<PAGE>
As filed with the Securities and Exchange Commission on February 22, 2000
Registration Statement No. 333-93881
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
AMENDMENT NO. 2
to
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-------------------
ORAPHARMA, INC.
(Exact name of Registrant as specified in its charter)
Delaware 2834 22-3473777
(State or other (Primary Standard Industrial (IRS Employer
jurisdiction of Classification Code No.) Identification Number)
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.
<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 FEBRUARY 22, 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.
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<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
<PAGE>
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, involving a total of 747 patients, for our first product candidate,
Minocycline Periodontal Therapeutic System. MPTS is designed to treat adult
periodontitis, a chronic infection caused by plaque buildup on teeth and the
leading cause of adult tooth loss. Based on our clinical trial results, we
submitted a New Drug Application, or NDA, to the Food and Drug Administration,
or FDA, on February 17, 2000. MPTS is intended 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. Our other
research and development programs are directed at further establishing a
presence in oral care pharmaceuticals and expanding the use of our drug
formulation technology, which we refer to as our core technology.
Periodontitis has no known cure and is thought to be linked to other
serious systemic health problems such as cardiovascular disease, diabetes and
low infant birth weight. According to published reports citing the American
Dental Association, approximately 50 million Americans have periodontal disease
and only 7.5 million Americans are currently receiving treatment. According to
industry sources, more than $6.0 billion is spent annually on products and
services to treat this condition. Pharmaceuticals for the treatment of
periodontitis comprise a rapidly emerging segment of the overall oral health
care market. In addition, we believe a broader market opportunity exists for
the treatment of other oral health care diseases and disorders with large,
unmet medical needs. Examples include oral mucositis, a condition that is a
consequence of cancer therapy and involves the formation of painful ulcers in
the mouth and esophagus, and various oral conditions requiring regeneration of
bone and tissue.
Our first product candidate, MPTS, uses our core technology--a patented
system developed to both allow precise drug placement at the desired site and
enable 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, because MPTS is
administered chair-side by oral care professionals, patient compliance is
ensured.
In the U.S., we intend to create a sales and marketing force of 50 to 75
persons and to begin hiring and training activities in late 2000. Assuming we
obtain FDA approval, we will target approximately 3,700 periodontists, and
approximately 25,000 general dentists whom we believe frequently perform
scaling and root planing procedures. In international markets, we intend to
enter into strategic relationships to market and sell MPTS rather than
establish our own sales force.
1
<PAGE>
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 are
directed at treating traumatic tooth injury and developing a treatment approach
for 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.
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 $ 7,324,975 $ 9,664,841 $ 18,722,503
General and
administrative....... 408,295 939,469 1,590,375 2,119,264 5,057,403
--------- ----------- ----------- ------------ ------------
Operating loss........ (434,589) (2,645,862) (8,915,350) (11,784,105) (23,779,906)
Net interest income
(expense)............. (641) 504,123 424,488 636,957 1,564,927
--------- ----------- ----------- ------------ ------------
Net loss................ (435,230) (2,141,739) (8,490,862) (11,147,148) (22,214,979)
Non-cash preferred stock
charge................ -- -- -- 1,729,651 1,729,651
--------- ----------- ----------- ------------ ------------
Net loss to common
stockholders.......... $(435,230) $(2,141,739) $(8,490,862) $(12,876,799) $(23,944,630)
========= =========== =========== ============ ============
Basic and diluted net
loss per share........ $ (5.05) $ (13.28) $ (16.61)
=========== =========== ============
Shares used in computing
net loss per share.... 424,054 639,339 775,116
=========== =========== ============
Pro forma basic and
diluted net loss per
share................. $ (1.65)
============
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............................. 33,730,563 -- --
Deficit accumulated during the
development stage................. (22,214,979) (22,214,979) (22,214,979)
Total stockholders' equity
(deficit)......................... (21,373,033) 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. The clinical trial process is complex,
uncertain and expensive. We incur substantial expense for, and devote
significant time to, clinical trials, yet we cannot be certain that the trials
will ever result in the commercial sale of a product candidate. Positive
results from preclinical studies and early clinical trials do not ensure
positive results in clinical trials designed to permit application for
regulatory approval. 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. Clinical trials may fail to
demonstrate that our product candidates are safe or effective.
If we obtain FDA approval for MPTS, we anticipate that our revenue and
operating results for the forseeable future will be dependent on our ability to
market this product candidate.
We completed Phase 3 clinical trials for MPTS in October 1999 and
submitted an NDA to the FDA on February 17, 2000. 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 American Home Products, or if that agreement terminates, our
rights to commercialize MPTS and our core technology will be impaired.
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. In addition, AHP has the right to terminate the license agreement
for other reasons, including if we materially breach our payment or other
obligations under our license agreement. If AHP converts our license to a non-
exclusive license, AHP would be free to license MPTS and the core technology to
any third parties, including our competitors. If our license agreement with AHP
terminates, we would be forced to cease our efforts to commercialize MPTS and
other oral cavity products utilizing our core technology.
We have incurred substantial losses since we were formed, and we expect to
continue to incur such losses for the foreseeable future. These losses could
increase significantly as we continue our product development efforts.
We have incurred substantial losses since our inception and we may never
be profitable. As of December 31, 1999, we had a cumulative net loss of
approximately $22.2 million. These losses have resulted principally from costs
incurred in our research and development programs, including clinical trials,
and from our general and administrative costs. We have not derived revenues
from product sales or royalty revenue, and we do not expect to achieve revenue
from product sales or royalties until we receive regulatory approval and
5
<PAGE>
begin commercialization of our product candidates. We expect to incur
additional operating losses in the future and these losses could increase
significantly as we expand our development and clinical trial efforts. Our
operations may never be profitable even if any of our product candidates are
approved and commercialized.
We depend on sole-source suppliers for raw materials and components for MPTS
and may not be able to obtain an alternate supply on a timely or acceptable
basis.
We currently rely on sole-source suppliers to provide each of the four
separate raw materials and components for MPTS:
. the polymer component, 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. Because we have not yet commercialized
any products, we have obtained only the limited supply of these materials and
components necessary to conduct clinical trials. We may not be able to obtain a
sufficient supply of these raw materials and components from each supplier at
competitive prices, if at all, necessary for the commercialization of MPTS. We
may not be able to find alternative suppliers in a timely manner that would
provide these materials and components at acceptable prices or in adequate
quantities. Any delay or disruption in the supply of these materials, including
those resulting from natural disasters, could slow or stop commercialization of
MPTS. Before replacing any of these suppliers or engaging second-source
suppliers, we would need to satisfy various regulatory requirements.
We depend on two sole-source contract manufacturers for the production and
packaging of MPTS, and have not entered into long-term agreements with either
manufacturer.
We have no experience in manufacturing and we currently lack the
resources or capability to manufacture any of our product candidates on a
clinical or commercial scale. As a result, we are dependent on third parties
for the manufacture, testing, filling and packaging of our product candidates.
In the case of MPTS, we are solely dependent on one company for the manufacture
and testing of MPTS. Additionally, we are solely dependent on another company
for filling and packaging the dispensers. We may not be able to enter into
agreements on acceptable terms for the commercial-scale manufacturing or
filling and packaging of MPTS. If we are unable to do so, our commercialization
of MPTS will be delayed or halted, as we would be required to satisfy various
regulatory requirements before engaging either a substitute or a second-source
manufacturer or packager. In addition, each manufacturer and manufacturing
facility of any component or aspect of MPTS must be inspected and meet
extensive FDA regulatory requirements, and these manufacturers may not meet
these requirements.
We have no sales or marketing experience, and if we are unable to effectively
develop adequate sales and marketing capabilities, we may be unsuccessful in
commercializing our product candidates.
We intend to market and sell our product candidates in the U.S. through a
direct sales and marketing force. In order to do this, we will have to develop
a sales and marketing force with technical expertise and establish a supporting
distribution capability. Developing a sales and marketing force is expensive
and time-consuming and could delay any product launch. Furthermore, while we
currently expect to create a direct sales and marketing force of 50 to 75
people, the actual number of representatives needed by us to reach our target
market may be significantly more or less than our current expectations.
If we are unable to establish our sales and marketing capability, we will
need to enter into sales and marketing agreements with third parties to market
MPTS in the U.S. We plan to enter into these types of arrangements for sales
outside the U.S. If we are unable to establish successful sales and marketing
relationships, we may fail to realize our full sales potential.
6
<PAGE>
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, our financial condition will be harmed.
Even if we obtain FDA approval of our product candidates, they might not be
accepted by oral health care providers or patients.
The commercial success of our product candidates will depend upon their
acceptance by oral health care providers and patients as clinically useful,
cost-effective and safe products. Even if our product candidates obtain
regulatory approval, they may not achieve market acceptance of any
significance.
Marketplace acceptance of any of our product candidates that are approved by
the FDA will depend on competition in the pharmaceutical industry, which is
intense.
The extent to which any of our product candidates achieve market
acceptance will depend on competitive factors, many of which are beyond our
control. Competition in the pharmaceutical industries, and the market for oral
care pharmaceuticals in particular, is intense. Competition has been
accentuated by the rapid pace of technology development. FDA-approved products
currently exist that will compete with most of the product candidates we are
developing. We are also aware of companies that are developing products that
may compete in the same markets as our product candidates. Many of these
current and potential competitors have substantially greater research and
development capabilities and financial, scientific, manufacturing, marketing
and sales resources than we possess. These competitors may succeed in
developing products earlier and obtaining regulatory approvals from the FDA
more rapidly than us. These competitors may also develop products that are
superior to those we are developing and render our product candidates or
technologies obsolete or non-competitive.
Adequate reimbursement from government health administration authorities,
private health insurers and other organizations are necessary for us to market
and sell our product candidates that are approved by the FDA.
Reimbursement for oral care by third-party payors is traditionally
significantly more limited than reimbursement for other fields of medical care.
This is particularly an issue for products administered by oral care
professionals. We believe that approximately one-half of all dental services
are currently paid for directly by patients and not by third-party payors.
Reimbursement for oral care may never reach levels equivalent to reimbursement
for other fields of medical care. Furthermore, third-party payors are
increasingly challenging the price of health-care products and services and
have been slow to offer reimbursement for newly approved health care products.
Our products candidates, if commercialized, may not be considered cost-
effective or be covered by adequate reimbursement.
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.
The pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and
processes. Our success depends on our ability and the ability of our third-
party licensors to:
. obtain and maintain patent protection for MPTS, our other product
candidates, and our core technology;
. preserve our trade secrets; and
. operate without infringing on the intellectual property rights of
third parties.
Patents may not ultimately be issued from any pending or future patent
applications. In addition, any issued patents may not be sufficient to protect
our product candidates or technologies. Our issued patents may be held to be
invalid if challenged. 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.
7
<PAGE>
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 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.
We may face significant expense and liability if our technologies, product
candidates, methods or processes are found to infringe the intellectual
property rights of others, or if we allege others infringe our intellectual
property rights.
If our technologies, product candidates, methods or processes infringe
the intellectual property rights of other parties, we could incur substantial
costs and we may have to:
. obtain licenses from the owners of such intellectual property rights;
. redesign our product candidates or processes to avoid infringement;
. stop using the subject matter claimed in the patents held by others;
. pay damages; or
. defend litigation or administrative proceedings which may be costly
whether we win or lose.
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 patent counsel that the relevant claims of
the patent should be invalidated if asserted in litigation. If this patent is
found to contain claims infringed by the use of our MPTS product and such
claims are ultimately found to be valid and enforceable, we may not be able to
obtain a license from the competitor at a reasonable cost, if at all, or
develop or obtain alternative technology. In addition, 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. If any of our trade secrets or
know-how become disclosed, our business may suffer. 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.
8
<PAGE>
We may not be able to retain our key personnel or hire the sales and marketing,
clinical trials management and regulatory affairs personnel necessary for our
business.
We are highly dependent on our key management and scientific personnel.
The employment of any of our key personnel could cease at any time. Competition
for qualified employees among companies in the pharmaceutical industry is
intense. Our future success depends upon our ability to attract, retain and
motivate highly-skilled employees. In order to successfully commercialize our
product candidates, we may be required to substantially expand our personnel,
particularly in the areas of sales and marketing, clinical trials management
and regulatory affairs.
We may be subject to product liability claims if our product candidates injure
people, and we have only limited product liability insurance.
Our business exposes us to potential product liability risks, which are
inherent in the testing, manufacturing, marketing and sale of pharmaceutical
products and candidates. We may not be able to avoid product liability claims.
Product liability insurance for the pharmaceutical industry is generally
expensive, if available at all. Our current product liability insurance
coverage may not be adequate. If we are unable to obtain or maintain sufficient
insurance coverage on reasonable terms or to otherwise protect against
potential product liability claims, we may be unable to commercialize our
product candidates. A successful product liability claim brought against us in
excess of our insurance coverage, if any, may cause us to incur substantial
liabilities.
We are likely to need additional financing, but our access to capital funding
is uncertain.
Our current and anticipated development projects require substantial
capital. We are likely to need substantial additional funds to conduct our
research activities, technical studies, clinical trials and other activities
relating to the successful commercialization of our product candidates.
