursuant to the provisions of the
Lease.
2. BASE YEAR shall mean the calendar year ending December 31, 1999.
---------
3. BROKER(S) shall mean Kelley & Associates, Inc. and The Flynn Company.
---------
4. BUILDING shall mean 730 Louis Drive, Warminster, Pennsylvania as described
--------
on Exhibit A hereto.
---------
5. BUILDING HOLIDAYS [INTENTIONALLY DELETED].
-----------------
6. COMMENCEMENT DATE shall be October 1, 1998 subject to Sections 3 and 4 of
-----------------
the Lease.
7. DEMISED PREMISES OR PREMISES shall be approximately eleven thousand three
----------------------------
hundred (11,300) gross rentable square feet which includes an allocable
share of the Common Facilities as defined Section 2 subject to final
measurement and agreement in accordance with 1996 BOMA standards.
8. EXHIBITS shall be the following, attached to this Lease and incorporated
--------
herein and made a part hereof:
Exhibit A Location of Premises
Exhibit A-1 Office Building Area
Exhibit B Rules and Regulations
Exhibit C Landlord's Work
Exhibit D Tenant Estoppel Certificate
Exhibit E Commencement Date Agreement
9. EXPIRATION DATE shall be the day before the fifth (5/th/) calendar year
---------------
anniversary of the Commencement Date.
10. FIXED BASIC RENT shall be calculated and payable as follows:
----------------
Rate per square foot
Square (net of operating costs Yearly Monthly
Year Footage and utilities) Rate Installment
- ------ ------- ------------------------ ----------- -----------
1 11,300 $14.50 $163,850.00 $13,654.17
2 11,300 $15.00 $169,500.00 $14,125-00
3 11,300 $15.50 $175,150.00 $14,595-83
4 11,300 $16.00 $180,800.00 $15,066.67
5 11,300 $16.50 $186,450.00 $15,537.50
Total: $875,750.00
11. OFFICE BUILDING AREA is as set forth on Exhibit A-1
-------------------- -----------
12. PERMITTED USE shall be general office use and research and development
-------------
laboratory, including pilot production of new products.
13. PROPORTIONATE SHARE shall mean twenty two percent (22%).
-------------------
14. SECURITY DEPOSIT shall be Twenty Seven Thousand Three Hundred Eight and
----------------
34/100 Dollars ($27,308.34).
15. TERM shall mean five (5) years from the Commencement Date unless terminated
----
or extended pursuant to any option or provision contained herein.
1998 40,962.51
1999 165,262.53
2000 170,912.49
2001 176,562.48
2002 182,212.53
2003 139,837.50
----------
875,750.04
==========
ii
<PAGE>
For and in consideration of the covenants herein contained, and upon the
terms and intending to be legally bound, agree as conditions herein set forth
Landlord and Tenant, intending to be legally bound, agree as follows:
1. Definitions. The definitions set forth in the preceding Preamble
shall apply to the same capitalized terms appearing in this Lease Agreement.
Additional definitions are contained in Section 41 and throughout this Lease.
2. Premises. Landlord hereby demises and leases the Premises to Tenant
and Tenant hereby leases and takes the Premises from Landlord for the Term (as
defined in Section 4) and upon the terms, covenants, conditions, and provisions
set forth in this Lease Agreement, including the Preamble (this "Lease"). The
Tenant's interest in the Premises as tenant shall include the right, in common
with Landlord and other occupants of the Building, to use driveways, sidewalks,
and parking areas, for the use of all of the tenants of the Building (the
"Common Facilities").
3. Completion of Premises.
(a) The Landlord shall, at its sole cost and expense, cause to be
completed on the Premises in accordance with the plans and specifications
attached hereto as Exhibit C (herein called the "Plans"), which Plans shall be
---------
mutually acceptable by both Landlord and Tenant, certain improvements ("Landlord
Improvements"). All necessary construction shall be commenced promptly
following Landlord's execution and acceptance of this Lease and Tenant's
delivery of the first month's Fixed Basic Rent and the Security Deposit to
Landlord and shall be substantially completed ready for use and occupancy by
Tenant on the Lease Commencement Date set forth in the Preamble; provided,
however, that the time for substantial completion of the Premises shall be
extended for additional periods of time equal to the time lost by Landlord or
Landlord's contractors, subcontractors or suppliers due to strikes or other
labor troubles; delays in Tenant's selection of materials, plans or
specifications; governmental restrictions and limitations; unavailability or
delays in obtaining fuel, labor or materials; war or other national emergency;
accidents; floods; defective materials; fire damage or other casualties; adverse
weather conditions; or any cause similar or dissimilar to the foregoing which is
beyond the reasonable control of Landlord or Landlord's contractors,
subcontractors or suppliers. The Premises shall be deemed substantially
completed when the Landlord Improvements have been substantially completed or
Tenant is in receipt of a Certificate of Occupancy or Temporary Certificate of
Occupancy, (punchlist items excepted), unless the failure to obtain such
Certificate of Occupancy or Temporary Certificate of Occupancy, is due solely to
the failure of Tenant to complete Tenant Work as described in Section 3(b)
below. All construction shall be done in a good and workmanlike manner and
shall comply at the time of completion with all applicable laws, ordinances,
regulations and orders of the federal, state, county or other governmental
authorities having jurisdiction thereof. Tenant and its authorized agents,
employees and contractors shall have the right, at Tenant's own risk, expense
and responsibility, at all reasonable times prior to the Commencement Date as
hereinafter defined, to enter the Premises for the purpose of taking
measurements and installing its furnishings and equipment; provided that Tenant,
in so doing, shall not interfere with or delay the work to be performed
hereunder by Landlord, and Tenant shall use contractors and workmen compatible
with the contractors and workmen engaged in the work to be performed hereunder
by Landlord, and Tenant shall have obtained Landlord's written consent to
installing any furnishings or equipment which consent shall not be unreasonably
withheld or delayed. If Landlord shall fail to deliver possession of the
Premises by the Commencement Date for any reason, whether or not within
Landlord's control, Landlord shall not be subject to any liability to Tenant.
If Landlord fails to deliver the Premises by November 1, 1998, then Tenant may
terminate this Lease upon three (3) days prior written notice to Landlord of
such election and upon such termination Tenant and Landlord shall have no
further obligations hereunder and this Lease shall be null and void.
(b) Tenant Work. Tenant shall cause to be completed upon the
Premises in accordance with applicable laws, ordinances or regulations and
orders of federal, state or other governmental authorities, those improvements,
other than the Landlord Improvements, which are necessary or desirable to Tenant
in order to make the Premises suitable for Tenant's use and occupancy ("Tenant
Work"). Tenant Work shall be subject to the following conditions:
(i) Not later than ten (10) days prior to commencing the
Tenant Work, Tenant shall provide Landlord with plans and specifications of the
Tenant Work, and the identity of the general contractor engaged by Tenant to
perform the Tenant Work.
(ii) Tenant or Tenant's contractor shall, throughout the period
of construction, procure and maintain building's risk insurance coverage in an
amount sufficient to cover the cost of Tenant Work, and naming the Tenant and
Landlord as additional insureds, as their interests may appear.
(iii) Tenant shall promptly pay and discharge all costs,
expenses, damages and other liabilities which may arise in connection with or by
reason of the Tenant Work.
(iv) Tenant shall not permit the filing of any mechanic's lien
and, within thirty (30) days after written notice of its existence thereof from
Landlord shall discharge or bond over any mechanic's lien for material or labor
claimed to have been furnished to the Premises on Tenant's behalf (except for
work contracted for by Landlord). Prior to commencing any of the Tenant Work,
Tenant shall (i) file waivers on behalf of each contractor waiving such
contractor's night to file for or claim a mechanic's lien under Pennsylvania's
Mechanic's Lien Law and (ii) provide to Landlord a time-stamped cover of such
filings.
2
<PAGE>
(v) The Tenant Work shall be completed in accordance with the
plans and specifications and construction schedule prepared by Tenant and
attached hereto or provided to Landlord, subject to changes as may be approved
by Tenant pursuant to a written change order signed by Tenant.
(vi) The Tenant Work will not weaken or impair the structural
integrity or lessen the value of the Premises or any part thereof
(vii) Not later than two (2) business days prior to commencement
of the Tenant Work, Tenant shall obtain, at Tenant's sold cost and expense, all
permits and approvals necessary for construction of the Tenant Work and shall
provide a copy of same to Landlord promptly upon receipt.
4. Term. The term of this Lease shall commence on the Commencement Date.
Following the Commencement Date, the term of this Lease, unless sooner
terminated as expressly provided in this Lease, shall continue until the date of
expiration of the term specified as the Term of Lease in the Preamble plus the
number of days which remain in the calendar month in which such term expires
(the "Term"). Upon request of Landlord, Tenant shall enter into a memorandum
agreement stipulating the actual Commencement Date of the Term substantially in
the form attached hereto as Exhibit E.
---------
5. Use of Premises. Tenant shall occupy the Premises throughout the Term
and shall use the same for, and only for, the Permitted Use specified in the
Preamble. The Building is designed to normal building standards for floor-
loading capacity. Tenant shall not use the Premises in such ways which, in
Landlord's judgment, exceed such load limits.
6. Rent. Unless otherwise specifically requested by Landlord at any
time, Fixed Basic Rent, Additional Rent and any other rent or other sums due
under this Lease (hereunder collectively referred to as Rent) shall be paid and
delivered to Landlord's on-site property manager, if any, as agent for Landlord,
in the amounts, time and manner more particularly provided in this Lease.
(a) Fixed Basic Rent. Tenant shall pay, throughout the Term, Fixed
Basic Rent in the amount specified in the Preamble, without notice or demand and
without setoff or deduction, in equal monthly installments equal to one-twelfth
of the Fixed Basic Rent (specified as Monthly Installments in the Preamble), in
advance, on the first day of each calendar month during the Term. If the
Commencement Date falls on a day other than the first day of a calendar month,
the Fixed Basic Rent shall be apportioned on a per them basis for the period
between the Commencement Date and the first day of the first full calendar month
in the Term and such apportioned sum shall be paid on the Commencement Date.
(b) Additional Rent. Commencing on the Commencement Date, Tenant
shall pay to Landlord, as Additional Rent, in the manner more particularly set
forth
3
<PAGE>
below, Tenant's Proportionate Share of Annual Operating Costs (as defined below)
for the Property to the extent same exceeds Tenant's Proportionate Share of
Annual Operating Costs for the Base Year:
i) Annual Operating Costs. The term "Annual Operating Costs"
shall mean all costs Landlord incurs from owning, operating and maintaining the
Building and the lot or tract of land on which it is situated (the "Property").
Annual Operating Costs shall include, by way of example rather than limitation:
insurance costs, including premiums; fees; Impositions (defined below); costs
for repairs, maintenance and service contracts; management fees; landscaping;
snow removal; governmental permits fees; costs of compliance with governmental
orders and regulations; administrative and overhead expenses; costs of
furnishing water, sewer, electricity, gas, fuel, and other utility services, for
use in common areas of the Building and Property; and the cost of janitorial
service and trash removal; excluding, however, from Annual Operating Costs the
---------
following: costs which are treated as capital expenditures (except as provided
in Section 10(b)) under generally accepted accounting principles; mortgage debt
or ground rents incurred by Landlord as owner of the Property; income, excess
profits, corporate capital stock or franchise tax imposed or assessed upon
Landlord, unless such tax or any similar tax is levied or assessed, in lieu of
all or any part of any currently existing Imposition or an increase in any
currently existing Imposition; leasing commissions, accountants', consultants'
or attorneys' fees, costs and disbursement and other expenses incurred in
connection with negotiations or disputes with tenants or prospective tenants or
associated with the enforcement of any leases or the defense of Landlord's title
to or interest in the Building in connection with any proceedings involving real
property taxes other than disputes regarding tax assessment and reduction of
real property taxes; costs of construction of the Building and related
facilities and correction of defects in construction of the Building (including
permit, license and inspection fees); costs of any items or services sold or
provided to tenants (including Tenant) for which Landlord is entitled to be
reimbursed by such tenants or which are not generally provided to all tenants of
the Building; fees and higher interest charges caused by Landlords refinancing
the Building; all repairs to the interior of the Building of a structural nature
(not made necessary by unusual use by Tenant); costs incurred due to violation
by Landlord or any tenant of the terms and conditions of any lease; overhead and
profit increment paid to subsidiaries or affiliates of Landlord, or to any party
as a result of a noncompetitive selection process, for management or other
services on or to the Building or for supplies or other materials, to the extent
that the costs of such services, supplies or materials exceed the costs that
would have been paid had the services, supplies or materials been provided by
unaffiliated parties on a competitive basis; general overhead and administrative
expenses except salaries of on-site property manager, management secretary and
maintenance man; any compensation paid to clerks, attendants or other persons in
commercial concessions operated by Landlord, rentals and other related expenses
incurred in leasing air conditioning systems, elevators or other equipment
ordinarily considered to be for a capital nature, except equipment which is used
in providing janitorial services and which is not affixed to the Building; all
items and services for which Tenant reimburses Landlord or pays third persons or
which
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Landlord provides selectively to one or more tenants or occupants of the
Building (other than Tenant) without reimbursement; commissions, advertising,
and promotional expenditures; costs incurred in managing or operating any
parking facilities; nor any other expense which under generally accepted
accounting principles and practice would not be considered a normal maintenance
or repair expense. "Impositions" shall mean all levies, taxes, assessments,
charges, imposts, and burdens, of whatever kind and nature, ordinary and
extraordinary, which are assessed or imposed during the Term by any federal,
state or municipal government or public authority or under any law, ordinance or
regulation thereof or pursuant to any recorded covenants or agreements upon or
with respect to the Property or any part thereof, any improvements thereto, any
personal property necessary to the operation thereof and owned by Landlord or
this Lease. If under the requirements of any state or local law, a new
Imposition is imposed upon Landlord which Tenant is prohibited by law from
paying, Landlord may, as its election, terminate this Lease by giving written
notice thereof to Tenant.
ii) Annual Operating Costs - Expense Statement and
Reconciliation. For and with respect to each calendar year of the Term (and any
renewals or extensions thereof) there shall accrue, as Additional Rent payable
hereunder, an amount equal to the product of Tenant's Proportionate Share and
the amount of Annual Operating Costs for such year (appropriately pro-rated for
any partial calendar year included within the beginning or end of the Term).