However, our access to capital funding is uncertain. If adequate funds are
unavailable, we may be required to:
. delay, reduce the scope of, or eliminate one or more of our research
or development programs;
. license rights to technologies, product candidates or products on
terms that are less favorable to us than might otherwise be available;
or
. obtain funds through arrangements that may require us to relinquish
rights to product candidates or products that we would otherwise seek
to develop or commercialize ourselves.
If we raise additional funds by issuing equity securities, our existing
stockholders will own a smaller percentage of OraPharma, and new investors may
pay less on average for their securities than, and could have rights superior
to, existing stockholders.
We face uncertainty with year 2000 compliance.
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of our
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This may result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to receive supplies from our vendors or to operate our accounting and other
internal systems. If our software vendors are unable to address the year 2000
compliance of their products, or should our suppliers' operations be disrupted
by the year 2000 issue, then our ability to commercialize and develop our
product candidates may be materially adversely affected.
9
<PAGE>
Risks Related to Governmental Approvals
We do not have, and may never obtain, the regulatory approvals we need 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. We cannot guarantee that any of our product
candidates, including MPTS, will be found to be safe and effective by the FDA
and approved for marketing.
Our MPTS clinical trials and our NDA might not be deemed acceptable by the FDA.
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. Although we believe the two trials
conducted by us with MPTS yielded successful results, 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.
Any such additional trials would likely be time-consuming and expensive. 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 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. Among other things, we must submit data
indicating that the drug product can be consistently manufactured by our
supplier at the same quality standard, that the drug product is stable over
time, that the level of chemical impurities in the drug product is below
specified levels, and that the delivery device developed by us for MPTS works
as intended in a consistent manner. Our manufacturers may not be able to obtain
or maintain cGMPs as prescribed by the FDA.
After any FDA approval of our MPTS or future NDAs, we will still have to comply
with extensive regulations.
Continued compliance with all FDA requirements and the conditions in an
approved NDA, including those concerning product specifications, manufacturing
process, validation, labeling, promotional material, 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.
Any future clinical trials could take longer to complete than we expect.
Although for planning purposes we forecast the commencement and
completion of clinical trials, the actual timing of these events can vary
dramatically due to factors such as delays, scheduling conflicts with
participating clinicians and clinical institutions and the rate of patient
accruals. We cannot assure you that clinical trials involving our product
candidates will commence or be completed as forecasted, or that they will be
conducted successfully. Failure to commence or complete, or delays in, any of
our future clinical trials could have a material adverse effect on our business
and could cause our stock price to decrease.
In some circumstances we rely on 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
The market price of our common stock after this offering may be higher or lower
than the price you pay.
Prior to this offering, there has been no public market for our common
stock. If you purchase shares of our common stock in this offering, you will
not pay a price that was established in a competitive market. Rather, you will
pay a price that we negotiated with the representatives of the underwriters.
After this offering, an active trading market in our stock might not develop or
continue.
Our stock price may be highly volatile.
The market price of our common stock may fluctuate significantly in
response to many factors, some of which are beyond our control, including the
following:
. results of preclinical studies and clinical trials conducted by us 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 addition, the market price for securities of early-stage drug
companies have been particularly volatile. In the past, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation has often been brought against the company. We may
become involved in this type of litigation in the future. Litigation of this
type is often extremely expensive and diverts management's attention and
resources.
You will incur immediate and substantial dilution of the stock value of your
shares.
The assumed offering price of our common stock is substantially higher
than the net tangible pro forma book value per share of our outstanding common
stock. As a result, investors purchasing common stock in this offering will
incur immediate and substantial dilution in the net tangible book value of
their common stock of $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.
Future sales of our common stock could cause the market price of our common
stock to decline.
The market price of our common stock could decline due to sales of a
large number of shares in the market after this offering or the perception that
such sales could occur, including sales or distributions of shares by our large
stockholders. These sales could also make it more difficult for us to sell
equity securities in the future at a time and price that we deem appropriate to
raise funds through future offerings of common stock. For example, 6,596,396 of
the shares beneficially owned by our six largest stockholders will be available
for sale after the completion of the offering. The remaining 663,712 shares
beneficially owned by these stockholders will become available for sale in
December 2000. These stockholders have agreed under written "lock-up"
agreements not to sell any shares for 180 days after the date of this
prospectus.
Our certificate of incorporation and Delaware law contain provisions that could
discourage a takeover.
Our certificate of incorporation provides for the division of our board
of directors into three classes and provides our board of directors the power
to issue up to five million shares of preferred stock without stockholder
approval. This preferred stock could have voting rights that could be superior
to that of our common stock, and our board of directors has the power to
determine these voting rights. Our certificate of incorporation also requires
supermajority approval of the removal of any member of our board of directors
and prevents our stockholders from acting by written consent. In addition,
Section 203 of the Delaware General Corporation Law contains provisions which
impose restrictions on stockholder action to acquire control of OraPharma. The
effect of these provisions of our certificate of incorporation and Delaware law
would likely discourage third parties from seeking to obtain control of
OraPharma.
The interests of our controlling stockholders may conflict with our interests
and the interests of our other stockholders.
Upon the completion of this offering, our six largest stockholders will
own approximately 7,260,108 shares or 58.3% of our outstanding common stock.
The interests of our controlling stockholders could conflict with the interests
of our other stockholders. For example, if our controlling stockholders chose
to act together, they may be able to exert considerable influence over us,
including in the election of directors and the approval of actions submitted to
our stockholders. 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. Also, the provisions of
Section 203 of the Delaware General Corporation Law would not be applicable to
them.
12
<PAGE>
The net proceeds from the offering may be allocated in ways with which you and
other stockholders may not agree.
Management will have significant flexibility in applying the net proceeds
of this offering and could use these proceeds for purposes other than those
contemplated at the time of the offering.
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, the words "believe," "anticipate,"
"estimate," "expect," "seek," "intend," "may" and similar expressions are
generally intended to identify "forward-looking statements." Our forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause our actual results, performance or achievements, or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by these forward-looking
statements. These factors are discussed in more detail elsewhere in this
prospectus, including under the captions "Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Because of these uncertainties, you should not
place undue reliance on our forward-looking statements. In addition, the safe
harbor for forward-looking statements contained in the Securities Litigation
Reform Act of 1995 is not available for our forward-looking statements
contained in this prospectus. We do not intend to update any of these factors
or to publicly announce the result of any revisions to any of our forward-
looking statements contained herein, whether as a result of new information,
future events or otherwise.
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. Pending uses described above, we intend to invest
the net proceeds of this offering in short-term, investment-grade, interest-
bearing securities.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We do not
anticipate paying any cash dividends in the foreseeable future as we currently
intend to retain any future earnings to fund the continued development and
growth of our business. In addition, our existing credit facility prohibits the
payment of dividends.
14
<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........... 4,959 -- --
------------ ----------- ------------
Total redeemable convertible
preferred stock.............. 33,731 -- --
------------ ----------- ------------
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........ 1,190 34,913 93,729
Deferred compensation............. (349) (349) (349)
Deficit accumulated during the
development stage............... (22,215) (22,215) (22,215)
------------ ----------- ------------
Total stockholders' equity
(deficit).................... (21,373) 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 Corporation Plan, none of
which have been granted;
. 586,472 shares of common stock issuable upon the exercise of
outstanding options under our 1996 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 $7,324,975 $ 9,664,841 $ 18,722,503
General and
administrative....... 408,295 939,469 1,590,375 2,119,264 5,057,403
--------- ----------- ---------- ------------ ------------
Operating loss........ (434,589) (2,645,862) (8,915,350) (11,784,105) (23,779,906)
Net interest income
(expense)............. (641) 504,123 424,488 636,957 1,564,927
--------- ----------- ---------- ------------ ------------
Net loss................ (435,230) (2,141,739) (8,490,862) (11,147,148) (22,214,979)
Non-cash preferred stock
charge................ -- -- -- 1,729,651 1,729,651
--------- ----------- ---------- ------------ ------------
Net loss to common
stockholders.......... $(435,230) $(2,141,739) $8,490,862) $(12,876,799) $(23,944,630)
========= =========== ========== ============ ============
Basic and diluted net
loss per share........ $ (5.05) $ (13.28) $ (16.61)
=========== ========== ============
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................. $ (1.65)
============
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 33,730,563
Deficit accumulated during
the development stage... (435,230) (2,576,969) (11,067,831) (22,214,979)
Total stockholders'
deficit................. (359,071) (2,446,806) (10,879,151) (21,373,033)
</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 $22.2 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.
18
<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. We have 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 $7.3 million in the same period in 1998, an increase
of 31.9%. This increase of approximately $2.3 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 $2.1 million for the year ended December 31, 1999
compared to approximately $1.6 million in the same period in 1998, an increase
of 33.3%. This increase of $529,000 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 $11.1 million for the year ended
December 31, 1999 compared to approximately $8.5 million in the same period in
1998, an increase of 30.4%. This increase of
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approximately $2.6 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 $7.3 million for the year ended December 31, 1998
compared to approximately $1.7 million in the same period in 1997, an increase
of 329.3%. This increase of approximately $5.6 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 69.3%. This
increase of $651,000 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 $8.5 million for the year ended
December 31, 1998 compared to approximately $2.1 million in the same period of
1997, an increase of 296.4%. The increase of approximately $6.4 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 is 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. Our other research and
development programs are directed 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 return and the infection recurs. In an attempt
to stabilize the disease progression, oral care professionals generally place
patients on maintenance programs that involve frequent follow-up for evaluation
and ongoing scaling and root planing.
Systemic antibiotics have occasionally been used in conjunction with
scaling and root planing to treat periodontitis. However, concerns over side
effects and drug resistance have prompted the search for alternatives. Several
therapeutics 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. This sustained release has been designed
to maintain drug levels sufficient to kill bacteria for at least 14 days.
Because the microspheres totally disintegrate, a return visit will not be
required to remove MPTS. Further, our clinical trial experience suggests that
MPTS' adhesion characteristics ensure retention without the need for a
periodontal dressing or adhesive. We designed our MPTS treatment in part to
eliminate the restricted dosage, refrigeration, mixing, dental dressing and/or
nonchair-side limitations of the other recently introduced treatments.
MPTS is designed to be administered immediately following scaling and
root planing, and application of MPTS should be repeated periodically for as
long as a periodontal pocket of at least 5mm exists. MPTS enables drug
placement directly into the periodontal pocket. This local administration of
MPTS has been designed to permit delivery of an antibiotic to affected tissues
with minimal systemic exposure. This administration also generates
significantly higher local drug concentrations than could be safely obtained
with systemic administration. Finally, its administration by oral care
professionals eliminates the concern about patient compliance, a common problem
with pharmacy-dispensed and orally-administered drugs.
In summary, we believe that MPTS' advantages include:
. high drug concentration at the infection site with reduced risk of
drug resistance;
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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.................. 56 Vice President, Chief Scientific and Technical Officer
Jan N. Lessem, M.D.,
Ph.D.................. 51 Vice President, Chief Medical Officer
James A. Ratigan........ 51 Vice President, Chief Financial Officer and Secretary
Joseph E. Zack.......... 48 Vice President, Sales and Marketing
James J. Mauzey (1)..... 51 Director
Christopher Moller,
Ph.D. (2)............. 46 Director
Eileen M. More (2)...... 53 Director
Harry T. Rein (1)....... 55 Director
Seth A. Rudnick, M.D.... 51 Director
David I. Scheer (1)..... 47 Director
Jesse I. Treu, Ph.D.
(2)................... 52 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Mr. Kishbauch has served as our President and Chief Executive Officer and
as a director of OraPharma since September 1996. He served as President and
Chief Operating Officer for two business units of Nelson Communications, Inc.,
an integrated healthcare services firm, from February 1995 to August 1996. He
also served as President, Chief Operating Officer and director of MedImmune,
Inc., a Maryland-based biotechnology company, from December 1992 to February
1995. From February 1982 to May 1992, Mr. Kishbauch served with the
Pharmaceuticals Division of Ciba-Geigy Corporation in various sales and
marketing positions, ending as Vice President Product Planning and Promotion.
Mr. Kishbauch worked through positions of increasing responsibility in brand
management with The Procter and Gamble Company from June 1976 to February 1982.
Mr. Kishbauch received a B.A. in biology from Wesleyan University and an M.B.A.
from the Wharton School of the University of Pennsylvania.
Mr. Carbeau has served as our Vice President, Corporate Development since
May 1999. From September 1996 to April 1999, he served as General Partner in
The Lucas Group, a Boston-based strategy consulting and mergers and
acquisitions advisory firm, and from January 1995 to September 1996 as a
Principal in North Atlantic Capital, a private equity firm. Prior to that, he
was a consultant and case manager for The Boston Consulting Group, a management
consulting firm, from September 1990 through December 1994. Mr. Carbeau held a
number of cross-functional positions with Eli Lilly and Company, a
pharmaceutical company, from September 1982 to July 1988. He holds a B.S. in
industrial engineering from the Pennsylvania State University and an M.B.A.
from the Wharton School of the University of Pennsylvania.