(1) Landlord shall submit to Tenant a statement as soon as
reasonably possible after the beginning of each calendar year of the Term, the
following:
(a) a statement setting forth (i) the Annual Operating
Costs for the previous calendar year of the Term and (ii) a calculation of
Tenant's Proportionate Share of the Annual Operating Costs for the previous
calendar year (the "Expense Statement"); and
(b) a statement of Landlord's good faith estimate of the
Annual Operating Costs for the current calendar year and (2) a calculation of
Tenant's Proportionate Share of the Annual Operating Costs for the current
calendar year ("Tenant's Estimated Share").
(2) Beginning with the next installment of Fixed Basic Rent
due after the delivery of the aforesaid statements to Tenant, Tenant shall pay
to Landlord, on account of its Proportionate Share of the Annual Operating
Costs, the following:
(a) a sum equal to the product of one-twelfth (1/12) of
Tenant's Estimated Share and the number of calendar months elapsed during the
current calendar year up to and including the month payment is made, plus any
amounts due from Tenant to Landlord on account of Annual Operating Costs for any
prior period(s) of time, less
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(b) a sum equal to the amount, if any, by which the sum of
all payments made by Tenant to Landlord on account of Annual Operating Costs for
the previous calendar year exceed those actually specified in the Expense
Statement.
(3) On the first day of each succeeding calendar month until
such time as Tenant receives a new Expense Statement and statement of Tenant's
Estimated Share, Tenant shall pay to Landlord, on account of its Proportionate
Share of Annual Operating Costs, one-twelfth (1/12) of the then current Tenant's
Estimated Share. Any payment due from Tenant to Landlord, or any refund due from
Landlord to Tenant, on account of Annual Operating Costs not yet determined as
of the expiration of the Term shall be made within thirty (30) days after
submission to Tenant of the next Expense Statement.
c) Disputes. Unless Tenant, within (30) days after any
statement of Additional Rent is furnished, shall give notice to Landlord that
Tenant disputes said statement, specifying in detail the basis for such dispute,
each statement furnished to Tenant by Landlord under any provision of this
Section shall be conclusively binding upon Tenant as to the particular
Additional Rent due from Tenant for the period represented thereby; provided,
however, that additional amounts due may be required to be paid by any
supplemental statement furnished by Landlord. Tenant shall have the right at
reasonable times to examine the records used in making the aforestated
determinations, upon written notice in advance; provided however, such
disputed amount shall have been paid by Tenant to Landlord. In the event any
such examination shall reveal an adverse variance in excess of 10% of the total
operating expenses of which Tenant is required to pay their Proportionate Share,
Landlord shall reimburse Tenant for the reasonable cost of such examination
within thirty (30) days after demand. Tenant shall make all payments of
Additional Rent without delay and regardless of any pending dispute over the
amount of Additional Rent that is due in accordance with the statements
furnished by Landlord. Landlord shall have the right to retain Tenant's
security deposit until all Additional Rent payable by Tenant is determined and
paid.
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d) Independent Covenant; Survival. Tenant's covenant to pay
Rent is independent of any other covenant, agreement, term or condition of this
Lease. Without limitation of any obligation of Tenant under this Lease which
shall survive the expiration of the Term, the obligation of Tenant to Pay Rent
shall survive the expiration of the of the Term.
7. Insurance.
a) Liability. Tenant, at Tenant's sole cost and expense, shall
maintain and keep insurance in effect throughout the Term against liability for
bodily injury (including death) and property damage in or about the Premises or
the Property under a policy of comprehensive general public liability insurance,
with such limits as to each as may be reasonably required by Landlord from time
to time, but not less than $2,000,000.00 for each person and $5,000,000.00 in
the aggregate for bodily injury (including death) to more than one (1) person
and $2,000,000.00 for property damage. The policies of comprehensive general
public liability insurance shall name Landlord and Tenant (and if requested, any
mortgagee of Landlord) as the insured parties. Each such policy shall provide
that it shall not be cancelable without at least thirty (30) days prior written
notice to Landlord and to any mortgagee named in an endorsement thereto and
shall be issued by an insurer and in a form satisfactory to Landlord. At least
ten (10) days prior to the Commencement Date, and thereafter upon Landlord's
request, a certificate of insurance shall be delivered to Landlord proving
compliance with the foregoing requirements. If Tenant shall fail, refuse or
neglect to obtain or to maintain any insurance that it is required to provide or
to furnish Landlord with satisfactory evidence of coverage on any such policy
upon demand, Landlord shall have the right to purchase such insurance. All
payments made by Landlord for such insurance shall be recoverable by Landlord
from Tenant, together with interest thereon, as Additional Rent promptly upon
demand. In addition to the foregoing, Landlord shall maintain comprehensive
general public liability insurance with coverage amounts not less than the
amounts of coverage Tenant is required to maintain hereunder. Notwithstanding
anything contained herein to the contrary, Tenant may self-insure all of its
personal situated within the Premises against property damage and destruction.
b) Increase of Premiums. Tenant will not do anything or fail
to do anything or permit anything to be done which will cause the cost of
Landlord's insurance to increase or which will prevent Landlord from procuring
insurance (including but not limited to public liability insurance) from
companies, and in a form, satisfactory to Landlord. If any breach of this
subsection (c) by Tenant shall cause the rate of fire or other insurance to be
increased, Tenant shall pay the amount of such increase as Additional Rent
promptly upon demand. If Tenant does anything or fails to do anything or permits
anything to be done for which insurance cannot be obtained, and upon twenty five
(25) days prior written notice to Tenant, Tenant fails to procure replacement
insurance in a form and from a carrier satisfactory to Landlord, Landlord may
terminate this Lease. Landlord shall provide Tenant with any notice received by
Landlord relating to any increase in the cost of Landlord's insurance or any
notice of cancellation or denial
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of insurance within three (3) days of Landlord's receipt of such notice.
8. Repairs and Maintenance.
a) Tenant shall, throughout the Term and at Tenant's sole cost
and expense, keep and maintain the Premises in a neat and orderly condition;
and, upon expiration of the Term, Tenant shall leave the Premises in good order
and condition, ordinary wear and tear, damage by fire or other casualty (which
fire or other casualty has not occurred through the negligence of Tenant or
those claiming under Tenant or their agents, employees or invitees,
respectively) alone excepted, and for that purpose and except as stated, Tenant
will make all necessary repairs and replacements. Tenant shall not permit any
waste, damage or injury to the Premises. Tenant shall not use or permit the use
of any portion of the common areas for other than their intended use as
specified by the Landlord from time to time.
b) Landlord shall, throughout the Term, make all necessary
repairs to the structural elements of the Premises including the roof, HVAC and
hot water systems servicing the Premises and other improvements located on the
Property; provided, however, that Landlord shall have no responsibility to make
any repairs unless and until Landlord receives written notice of the need for
such repair. Landlord shall undertake all such necessary repairs within three
(3) business days and shall proceed with all due diligence to complete such
repairs in an expeditious manner. Landlord shall keep and maintain all common
areas of the Property and any sidewalks, parking areas, curbs and access ways
adjoining the Property in a clean and orderly condition, free of accumulation of
dirt and rubbish and shall keep and maintain all landscaped areas within the
Property in a neat and orderly condition.
c) Notwithstanding the foregoing, repairs and replacements to
the Premises and the Property an-sing out of or caused by Tenant's use, manner
of use or, occupancy of the Premises, by Tenants installation of alterations,
additions, improvements, trade fixtures or equipment in or upon the Premises or
by any act or omission of Tenant or any employee, agent, contractor or invitee
of Tenant shall be made at Tenant's sole cost and expense and Tenant shall pay
Landlord the cost of any such repair or replacement, as Additional Rent, upon
demand.
9. Utilities and Services.
a) Landlord shall furnish the Premises with 3 phase 480 volt
electricity, an adequate heating and air conditioning system and an adequate hot
water system for the normal use and occupancy of the Premises. A separate meter
will be installed at Landlord's expense and Tenant shall pay for the consumption
of such utilities based upon its metered usage. Tenant shall pay all bills for
separately metered utility usage directly to the service provider and any non-
payment or late payment of such utility bills shall be deemed a default under
the terms of this Lease.
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b) Within the common areas of the Building, Landlord shall
furnish reasonable: (i) landscaping, (ii) parking lot maintenance, (iii) common
area maintenance and (iv) snow removal. Tenant shall be responsible for its
Proportionate Share of such services in accordance with Section 6(b) hereof.
Notwithstanding the foregoing, Tenant shall provide janitorial service to the
Premises, provided, however, Landlord shall be permitted to undertake such
janitorial services upon written notice to Tenant in the event Landlord
determines in its reasonable discretion that Tenant is not providing adequate
services to the Premises. In such event, Tenant shall pay for such services as
Additional Rent.
c) Landlord shall not be liable for any damages to Tenant
resulting from the quality, quantity, failure, unavailability or disruption of
any services beyond the reasonable control of Landlord and the same shall not
constitute a termination of this Lease or an actual or constructive eviction or
entitle Tenant to an abatement of rent. Landlord shall not be responsible for
providing any services not specifically provided for in this Lease.
10. Governmental Regulations.
a) Landlord and Tenant shall comply with all laws, ordinances,
notices, orders, rules, regulations and requirements of all federal, state and
municipal government or any department, commission, board of officer thereof, or
of the National Board of Fire Underwriters or any other body exercising similar
functions, relating to the Premises or to the use or manner of use of the
Property. Tenant shall not knowingly do or commit, or suffer to be done or
committed anywhere in the Building, any act or thing contrary to any of the
laws, ordinances, regulations and requirements referred to in this Section.
Tenant shall give Landlord prompt written notice of any accident in the Premises
arid of any breakage, defect or failure in any of the systems or equipment
servicing the Premises or any portion of the Premises.
b) Tenant shall pay its Proportionate Share of the cost of
capital improvements which Landlord shall install or construct in compliance
with governmental requirements which take effect after the commencement of the
Term hereof. Tenant's Proportionate Share shall be determined based upon the
estimated life of the capital investment item, determined by Landlord in
accordance with generally accepted accounting principles, and shall include a
cost of capital funds adjustment equal to nine percent (9%) per year on the
unamortized portion of all such costs. Tenant shall only have to pay for the
portion of the useful life of the capital improvement which falls within the
Term. Tenant shall thus make payments in equal annual installments for such
capital improvements until the Term expires or until the cost of the improvement
has been fully paid for, whichever first occurs; such payments shall be computed
by Landlord at the time of installation of the capital improvement in the same
manner as Landlord makes computations of Tenant's share of the annual operating
costs pursuant to Section 6(b)(ii).
c) Tenant shall pay all taxes imposed upon Tenant's
furnishings, trade
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fixtures, equipment or other personal property.
11. Signs. Except for signs which are located wholly within the interior
of the Premises and which are not visible from the exterior of the Premises,
Tenant shall not place, erect, maintain or paint any signs upon the Premises or
the Property unless the design of such sums are approved by Landlord in writing
which approval shall not be unreasonably withheld or delayed and comply with all
applicable governmental rules, regulating ordinances or other statutes. Tenant
shall be solely responsible for all costs and expenses associated with the
erection of any signs upon the Premises and shall be obligated to obtain and
provide to Landlord any and all necessary permits prior to the placement or
erection of such signs.
12. Alterations, Additions and Fixtures.
a) Tenant shall have the right to install in the Premises any
trade fixtures; provided, however, that no such installation and no removal
thereof shall be permitted which affects any structural component of the
Building or Premises and that Tenant shall repair and restore any damage or
injury to the Premises or the Property caused by installation or removal.
b) Tenant shall not make or permit to be made any alterations,
improvements or additions to the Premises or Property without on each occasion
first presenting plans and specifications to Landlord and obtaining Landlord's
prior written consent, which shall not be unreasonably withheld or delayed, but
may be conditioned upon compliance with reasonable requirements of Landlord
including, without limitation, the filing of mechanics' lien waivers by Tenant's
contractors and the submission of written evidence of adequate insurance
coverage naming Landlord as an additional insured thereunder. If Landlord
consents to any proposed alterations, improvements or additions or Tenant's
contractor performs any of the work identified in Section 3 of this Lease
Agreement, then Tenant shall make the proposed alterations, improvements and
additions at Tenants sole cost and expense provided that: (i) Tenant supplies
any necessary permits; (ii) such alterations and improvements do not, in
Landlord's judgment, impair the structural strength of the Building or any other
improvements or reduce the value of the Property; (iii) Tenant takes or causes
to be taken all steps that are otherwise required by Section 13 of this Lease
and that are required or permitted by law in order to avoid the imposition of
any mechanic's, laborers or materialman's lien upon the Premises or the
Property; (iv) Tenant uses a contractor approved by Landlord; (v) the occupants
of the Building and of any adjoining real estate owned by Landlord are not
annoyed or disturbed by such work; (vi) the alterations, improvements or
additions shall be installed in accordance with the approved plans and
specifications and completed according to a construction schedule approved by
Landlord; and (vii) Tenant provides insurance of the types and coverage amounts
required by Landlord. Any and all alterations, improvements and additions to the
Premises which are constructed, installed or otherwise made by Tenant shall be
the property of Tenant until the expiration or sooner termination of this Lease;
at that time all such alterations and additions shall remain on the Premises
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and become the property of Landlord without payment by Landlord unless, upon the
termination of this Lease, Landlord instructs Tenant in writing to remove the
same in which event Tenant will remove such alterations, improvements and
additions, and repair and restore any damage to the Property caused by the
installation or removal. Notwithstanding anything to the contrary contained in
this Lease, Landlord may withhold its approval to any proposed alterations,
additions or improvements to the Premises in its absolute and sole discretion
with respect to any such alteration, addition or improvement which Landlord
determines involves any modification to the Building's exterior or its
structural, electrical, mechanical or plumbing systems, or any components
thereof.