Dr. Lawter has served as our Vice President, Chief Scientific and
Technical Officer since he joined us in March 1997. From October 1983 to March
1997, he held scientific and management positions in pharmaceutical product
development at American Cyanamid and at American Home Products after its
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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
39
<PAGE>
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 Theraputics, KeraVision, Pharmacopeia, Trophix
Pharmaceuticals, Compaq Computer, Network Equipment Technologies, Octel
Communications and Stratus Computer.
Mr. Rein has been a director of OraPharma since March 1997. He is the
principal founder of Canaan Partners and has served as Managing General Partner
since its inception in 1984, with extensive experience working with small and
mid-sized companies. Prior to that, he was President and Chief Executive
Officer of GE Venture Capital Corporation. Mr. Rein joined General Electric
Company in 1979 and directed several of GE's lighting businesses as General
Manager before joining the venture capital subsidiary. Prior to his GE career,
Mr. Rein worked in various capacities with Polaroid Corporation, Transaction
Systems, Inc. and Gulf Oil Corporation. In addition to serving on the 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.
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<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)....... 1,126,034 13.3 9.1
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., 2,750 shares owned by Charles
Blanchard, 1,375 shares owned by Jon Gilbert, 2,750 shares owned by Nader
Naini, 2,750 shares owned by Glenn Stewart and 2,750 shares owned by Fred
Silverstein. The address for Frazier Healthcare II L.P., Frazier & Company,
Inc., Charles Blanchard, Jon Gilbert, Nader Naini, Glenn Stewart and Fred
Silverstein is 2 Union Square, 601 Union Street, Suite 2110, Seattle, WA
98101. The general partner of Frazier Healthcare II, L.P. is FHMII, LLC.
Charles Blanchard, Jon Gilbert, Nader Naini, Glenn Stewart and Fred
Silverstein are members of Frazier Management, L.L.C., the managing member
of the member of FHMII, LLC and each individually 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
60
<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 R.A. Investments Group and Affiliates. R.A. 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 Redeemable Convertible Preferred Stock and Stockholders'
Deficit................................................................ F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To OraPharma, Inc.:
We have audited the accompanying balance sheets of OraPharma, Inc. (a
Delaware corporation in the development stage) as of December 31, 1998 and
1999, and the related statements of operations, redeemable convertible
preferred stock and 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................... 1,091,996 1,420,468
------------ ------------
Total current liabilities......... 2,106,862 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 33,730,563 $ --
------------ ------------ ------------
Commitments (Note 7)
Stockholders' equity (deficit):
Common stock, par value $.001 per
share, 50,000,000 shares
authorized, 957,036 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......... 251,093 1,190,372 34,913,378
Deferred compensation.............. (63,370) (349,466) (349,466)
Deficit accumulated during the
development stage................ (11,067,831) (22,214,979) (22,214,979)
------------ ------------ ------------
Total stockholders' equity
(deficit)....................... (10,879,151) (21,373,033) $ 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 $ 7,324,975 $ 9,664,841 $ 18,722,503
General and
administrative....... 939,469 1,590,375 2,119,264 5,057,403
----------- ----------- ------------ ------------
Operating loss...... (2,645,862) (8,915,350) (11,784,105) (23,779,906)
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) (8,490,862) (11,147,148) (22,214,979)
Non-cash preferred stock
charge................. -- -- 1,729,651 1,729,651
----------- ----------- ------------ ------------
Net loss to common
stockholders........... $(2,141,739) $(8,490,862) $(12,876,799) $(23,944,630)
=========== =========== ============ ============
Basic and diluted net
loss per share......... $ (5.05) $ (13.28) $ (16.61)
=========== =========== ============
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)...... $ (1.65)
============
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 OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Stockholders' Deficit
---------------------------------------------------------------------
Redeemable Deficit
Convertible Accumulated
Preferred Stock Common Stock Additional During the
---------------------- ----------------- Paid-in Deferred Development
Shares Amount Shares Amount Capital Compensation Stage Total
--------- ----------- --------- ------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at Inception,
August 1, 1996......... -- $ -- -- $ -- $ -- $ -- $ -- $ --
Deferred compensation
related to stock
options and grants.... -- -- -- -- 189,210 (189,210) -- --
Amortization of
deferred stock-based
compensation.......... -- -- -- -- -- 76,159 -- 76,159
Net loss............... -- -- -- -- -- -- (435,230) (435,230)
--------- ----------- --------- ------ ---------- --------- ------------ ------------
Balance, December 31,
1996................... -- -- -- -- 189,210 (113,051) (435,230) (359,071)
Sale of common stock
and restricted common
stock to founders..... 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
Sale of Series A
Preferred stock....... 400,000 800,000 -- -- -- -- -- --
Sale of Series B
Preferred stock, net
of expenses .......... 3,311,829 12,022,769 -- -- -- -- -- --
Amortization of
deferred stock-based
compensation.......... -- -- -- -- -- 26,268 -- 26,268
Net loss............... -- -- -- -- -- -- (2,141,739) (2,141,739)
--------- ----------- --------- ------ ---------- --------- ------------ ------------
Balance, December 31,
1997................... 3,711,829 12,822,769 953,088 953 215,993 (86,783) (2,576,969) (2,446,806)
Sale of Series C
Preferred stock, net
of expenses........... 3,292,180 15,948,944 -- -- -- -- -- --
Sale of restricted
common stock to a
founder and exercise
of employee stock
options............... -- -- 3,950 4 43 -- -- 47
Issuance of warrant to
purchase common stock
in connection with
acquisition of
technology............ -- -- -- -- 35,057 -- -- 35,057
Amortization of
deferred stock-based
compensation.......... -- -- -- -- -- 23,413 -- 23,413
Net loss............... -- -- -- -- -- -- (8,490,862) (8,490,862)
--------- ----------- --------- ------ ---------- --------- ------------ ------------
Balance, December 31,
1998................... 7,004,009 28,771,713 957,038 957 251,093 (63,370) (11,067,831) (10,879,151)
Sale of Series D
Preferred stock, net
of expenses........... 553,097 4,958,931 -- -- -- -- -- --
Issuance of common
stock in connection
with acquisition of
technology ........... -- -- 82,500 83 199,567 -- -- 199,650
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 .............. -- -- -- -- 393,600 (359,623) -- 33,977
Amortization of
deferred stock-based
compensation ......... -- -- -- -- -- 73,527 -- 73,527
Adjustment related to
stock split........... (6) (81) (3) -- (32) -- -- (32)
Net loss .............. -- -- -- -- -- -- (11,147,148) (11,147,148)
--------- ----------- --------- ------ ---------- --------- ------------ ------------
Balance, December 31,
1999................... 7,557,100 $33,730,563 1,039,635 $1,040 $1,190,372 $(349,466) $(22,214,979) $(21,373,033)
========= =========== ========= ====== ========== ========= ============ ============
</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) $(8,490,862) $(11,147,148) $(22,214,979)
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 23,413 107,504 233,344
Common stock and
warrants issued in
connection with
acquisition of
technology........... -- 234,707 346,108 580,815
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) $(8,490,862) $(12,876,799)
=========== =========== ============
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) $ (13.28) $ (16.61)
=========== =========== ============
Pro forma:
Net loss to common stockholders.. $(12,876,799)
============
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)..... $ (1.65)
============
</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......................... 784,955 537,625
Accrued offering costs................................... -- 150,000
Accrued other............................................ 98,768 180,945
Deferred revenue......................................... -- 200,000
---------- ----------
$1,091,996 $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 $434,707, inclusive of $200,000 paid in cash and 82,500 shares of
the Company's common stock valued at $199,650 and a five-year warrant to
purchase 27,500 shares of common stock at an exercise price of $3.64 per share
valued at $35,057. The Company issued the common stock during 1999. The
Company charged the $434,707 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 4,958,905 9.04
--------- --------- -----------
7,557,100 7,557,100 $33,730,563
========= ========= ===========
</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. 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 and warrants issued to the Series D holders over the
sale price of the securities.
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) $(8,490,862) $(12,876,799)
=========== =========== ============
Net loss to common stockholders--
pro forma...................... $(2,145,157) $(8,495,952) $(12,886,769)
=========== =========== ============
Basic and diluted net loss per
share--as reported............. $ (5.05) $ (13.28) $ (16.61)
=========== =========== ============
Basic and diluted net loss per
share--
pro forma...................... $ (5.06) $ (13.29) $ (16.63)
=========== =========== ============
</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 year ended December 31, 1999, in connection with the grant of
options to employees, the Company recorded deferred stock compensation of
$313,532, representing the difference between the exercise price and the deemed
fair value of the Company's common stock for financial reporting purposes on
the date such stock options were granted. Deferred compensation is included as
a component of stockholders' deficit and is being amortized to expense
ratability over the five-year vesting period of the options.
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 $35,057 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 $756,114 has been recorded as a
component of the Preferred Stock charge (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 FEBRUARY 7, 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.
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 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
"Description of Capital Stock--Equity Compensation Plans" in this registration
statement. In granting the options and selling the underlying securities upon
exercise of the options, the Company is relying upon exemptions from
registration set forth in Rule 701 and Section 4(2) of the Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.#
3.1 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. 2 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Warminster, Pennsylvania, on
February 22, 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. 2 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 February 22, 2000
______________________________________ Officer and Director
Michael D. Kishbauch (Principal Executive
Officer)
/s/ James A. Ratigan Vice President, Chief February 22, 2000
______________________________________ Financial Officer and
James A. Ratigan Secretary (Principal
Financial Officer)
/s/ Robert D. Haddow Controller (Principal February 22, 2000
______________________________________ Accounting Officer)
Robert D. Haddow
/s/ * Director February 22, 2000
______________________________________
James J. Mauzey
/s/ * Director February 22, 2000
______________________________________
Christopher Moller
/s/ * Director February 22, 2000
______________________________________
Eileen M. More
/s/ * Director February 22, 2000
______________________________________
Harry T. Rein
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director February 22, 2000
______________________________________
Seth A. Rudnick
* Director February 22, 2000
______________________________________
David I. Scheer
* Director February 22, 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>
EXHIBIT 10.4
LOAN AND SECURITY AGREEMENT
$750,000 EQUIPMENT LINE
PROVIDED BY
SILICON VALLEY BANK
TO
ORAPHARMA, INC.
OCTOBER 10, 1997
<PAGE>
This LOAN AND SECURITY AGREEMENT is entered into as of OCTOBER 10, 1997, by
and between SILICON VALLEY BANK, a California-chartered bank with its principal
place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan
production office located at Wellesley Office Park, 40 William Street, Suite
350, Wellesley, MA 02181, doing business under the name Silicon Valley East
("Bank"), and ORAPHARMA, INC., a Delaware corporation with its principal place
of business at 1200 Route 22 East, Suite 2000, Bridgewater, New Jersey 08807
("Borrower").
RECITALS
--------
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
---------
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
----------------------------
1.1 Definitions. As used in this Agreement, the following terms shall
-----------
have the following definitions:
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Person's managers and members.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and Bank's reasonable attorneys' fees and expenses incurred in amending,
enforcing or defending the Loan Documents, (including fees and expenses of
appeal or review, or those incurred in any Insolvency Proceeding) whether or not
suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation: ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer programs, or tape files, and the equipment, containing such
information.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or required
to close.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
---------
hereto.
"Committed Equipment Line" means a credit extension of up to
SEVEN HUNDRED FIFTY AND NO/100THS Dollars ($750,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement
<PAGE>
designated to protect a Person against fluctuation in interest rates, currency
exchange rates or commodity prices; provided, however, that the term "Contingent
Obligation" shall not include endorsements for collection or deposit in the
ordinary course of business. The amount of any Contingent Obligation shall be
deemed to be an amount equal to the stated or determined amount of the primary
obligation in respect of which such Contingent Obligation is made or, if not
stated or determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that such
amount shall not in any event exceed the maximum amount of the obligations under
the guarantee or other support arrangement.
"Credit Extension" means each Equipment Advance or any other
extension of credit by Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Credit
Extensions made under this Agreement, including all indebtedness that is payable
upon demand or within one year from the date of determination thereof unless
such indebtedness is renewable or extendable at the option of Borrower (or any
Subsidiary, if any) to a date more than one year from the date of determination,
but excluding Subordinated Debt.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"Equipment Advance" has the meaning set forth in Section 2.1.1.
"Equipment Availability End Date" has the meaning set forth in
Section 2.1.1.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect in the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
2
<PAGE>
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other present or future agreement entered
into between Borrower and/or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated from time to time.
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means October 9, 2002.
"Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Payment Date" means the NINTH (9th) calendar day of each month
commencing on the first such date after the Closing Date and ending on the
Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business; and
(e) Indebtedness secured by Permitted Liens; provided, however,
-----------------
that indebtedness arising pursuant to liens described in paragraphs (c) and (d)
of the definition of Permitted Liens shall not exceed SEVENTY FIVE THOUSAND AND
NO/100THS Dollars ($75,000) at any time.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., and (iii) certificates
of deposit maturing no more than one (1) year from the date of investment
therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
3
<PAGE>
(b) Liens for taxes, fees, assessments or other governmental charges
or levies, provided, either (i) the same have no priority over any of Bank's
security interests, (ii) are not delinquent or (iii) are being contested in good
faith by appropriate proceedings and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP;
(c) Liens (i) upon or in any Equipment acquired or held by Borrower
or any of its Subsidiaries to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the acquisition of
such Equipment, or (ii) existing on such equipment at the time of its
acquisition, provided that the Lien is confined solely to the property so
--------
acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens on Equipment leased by Borrower (or any Subsidiary, if any)
pursuant to an operating lease in the ordinary course of business (including
proceeds thereof and accessions thereto) incurred solely for the purpose of
financing the lease of such Equipment (including Liens pursuant to leases
permitted pursuant to Section 7.1 and Liens arising from UCC financing
statements regarding leases permitted by this Agreement).
(e) Liens for mechanics, workmen, materialmen, laborers or other
similar liens arising in the ordinary course of business with respect to
obligations that are not yet due and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP.
(f) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, provided that any extension, renewal or
--------
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
(f) Statutory inchoate liens in connection with workmen's
compensation, unemployment insurance or other social security obligations;
(g) Liens arising from judgments in circumstances not constituting an
event of default under Section 8.8.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the consolidated
cash, cash equivalents, accounts receivable and investments with maturities of
fewer than 90 days of Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity of
which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or one
or more Affiliates of such Person.
4
<PAGE>
"Tangible Net Worth" means as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries minus, without
-----
duplication, (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, patents, trade
and service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from assets,
and (ii) Total Liabilities.
- ---
"Total Liabilities" means as of any applicable date, any date as
of which the amount thereof shall be determined, all obligations that should, in
accordance with GAAP be classified as liabilities on the consolidated balance
sheet of Borrower, including in any event all Indebtedness, but specifically
excluding Subordinated Debt.
1.2 Accounting and Other Terms. All accounting terms not specifically
--------------------------
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including"/"includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
-------------------------
2.1 Credit Extensions. Borrower promises to pay to the order of Bank,
-----------------
in lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of such Credit Extensions
at rates in accordance with the terms hereof.
2.1.1 Equipment Advances.
------------------
(a) Subject to and upon the terms and conditions of
this Agreement, at any time from the date hereof through OCTOBER 9, 1998 (the
"Equipment Availability End Date"), Bank agrees to make advances (each an
"Equipment Advance" and collectively, the "Equipment Advances") to Borrower in
an aggregate outstanding amount not to exceed the Committed Equipment Line. To
evidence the Equipment Advance or Equipment Advances, Borrower shall deliver to
Bank, at the time of each Equipment Advance request, an invoice for the
equipment to be purchased or financed. The Equipment Advances shall be used only
to purchase or finance Equipment purchased after June 30, 1997 and shall not
exceed ONE HUNDRED Percent (100%) of the invoice amount of such equipment
approved from time to time by Bank, excluding taxes, shipping, warranty charges,
freight discounts and installation expense. Software may, however, constitute up
to FIFTEEN percent (15%) of aggregate Equipment Advances. Tenant improvements
may constitute no more than THIRTY FIVE percent (35%) of aggregate Equipment
Advances.
(b) Interest shall accrue from the date of each
Equipment Advance at the rate specified in Section 2.2(a), and shall be payable
monthly for each month through the month in which the Equipment Availability End
Date falls. Any Equipment Advances that are outstanding on December 31, 1997
will be payable in FORTY EIGHT (48) equal monthly installments of principal,
plus all accrued interest, beginning on January 9, 1998 and ending on December
9, 2001. Any Equipment Advances made after December 31, 1997 that are
outstanding on March 31, 1998 will be payable in FORTY EIGHT (48) equal monthly
installments of principal, plus all accrued interest, beginning on April 9, 1998
and ending on March 9, 2002. Any Equipment Advances made after March 31, 1998
that are outstanding on June 30, 1998 will be payable in FORTY EIGHT (48) equal
monthly installments of principal, plus all accrued interest, beginning on July
9, 1998 and ending on June 9, 2002. Any Equipment Advances made after June 30,
1998 that are outstanding on October 9, 1998 will be payable in FORTY EIGHT (48)
equal monthly installments of principal, plus all accrued interest, beginning on
November 9, 1998 and ending on October 9, 2002. Equipment Advances, once repaid,
may not be reborrowed.
(c) When Borrower desires to obtain an Equipment
Advance, Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to be received no later than 3:00 p.m. Pacific time one
(1) Business Day before the day on which the Equipment Advance is to be made.
Such
5
<PAGE>
notice shall be substantially in the form of Exhibit B. The notice shall be
signed by a Responsible Officer or its designee and include a copy of the
invoice(s) for the Equipment to be financed.
2.2 Interest Rates, Payments, and Calculations.
------------------------------------------
(a) Interest Rate. Except as set forth in Section 2.2(b), any
-------------
Equipment Advances shall bear interest, on the average daily balance thereof, at
a per annum rate equal to ONE (1.0) percentage point above the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from and
------------
after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on
--------
each Payment Date. Borrower hereby authorizes Bank to debit any accounts with
Bank, including, without limitation, Account Number ______________ for payments
of principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank. Bank will notify Borrower of all debits which Bank has made
against Borrower's accounts. Any such debits against Borrower's accounts in no
way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from
-----------
time to time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.3 Crediting Payments. Prior to the occurrence of an Event of
------------------
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment, whether directed to Borrower's deposit
account with Bank or to the Obligations or otherwise, shall be immediately
applied to conditionally reduce Obligations, but shall not be considered a
payment in respect of the Obligations unless such payment is of immediately
available federal funds or unless and until such check or other item of payment
is honored when presented for payment. Notwithstanding anything to the contrary
contained herein, any wire transfer or payment received by Bank after 12.00 noon
Pacific time shall be deemed to have been received by Bank as of the opening of
business on the immediately following Business Day. Whenever any payment to Bank
under the Loan Documents would otherwise be due (except by reason of
acceleration) on a date that is not a Business Day, such payment shall instead
be due on the next Business Day, and additional fees or interest, as the case
may be, shall accrue and be payable for the period of such extension.
2.4 Fees. Borrower shall pay to Bank the following:
----
(a) Facility Fee. A Facility Fee equal to THREE THOUSAND TWO
------------
HUNDRED FIFTY Dollars ($3,250), which fee shall be due on the Closing Date and
shall be fully earned and nonrefundable;
(b) Financial Examination and Appraisal Fees. Bank's customary
----------------------------------------
fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrower performed from time to time, but no more than two (2) times each
calendar year unless an Event of Default has occurred and is continuing, by Bank
or its agents;
(c) Bank Expenses. Upon demand from Bank, including, without
-------------
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses, and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
6
<PAGE>
2.5 Additional Costs. In case any law, regulation, treaty or official
----------------
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.
2.6 Term. Except as otherwise set forth herein, this Agreement shall
----
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on October 9, 2002.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
-------------------
3.1 Conditions Precedent to Initial Credit Extension. The obligation
------------------------------------------------
of Bank to make the initial Credit Extension is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Agreement and the Equipment Line Promissory Note each
duly executed by Borrower;
(b) a certificate of the Secretary of Borrower with respect to
charter, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) financing statements (Forms UCC-1);
(d) insurance certificate;
(e) payment of the fees and Bank Expenses then due specified in
Section 2.4 hereof;
(f) Certificate of Foreign Qualification (if applicable);
(g) Quarterly P&L and Cash Flow forecasts for the two fiscal
years following the Closing Date;
7
<PAGE>
(h) a Borrower prepared consolidated balance sheet and income
statement covering Borrower's consolidated operations during the month
immediately prior to such initial Credit Extension, in a form and certified by
an officer of Borrower reasonably acceptable to Bank; and
(i) such other documents, and completion of such other matters,
as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of
---------------------------------------------
Bank to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy of
the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
-----------------------------
4.1 Grant of Security Interest. Borrower grants and pledges to Bank
--------------------------
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt payment of any and all
Obligations and in order to secure prompt performance by Borrower of each
of its covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date hereof.
Notwithstanding termination of this Agreement, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
4.2 Delivery of Additional Documentation Required. Borrower shall
---------------------------------------------
from time to time execute and deliver to Bank, at the request of Bank, all
financing statements and other documents that Bank may reasonably request, in
form satisfactory to Bank, to perfect and continue perfected Bank's security
interests in the Collateral and in order to fully consummate all of the
transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees,
----------------
or agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower (and each
----------------------------------
Subsidiary, if any) is a corporation duly existing and in good standing under
the laws of its state of incorporation and qualified and licensed to do business
in, and is in good standing in, any state in which the conduct of its business
or its ownership of property requires that it be so qualified, except where the
failure to be so qualified would not have a Material Adverse Effect.
5.2 Due Authorization; No Conflict. The execution, delivery, and
------------------------------
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Certificate of Incorporation or Bylaws, nor
will they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound.
8
<PAGE>
Borrower is not in default under any agreement to which it is a party or by
which it is bound, which default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title
---------------------
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Name; Location of Chief Executive Office. Except as disclosed
----------------------------------------
in the Schedule, Borrower has not done business and will not without at least
thirty (30) days prior written notice to Bank do business under any name other
than that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.5 Litigation. Except as set forth in the Schedule, there are no
----------
actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower (or any Subsidiary, if any) before any court or administrative
agency in which an adverse decision could have a Material Adverse Effect or a
material adverse effect on Borrower's interest or Bank's security interest in
the Collateral.
5.6 No Material Adverse Change in Financial Statements. All
--------------------------------------------------
consolidated financial statements related to Borrower (and any Subsidiary, if
any) that have been delivered by Borrower to Bank fairly present in all
material respects Borrower's consolidated financial condition as of the date
thereof and Borrower's consolidated results of operations for the period then
ended. There has not been a material adverse change in the consolidated
financial condition of Borrower since the date of the most recent of such
financial statements submitted to Bank on or about the Closing Date.
5.7 Solvency. The fair saleable value of Borrower's assets
--------
(including goodwill minus disposition costs) exceeds the fair value of its
liabilities; and Borrower is able to pay its debts (including trade debts) as
they mature.
5.8 Regulatory Compliance. Borrower (and each Subsidiary, if any)
---------------------
has met the minimum funding requirements of ERISA with respect to any
employee benefit plans subject to ERISA. No event has occurred resulting from
Borrower's failure to comply with ERISA that is reasonably likely to result in
Borrower's incurring any liability that could have a Material Adverse Effect.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations G, T and U of the Board of
Governors of the Federal Reserve System). Borrower has complied with all the
provisions of the Federal Fair Labor Standards Act, except to the extent a
failure to comply will not have a Material Adverse Effect. Borrower has not
violated any statutes, laws, ordinances or rules applicable to it, violation
of which could have a Material Adverse Effect.
5.9 Environmental Condition. None of Borrower's (or any Subsidiary's,
-----------------------
if any) properties or assets has ever been used by Borrower (or any Subsidiary,
if any) or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and Borrower (and any Subsidiary,
if any) has not received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower (or any
Subsidiary, if any) resulting in the release, or other disposition of hazardous
waste or hazardous substances into the environment.
5.10 Taxes. Borrower (and each Subsidiary, if any) has filed or
-----
caused to be filed all tax returns required to be filed on a timely basis,
subject to applicable extensions duly filed for, and has paid, or has made
adequate provision for the payment of, all taxes reflected therein.
9
<PAGE>
5.11 Subsidiaries. Borrower does not own any stock, partnership
------------
interest or other equity securities of any Person, except for Permitted
Investments.
5.12 Government Consents. Borrower (and each Subsidiary, if any) has
-------------------
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all governmental authorities that are
necessary for the continued operation of Borrower's business as currently
conducted, except where the failure to do so would not have a Material Adverse
Effect.
5.13 Full Disclosure. No representation, warranty or other statement
---------------
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading.
6. AFFIRMATIVE COVENANTS
---------------------
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
-------------
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause
---------------------
each Subsidiary to meet, the minimum funding requirements of ERISA with respect
to any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with statutes, laws, ordinances and government
rules and regulations to which it is subject, noncompliance with which could
have a Material Adverse Effect or a material adverse effect on the Collateral or
the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall
-------------------------------------------
deliver to Bank:
(a) as soon as available, but in any event within thirty (30)
days after the end of each month, a company prepared consolidated balance sheet
and income statement covering Borrower's consolidated operations during such
period, in a form and certified by an officer of Borrower reasonably acceptable
to Bank;
(b) as soon as available, but in any event within ninety (90)
days after the end of Borrower's fiscal year, audited consolidated financial
statements of Borrower prepared in accordance with GAAP, consistently applied,
together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank;
(c) within five (5) days of filing with any governmental
regulatory authority, copies of all statements, reports and notices filed with
any such authority and sent or made available generally by Borrower to its
security holders or to any holders of Subordinated Debt and all reports on Form
10-K, 10-Q and 8-K filed with the Securities and Exchange Commission.