13. Mechanic's Liens. Tenant shall promptly pay any contractors and
materialmen who supply labor, work or materials to Tenant at the Premises or the
Property so as to minimize the possibility of a lien attaching to the Premises
or the Property. Tenant shall take all steps permitted by law in order to avoid
the imposition of any mechanic's, laborer's or materialman's lien upon the
Premises or the Property. Should any such lien or notice of lien be filed for
work performed for Tenant other than by Landlord, Tenant shall cause such lien
or notice of lien to be discharged of record by payment, deposit, bond or
otherwise within fifteen (I 5) days after the filing thereof or after Tenant's
receipt of notice thereof, whichever is earlier, regardless of the validity of
such lien or claim. If Tenant shall fail to cause such lien or claim to be
discharged and removed from record within such fifteen (I 5) day period, then,
without obligation to investigate the validity thereof and in addition to any
other right or remedy Landlord may have, Landlord may, but shall not be
obligated to, contest the lien or claim or discharge it by payment, deposit,
bond or otherwise; and Landlord shall be entitled to compel the prosecution of
an action for the foreclosure of such lien by the lienor and to pay the amount
of the judgment in favor of the lienor with interest and costs. Any amounts so
paid by Landlord and all costs and expenses including, without limitation,
attorneys' fees incurred by Landlord in connection therewith, together with
interest at a rate of nine percent (9%) per annum from the respective dates of
Landlord's making such payment or incurring such cost or expense, which shall
constitute Additional Rent payable hereunder promptly upon demand therefor.
Nothing in this Lease is intended to authorize Tenant to do or cause any work or
labor to be done or any materials to be supplied for the account of Landlord,
all of the same to be solely for Tenant's account and at Tenant's risk and
expense. Further, notwithstanding anything to the contrary contained in this
Lease, nothing contained in or contemplated by this Lease shall be deemed or
construed in any way to constitute the consent or request by Landlord for the
performance of any work or services or the furnishing of any materials for which
any lien could be filed against the Premises or the Building or the Property or
any part of any thereof, nor as giving Tenant any right, power or authority to
contract or permit the performance of any work or services or the furnishing of
any materials for which any lien could be filed against the Premises, the
Building, the Property or any part of any thereof. Throughout this Lease the
term "mechanic's lien" is used to include any lien, encumbrance or charge levied
or imposed upon the Premises or the Property or any interest therein or income
therefrom on account of any mechanic's, laborer's or materialman's lien or
arising out of any debt or liability to or any claim or demand of any
contractor, mechanic, supplier, materialman or
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laborer and shall include without limitation any mechanic's notice of intention
given to Landlord or Tenant, any stop order given to Landlord or Tenant, any
notice of refusal to pay naming Landlord or Tenant and any injunctive or
equitable action brought by any person entitled to any mechanic's lien.
14. Landlord's Right of Entry.
a) Tenant shall permit Landlord and the authorized
representatives of Landlord and of any mortgagee or any prospective mortgagee to
enter tile Premises at all reasonable times, upon twenty four (24) hour notice
to Tenant (except in the case of an emergency), for the purpose of (i)
inspecting the Premises or (ii) making any necessary repairs to the Premises or
to the Building and performing any work therein. During the progress of any work
on the Premises or the Building, Landlord will attempt not to inconvenience
Tenant, but shall not be liable for inconvenience, annoyance, disturbance, loss
of business or other damage to Tenant by reason of making any repair or by
bringing or storing materials, supplies, tools and equipment in the Premises
during the performance of any work, and the obligations of Tenant under this
Lease shall not be thereby affected in any manner whatsoever.
b) Landlord shall have the right at all reasonable times to,
with twenty four (24) hour prior notice to Tenant, enter and to exhibit the
Premises for the purpose of inspection or showing the Premises in connection
with a sale or mortgage and, during the last twelve (12) months of the Term, to
enter upon and to exhibit the Premises to any prospective tenant.
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15. Damage by Fire or Other Casualty.
a) If the Premises or Building is damaged or destroyed by fire
or other casualty, Tenant shall promptly notify Landlord whereupon Landlord
shall, subject to the consent of Landlord's present or future mortgagee and to
the conditions set forth in this Section 15, repair, rebuild or replace such
damage and restore the Premises to substantially the same condition as the
Premises were in immediately prior to such damage or destruction (except for
the Tenant Work). Notwithstanding the foregoing, if the Premises is destroyed or
damaged to the extent that in Landlord's reasonable judgment the Premises cannot
be repaired or restored within one hundred twenty (120) days after such
casualty, Landlord or Tenant may, subject to the rights of Landlord's mortgagee,
terminate this Lease by written notice to the other within thirty (30) days
after the date of such casualty. In the event Tenant disagrees with Landlord's
determination that the Premises can be restored or repaired within the aforesaid
one hundred and twenty (120) day period, then Tenant may, at its sole cost and
expense, employ its own professional engineer or other qualified person to
review such determination. If such person determines that it is unlikely that
the restoration can be completed within such period and the Landlord, Tenant and
Tenant's professional engineer cannot agree as to whether such restoration work
can be completed within such period, then the parties shall employ a mutually
agreeable third party professional engineer or other qualified person to make
such determination which determination shall be binding upon the parties. In the
event the third party professional engineer or other qualified person determines
that the restoration work is unlikely to be completed within such one hundred
twenty (120) day period, then either Landlord or Tenant shall be entitled to
terminate this Lease upon written notice to the other party.
b) The repair, rebuilding or replacement work shall be
commenced promptly and completed with due diligence, taking into account the
time required by Landlord to effect a settlement with, and procure insurance
proceeds from, the insurer, and for delays beyond Landlord's reasonable control.
c) The net amount of any insurance proceeds recovered by reason
of the damage or destruction of the Building (meaning the gross insurance
proceeds excluding proceeds received pursuant to a rental coverage endorsement
and the cost of adjusting the insurance claim and collecting the insurance
proceeds) shall be applied towards the cost of restoration and that Landlord
shall only be obligated to restore such damage or destruction to the extent of
the proceeds of fire and other extended coverage insurance policies. In the
event such proceeds will not be sufficient to cover the cost of restoration or
will not be made available to permit Landlord to timely complete the restoration
work, then Landlord shall notify Tenant that it will not be able to complete
such restoration work within such one hundred and twenty (120) day period and
upon such notice either party may elect to terminate this Lease upon written
notice to the other.
d) Landlord's obligation or election to restore the Premises
under this Section shall be subject to the terms of any present or future
mortgage affecting the
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Premises and to the mortgagee's consent if required in the mortgage and shall
not, in any event, include the repair, restoration or replacement of the
fixtures, improvements, alterations, furniture or any other property owned,
installed, made by, or in the possession of Tenant.
e) Landlord shall at all times maintain insurance against loss
or damage to the Building by fire and such other casualties as may be included
within fire and extended coverage insurance or all-risk insurance in an amount
not less than the replacement cost of the Building, together with a rental
coverage endorsement or other comparable form of coverage. If Tenant is
dispossessed of the Premises due to fire or other casualty, Tenant will receive
an abatement of its Fixed Basic Rent and Additional Rent during the period
Tenant is dispossessed.
16. Non-Abatement of Rent. Except as otherwise expressly provided in
subsection 15(e) and as to condemnation in subsections 18(a) and (b) there shall
be no abatement or reduction of the Fixed Basic Rent, Additional Rent or other
sums payable hereunder for any cause whatsoever and this Lease shall not
terminate, nor shall Tenant be entitled to surrender the Premises, in the event
of fire, casualty or condemnation or any default by Landlord under this Lease.
17. Indemnification
a) Unless such loss, costs or damages were caused by negligence
or willful misconduct of Landlord, its employees, agents or contractors, Tenant
hereby agrees to indemnify, defend and hold the Landlord and its employees,
agents and contractors harmless from any loss, costs and damages (including
reasonable attorney's fees and costs) suffered by Landlord, its agents,
employees or contractors, as a result of any claim by a third party, its agents,
employees or contractors arising from Tenant's occupancy of the Premises. Tenant
shall have the right to designate counsel acceptable to Landlord, such approval
not to be unreasonably withheld, to assume the. defense of any such third party
claim on behalf of itself and Landlord. Landlord shall not have the right to
settle any claim without the consent of Tenant. This indemnity shall survive the
expiration or termination of this Lease.
b) If Landlord brings any action under this Lease Agreement,
Tenant agrees in each case to pay Landlord's reasonable attorney's fees and
other costs and expenses incurred by Landlord in connection therewith; provided,
however, the Landlord prevails in such action.
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18. Condemnation.
a) Termination. If (i) all of the Premises covered by a
condemnation; or (ii) any of the Premises is covered by a condemnation and the
remaining part is insufficient in Tenant's sole judgment for the reasonable
operation therein of Tenant's business; or (iii) subject to the provisions of
subsection 18(b)(1) hereof, any of the Property is covered by a condemnation
and, in Landlord's sole opinion, it would be impractical or the condemnation
proceeds are insufficient to restore the remainder of the Property; then, in any
such event, this Lease shall terminate and all obligations hereunder shall cease
as of the date upon which possession is taken by the condemnor. Landlord shall
give Tenant written notice of any notice of condemnation that it receives within
ten (10) days of the date of receipt of such notice by Landlord. Upon such
termination the Fixed Basic Rent and all Additional Rent herein reserved shall
be apportioned and paid in full Tenant to Landlord to that date and all such
rent prepaid for periods beyond that date shall forthwith be repaid by Landlord
to Tenant.
b) Partial Condemnation.
i) If there is a partial condemnation and Landlord decides
to terminate pursuant to subsection 18(a)(iii) or if Tenant elects to terminate
pursuant to Section 18(a)(ii) hereof then Tenant may require Landlord, except
during the last two (2) years of the Tenn, to withdraw its notice of termination
by: [A] giving Landlord written notice thereof within ten (10) days from
transmission of Landlord's notice to Tenant of Landlord's intention to
terminate, [B] agreeing to pay the cost of restoration in excess of the
condemnation proceeds reduced by those sums expended by Landlord in collecting
the condemnation proceeds, and [C] giving Landlord adequate security for such
payment within such ten (10) day period.
ii) If there is a partial condemnation and this Lease has
not been terminated pursuant to subsection (a) hereof, Landlord shall restore
the Building and the improvements which are part of the Premises to a condition
and size as nearly comparable as reasonably possible to the condition and size
thereof immediately prior to the date upon which possession shall have been
taken by the condemnor; provided, however, that Landlord shall only be obligated
to restore such damage from condemnation to the extent possible with the award
damage. If the condemnation proceeds are more than adequate to cover the cost of
restoration and the Landlord's expenses in collecting the condemnation proceeds,
any excess proceeds shall be retained by Landlord or applied to repayment of any
mortgage secured by the Premises.
iii) If there is a partial condemnation and this Lease has
not been terminated by the date upon which the condemnor obtains possession, the
obligations of Landlord and Tenant under this Lease shall be unaffected by such
condemnation except that there shall be an equitable abatement for the balance
of the Term of the Fixed Basic Rent according to the value of the Premises
before and after the date upon which the condemnor takes possession. In the
event that the parties are unable to agree upon the
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amount of such abatement, either party may submit the issue to arbitration.
c) Award. In the event of a condemnation affecting Tenant,
Tenant shall have the right to make a claim against the condemnor for removal
expenses and moving expenses, loss of business and any other claims Tenant may
have; provided and to the extent, however, that such claims or payments do not
reduce the sums otherwise payable by the condemnor to Landlord. Except as
aforesaid, Tenant hereby waives all claims against Landlord and against the
condemnor, and Tenant hereby assigns to Landlord all claims against the
condemnor including, without rotation, all claims for leasehold damages and
diminution in value of Tenants leasehold interest.
d) Temporary Taking. If the condemnor should take only the
right to possession for a fixed period of time or for the duration of an
emergency or other temporary condition not exceeding thirty (30) consecutive
days or sixty (60) days in any successive twelve (12) month period then,
notwithstanding anything hereinabove provided, this Lease shall continue in full
force and effect without any abatement of rent, but the amounts payable by the
condemnor with respect to any period of time prior to the expiration or sooner
termination of this Lease shall be paid by the condemnor to Landlord and the
condemnor shall be considered a subtenant of Tenant. Landlord shall apply the
amount received from the condemnor applicable to the rent due hereunder, net of
costs, to Landlord for the collection thereof, or as much thereof as may be
necessary for the purpose, toward the amount due from Tenant as rent for that
period; and, Tenant shall pay to Landlord any deficiency between the amount thus
paid by the condemnor and the amount of the rent, or Landlord shall pay to
Tenant any excess of the amount of the award over the amount of the rent.
19. Quiet Enjoyment. Tenant, upon paying the Fixed Basic Rent, Additional
Rent and other charges herein required and observing and keeping all covenants,
agreements and conditions of this Lease, shall quietly have and enjoy the
Premises during the Term without hindrance or molestation by anyone claiming by
or through Landlord, subject, however, to the exceptions, reservations and
conditions of this Lease.
20. Rules and Regulations. The Landlord hereby reserves the right to
prescribe, from time to time, at its sole discretion, reasonable rules and
regulations (herein called the "Rules and Regulations") attached hereto as
Exhibit B governing the use and enjoyment of the Premises and the remainder of
- ---------
the Property. The Rules and Regulations shall not materially interfere with the
Tenants use and enjoyment of the Premises in accordance with the provisions of
this Lease for the Permitted Use and shall not increase or modify Tenant's
obligations under this Lease. In the event of a conflict between the Lease
Agreement and such rules and regulations, the Lease Agreement shall control.
The Tenant shall comply at all times with the Rules and Regulations and shall
cause its agents, employees, invitees, visitors, and guests to do so.