(d) promptly upon receipt of notice thereof, a report of any
legal actions pending or threatened against Borrower (or any Subsidiary, if any)
that Borrower reasonably believes could result in damages or costs to Borrower
(or any Subsidiary, if any) of Seventy Five Thousand Dollars ($75,000) or more;
(e) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.
10
<PAGE>
(f) within thirty (30) days after the last day of each month quarter,
with the monthly quarterly financial statements, a Compliance Certificate signed
by a Responsible Officer in substantially the form of Exhibit C hereto.
---------
6.4 Inventory; Returns. Borrower shall keep all inventory in good and
------------------
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist from
time to time. Borrower shall promptly notify Bank of all returns and recoveries
and of all disputes and claims, where the return, recovery, dispute or claim
involves more than Fifty Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
-----
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, subject to
applicable extensions duly filed for, and will execute and deliver to Bank, on
demand, appropriate certificates attesting to the payment or deposit thereof,
and Borrower will make, and will cause each Subsidiary to make, timely payment
or deposit of all material tax payments and withholding taxes required of it by
applicable laws, including, but not limited to, those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Bank with proof satisfactory to Bank indicating that
Borrower or a Subsidiary has made such payments or deposits; provided that
Borrower or a Subsidiary need not make any payment if the amount or validity of
such payment is (i) contested in good faith by appropriate proceedings, (ii) is
reserved against (to the extent required by GAAP) by Borrower and (iii) no lien
other than a Permitted Lien results.
6.6 Insurance.
---------
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of the Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as are reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all liability insurance policies shall show the Bank as an
additional insured, and shall specify that the insurer must give at least twenty
(20) days notice to Bank before canceling its policy for any reason. At Bank's
request, Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its principal
--------------------
depository and operating accounts with Bank.
6.8 Tangible Net Worth. Borrower shall maintain, as of the last day of
------------------
each calendar month, a Tangible Net Worth Ratio of at least 2.0:1.0. Tangible
Net Worth Ratio is defined as the ratio of Tangible New Worth over the total
outstanding Equipment Advances pursuant to this Agreement.
6.9 Liquidity. Borrower shall maintain, as of the last calendar day of
---------
each month, a Liquidity Ratio of at least 2.0:1.0. Liquidity Ratio is defined as
the ratio of cash on hand (and cash equivalents) over the total outstanding
Equipment Advances pursuant to this Agreement.
6.10 Further Assurances. At any time and from time to time Borrower shall
------------------
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.
11
<PAGE>
7. NEGATIVE COVENANTS
------------------
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose
------------
of (collectively, a "Transfer"), (or permit any of its Subsidiaries, if any, to
Transfer), all or any part of its business or property, other than Transfers:
(i) of inventory in the ordinary course of business, (ii) of licenses and
similar arrangements for the use of the property of Borrower or its Subsidiaries
in the ordinary course of business, provided that within 30 days after the end
of each calendar quarter Borrower shall provide Bank with a report of exclusive
licenses granted during that calendar quarter just ended, (iii) that constitute
payment of normal and usual operating expenses in the ordinary course of
business, or (iv) of worn-out or obsolete Equipment.
7.2 Changes in Business, Ownership, or Management, Business
-------------------------------------------------------
Locations. Engage in any business, or permit any of its Subsidiaries to engage
- ---------
in any business, other than the businesses currently engaged in by Borrower and
any business substantially similar or related thereto (or incidental thereto),
or suffer a change in Borrower's ownership or management without the prior
written consent of Bank, which consent shall not be unreasonably withheld.
Borrower will not, without at least thirty (30) days prior written notification
to Bank, relocate its chief executive office or add any new offices or business
locations.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of
-----------------------
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain liable with
------------
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien
------------
with respect to any of the collateral, or assign or otherwise convey any right
to the Collateral (or permit any of its Subsidiaries, if any, so to do), except
for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution
-------------
or payment on account of or in redemption, retirement or purchase of any capital
stock.
7.7 Investments. Directly or indirectly acquire or own, or make any
-----------
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into
----------------------------
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a non-affiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any
-----------------
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
7.10 Collateral. Store the Collateral with a bailee, warehouseman, or
----------
similar party unless Bank has received a pledge of any warehouse receipt
covering such Collateral. Except for Collateral sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Collateral only at the location set forth in Section 10
hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
12
<PAGE>
7.11 Compliance. Become an "investment company" or a company
----------
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Advance for such
purpose; fail to meet the minimum funding requirements of ERISA; permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, which violation could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral; or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
-----------------
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of
---------------
the Obligations.
8.2 Covenant Default.
----------------
(a) If Borrower fails to perform any obligation under
Sections 6.3, 6.6, 6.7, 6.8 or 6.9 or violates any of the covenants contained in
Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after the occurrence
thereof, provided, however, that if the default cannot by its nature be cured
within the ten (10) day period or cannot after diligent attempts by Borrower be
cured within such ten (10) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to have cured
such default shall not be deemed an Event of Default (provided that no Advances
will be required to be made during such cure period);
8.3 Material Adverse Change. If there (i) occurs a material
-----------------------
adverse change in the business, operations, or condition (financial or
otherwise) of the Borrower, or (ii) is a material impairment of the prospect of
repayment of any portion of the Obligations, or (iii) is a material impairment
of the value or priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets is
----------
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment if filed or
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within thirty (30)
days after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an
----------
Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding
is commenced against Borrower and is not dismissed or stayed within 30 days
(provided that no Credit Extensions will be made prior to the dismissal of such
Insolvency Proceeding);
13
<PAGE>
8.6 Other Agreements. If there is a default in any agreement to which
----------------
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
-----------------
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money
---------
in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied, unappealed or unstayed for a period of thirty (30) days (provided
that no Credit Extensions will be made prior to the satisfaction or stay of such
judgment); or
8.9 Misrepresentations. If any material misrepresentation or material
------------------
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
--------------------------
9.1 Rights and Remedies. Upon the occurrence and during the
-------------------
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrower;
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Without notice to or demand upon Borrower, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest or compromise any encumbrance, charge,
or lien which in Bank's determination appears to be prior or superior to its
security interest and to pay all expenses incurred in connection therewith. With
respect to any of Borrower's premises, Borrower hereby grants Bank a license to
enter such premises and to occupy the same, without charge in order to exercise
any of Bank's rights or remedies provided herein, at law, in equity, or
otherwise;
(d) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(e) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section 9.1,
to use, without charge, Borrower's labels, patents, copyrights, mask works,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for sale,
and selling any Collateral and, in connection with Bank's exercise of its rights
under this Section 9.1, Borrower's rights under all licenses and all franchise
agreements shall inure to Bank's benefit;
14
<PAGE>
(f) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to the
Obligations in whatever manner or order it deems appropriate;
(g) Bank may credit bid and purchase at any public sale, or at
any private sale as permitted by law; and
(h) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during
-----------------
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) make, settle, and adjust all claims under and
decisions with respect to Borrower's policies of insurance as they relate to the
Collateral; and (b) to file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Collateral without the signature of Borrower where permitted by law provided
Bank may exercise such power of attorney to sign the name of Borrower on any of
the documents described in Section 4.2 regardless of whether an Event of Default
has occurred. The appointment of Bank as Borrower's attorney in fact, and each
and every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3 Bank Expenses. If Borrower fails to pay any amounts or furnish
-------------
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Bank may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves under the Committed Equipment Line as Bank deems necessary to protect
Bank from the exposure created by such failure; or (c) obtain and maintain
insurance policies of the type discussed in Section 6.6 of this Agreement, and
take any action with respect to such policies as Bank deems prudent. Any amounts
so paid or deposited by Bank shall constitute Bank Expenses, shall be
immediately due and payable, and shall bear interest at the then applicable rate
hereinabove provided, and shall be secured by the Collateral. Any payments made
by Bank shall not constitute an agreement by Bank to make similar payments in
the future or a waiver by Bank of any Event of Default under this Agreement.
9.4 Bank's Liability for Collateral. So long as Bank complies with
-------------------------------
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.5 Remedies Cumulative. Bank's rights and remedies under this
-------------------
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it. No waiver by Bank
shall be effective unless made in a written document signed on behalf of Bank
and then shall be effective only in the specific instance and for the specific
purpose for which it was given.
9.6 Demand; Protest. Borrower waives demand, protest, notice of
---------------
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
-------
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for
15
<PAGE>
financial statements and other informational documents which may be sent by
first-class mail, postage prepaid) shall be personally delivered or sent by a
recognized overnight delivery service, by certified mail, postage prepaid,
return receipt requested, or by telefacsimile to Borrower or to Bank, as the
case may be, at its addresses set forth below, provided, however, that the
effectiveness of any of the provisions of this Agreement shall not require
notice to Borrower's legal counsel:
If to Borrower OraPharma, Inc.
1200 Route 22 East, Suite 2000
Bridgewater, New Jersey 08807
Attn: James A. Ratigan, VP, CFO
FAX: (908)253-9508
With a copy to: Sills Cummis Zuckerman, et al.
One Riverfront Plaza
Newark, NJ 07102
ATTN: Ira A. Rosenberg, Esq.
FAX: (973)643-6500
If to Bank Silicon Valley Bank
40 William Street
Wellesley, MA 02181
Attn: Joan Parsons
FAX: 617-431-9906
The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE
-----------------------
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWER AND BANK
EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
------------------
12.1 Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
-------- -------
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
16
<PAGE>
12.2 Indemnification. Borrower shall indemnify, defend; protect and
---------------
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with, resulting from or arising out of any action, inaction
or status of Borrower; and (b) all losses or Bank Expenses in any way suffered,
incurred, or paid by Bank as a result of or in any way arising out of,
following, or consequential to transactions between Bank and Borrower whether
under the Loan Documents, or otherwise (including without limitation reasonable
attorneys fees and expenses), except for losses or Bank Expenses caused by
Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the performance of
---------------
all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement
--------------------------
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be
----------------------------------
amended or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in
--------
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Bank
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Bank have run;
provided that so long as the Obligations have been satisfied, and Bank has no
commitment to make any Credit Extensions or to make any other loans to Borrower,
Bank shall release all security interests granted hereunder and redeliver all
Collateral held by it in accordance with applicable law.
12.8 Effectiveness. This Agreement shall become effective only when
-------------
it shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower" "Bank"
ORAPHARMA, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ Michael D. Kishbauch By: /s/ Phillip S. Ernst
----------------------------------- ---------------------------
Michael D. Kishbauch, President, CEO Phillip S. Ernst, VP
By: /s/ James A. Ratigan SILICON VALLEY BANK
-------------------------------------
James A. Ratigan, VP & CFO
By: /s/ [ILLEGIBLE]
---------------------------
Title: Documentation Officer
-------------------------
(Signed in Santa Clara County,
California)
17
<PAGE>
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now or hereafter financed by Bank, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
18
<PAGE>
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
-------------------------------------------
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
-----------------------------------------------------
TO: CENTRAL CLIENT SERVICE DIVISION DATE:_______________
FAX #: (408)____________ TIME:_____________
FROM:___________________________________________________________________________
BORROWER'S NAME
FROM:___________________________________________________________________________
AUTHORIZED SIGNER'S NAME
________________________________________________________________________________
AUTHORIZED SIGNATURE
PHONE:__________________________________________________________________________
FROM ACCOUNT #_________________________ TO ACCOUNT #____________________________
- --------------------------------------------------------------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $__________________________________
PRINCIPAL PAYMENT (ONLY) $__________________________________
INTEREST PAYMENT (ONLY) $__________________________________
PRINCIPAL AND INTEREST (PAYMENT) $__________________________________
OTHER INSTRUCTIONS:_____________________________________________________________
- --------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan and Security
Agreement dated as of October 10, 1997 are true, correct and complete in all
material respects as of the date of the telephone request for and Advance
confirmed by this Advance Request, provided, however, that those representations
and warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date.
- --------------------------------------------------------------------------------
BANK USE ONLY:
TELEPHONE REQUEST:
------------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
______________________________________
Authorized Requester
______________________________
Authorized Signature (Bank)
Phone #_______________________
- --------------------------------------------------------------------------------
19
<PAGE>
EXHIBIT C
---------
COMPLIANCE CERTIFICATE
----------------------
Borrower: OraPharma, Inc. Lender: Silicon Valley Bank
1200 Route 22 East, Suite 2000 3003 Tasman Drive
Bridgewater, New Jersey 08807 Santa Clara, CA 95054
The undersigned authorized officer of ORAPHARMA, INC. hereby certifies that
in accordance with the terms and conditions of the Loan and Security Agreement
dated as of October 10, 1997 between Borrower and Bank (the "Agreement"), (i)
Borrower is in complete compliance for the period ending ________________ of all
required conditions and terms set forth below except as noted below and (ii) all
representations and warranties of Borrower stated in the Agreement are true,
accurate and complete in all material respects as of the date hereof. Attached
herewith are the required documents supporting the above certification. The
Officer further certifies that these are prepared in accordance with Generally
Accepted Accounting Principals (GAAP) and are consistent from one period to the
next except as explained in an accompanying letter or footnotes. The Officer
further expressly acknowledges Borrower may not request any borrowings at any
time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that such compliance is determined not just at the
date this certificate is delivered.