21. Assignment and Sublease. Tenant may assign or sublease the within
Lease to any party subject to the following:
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a) In the event Tenant desires to assign this Lease or sublease
all of the Premises to any other party, Tenant shall provide written notice of
the terms and conditions of such assignment or sublease to Landlord prior to the
effective date of any such sublease or assignment, and, prior to such effective
date, the Landlord shall have the option, exercisable by written notice to
Tenant within ten (10) business days of Landlord's receipt of written notice
from Tenant, to: (i) sublease such space from Tenant at the lower rate of (a)
the rental rate per rentable square foot of Fixed Basic Rent and Additional Rent
then payable pursuant to this Lease or (b) the terms set forth in the proposed
sublease, (ii) recapture all of the Premises ("Recapture Space") so that such
prospective subtenant or assignee shall then become the sole Tenant of Landlord
hereunder, or (iii) recapture the Recapture Space for Landlord's own use,
whereupon Tenant shall be fully released from any and all obligations hereunder
with respect to the Recapture Space.
b) In the event that the Landlord elects not to recapture the
Lease as hereinabove provided, the Tenant may nevertheless assign this Lease or
sublet the whole or any portion of the Premises, subject to the Landlord's prior
written consent, on the basis of the following terms and conditions:
i) The Tenant shall provide to the Landlord the name and
address of the assignee or subtenant.
ii) The assignee or subtenant shall assume, by written
instrument, all of the obligations of this Lease, and a copy of such assumption
agreement shall be furnished to the Landlord within ten (10) days of its
execution. Any sublease shall expressly acknowledge that said subtenant's
rights against Landlord shall be no greater than those of Tenant.
iii) The Tenant and each assignee shall be and remain liable
for the observance of all the covenants and provisions of this Lease, including,
but not limited to, the payment of Fixed Basic Rent and Additional Rent reserved
herein, through the entire Term of this Lease, as the same may be renewed,
extended or otherwise modified.
iv) In the event of a sublease of less than all of the
Premises, and the provisions of written notice thereof as set forth in Section
21 above, the Tenant shall be entitled to retain any net profit received from
such subleasing.
v) In any event, the acceptance by the Landlord of any
rent from the assignee or from any of the subtenants or the failure of the
Landlord to insist upon a strict performance of any of the terms, conditions and
covenants herein shall not release the Tenant herein, nor any assignee assuming
this Lease, from any and all of the obligations herein during and for the entire
Term of this Lease.
vi) Landlord shall require a Five Hundred Dollars ($500.00)
payment to cover its handling charges for each request for consent to any sublet
or
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assignment prior to its consideration of the same. Tenant acknowledges that its
sole remedy with respect to any assertion that Landlord's failure to consent to
any sublet or assignment is unreasonable shall be the remedy of specific
performance and Tenant shall have no other claim or cause of action against
Landlord as a result of Landlord's actions in refusing to consent thereto.
c) If Tenant is a corporation other than a corporation whose
stock is listed and traded on a nationally recognized stock exchange, the
provisions of subsection a hereof shall apply to a transfer (however
accomplished, whether in a single transaction or in a series of related or
unrelated actions) of stock (or any other mechanism such as, by way of example,
the issuance of additional stock, a stock voting agreement or change in
class(es) of stock) which results in a change of control of Tenant as if such
transfer of stock (or other mechanism) which results in a change of control of
Tenant were an assignment of this Lease, and if Tenant is a partnership or joint
venture, said provisions shall apply with respect to a transfer (by one or more
transfers) of an interest in the distributions of profits and losses of such
partnership or joint venture (or other mechanism, such as, by way of example,
the creation of additional general partnership or limited partnership interests)
which results in a change of control of such a partnership or joint venture, as
if such transfer of an interest in the distributions of profits and losses of
such partnership or joint venture which results in a change of control of such
partnership or joint venture were an assignment of this Lease; but said
provisions shall not apply to transactions with a corporation into or with which
Tenant is merged or consolidated or to which all or substantially all of
Tenant's assets are transferred or to any corporation which controls or is
controlled by Tenant or is under common control with Tenant, provided that in
the event of such merger, consolidation or transfer of all or substantially all
of Tenant's assets (1) the successor to Tenant has a net worth computed in
accordance with generally accepted accounting principles at least equal to the
greater of (1) the net worth of Tenant immediately prior to such merger,
consolidation or transfer, or (2) the net worth of Tenant herein named on the
date of this Lease, and (ii) proof satisfactory to Landlord of such net worth
shall have been delivered to Landlord at least ten (10) days prior to the
effective date of any such transaction.
d) In the event that any or all of Tenant's interest in the
Premises and/or this Lease is transferred by operation of law to any trustee,
receiver, or other representative or agent of Tenant, or to Tenant as a debtor
in possession, and subsequently any or all of Tenant's interest in the Premises
and/or this Lease is offered or to be offered by Tenant or any trustee,
receiver, or other representative or agent of Tenant as to its estate or
property (such person, firm or entity being hereinafter referred to as the
"Grantor", for assignment, conveyance, lease, or other disposition to a person,
firm or entity other than Landlord (each such transaction being hereinafter
referred to as a "Disposition"), it is agreed that Landlord has and shall have a
right of first refusal to purchase, take, or otherwise acquire, the same upon
the same terms and conditions as the Grantor thereof shall accept upon such
Disposition to such other person, firm, or entity; and as to each such
Disposition the Grantor shall give written notice to Landlord in reasonable
detail of all of the terms and conditions of such Disposition within twenty (20)
days next following its determination to accept the
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same but prior to accepting the same, and Grantor shall not make the Disposition
until and unless Landlord has failed or refused to accept such right (60) days
next following its receipt of the written notice as to Disposition, as set forth
herein. Landlord shall have sixty (60) days next following its receipt of the
written notice as to such Disposition in which to exercise the option to acquire
Tenant's interest by such Disposition, and the exercise of the option by
Landlord shall be effected by notice to that effect sent to the Grantor, but
nothing herein shall require Landlord to accept a particular Disposition or any
Disposition, nor does the rejection of any one such offer of first refusal
constitute a waiver or release of the obligation of the Grantor to submit other
offers hereunder to Landlord. In the event Landlord rejects such offer of first
refusal, Grantor may consummate the Disposition with such other person, firm, or
entity; but any decrease in price of more than two percent (2%) of the price
sought from Landlord or any change in the terms of payment for such Disposition
shall constitute a new transaction requiring a further option of first refusal
to be given to Landlord hereunder.
e) Without limiting any of the provisions of this Section 21,
if pursuant to the Federal Bankruptcy Code (herein referred to as the "Code"),
or any similar law hereafter enacted having the same general purpose, Tenant is
permitted to assign this Lease notwithstanding the restrictions contained in
this Lease, adequate assurance of future performance by an assignee expressly
permitted under such Code shall be deemed to mean the deposit of cash security
in an amount equal to the sum of one year's Fixed Basic Rent plus an amount
equal to the Additional Rent for the calendar year preceding the year in which
such assignment is intended to become effective, which deposit shall be held by
Landlord for the balance of the Term, together with simple interest calculated
at the rate of five percent (5%) per annum, as security for the full performance
of all of Tenant's obligations under this Lease, to be held and applied in the
manner specified for any security deposit required hereunder.
f) Except as specifically set forth above, no portion of the
Premises or of Tenant's interest in this Lease may be acquired by any other
person or entity, whether by assignment, mortgage, sublease, transfer, operation
of law or act of the Tenant, nor shall Tenant pledge its interest in this Lease
or in any security deposit required hereunder.
22. Tenant's Relocation. [Intentionally Omitted].
23. Subordination. This Lease and Tenant's rights hereunder shall be
subject and subordinate at all times in lien and priority to any first mortgage
or other primary encumbrance now or hereafter placed upon or affecting the
Property or the Premises, and to any second mortgage or encumbrance with the
consent of the first mortgagee, and to all renewals, modifications,
consolidations and extensions thereof, without the necessity of any further
instrument or act on the part of Tenant. Tenant shall execute and deliver upon
demand any further instrument or instruments confirming the subordination of
this Lease to the lien of any such other mortgage or to the lien of any such
first mortgage, if requested to do so by Landlord with the consent of the first
mortgagee, any other mortgagee, and any further
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instrument or instruments of attornment that may be desired by any such
mortgagee or Landlord, provided, however, that any holder of such lien or
mortgage agrees not to disturb the use and occupancy of the Premises in
accordance with the terms of this Lease Agreement upon any foreclosure.
Notwithstanding the foregoing, any mortgagee may at any time subordinate its
mortgage to this Lease, without Tenant's consent, by giving notice in writing to
Tenant and thereupon this Lease shall be deemed prior to such mortgage without
regard to their respective dates of execution and delivery. In that event such
mortgagee shall have the same rights with respect to this Lease as though this
Lease had been executed prior to the execution and delivery of the mortgage and
had been assigned to such mortgagee. Landlord agrees that it will use best
efforts to obtain and deliver to Tenant a subordination, non-disturbance and
attornment agreement from the holder(s) of any mortgage or other security
interest affecting the Premises of Building. As of the date of this Lease, there
is no mortgage encumbering the Property.
24. Curing Tenant's Defaults. If Tenant defaults in the performance of any
its obligations hereunder, Landlord may, without any obligation to do so and in
addition to any other rights it may have in law or equity, elect to cure such
default on behalf of Tenant on or after the earlier of: (i) ten (10) days after
receipt of written notice (except in the case of emergency) by Tenant or (ii)
the due date for payment so as to avoid the assessment of any late charge or
penalty. Tenant shall reimburse Landlord upon demand for any sums paid or costs
incurred by Landlord in curing such default, including interest thereon from the
respective dates of Landlord's making the payments and incurring such costs,
which sums and costs together with interest thereon shall be deemed Additional
Rent payable with ten (10) days of demand.
25. Surrender.
a) At the expiration or earlier termination of the Term Tenant
shall promptly yield up the Premises and all improvements, alterations and
additions thereto, and all fixtures and equipment servicing the Premises in a
condition which is clean of garbage and debris and broom clean and in the same
condition, order and repair in which they are required to be kept throughout the
Term, ordinary wear and tear excepted provided however, Tenant shall be
permitted to remove all of its personalty located within the Premises.
b) If Tenant, or any person claiming through Tenant, continues
to occupy the Premises after the expiration or earlier termination of the Term
or any renewal thereof without prior written consent of Landlord, the tenancy
under this Lease shall become, at the option of Landlord, expressed in a written
notice to Tenant and not otherwise, either from month-to-month or for a period
of one (1) year, terminable by Landlord on thirty (30) days prior notice, under
the same terms and conditions set forth in this Lease; except, however, that the
Fixed Basic Rent during such continued occupancy shall be 150% of the amount set
forth in subsection 6(a) and Tenant shall indemnify Landlord for any loss or
damage incurred by reason of Tenant's failure to surrender the Premises.
Anything to the contrary notwithstanding, any holding over by Tenant without
Landlord's prior
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written consent shall constitute a default hereunder and shall be subject to all
the remedies set forth in subsection 26(b) hereof.
26. Defaults-Remedies.
a) Defaults. It shall be an event of default under this Lease
if any one or more of the following events occurs:
i) Tenant fails to pay in full, when due and without demand,
any and all installments of Fixed Basic Rent or Additional Rent or any other
charges or payments due and payable under this Lease whether or not herein
included as rent.
ii) Tenant violates or fails to perform or otherwise breaches
any agreement, term, covenant or condition contained in this Lease.
iii) Tenant becomes insolvent or bankrupt in any sense or makes
an assignment for the benefit of creditors or if a petition in bankruptcy or for
reorganization or for an arrangement with creditors under any federal or state
law is filed by or against Tenant, or a bill in equity or other proceeding for
the appointment of a receiver or similar official for any of Tenant's assets is
commenced, or if any of the real or personal property of Tenant shall be levied
upon by any sheriff, marshal or constable; provided, however, that any
proceeding brought by anyone other than the parties to this Lease under any
bankruptcy, reorganization arrangement, insolvency, readjustment, receivership
or similar law shall not constitute an event of default until such proceeding,
decree, judgment or order has continued unstayed for more than sixty (60)
consecutive days.
iv) Any of the events enumerated in subsections (a)(i) through
(a)(iv) of this Section happen to any guarantor of this Lease.
b) Remedies. Upon the occurrence of an event of default under this
Lease, Landlord shall have all of the following rights:
i) Landlord may charge a late payment charge of five (5%)
percent of any amount owed to Landlord pursuant to this Lease which is not paid
within five (5) days of the due date which is set forth in the Lease or, if a
due date is not specified in this Lease, within thirty (30) days of the mailing
therefor by Landlord. If Landlord incurs a late charge in connection with any
payment which Tenant has failed to make within the times required in this Lease,
Tenant shall pay Landlord, in addition to such payment due, the full amount of
such late charge incurred by Landlord. Nothing in this Lease shall be construed
as waiving any rights of Landlord arising out of any default of Tenant, by
reason of Landlord's imposing or accepting any such late charge(s) and/or
interest; the right to collect such late charge(s) and/or interest is separate
and apart from any rights relating to remedies of Landlord after default by
Tenant including, without limitation, the rights and remedies of Landlord
provided herein.
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ii) Landlord may accelerate the whole or any part of the Fixed
Basic Rent and all Additional Rent for the entire unexpired balance of the Term
of this Lease, as well as all other charges, payments, costs and expenses herein
agreed to be, paid by Tenant, and any Fixed Basic Rent or other charges,
payments, costs and expenses so accelerated shall, in addition to any and all
installments of rent already due and payable and in arrears and any other charge
or payment herein reserved, included or agreed to be treated or collected as
rent and any other charge, expense or cost herein agreed to be paid by Tenant
which may be due and payable and in arrears, be deemed due and payable as if, by
the terms and provisions of this Lease . such accelerated rent and other
charges, payments, costs and expenses were on that date payable in advance.
iii) Landlord may re-enter the Premises and, at the option of
Landlord, remove all persons and all or any property therefrom, either by
summary dispossess proceedings or by any suitable action or proceeding at law,
without being. liable for prosecution or damages therefor, and Landlord may
repossess and enjoy the Premises. Upon recovering possession of the Premises by
reason of or based upon or arising out of a default on the part of Tenant,
Landlord may, at Landlord's option, either terminate this Lease or make such
alterations and repairs as may be necessary in order to relet the Premises and
may relet the Premises or any part or parts thereof, either in Landlord's name
or otherwise, for a term or terms which may, at Landlord's option, be less than
or exceed the period which would otherwise have constituted the balance of the
Term of this Lease and at such rent or rents and upon such other terms and
conditions as in Landlord's sole discretion may seem advisable and to such
person or persons as may in Landlord's discretion seem best; upon each such
reletting all rents received by Landlord from such reletting shall be applied as
follows: first, to the payment of any costs and expenses of such reletting,
including all costs of alterations and repairs; second, to the payment of any
indebtedness other than Fixed Basic Rent, Additional Rent or other charges due
hereunder from Tenant to Landlord; third, to the payment of Fixed Basic Rent,
Additional Rent and other charges due and unpaid hereunder; and the residue, if
any, shall be held by Landlord and applied in payment of future rent as it may
become due and payable hereunder. If rentals received from reletting during any
month are less than that to be paid during that month by Tenant, Tenant shall
pay any such deficiency to Landlord. Such deficiency shall be calculated and
paid monthly. No such re-entry or taking possession of the Premises or the
making of alterations or improvements thereto or the reletting thereof shall be
construed as an election on the part of Landlord to terminate this Lease unless
written notice of termination is given to Tenant. Landlord shall in no event be
liable in any way whatsoever for failure to relet the Premises or, in the event
that the Premises or any part or parts thereof are relet, for failure to collect
the rent thereof under such reletting. Notwithstanding any such reletting
without termination, Landlord may at any time thereafter elect to terminate this
Lease for such previous breach.
iv) Landlord may terminate this Lease and the Term without any
right on the part of Tenant to waive the forfeiture by payment of any sum due or
by other performance of any condition, term or covenant broken. Upon such
termination,
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Landlord shall be entitled to recover, in addition to any and all sums and
damages for violation of Tenant's obligations hereunder in existence at the time
of such termination, damages for Tenant's default in an amount equal to the
amount of the Fixed Basic Rent and Additional Rent reserved for the balance of
the Term, as well as all other charges, payments, costs and expenses herein
agreed to be paid by Tenant all of which amount shall be immediately due and
payable from Tenant to Landlord upon demand therefor.
v) WHEN THIS LEASE AND THE TERM OR ANY EXTENSION OR RENEWAL
THEREOF SHALL HAVE BEEN TERMINATED ON ACCOUNT OF ANY DEFAULT BY TENANT, OR WHEN
THE TERM HAS EXPIRED, IT SHALL BE LAWFUL FOR ANY ATTORNEY OF ANY COURT OF RECORD
TO APPEAR AS ATTORNEY FOR TENANT AS WELL AS FOR ALL PERSONS CLAIMING BY, THROUGH
OR UNDER TENANT, AND TO FILE AN AGREEMENT FOR ENTERING IN ANY COMPETENT COURT AN
AMICABLE ACTION FOR JUDGMENT IN EJECTMENT AGAINST TENANT AND ALL PERSONS
CLAIMING BY, THROUGH OR UNDER TENANT FOR THE RECOVERY BY LANDLORD OF POSSESSION
OF THE PREMISES, FOR WHICH THIS LEASE SHALL BE A SUFFICIENT WARRANT; WHEREUPON,
IF LANDLORD SO DESIRES, AN APPROPRIATE WRIT OF POSSESSION MAY ISSUE FORTHWITH,
WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER, AND PROVIDED THAT IS FOR ANY
REASON AFTER SUCH ACTION SHALL HAVE BEEN COMMENCED IT SHALL BE DETERMINED AND
POSSESSION OF THE PREMISES REMAIN IN OR BE RESTORED TO TENANT, LANDLORD SHALL
HAVE THE RIGHT FOR THE SAME DEFAULT AND UPON ANY SUBSEQUENT DEFAULT OR DEFAULTS,
OR UPON THE TERMINATION OF THIS LEASE OR TENANT'S RIGHT OF POSSESSION AS
HEREINBEFORE SET FORTH, TO BRING ONE OR MORE FURTHER ACTIONS IN EJECTMENT AS
HEREINBEFORE SET FORTH TO CONFESS JUDGMENT FOR THE RECOVERY OF POSSESSION OF THE
PREMISES.
c) Non-Waiver. No waiver by Landlord of any breach by Tenant of any
of Tenant's obligations, agreements or covenants herein shall be a waiver of any
subsequent breach or of any other obligation, agreement or covenant, nor shall
any forbearance by Landlord to seek a remedy for any event of default by Tenant
be a waiver by Landlord of any rights and remedies with respect to such or any
subsequent event of default.
d) Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to Landlord is intended to be exclusive of any other
right or remedy provided herein or by law, but each shall be cumulative and in
addition to every other right or remedy given herein or now or hereafter exist-
ing at law or in equity or by statute.
27. Condition of Premises. Tenant represents that the Property and the
Premises, the zoning thereof, the street or streets, sidewalks, parking areas,
curbs and
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access ways adjoining them, any surface conditions thereof, and the present uses
and non-uses thereof, have been examined by Tenant and Tenant accepts them in
the condition or state in which they now are, or any of them now is, without
relying on any representation, covenant or warranty, express or implied, in fact
or in law, by Landlord and without recourse to Landlord, the nature, condition
or usability thereof or the use or uses to which the Premises and the Property
or any part thereof may be put under present zoning ordinances or otherwise,
except as to work to be performed by Landlord pursuant to Section 3 and except
as to latent defects in such work. Tenant's occupancy of the Premises shall
constitute acceptance of the Work performed by Landlord pursuant to Section 3.
28. Hazardous Substances.
a) Landlord and Tenant shall not cause or allow the generation,
treatment, storage or disposal of Hazardous Substances on or near the Premises
or Property. "Hazardous Substances" shall mean (i) any hazardous substance as
that term is defined in the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA"), 42 U.S.C. 9601 et seq., as amended, (ii) any
-- ---
hazardous waste or hazardous substance as those terms are defined in any local,
state or Federal law, regulation or ordinance not inapplicable to the Premises
and Property, or (iii) petroleum including crude oil or any fraction thereof
except that Tenant will be allowed to use Hazardous Substances in connection
with its business operations. Tenant shall use, store, handle and dispose of
such Hazardous Substances in furtherance of its business in accordance with all
applicable Federal, state and local laws, regulations and ordinances.
b) Landlord and Tenant agree to indemnify, defend and hold harmless
the other, its employees, agents, successors, and assigns, from and against any
and all damage, claim, liability, or loss, including reasonable attorneys' and
other fees,. arising out of or in any way connected to the generation,
treatment, storage or disposal of Hazardous Substances by Landlord or Tenant,
its employees, agents, contractors, or invitees, on or near the Premises or
Property. Such duty of indemnification shall include, but not be limited to
damage, liability, or loss pursuant to all Federal, state and local
environmental laws, rules and ordinances, strict liability and common law.
c) Landlord and Tenant agree to notify each other immediately of any
disposal of Hazardous Substances in the Premises or Property (other than those
used by Tenant as set forth and in accordance with Section 28(a) above), of any
discovery of Hazardous Substances in the Premises, or of any notice by a
governmental authority or private party alleging or suggesting that a disposal
of Hazardous Substances on or near the Premises or Property may have occurred.
Furthermore, Landlord and Tenant agree to provide the other with full and
complete access to any documents or information in its possession or control
relevant to the question of the generation, treatment, storage, or disposal of
Hazardous Substances on or near the Premises.
d) Landlord represents and warrants that, to the best of its
knowledge,
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there are no Hazardous Substances in, under or about the Building.
29. Recording. Neither this Lease nor a memorandum of this Lease shall be
recorded in any public records without the written consent of Landlord.
30. Brokers' Commission. Landlord and Tenant represent and warrant to the
other that the Brokers (as defined in the Preamble) are the sole brokers with
whom Landlord and Tenant have negotiated in bringing about this Lease and
Landlord and Tenant agree to indemnify and hold harmless the other from any and
all claims of other brokers and expenses in connection therewith arising out of
or in connection with the negotiation of or the entering into this Lease by
Landlord and Tenant. In the event the transaction contemplated by this Lease
successfully closes, the Landlord shall Pay Brokers any and commissions due to
the Brokers in accordance with separate agreements between Landlord and Broker.
In no event shall Landlord's mortgagee(s) have any obligation to any broker
involved in this transaction.
31. Notices. All notices, demands, requests, consents, certificates, and
waivers required or permitted hereunder from either Party to the other shall be
in writing and sent by United States certified mail, return receipt requested,
postage prepaid, or by recognized overnight courier, or by facsimile
transmission addressed as follows:
If to Tenant:
Mr. James Ratigan
Chief Financial Officer
Orapharrna, Inc.
1200 Route 22 East
Suite 200
Bridgewater, NJ 08807
Facsimile: (908) 219-9097
with a copy to:
Peter Harrison, Esquire
107 Fast Court Street
Doylestown, PA 18901
Facsimile: (215) 348-2394
If to Landlord:
Equivest Management Corporation, Agent
215 South Broad Street, Suite 600
Philadelphia, PA 19107
Facsimile: (215) 732-9067
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with a copy to:
Matthew J. Swett, Esquire
Adelman Lavine Gold and Levin
Suite 1900, Two Penn Center Plaza
Philadelphia, PA 19102-1799
Facsimile: (215) 557-7922
Either party may at any time, in the manner set forth for giving notices to the
other, specify a different address to which notices to it shall thereafter be
sent.
32. Irrevocable Offer: No Option. Although Tenant's execution of this
Lease shall be deemed an offer irrevocable by Tenant, the submission of this
Lease by Landlord to Tenant for examination shall not constitute a reservation
of or option for the Premises. This Lease shall become effective only upon
execution thereof by both parties and delivery thereof to Tenant.
33. Inability to Perform. If Landlord is delayed or prevented from
performing any of its obligations under this Lease by reason of strike, labor
troubles, or any cause whatsoever beyond Landlord's control, the period of such
delay or such prevention shall be deemed added to the time herein provided for
the performance of any such obligation by Landlord.
34. Survival. Notwithstanding anything to the contrary contained in this
Lease, the expiration of the Term of this Lease, whether by lapse of time or
otherwise, shall not relieve Tenant from its obligations accruing prior to the
expiration of the Term.
35. Corporate Tenants. If Tenant is a corporation, the person(s)
executing this Lease on behalf of Tenant hereby covenant(s) and Warrant(s) that:
Tenant is a duly formed corporation qualified to do business in the state in
which the Property is located; Tenant will remain qualified to do business in
said state throughout the Term and any renewals thereof; and such persons are
duly authorized by such corporation to execute and deliver this Lease on behalf
of the corporation.
36. Waiver of Invalidity of Lease. Each party agrees that it will not
raise or assert as a defense to any obligation under the Lease or this or make
any claim that the Lease is invalid or unenforceable due to any failure of this
document to comply with ministerial requirements including, without limitation,
requirements for corporate seals, attestations, witnesses, notarizations or
other similar requirements and each party hereby waives the right to assert any
such defenses or make any claim of invalidity or unenforceability due to any of
the foregoing.
37. Security Deposit. As additional security for the full and prompt
performance by Tenant of the terms and covenants of this Lease, Tenant has
deposited with Landlord the Security Deposit, as set forth in the Preamble. The
Security Deposit shall not
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constitute rent for any month (unless so applied by Landlord on account of
Tenant's default hereunder). Tenant shall, upon demand, restore any portion of
the Security Deposit which may be applied by Landlord to cure any default by
Tenant hereunder. To the extent that Landlord has not applied the Security
Deposit or any portion thereof on account of a default, the Security Deposit, or
such remaining portion of the Security Deposit shall be returned to Tenant,
together with simple interest calculated at the rate of five percent (5%) per
annum, promptly following the termination of this Lease.
38. Tenant Estoppel Certificate.
a) Tenant shall from time to time, within ten (10) days after
Landlord's request or that of any mortgagee of Landlord, execute, acknowledge
and deliver to Landlord a written instrument in recordable form, substantially
in the form attached hereto as Exhibit E (a "Tenant Estoppel Certificate"),
---------
certifying (i) that this Lease is in full force and effect and has not been
modified, supplemented or amended (or, if there have been modifications,
supplements or amendments, that it is in full force and effect as modified,
supplemented or amended, and stating such modifications, supplements and
amendments); (ii) the dates to which Fixed Basic Rent and Additional Rent and
any other charges arising hereunder have been paid; (iii) the amount of any
prepaid rents or credits due Tenant, if any; (lv) if applicable, that Tenant has
accepted possession and has entered into occupancy of the Premises, and
certifying the Commencement Date and the Termination Date; (v) whether or not to
the best of the Tenant's knowledge, all conditions under the Lease to be
performed by Landlord prior thereto have been satisfied and whether or not
Landlord is then in default in the performance of any covenant, agreement or
condition contained in this Lease and specifying each, if any, unsatisfied
condition and each, if any, default of which Tenant may have knowledge; and (vi)
any other fact or condition reasonably requested. Any certification delivered
pursuant to the provisions of this Article shall be intended to be relied upon
by Landlord and any mortgagee or prospective mortgagee or purchaser of the
Property of any interest therein.
b) The failure of Tenant to execute, acknowledge and deliver to
Landlord a written Tenant Estoppel Certificate in accordance with the provisions
of this Section 38 within said ten (10) day period shall constitute an
acknowledgment by Tenant, which may be relied upon by any mortgagee or
prospective mortgagee or any purchaser of the Property or of any interest
therein, that this Lease has not been modified, supplemented or amended except
as set forth in landlord's request, and is in full force and effect (or in full
force and effect as so modified, supplemented or amended), that the Base Rent,
Additional Rent and any other charges arising hereunder have not been paid
beyond the respective due dates immediately preceding the date of such request,
that Tenant has no right of set-off or other defense to this Lease and of the
truth of such other facts and conditions as shall have been requested to be
certified, and shall constitute, as to any person entitled to rely as aforesaid,
a waiver of any defaults which may exist prior to the date of such request.
Notwithstanding the foregoing, Tenant's failure to furnish a Tenant Estoppel
Certificate within said ten (10) day period shall constitute a default under
this
27
<PAGE>
Lease.