Please indicate compliance status by circling Yes/No under "Complies" column
Reporting Covenant Required Complies
------------------ -------- --------
- --------------------------------------------------------------------------------
Monthly financial statements Monthly within 30 days Yes No
- --------------------------------------------------------------------------------
Annual (CPA Audited) FYE 12/31/96 Prior to 9/30/97 Yes No
- --------------------------------------------------------------------------------
Annual (CPA Audited) FYE 12/31/97 FYE within 90 days Yes No
and thereafter
- --------------------------------------------------------------------------------
Financial Covenants Required Actual Complies
------------------- -------- ------ --------
- --------------------------------------------------------------------------------
Maintain on a Monthly Basis:
- --------------------------------------------------------------------------------
Minimum TNW Ratio 2.0:1.0 :1.0 Yes No
- --------------------------------------------------------------------------------
Minimum Liquidity Ratio 2.0:1.0 :1.0 Yes No
- --------------------------------------------------------------------------------
Comments Regarding Exceptions:
Sincerely,
________________________ _______________________________
Signature BANK USE ONLY
Received by:___________________
________________________ Date:__________________________
TITLE Received by:___________________
Compliance Status: Yes No
________________________ ________________________________
DATE
20
<PAGE>
LOAN MODIFICATION AGREEMENT
This LOAN MODIFICATION AGREEMENT is entered into as of December 8, 1998, by
and between SILICON VALLEY BANK, a California-chartered bank with its principal
place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan
production office located at Wellesley Office Park, 40 William Street, Suite
350, Wellesley, MA 02481, doing business under the name "Silicon Valley East
("Bank"), and ORAPHARMA, INC., a Delaware corporation with its principal place
of business at 732 Louis Drive, Warminster, PA 18974 ("Borrower").
RECITALS
Borrower has borrowed money from Bank pursuant to certain Existing Loan
Documents, as defined below. In consideration of certain financial
accommodations from Bank, and Borrower's continuing obligations under the
Existing Loan Documents, Borrower and Bank agree as follows:
AGREEMENT
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which
------------------------------------
may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to,
among other documents, a Loan and Security Agreement dated as of October 10,
1997 between Borrower and Bank providing for an extension of credit up to a
maximum of SEVEN HUNDRED FIFTY THOUSAND AND NO/100THS DOLLARS ($750,000) (the
"Loan Agreement").
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred
to as the "indebtedness."
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured
-------------------------
pursuant to the Loan Agreement. Hereinafter, the Loan Agreement, together with
all other documents securing payment of the indebtedness, shall be referred to
as the "Existing Loan Documents."
3. DESCRIPTION OF CHANGES IN TERMS.
-------------------------------
3.1 Modifications to Definitions. Section 1.1 of the Loan Agreement is
----------------------------
hereby amended by substituting the following definitions for those set forth
therein for the same terms:
"Maturity Date" means December 9, 2002.
3.1 Modifications to Equipment Advance Provisions. Section 2.1.1 of the
---------------------------------------------
Loan Agreement is hereby replaced in its entirety with the following:
2.1.1 Equipment Advances.
------------------
(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the date hereof through DECEMBER
31, 1998 (the "Equipment Availability End Date"), Bank
agrees to make advances (each an "Equipment Advance" and
collectively, the "Equipment Advances") to Borrower in an
aggregate outstanding amount not to exceed the Committed
Equipment Line. To evidence the Equipment Advance or
Equipment Advances, Borrower shall deliver to Bank, at the
time of each Equipment Advance request, an invoice for the
equipment to be purchased or financed. The Equipment Advances
shall be used only to purchase or finance Equipment
purchased after June 30, 1997 and shall not exceed ONE
HUNDRED Percent (100%) of the invoice amount of such
equipment approved from time to time by Bank, excluding
1
<PAGE>
taxes, shipping, warranty charges, freight discounts and installation
expense. Software may, however, constitute up to FIFTEEN percent (15%)
of aggregate Equipment Advances. Tenant improvements may constitute no
more than THIRTY FIVE percent (35%) of aggregate Equipment Advances.
(b) Interest shall accrue from the date of each Equipment Advance at
the rate specified in Section 2.2(a), and shall be payable monthly for
each month through the month in which the Equipment Availability End
Date falls. Any Equipment Advances that are outstanding on December
31, 1997 will be payable in FORTY EIGHT (48) equal monthly
installments of principal, plus all accrued interest, beginning on
January 9, 1998 and ending on December 9, 2001. Any Equipment Advances
made after December 31, 1997 that are outstanding on March 31, 1998
will be payable in FORTY EIGHT (48) equal monthly installments of
principal, plus all accrued interest, beginning on April 9,
1998 and ending on March 9, 2002. Any Equipment Advances made after
March 31, 1998 that are outstanding on June 30, 1998 will be payable
in FORTY EIGHT (48) equal monthly installments of principal, plus all
accrued interest, beginning on July 9, 1998 and ending on June 9,
2002. Any Equipment Advances made after June 30, 1998 that are
outstanding on October 9, 1998 will be payable in FORTY EIGHT (48)
equal monthly installments of principal, plus all accrued interest,
beginning on November 9, 1998 and ending on October 9, 2002. Any
Equipment Advances made after October 9, 1998 that are outstanding on
December 31, 1998 will be payable in FORTY EIGHT (48) equal monthly
installments of principal, plus all accrued interest, beginning on
January 9, 1999 and ending on the Maturity Date. Equipment Advances,
once repaid, may not be reborrowed.
(c) When Borrower desires to obtain an Equipment Advance, Borrower
shall notify Bank (which notice shall be irrevocable) by facsimile
transmission to be received no later than 3:00 p.m. Pacific time one
(1) Business Day before the day on which the Equipment Advance is to
be made. Such notice shall be substantially in the form of Exhibit B.
The notice shall be signed by a Responsible Officer or its designee
and include a copy of the invoice(s) for the Equipment to be financed.
4. WAIVER OF PRIOR DEFAULT. Bank hereby waives Borrower's delivery of its
-----------------------
FYE 12/31/97 financial statements prior to December 31, 1998.
5. CONDITIONS PRECEDENT TO FURTHER ADVANCES. The obligation of Bank to
----------------------------------------
make further advances to Borrower under this line is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank the following:
(a) this Loan Modification Agreement duly executed by Borrower,
(b) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
6. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
------------------
wherever necessary to reflect the changes described in this Loan Modification
Agreement.
2
<PAGE>
7. NO DEFENSES OF BORROWER. Borrower agrees that as of this date, it has
-----------------------
no defenses against any of the obligations to pay any amounts under the
Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that (i) in
-------------------
modifying the Existing Loan Documents, Bank is relying upon Borrower's
representations, warranties and agreements, as set forth in the Existing Loan
Documents, (ii) except as expressly modified pursuant to this Loan Modification
Agreement (including the effects of Section 6 hereof), the Existing Loan
Documents remain unchanged and in full force and effect, (iii) Bank's agreement
to modify the Existing Loan Documents pursuant to this Loan Modification
Agreement shall in no way obligate Bank to make any future modifications to the
Existing Loan Documents, (iv) it is the intention of Bank and Borrower to retain
as liable parties all makers and endorsers of the Existing Loan Documents,
unless a party is expressly released by Bank in writing, (v) no maker, endorser
or guarantor will be released by virtue of this Loan Modification Agreement, and
(vi) the terms of this Section 8 apply not only to this Loan Modification
Agreement but also to all subsequent loan modification agreements, if any.
9. CHOICE OF LAW AND VENUE; JURY TRAIL WAIVER. The laws of the
------------------------------------------
Commonwealth of Massachusetts shall apply of this Agreement. BORROWER ACCEPTS
FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, UNCONDITIONALLY, THE NON-
EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION
IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT, OR PROCEEDING OF ANY
KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS AGREEMENT; PROVIDED,
HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF THE COURTS OF THE
COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION OF THE COURTS AND
VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWER AND BANK EACH HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND
AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO
ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRAIL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
10. EFFECTIVENESS. This Agreement shall become effective only when it
-------------
shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower" "Bank"
ORAPHARMA, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ Michael D. Kishbauch, By: _______________________________
------------------------------------
Michael D. Kishbauch, President, CEO Philip S. Ernst, VP
SILICON VALLEY BANK
By: /s/ James A. Ratigan By: _______________________________
-----------------------------------
James A. Ratigan, VP & CFO
Title: ____________________________
(Signed in Santa Clara County,
California)
3
<PAGE>
[LETTER HEAD OF WHITE & MCDERMOTT, P.C.]
July 21, 1999
James A. Ratigan, VP & CFO
OraPharma, Inc.
732 Louis Drive
Warminister, PA 18974
Dear Jim:
Enclosed, please find for your files a fully-executed original of
the Loan Modification Agreement with Silicon Valley Bank.
Yours sincerely,
/s/ John L. Koenig
------------------
John L. Koenig
Encl.
<PAGE>
LOAN MODIFICATION AGREEMENT
This LOAN MODIFICATION AGREEMENT is entered into as of June 30, 1999, by
and between SILICON VALLEY BANK, a California-chartered bank with its principal
place of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan
production office located at Wellesley Office Park, 40 William Street, Suite
350, Wellesley, MA 02481, doing business under the name "Silicon Valley East
("Bank"), and ORAPHARMA, INC., a Delaware corporation with its principal place
of business at 732 Louis Drive, Warminster, PA 18974 ("Borrower").
RECITALS
Borrower has borrowed money from Bank pursuant to certain Existing Loan
Documents, as defined below. In consideration of certain financial
accommodations from Bank, and Borrower's continuing obligations under the
Existing Loan Documents, Borrower and Bank agree as follows:
AGREEMENT
1. DESCRIPTION OF EXISTING INDEBTEDNESS. Among other indebtedness which
------------------------------------
may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to among
other documents, a Loan and Security Agreement dated as of October 10, 1997
between Borrower and Bank providing for an extension of credit up to a maximum
of SEVEN HUNDRED FIFTY THOUSAND AND NO/100THS DOLLARS ($750,000)(the "Loan
Agreement") as amended by a Loan Modification Agreement dated as of December 8,
1998.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred
to as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured
-------------------------
pursuant to the Loan Agreement. Hereinafter, the Loan Agreement, together with
all other documents securing payment of the Indebtedness, shall be referred to
as the "Existing Loan Documents"
3. DESCRIPTION OF CHANGES IN TERMS.
-------------------------------
3.1 Modifications to Definitions. Section 1.1 of the Loan Agreement is
----------------------------
hereby amended by substituting the following definitions for those set forth
therein for the same terms:
"Credit Extension" means each Equipment Advance, 1999
Equipment Advance or any other extension of credit by
Bank for the benefit of Borrower hereunder.
"1999 Committed Equipment Line" means a credit extension
of up to ONE MILLION AND NO/100THS Dollars ($1,000,000).
"1999 Equipment Advance" has the meaning set forth in
Section 2.1.2.
"Maturity Date" means December 9, 2002.
3.2 Addition of 1999 Committed Equipment Line. Section 2.1.2 is hereby
-----------------------------------------
added to the Loan Agreement as follows:
2.1.2 1999 Equipment Advances.
-----------------------
(a) Subject to and upon the terms and conditions of
this Agreement, at any time from the date hereof through
June 30, 2000, Bank agrees to make advances (each a "1999
Equipment Advance" and collectively, the "1999 Equipment
Advances") to Borrower in an aggregate outstanding
1
<PAGE>
amount not to exceed the 1999 Committed Equipment Line. To evidence
the 1999 Equipment Advance or 1999 Equipment Advances, Borrower shall
deliver to Bank, at the time of each 1999 Equipment Advance request,
an invoice for the equipment to be purchased or financed The 1999
Equipment Advances shall be used only to purchase or finance Equipment
purchased after March 31, 1999 and shall not exceed ONE HUNDRED
Percent (100%) of the invoice amount of such equipment approved from
time to time by Bank, excluding taxes, shipping, warranty charges,
freight discounts and installation expenses. Software and taxes,
shipping, warranty charges, freight discounts and installation
expenses may, however, constitute up to TWENTY-FIVE percent (25%), but
no more than TWO HUNDRED FIFTY THOUSAND AND NO/100THS DOLLARS
($250,000), of aggregate 1999 Equipment Advances.
(b) Interest shall accrue from the date of each 1999 Equipment
Advance at the rate specified in Section 2.2(a), and shall be payable
monthly for each month through JUNE 30, 2000. Any 1999 Equipment
Advances that are outstanding on September 30, 1999 will be payable in
FORTY EIGHT (48) equal monthly installments of principal, plus all
accrued interest, beginning on October 9, 1999 and ending on September
9, 2003. Any 1999 Equipment Advances made after September 30, 1999
that are outstanding on December 31, 1999 will be payable in FORTY
EIGHT (48) equal monthly installments of principal, plus all accrued
interest, beginning on January 9, 2000 and ending on December 9, 2003.