39. Rights Reserved by Landlord. Landlord waives no rights, except those
that may be specifically waived herein, and explicitly retains all other rights
including, without limitation, the following rights, each of which Landlord may
exercise without notice to Tenant and without liability to Tenant for damage or
injury to property, person or business on account of the exercise thereof, and
the exercise of any such rights shall not be deemed to constitute an eviction or
disturbance of Tenant's use or possession of the Premises and shall not give
rise to any claim for set-off or abatement of Rent or any other claim:
a) To change the name or street address of the Building.
b) To install, affix and maintain any and all signs on the
exterior and on the interior of the Building.
c) To decorate or to make repairs, alterations, additions, or
improvements, whether structural or otherwise, in and about the Building, or any
part thereof, and for such purposes to enter upon the Premises and during the
continuance of any of such work, to temporarily close doors, entry ways, public
space and corridors in the Building and to interrupt or temporarily suspend
services or use of facilities, all without affecting any of Tenant's obligations
hereunder, so long as the Premises are reasonably accessible and usable.
d) To furnish door keys for the entry door(s) in the Premises
on the Commencement Date and to retain at all times, and to use in appropriate
instances, keys to all doors within and into the Premises. Tenant agrees to
change no locks, and not to affix locks on doors without the prior written
consent of the Landlord. Upon the expiration of the Tenn or Tenant's right to
possession, Tenant shall return all keys to Landlord and shall disclose to
Landlord the combination of any safes, cabinets or vaults left in the Premises.
e) To designate and approve all window coverings used in the
Building such approval not to be unreasonably withheld or delayed.
f) To approve the weight, size and location of safes, vaults
and other heavy equipment and articles in and about the Premises and the
Building so as not to exceed the legal load per square foot designated by the
structural engineers for the Building such approval not to be unreasonably
withheld or delayed To require all such items and furniture and similar items to
be moved into or out of the Building and Premises only at such times and in such
manner as Landlord shall direct in writing. Tenant shall not install or operate
machinery or any mechanical devices of a nature not directly related to Tenant's
ordinary use, as limited by the Permitted Use, of the Premises without the prior
written consent of Landlord. The movement of Tenant's property into or out of
the Building or the Premises and within the Building are entirely at the risk
and
28
<PAGE>
responsibility of Tenant.
g) To enter the Premises in accordance with Section 14, and in
the last year of the Term, to show the Premises to prospective tenants at
reasonable times and, if vacated or abandoned, to show the Premises at any time
and to prepare the Premises for re-occupancy.
h) To erect, use and maintain pipes, ducts, wiring and
conduits, and appurtenances thereto, in and through the Premises.
i) To enter the Premises at any reasonable time to inspect the
Premises and to make repairs or alterations as Landlord deems necessary, with
due diligence and minimum disturbance.
j) To alter the layout, design and/or use of the Building (but
not the Premises) in such manner as Landlord, in its sole discretion, deems
appropriate, so long as the character of the Building as a first class office
building is maintained.
40. Miscellaneous.
a) Captions. The captions in this Lease are for convenience
only and are not a part of this Lease and do not in any way define, limit,
describe or amplify the terms and provisions of this Lease or the scope or
intent thereof.
b) Entire Agreement. This Lease represents the entire agreement
between the parties hereto and there are no collateral or oral agreements or
understandings between Landlord and Tenant with respect to the Premises or the
Property. No rights, easements or licenses are acquired in the Property or any
land adjacent to the Property by Tenant by implication or otherwise except as
expressly set forth in the provisions of this Lease.
c) Modification. This Lease shall not be modified in any manner
except by an instrument in writing executed by the parties. Notwithstanding the
foregoing, Landlord shall have the right at anytime, and form time to time,
during the Term, to unilaterally amend the provisions of this Lease if Landlord
is advised by its counsel that all or any portion of the monies paid by Tenant
to Landlord hereunder are, or may be deemed to be, unrelated business income
within the meaning of the United States Internal Revenue Code or regulations
issued thereunder; and Tenant agrees that it will execute all documents or
instruments necessary to effect such amendment or amendments, provided that no
such amendment shall result in Tenant having to pay in the aggregate a larger
sum of money on account of its occupancy of the Premises under the terms of this
Lease as so amended, and provided further that no such amendment or amendments
shall result in Tenant receiving under this Lease less services than it is
entitled to receive, nor services of a less quality. In addition, Tenant agrees
to make such changes to this Lease as are required by any mortgagee, provided
such changes do not substantially affect Tenant's
29
<PAGE>
rights and obligation hereunder.
d) Interpretation. The masculine (or neuter) pronoun, singular
number, shall include the masculine, feminine and neuter genders and the
singular and plural number.
e) Exhibits. Each writing or plan referred to herein as being
attached as an Exhibit or otherwise designated herein as an Exhibit hereto is
hereby made a part hereof.
f) Captions and Headings. The captions and headings of
sections, subsections and the table of contents herein are for convenience only
and are not intended to indicate all of the subject matter in the text and they
shall not be deemed to limit, construe, affect or alter the meaning of any
provisions of this Lease and are hot to be used in interpreting this Lease or
for any other purpose in the event of any controversy.
g) Interest. Wherever interest is required to be paid
hereunder, such interest shall be at the highest rate permitted under law but
not in excess of nine percent (9%).
h) Severability. If any term or provision of this Lease, or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Lease shall be valid and be enforced to the fullest
extent permitted by law.
i) Joint and Several Liability. If two or more individuals,
corporations, partnerships or other persons (or any combination of two or more
thereof) shall sign this Lease as Tenant, the liability of each such individual,
corporation, partnership or other persons to pay the Rent and perform all other
obligations hereunder shall be deemed to be joint and several, and all notices,
payments and agreements given or made by, with or to any one of such
individuals, corporations, partnerships or other persons shall be deemed to have
been given or made by, with or to all of them. In like manner, if Tenant shall
be a partnership or other legal entity, the members of which are, by virtue of
any applicable law or regulation, subject to personal liability, the liability
of each such member shall be joint and several.
j) No Representations by Landlord. Landlord and Landlord's
agents have made no representations, agreements, conditions, warranties,
understandings or promises, either oral or written, other than as expressly set
forth herein, with respect to this Lease, the Premises and/or the Building.
k) Relationship of Parties. This Lease shall not create any
relationship between the parties other than that of Landlord and Tenant.
30
<PAGE>
l) Choice of Law. The terms of this Lease shall be construed
under the laws of the Commonwealth of Pennsylvania, and that exclusive
jurisdiction and venue shall be in the Court of Common Pleas of the County in
which the Property is located.
41. Additional Definitions.
a) "Date of this Lease" or "date of this Lease" shall me, the
date of acceptance of this Lease by the Landlord, following execution and
delivery thereof to Landlord by Tenant and that date shall be inserted in the
space provided in the Preamble.
b) "Landlord" as used herein includes the Landlord named above
as well as its successors and assigns, each of whom shall have the same rights,
remedies, powers, authorities and privileges as he would have had he originally
signed this lease as Landlord. Any such person, whether or not named herein,
shall have no liability hereunder after ceasing to hold title to the Premises.
Neither Landlord nor any principal of Landlord nor any owner of the Building or
the Lot, whether disclosed or undisclosed, shall have any personal liability
with respect to any of the provisions of this Lease or the Premises, and if
Landlord is in breach or default with respect to Landlord's obligations under
this Lease or otherwise, Tenant shall look solely to the equity of Landlord in
the Premises for the satisfaction of Tenant's remedies.
c) "Tenant" as used herein includes the Tenant named above as
well as its heirs, successors and assigns, each of which shall be under the same
obligations, liabilities and disabilities and each of which have the same
rights, privileges and powers as it would have possessed had it originally
signed this Lease as Tenant. Each and every person named above as Tenant shall
be bound formally and severally by the terms, covenants and agreements contained
herein. However, no such rights, privileges or powers shall inure to the benefit
of any assignee of Tenant, immediate or remote, unless the assignment to such
assignee is permitted or has bee approved in writing by Landlord such approval
not to be unreasonably withheld or delayed. Any notice required or permitted by
the terms of this Lease may be given by or to any one of the persons named above
as Tenant, and shall have the same force and effect as if given by or to all of
them.
d) "Mortgage" and "Mortgagee" as used herein includes any lien
or encumbrance on the Premises or the Property or on any part of or interest in
or appurtenance to any of the foregoing, including without any ground rent or
ground lease if Landlord's interest is or becomes a leasehold estate. The word
"mortgagee" is used herein to include the holder of any mortgage, including any
ground Landlord if Landlord's interest is or becomes a leasehold estate.
Wherever any right is given to a mortgagee, that right may be exercised on
behalf of such mortgagee by any representative or servicing agent of such
mortgagee.
e) "Person" as used herein includes a natural person, a
partnership, a
31
<PAGE>
corporation, an association, and any other form of business association or
entity.
f) "Property" as used herein shall mean the Building and the
lot, tract or parcel of land on which the Building is situated.
g) "Rent" or "rent" as used herein shall mean all Fixed Basic
Rent and Additional Rent reserved under this Lease.
IN WITNESS WHEREOF, and in consideration of the mutual entry into this
Lease and for other good and valuable consideration, and intending to be legally
bound, each party hereto has caused this agreement to be duly executed under
seal.
Landlord: EQUIVEST MANAGEMENT
- --------
CORPORATION, Agent
Date Signed: 7/31/98 By: /s/ [ILLEGIBLE]
--------- --------------------------------
Name: [ILLEGIBLE]
---------------------------
Title: [ILLEGIBLE]
--------------------------
Attest:____________________________
Tenant:
- ------
Date Signed: 7-13-98 ORAPHARMA, INC.
---------
By: /s/ Michael D. Kishbauch
--------------------------------
Name: Michael D. Kishbauch
--------------------------
Title: President & CEO
-------------------------
Attest: /s/ [ILLEGIBLE] - CFO
----------------------------
32
<PAGE>
RIDER A
RENEWAL OPTION: Provided that this Lease has not been sooner terminated or
- --------------
expired Tenant is hereby granted an option to renew this Lease for two (2)
separate terms of five (5) years each upon the following terms and conditions:
At the time of the exercise of the option to renew and at the time of the said
renewal, the Tenant shall not be in default in accordance with the terms and
provisions of this Lease, and shall be in possession of the Premises pursuant to
this Lease.
Nine (9) months and two (2) weeks before the Lease Termination Date (or the last
day of the renewal term, as applicable), Landlord shall notify Tenant of
Landlord's determination of the fair rental value for the Premises for the
forthcoming renewal term.
Notice of the exercise of the option shall be sent to the Landlord in writing at
least six (6) months but not more than nine (9) months before the expiration of
the Term (or, if exercised by Tenant, the expiration of the prior renewal Term
of this Lease.
Each renewal term shall be for a period of five (5) years, to commence at the
expiration of the Term of this Lease, and all of the terms and conditions of
this Lease, other than the Fixed Basic Rent, shall apply during any such renewal
term.
The annual fixed basic rent to be paid during the renewal term shall not be less
than that paid for the Premises during the last year of the original term of the
Lease or the last year of the prior renewal term, if exercised. However, if the
fair rental value per square foot at the commencement of the renewal term shall
exceed the rent as established in the preceding sentence, the Tenant shall pay
such fair rental value. In determining the fair rental value, the Landlord
shall notify Tenant of the fair rental value as established by Landlord. Should
Tenant dispute Landlord's determination, then the Tenant shall be free to, at
the Tenant's sole cost and expense, employ the services of an appraiser familiar
with office buildings located within the Warminster and Ivyland Township,
Pennsylvania area comparable to the Building, who shall be a member of MAI and
who shall render an appraisal. If the Landlord and the Tenant's appraiser
cannot agree on the fair rental value, or in such case, on an independent
appraiser acceptable to both, either party may request the American Arbitration
Association to appoint such independent appraiser who shall be a member of MAI
familiar with office buildings in the area of the Building who shall render an
appraisal, and in such event the judgment of a majority of the three appraisers
shall be final and binding upon the parties. The parties shall share equally in
the cost of any such independent appraiser. Pending resolution of the issue of
fair rental value, the Tenant shall pay the Landlord as of commencement of the
renewal term, the Fixed Basic Rent as established by Landlord, subject to
retroactive adjustment upon final determination of this issue.
<PAGE>
EXHIBIT A
---------
LOCATION OF PREMISES
<PAGE>
EXHIBIT A-1
-----------
OFFICE BUILDING AREA
<PAGE>
EXHIBIT B
---------
RULES AND REGULATIONS
1. OBSTRUCTION OF PASSAGEWAYS: The sidewalks, parking lots or entrance, of
--------------------------
the Building shall not be obstructed or encumbered by Tenant or used by Tenant
for any purpose other than ingress and egress. Because the Premises are situated
on the ground floor with direct access to the street, then Landlord shall, at
Landlords expense, keep the sidewalks and curbs directly in front of the
Premises clean and free from ice, snow and refuse.
2. WINDOWS: No article shall be thrown out of the doors or windows of the
-------
Premises.
3. PROJECTIONS FROM BUILDING: No awnings, air-conditioning units, or other
-------------------------
fixtures shall be attached to the outside walls or the window sills of the
Building or otherwise affixed so as to project from the Building, without prior
written consent of Landlord.
4. SIGNS: No sign or lettering shall be affixed by Tenant to any part of the
-----
outside of the Premises, or any part of the inside of the Premises so as to be
clearly visible from the outside of the Premises, without the prior written
consent of Landlord. However, Tenant shall have the night to place its name on
any door leading into the Premises the size, color and style thereof to be
subject to the Landlord's approval.
5. FLOOR COVERING: If linoleum or other similar floor covering is used Tenant
--------------
shall, at its sole cost and expense, remove such floor covering upon termination
of this Lease and restore same to its condition as of the Commencement Date.
6. INTERFERENCE WITH OCCUPANTS OF BUILDING: Tenant shall not make, or permit
---------------------------------------
to be made, any unseemly or disturbing noises or odors and shall not interfere
with other tenants or those having business with them. Tenant will keep all
mechanical apparatus in the Premises free of vibration and noise which may be
transmitted beyond the limits of the Premises.
7. LOCK KEYS: No additional locks or bolts of any kind shall be placed on any
---------
of the doors or windows by Tenant without giving keys to Landlord. Tenant shall,
on the termination of Tenant's tenancy, deliver to Landlord all keys to any
space within the Building either furnished to or otherwise procured by Tenant,
and in the event of the loss of any keys furnished, Tenant shall pay to Landlord
the cost thereof Tenant, before closing and leaving the Premises, shall ensure
that all windows are closed and entrance doors locked. Nothing in this Paragraph
7 shall be deemed to prohibit Tenant from installing a burglar alarm within the
Premises, provided: (1) Tenant obtains Landlord's consent which will not be
unreasonably withheld or delayed; (2) Tenant supplies Landlord with copies of
<PAGE>
the plans and specifications of the system; (3) such installation shall not
damage the Building; and (4) all costs of installation shall be borne solely by
Tenant.
8. PROHIBITED ON PREMISES: Tenant shall not conduct, or permit any other
----------------------
person to conduct, any auction upon the Premises, manufacture or store goods,
wares or merchandise upon the Premises without the prior written approval of
Landlord, except the storage of usual supplies and inventory to be used by
Tenant in the conduct of his business, permit the Premises to be used for
gambling, make any unusual noises in the Building, permit to be played musical
instrument on the Premises, permit any radio to be played, or television,
recorded or wired music in such loud manner as to disturb or annoy other
tenants, or permit any unusual odors to be produced on the Premises. Tenant
shall not permit any portion of the Premises to be occupied as an office for a
public stenographer or typewriter, or for the storage, manufacture, or sale of
intoxicating beverages, narcotics, tobacco in any form or as a barber or
manicure shop. Canvassing, soliciting and peddling in the Building and the
Office Building Area are prohibited and Tenant shall cooperate to prevent the
same. No bicycles, vehicles or animals of any kind shall be brought into or kept
in or about the Premises.