Any 1999 Equipment Advances made after December 31, 1999 that are
outstanding on March 31, 2000 will be payable in FORTY EIGHT (48)
equal monthly installments of principal, plus all accrued interest,
beginning on April 9, 2000 and ending on March 9, 2004. Any 1999
Equipment Advances made after March 31, 2000 that are outstanding on
June 30, 2000 will be payable in FORTY EIGHT (48) equal monthly
installments of principal, plus all accrued interest, beginning on
July 9, 2000 and ending on June 9, 2004. 1999 Equipment Advances, once
repaid, may be reborrowed.
(c) When Borrower desires to obtain a 1999 Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by
facsimile transmission to be received no later than 3:00 p.m. Pacific
time one (1) Business Day before the day on which the 1999 Equipment
Advance is to be made. Such notice shall be substantially in the form
of Exhibit B. The notice shall be signed by a Responsible Officer or
its designee and include a copy of the invoice(s) for the Equipment to
be financed.
3.3 Modifications to Interest Rate Provisions. Section 2.2(a) of the Loan
-----------------------------------------
Agreement is hereby replaced in its entirety with the following:
(a) Interest Rate. Except as set forth in Section 2.2(b), (i) any
-------------
Equipment Advances shall bear interest, on the average daily balance
thereof, at a per annum rate equal to ONE (1.0) percentage point above
the Prime Rate and (ii) any 1999 Equipment Advances shall bear
interest, on the average daily balance thereof, at a per annum rate
equal to THREE-QUARTERS (0.75) percentage point above the Prime Rate.
3.4 Modifications to Financial Covenants. Sections 6.8 and 6.9 of the Loan
------------------------------------
Agreement are hereby replaced in their entirety with the following:
2
<PAGE>
6.8 Tangible Net Worth. Borrower shall maintain, as of the
------------------
last day of each calendar month, a Tangible Net Worth Ratio
of at least 2.0:1.0. Tangible Net Worth Ratio is defined as
the ratio of Tangible New Worth over the total outstanding
Equipment Advances and 1999 Equipment Advances pursuant to
this Agreement.
6.9 Liquidity. Borrower shall maintain, as of the last
---------
calendar day of each month, a Liquidity Ratio of at least
2.0:1.0. Liquidity Ratio is defined as the ratio of cash on
hand (and cash equivalents) over the total outstanding
Equipment Advances and 1999 Equipment Advances pursuant to
this Agreement.
4. FACILITY FEE. Borrower shall pay to Bank a facility fee of FIVE
------------
THOUSAND DOLLARS ($5,000) as well as any out-of-pocket expenses incurred by the
Bank through the date hereof, including reasonable attorneys' fees and expenses,
and after the date hereof, all Bank Expenses, including reasonable attorneys'
fees and expenses, as and when they become due.
5. CONDITIONS PRECEDENT TO FURTHER ADVANCES. The obligation of Bank to
----------------------------------------
make further advances to Borrower under this line is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory to
Bank, the following:
(a) this Loan Modification Agreement and the Invoice for Fees and
Expenses duly executed by Borrower;
(b) payment of the fees and Bank Expenses then due specified in
Section 4 hereof; and
(c) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
6. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
------------------
wherever necessary to reflect the changes described in this Loan Modification
Agreement.
7. NO DEFENSES OF BORROWER. Borrower agrees that as of this date, it has
-----------------------
no defenses against any of the obligations to pay any amounts under the
Indebtedness.
8. CONTINUING VALIDITY. Borrower understands and agrees that (i) in
-------------------
modifying the Existing Loan Documents, Bank is relying upon Borrower's
representations, warranties and agreements, as set forth in the Existing Loan
Documents, (ii) except as expressly modified pursuant to this Loan Modification
Agreement (including the effects of Section 6 hereof), the Existing Loan
Documents remain unchanged and in full force and effect, (iii) Bank's agreement
to modify the Existing Loan Documents pursuant to this Loan Modification
Agreement shall in no way obligate Bank to make any future modifications to the
Existing Loan Documents, (iv) it is the intention of Bank and Borrower to retain
as liable parties all makers and endorsers of the Existing Loan Documents,
unless a party is expressly released by Bank in writing, (v) no maker, endorser
or guarantor will be released by virtue of this Loan Modification Agreement, and
(vi) the terms of this Section 8 apply not only to this Loan Modification
Agreement but also to all subsequent loan modification agreements, if any.
9. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. The laws of the
------------------------------------------
Commonwealth of Massachusetts shall apply to this Agreement. BORROWER ACCEPTS
FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, UNCONDITIONALLY, THE
NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT, OR
PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWER AND BANK
HEREBY WAIVE THEIR
3
<PAGE>
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
10. EFFECTIVENESS. This Agreement shall become effective only when it
-------------
shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower" "Bank"
ORAPHARMA, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ Michael D. Kishbauch By:
------------------------------------ --------------------------------
Michael D. Kishbauch, President, CEO Ash Lilani, SVP
By: /s/ James A. Ratigan SILICON VALLEY BANK
------------------------------------
James A. Ratigan, VP & CFO
By: ________________________________
Title: _____________________________
(Signed in Santa Clara County,
California)
4
<PAGE>
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
10. EFFECTIVENESS. This Agreement shall become effective only when it
-------------
shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower" "Bank"
ORAPHARMA, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ Michael D. Kishbauch By: /s/ Ash Lilani
------------------------------------ --------------------------------
Michael D. Kishbauch, President, CEO Ash Lilani, SVP
By: /s/ James A. Ratigan SILICON VALLEY BANK
------------------------------------
James A. Ratigan, VP & CFO
By: ________________________________
Title: _____________________________
(Signed in Santa Clara County,
California)
4
<PAGE>
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
10. EFFECTIVENESS. This Agreement shall become effective only when it
-------------
shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower" "Bank"
ORAPHARMA, INC. SILICON VALLEY BANK doing business
as SILICON VALLEY EAST
By: /s/ Michael D. Kishbauch By:
------------------------------------ --------------------------------
Michael D. Kishbauch, President, CEO Ash Lilani, SVP
By: /s/ James A. Ratigan SILICON VALLEY BANK
------------------------------------
James A. Ratigan, VP & CFO
By: /s/ [ILLEGIBLE]
--------------------------------
Title: [ILLEGIBLE]
-----------------------------
(Signed in Santa Clara County,
California)
4
<PAGE>
EQUIPMENT LINE PROMISSORY NOTE
$750,000 Bridgewater, New Jersey
October 10, 1997
FOR VALUE RECEIVED, the undersigned, ORAPHARMA, INC., a Delaware
corporation (the "Borrower"), promises to pay to the order of Silicon Valley
Bank, a California-chartered bank ("Bank"), at such place as the holder hereof
may designate, in lawful money of the United States of America, the aggregate
unpaid principal amount of all advances ("Advances") made by Bank to Borrower in
accordance with the terms of the Loan and Security Agreement between Borrower
and Bank of even date herewith, as amended from time to time (the "Loan
Agreement"), up to a maximum principal amount of SEVEN HUNDRED FIFTY THOUSAND
AND NO/100THS Dollars ($750,000.00), until paid in full. Borrower shall also pay
interest on the aggregate unpaid principal amount of such Advances at the rates
and in accordance with the terms of the Loan Agreement. The entire principal
amount and all accrued interest shall be due and payable on OCTOBER 9, 2002.
Borrower irrevocably waives the right to direct the application of any and
all payments at any time hereafter received by Bank from or on behalf of
Borrower, and Borrower irrevocably agrees that Bank shall have the continuing
exclusive right to apply any and all such payments against the then due and
owing obligations of Borrower as Bank may deem advisable. In the absence of a
specific determination by Bank with respect thereto, all payments shall be
applied in the following order: (a) then due and payable fees and expenses; (b)
then due and payable interest payments; and (c) then due and payable principal
payments and optional prepayments, for which there shall be no prepayment
penalty.
Bank is hereby authorized by Borrower to endorse on Bank's books and
records each Advance made by Bank under this Note and the amount of each payment
or prepayment of principal of each such Advance received by Bank; it being
understood, however, that failure to make any such endorsement (or any error in
notation) shall not affect the obligations of Borrower with respect to Advances
made hereunder, and payments of principal by Borrower shall be credited to
Borrower notwithstanding the failure to make a notation (or any errors in
notation) thereof on such books and records.
Borrower promises to pay Bank all costs and expenses of collection of this
Note in accordance with the terms of the Loan Agreement and to pay all
reasonable attorneys' fees incurred in such collection, whether or not there is
a suit or action, or in any suit or action to collect this Note or in any appeal
thereof. Borrower waives presentment, demand, protest, notice of protest, notice
of dishonor, notice of nonpayment, and any and all other notices and demands in
connection with the delivery, acceptance, performance, default or enforcement of
this Note, as well as any applicable statutes of limitations. No delay by Bank
in exercising any power or right hereunder shall operate as a waiver of any
power or right. Time is of the essence as to all obligations hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern the
rights and obligations of Borrower with respect to all obligations hereunder.
This Note shall be deemed to be made under, and shall be construed in
accordance with and governed by, the laws of the Commonwealth of Massachusetts,
excluding conflicts of laws principles.
Executed as an instrument under seal.
ORAPHARMA, INC.
By: /s/ Michael D. Kishbauch
------------------------------------
Michael D. Kishbauch, President, CEO
ATTEST /s/ James A. Ratigan
---------------------------
James A. Ratigan, VP & CFO
<PAGE>
AGREEMENT TO PROVIDE INSURANCE
Grantor: OraPharma, Inc. Lender: Silicon Valley Bank
1200 Route 22 East, Suite 2000 3003 Tasman Drive
Bridgewater, New Jersey 08807 Santa Clara, CA 95054
INSURANCE REQUIREMENTS. ORAPHARMA, INC. ("Grantor") understands that
insurance coverage is required in connection with the extending of a loan or the
providing of other financial accommodation to Grantor by Bank. These
requirements are set forth in the Loan Documents. The following minimum
insurance coverages must be provided on the following described collateral (the
"Collateral"):
Collateral: All Inventory, Equipment and Fixtures.
Type: All risks, including fire, theft and liability.
Amount: Full insurable value.
Basis: Replacement value.
Endorsement: Loss payable clause to Bank with stipulation that
coverage will not be canceled or diminished without
a minimum of twenty (20) days' prior written notice
to Bank.
INSURANCE COMPANY. Grantor may obtain insurance from any insurance
company Grantor may choose that is reasonably acceptable to Bank. Grantor
understands that credit may not be denied solely because insurance was not
purchased through Bank.
FAILURE TO PROVIDE INSURANCE. Grantor agrees to deliver to Bank on or
before closing, evidence of the required insurance as provided above, with an
effective date of October 10, 1997, or earlier. Grantor acknowledges and agrees
that if Grantor fails to provide any required insurance or fails to continue
such insurance in force, Bank may do so at Grantor's expense as provided in the
applicable security document. The cost of such insurance, at the option of Bank,
shall be payable on demand or shall be added to the indebtedness as provided in
the security document. GRANTOR ACKNOWLEDGES THAT IF BANK SO PURCHASES ANY SUCH
INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE
TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN; HOWEVER, GRANTOR'S EQUITY IN
THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE INSURANCE MAY NOT PROVIDE
ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE
REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS.
AUTHORIZATION. For purposes of insurance coverage on the Collateral,
Grantor authorizes Bank to provide to any person (including any insurance agent
or company) all information Bank deems appropriate, whether regarding the
Collateral, the loan or other financial accommodations, or both.
GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT
TO PROVIDE INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED OCTOBER
10, 1997.
GRANTOR:
ORAPHARMA, INC.
By: /s/ [ILLEGIBLE]
-------------------------
10-17-97
================================================================================
FOR BANK USE ONLY
INSURANCE VERIFICATION
DATE: PHONE:
AGENT'S NAME:
INSURANCE COMPANY:
POLICY NUMBER:
EFFECTIVE DATES:
COMMENTS:
================================================================================
<PAGE>
Uniform Commercial Code - FINANCING STATEMENT - Form UCC-1
Filed With: Secretary of State - N.Y.
<TABLE>
<CAPTION>
<S> <C> <C>
This FINANCING STATEMENT is presented to a Filing No. of Additional
Officer for filing pursuant to the Uniform Commercial Code. Sheets Presented: 1 3. [_] The Debtor is a transmitting utility.
- ------------------------------------------------------------------------------------------------------------------------------------
1. Debtor(s) (Last Name First) and 2. Secured Party(ies) Name(s) and 4. For Filing Officer: Date, Time, No.
Address(es): Address(es) Filing Office
OraPharma, Inc. Silicon Valley Bank
1200 Route 22 East, 3003 Tasman Drive
Suite 2000 Santa Clara, CA 95054
Bridgewater, NJ 08807
- ------------------------------------------------------------------------------------------------------------------------------------
5. This financing Statement covers the following types (or items) of property: 6: Assignee(s) of Secured Party and Address(es)
See Exhibit A Attached.