9. PLUMBING, ELECTRIC AND TELEPHONE WORK: Plumbing facilities shall not be
-------------------------------------
used for any purpose other than those for which they were constructed; and no
sweepings, rubbish, ashes, newspaper or other substances of any kind shall be
thrown into them. When metered electric wiring of any kind is introduced, it
must be connected as directed by Landlord, and no stringing or cutting of wires
will be allowed, except by prior written consent of Landlord, and shall be done
by contractors approved by Landlord. The number and locations of telephones,
telegraph instruments, electrical appliances, call boxes, etc. shall be subject
to Landlord's approval.
10. MOVEMENT OF FURNITURE, FREIGHT OR BULKY MATTER:
----------------------------------------------
[INTENTIONALLY DELETED]
11. SAFES AND OTHER HEAVY EQUIPMENT: Landlord reserves the right to prescribe
-------------------------------
the weight and position of all safes and other heavy equipment so as to
distribute properly the weight thereof and to prevent any unsafe condition from
arising.
12. ADVERTISING: Landlord shall have the right to prohibit any advertising by
-----------
Tenant which in Landlord's reasonable opinion tends to impair the reputation of
the Building or its desirability as a building for offices, and upon written
notice from Landlord, Tenant shall refrain from or discontinue such advertising.
13. NON-OBSERVANCE OR VIOLATION OF RULES BY OTHER TENANTS: Landlord shall not
-----------------------------------------------------
be responsible to Tenant for non-observance or violation of any of these rules
and regulations by any other tenant, provided that Landlord shall notify other
tenants of the Building of any complaint Landlord receives from Tenant
concerning violations of these Rules and Regulations by such other tenants.
2
<PAGE>
14. PARKING: Tenant and its employees shall park their cars only in those
-------
portions of the parking area designated by Landlord.
15 RESERVATION OF RIGHTS: Landlord hereby reserves to itself any and all
---------------------
rights not granted to Tenant hereunder, including, but not limited to, the
following rights which are reserved to Landlord for its purposes in operating
the Building:
a. the exclusive right to the use of the name of the Building for all
purposes, except that Tenant may use the name as its business address and for no
other purposes; and
b. the right to change the name or address of the Building, without
incurring any liability to Tenant for doing so; and
c. the right to install and maintain a sign on the exterior of the
Building; and
d. the exclusive right to use or dispose of the use of the roof of the
Building except that portion of the roof over the Premises; and
e. the right to limit the space on the directory of the Building to be
allotted to Tenant; and
f. the right to grant to anyone the right to conduct any particular
business or undertaking in the Building.
16. HEALTH AND SAFETY: The Tenant shall be responsible for initiating,
-----------------
maintaining and supervising all health and safety precautions and/or programs
required by law in connection with the Tenant's use and occupancy of the
Premises.
--END--
3
<PAGE>
EXHIBIT C
---------
LANDLORD'S WORK
<PAGE>
EXHIBIT D
---------
TENANT ESTOPPEL CERTIFICATE
TO: ____________ ("_____________") pursuant to that certain _____________
Agreement (the "Agreement") dated ____________, 199_, by and between
_____________________ and ________________________________ ("Lessor").
1. The undersigned ("Lessee") is the lessee under that certain Lease
dated ______________, 19__, by and between
_______________________________________, as lessor, and
___________________________, as lessee (the "Lease"), covering a portion of
those certain premises commonly known and designated as
__________________________________, Pennsylvania, consisting of approximately
____ square feet (the "Premises"). A true, complete and correct copy of the
Lease is attached hereto as Exhibit "A".
2. The Lease has not been modified, changed, altered or amended in any
respect (except as indicated following this sentence) and is the only lease or
agreement between the undersigned and the Lessor affecting the Premises. If
none, state "none".
_____________________________________________________________________________
_____________________________________________________________________________
3. The undersigned has made no agreements with Lessor or its agents or
employees, which are not described in the Lease concerning free rent, partial
rent, rebate of rental payments or any other type of rental concession with
respect to the Lease (except as indicated following this sentence). If none,
state "none".
______________________________________________________________________________
______________________________________________________________________________
4. The undersigned accepted possession of the Premises on ____________,
19__, currently occupies the Premises and has been open for business since
____________, 19__. The current term of the Lease began on ___________, 19__.
The current term of the Lease will expire on ____________, 19__, and Lessee has
no present right to cancel or terminate the Lease under the terms thereof, or
otherwise. No rent payable pursuant to the Lease has been prepaid for more than
two (2) months, and no monies otherwise payable to Lessor under the Lease have
been paid in advance of the due date therefor as set forth in the Lease. The
fixed minimum rent currently being paid under the Lease is $_________ per month.
Future changes to the fixed minimum rental are as set forth in the Lease. The
undersigned also pays amounts for percentage rent, insurance and property tax
escalations based upon the square footage of the Premises subject to the Lease,
as set forth in the Lease, which amounts have been paid to and including
____________________, 199_.
5. The Lease is fully valid and enforceable and is currently in full
force and effect. Neither Lessor or Lessee is in default thereunder, and all
conditions and
<PAGE>
obligations on the part of Lessor to be fulfilled under the terms of the Lease
have been satisfied or fully performed including, without limitation, all
required tenant improvements, allowances, alterations, installations and
construction, and payment therefor has been made in full. Lessee has no offset,
claim, defense or counterclaim against any rent or other sum payable by Lessee
under the Lease or against any other obligation of Lessee under the Lease. No
condition exists which with the giving of notice or the passage of time, or
both, would constitute a default under the Lease.
6. Lessee has not suffered any assignment of the Lease or sublet the
Premises or any portion thereof, and no person or entity, other than Lessee, has
any possessory interest in the Premises or right to occupy the Premises or any
portion thereof, except as permitted under the Lease.
7. Lessee claims no night, title or interest in or to the Premises or
right to possession of the Premises, except as lessee under the terms of the
Lease. The Lease does not contain and the undersigned does not have any
outstanding options or rights of first refusal to purchase the Premises or any
portion thereof or the real property of which the Premises are a part, except as
otherwise set forth below. If none, state "none".
______________________________________________________________________________
______________________________________________________________________________
8. No actions, whether voluntary or otherwise, are pending against the
undersigned under the bankruptcy, laws of the United States or any state
thereof, and. Lessee knows of no fact or pending or threatened claim or
litigation that might result in the insolvency or bankruptcy of Lessee.
9. Lessee is a [corporation][limited partnership][general partnership]
duly organized and validly existing, and in good standing under the laws of the
State of ______________ [and qualified to do business in the State where the
Premises is located]. [________, a ____________, owns and holds all of the
issued and outstanding stock in and of Lessee, and is a separate and distinct
entity from Lessee].
10. Lessee's occupancy of the Premises complies fully with all local,
state and federal laws, ordinances, codes, rules, regulations and orders
including, without limitation, those concerning hazardous wastes, hazardous
materials, asbestos, oil and underground storage tanks. In addition, no such
hazardous wastes, hazardous materials, asbestos, oil or underground storage
tanks have been or are incorporated in, stored on or under, released from,
treated on, transported to or from or disposed of, on or from the Premises or
any portion thereof.
11. All inspections, licenses, permits, consents, permissions, approvals
and certificates required, whether by law, regulation or insurance standards, to
be made or issued with respect to the conduct of Lessee's business, the Premises
and the use and occupancy of the Premises by Lessee have been made by or issued
by all necessary private parties, the appropriate governmental or quasi-
governmental or other
2
<PAGE>
authorities having jurisdiction over the Premises and/or Lessee's business, are
in full force and effect, and Lessee has not received notification from any such
authority that Lessee or the Premises is in material noncompliance with such
laws, regulations or standards, that the Premises is being used, operated or
occupied unlawfully or that Lessee has failed to obtain such inspections,
permits, consents, permissions, approvals, licenses or certificates, as the case
may be. Lessee has not received notice of any violation or failure to conform
with any such law, ordinance, regulation, standard, license, permit, consent,
permission, approval or certificate.
12. All insurance policies required to be maintained by Lessee under the
Lease have been maintained, are in full force and effect and all premiums with
respect thereto have been paid in full.
13. Upon receipt of notice of the closing of the Purchase and sale of the
Premises as set forth in the Agreement, Lessee shall recognize _____ as lessor
under the Lease, and all payments of rent and other sums due to Lessor under the
Lease and all communications permitted or required under the Lease shall be
directed to _________________ c/o _____________________________________________
____________________________, and all communications permitted or required under
the Lease shall be directed to Lessee at the address for Lessee set forth in the
Lease (except as otherwise indicated following this sentence), unless and until
otherwise specified in written notice by the party to whom notice is to be given
at such address. If none, state "none".
____________________________________________________________________________
____________________________________________________________________________
14. This certification is made to induce _______________________ [to enter
into the Agreement] [to provide financing to Lessor] knowing that
_____________________ is relying upon the truth of this Tenant Estoppel
Certificate in [entering into the Agreement,] [providing such financing] and
that [the acquisition of the Premises by _____________________ pursuant to the
Agreement] [the financing provided to Lessor] shall be deemed good and valuable
consideration to Lessee for the foregoing representations made by Lessee.
Dated this ___ day of ___________, 199_.
LESSEE:
______________________________,
a_____________________________
BY:___________________________
Name:_____________________
Title: ___________________
3
<PAGE>
EXHIBIT E
---------
COMMENCEMENT DATE AGREEMENT
THIS AGREEMENT made the ________ day of ________________, 199__ is by and
between (hereafter "Landlord") whose address is ________________________________
and _________________________________________ (hereinafter "Tenant") whose
address is:_____________________________________________.
STATEMENT OF FACTS
------------------
A. Landlord and Tenant entered into a Lease dated ________________, 199__
(hereinafter "Lease") setting forth the terms of occupancy by Tenant of
approximately ______ rentable square feet on the ___(___) floor (hereinafter
"Premises") at ___________________ (hereinafter "Building"); and
B. The Term of the Lease is for ___________ (__) months with the
Commencement Date of the initial Term being defined in the Preamble to the Lease
as being subject to change under Section 4 thereof; and
C. It has been determined in accordance with the provisions of Section 4
of the Lease that ___________, 199__ is the Commencement Date of the Term of
the Lease.
STATEMENT OF TERMS
------------------
NOW, THEREFORE, in consideration of the Premises and the covenants
hereinafter set forth, it is agreed:
1. The Commencement Date of the Term of the Lease is ____________, 199__
and the Expiration Date thereof is ______________, 199__, and the Lease Preamble
Articles 6 and 9 shall be deemed modified accordingly.
2. Article 10 of the Preamble shall be deemed modified as follows:
This Agreement is executed by the parties hereto for the purpose of
providing a record of the Commencement and Expiration Dates of the Lease, adjust
the Term of the Lease and Fixed Basic Rent amount accordingly.
3. Except as modified herein, the Lease covering the Premises shall
remain in full force and effect as if the same were set forth in full herein and
Landlord and Tenant hereby ratify and confirm all the terms and conditions
thereof.
4. This Agreement shall be binding upon and inure to the benefit of the
parties
<PAGE>
hereto and their respective legal representatives, successors and permitted
assigns.
5. Each party agrees that it will not raise or assert as a defense to any
obligation under the Lease or this Agreement or make any claim that the Lease or
this Agreement is valid or unenforceable due to any failure of this document to
comply with ministerial requirements including, but not limited to, requirements
for corporate seals, attestations, witnesses, notarizations, or other similar
requirements, and each party hereby waives the night to assert any such defense
or make any claim of invalidity or unenforceability due to any of the foregoing.
IN WITNESS THEREOF, Landlord and Tenant have hereunto set their hands and
seals the date and year first above written and acknowledge one to the other
they possess the requisite authority to enter into this transaction and to sign
this Agreement.
LANDLORD:
_________________________________
BY:______________________________
Name:_________________________
Title: _______________________
Attest:__________________________
TENANT:
_________________________________
BY:______________________________
Name:_________________________
Title: _______________________
Attest:__________________________
2
<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 Two-Hundred Thousand Dollars
($200,000) 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 One Million Two Hundred Seventy Thousand Dollars (1,270,000) to be paid
according to the following schedule:
Sponsored Research Agreement
----------------------------
Payment Schedule
----------------
Timing Amount to Children's Hospital
Prior to 1/1/99 $41,666.66*
12/31/98 $58,333.34
12/31/98 $125,599.99
3/31/99 $105,533.33
6/30/99 $105,533.33
9/30/99 $69,444.44
12/31/99 $69,444.44
3/31/00 $69,444.44
6/30/00 $69,444.44
9/30/00 $69,444.44
12/31/00 $69,444.44
3/31/01 $69,444.44
6/30/01 $69,444.44
9/30/01 $69,444.44
12/31/01 $69,444.44
3/31/02 $69,444.44
6/30/02 $69,444.44
-------------
Total $1,270,000.00
*Remitted in two payments of $20,833.33 delivered in mid-September 1998 and
early November 1998
(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
<PAGE>
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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<PAGE>
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.
12
<PAGE>
(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,
13
<PAGE>
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.
14
<PAGE>
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.
15
<PAGE>
(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.
16
<PAGE>
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.
17
<PAGE>
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.]
18
<PAGE>
APPENDIX A-2
[The confidential material contained herein has been omitted and has been
separately filed with the commission.]