--------------------------------------------------
7. [_] The described crops are growing or to be
grown on:*
[_] The described goods are or are to be
affixed to:*
[_] The lumber to be cut or minerals or the
like (including oil and gas) is on:*
[X] Products of the Collateral are also covered. *(Describe Real Estate Below)
- ----------------------------------------------------------------------------------
8. Describe Real Estate Here: [_] This statement is to be indexed 9. Name of
--------------------------------------------------
in the Real Estate Records: a Record
Owner
--------------------------------------------------------------
No. & Street Town or City County Section Block Lot
- ------------------------------------------------------------------------------------------------------------------------------------
10. This statement is filed without the debtor's signature to perfect a security interest in collateral (check appropriate box)
[_] under a security agreement signed by debtor authorizing secured party to file this statement, or
[_] which is proceeds of the original collateral described above in which a security interest was perfected, or
[_] acquired after a change of name, identity or corporate structure of the debtor, or [_] as to which the filing has
lapsed, or already subject to a security interest in another jurisdiction:
[_] when the collateral was brought into the state, or [_] when the debtor's location was changed to this state.
OraPharma, Inc. Silicon Valley Bank
By /s/ James A. Ratigan By____________________________________________________
---------------------------------------------------
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies)
James A. Ratigan, VP & CFO Phillip S. Ernst, VP
</TABLE>
(5/82) STANDARD FORM - FORM UCC-1 - Approved by Secretary of State of New York
<PAGE>
Borrower: OraPharma, Inc. Lender: Silicon Valley Bank
1200 Route 22 East, Suite 2000 3003 Tasman Drive
Bridgewater, New Jersey 08807 Santa Clara, CA 95054
EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now or hereafter financed by Bank, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
"Debtor" "Secured Party"
ORAPHARMA, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ James A. Ratigan By:
------------------------------- ------------------------------------
James A. Ratigan, VP, CFO Phillip S. Ernst, VP
<PAGE>
Uniform Commercial Code - FINANCING STATEMENT - Form UCC-1
Filed With: Westchester - NY
<TABLE>
<S> <C> <C>
This FINANCING STATEMENT is presented to a Filing No. of Additional
Officer for filing pursuant to the Uniform Commercial Code. Sheets Presented: 2 3. [_] The Debtor is a transmitting utility.
- ------------------------------------------------------------------------------------------------------------------------------------
1. Debtor(s) (Last Name First) and 2. Secured Party(ies) Name(s) and 4. For Filing Officer: Date, Time, No Filing
Address(es): Address(es) Office
OraPharma, Inc. Silicon Valley Bank
1200 Route 22 East, 3003 Tasman Drive
Suite 2000 Santa Clara, CA 95054
Bridgewater, NJ 08807
- ------------------------------------------------------------------------------------------------------------------------------------
5. This financing Statement covers the following types (or items) of property: 6: Assignee(s), of Secured Party and Address(es)
Collateral description on attachment
--------------------------------------------------
7. [_] The described crops are growing or to be
grown on:*
[X] The described goods are or are to be
affixed to:*
[_] The lumber to be cut or minerals or the
like (including oil or gas) is on:*
[X] Products of the Collateral are also covered. *(Describe Real Estate Below)
- ----------------------------------------------------------------------------------
8. Describe Real Estate Here: [X] This statement is to be indexed 9. Name of
Cont'd in the Real Estate Records: a Record --------------------------------------------------
Owner
--------------------------------------------------------------
No. & Street Cont'd Town or City Tarrytown County Westchester Section Block Lot
- ------------------------------------------------------------------------------------------------------------------------------------
10. This statement is filed without the debtor's signature to perfect a security interest in collateral (check appropriate box)
[_] under a security agreement signed by debtor authorizing secured party to file this statement, or
[_] which is proceeds of the original collateral described above in which a security interest was perfected, or
[_] acquired after a change of name, identity or corporate structure of the debtor, or [_] as to which the filing has
lapsed or already subject to a security interest in another jurisdiction:
[_] when the collateral was brought into the state, or [_] when the debtor's location was changed to this state.
OraPharma, Inc. Silicon Valley Bank
By /s/ James A. Ratigan By ____________________________________________________
--------------------------------------------------- Signature(s) of Secured Party(ies)
Signature(s) of Debtor(s) Phillip S. Ernst, VP
James A. Ratigan, VP & CFO
</TABLE>
STANDARD FORM - FORM UCC-1 - Approved by Secretary of State of New York
<PAGE>
ATTACHMENT TO NEW YORK UCC-1:
ORAPHARMA, INC. (DEBTOR)
- --------------------------------------------------------------------------------
ITEMS CONTINUED FROM FORM:
8. Describe Real Estate Here:
Property located at 777 Old Sawmill Rivier Road, Tarrytown, New York
10591
8. No. & Street:
777 Old Sawmill River Road
Page 1
<PAGE>
Borrower: OraPharma, Inc. Lender: Silicon Valley Bank
1200 Route 22 East, Suite 2000 3003 Tasman Drive
Bridgewater, New Jersey 08807 Santa Clara, CA 95054
EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now or hereafter financed by Bank, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
"Debtor" "Secured Party"
ORAPHARMA, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ James A. Ratigan By:
------------------------------- ------------------------------------
James A. Ratigan, VP, CFO Phillip S. Ernst, VP
<PAGE>
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC-1 STATE OF NEW JERSEY
<TABLE>
<CAPTION>
This FINANCING STATEMENT is presented to a Filing Officer for filing pursuant to the Uniform Commercial Code
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOR OFFICIAL USE ONLY Debtor(s) Name (Last Name, First) Complete Address Maturity date (if any).
----------------------
OraPharma, Inc.
1200 Route 22 East, Suite 2000 None
-----------------------------
Bridgewater, NJ 08807 FOR OFFICE USE ONLY
------------------------------------------------------
Secured Party(ies) and Complete Address
Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
------------------------------------------------------
Assignee(s) of Secured Party and Complete Address
- ------------------------------------------------------------------------------------------------------------------------------------
This financing statement covers the following types (or items) of property:
See Exhibit A Attached.
- ------------------------------------------------------------------------------------------------------------------------------------
When collateral is crops or fixtures complete this portion of form.
a. Description of real estate (Sufficient to identify the property)
b. Name and complete address of record owner.
- ------------------------------------------------------------------------------------------------------------------------------------
a. (X) Proceeds of Collateral are also covered. b. (X) Products of Collateral are also covered. No. of additional sheets
presented. (1)
- ------------------------------------------------------------------------------------------------------------------------------------
( ) Filed with Register of Deeds and Mortgages of County. (X) Secretary of State
( ) Filed with the County Clerk of County.
- ------------------------------------------------------------------------------------------------------------------------------------
Signature(s) of Debtor(s) Signature(s) of Secured Party(ies) or Assignee(s)
OraPharma, Inc. Silicon Valley Bank
/s/ James A. Ratigan
- ----------------------------------------------------------- ---------------------------------------------------
James A. Ratigan, VP & CFO Phillip S. Ernst, VP
FILING OFFICER COPY - This form of statement is approved by the Secretary of State of New Jersey.
</TABLE>
<PAGE>
Borrower: OraPharma, Inc. Lender: Silicon Valley Bank
1200 Route 22 East, Suite 2000 3003 Tasman Drive
Bridgewater, New Jersey 08807 Santa Clara, CA 95054
EXHIBIT A
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now or hereafter financed by Bank, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
"Debtor" "Secured Party"
ORAPHARMA, INC. SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ James A. Ratigan By:
------------------------------- ------------------------------------
James A. Ratigan, VP, CFO Phillip S. Ernst, VP
<PAGE>
<TABLE>
<S> <C>
-----------------------------------------------------------------
0092023003812000 PARTIES FINANCING STATEMENT
Uniform Commercial Code Form UCC-1
- -----------------------------------------------------------------
Debtor name (last name first if individual) and mailing address: IMPORTANT-Please read instructions on
ORAPHARMA, INC. reverse side of page 4 before completing
_________________________________________________________________
732 LOUIS DRIVE Filing No. (stamped by Date, Time, Filing Office (stamped
WARMINSTER, PA 18974 filing officer): by filing officer):
1
- -----------------------------------------------------------------
Debtor Name (last name first if individual) and mailing address:
5
-----------------------------------------------------------------
1a This Financing Statement is presented for filing pursuant to
- ----------------------------------------------------------------- the Uniform Commercial Code, and is to be filed with the (check
Debtor name (last name first if individual) and mailing address: appropriate box):
[X] Secretary of the Commonwealth.
[_] Prothonotary of _____________________________________ County
[_] real estate records of ______________________________ County
6
-----------------------------------------------------------------
1b Number of Additional Sheets (if any): 7
- ----------------------------------------------------------------- -----------------------------------------------------------------
Secured Party(ies) name(s) (last name first if individual) and Optional Special Identification
for security interest information: (Max. 10 Characters): 8
-----------------------------------------------------------------
SILICON VALLEY BANK COLLATERAL
-----------------------------------------------------------------
Identify collateral by Item and/or type:
3003 Tasman Drive SEE ATTACHED EXHIBIT "A" HERETO.
Santa Clara, CA 95054 2
- -----------------------------------------------------------------
Assignee(s) of Secured Party name(s) (last name first if
individual) and address for security interest information:
2a
- -----------------------------------------------------------------
Special Types of Parties (check if applicable):
[_] The terms "Debtor" and "Secured Party" mean "Lessee" and
"Lessor," respectively. [X] (Check only if desired) Products of the collateral
are also covered.
[_] The terms "Debtor" and "Secured Party" mean "Consignee" and 9.
-----------------------------------------------------------------
"Consignor," respectively. Identify restated real estate, if applicable. The
collateral is, or includes (check appropriate box(es)).
[_] Debtor is a Transmitting Utility. a. [_] crops growing or to be grown on -
b. [_] goods which are or are to become fixtures on -
c. [_] minerals or the like (including oil and gas) as
extracted on -
TRAN #3812 d. [_] accounts resulting from the sale of minerals or the
like (including oil and gas) at the wellhead or
3 minehead on -
- -----------------------------------------------------------------
SECURED PARTY SIGNATURE(S)
- -----------------------------------------------------------------
the following real estate:
This statement is filed with only the Secured Party's signature
to perfect a security interest in collateral (check applicable Street Address:
box(es)).
Described at: Book _______ of (check one) [_] Deeds
a. [_] acquired after a change of name, identity or corporate [_] Mortgages, at Page(s) __________________________________
structure of the Debtor. for _______________ County. Uniform Parcel Identifier ______
____________________
b. [_] as to which the filing has lasped. [_] Described on Additional Sheet.
Name of record owner (required only if no debtor has an
c. already subject to a security interest in another county in Interest of record):
Pennsylvania.
[_] when the collateral was moved to this county.
[_] when the Debtor's residence or place of business was
moved to this county. 10
-----------------------------------------------------------------
DEBTOR SIGNATURE(S)
-----------------------------------------------------------------
d. already subject to a security interest in another Debtor Signature(s):
jurisdiction - ORAPHARMA, INC.
[_] when the collateral was moved to Pennsylvania. 1 By: /s/ James A. Ratigan 11-3-98
-----------------------------------------------------------------
[_] when the Debtor's location was moved to 1a JAMES A. Ratigan, Vice President & CFO
Pennsylvania. -----------------------------------------------------------------
e. [_] which is proceeds of the collateral described in block
9, in which a security interest was previously perfected
(also describe proceeds in block 9, if purchased with
cash proceeds and not adequately described on the
original financing statement). 1b 11
-----------------------------------------------------------------
161/PSE RETURN RECEIPT TO:
Secured Party Signature(s)
(required only if box(es) is checked above): Data File Services, Inc.
P.O. Box 275
SILICON VALLEY BANK Van Nuys
- -----------------------------------------------------------------
CA Phone 800-331-3282
_________________________________________________________________
91408-2750 Fax 818-909-4717
_________________________________________________________________
4 12
- ------------------------------------------------------------------------------------------------------------------------------------
FILING OFFICE ORIGINAL
</TABLE>
<PAGE>
Borrower: Orapharma, Inc. Lender: Silicon Valley Bank
732 Louis Drive 3003 Tasman Drive
Warminster, PA 18974 Santa Clara, CA 95054
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now or hereafter financed by Bank, including,
without limitation, all machinery, fixtures, vehicles (including motor
vehicles and trailers), and any interest in any of the foregoing, and
all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any for the foregoing, wherever
located;
(b) All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for,
additions and accessions to and proceeds thereof.
"Debtor" "Secured Party"
ORAPHARMA, INC. SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST
By: /s/ James A. Ratigan By:_____________________________________
-------------------------------
Name: James A. Ratigan Name:___________________________________
-----------------------------
Title: Vice President & CFO Title:__________________________________
-----------------------------
<PAGE>
[Letterhead of Silicon Valley East]
November 2, 1998
James Ratigan
Orapharma, Inc.
732 Louis Drive
Warminister, PA 18974
Re: UCC 3- Change of address
Dear James:
Enclosed please find two UCC filings which reflect your new address. Please
execute each filing and return them to my attention.
Should you have any questions please feel free to contact me at 781-431-9320.
Thank you.
Sincerely,
/s/ Brandi Harry
Brandi Harry
Loan Service Officer
<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.
February 22, 2000