19
<PAGE>
APPENDIX B
Name: Samy Ashkar Active: X Pending: None:
1. Source and identifying number: N.I.H. P.I.: H. Cantor
2. Title: T-cell Populations in Transplantation Immunity
3. Your role on project: Co-Investigator % Effort: 10%
4. Specific aims of project: This grant is currently a merit award to HC. This
grant is funding a study into the role of osteopontin in T-cell and
macrophage development with special emphasis on transplantation immunity
5. Describe scientific and budgetary overlap: None
Name: Samy Ashkar Active: X Pending: None:
1. Source and identifying number: N.I.H. P.I.: Michael Freeman
2. Title: Prostate cancer bone interaction: Regulated secretion of EGFR ligands.
3. Your role on project: Consultant % Effort: 2%
4. Specific aims of project: To study the role of EGF-like molecules in
mediating prostate cancer metastasis to bone
5. Describe scientific and budgetary overlap: None
Name: Samy Ashkar Active: X Pending: None:
1. Source and identifying number: N.I.H. P.I.: G. Weber
2. Title: Role of CD44 in T-Cell activation.
3. Your role on project: Collaborator % Effort: 5%
4. Specific aims of project: To Study the Role of CD44 in T-cell development
and clonal deletion
5. Describe scientific and budgetary overlap: None
Name: Samy Ashkar Active: X Pending: None:
1. Source and identifying number: Mass Department of Public Health
2. Title: Molecular Mechanisms of Bone Specific Metastasis
3. Your role on project: Principle Investigator % Effort: 40%
4. Specific aims of project: To investigate the Role of CD44 and OPN in specific
recruitment of Tumor Cells to Bone
5. Describe scientific and budgetary overlap: None
Name: Samy Ashkar Active: X Pending: None:
1. Source and identifying number: NIH
2. Title: Osteopontin biomimetics and gene expression in Xenoenviroments
3. Your role on project: Principle Investigator % Effort: 40%
4. Specific aims of project: Several biomimetics molecules have been constructed
to modulate the in vivo behaviour of tissue in response to transplanted
material.
5. Describe scientific and budgetary overlap: No budgetary overlap. Effort will
be adjusted accordingly
Name: Samy Ashkar Active: X Pending: None:
1. Source and identifying number: NIH
2. Title: Chimeric Molecules Enhances apatite osseoinduction Juan Loza PI
3. Your role on project: Collaborator % Effort: 10%
4. Specific aims of project: To test several recombinant molecules that have
been engineered to bind to apaptite in accelerating osseointegration.
5. Describe scientific and budgetary overlap: No budgetary overlap. Effort will
be adjusted accordingly
Name: Samy Ashkar Active: X Pending: None:
1. Source and identifying number: NIH
2. Title: Polar lipids effects on bone regeneration L. Capio PI
3. Your role on project: Co-PI % Effort: 10%
4. Specific aims of project: A pilot study on the involvement of polar lipids in
bone healing and regeneration
5. Describe scientific and budgetary overlap: No budgetary overlap. Effort will
be adjusted accordingly
Name: Samy Ashkar Active: X Pending: None:
1. Source and identifying number: NIH
2. Title: Effect of diabetes on implant wound healing. J. Fiorellini PI
3. Your role on project: Consultant % Effort: 10%
4. Specific aims of project: To investigate the molecular mechanisms that result
in diabetes mediated impairment of healing.
5. Describe scientific and budgetary overlap: No budgetary overlap. Effort will
be adjusted accordingly
Name: Samy Ashkar Active: X Pending: None:
1. Source and identifying number: NIH
2. Title: Cell and matrix modifications to Enhance Wound Healing.
3. Your role on project: Principal Investigator % Effort: 10%
4. Specific aims of project: A biomimetic approach to accelerating and modifying
cutaneous and skeletal wound healing
5. Describe scientific and budgetary overlap: None
Name: Samy Ashkar Active: X Pending: None:
1. Source and identifying number: March of Dimes
2. Title: Biomimetic biomaterial in the correction congenital abnormalities of
the oral tissues
3. Your role on project: Principle Investigator % Effort: 10%
4. Specific aims of project:
5. Describe scientific and budgetary overlap: None
Name: Samy Ashkar Active: X Pending: None:
1. Source and identifying number: Harvard interquad research grant
2. Title: Third generation of guided tissue regeneration material in
periodontology
3. Your role on project: Principle Investigator % Effort: 10%
4. Specific aims of project: Design and applications for novel bio-membranes in
periodontology. A tissue engineering approach
5. Describe scientific and budgetary overlap: None
20
<PAGE>
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.]
21
<PAGE>
APPENDIX D
BIOLOGICAL MATERIAL TRANSFER AGREEMENT
For Materials Resulting from
Research Sponsored or Licensed to OraPharma, Inc.
Children's Hospital to Nonprofit Institution
Definitions
Provider: Children's Medical Center Corporation, 300 Longwood Avenue, Boston,
MA 02115.
Provider's Scientist:
---------------------------------------------------------
Recipient: Institution receiving the Original Material, (Name and address of
Institution)
- --------------------------------------------------------------------------------
Recipient's Scientist is:
---------------------------------------------------------
Original Material:
--------------------------------------------------------------
Material: Original Material plus Progeny and Unmodified Derivatives. The
Material shall not include (i) Modifications or (ii) other substances created by
the Recipient through the use of the Material which are not Progeny or
Unmodified Derivatives.
Progeny: unmodified descendant from the Material, such as virus from virus,
cell from cell, or organism from organism.
Unmodified Derivatives: substances created by Recipient which constitute an
unmodified functional sub-unit or an expression product of the Original
Material. Some examples include: subclones of unmodified cell lines, purified or
fractionated sub-sets of the Original Material, proteins expressed by DNA/RNA
supplied by Provider, monoclonal antibodies secreted by a hybridoma cell line,
sub-sets of the Original Material such as novel plasmids or vectors.
Modifications: substances created by Recipient which contain/incorporate the
Material (Original Material, Progeny or Unmodified Derivatives).
Field of Use:
Terms and Conditions
1. PROVIDER has certain ownership rights and/or certain other interests in the
MATERIAL and has granted certain of these rights in and to the MATERIAL to
OraPharma, Inc. to permit them to develop and transfer to market various
products which have been or will be derived or produced from the MATERIAL.
PROVIDER has retained the right to use the MATERIAL and to license other
non-profit research organizations to use the MATERIAL in the Field of Use
solely for their own non-commercial, research purposes. The MATERIAL is to
be used by RECIPIENT solely for research purposes at RECIPIENT's
institution only as described in the attached letter and only under the
direction of the Recipient's Scientist; and RECIPIENT shall not assign or
sublicense any rights to use the MATERIAL without the prior written consent
of PROVIDER and OraPharma, Inc. The MATERIAL will not be used in human
subjects or in clinical trials involving human subjects without the written
permission of PROVIDER.
2. RECIPIENT'S SCIENTIST is permitted to publish the results of the research
utilizing the MATERIAL. To the extent supplies are available, PROVIDER or
Provider's Scientist agrees to make the MATERIAL available
<PAGE>
under an agreement similar to this one to other scientists (at least those
at non-profit or governmental institutions) who wish to replicate
Recipient's Scientist's research. The Recipient's Scientist agrees not to
transfer the MATERIAL to anyone who does not work under his or her direct
supervision at RECIPIENT's institution without the prior written consent of
PROVIDER and OraPharma, Inc.. Recipient's Scientist shall refer any request
for the MATERIAL to PROVIDER.
3. (a) Upon notice to PROVIDER and under a UBMTA (or an agreement at least as
protective of PROVIDER's rights), RECIPIENT may distribute Modifications to
non-profit or governmental organizations for research purposes only.
(b) Upon written permission from PROVIDER and OraPharma, Inc., RECIPIENT
may distribute Modifications for commercial use. It is recognized by
RECIPIENT that such commercial use may require a commercial license from
OraPharma, Inc. and OraPharma, Inc. has no obligation to grant such a
commercial license.
4. (a) Ownership of tangible property as between PROVIDER and RECIPIENT is
defined in Attachment A.
(b) RECIPIENT is free to file patent applications claiming inventions made
by RECIPIENT through the use of the MATERIAL but agrees to notify PROVIDER
prior to filing a patent application claiming Modifications or uses of the
MATERIAL or inventions made through the use of the MATERIAL.
(c) If research involving the MATERIAL results in any invention or
substance which may be commercially useful, RECIPIENT and RECIPIENT'S
SCIENTIST will promptly disclose to PROVIDER in confidence the invention or
substance and provide PROVIDER with samples of the derived material. In
addition, RECIPIENT and RECIPIENT'S SCIENTIST will notify any other entity
which has supported the research which included the MATERIAL of PROVIDER's
and OraPharma, Inc.'s role as the source of MATERIAL. RECIPIENT and
RECIPIENT'S SCIENTIST will take all reasonable steps to see that PROVIDER
and OraPharma, Inc. are provided with appropriate recognition for their
contributions, such as, a first option to negotiation in good faith and on
reasonable terms, an exclusive license (subject to the rights of any
Government or non-profit sponsor) to use the invention or substance or a
reduced royalty should the parties agree to a non-exclusive license.
5. Except as expressly provided in this Agreement, no rights are provided to
RECIPIENT under any patents, patent applications, trade secrets or other
proprietary rights of PROVIDER. In particular, no rights are provided to
use the MATERIAL or Modifications and any related patents of PROVIDER for
profit-making or commercial purposes, such as sale of the MATERIAL or
Modifications, use in manufacturing, provision of a service to a third
party in exchange for consideration (not including sponsored research
activities).
6. The provision of the MATERIAL to RECIPIENT shall not alter any preexisting
right to the MATERIAL.
7. Any MATERIAL delivered pursuant to this Agreement is understood to be
experimental in nature and may have hazardous properties. THE MATERIAL IS
PROVIDED WITHOUT WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR
PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED, AND RECIPIENT AGREES
THAT CHILDREN'S HOSPITAL CORPORATION, CHILDREN'S MEDICAL CENTER
CORPORATION, PROVIDER'S SCIENTIST, AND THEIR RESPECTIVE EMPLOYEES, AGENTS,
AND TRUSTEES HAVE NO LIABILITY IN CONNECTION WITH SUPPLYING RECIPIENT WITH
THE MATERIAL OR RECIPIENT'S USE OF THE SAID MATERIAL.
<PAGE>
8. RECIPIENT agrees to waive all claims against Children's Medical Center
Corporation, any of its corporate affiliates, and provider's scientist, and
OraPharma and its affiliates and Sublicensees and their respective
employees, professional staffs, agents, volunteers, officers, and trustees,
and to defend and indemnify and hold harmless Children's Medical Center
Corporation, any of its corporate affiliates, and Provider's Scientist, and
OraPharma and its affiliates and Sublicensees, and their respective
employees, professional staffs, agents, volunteers, officers, and trustees
from all claims and damages asserted by Recipient or third parties arising
from the use, storage, handling or disposal of the Material or
Modifications.
9. This Agreement shall not be interpreted to prevent or delay publication of
research resulting from the use of the MATERIAL or Modifications.
Recipient's Scientist agrees to provide appropriate acknowledgment of the
source of the MATERIAL in all publications.
10. RECIPIENT agrees to use the MATERIAL in compliance with all applicable
statutes and regulations, including, for example, those relating to
research involving the use of animals or recombinant DNA.
11. (a) This Agreement will terminate on the earliest of the following dates:
(1) when the MATERIAL becomes generally available from third parties, for
example, through reagent catalogs or from public depositories, or (2) on
completion of Recipient's current research with the MATERIAL, or (3) on
thirty (30) days written notice by either party to the other, or (4) on the
following date . Paragraphs 4(c)(as to OraPharma, Inc.'s option),
7, 8 and 11 shall survive termination.
(b) If termination should occur under 11(a)(1), RECIPIENT shall be bound to
the PROVIDER by the least restrictive terms applicable to MATERIAL obtained
from the then available sources.
(c) Except as provided in 11(d) below, on termination of this Agreement
under 11(a)(2),(3), or (4) above, RECIPIENT will discontinue its use of the
MATERIAL and will, upon direction of PROVIDER, return or destroy any
remaining MATERIAL. RECIPIENT will also either destroy Modifications or
remain bound by the terms of paragraphs 3, 4 and 5 as they apply to
Modifications.
(d) In the event PROVIDER terminates this Agreement under 11(a)(3) other
than for breach of this Agreement or with cause such as an imminent health
risk or patent infringement, PROVIDER will defer the effective date of
termination for a period of up to one year, upon request from RECIPIENT to
permit completion of research in progress.
If these terms and conditions are acceptable, please sign this Agreement and
have it cosigned by a duly authorized representative of the Recipient and return
one copy to the Director of Technology Transfer at Children's Hospital. A
specimen of the Material will be forwarded promptly upon receipt of the signed
copy.
- -------------------------------------------------
Children's Hospital Researcher
- ------------------------------------------------- -------------
Donald P. Lombardi, Director, Technology Transfer Date
ACCEPTED BY RECIPIENT:
- -------------------------------------------------
Scientist
- -------------------------------------------------
Authorized Official
- ------------------------------------------------- -------------
Title Date
Attachment A
Belonging to PROVIDER
MATERIAL
Original Material Progeny
Unmodified Derivatives
Belonging to RECIPIENT
Modifications (however, PROVIDER retains ownership rights to any form of the
MATERIAL included therein)
Those substances created through the use of the MATERIAL or Modifications, but
which are not Progeny, Unmodified Derivatives or Modifications (e.g., do not
contain the Original Material or Unmodified Derivatives).
22
<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) ten (10) years following the date of the first commercial
sale of the applicable Product in the applicable country, or (ii) the
period beginning on the date of the first commercial sale of the applicable
Product in the applicable country and ending on the expiration date of the
last to expire of any issued patent included within the ACY Patent Rights
having a valid claim covering the manufacture, use of sale of such Product
in such country. 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 ten (10) 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
beenseparately 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.
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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
--------------------------
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<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 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.
March 8, 2000
<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 YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 19,236,084 13,073,803
<SECURITIES> 0 0
<RECEIVABLES> 0 0
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<CURRENT-ASSETS> 19,282,525 13,559,759
<PP&E> 1,165,383 1,402,328
<DEPRECIATION> 193,970 444,431
<TOTAL-ASSETS> 20,480,402 14,711,739
<CURRENT-LIABILITIES> 2,308,162 2,066,166
<BONDS> 480,978 288,043
28,771,713 32,974,359
0 0
<COMMON> 957 1,040
<OTHER-SE> (11,081,408) (20,617,869)
<TOTAL-LIABILITY-AND-EQUITY> 20,480,402 14,711,739
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<INTEREST-EXPENSE> 38,018 52,496
<INCOME-PRETAX> (8,769,091) (11,246,033)
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<INCOME-CONTINUING> (8,769,091) (11,246,033)
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<EXTRAORDINARY> 0 0
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<NET-INCOME> (8,769,091) (12,975,684)
<EPS-BASIC> (13.72) (16.74)
<EPS-DILUTED> (13.72) (16.74)
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